by Benn Steil
Clay and Dulles agreed with Hoover, although the two disagreed bitterly over how to manage Germany. Clay, who considered Dulles overly indulgent of the French, wanted to maintain the territorial integrity of the country and avoid rupture with the Soviets; Dulles wanted to put the Ruhr under international control and use the resources of the Rhine basin to jump-start a new federated “western Europe.”94 This idea was beginning to capture the imagination of a State Department in search of ways to give substance to the Truman Doctrine. For his part, Stalin naturally opposed German reindustrialization, particularly when its object was to bolster European capitalism.
SIX WEEKS OF TALKS IN Moscow had not even begun to close the gap between Soviet and American visions for Germany. Yet Stalin had one final proposal.
“If our views on this subject cannot be reconciled,” he put to Marshall, “there was a way out,” a compromise. “Let the German people decide through a plebiscite what they wished.”95
Marshall recoiled. He knew full well where a “plebiscite” would lead. He had seen the results in Poland, last July, in a baldly manipulated referendum that cleared the way for Communist control. General elections followed in January 1947, in the run-up to which anti-Communist Peasant Party supporters were arrested by the thousands and their candidates stricken from electoral lists. Yet in order to prevail, the Communists still had to resort to mass ballot stuffing. Churchill had fought a lonely last-ditch diplomatic offensive against Stalin at Yalta to preserve an independent Poland as a barricade against Soviet westward expansion. But FDR, more concerned with securing Soviet UN membership and entry into the Pacific war, capitulated to Stalin’s insistence on Allied recognition of the Soviet-backed provisional Polish government and toothless Western monitoring of future elections.96 Now, in Moscow, Marshall was determined to defend another such barricade a few hundred miles to the west, in Germany.
All Marshall and Stalin could agree on was that neither the United States nor the Soviet Union could risk the possibility of Germany becoming an ally of the other. “We must insist on keeping Western Germany free of communistic control,” Kennan would later urge.97 Marshall would call “domination of all Germany by [the] Soviets . . . the greatest threat to the security of all Western Nations.”98
Thus, after ninety minutes of serial monologue, the two men resolved nothing. Marshall was grim. Yet Stalin remained disconcertingly calm, almost detached.
“It is wrong to give so tragic an interpretation to our present disagreements,” he told Marshall. They were, he said, like quarrels between family members. Differences over Germany were, he added, pointedly replacing the familial analogy with a martial one, “only the first skirmishes and brushes of reconnaissance forces.”
Agreement might come in time, he assured Marshall. “When people had exhausted themselves in dispute,” Stalin said, “they recognized the necessity for compromise. We may agree the next time,” he added encouragingly. “Or, if not then, the time after that.”99 His manner suggested what researchers would later identify as signs of hostile diplomatic intent. Unwarranted “positive sentiment” and a “focus on future” possibilities, as opposed to present circumstances, suggest imminent betrayal.100
Marshall was now alarmed—not that Stalin continued to disagree with the American position, but that he was content to let disagreement drag on while Germany and Europe convulsed. “The worse, the better”—a phrase famously attributed to the nineteenth-century radical Russian writer Nikolai Chernyshevsky, and later to Lenin—appeared to be the Soviet leader’s view.101 Marshall now saw that Molotov’s mulishness could not be explained away by his character. The foreign minister had been carrying out his boss’ orders. The Soviets, Marshall concluded, were “not negotiating in good faith.” They “were doing everything possible to achieve a complete breakdown in Europe.”102
“It was the Moscow Conference,” said Ambassador Robert Murphy, Clay’s political adviser and the top U.S. diplomat in Germany, “which really rang down the Iron Curtain.”103 Skeptical of prospects for cooperation with the Soviets before the conference, Murphy would thereafter see them as wholly untrustworthy and decry anything resembling American appeasement.104
Secretary of State George Marshall speaks on the European economic crisis at Harvard University, June 5, 1947.
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FOUR
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PLAN
THE EUROPEAN RECOVERY PROGRAM, MARSHALL would later say, “was an outgrowth of [my] disillusionment over the Moscow Conference.” He had considered “inaugurating [it] at the conclusion of the conference,” but decided that some delay was wise: “I did not want it to appear that the western allies had come to Moscow with a prior agreement to go ahead without Soviet cooperation.” There were also “differences with Britain over reparations, etc.” which he did not want exposed.1 He spent his flight home digesting notes on the continent’s crumbling economy and sketching out ideas “to prevent the complete breakdown of Western Europe.”2
Hitler’s conquests had shown the dangers posed by a hostile power controlling the industrial resources of western Europe, which were second in importance only to those of the United States.3 Washington, therefore, to Marshall’s mind, now had to act on its own—without Russia or, if necessary, against it.4 Reporting to Truman on April 27, 1947, the evening following his return to Washington, he insisted there was no time to be lost in fashioning the administration’s response. The next day, Marshall gave a radio broadcast, reciting the “melancholy catalog” of disagreements between Washington and Moscow. “Disintegrating forces,” he said, “are becoming evident.” Europe could no longer wait for compromise. “The patient is sinking while the doctors deliberate.”5
Though no course of treatment had been set, the bureaucracy had begun to mobilize while Marshall was away. On April 21, a coordinating committee of State, War, and Navy department staff (SWNCC) weighed in. The output, which Acheson presented to Marshall upon his return, was a grand muddle, giving every impression that it was the product of a committee of disparate interests working in haste—as it was. U.S. economic aims, security needs, geopolitical ambitions, and humanitarian concerns were all heaped into the mix.
“The conclusion is inescapable,” the report said, “that, under present programs and policies, the world will not be able to continue to buy United States exports at the 1946–47 rate beyond another 12–18 months.” The anticipated “substantial decline in the United States export surplus would have a depressing effect on business activity and employment in the United States.”
U.S. gross national product (GNP) had fallen 11.6 percent in 1946, driven by the collapse of government spending after the war. The president’s Council of Economic Advisers was now predicting a further small decline in the coming twelve months; a revival of the European economies would be critical to limiting the downturn. Minimizing “the cost and duration of United States economic assistance” to accomplish it would demand coordination of European national recovery programs. It would further “require a substantial increase in trade with Soviet-dominated areas, provided such trade can be arranged on terms compatible with the economic and political independence of western-oriented areas.”6
But this was blather. Trade could not be “required” conditional on it being politically agreeable; either western recovery required eastern trade or it didn’t. The United States, the report also offered obliquely, “will probably continue to undertake to alleviate starvation and suffering as such where this action is consistent with U.S. interests.” This was a meaningless observation and tepid recommendation rolled into one, concocted both to acknowledge and disparage calls for the administration to play Red Cross.
Most passionate was the urging for the United States “to take care that other nations do not pass under the influence of any potentially hostile nation.” Economic weakness made states prone to “subversive and ‘boring from within’ tactics or the threat of overwhelming force.” Though the Soviet Union is never mentioned by name i
n this section, “preventing advancement of Communist influence” is highlighted as a primary aim of the president’s call to aid Greece and Turkey.
However inadequate was the document as a basis for Marshall to confront an unsympathetic Congress, engage a war-wearied public, and orchestrate an economic metamorphosis among its allies, the SWNCC had put forward all the elements that Marshall would soon have to meld into a plan: supporting European nations that could resist communism, preventing a humanitarian crisis, and confronting a threat to American economic recovery. What was missing was a workable blueprint, articulated such that it could survive the backlash it would generate at home and abroad.
The first major step in creating a blueprint followed in short order. On April 29, just after his radio pronouncement, Marshall summoned Kennan, whom he had met only twice during the war, and directed him to leave his post at the National War College. At Forrestal’s urging, Marshall was appointing him head of the new Policy Planning Staff (PPS)—a State Department think tank that would soon come to play a central role in the Cold War. “You can’t operate and plan at the same time,” Marshall would later offer by way of explanation for the new body.7
Forrestal had been calling for American “economic leadership” to rebuild Europe in response to the Communist threat, and it would be Kennan’s job to figure out how to exercise it. “I don’t want to wait for Congress to beat me over the head,” Marshall told him from behind his polished, paper-free desk.8 Despite the immensity of the assignment, he ordered Kennan to report back within two weeks. No further guidance was offered, beyond a directive to “avoid trivia.”9
Among the challenges Kennan would face were staff and space, of which he had none. He hastily recruited personnel, among which Walt Rostow and Charles Kindleberger, Clayton protégés who would go on to become great figures in their own right. The group labored around the clock in commandeered conference rooms that, in James Reston’s words, had “about as much character as a chewing gum factory.”10
For Kennan, who felt out of his depth on economic matters, and who feared the reaction the report would engender from critics who knew them far better than he, the experience was “an intellectual agony more intensive than anything I had previously experienced.” Constant carping in the press over what Truman should and should not do in Europe only stoked the pressure. At one stressful point, the exhausted new PPS head excused himself from a meeting, left the building, and wept.11 He knew, however, that succumbing to discord or “pessimistic voices” was not an option. “We had to come up with something,” Kennan reflected years later, “and we did.”12
THE BELIEF THAT ECONOMICS SHOULD occupy a prime place in the American diplomatic arsenal took root at the turn of the century, with Secretary of State John Hay’s enunciation of “Open Door” principles for global trade with China. Hay argued for a free, open market and equal trading opportunity for merchants of all nationalities operating in the country. Such a principle would, he believed, benefit the U.S. economy while preventing disputes among the powers operating in China.13
President Woodrow Wilson globalized the principle with the third of his Fourteen Points after World War I, calling for “the removal, so far as possible, of all economic barriers” among nations.14 American bankers helped stabilize Europe’s economy in the 1920s with the discreet support of the Harding and Coolidge administrations.15 Currency and trade wars in the 1930s stimulated more activist executive branch action: Treasury targeted global monetary reform, and the State Department nondiscriminatory trade, as elements vital to international cooperation and economic stability. Acheson, Harriman, and Clayton all tilted toward the Democratic Party in the 1930s not in support of the New Deal but of Secretary of State Cordell Hull’s free trade agenda and in opposition to the GOP slide toward protectionism.
Truman, like FDR, was receptive to the notion that economic intervention could and should be used aggressively, at times as an alternative to military intervention, to secure vital American national interests. The administrations differed, however, in two primary regards.
The first was that FDR allowed the Treasury to take the lead in the crafting of foreign economic policy, which owed more to his friendship with Morgenthau than to any predilection for one bureaucracy over another. Truman chose to lodge such powers in the State Department. Several of his “Wise Men,” as they would come to be called, were dissenting voices in the previous administration.16 Acheson, who had served in both Treasury and State under FDR, had been a determined opponent of Morgenthau’s and White’s tenacious application of financial leverage over tapped-out Britain. They had, he lamented, “envisage[ed] a victory [in war] where both enemies and allies were prostrate—enemies by military action, allies by bankruptcy.”17 Blaming the rise of “totalitarian military states” on the collapse of the nineteenth-century economic order over which Britain had presided, he was now determined to help erect a new American-led one.18 Kennan, who had been disgusted by what he saw as naive and misguided pro-Soviet sentiment in FDR’s Treasury, was eager to help chart Europe’s recovery in part by ending hopeless efforts to cooperate with Moscow.
The second difference was over handling of a defeated Germany. FDR backed Morgenthau in his plan to pastoralize the country (though later evading association with it), whereas Truman backed Secretary of War Henry Stimson, an ardent opponent of the plan, in believing that “an economically strong, productive Germany was essential to the future stability of Europe.”19
Morgenthau had sought to block Germany’s reemergence as an economic and military power by dismantling its industry and distributing the pieces among its victims. The German people, he said, could live on “soup kitchens” if necessary. An alarmed Stimson cautioned against “taking mass vengeance,” emphasizing that “speed of reconstruction is of great importance if we hope to avoid dangerous convulsions in Europe.” Others warned that the Morgenthau Plan would prolong the war, precipitate famine, raise occupation costs, and aid Soviet interests at American expense.
Yet FDR allowed it to form the basis of what became U.S. occupation policy—Joint Chiefs of Staff directive JCS 1067—in September 1944.20 The directive instructed the American military governor in Germany to take “no steps (a) looking toward the economic rehabilitation of Germany or (b) designed to maintain or strengthen the Germany economy.” On the ground in Berlin in the spring of 1945, Clay would find it an enormous source of frustration. Lewis Douglas, his adviser on occupation financing, fumed that it prevented “the most skilled workers in Europe from producing as much as they can for a continent which is desperately short of everything.”
The directive, Douglas said, had been “assembled by economic idiots.”21 Morgenthau, its inspiration, “didn’t know shit from apple butter”—in Truman’s cruder verdict.22 Morgenthau was a self-described apple farmer with no background in economics. In appointing his longtime Hyde Park neighbor Treasury secretary in 1934, FDR, quipped Gladys Straus, a prominent New York donor, had managed to find “the only Jew in the world who doesn’t know a thing about money.”23 Truman maligned Morgenthau for interfering in German affairs and forced him to resign in July 1945, a few months after stepping into the Oval Office.24
The War Department did its best to soften both the letter and the spirit of the directive. With the approval of the Treasury and the State Department, Assistant Secretary McCloy added a provision allowing for “the production or maintenance of goods and services” necessary to prevent epidemics or major civil unrest.25 Still, Morgenthau, even after leaving office, and his allies kept up the pressure on the War Department to maintain a “hard peace.”
Truman faced an additional economic challenge that his predecessor had not had to reckon with in wartime. At the end of the conflict, there was a conviction in Washington, particularly conspicuous in Congress, that dangers lay in simply calibrating military resources to the degree of threat perception. Unrestrained military spending was, in this view, the handmaiden of high inflation, perpetual budget deficits
, confiscatory taxes, and heavy-handed economic controls. The Russians, many believed, had a plan to force the United States to bankrupt itself through ever-expanding foreign entanglements. This had two important effects.
The first was on military doctrine itself. In geographer Halford Mackinder’s terminology, defending the world’s “Rimlands” from the threat posed by Russian domination of the “Heartland” could be accomplished, in principle, either by a strategy of a comprehensive “perimeter defense” or a much more limited “strongpoint defense.”26 Kennan, in his soon-to-be-famous Foreign Affairs article, “The Sources of Soviet Conduct,” implicitly backed the former, calling for the United States “to confront the Russians with unalterable counter-force at every point where they show signs of encroaching upon the interests of a peaceful and stable world.”27 Yet this strategy assumed unlimited overdraft facilities to finance it, an assumption at odds with the view that profligacy was itself a danger. Kennan appeared to have largely abandoned this expansive conception of containment by the time his article was published in July, shifting toward an approach that focused on threats that combined “hostility with capability.” This change in view brought him closer to the pragmatic Acheson.
The defense of critical points on the map, rather than entire lines, emerged as a tenet of enemy containment largely because of the domestic political requirement of cost containment. Marshall himself came to hold that “concentration” rather than “dispersal of our forces . . . appears to be the wisest course, especially in view of our present limitations.”28 But Kennan could also justify it on the grounds that, in his belief, Stalin had no intention of starting a war with the United States if eastern Europe’s subservience could be achieved through other means. Forrestal believed America’s atomic monopoly afforded it several “years of opportunity” to “assume risks otherwise unacceptable.” These risks could be kept at tolerable levels through low-cost initiatives such as propaganda and psychological warfare.29
