by Prins, Nomi
As the US bankers and government were repositioning themselves throughout the globe, Americans’ fortunes continued rising. The wartime economies and postwar inflation had given birth to a new normal of stability; the middle and poorer classes were enjoying the beginning of nearly two decades of income growth relative to the wealthy.1 As the entire pie of corporate profits increased, so did the size of workers’ slices, an unprecedented historical experience for the US labor force.
Yet the country’s solidity rested on a tenuous base. New enemies had to be concocted to keep postwar industry humming along. Three recessions, McCarthyism, the Korean War, and the Cold War darkened the cheerful buzz. But the Cold War also united Americans against a common enemy, and propelled them to purchase American goods as consumption became the new mode of patriotism.
US bankers leveraged the expansion opportunities unleashed by the World Bank, IMF, and Marshall Plan decisions to lend to reconstructing or developing countries. They opened branches throughout the world, staking their claim against a strengthening European banking system beyond Europe. The US bankers possessed something their competitors in Britain and France (and later Germany and Switzerland) did not: a larger domestic population and set of companies from which to draw deposits, lend money, and raise capital—plus, a fully aligned president who would augment their expansionism with US military might. They also turned inward to consolidate their domestic power. Bank mergers hit all-time highs as bankers acquired competitors in a sort of domestic financial war. As banks grew, they enticed the growing middle class with perks and charge plans and mutual funds, precursors to the credit cards and personal debt and speculation that would define the 1960s.
The unofficial policy of Truman and Eisenhower (and all presidents since then) was to stay out of the big bankers’ way, even while Congress fought battles against them here and there. Both 1950s presidents knew that bigger and stronger US banks were crucial to supporting a stronger US military and economic position in the Cold War superpower hierarchy. The two pillars of American hegemony needed each other more than ever; their power and influence would be forever intertwined, as the Cold War transitioned both into a new realm of global dominance.
And so, the most influential American bankers would spend the 1950s plowing a transitioning domestic and international financial terrain, where depositors were becoming borrowers, savers were becoming spenders, and consumerism and reborn speculation were rising from the shadows of the Great Depression and World War II.
Aldrich—Onward to the Middle East and Latin America
As his opening 1950s gambit to expand his banks’ influence, Chase chairman Winthrop Aldrich embarked upon the first Chase executive trip to the Middle East in the spring of 1950. It was not just a move exclusive to Chase, but to several major US banks, who were salivating over the potential of providing oil-related financing and banking services. But Aldrich still enjoyed the tightest banker connection to the Truman administration, so his ability to mingle policy and banking initiatives was more prominent, particularly in the Middle East.
While in the Middle East, Aldrich engaged in a whirlwind relationship-building tour, as he had done when he traveled through Latin America in 1947, meeting with rulers in Cairo, Jeddah, Dhahran, Kuwait City, Abadan, Tehran, Beirut, and Istanbul. The trip was the harbinger of a strong regional presence.2 He was well aware of the profit potential of infiltrating such an oil-rich region, both to finance infrastructure projects and to facilitate American oil companies’ access, particularly since relationships with former financial power Britain were strained.
As a result, Aldrich made it a point of fostering a warm connection with the Saudi Arabian Monetary Agency, the country’s central bank, while also securing a personal one with its ruler, Ibn Saud. Though Aldrich couldn’t get a direct banking presence in the country approved at the time, he did much to sow the seeds for more substantive engagements later.
The Korean War
While Aldrich was performing political-financial reconnaissance, the first major battle of the Cold War was heating up. After World War II, Korea had been split into a Soviet-backed government in the north (the Democratic People’s Republic of Korea) and an American-backed government in the south (the Republic of Korea). On June 25, 1950, war broke out along the dividing thirty-eighth parallel.
In a statement on June 30, 1950, the White House said, “The President announced that he had authorized the United States Air Force to conduct missions on specific military targets in Northern Korea wherever militarily necessary.”3
Since there was little appetite among the American population to finance another war by purchasing war or savings bonds, bankers sought other ways to capitalize on the situation. Instead, Truman wound up finding funding by increasing income, corporate, and excess profits taxes through the Revenue Acts of 1950 and 1951 and the Excess Profits Act of 1950.4
On July 6, 1950, Aldrich returned from overseas and headed straight to Washington to convene with Truman. There, he told White House reporters that “the world at large is unsettled. I don’t think that under the situation there will be much foreign investment at the present time.”5 What he meant was that with the Cold War escalating and the Korean War beginning, it might be difficult to ascertain which countries were ripe for expansion. Such opportunities would have to be seized more carefully and in tighter conjunction with government policy.
Aldrich and the rest of the bankers knew they would have to penetrate areas the United States could dominate from a political and military perspective, and along the lines of the Truman Doctrine and Marshall Plan. Equally, the US government would provide safe passage and support for its bankers to develop stronger financing and trading relationships in those countries, which in turn could be leveraged for political or military purposes.
The Korean War fueled an economic and banking system recovery in Western Europe, but to a lesser extent than the two prior world wars had done for the United States. The nature of US aid soon shifted from funding reconstruction efforts to financing new military ones. In 1950 and 1951 industrial production in Europe leapt to 30–40 percent above prewar levels.
Foreign trade blossomed for the United States as civilian and war-related demand rose. As a result, US banks witnessed a marked increase in commercial loans; Chase’s business reached a new peak in 1950 and climbed another 40 percent by 1951. Foreign bank deposits in US banks also hit historic highs, and as a result Chase began to supplant the premier political-financial space formerly held by the Morgan Bank, supplying and comanaging loans to governments like France and the Netherlands.
Yet Chase’s branch expansion in Europe was relatively subdued; its London offices were losing money, as were those of its main rival, National City Bank. In contrast, the Caribbean and Latin America, and then the Middle East regions, beckoned. While his boss was focused on the Middle East, Chase senior vice president David Rockefeller made it his mission to open branches across Latin America, competing with the bankers at National City Bank who had staked their claims on the area.
By early 1951 Rockefeller had opened four branches in the Caribbean. His motto was that Chase didn’t just exist to serve US customers; it was also interested in developing local economies with particular regional strengths. The countries he selected matched the US government’s policy of aiding its political friends.
As those local political-financial relationships grew, they exacted a steep price from the local economies: indebtedness to US banks, forced privatization, and access to multinational companies and international investors seeking raw materials. The opening of US bank branches underscored a trend that was less about aid and more about control and external appropriation of resources and profits.
As for its domestic position, in the early 1950s most of Chase’s core deposit and loan business still came from major corporate clients, although it began to increase its individual customer business, à la National City Bank, as checking and savings accounts began bulging in tandem with rising
incomes. The part of the bank that grew the most during the 1950s, though, remained Chase’s trade-related and international business. It served lingering war-related reconstruction efforts and benefited from more stable currency and trade activities in formerly war-torn countries.
On May 15, 1951, Truman helped US bankers enhance that war-related business by signing a bill enabling the financing of defense contracts by private banks. He believed it was “important to encourage private financial institutions to make loans for defense production.”6 Bringing US banks into the fold, as they had been during World War II, would help fund the Cold War.
That was certainly sweet for the larger New York banks that were already active in defense, and whose 1950 profits had already eclipsed historic highs before this additional official gift. US commercial banks earned a record $937 million net profit in 1950, an increase of 13 percent over 1949, mostly because of income from Cold War–related lending.
1952: Eisenhower’s Bankers
In 1952, General Eisenhower was commander of the North Atlantic Treaty Organization, a new military alliance established between the United States, Canada, and leading Western European powers to deter Soviet expansion, thwart the rise of nationalist militarism in Europe with a strong US military presence, and promote European political integration. For Eisenhower NATO was “a necessary mechanism.” It was intended to blend military, political, and economic stability. According to the treaty’s Article 5, “an armed attack against one or more of [the allied countries] shall be considered an attack against them all” and would beget an appropriate response. Even with the Soviet threat, Eisenhower believed, “the knowledge that a unified, progressive effort to mobilize and generate strength was under way had an almost electrifying effect on European thinking.”7
Strong sentiment that Eisenhower had excellent presidential qualities was building back home. Truman apparently had made overtures to him in 1951, suggesting he would make a strong Democratic candidate in 1952. Eisenhower rebuffed him.
In the spring of 1952 Aldrich traveled to Europe with a small entourage of powerful business leaders to persuade Eisenhower to run for president on the Republican ticket. But Aldrich wasn’t the only banker backing Eisenhower after Truman decided not to run. The self-described “Independent Democrat” and “practical liberal” Goldman Sachs chief Sidney Weinberg shifted his political allegiance and helped form the Citizens for Eisenhower Committee, which raised $1.7 million for Eisenhower’s campaign. He endeared himself to Ike in the process.8
Weinberg’s connections aside, Goldman did not approach its zenith of influence in the scheme of alliances between key bankers and presidents until the 1980s, when the firm lobbied behind the scenes for laxer commodities trading rules, and in the 1990s and beyond, when it stretched into the heights of political-financial influence in the Treasury secretary post on both sides of the aisle through Democrat Robert Rubin and Republican Henry Paulson. Revisionist history makes it seem as if the firm was always as influential as it came to be, but really Weinberg was an anomaly for decades, a true operator and connector. It wasn’t until Lyndon Johnson’s Treasury secretary, Henry Fowler, who was a friend of Weinberg’s, left Washington to go to Goldman Sachs that this new chain of power relationships between the firm and DC truly began.
As William D. Cohan, author of Money and Power, put it, “Under Eisenhower, Weinberg could have been anyone in Washington.”9 But Weinberg preferred to influence Washington from the outside. (His only official public posts were as assistant director of the War Production Board during World War II and briefly as a special assistant in the Office of Defense Mobility during the Korean War.10)
Still, Weinberg served as a significant point man offering endorsements to people who wanted to join Ike’s administration. Letters came to him from everywhere asking for his blessings. On March 3, 1953, he endorsed Harry Dunn for chairmanship of the SEC.11 On April 17, 1953, Weinberg recommended Paul Felix Warburg for “some position in a small Embassy.” The following week, he endorsed Earl Jay Gratz for judge of the Eastern District of Pennsylvania. And so it went.
Occasionally, Weinberg would get involved in specific issues. In February 1954 he wired former New Hampshire governor Sherman Adams (Eisenhower’s second chief of staff) to inform him that the Democrats were spreading the “fear deal” (as opposed to the New Deal), using Adams’s coined phrase to Adams’s delight. But usually, there was an element of political recruitment involved, as when Weinberg combined his support for the Road Committee (charged with carrying out the president’s interstate highway system initiative) with suggestions as to how to populate it in mid-1954. More letters came to Weinberg soliciting his opinion than he ever answered.
Ike’s Victory
Eisenhower handily won the 1952 election, backed by both Republican and Democratic bankers. His messages of peace interlaced with Cold War warnings also provided bankers the perfect angle from which to further engage the population in their services. This time, banks wouldn’t have to count on wartime patriotism to sell bonds; they could extend credit to Americans for all the things they had been denied during war.
Most accounts of President Eisenhower, including his own ample collections, emphasize his status as a war hero, his farewell warning about the dangers of the military-industrial complex, and his superhighway initiative. There are poignant moments in his diaries where he feared growing older and less important. Perhaps he felt that the extensive advisers he surrounded himself with were calling more shots than he was.
A moderate conservative (in today’s terms he might even be considered a conservative democrat with libertarian leanings), Eisenhower was opposed to US debt increases (many of his aides were debt hawks) and government intervention in the private lives of citizens, yet he acknowledged the periodic necessity of both.
On the foreign front, Eisenhower deposed the leaders of Iran and Guatemala, ended the Korean War by threatening an atomic bomb attack, and shunned the idea of too overt an association with Britain before, and after, the Suez Canal crisis.
From an alliance standpoint, Ike was a president who “belonged” to Wall Street in policy and personal ways. Truman’s personality and background didn’t lend itself as well to trust or interconnectivity with the wealthy elite. But Eisenhower, with his gregarious and commanding demeanor, coveted the counsel and company of bankers, as well as the leading industrialists upon whose boards they sat. Perusing hundreds of his letters and diary entries, it’s clear that Ike really liked them. He relied on their opinions more directly for counsel on his economic and domestic policies than any other president had during the first half of the century.
In return, the bankers found in him a staunch buddy, a chief commander they golfed with and engaged in conversations about changing times, sharing war stories and discussing the bright horizons beckoning America as the world’s sole superpower.
Eisenhower’s Wall Street Ties
At the advice of Sidney Weinberg and General Lucius Clay, who had worked with Weinberg on German reconstruction plans, Eisenhower appointed George Humphrey, former president of the Cleveland-based steel company M. A. Hanna and an industrialist fan of free-market doctrine, as his Treasury secretary. (Humphrey would return to M. A. Hanna afterward.)
In December 1952, following discussions with Humphrey aboard the cruiser Helena during his return trip from Korea, Eisenhower named three other men to round out the Treasury Department.12 W. Randolph Burgess, chairman of the executive committee at National City Bank, would be special deputy on monetary and debt management policies; Marion Folsom, treasurer of the Eastman Kodak company, would be undersecretary with a focus on tax policies; and H. Chapman Rose, counsel for M. A. Hanna, would be assistant Treasury secretary.
Both Folsom and Burgess, who considered a balanced national budget “the most sacred principle of sound money” and favored more independence for the Federal Reserve, supported the idea of a foreign policy centered on trade rather than aid. Trade was profitable; aid was too s
ocialistic.
Burgess’s responsibilities in public office were similar to the ones he had in the private sector, but in a more influential sphere: he oversaw Treasury financing and foreign operations, and made decisions about IMF activities.13
However, Eisenhower’s most trusted economic adviser was not his Treasury secretary; it was Gabriel Hauge, a young economist who would shape US policy behind the scenes for six years before leaving to become a senior executive at the Manufacturers Trust Bank. (Established in 1905, it would later become one of the legacy banks that would comprise JPMorgan Chase.)
Ike’s Right-Hand Economist-Banker
Hauge filled in the president’s “uneven” knowledge of economics, as he called it. The two also got along well. “I remember he always used to refer to me as ‘Dr. Hauge’ or ‘Hauge,’” he later recalled, “until one day he referred to me as ‘Gabe’ in a meeting. Then I knew we were all right.”14
A slightly jowly man with slicked-back black hair and light rimmed glasses, Hauge was born in Hawley, Minnesota, in 1914, son of a pastor at the local Lutheran church. After receiving his MA and PhD at Harvard, he became a prominent economics professor at Harvard and Princeton. From there he (like Burgess) became a senior statistician at the Federal Reserve Bank of New York. He joined Citizens for Eisenhower in November 1951.
Hauge served as Ike’s lead speechwriter during the 1952 campaign, and as his main economic adviser from 1953 to 1958. It was not just in economic policy but also in the perfect articulation of the messages behind it that Hauge’s influence shone. He was dogmatic about crafting, and measuring responses to, Ike’s statements: a skilled spinmaster.
For instance, in a June 22, 1953, memorandum to Eisenhower, he noted negative press reaction to Ike’s informal remarks about “creeping socialism” regarding FDR’s Tennessee Valley Authority. Hauge suggested the terms “creeping centralization” or “creeping big government” instead.15 Though he technically served on the personal staff of the president and didn’t hold an official public post, Hauge’s free-market opinions would populate many of Eisenhower’s domestic policy speeches.16
