862.50/2–1545
Memorandum by the Adviser on German Economic
Affairs (Despres)2
[Washington,] 15 February 1945.
The attached memorandum, prepared by Mr. John deWilde,3 reviews the development and present status of
economic planning work for Germany. Of necessity, it takes no account of
the decisions reached at the recent conference at Yalta.
Apart from the conference, the progress to date on economic planning for
Germany has been slight. Not only has discussion at the
intergovernmental level been meager, but divergences among government
departments on basic issues have prevented the formulation on an agreed
American position. This lack of definition is due to disagreement over
(1) the responsibilities and functions of the occupying powers, and (2)
policy with respect to economic weakening of Germany.
1. Functions of Military
Government
The conception of military government which is now ascendant, and is
embodied in the latest U.S. general directive4 forwarded to Ambassador
Winant for negotiation in E.A.C, is one of limited liability. The
occupation authorities should concern themselves exclusively
[Page 413]
with matters of direct
interest to the Allies, such as demilitarization and denazification;
they should concern themselves with the functioning of the German
economy only to the extent of preventing such unrest or disease as would
endanger the occupying forces. The War Department favors this limited
definition of the Army’s tasks because (1) they favor a simple,
clear-cut military occupation, (2) they wish, by limiting the task, to
minimize the need for consultation and negotiation among the commanders
of the several zones of occupation, and (3) they wish to keep the job
within the capabilities of the occupation forces. The Treasury supports
the doctrine of limited liability because (1) they consider that extreme
disruption in Germany is not in conflict with Allied interests, and (2)
acceptance of any responsibility for the minimum functioning of the
German economy would cause us to make compromises with respect to
elimination of Nazis.
The Department, while sharing the view that denazification should not be
tempered by administrative expediency, has sought to oppose the
principle of limited liability. This issue, though it arises most
sharply with respect to the economic directives, is essentially
political in character. It is envisaged that the execution of any Allied
program for Germany will require Allied machinery for surveillance and
enforcement over a considerable period of years. We have an interest,
from the beginning, in preventing the development of an unmanageably
chaotic situation, and, thereafter, in fostering the emergence of a
German government which will carry out the peace settlement imposed on
Germany, subject to necessary Allied surveillance.
Because of this basic interest, and secondarily, because of the need for
maintaining German production of civilian necessities in order to
minimize the diversion of United Nations supplies and transport while
the Far Eastern war is in progress, we cannot avoid responsibility for
the functioning of the German economy. The speed and success with which
we can discharge this responsibility will depend, of course, upon the
character of German collapse; such tasks as, for example, prevention of
inflation may prove in the circumstances to be beyond the capacity of
the occupation forces. However, the greater these difficulties, the
slower will be the process of bringing a German government into
existence. If we are slow in recognizing the nature of our
responsibilities, the process will be needlessly prolonged. The notion
that the major powers can assume supreme authority over Germany and
follow a “hands-off “policy is the major factor hampering advance
planning for the economic aspects of the occupation.
If a broader view of the nature of our responsibilities with respect to
the German economy is adopted, the need becomes evident for avoiding
interzonal barriers to the movement of goods and for the largest
practicable uniformity in economic policy throughout Germany. It is
[Page 414]
also evident that the
occupation forces cannot carry out by themselves a broad program to
assure the minimum functioning of the German economy. Reliance must be
placed on German agencies. Recognizing this need, the British have been
inclined to limit the scope, or adjust the timing, of their planned
denazification in order to preserve existing institutions. An
implication of our position on denazification is that we must either
pick out new executive and administrative personnel to replace dismissed
Nazis or permit the German people to select such personnel. Existing
U.S. draft directives, however, instruct the occupation authorities both
to remain aloof and to restrict drastically any political activity on
the part of Germans.
2. Economic Weakening of Germany
It is essential that our policies with respect to “economic disarmament”,
reparation and abolition of German high-cost, self sufficiency
production should be mutually consistent.
Abolition of high-cost production will have to be postponed for a
considerable period in the interest of more immediate Allied objectives.
In the beginning the necessity of meeting minimum civilian needs will be
largely controlling; although production of a few industrial items, such
as synthetic oil and rubber may be discontinued, German agricultural
production will have to be maintained so far as possible. For a
considerable period thereafter, the largest practicable portion of
export proceeds will be earmarked for reparation, and imports will be
held to a minimum. If, in addition, an attempt is made to curb German
heavy industry, the integration of Germany into world trade on the basis
of efficient specialization will be further postponed. Abolition of
German high-cost production implies enlarged dependence on exports, and
tends to conflict, therefore, with restrictions on industries in which
Germany is predominant and with reparation. In the long run, we should
aim at the assimilation of the German economy into the world economy on
a non-discriminatory basis. For some years, however, this will be
impracticable.
The more immediate problem is that of reconciling reparation and
“economic disarmament”. The task of keeping Germany disarmed is
primarily one of enforcement, not economic disablement. If other
countries are prepared to act promptly in response to an unambiguous
step toward rearmament nothing more is required; if it is doubted that
other countries will respond to an unambiguous step by Germany, there is
even more reason to doubt that an ambiguous step, such as erection of a
blast furnace or machine tool factory, will evoke any action in
response. It is extremely doubtful that other countries would be willing
to enforce comprehensive economic controls over Germany for much more
than a decade. Nevertheless, reduction of Germany’s
[Page 415]
underlying economic potential has a
strong, present appeal as a security measure. It is also allied with
other objectives, such as elimination of German economic domination,
industrial development of liberated European countries and removal of
competition with British and American exports. Along with this demand
for economic restraints on Germany, there is an insistent demand for
reparation. The two demands are not in conflict so long as reparation is
confined to transfers of existing capital assets and labor services, but
the possibility of conflicting demands arises when reparation from
current production is also envisaged. Restraints on German production
and exports will have to be reconciled somehow with the necessity of
securing payment for such imports as may be needed for the minimum
functioning of the German economy and the production of reparation
goods. Unless Germany is allowed to export enough to pay for such
imports, the United States may have to supply necessary foodstuffs and
raw materials to Germany at its own expense.
Our program for Germany should “add up” within itself, and it should add
up at a figure which leaves to the Germans the opportunity of achieving
a tolerable living standard even during the period of economic controls.
Our measures for reducing Germany’s underlying economic potential should
be subject to continuous review and adjustment, and should be so framed
as to permit the eventual removal of economic discriminations when and
if the victorious powers become convinced that German aggressiveness has
been destroyed. Finally, economic controls over Germany should be
directed toward the objective of accelerating the reconstruction and
economic development of the United Nations. This implies integration of
the program of German reparation and economic disarmament with positive
programs for the industrial development of other areas.
Such a program would call both for German reparation deliveries of
existing capital equipment and some types of current production, and for
restrictions on other categories of German exports to protect the new
industries being developed in other countries. Germany is, above all,
predominant in the metallurgical, chemical, electrical equipment,
machine tools and allied industries. With respect to these industries,
we would have to investigate where non-German capacity could soundly be
strengthened and developed. Decisions on this question would largely
depend on the availability of raw materials and markets and of adequate
labor, engineering skill and know-how. A country like Yugoslavia, for
example, might be enabled to build up an aluminum industry since it has
bauxite and hydroelectric power resources susceptible of development. In
Britain, France, Belgium, Czechoslovakia, and the Soviet Union, the
machine tool industry might be strengthened. The iron and steel industry
might be further
[Page 416]
developed in
Poland, France, Belgium and the Soviet Union. Czechoslovakia and France
could be assisted in developing their output of high-grade alloy steels.
Countries in Eastern and Southeastern Europe where industrial
development might be retarded by lack of engineering skill and know-how
could be provided with technical assistance by the industrially advanced
countries.
It would be highly desirable if the forthcoming reparation conversations
in Moscow5 resulted in the
formation of an Allied organization to develop and supervise the
execution of policies with respect to reparation and economic
disarmament, along the broad lines indicated above. There is ground for
hoping that agreement can be reached on the need for an Allied
organization to carry out this task. Indeed, it may provide a basis for
attaining the long-range objectives which were envisaged in the proposal
for a European Economic Committee.6 In the
process of formulating an agreed economic program for Germany, it will
be necessary to reach agreement on economic problems over a much broader
field.
[Annex]
Memorandum by the Assistant Adviser on German
Economic Affairs (deWilde)
[Washington,] February 13,
1945.
This memorandum reviews the present status of the work on the
economic treatment of Germany. It is intended to survey the
preparations made for the Allied government of Germany and the
progress achieved in determining basic long-term policies toward
that country.
The Government of Occupied Germany
In determining the machinery and directives for the administration
and treatment of occupied Germany a distinction has been drawn
between a pre-surrender period and a post-surrender period. In the
first period the primary objective of the occupation will be to
facilitate further military operations against the enemy; in the
second period the principal objective will be to disarm Germany and
to enforce the terms of the final settlement which will be imposed
on that country. Before final surrender military government will be
in
[Page 417]
the hands of officers
attached to the operating armed forces. After complete surrender, or
cessation of organized resistance, Germany will be governed by the
four principal powers—the United States, the Soviet Union, the
United Kingdom and France—operating within the framework of an
international agreement and in accordance with the terms of
unconditional surrender whether or not these are signed by competent
German authorities.
A. The Pre-Surrender Period
The directives which will govern the administration of German
territory falling under the control of SHAEF during the
pre-surrender period have been the subject of negotiation in the
Combined Civil Affairs Committee (CCAC) of the Combined Chiefs of
Staff. In April 1944 the Combined Chiefs of Staff issued a basic
pre-surrender directive7 to General
Eisenhower in his capacity as Supreme Commander, Allied
Expeditionary Forces (SCAEF). This directive is couched in very
general terms. It provides for the establishment of a purely
military government on captured German territory and clothes the
Supreme Commander with unlimited legislative executive and judicial
authority and power. It contains directions on the dissolution of
the Nazi party and affiliated organizations, on the denazification
of the German administration, the arrest and detention of certain
categories of persons, and the release and treatment of Allied
prisoners of war and foreign workers. Provisional measures governing
the use of occupation currency and the control of banking and
government finance are also included. In general eco-omic and relief
measures are to be limited to those strictly necessary to prevent
serious disease and civilian unrest which would endanger the
occupying forces and the accomplishment of the objectives of the
occupation.
While SCAEF is expected to take no steps that would prejudice the
attainment of “ultimate objectives”, the directive gives military
government officers no guidance on the adoption of interim measures
of reparation and restitution. Nor does it define the degree of
responsibility which these officers should assume for the
functioning of economic life or the extent to which they should
utilize and adapt existing administrative machinery and economic
controls. In particular it offers little or no guidance on the
attitude which military government officers should take toward the
continuation or resumption of non-war production, allocation of
available raw materials, prices and wages, and similar subjects.
In a subsequent clarification of the pre-surrender directive SCAEF
was instructed to take no steps looking toward the economic
rehabilitation
[Page 418]
of Germany
except for those immediately necessary in support of military
operations and to keep no active Nazis or ardent sympathizers in
office for purposes of administrative convenience or expediency.
B. The Post-Surrender Period
Plans for the joint control and administration of Germany during this
period have been the subject of negotiation in the European Advisory
Commission (EAC) in London on which the United States, the United
Kingdom and the Soviet Union have been represented. France has
recently been admitted to full membership in this Commission. The
recommendations of EAC are subject to approval by the governments
concerned. Ambassador Winant, the American member of the Commission,
has been assisted by a staff of political, military, naval and air
advisers. Recently the State Department and FEA8 have
jointly designated an economic adviser, Mr. William T. Stone, who
also directs a newly organized Division on German Economic Affairs
in the American Embassy.
The EAC has drafted, and the three principal powers have approved,
the surrender instrument for Germany.9 This is almost wholly a military
instrument by which the German authorities would agree to the
cessation of hostilities and would undertake to withdraw all
military forces outside the pre-1938 boundaries of the Reich and to
put at the disposal of the Allies all armed forces, army, navy and
air installations, all shipping and all war material. Moreover, they
would be obliged to accept any additional political, administrative,
economic, financial, military and other demands which the Allies
might subsequently present. Actually there is considerable doubt as
to whether competent German authorities will be found after collapse
in Germany to sign this instrument. Failing signature, however, its
terms will simply be announced to the German people by
proclamation.
The EAC has also formulated agreed recommendations on the machinery
to be set up by the occupying powers for governing Germany10
and on the delimitation of the zones to be occupied by the armed
forces of each of the participating powers.11 These recommendations at present provide
for tripartite control and occupation,
[Page 419]
having been drawn up prior to the
participation of France in EAC. France has approved them in
principle, but they are to be revised on a quadripartite basis. By
the terms of these recommendations, the Commanders-in-Chief of the
armed forces of each occupying power would be military governors in
their respective zones and would together constitute a supreme
authority in Berlin. This supreme authority, called the Control
Council, would have within its jurisdiction all matters “affecting
Germany as a whole” and would supervise the German central
administration to the extent that this would be utilized for
military government purposes. It would also control the
administration of the Greater Berlin area through a quadripartite
“Kommandatura”. A permanent Coordinating Committee, consisting of
Deputies of each of the Commanders-in-Chief, would be set up under
the Control Council for the purpose of supervising day-to-day work.
This Committee would be assisted by a staff composed of a number of
divisions each of which would be headed by a directorate on which
each of the participating powers would be represented.
A nucleus of the quadripartite control machinery has been organized
in London. The American element in this nucleus (the U. S. Group
Control Council headed provisionally by General Wickersham) is still
small compared with the British element. The Russians have promised
to participate in this project but thus far no Russian (or French)
elements have joined the nucleus control group. The extent of
civilian participation in the control machinery for Germany remains
uncertain, particularly in the case of the United States. While the
British have enlisted the participation of numerous civilians in
their military government organization and have placed this
organization under the direction of the War Cabinet rather than the
War Office, the War Department has tended to insist on a government
more military in character and controlled strictly by the army.
However, the agreement on control machinery does provide for a
civilian political adviser to each of the Commanders-in-Chief and
Mr. Robert Murphy has been designated to fill this position on the
American side. Mr. Murphy has also been named as Director of the
Political Division in the U. S. Group Control Council and a
substantial part of his staff in that division will consist of
Foreign Service Officers. In an effort to get wider civilian
participation, the State Department and the FEA agreed last November
upon the joint designation of Mr. Leon Henderson as United States
Adviser on German Economic Affairs to operate under the general
supervision of Mr. Murphy in his role as Political Adviser and with
a civilian staff supplied by the two agencies. However, the War
Department has never accepted this arrangement and Mr. Henderson’s
trip to London and Paris to survey German economic work on behalf of
[Page 420]
the FEA was arranged
only as a temporary expedient. If Mr. Murphy in his capacity as
Political Adviser is not to have an economic staff of some sort, the
Department’s representation in Germany on the economic side must
take the form of the assignment of economic officers to the
Political Division or possibly to the Economic Division. However,
specific arrangements of this character cannot be made until an
overall decision is reached on the extent of civilian participation
in military government.
When agreement was reached on a short surrender instrument, the three
powers undertook to supplement it by more detailed proclamations and
directives which were to be negotiated in EAC. Late in October the
Soviet Government agreed to the discussion of these matters in EAC
and also expressed a readiness to start the consideration of (a) questions concerning the repatriation of
prisoners of war belonging to United Nations’ forces, (b) additional military requirements
concerning the arrangements for the disarmament and demilitarization
of Germany, (c) requirements concerning
abolition of the Hitlerite regime and the surrender of war
criminals, and (4) [(d)] provisions
concerning control of the German economy. The American government,
however, has on the whole not been prepared for detailed
consideration of these questions.
The American Joint Chiefs of Staff have issued a general directive,
known as JCS 1067, designed to cover the brief period which might
elapse between surrender and the establishment of the quadripartite
control machinery. The British took the position in CCAC that the
pre-surrender directive would be adequate for this brief period, and
JCS 1067 was accordingly issued to General Eisenhower only in his
capacity of Commander of the American forces. However, the State,
War, and Navy Departments, and the Joint Chiefs of Staff have
recently produced a revised version of JCS 1067 which has been
transmitted to Ambassador Winant for negotiation in EAC as an
over-all quadripartite directive. The financial section of this
directive has not yet gone forward and is still under consideration
in Washington.
A number of more specific directives have been elaborated in London,
for ultimate submission to EAC, by a planning staff attached to
Ambassador Winant, acting in cooperation with the U. S. Group
Control Council. Some of these directives dealing with purely
military and political matters have been cleared in Washington by
the State, Navy and War Departments and the Joint Chiefs of Staff.
All of the economic directives, except one dealing with
transportation, have been held up. The U. S. draft directives
approved in Washington, as well as a large number of British draft
directives on specific subjects, have been circulated informally
among all members of the EAC.
[Page 421]
A large number of Civil Affairs Guides have been completed at the
direction of the Civil Affairs Division (CAD) of the War Department.
These Guides, most of which have been prepared by OSS12 and FEA
under the general guidance of CAD and the State Department, cover
most aspects of the economy, administration and government of
Germany and are intended primarily to furnish American military
government planning officers with the basic background information
they need. While almost all the Guides contain recommendations on
policies and procedures, these are only suggestive and in no sense
definitive directives.
A considerable number of immediate questions are still awaiting
decision. The chief among these are briefly described below.
1. Degree of Responsibility for German Government
and Economic Life.
The present U. S. draft for an over-all quadripartite policy
directive would confine the occupation authorities to a rather
narrow role in the administration of the German economy. They would
be di rected to assume only such responsibilities as are required to
stop the production of implements of war, to prevent sabotage and to
insure the production of goods needed for the prevention of
epidemics or serious unrest endangering the occupation forces.
Except to the extent necessary to accomplish these purposes, the
“German people and the German authorities” would be left with
responsibility for “such economic problems as price controls,
rationing, unemployment, production, reconstruction, distribution,
consumption, housing or transportation”. This statement has produced
widely varying interpretations as to how much responsibility the
occupation authorities need exercise to accomplish their objectives.
Since the State Department has proposed that no central German
government shall be recognized during the period of occupation, the
military government may be unable to escape a substantial measure of
responsibility for a minimum functioning of the German economy.
2. Division of Authority between the Control
Council and the Zone Authorities.
The present directive tends to relegate the Control Council to a
secondary role and implies that substantial autonomy would be given
to the zone authorities. The present German economic system,
however, is highly centralized, with uniform national controls over
raw materials, manpower, industrial and agricultural production and
distribution, and finance. While a considerable degree of
decentralization should probably accompany the ultimate reconversion
of the German economy, central controls will remain indispensable
for some time, particularly during the initial period when the
supply situation
[Page 422]
will be
one of acute scarcity. Provisions for interzonal exchange of goods
and services will almost certainly be necessary to the effective
utilization of available German resources.
3. Extent of Denazification of the German
Administration.
The American government advocates sweeping elimination of active
Nazis from positions of influence in the German administration and
economy, while the British tend to favor restraint in the
realization of this objective in the interest of administrative
convenience.
4. Utilization of Existing Control Machinery.
While the draft directives prepared by the British for EAC emphasize
the importance of retaining and utilizing existing controls and
control machinery in the interest of maintaining order and
facilitating the task of administration, the War Department is less
interested in seeking to maintain German administrative
machinery.
Pending the issue of detailed directives on these and many other
questions that will confront the occupation authorities, the
military government is generally expected to take no steps that
would prejudice the attainment of “ultimate objectives”. This makes
it all the more imperative that the ultimate objectives that we
intend to pursue with respect to Germany should be clarified.
Clarification of Ultimate Objectives
One of the first attempts to clarify our economic policies with
respect to Germany was made by the Executive Committee on Economic
Foreign Policy (ECEFP) which approved a paper on this subject in
August 1944.13 This
document emphasized that our fundamental interest in the
preservation of peace would be best served by adopting certain
safeguards against renewed German economic preparations for war and
by creating conditions under which Germany would make a maximum
contribution to the reconstruction of Europe and the development of
a peaceful and expanding world economy. While opposing enduring
controls over the German economy as undesirable and impracticable,
the ECEFP proposed supervision of imports to prevent stockpiling of
strategic materials, measures designed to maximize Germany’s
dependence on foreign supplies, conversion rather than dismantling
of German industry, and destruction of the privileged positions of
the Junkers and the industrial oligarchy. It suggested prohibition
of discriminatory trade practices and adoption of measures against
German cartels in order to prevent Germany from achieving domination
over economically weak countries. The document advocated the fullest
possible measure of restitution and proposed “heavy” reparations,
predominantly in kind. Such payments,
[Page 423]
it held, should be limited to a period of five
to ten years and should be so designed as to make a maximum
contribution to the rehabilitation of European countries. The
proposals on reparation and restitution were elaborated in greater
detail in a separate document.
It soon became evident, however, that this general line of policy was
considered too “soft” in some quarters. Renewed discussion and
reconsideration was precipitated by the presentation of the
“Morgenthau Plan” to the President last September. This Plan
proposed that Germany should be divided into three parts (1) an
international zone comprising the Ruhr and surrounding industrial
areas and Western Germany up to the Kiel Canal, (2) an independent
South German State which would be allowed to enter into a customs
union with Austria, and (3) an independent North German State.
Germany would be compelled to cede the Saar and area between the
Rhine and Moselle Rivers to France, East Prussia to the Soviet Union
and Poland, Southern Silesia to Poland, and the territory north of
the Kiel Canal to Denmark. The plan also provided for elimination of
the chemical, metallurgical and electrical industries.
On September 15 the President indicated in a memorandum to the
Secretary of State14
that he and Prime Minister Churchill had agreed at Quebec that the
Saar and the Ruhr should be put under an international organization
which would dismantle the metallurgical, chemical and electrical
industries. This proposal, the President added, looked toward
converting Germany into a country primarily agricultural and
pastoral in character.
Subsequently the State Department prepared a memorandum for the
President dissenting from the views of the Treasury.15 In another memorandum, dated September
29,16 the
President tempered considerably his previous views on the economic
disarmament of Germany. While reiterating his opinion that rather
complete controls should be enforced in the Ruhr and the Saar, the
President stated that no one wanted to make Germany “a wholly
agricultural nation” or to eradicate completely German industrial
capacity in the two areas.
Some additional policy guidance was given to the Secretary of State
by the President in an informal memorandum of December 4.17 In this
memorandum the President indicated that he was against reparations
but in favor of restitution and that he would let Germany come back
industrially to meet her own needs, but not do exporting for some
time until we knew better how things were going to work
[Page 424]
out. While this memorandum
gave only very general guidance, it seemed apparent that the
President wished to subordinate reparation to the economic
disarmament of Germany.
The most recent statement of Department views is contained in two
memoranda written early in January as part of the preparation for
the President’s conference with Marshal Stalin and Prime Minister
Churchill. A document on “Economic Policies toward Germany”,18 prepared by Mr. Despres, gave some
emphasis to measures of economic disarmament. In addition to
prohibition of the manufacture of armaments and aircraft and the
destruction of specialized facilities for their manufacture, it
stated that consideration should be given to prohibiting during a
control period the production of a few key industrial items and
restricting exports of metals, metal products and chemicals. Subject
to these restrictions, it favored conversion of German industries to
peacetime production, particularly of reparation goods for the
rehabilitation of European countries. A document on “The Treatment
of Germany”,19 prepared
in EUR, made it clear that the Department did not favor drastic
territorial dismemberment or truncation of Germany as a means of
limiting that country’s economic war potential. It held that
partitioning of Germany would be impracticable.
Meanwhile, the Foreign Economic Administration, acting under
instructions from the President, has launched a series of studies on
methods of controlling the war-making power of Germany. The program
of studies, which has been cleared with the Department, is based on
the working assumption that economic disarmament, going well beyond
the armament industry proper, will be included in our program for
Germany.
February 13, 1945.
