740.00119 EW/1–2246: Telegram

The United States Political Adviser for Germany (Murphy) to the Acting Secretary of State

us urgent

190. From Angell No. 213.

In conversation with me January 14, General Clay stated that he is strongly opposed to removal of capital equipment from any peaceful industry (that is, textiles, shoes, et cetera, as contrasted with metals and chemicals). As explained to me, General Clay’s position stems from his belief that it is essential to leave Germany with an adequate economic base for development of a democratic and peace-seeking government. For this reason he feels that: (1) it is essential to minimize the scale and duration of the unemployment which will result from large capital removals in the heavy industries; and (2) the German standard of living should be allowed to rise as rapidly as is consistent with the rate of recovery of liberated countries and with the availability of fuel and raw materials. On these grounds, he feels that the retention of the capital equipment of peaceful industries is essential.
In General Clay’s view, Potsdam Agreement does not require removals from peaceful industries even if not all present capital equipment is required to support a self sufficient German-economy at levels equal to European average forecast at end of reparation program. On the contrary, he cites the provisions of paragraphs B, 11 and 13 of Chapter 3 of Potsdam Agreement20 in support of view that reparations removals were intended to apply only to heavy industries and that peaceful domestic industries are to be encouraged.
After re-study of Potsdam provisions, I am convinced that Potsdam Agreement does not require removal of surplus equipment in peaceful domestic industries, though such removals would not be inconsistent with the agreement, On the merits of the case, I believe considerations advanced by General Clay are in accord with long term US policy in economic treatment of Germany. In particular, I do not consider US security objectives prejudiced by retention of equipment in peaceful industries.
Following additional considerations, however, must be taken into account:
Proposal to exempt peaceful industries will probably meet serious opposition from USSR.
Smaller less-industrialized claimants in west are especially interested in acquiring equipment in consumer goods industries.
Retention in peaceful industries of surplus capacity not immediately needed for either domestic consumption or commercial exports may create demand from other claimants for current production from such surplus capacity for use as reparation. They could argue such deliveries would not violate first-charge principle since commercial exports from these industries would in theory already be at maximum. US side, however, would not agree, and I believe first-charge principle without qualification could be successfully maintained.
US estimates of relation between existing capacity and requirements for domestic consumption and exports, for peaceful industries, are unlikely to show any substantial surpluses.
On basis of these estimates and of arguments advanced in paragraph 1, General Clay wall attempt to avoid any removals from peaceful industries. In negotiation with other governments, however, he would be prepared to accept some removals in order to satisfy probable demands of claimants in west and to facilitate general agreement with USSR. On balance of considerations set forth above, I agree with General Clay’s position.21 [Angell.]
  1. Foreign Relations, The Conference of Berlin (The Potsdam Conference), 1945, vol. ii, pp. 1499, 1504.
  2. In telegram 271, January 29, 8 p.m., to Berlin (telegram 151 for Angell), the Department expressed its general accord with the view of General Clay on removals from peaceful industries (740.00119 EW/1–2246).