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The Division of Germany and American Policy on Reparations Bruce Kuklick The Western Political Quarterly, Vol.

23, No. 2. (Jun., 1970), pp. 276-293.


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THE DIVISION O F GERMANY AND


AMERICAN POLICY ON REPARATIONS

BRUCE KUKLICK Yale University OST ACCOUNTS of U.S. diplomacy in the period immediately following World War I1 emphasize that the Americans lacked any coherently developed and ideologically refined policies. The United States, it is argued, responded to the consistent expansionist aims of the Soviet Uni0n.l This approach, however, neglects to consider that since 1933 the Americans, led by Secretary of State Cordell Hull, had committed themselves with ever increasing assurance to a single set of ideas in formulating foreign policy. Throughout this decadeand-a-half the primary goal of diplomacy was the creation of a world multilateral trade system in which barriers to commerce and payments would be reduced to moderate levels and would be applied by each country without discrimination. Within the system the markets of all nations would be opened to U.S. goods, and American business interests would be free to establish themselves anywhere: underconsumption of U.S.-produced goods at home meant that stability was to be achieved by selling abroad. But these positive economic benefits for the United States were not viewed in isolation. The expansion of trade, at least theoretically, would raise living standards everywhere and bring prosperity to all countries; it would remove the specter of depression which haunted the Americans throughout the thirties and into the wartime period. The new world order would also eliminate those economic frictions which Americans universally believed were the fundamental causes of war. Economic autarchy and bilateral trade agreements would vanish, and with them would go the basic clashes that resulted in global violence. Lastly, international multilateralism would almost ensure the establishment of pacific political democracies, similar to that of the United States, all over the earth. Although these premises, to a great extent economic in orientation, have rarely been examined by historians, an understanding of them is indespensable to grasping the development of American diplomacy in the immediate postwar period. The conflict of the policies generated by this interrelated group of assumptions with the policies of the other allies, particularly the Russians, eventually led to the cold war. In this essay I shall attempt to show how these ideas provide a framework for comprehending the vital but little-understood question of American reparations policy toward Germany and also the Balkans. The reparations issue illuminates the importance of multilateralism to American decision-making and illustrates the dynamic character of the U.S. strategy which dominated the peace and created the basis for a divided Europe.
NOTE: This essay is a summary from readily available published sources of a much longer study now underway. I would like to thank Leo Ribuffo of Yale University for his invaluable help with an earlier version. 'See, for example, such standard accounts as Herbert Feis, Between War and Peace (Princeton, 1960), and, on Germany, John L. Snell, Wartime Origins of the East-West Dilemma Over Germany (New Orleans, 1960). Citations may be found in them for many of the noncontroversial points which I have not footnoted.

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I
With the Yalta Conference about to take place, the United States first had to set out its German reparations policy in concrete terms. Plans for the postwar German economy had been discussed earlier with extreme ambiguity, and even at this time the Americans were quite inexplicit about their objectives. Reparations policy was only to be defined after other political and economic issues were fixed; thus it was "residual." But it was also "major" in that no concessions could be made which would jeopardize or conflict with related political and economic matt e r ~ . ~ recognition of the connection of reparations to other policy was limited, This however, to abstract generalizations; the United States operated in the Crimea as if reparations were an area in which concessions could be granted. The U.S.S.R. was expected to make the initial proposals concerning reparations, and indeed at the first Tripartite Military meeting at Yalta the Russians presented a plan on which they elaborated at the Foreign Ministers' meeting on February 7, two days later. Their ideas did not essentially conflict with the general United States directives but added two specific measures. The first was that a total of twenty billion dollars in reparations, half of which was to go to the U.S.S.R., be collected in capital goods and services; the second was that a secret reparations conference meet to discuss the problem in Moscow with representatives of the Big Three.s After Secretary of State Edward Stettinius of the United States and Foreign Affairs Secretary Anthony Eden of Great Britain requested time for study, the plan was brought up again at a February 9 conference. Stettinius first attempted to water it down and suggested that the Reparations Commission, which all agreed should be constituted, "should take into consideration in its initial studies. . ." the proposals of the Soviets for $20 billion of reparations. Both Molotov, Russian Commisar for Foreign Affairs, and his deputy, Ivan Maisky, argued that the additional phrase "as a basis" be added to the American suggestion. "The final figures arrived at by the Commission might be a little more or less than $20,000,000,000; however, the Soviet Delegation urged that this be accepted as the basis." After some lukewarm objections, Stettinius finally acquiesced to the extent that the American and Soviet delegations agreed "the Reparations Commission should consider in its initial studies as a basis for discussion.. ." the Soviet sum.4 Eden remained opposed. At the plenary meeting on the tenth, Churchill and Stalin disputed the same issue. Roosevelt, like Stettinius, tried weakly to mediate. At first he too, like Churchill, took exception to the inclusion of a figure, but his reason was that the American people would think that money, and not goods, was to be extracted from Germany. Although Roosevelt continually reemphasized this point, his objection
=ForeignRelations of the United States, T h e Conferences at Malta and Yalta, 1945 (Washington, 1955), pp. 193-97. This volume is hereafter referred to as Yalta. Its sister volumes in this series, T h e Conference of Berlin (Potsdam) Vol. I (1960), Vol. I 1 (1960). 1944 Vol. 111 T h e British Commonwealth and Europe (1965), and 1944 Vol. I V Europe (1966), are hereafter referred to as Potsdam I, Potsdam 11, 1944 I11 and 1944 I V , respectively. a Yalta, pp. 620-24, 702-8. ' Ibid., pp. 807-12 (italics mine).

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was not to the sum but only to the confusion to which the average American might be subject. Even Churchill, who obviously wanted help at this time, thought Roosevelt's view irrelevant. When Stalin queried him, F.D.R. said he agreed "completely" that $20 billion be taken as a basis. As H. Freeman Matthews of the State Department's European Mairs Division wrote, "The President made it clear that what he feared was a system of reparations paid in money." Roosevelt finally did support Stalin, and Churchill refused to go along.s Aware of his famous proclivities for making no definite and binding arrangements, historians have made little of F.D.R.'s "commitment" concerning the twenty billion dollan. In commenting on this aspect of his behavior, Robert Sherwood claims the record demonstrates that the President "was carefully making no commitments what~oever."~ the record does not demonstrate this. Stettinius later But approvingly cited Molotov as saying that the figure be a little more or a little 1ess.l When he sided with Molotov to win Britain to the Russian proposal, the Secretary pointed out to Eden that the ten-year period suggested for reparations payments was also simply mentioned as a basis for discussion. Perhaps they would take place "in seven years."8 Neither the Americans nor the Soviets were committed, Stettinius went on, to ten years or $20 billion. He also favorably quoted Maisky to the effect that the U.S.S.R. plan "did not commit the allies to the exact figure." The United States did not consent, Stettinius recalled, to $10 billion to the Russians as an "agreed a m o ~ n t . "Here, clearly, Stettinius conceived the U.S. commit~ ment to be not merely to discuss $10 billion in reparation to the Soviet but to base the reparation figure on it, i.e., the Soviet Union was to get a definite amount "around" $10 billion. Indeed, when Stalin debated with Churchill about the figure, Roosevelt did not demur at the Soviet understanding of the proposal, that the Commission could change the figures and modify them in any way. A new figure could be fixed, Stalin said; the Russian basis was not "sancr~sanct."~~ Later at dinner that evening the President made it "clear" he did not agree with the British idea of mentioning no figure at all.=' This contrast of F.D.R.'s position with that of the British is crucial and largely overlooked. If the Americans were not "committed" to some figure around the twenty billion dollar mark (i.e., committed to regarding the twenty billions as a "basis") but only to L'discussing"it, why did the British not go along? O r to put the question the other way, if only "discussion" was at issue, why did the Americans not back the British and refuse to name a "basis"? Eden answered this question quite frankly: he said that "rightly or wrongly, the British government felt that even the naming of a sum as the basis of discussions would commit them."12
'Zbid., pp. 909, 915, 983. ' Roosevelt and Hopkins: An Intimate Biography (rev. ed. ; New York, 1950), p. 862. Roosevelt and the Russians, ed. Walter Johnson (Garden City, 1949), p. 230. Yalta, p. 875. Johnson, op. cit., pp. 255, 299. lo Ynlta, p. 875. l1 Johnson, op. cit., p. 265. " Yalta, p. 903.

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The dynamics of the reparations negotiations seem to reveal an ancient principle of bureaucratic logic: if the Soviets could set the agenda for the Reparations Commission and have discussions begin at the $20 billion level, they would be in an excellent position to achieve what they wanted in the normal give-and-take of negotiations. In acquiescing to the Soviet demand, the Americans were committing themselves to serious bargaining with the Russians over a substantial monetary figure. The U.S.S.R. could expect to get several billion dollars in reparations for itself. Although it is not completely clear to what extent the Americans were committed, it is equally clear that they were committed to much more than they admitted later. Just how and why it was necessary to modify this original bargain is revealed only in the diplomatic maneuverings which filled the interim between the Yalta and Potsdam conferences.

II On March 12, F.D.R. appointed Isador Lubin to head the American delegation to the Reparations Commission which was to meet in Moscow. Some six weeks later President Truman appointed over Lubin an independent oilman and Democratic fund-raiser, Edwin Pauley. The significance of this change was not lost on the press: The United States News, now U.S. News and World Report, reported that Pauley's assignment was evidence of America's changing attitude toward Russia. When Lubin received his job, it stated,
this country's interest was confined primarily to making certain that Germany is so stripped of productive capacity that she will be unable to go to war for many decades to come. Dr. Lubin, a quiet, capable, and clearheaded statistician and economist, was considered well chosen for the job he was expected to do. . But, as matters have developed, bargaining among the victors is expected to be a principal characteristic of the reparations settlement. so President Truman replaced Dr. Lupin with Mr. Pauley, the shrewd, practical oil operator."

..

. ..

Truman described Pauley as "a tough, mean so-and-so" and credited the success of the reparations policy solely to his toughness. The President also indicated that the Russians had some idea of a change: he recorded that Pauley's arrival in Moscow was greeted by a radio attack on "U.S. industrialists who are doing their utmost to restore German heavy industry."14 Nonetheless, the changes in policy augured by Pauley's appointment certainly cannot be attributed to him alone. With German collapse imminent, the need for cooperation with the Russians was diminishing. Truman and those who surrounded him were in general agreement that a stronger policy ought to be pursued with the U.S.S.R. which, in the most simple terms, was preventing the implementation of U.S. multilateralism in Eastern Europe. The famous policy meeting of April 23, 1945, attended by Truman and advisors like Averell Harriman and James Forrestal showed a consensus among the chief presidential confidants that, by this time at the very least, a firmer line was to be taken. Pauley, although certainly not their instrument, was merely one among many responsible for a shift in policy.
la

United States News, 18 ( 11 May 1945), 62. Jonathan Daniels, The Man of Independence (New York, 1950), pp. 305-6; Harry S Truman, Memoirs: Year of Decisions (Garden City, 1955), I, 310.

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At the time of his appointment State Department officials working on the reparations problem had decided the $20 billion reparations figure was to be "discarded." The thought was not, however, to ignore the commitment or the proposed basis of discussion but to "de-emphasize" it; the amount was considered beyond Germany's capacity to pay.15 Nevertheless, the State Department still recognized a commitment to the Russians. On July 2 Acting Secretary of State Joseph Grew wired Pauley that the State Department was not opposed "to the discussion of an amount of reparations." It felt that $20 billion was too high, but that a sum approaching $12 or $14 billion would be "more appropriate." The $20 billion figure could, however, still " be adopted as a starting point for exploration But and discussi~n."~~ Pauley, a new appointee, tended to act independently of the Department and hesitated to name a sum. He had become very concerned with the great economic significance of reparations which, in his eyes, ruled out the setting of a specific amount. Pauley feared that a Germany burdened by heavy reparations would make intolerable problems for Great Britain and the United States. One or both of them would be forced to make loans for Germany to pay her reparations debts or watch her sink into economic chaos. Thus, contrary to his instructions from Grew, Pauley concentrated on moving the Reparations Commission away from a fixed figure and refused to discuss a sum.17 The Russians also appear to have realized the importance of reparations in regard to Germany's economic future. Whatever the complications, they ~vould support any policy which would help them rebuild a homeland devastated by war. Hence, Pauley wired the Secretary of State on July 14 that Russia had now objected to one of the general principles formulated at the behest of the Americans on the Reparations Commission and forwarded to the Secretary of State a week before. This principle, later to become famous as the "first charge" principle, stipulated that "in working out the economic balance of Germany," reparations payments were to be made only if a means were provided to pay for any needed essential imports into Germany.18 In short, Great Britain and the United States wanted Germany to pay her bills before reparations were taken from her. Exports were first to pay for imports; only thereafter could they be considered reparations. The "first charge" principle, which became the crux of disagreement between the Russians and the Western powers, reflects the entire American conception of the postwar world and must be discussed at some length. In one way or another the United States had adhered to the "first charge" position before, but Pauley formulated it on a practical as well as an intellectual level. From that time on, all American officials were to maintain that there was a direct relationship between the ability of the German economy to meet reparations claims and to export to pay for needed imports. There thus appeared to be much reason in the American
= U S . Congress, Senate, Subcommittee to Investigate the Administration of the Internal Security Act and Other Internal Security Laws of the Committee of the Judiciary, Committee Print, T h e Morgenthau Diary (Germany) in two volumes (Washington, 1967), p. 1223. These volumes are hereafter referred to as The Morgenthau Diary. "Potsdam I , p. 519. l7 Potsdam I, pp. 51 1, 522-23. " Potsdam I, pp. 528, 537.

T H E DIVISION O F GERMANY

28 1

demand that the Russians not be permitted to take in reparations what should first go to pay off Germany's legitimate creditors. The U S , would not pump money into one end of the German economy while the U.S.S.R. took it out at the other. Time and time again at Potsdam and in the future the United States made this argument to the Soviet power in a way calculated clearly to display the outrageousness of the U.S.S.R. proposals. But was tlzere a direct relationship between the ability to meet reparations payments and the ability to export? he American briefing book paper on reparations used at Yalta indicated that to avoid certain difficulties in the collection of reparations goods, the goods should be those "that Germany is able to deliver and the claimant nations are willing to receive. . . ." I n a similar paper prepared for Potsdam, the American program for German exports also contained two conditions: the first concerned "the types and quantities of equipment and supplies which Germany would have to make available on reparations account. . ."; the second, "the types and quantities of goods which Germany would have to export in order to make payment for such imports as are essential to the German The internal German economy might be strong enough to produce reparations goods; these goods, being free, would probably be readily accepted by all claimant nations. Nevertheless, other countries might not be willing to trade with Germany, i.e., they might not be willing to pay for, with suitable imports, whatever exports Germany was capable of producing. This situation might occur because of restrictive trade agreements, because of Germany's supplying the same goods free as reparations, or because of any number of other factors. Indeed, the condition of postwar Germany indicated that just this stress might exist. ~ e k a industrial pdtential, from n which reparations would be paid, was much stronger than her ability to enter the international export market competitively. The concentration of war damage, the loss of key foreign trade items, the confiscation of liquid assets and shipping, the sundering of export connections, and the chaotic state of the world economic system could all be expected to affect the ability to export more than production for reparati~n.~~ The fundamental point of the first charge principle was that Germany be able to export successfully. If the principle were fulfilled, Germany would at the very least have met an important requirement for participation in multilateralism. But in the world commercial system as it then existed, the principle meant more than this. Only the United States was in a position to pay for imports from Germany, and it was the Western European economies which the United States was attempting to rehabilitate, and which in all likelihood would next be able to trade with the new Reich. If the principle were actually realized, Germany would be geared to the immense productivity of the United States, and she would trade with her key traditional exporters, that is Western Europe and the United States. The Americans, moreover, always emphasized that trade had to be conducted in a nondiscriminatory manner. O n a practical level, the principle was almost equivalent
''See Yalta, p. 195, and Potsdam I, p. 448. "See Manuel Gottlieb, "The Reparations Problem Again," Canadian J o u ~ n a lof Economics and Political Science, 16 (1950), 36-37. I am much indebted to this brilliant but littleknown article.

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to the whole of the U.S. position on the world economy: Russia would be denied reparations until Germany was integrated into a multilateral order. The principle embodied much more than a simple concern that the U.S. would have to finance the German economy. With or without reparations Germany would need substantial monetary support in the near future because of the chaotic state of the postwar world. In fact, for the next two years the Americans believed that all the European economies would operate at a deficit status, and, as other scholars have shown, the Americans were, if anything, eager to aid these economies; they were, that is, eager to finance the Germans. The United States would not, however, allow the Germans to produce reconstniction material for the U.S.S.R. until their exports were fully acceptable in international markets.21 The United States would compromise only after the Hullian grand scheme were realized. When the Americans proclaimed to the U.S.S.R. the sanctity of the first charge principle, they were saying they would finance German multilateralism but not aid Soviet Allies. The American commitment to multilateralism that the first charge involved is closely connected to another significant problem which ought to be analyzed separately. Suppose the Americans were to capitulate to the Soviets on the reparations program; suppose also, as appeared likely to occur, that in the near future Germany were to produce goods for reparations but not for export. Bilateral economic relationships would develop between the Russians and the Germans: Germany would become the supplier of heavy industry to the U.S.S.R. and might possibly be drawn into a Soviet economic orbit. The United States went to the Potsdam Conference fully aware that reparations was not a secondary issue which could be compromised. A policy of low reparations, or at least a strictly controlled reparations policy, was an integral part of a general program for bringing about an economically rehabilitated, U.S.oriented Germany. Consequently a "re-definition" of the United States policy put forward at Yalta took place between February and July of 1945. This "re-definition" brought the United States into basic conflict with the U.S.S.R. and broadened into a policy whose central elements affected the place of Germany in the West and the relation of the West to Russia. The intricate negotiations at Potsdam on the economic treatment of Germany reflected in large measure the inability of the Americans to see how Soviet demands for reparations would be limited when an inter-allied occupation was to take place. Perhaps for this reason no progress was made on the reparations issue during the first few days of the conference. But on the twenty-third of July the new United States Secretary of State, James Byrnes, made a proposal whose consequences were to prove extraordinary. In a meeting with Molotov the Secretary first expressed dismay about the development of the reparations question and then completely set aside previous discussion. He said that some Soviet positions - among them the
Manuel Gottlieb, "The German Economic Potential," Social Research, 17 (1950), 89; Paul Y. Hammond, "Directives for the Occupation of Germany," in American Civil Military Decisions, ed. Harold Stein (Birmingham, 1963), pp. 432-33.

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wide definition of war booty and, most recently, the demand that German terri.. tory go to the Poles - seemed inconsistent with an overall economic policy for Germany. Having been instructed by William L. Clayton, Assistant Secretary of State for Economic Affairs, Byrnes suggested to Molotov that each country take reparations from its own zone and make some exchanges in goods with the powers in control of the other zones. I n other matters Germany was to be treated as an economic whole. Molotov replied that Stalin "strongly favored an overall plan for reparations . . . and would be quite prepared to consider reducing their reparations claims." 2 2 For the next few days at every available opportunity Byrnes brought u p the zonal reparations scheme while the Soviets made concessions on their original demands for $10 billion and attempted to compromise on the "first charge" principle. The Americans, however, consistently declined to name a sum and refused to consider any weakening of the principle.23 Finally, on the twenty-ninth in a meeting with Truman, Molotov at last submitted and accepted the Byrnes proposal "in principle." Although bickering over details occupied the next three days, on August 1 the conferees agreed to a plan similar to Byrnes' original s ~ g g e s t i o n . ~ ~ Although the Soviets did not assent to the zonal proposition until the end of the conference, they were never implacable about it. They disliked the idea but were willing to go along with it if they could obtain in addition a fixed amount in heavy industrial reparations from the British and American zones. After the United States made it clear that it would specify no amount, they settled for a percentage of the industrial capital equipment to be removed as unnecessary when a minimal German peace economy was determined. T h e three powers also provided for some trading between the Russian and the Western zones. Most significant throughout these discussions is that the United States avoided any direct discussion of the effect of the plan on the German economy. When he first a,greed to it on the twenty-ninth,
MR. MOLOTOV inquired whether we still intended to have some central German administration, not a government, but some central organization which the Control Council could operate in matters affecting finance, transport, foreign trade, etc, on which it had been agreed to treat Germany as an economic whole. He pointed out that if reparations were not treated as a whole, what would happen to overall treatment of economic matters. THESECRETARY pointed out that under his scheme nothing was changed in regard to overall treatment of German finance, transport, foreign trade, etc. The Secretary subsequently repeated this statement in reply to a further observation of Mr. Molotov that the reparations proposal would affect the overall economic administration of germ an^.'^

T h e British most clearly analyzed the consequences of the American program. Sir David Waley, the Senior Treasury representative on the English delegation and a member of the Reparations Commission, thought the "most serious feature" of the American plan was that the United States "had now given up hope of collaborating with the Russians in the administration of Germany as a single economic Churchill commented that in the event of "the breakdown of the con22Potsdam I I , pp. 274-75; James Bymes, Speaking Frankly (New York, 1947), p. 83.
23 See Potsdam I I , pp. 279-81,297-98; 430 ; 450-5 1 ; 466.
l4 Potsdam I I , pp. 473 ; 586-87.
25 Potsdam I I , p. 474.
Is Llewellyn Woodward, British Foreign Policy in the Second W o r l d W a r (London, 1962), p.
566.

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ference," the nations would have to "fall back on the proposal of the Secretary of State, and each of us fall back on our own zones."27 After Churchill and Eden had been replaced by representatives of the new Labour government, the new British Foreign Secretary, Ernest Bevin, apparently failed to catch one implication of the American program to which the U.S. and Russia had already consented. When Bevin protested about an important omission,
MR. STALIN pointed out that they had agreed to delete the whole paragraph. said T H E PRESIDENT that this was what he had understood. MR. BEVIN said he did not agree. MR. BYRNES asked why they did not handle this in their own way since they were in control in their zone. MR. BEVIN replied because it cut across the agreement to treat Germany as a whole economy. It would divide Germany into three zones."

Though he would not discuss the economic impact of the American plan, Byrnes' feeling that all could "handle this in their own way" was not limited to this one case; his grant of power to the Soviet was explicit. Sometime before this exchange, Molotov asked if the Secretary's suggestion meant that "each country would have a free hand in their own zones and would act entirely independently of the others. . ."; Byrnes replied "that was true in substance. . . ." At another point Molotov said he wished to have the Secretary's proposal "clearly in mind." As Molotov understood, the U.S.S.R. would "look to its own zone for a fixed amount of reparations. . . ." Byrnes answered that his plan was not quite that: the Soviet Union "would take what it wished from its zone. . . ." At one time the foreign ministers were exceeding blunt:
MOLOTOV: y understanding, Secretary Byrnes, is that you have in mind the proposal that
M each country take reparations from its own zone. If we fail to reach an agreement, the result
will be the same.
BYRNES Yes. ."
:

..

Despite protests to the contrary the United States did realize its reparations program presented obstacles to the unification of Germany. This is made clear in an August 16 letter written by Assistant Secretary Clayton and the Director of the Office of Financial and Development Policy, Collado. They stated:
There appears to be an unfortunate tendency to interpret the reparations operating agreement as an indication of complete abandonment of four power treatment of Germany. This is not stated in the texts and should not be accepted as a necessary conclusion even though there may be many among the military forces who believe that a zonal treatment or a tripartite treatment of the western zones will be the only practicable method of ~ p e r a t i o n . ~

The American briefing book paper on the "agreement on treatment of Germany as an economic unit" also indicated the consequences of a plan such as the Americans were proposing:
The continuation of present combined arrangements among the Western Allies to the exclu-
sion of Russia for supply and other economic and financial matters after SHAEF has been
terminated would involve serious dangers. I t would greatly prejudice the chances of reaching

" Potsdam 11, p. 389.


" Potsdam 11, pp. 520-21.
" Potsdam 11, pp. 439-40, 450, 475.

90Potsdam 11, pp. 938-39.

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agreement with the Russians on economic matters, and it would tend toward the establishment of an economic wall between Eastern and Western Germany, and, probably between Eastern and Western Europe. The economy of Eastern Germany can be readily assimilated into an Eastern economic sphere. In contrast, acceptance by the Western powers of the task of finding a place for a Western German economy would create extreme difficulties and would greatly intensify the post-war economic problems of the United States, Great Britain, and Western Europe."

I n other words the program that Byrnes had decided to follow would be instrumental in creating a divided Europe. IV What reasons did the United States have for adopting a policy which laid the groundwork for a dismembered Germany? What rationale existed for the policy and what explanation can be given for that rationale? I n answering these questions one must first evaluate three more or less "official" considerations that the United States mentioned at one time or another in defending its proposal of zonal reparations. In his first discussion with Molotov Byrnes claimed that the wide Soviet definition of war booty precluded a common program because it would allow the Soviets to take what they wished from their zone of occupation as war booty rather than as reparations. This was true, but one must recognize that rather than fighting the Soviet definition- and this the Americans had previously done- the United States accepted the July 21 Soviet definition of war booty on July 22.32 More important than the willingness to accept this definition, however, was the American realization that controversy over definitions was here essentially immaterial. What was necessary was agreement on the total amounts to be extracted from Germany by the victorious powers - no matter what the removals were called. As a U.S. official put it, the diplomats needed "concrete applications" of the definitions, i.e., a calculation of how much went to whom.33 The Americans were not prepared to seek agreement on a calculation because they refused to name an amount. Definitions were a minor consideration in United States policy. Closely related to the reasoning used in respect to definitions was U.S. reasoning regarding the Polish border question and reparations and regarding Soviet removals and reparations. In the first place the Americans argued that the collection of reparations would be complicated because Poland had received a slice of Germany to administer. This meant i n fact that the Poles would acquire this territory and that there would be less "Germany" from which the powers could extract reparations. I n the second place, American argument went, because the Soviets had already begun extensive removals, the computation of reparations would be rendered difficult if not impossible. But this reasoning by the United States cannot be considered fundamental. The Americans had extensive information concerning the effects on the payment of reparations of the cession of areas to Poland. Stalin had agreed to "renounce" reparations to make up for the Poles having taken a part of Germany. I n addition Molotov told the foreign ministers that, although this German territory could not be used for the computation of

'' Potsdam I , pp. 440-41.

1 =Potsdam 1 ,pp. 274,895, 943, 1557; 846-47; 853-54.


'Potsdam 11, pp. 850-52.

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reparations, Poland need receive no reparations; her share could be considered material in her own new territory. Moreover, Molotov expressed willingness to reduce the Soviet share first to 9.7, next to 9.0, then to 8.5, and finally to 8 billion dollars to make up for any Russian removals already made.34 This represented an extraordinary sum in relation to what the Russians could already be expected to have taken. The Americans ignored all these concessions. Neither the question of Polish Germany nor that of Soviet removals can be considered a prime determinant of U.S. policy. If it is conceded that these three issues offer little to explain United States policy, it is necessary to evaluate the more complicated analysis which has become the standard explanation of U.S. aim~.~"ccording to this interpretation, two conflicting goals finally forced the Americans into a position permitting only moderate reparations. First, it is claimed, the Americans had no wish to support the German economy as they had done after World War I. They were against great industrial removals or recurring reparations which would bring economic chaos and force the United States once again to rescue German finances. Second, according to the usual version, the United States also did not want Germany restored to first-rank industrial power. Hence, policy-makers had another reason for limiting current production reparation which would entail that the Allies leave a great many German manufacturing plants standing. After the reparation period, Germany might again become a major industrial source of supply with many nations dependent on her for goods. The Americans would be unable to achieve her "economic disarmament." Thus, the desire to prohibit Germany from becoming a great financial burden but also from becoming an economic threat drove the United States to seek a moderate policy. Initial reparations would include only that industrial equipment whose removal was consistent with a future stable German economy and subsequent current production reparations were to be minimal. We must recognize that these two elements are vital for understanding United States diplomacy but in a way different from that normally indicated. T o comprehend their relevance it is necessary to review the purpose of the Russian reparations policy. During the war, the Russians had suffered a total of about fifteen million casualties and had endured the devastation of their most productive farmlands and important urban and industrial centers. Their first postwar priority was an intense need to rebuild the economy and recoup the terrible wartime losses. The severe reparations program that the Soviet leaders envisaged was designed to begin to accomplish these tasks. The U.S.S.R. also wished to weaken permanently that country which had laid waste the homeland twice within twenty-five years. Coincident with the need to rebuild was the perhaps unreasoned desire to exact revenge on the German aggressor. These two Russian aims are interestingly and conclusively revealed in Stettinius' account of the February tenth Plenary Meeting at Yalta :
Stalin, on the question of German reparations, spoke with great emotion, which was in sharp contrast to his usual, calm even manner. On several occasions he arose, stepped behind his
34

" See Feis, o p . cit., p. 256, and Snell, o p . cit., pp. 210-11, 214-16.

Potsdam 11, pp. 209, 296-98, 841-42, 854-56, 877-87.

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chair, and spoke from that position, gesturing to emphasize h point. The terrible German i destruction in Russia obviously had moved him deeply. Although he did not orate or even raise his voice, he spoke with intensity."

Although the Russians hoped to use reparations to promote Soviet reconstruction, they also hoped that reparations would be supplemented by long-term aid from the United States. Several informal inquiries had been made along these lines throughout 1944 and early 1945. John Winant, the American Ambassador in Britain, wired F.D.R. as early as August 1944, that a combined program of reparations and aid to the Russians was i m ~ e r a t i v e .The first formal appeal from the ~~ U.S.S.R. came in January of 1945.38 When Stettinius told Molotov at Yalta that the United States wanted to come to agreement on the economic treatment of Germany, Molotov replied that the Russians expected reparations and looked forward to long term American credits.39 At Potsdam when Byrnes ruled out an overall program, the Russians dickered for days in order to get a substantial amount of heavy industrial equipment from the Western-controlled Ruhr. They wanted to bind the Americans and the British to an agreement to deliver a fixed amount of this equipment across the reparations zones, but finally consented to a percentage of the equipment which was not needed in the western zones for a peace-time German economy instead of a fixed value of such goods. Stalin still rather ungraciously claimed that the settlement "was the opposite of liberal."40 By the time Stalin and Truman met at Berlin the United States had been stalling the Russians for seven months on some sort of aid program. Indeed, three weeks before Yalta both Roosevelt and the State Department had decided that the issue of postwar credits was not to be discussed with the Russians in the Crimea. Roosevelt said at this time that the U.S. would hold back "until we get what we want."41 The State Department position, as described by a member of the Treasury, was that - among other things - Soviet political dealing with Bulgaria, Poland, Rumania, and the Baltic states had to be "settled" in a manner satisfactory to the U.S. before the Russians would get a long-term credit.42 Thus, at the Potsdam Conference one would expect the Russians to stress reparations even more because of the difficulties they were facing in obtaining American aid. But the Byrnes proposal on reparations effectively precluded the possibility that the Russians would secure extensive reparations for reconstruction. The heartland of Germany with its industry essential to Soviet redevelopment was in Western hands, and the eastern sector was largely agricultural and nearly useless from the immediate Russian point of view. Much of the accepted analysis is therefore true. On the one hand the U.S. reparations position was motivated by the unwillingness of the Americans to sup-

" E. F. Penrose, Economic Planning for the Peace

Johnson, op. cit., p. 264.

(Princeton, 1953), pp. 241-42.


"Herbert Feis, Churchill, Roosevelt, and Stalin (Princeton, 1957), pp. 641-48.
" Yalta, p. 610.
Potsdam 11, p. 516.
John Blum, Years of W a r , 1941-1945: From the Morgenthau Diaries (Boston, 1967), p.

305.

" he- ~ o r ~ e n t h a u p. 867. Diary,

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port a program whose consequence would be a "deindustrialized" Germany. But this fact must be connected with the adoption of the zonal idea: Byrnes' scheme prevented the Russians from gaining equipment for reconstruction from the western zones. Certainly it is credible for the United States, for whatever reasons, to have wished to maintain German economic stability on an industrial basis, and there is no evidence to indicate that the United States at this time desired to rebuild a strong Germany as a "buffer" against the Soviets. Nevertheless, there was a dialectic involved in slowing Russian reconstruction and leaving western German industry inviolate: it clearly had the direct effect, if not the intention, of telling the Russians that the Americans preferred to rebuild a stable industrial Germany than to help Soviet allies recover from an exhausting war. The United States favored German stability over Russian reconstruction to such an extent that it was willing to sacrifice the eastern zone of Germany for the achievement of such an end. To be sure, this policy which denied the Russians much needed industrial equipment for reconstruction and cut off Russian influence in Western Germany was not altogether consonant with American fears of a renascent Germany. Although policy was already anti-Soviet, it was not yet pro-German. Americans were surely not anxious in the summer of 1945 to rebuild Germany as a major industrial power, and it is here that the second argument advanced in the usual analysis must be examined. O n the other hand, it is maintained, U.S. diplomats opposed reparations from current production because they would lead ultimately to the creation of an industrial Germany with many nations dependent on her. But this fact also cannot be viewed in isolation. The debate between the Russians and the Americans concerning imports, and not reparations, being a "first charge" on exports was intimately involved with the status of the German international trade position in a very subtle way. What troubled the Americans was not simply that current production reparations would eventually make Germany an industrial competitor of the United States. Rather, these reparations would thwart in a basic fashion the construction of a global trade system in which Germany was to play an integral role; Germany would get a head-start in obtaining international markets, and again might be led to autarchy. Equally dangerous was the possibility that current production reparations would create substantial bilateral trade relations between the Soviets and the Germans. Germany might become the supplier of heavy industry to the Russians and be drawn into their economic orbit. Not only did these reparations imperil multilateralism, the very heart of American foreign economic policy, but they also presaged a fundamental threat to American security interests.

I have attempted to argue that in order to grasp the underlying nexus of American policy the usual interpretation must be modified. That the United States did not want to support a depressed German economy is true. But this fact must be viewed as only a small fragment of the American policy structured to oppose Russian reconstruction and secure some degree of German strength. Similarly, the American desire to limit reparations from current production can adequately be

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seen only in terms of its larger implications: to curtail these reparations provided a means of controlling and regulating German industrial growth when its control and regulation were threatened by the Russian demand for severe reparations. American policy was designed to punish Russia for frustrating multilateralism in the East and to secure it in the West. But there is another aspect of this explanation which in a sense holds the key to the whole reparations question. If the Russians succeeded in their demands, and the United States did not support Germany, Herbert Feis writes, the Americans would be obliged "to witness prolonged misery and discontent in Germany; or to agree to the exercise of state controls of German economic life which would ease the way toward C o m m u n i ~ m . " Commenting on the Soviet renunciation of ~~ German dismemberment in a more speculative passage, Feis theorizes: "Perhaps who is to know? - Soviet aims reached even beyond this to the idea that if Germany was allowed to remain whole, and the awful destruction continued, it might be easier to bring it under communal domination later on."44 Now in one sense it is pure exaggeration to argue that American policy was motivated by a fear of a Soviet takeover of one sort or another in Germany. The Russians at this time had enormous reconstruction requirements and were simply not equipped to embark on expansion into Western Europe. The United States occupied the position of strength, wielding overwhelming economic power and additionally controlling the military secret of the atom bomb. Moreover, there is reason to believe that Stalin had good grounds for wanting to continue Allied unity: he feared German resurgence and needed American financial credits. At Yalta he had commented as follows:
They all knew that as long as the three of them lived none of them would involve their He said the main thing was to prevent quarrels in the countries in aggressive actions. future between the three Great Powers and that the task, therefore, was to secure their unity for the future.. . H e said the greatest danger was conflict between the three Great Powers represented here, but that if unity could be preserved there was little danger of the renewal of German aggression.#

.. .

I t is worthwhile in this context to quote Stalin's well-known statement to the Polish minister Mikolajczyk that "communism fitted Germany as a saddle fitted a cow." Remarking on this, Isaac Deutscher writes :
It harmonized so perfectly with the whole trend of his policy vis-d-vis Germany, it was so spontaneous, so organic, so much in line with what we know of this old disbelief in western European communism, and it accorded so much with all that he said and did in those days, that it could not have been sheer tactical bluff."'

Thus, in one very clear sense it is difficult to believe that Stalin was about to take over Germany or that the U.S. felt he had this expansionist ambition. Indirectly, however, Feis does make an important point. Because the United States regarded the establishment of a multilateral trade system as central to the conduct of its foreign policy, it could hardly regard with equanimity the emergence of non"Between W a r and Peace, p. 255. Churchill, Roosevelt, and Stalin, pp. 619-20. * Yalta, pp. 665-66. Stalin: A Political Biography (New York, 1949), p. 537.

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THE WESTERN POLITICAL QUARTERLY

capitalist Russia as a great power. Moreover, the prostrate economic, social, and political conditions of all Europe could only produce movement to the left. I n another sense all of U.S. diplomacy may be construed as a response to the danger it saw in the existence of the Soviet system and to the possibility that, favored by the U.S.S.R., systems like theirs would spread with postwar upheavals. This driving impulse to "transform" the Russian state and integrate the Soviet economy into the Western sphere took many forms. The Morgenthau Plan, so belabored as "pro Communist," was in part a conservative attempt at just such integration. With the complete deindustrialization of Germany it required, reparations from current production would be nonexistent. Soviet reparations would have been limited entirely to what could have been taken initially in industrial removals, and this would have been a relatively small amount in terms of what the Russians were asking. But then the Soviet Union was to be reconstructed by American aid. With Germany insignificant the United States would have assumed the place of supplier to all of Eastern Europe and consequently the U.S.S.R. was to have gradually adapted to Western ways: it would also be repaying the United States by shipments of strategic raw materials. Nonetheless, American distaste for the U.S.S.R. was so great at the end of the war that the Americans refused to pursue this kind of integration. The Morgenthau Plan was increasingly diluted from October of 1944 as the consensus grew to push a hard line. Oddly enough, as United States reparations policy became more anti-Soviet after Yalta, it was first affected by considerations inherent in the modified versions of the Morgenthau plan. F.D.R.'s tentative agreement to the Russian reparations proposal was brushed aside because, in part, a Germany subject to extensive industrial dismantling would not produce anything near this amount in reparations. But as a "hard" peace receded into the background, German deindustrialization was not ~tressed.~' this point it seems possible that reparations from current At production could certainly have been accepted by the Americans. T o be sure Russian demands for deindustrialization and current production reparations were contradictory. Nevertheless, if the United States had been willing to forego assurance of Western control of the German industrial economy, a program of reparations from current production and a "moderate" or "soft" peace could have been combined. But no discussion of such a course of action took place. The United States was unwilling both to give up its primary influence in the reconstruction of the German economy and to finance Russian reconstruction. Ironically, a "hard" peace & la Morgenthau -which many Americans believed to be pro-Soviet -could alone justify an anti-Soviet program of reparations. Only at Potsdam did the Americans reconcile their desire to secure a Western-oriented, industrial Germany with their desire for low reparations. But to achieve this reconciliation Byrnes had to cede the largely agrictultural eastern zone to the Russians. From it they could get little in the way of reparations and could not prevent AngloAmerican control of the rest of Germany.

" Penrose, op. cit., pp. 280-82.

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What kind of reparations policy did the Americans pursue elsewhere? In Rumania and Hungary in the early fall of 1944 the U.S. developed reparations procedures which prove extraordinary in illuminating what occurred in Germany.48 The U.S.S.R. obviously controlled the Balkans, and because the United States only responded to the Soviet's maneuvers, it was unnecessary to disguise the basic issues at stake, or to mask the motivations of big-power diplomacy. The Americans freely admitted those principles basic to their understanding of the reparations question in Eastern Europe. These principles are essentially consonant with the set of factors ignored in explanations of the German situation. In taking the predominant role in the Rumanian negotiations, the Russians repeatedly cited the Anglo-American precedent in Italy, where the Americans and the British, doing the fighting, promptly excluded the Soviets from effective participation in the surrender. The Americans admitted the justifiability of Russian p r o c e d ~ r e ,and the U.S.S.R. quickly assumed functional control of the Allied ~~ Control Commission. Moreover, two weeks before the armistice was signed in Moscow on September 13, the Soviets asked for $300 million in reparations. Opposed to setting a definite sum, because Allied reparations policy was still "undetermined," the Americans still acquiesced readily. But Secretary of State Cordell Hull did cable Averell Harriman, conducting the Rumanian negotiations in Moscow, that the United States did not feel its agreement in this instance to be "setting a precedent in any way for the reparations settlement with Germany or any other satellite countries." 50 Slightly over a month later Hull again informed Harriman of the State Department's concern over reparations - this time over the U.S.S.R.'s demand for $400 million from Hungary, then also attempting to bow out of the war.51 In Hungary, however, the U.S. was not willing to give in so easily. Harriman urged Washington to remain adamant in its position that no specific sum be mentioned "and refuse to yield even at the risk of a breakdown of negotiation^."^^ Stettinius, newly-appointed as Secretary, was not, however, willing to go so far as Harriman. He advised the Ambassador to sign the armistice with a reservation concerning the power the U.S. would have on the Russian-dominated Allied Control Commission. The Americans were willing to allow the U.S.S.R. to exact a specific sum in reparations if they could have an equal share with the Soviets in determining exactly how it was to be exacted. The Russians refused to concede this point and indicated that they intended to run as they pleased the Control Commission and its economic section, which would handle the reparations problem. The United States then reserved the right to reopen the question of the detailed manner in which the policies of the Control Commission would be carried out.53
48

49

I am specifically indebted to Dr. Gabriel Kolko for this suggestion.


1944 IV,p. 161.
50 1944 IV,pp. 222, 228.
5' I944 111,pp. 906-7. 52 1944 111,p. 4 6 1. 53 1944 111,pp. 473, 963-68, 979.

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There was much room for a discussion of boundary disputes and definitions in the context of the Rumanian and Hungarian negotiations, but the U.S. in no way brought up these secondary matters, as it did later in regard to Germany. I n control in Germany the Americans had argued that a jointly administered reparations program was justifiable only if there were agreement on these largely irrelevant questions. When the U.S.S.R. was in control, the Americans claimed a jointly administered reparations program was necessary to protect American interests in the restoration of world multilateralism and in Hungary's investment and trade.64 American policy-makers were acutely aware of the economic effects of reparations policy. In respect to Germany they had refused to discuss the matter or treated it as negligible. But with Hungary, Harriman emphasized: "Whoever controls reparations deliveries could practically control the Hungarian economy and exercise an important economic influence in other directions." He was so impressed by the relevance of reparations procedures to economic matters that he suggested in an only too far-seeing fashion that the Americans might explain to the Russians that lack of cooperation over reparations "cannot help but affect the final LendLease settlement adversely to the Soviet interest." The State Department, however, declined to raise the issue of Lend Lease in connection with this d i s c u s s i ~ n . ~ ~ But there is another aspect of these negotiations which best illustrates the mainsprings of American policy in Germany. Regarding both Rumania and Hungary the Americans reasoned again and again that "the reparations settlements with all enemy countries should be decided jointly after discussion and deliberation by the United States, United Kingdom, Soviet Union and other interested countries rather than unilaterally and should be treated as related parts of one broad problem."66 The striking contrast between this principle and the one which evolved with the zonal reparation plan and called specifically for unilateral action by the powers necessitates but one conclusion: where the United States was in full economic control, it was determined to retain such control; where another exercised control, it demanded equal representation. In this respect American policy in this area may be analyzed in terms of what William A. William has so suggestively argued is an enduring component of its diplomacy: the desire by the Americans to maintain dominance in those areas where they exercise influence and to obtain an "open door" in those areas where influence is exercised by others.57 VII In regard to Germany, the Americans refused to operate on what may well be termed the primary realities of the Russian position - the need to rebuild, the fear of a resurgent Reich, and the desire to form a supreme entente with the West. Instead United States policy-makers emphasized the Russian attempt to establish a sphere of influence in the East and what they felt was the ideological evil of such a sphere of influence. They seemed unable to comprehend that, for those who did
1944 111,pp. 917-18.
1944 111, pp. 952, 955.
* See, for example, 1944 111, p. 908.

T h e Tragedy of American Diplomacy (rev,ed.; New York, 1962), passim.

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not share their basic cultural outlook, their demand for an "open door," for international multilateralism, was functionally equivalent to complete United States hegemony throughout the world. Surely reparations is not the only significant issue. Indeed, it is but one strand in a complicated fabric of policy made by the United States at the end of the war. Nonetheless, because the place of Germany in the postwar order and the relation of the West to Russia were so intimately bound to the reparations question, the issue encapsulates the dynamics of American policy. The United States was not at this time overly fearful that the eastern zone of Germany would come under complete Soviet control; nor was it willing to permit this to occur. O n the contrary, especially with their enormous economic resources and the diplomatic power of the atomic bomb, the Americans, in all likelihood, probably thought they could control the fate of Europe. U.S. decision-makers grasped the serious economic consequences of zonal reparations and hedged their policy in many places so that the eventual treatment of Germany as an economic unit was not precluded. Planning was fluid, and no anti-Soviet directions were fixed. If the Russians had capitulated, as the Americans expected, and agreed to unify Germany on terms satisfactory to the Americans, the United States would no doubt have responded favorably. In this respect the zonal proposal was an interim measure which would exert pressure on the Russians and leave control of German industry in Western hands. But basically the Americans did not really recognize the limitations of their own power and, therefore, the larger significance their policy would have for the future of Europe. The sophistication with which they approached the Soviet attempt at reconstruction was matched by a certain blindness concerning their ability to force vital strategic concessions from the U.S.S.R. after the war had ended and the armies had drawn international boundaries. The various coercive devices the Americans were willing to use were simply not sufficient to prevent the hardening of these boundaries once the wartime alliance had been broken up. I n clinging to their idea of a world economic system dominated by the United States, they prevented the possibility of any sort of cooperative regional arrangement with the U.S.S.R. and pursued a policy which contributed fundamentally to the division of Europe.