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Political Factors in U. S. International Financial Cooperation, 1945–1950

Published online by Cambridge University Press:  02 September 2013

Jack N. Behrman
Jack N. Behrman
Affiliation:
Washington & Lee University
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Extract

International cooperation through multilateral organizations sharply distinguishes the post-World War II economic policies of the United States from those it employed following World War I. After World War I, the United States eschewed any form of international economic organization, which some governments thought should be continued; early in the more recent conflict, United States officials pressed hard for the acceptance of world-wide institutional cooperation. The purpose of the present article is to review, through an examination of its policy toward multilateral financial arrangements, some of the important discussions and decisions which moved the United States towards internationalism in economic relations; to emphasize the role of political factors in the development of financial organizations, in the retreat from international “democracy,” and in the growth of regional cooperation; and to examine some of the difficulties of international financial cooperation.

A primary objective of the United States government's postwar policy preparations was the re-creation of a method of conducting international economic transactions which would not result in economic warfare; the major technique was that of international agreement on accepted rules for conducting transactions. Government officials considered that this approach was not only desirable but also possible, in view of the success of wartime collaboration.

Type
Research Article
Information
American Political Science Review , Volume 47 , Issue 2 , June 1953 , pp. 431 - 460
Copyright
Copyright © American Political Science Association 1953

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References

1 In order to limit the scope of the study, only the cooperative arrangements in the disbursal of grants and loans by the United States are considered. Thus, though political factors are found in United States lending and in the development of postwar commercial policy agreements, their study is excluded. For a recent masterly treatment of both the economic and political factors in the collapse of cooperation projected under the International Trade Organization, see Diebold, Wm. Jr., “The End of the ITO,” Essays in International Finance, No. 16, Princeton University, International Finance Section, 10, 1952Google Scholar.

2 This view is well stated in the following portion of an introduction to the early proposals on the International Monetary Fund, written in 1942: “The people of the anti-Axis powers must be encouraged to feel themselves on solid international ground, they must be given to understand that a United Nations victory will not usher in another two decades of economic uneasiness, bickering, ferment, and disruption. They must be assured that something will be done in the sphere of international economic relations that is new, that is powerful enough and comprehensive enough to give expectation of successfully filling a world need. They must have assurance that methods and resources are being prepared to provide them with capital to help them rebuild their devastated areas, reconstruct their war-distorted economies, and help free them from the strangulating grasp of lost markets and depleted reserves. Finally, they must have assurance that the United States does not intend to desert the war-worn and impoverished nations after the war is won, but proposes to help them in the long and difficult task of economic reconstruction.” (White, Harry D., “Preliminary Draft: United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations,” U. S. Treasury Department, 03, 1942, pp. 3–4Google Scholar. This document and some others cited infra may be found among the papers of Harry D. White, former Chief of the Division of Monetary Research and later Assistant to the Secretary of the Treasury, which have been donated to the Princeton University Library. Citations of manuscripts and documents found among these papers will hereinafter refer to White's Papers.)

3 Cordell Hull wrote that during 1943 both President Roosevelt and Prime Minister Churchill were in favor of establishing regional organizations (particularly in Europe, the Far East, and the Americas) to guide postwar political and economic relations. Each of the “Big Three” (Britain, Russia and the United States) would be represented In one of these regional organizations. A supra-regional council of the “Big Three” would coordinate the work of the regions. Secretary of State Hull and most of his staff were in favor of a world-wide association under the conviction that an international organization would eliminate any need “for spheres of influence, for alliances, for balance of power or any other of the special arrangements through which, in the unhappy past, the nations strove to safeguard their security or to promote their interests.” These officials hammered at Roosevelt until he agreed and set the stage for the UNO and related economic organizations. See The Memoirs of Cordell Hull (New York, 1948), Vol. 2, pp. 1640–48Google Scholar.

4 Testimony of Herbert Lehman (first UNRRA director-general and former chief of the State Department's section responsible for preparing postwar policy on relief). To Enable the United States to Participate in the Work of the United Nations Relief and Rehabilitation Administration, Hearings on H.J. Res. 192, House Committee on Foreign Affairs, 78th Cong., 1st and 2nd sess., p. 120 (Dec., 1943 and Jan., 1944). See also a similar statement by the United Kingdom delegate before the second session of the UNRRA Council on September 21, 1944, UNRAA Journal, Second Session of the Council (Washington, 1944), p. 47.

5 This viewpoint is a reflection of the Cobden-Bright idea that international contacts are the basis of knowledge which, in turn, is conducive to peace. There are some analogies between this idea and the foreign economic policy of Hull and his followers from 1934 to 1947. The principle is questionable even in conditions under which it was supposed to operate; when a nation's external relations are channeled through government agencies, whatever validity exists in the concept becomes inoperative. In 1951 a State Department official admitted that the advantage of “keeping a window open” by trade is a fiction when trade is conducted through state trading agencies. See Mutual Security Program Appropriations for 1952, Hearings, Part 1, House of Rep., Subcomm. of the Comm. on Appropriations, September, 1951, p. 404. In any case, no support for the idea that such cooperation leads to mutual understanding, tolerance and peace can be gained from the experience of UNRRA.

6 The program for government and relief in occupied areas administered by the Army and the Navy was even larger than UNRRA's. One UNRRA official has since argued that UNRRA should have been merged with the Army's program or that at least Army officers should have been assigned to important UNRRA posts to assure their cooperation and the use of their experience and knowledge, and perhaps also for political reasons. See Klemme, Marvin, The Inside Story of UNRRA (New York, 1949), pp. 214–18Google Scholar. The Red Cross, too, could almost certainly have built up an organization as quickly as UNRRA did to handle the problem. The case for UNRRA as against the Army and Navy or the Red Cross seems to have rested almost solely on the merits of international cooperation.

7 United States officials were not alone in urging international financial cooperation as a means of alleviating disaster and of gaining peace. See, for example, the statement of Hugh Dalton in defending the Bretton Woods Agreements and the Anglo-American Financial Agreement, Parliamentary Debates, House of Commons, 417 H. C. Deb. 5 s, December 12, 1945, col. 443.

8 The question of the role of politics arose over a statement of Secretary Morgenthau before the Senate Committee on Banking and Currency that the United States “has the greatest interest in seeing that international trade and investment are determined by economic and not by political considerations”:

“Senator Fulbright: It occurred to me that before the war we did business with such countries as Japan and Spain without any regard to political considerations. It does not seem to me that in the future we can isolate the economic from the political; and in stating several times that this must be done on an economic basis without regard to politics, that is not quite correct. …

Is not this a part of the political international arrangement?

“Mr. Morgenthau: Senator Fulbright, the discussion at Bretton Woods was based on the economic needs of a country and not on the political needs. And the thought all through the discussions was, particularly as affecting the small countries, such as Greece, Czechoslovakia—

“Senator Fulbright: And the Argentine and Spain.

“Mr. Morgenthau: I did not put them in.

“Senator Fulbright: But you will be faced by that situation, is what I mean.

“Mr. Morgenthau: I can only report to you—and the two American delegates that are sitting here at this committee table can either affirm or deny what happened—but the thought was—

“The Chairman: I have just checked with Senator Tobey, and neither one of us heard any politics at all at Bretton Woods.

“Mr. Morgenthau: The thought was that those countries could come to a world bank or a world fund and get their financial needs taken care of without having to sell their political souls. And that was the whole idea. I am sorry, Senator Fulbright, but I would not be honest if I did not stick to my guns on that, and that is my conception of Bretton Woods. These are to be financial institutions run by financial people, financial experts, and the needs in a financial way of a country are to be taken care of wholly independent of the political connection.

“Senator Fulbright: Then if this country has no foreign policy and blunders along as it did for the last 20 years, you would go ahead and finance, say, the Argentine, regardless of what you thought it would do, and the same as to any other country.

“Mr. Morgenthau: You put me in an embarrassing position, but I will have to answer.

“Senator Fulbright: I do not mean to embarrass you, but do want to know what the idea is.

“Mr. Morgenthau: I understand. But I will go through with it: If the Argentine was a member of the Bank and the Fund, and she needed certain financial help to meet her requirements, being a member her requirements are to be taken care of independent of her political: ideology. I choked on it, but I went through with it.

“Senator Fulbright: It seems to me that is going pretty far, and I do not quite agree that that is a sound policy.

“Mr. Morgenthau: That is in the record, too.

“Senator Fulbright: It would seem to me that it means the fund will have no relationship to the State Department, But let us assume the State Department does develop some consistent policy in foreign relations, I cannot help but believe that our financial policy should be subservient to the political policy as established by the State Department. It does not seem proper that our various relationships with other countries should be conducted entirely separate from and without any regard to other relations.

“Mr. Morgenthau: I would rather not answer that on the record… .

“Senator Taft: Do you think when a board is set up, composed of the great nations and the small nations of the world, they are not going to be affected by politics about the making of a loan to a nation?

“Mr. Morgenthau: I am repeating myself on this, but the institutions will carry out their work as far as it is humanly possible to do it—and it depends on the people running it—on a strictly business basis.

“Senator Taft: We may be as noble as we are pleased to hope we will be, but what justification is there for the theory that the English, the Russians, and other people will take that position? Aren't they going to use any weapon they have for their purposes in Europe?

“Mr. Morgenthau: Gentlemen, I hope you will believe I am very sincere. I think in these things like Bretton Woods we have to assume the nations of the world have learned something while going through this bloody war we are just emerging from in Europe, and that we have the right to assume as between nations there is going to be a new conception of dealings one with another. If there is not, the world is lost.

“Senator Taft: I certainly would be glad to be able to join you in that hope. But I think it hard to imagine having an international body of this sort free from politics resorted to by people sitting on the board.

“Senator Fulbright: I don't see why it should be. I think politics is not such a disreputable thing that it cannot be accepted in this or any other international organization, if by politics is meant some regard for the best interest of one's own country… .

Therefore, I don't think the administration should say we are not going to have any consideration for politics in various countries. It seems to me to be perfectly proper to say, ‘Yes, we are, but we are going to try to be intelligent about it.’ That does not mean we are going to try to control Europe's internal politics. That is quite different from saying that all the internal affairs of a country is of no interest to us, which seems to me also rather stupid.”

(Bretton Woods Agreement Act, Hearings on H. R. 3314, U. S. Senate Comm. on Banking and Currency, 79th Congr., 1st sess., June 1945, pp. 14–16; italics added.)

9 The desirability of some such council was urged earlier by Secretary Morgenthau himself, who in July, 1944 wanted to place in a new committee, of which he would be chairman, all questions of international financial relations and aid to foreign countries so as to coordinate all financial policy under a single authority and maximize the good will obtainable from foreign aid.

10 The Treasury Department drew up a proposal for a $10 billion loan, to be repaid over 35 years in raw materials. The plan was discussed in 1944 in the Treasury and communicated by Secretary Morgenthau to President Roosevelt in January, 1945 with the argument that it would contribute greatly to ironing out difficulties with Russia over postwar policies. Memoranda on the proposal evidence no concern over political relations between the U.S. and Russia and provide no basis for a conclusion that the loan was for political purposes in any direct sense. (The author has in preparation a study of this loan and the developments surrounding it.)

11 The fact that members had not decided questions on purely technical grounds was the basis of Australia's plea during the Sixth Annual Meeting of the Board of Governors of the International Monetary Fund, Washington, D. C., for a “non-political and impartial approach” to problems before the Fund. By this time United States officials and others recognized, and so asserted, that political positions and viewpoints could not be disregarded. (Fund Session No. 3, September 11, 1951.)

12 The impact of Russian policy on international cooperation is discussed below.

13 The principle of “one nation, one vote” is itself, of course, a method of “weighting.” It was employed under UNRRA and was a reason for many of its difficulties. This particular means of practicing “democracy” among nations is necessary and desirable where broad policies are to be decided by an international body but have to be ratified by national legislatures; otherwise, a minority of governments may cause friction by attempting to impose policies on a larger number of nations. However, when the mere allocation of financial assistance is involved, and when the funds are contributed by a few member nations, the practice of weighted voting has much to commend it as a means of preventing misuse of the funds by the recipients. If voting is weighted, giving some nations more authority than others, these then have a pragmatic responsibility not to impose their will on others when trivial or technical questions arise, yet it is equally foolish for them to refrain from using their voting authority to support national viewpoints on policy questions.

14 An interesting case arose during 1949–51, in the disagreement over the price of gold as set by the International Monetary Fund, with a few nations deciding not to adhere to the policy adopted by the majority and eventually forcing a change in this policy. See our discussion of the Fund's “gold policy” in the 1949, 1950, and 1951 volumes of Survey of United States International Finance, by Patterson, Gardner and Behrman, Jack N. (Princeton University, International Finance Section, 1950, 1951, and 1952)Google Scholar.

15 See, for example, the arguments by Viner, Jacob, “International Relations between State-Controlled National Economies,” American Economic Review, Vol. 34, Suppl., pp. 315–29 (03, 1944)Google Scholar; Mikesell, Raymond F., “The Role of the International Monetary Agreements in a World of Planned Economies,” Journal of Political Economy, Vol. 55, pp. 497–512 (12, 1947)CrossRefGoogle Scholar; and Hoffman, M., “Problems of Trade between Planned Economies,” American Economic Review, Vol. 41, suppl., pp. 445–55 (05, 1951)Google Scholar.

16 UNRRA's official historian has concluded that administratively the several nations did work together effectively until their willingness to cooperate diminished and then disappeared with the growing ideological and political conflict. (Woodbridge, G., and others, UNRRA: The History of the United Nations Relief and Rehabilitation Administration (N. Y., 1950), Vol. 2 pp. 535–52Google Scholar.)

17 The attitude on the part of liberated countries that aid was “due” them was stressed by the Russian member of the UNRRA Council during 1946 when he stated: “Peoples of occupied countries had been promised assistance. These promises had inspired them to greater resistance, which in turn had led to greater destruction of their resources. People who had borne the burden of invasion and had suffered so much destruction of their property had earned the right to assistance.” (UNRRA Journal, Fourth Session of the Council, Atlantic City, N. J., March 19, 1946, Vol. 4, No. 4, p. 6.)

18 The fact that Russia contributed only to the administrative budget of UNRRA and not to its operating budget made its actions all the less palatable to Congress, since Russian representatives were partially controlling the use of funds contributed largely by the United States.

19 The author has been told privately by a former UNRRA staff member of an instance in which the Russian official in charge of purchasing items for aid would not approve orders for small tractors (such as would be used on small, individually-held farms) to be sent to Eastern European countries, but insisted on the procurement of large tractors and combines, to be used on collectivized farms. Another UNRRA official, noting the modern and large-scale types of agricultural machinery sent to Czechoslovakia, writes: “They included about everything that would be used on a modern farm in Kansas or Iowa. However, the item that particularly struck me was the one of eighty-five grain combines with accompanying tractors … at that particular time, the Russians were playing a very prominent part in saying which supplies went where.” He concluded that the equipment was destined for later use on collectivized farms in Czechoslovakia or for re-shipment to the Ukraine. (Klemme, op. cit., pp. 240–41.) UNRRA's official historian, however, writes that, contrary to reports that equipment was inefficiently used and distributed politically, “… the records of the Agricultural Rehabilitation Divisions give every evidence that farm machinery and equipment sent to UNRRA countries were utilized fully and completely, with the aid of UNRRA technicians where necessary” (Woodbridge, op. cit., Vol. 1, p. 487). The lack of adequate observation and reporting of distribution in many countries casts some doubt on this conclusion, and the UNRRA historian does not come to grips with the question of whether distribution of supplies was political. He merely repeats that recipient governments were responsible for distribution under the Agreement and that UNRRA officials [wholly inadequate in number to do the checking] reported “that they were satisfied that the receiving governments, in so far as they were able, distributed UNRRA supplies in accordance with the council directions” which included instructions that distribution be non-political and non-discriminatory (Vol. 2, p. 50).

Klemme also states (p. 144) that Poland, Czechoslovakia, Yugoslavia, and Russia took from returning DP's any food distributed to them by UNRRA on their departure, thereby forcing a change in UNRRA policy.

20 And at least verbally by others; for example, even in 1946 the Czechoslovakian member of the UNRRA Council warned that “UNRRA was a humanitarian, international organization, and should not be mixed with international politics.” (UNRRA Journal, March 20, 1946, p. 4.)

21 As UNRRA's historian states, repatriation was a political problem and outside UNRRA's early intent of mere care of the DP's. See Woodbridge, Vol. 2, pp. 313, 522. The question of forcible repatriation of DP's was a sharply controversial issue between Eastern and Western European nations, with the United States and the United Kingdom arguing against it and the Communist governments favoring it. See the remarks in UNRRA's Journal, Fourth Session of the Council, by members from Poland, Ukraine, Yugoslavia, the United Kingdom and the United States, on March 20, 25, 26, 27, and 28. 1946. An interesting account of the background of these positions is afforded in Klemme, pp. 126 ff.

Political considerations were involved also in discussions of the extension of aid to ex-enemy countries (e.g., Italy) and to those not occupied during the war (e.g., India). See on the Italian question, Journal, Second Session of the Council, September 6, 1944, pp. 104–25. They arose also over a resolution that UNRRA should requisition land and other resources in occupied countries for use in relief—particularly in Austria, which was jointly occupied. Communist delegates argued that this question was outside the jurisdiction of UNRRA. The U. S. member argued first that he thought the relief aspects could be divorced from the political considerations, but later remarked that “it would be a course of cowardice to retire because there might be political aspects connected with the problem, and both UNRRA and the whole cause of international organization would suffer as a result.” (Journal, Fourth Session of the Council, March 27, 1946, p. 4; see the debate on the days of March 27, pp. 1–4 and March 29, pp. 1–3.)

At the Fifth Council Session, August, 1946, at Geneva, the “USSR member, N. I. Feonev, pointed out that friendly criticism of UNRRA had not always been given due attention; thus, contrary to the USSR's counsel, the Korean program had been delayed, little progress had been made with the repatriation of displaced persons between the Fourth and Fifth Council Sessions; and now the Director General's Report mentioned the presence of occupational troops in Austria and some actions of Soviet occupation authorities—questions clearly within the scope of other international bodies and discussion of which the USSR had warned, would endanger UNRRA's reputation as a nonpolitical international relief organization.” (Woodbridge, Vol. 1, p. 47.)

22 The hiring of personnel was not intended to be at the suggestion of governments, but because of the pressure of officials in all governments to gain employment for “favorites,” the lack of information on applicants (especially from Russia), and the presence of technicians mainly in government already, UNRRA's selection of personnel felt the impact of political pressure. In the case of Russia, its suggested personnel were accepted “usually without preliminary interviews.” Russia also opposed strongly the employment of ex-enemy nationals, neutrals, or nationals of non-member governments; UNRRA Headquarters finally approved their employment in principle, but only a few were actually employed. In evaluating the effect of political and social factors on personnel recruitment, UNRRA's historian concluded that “… it is not easy for an organization to profess efficiency and simultaneously to implement policies politically and socially in advance of customs of the society in which it functions” (Woodbridge, Vol. 1, pp. 242, 246; Vol. 2, p. 542).

23 See letter of July 3, 1946 from W. L. Clayton, Assistant Secretary of State for Economic Affairs, to Senator Kenneth McKellar, Department of State Bulletin, July 7, 1946, p. 35.

24 This question of imposition of conditions on recipients of aid from an international agency shows clearly that political aspects were not absent and should, at the time, have placed grave doubts on the feasibility of Russian-American cooperation as long as each so ardently desired adherents to its system; but who will argue that the experiment should not have been made?

That the successful operation of any international organization in which each country has an equal voice and which includes both Russia and the United States (so long as they continue to support their present ideologies) precludes the attaching of conditions to assistance appeared never to strike Congress; nor was the point ever presented publicly by the Administration in just this way. For additional comment on the feasibility of Russian-American cooperation in such a relief organization, see Jessup, Philip C., “UNRRA, Sample of World Organization,” Foreign Affairs, Vol. 22, pp. 372–73 (04, 1944)CrossRefGoogle Scholar, and Perry, J., “Why UNRRA Has Failed,” Harper's Magazine, Vol. 192, pp. 84–85 (01, 1946)Google Scholar.

25 UNRRA Director-General LaGuardia had proposed the establishment by the UN of an Emergency Food Fund of $400 million (New York Times, November 29, 1946).

26 Department of State Bulletin, December 15, 1946, p. 1107.

27 Ibid., pp. 1107–8.

28 Ibid., p. 1108 (italics added).

29 Klemme asserts that UNRRA was a failure if success is measured by whether its funds were spent “in the most efficient manner for the benefit of the maximum number of deserving people.” He charged that “International politics got mixed up in the selection of personnel and in the acquisition and distribution of supplies” (op. cit., p. 296). For an interesting discussion of how and to what extent UNRRA failed, see Woodbridge, Vol. 2, pp. 535–52.

30 In presenting the post-UNRRA aid program to Congress for approval in 1947, the Administration testified that the aid was necessary to keep the current economic and political situation in the recipient countries from turning into one which the United States did not want. In the debate on post-UNRRA aid, many members of Congress stressed the misuse of UNRRA funds by Russia and the extension of its aid to Communist countries as practices to be guarded against in the new program. (Congressional Record, April 22 and 23, 1947, pp. 3822 ff., 3861 ff., and 4167 ff.Google Scholar, and May 21, 1947, pp. 5610–15.) Congressmen asked for “plain talk” from the Administration as to the political character of the new aid program, which they conceived to be a result of not being able to “do business” with Russia. The Administration admitted (after the decision in early 1947 to aid Greece and Turkey had pointed up the rift with Russia) that a prime difficulty had been the inability to cooperate with Russia and that its postwar policy had been predicated on the assumption of four-power cooperation in relief and reconstruction. See testimony by Dean Acheson and Tyler Wood on June 25, 1947, during the House Subcommittee on Appropriations' Hearings on the Supplemental Appropriation Bill for 1948, 80th Cong., 1st sess., pp. 968 ff.

31 The account of Russia's initial negotiation in the Marshall Plan talks with Britain and France and its withdrawal and initiation of a Molotov Plan is given in many places. For the official U. S. view of the Russian attitude, see “The European Recovery Program,” Sen. Doc. No. 111, 80th Congr., 1st sess., December, 1947, pp. 47–48, 151–58; see also Fay, S. B., “The Marshall Plan,” Current History, Vol. 13, pp. 129–34 (09, 1947)Google Scholar, and the newspaper accounts during July, 1947.

32 “It is important that governments, too, recognize that the Fund and Bank are international institutions. No country, however great or strong, however dominant its economic position in the world, can take the attitude that these institutions are its own creatures. Nothing could destroy the usefulness of the Fund and the Bank more surely than a feeling in other countries that they are subservient to the United States Government.

“And nothing would more enhance the world prestige and influence of the United States Government than a demonstration of its appreciation of the basic international character of international institutions.” (Pehle, J. W., Assistant to the Secretary of the Treasury, “The Bretton Woods Institutions,” Yale Law Journal, Vol. 55, p. 1139 (08, 1946)CrossRefGoogle Scholar.

33 See New York Times, July 12, 1944.

34 New York Times, December 19, 1945.

35 The Life of John Maynard Keynes (New York, 1951), pp. 629–30Google Scholar. Harrod goes on to report that this decision was a personal one of Mr. Vinson, having the support of the President but not of the U. S. delegation. Nevertheless, what the other members saw was a unilateral decision of the United States which had political coloring.

36 Ibid., p. 632.

37 A probable strong source of friction and resentment among members is the fact that a creditor nation in the Fund is given increased voting power while a debtor suffers a reduction; debtors do not generally agree with the U.S. view that responsibility for their deficit is wholly theirs and that creditor countries should therefore have added power to direct Fund policy.

38 Raymond F. Mikesell, who was a technical adviser to the U. S. delegation at Bretton Woods and attended the Savannah meeting, has written that, in the decisions on the role of the executive directors and on the location of the Fund in Washington, the United States injected political considerations into the Fund's operation but that such a result was inevitable when policy questions were involved, since only government representatives could make the decisions. See his “The International Monetary Fund, 1944–1949,” International Conciliation, No. 455, Carnegie Endowment for International Peace, November 1949, pp. 843–47. For similar comment on the decisions at the Savannah Conference, see Robinson, E. A. G., “John Maynard Keynes,” Economic Journal, 03, 1947, p. 65Google Scholar.

39 Harrod (cited above, n. 35) pp. 634–35. This view of the events at Savannah in 1945 is supported by Feis, Herbert, “Keynes in Retrospect,” Foreign Affairs, Vol. 29, p. 572 (07, 1951)CrossRefGoogle Scholar: “The American Government, speaking through Mr. Vinson, made it plain that it intended to assert its power as provider. American wishes would be most influential if not dominant. Further, the task was not to be left to sheltered experts and officials. It might be taken over by untutored politicians.”

As mentioned earlier, one way to reduce political influence in an organization of “experts” would be to disassociate them from governments. In selecting official representatives to the Fund and Bank, the United States apparently avoided appointing men from private financial circles (though many applied for the positions) and placed government officials, who were familiar with the political considerations involved, in the more responsible positions. See the attack on this policy in the New York Times, May 22, 1946, by its associate financial editor, E. H. Collins.

40 Harrod, pp. 638–39.

41 An outsider can have little knowledge of the detailed workings of either organization, so the conclusion cannot be firmly drawn that petty questions were not decided on the basis of power.

42 The National Advisory Council itself has expressed the idea that the Fund more or less automatically follows the policies of the United States or, at least, that it could force the Fund to do so. When reporting on the U. S. official attitude toward the use of the Fund's resources, NAC wrote: “The National Advisory Council [in formulating] United States policy with respect to the Fund … has tried to avoid the extreme, on the one hand, of acquiescing in the virtually automatic use of the Fund's resources to meet any type of current deficit, while also, on the other hand, avoiding the extreme of insisting upon such rigid standards as would practically have suspended the Fund's currency operations until greater progress had been made toward general elimination of exchange restrictions.” (Second Special Report on the Operations and Policies of the International Monetary Fund and the International Bank for Reconstruction and Development, Washington, D. C., 05, 1950, p. 13Google Scholar; italics added.)

43 See statement of Pierre Mendes-France, Chairman of the Board of Governors during the Fourth Annual Meeting, Proceedings, September 13, 1949, p. 4.

44 “Article IV, Section 10: Political Activity Prohibited:

“The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I.”

45 “It is unfortunate but nonetheless true that the existing political difficulties and uncertainties in Europe present special problems which have thus far prevented the Bank from making loans in those countries. The Bank is fully cognizant of the injunction in its Articles of Agreement that its decisions shall be based only on economic considerations. Political tensions and uncertainties in or among its member countries, however, have a direct effect on economic and financial conditions in those countries and upon their credit position.” (IBRD, Third Annual Report, 1947–1948, p. 14Google Scholar.) See also Second Annual Report 1946–1947, pp. 16, 17, and statement of McCloy, John J., Proceedings, Second Annual Meeting of the Board of Governors, October 31, 1947, p. 7Google Scholar.

46 The loans were apparently denied because of the closer political and economic affiliation of the applicants with Russia. They were not denied because of the size of the requests: Yugoslavia, France, and the Netherlands made loan requests of $500 million or over, which were scaled down but granted. And political instability could not have been the sole criterion, since loans were granted to Yugoslavia, where a like uncertainty existed.

47 IMF, Annual Report, April 30, 1950, p. 102; membership in the Fund is a prerequisite of membership in the Bank.

48 IBRD, Fourth Annual Report, 1948–1949, pp. 28–29, and Fifth Annual Report, 1949–1950, p. 34.

49 The Bank has allowed some of its funds to be tied directly to the development program of the British Commonwealth through Britain's release in 1953 of some of its “18% subscription” for use in lending only to Commonwealth borrowers. The Bank's Articles of Agreement allow a member to determine whether or not the 18% of its initial subscription, made in currency of the member, shall be loaned, but they do not provide for limitation on the countries to which the funds shall be loaned. The Bank may pick the projects and the receivers, within the limited number of Commonwealth countries, but this sort of identification of lender and borrower was a characteristic of international lending which the Bank was to eliminate.

50 For detailed arguments, see the IMF, Summary Proceedings, Fifth Annual Meeting, 1950, pp. 63–72; and IBRD, Proceedings, Sixth Annual Meeting, November 80, 1951, p. 27.

51 The Allied sector of Austria did receive grant-aid from the United States, directly and indirectly, from 1945 on.

52 Fund officials justified their action in restricting use of its resources by potential borrowers by emphasizing that “the purpose of the use of the Fund's resources is to give them time to make necessary readjustments and not to avoid the necessity of such readjustments.” (Annual Report, April 30, 1948, p. 47.)

53 The Economist, September 19, 1949, p. 576, reported sometime later that the decision to suspend the Fund's facilities for use by ERP countries was taken “despite the opposition of prominent member countries… .”

54 “Italy, The Marshall Plan and the ‘Third Force’,” Foreign Affairs, Vol. 26, pp. 450–51 (04, 1948)CrossRefGoogle Scholar.

55 It must be admitted, however, that the association of European nations into a continuing organization to oversee the use of economic assistance was an idea originating not in Europe but in the United States—and the Organization for European Economic Cooperation was established mainly at the insistence of the United States. Sforza asserts (above, n. 54) that the United States waited too long to urge economic association on Europe; that immediately after the war there was widespread feeling among European countries that some new type of economic cooperation was necessary and feasible. It may be doubted, however, whether the “feelings” of various enlightened individuals could have been translated effectively into concrete association, especially in view of the strong desires of each country to regain its prosperity as quickly as possible without outside interference and without having to cooperate in helping others to reconstruct. Evidence of the soundness of this doubt exists also in the variety of means by which each country pursued its goals, in the reluctant fashion in which the ERP-countries grasped the idea of economic integration, in the slow process of their “study” of a customs union (see the voluminous work of the European Customs Union Study Group on the single, and technical, problem of tariff nomenclature and classification), and in the faltering steps toward a Benelux union and in unsuccessful efforts to form a union between France and Italy. See the report of progress in Survey of United States International Finance, 1949 (cited in n. 14), pp. 144–46.

56 J. W. Beyen and others pressed during 1944 for just such an approach to the problems for which the International Monetary Fund was created, on the ground that it would facilitate a gradual movement to the world-wide convertibility of currencies sought by the Fund. See his Money in a Maelstrom (New York, 1949), pp. 147–51, 158–61, 175, 204Google Scholar.

57 Under-Secretary Acheson stated on May 8, 1947, that the United States would have to concentrate its “emergency assistance in areas where it will be most effective in building world political and economic stability, in promoting human freedom and democratic institutions, in fostering liberal trading policies, and in strengthening the authority of the United States.” (Department of State Bulletin, May 18, 1947, pp. 993–94.)

58 Since the International Bank does not publish data on loan requests rejected, it would be difficult to determine the number of applicants turned down. The Bank does announce the receipt of applications for some loans, but it is not certain that all applications are reported. Furthermore, as stated above, requests are presented to the U. S. executive director for an opinion even before they are considered by the Bank's directors as a group, and some may be rejected at this juncture. Finally, applications which are in effect rejected may be reported as “still pending investigation.”

59 For an excellent examination of the policies and practices required of the Latin-American countries to make effective any assistance in development and for an indictment of their attitude that the United States had a responsibility to help, see Acierto (pen-name necessitated by the “official duties of the author”), “A Marshall Plan for Latin America,” Inter-American Economic Affairs, Vol. 1, pp. 3–20 (09, 1947)Google Scholar.

60 The announcement was translated in advance into Spanish for additional effect. See Neumann, W. L., “Bogota and The Marshall Plan,” American Perspective, Vol. 2, p. 69 (05, 1948)Google Scholar.

61 Washington Post, April 9, 1948, cited by Neumann, loc. cit.

62 “Bogota's Lesson,” Washington Post, April 20, 1948, cited by Neumann, loc. cit.

63 See Latin America and the European Recovery Program, Preliminary Report No. 23, House of Rep., Select Committee on Foreign Aid, 80th Congr., 2nd sess., March 13, 1948; also for typical news stories stressing ERP gains for Latin America, see New York Times, April 4, 1948; Wall Street Journal, August 16, 1947; Christian Science Monitor, January 8, 1948; Washington Post, February 5, 1948; and Hutcheson, H. H. and Matthews, S., “ERP and the Underdeveloped Areas,” Foreign Policy Reports, Vol. 24, October 1, 1948Google Scholar. A Latin American view on large-scale aid from the United States was given later by Max, Herman, “Significado de un plan Marshall para paises Latin-americanos,” Panorama Economico, Vol. 3, pp. 18–19 (06, 1949)Google Scholar.

64 Henry C. Wallich listed this among several complaints by the Latin American countries in 1948: “Chief among their complaints are these: (1) wartime exchange accumulations, derived from exports to the United States at OPA ceiling prices, have melted under the heat of American inflation; (2) development loans, which at Bretton Woods were intended to have equal priority with reconstruction loans, have not been forthcoming in any volume; (3) international monetary conditions, which were to be straightened out by the Monetary Fund, continue in disorder; (4) attempts to free international trade through the ITO Charter, appear to be aimed primarily at depriving growing countries of their protective devices instead of securing broader markets for them; (5) nothing at all has been done for long-run commodity price stabilization; and (6) the recent development of the European Recovery Program threatens to perpetuate the shortage of investment goods as well as of investment funds available to Latin America.” (“Some Aspects of Latin American Economic Relations with the United States,” in Foreign Economic Policy for the United States, ed. Harris, Seymour E. [Cambridge, Mass., 1948], p. 156CrossRefGoogle Scholar.)

65 Campbell, J. C., The United States in World Affairs, 1948–1949 (New York, Council on Foreign Relations, 1949), p. 372Google Scholar. See also Wallich, op. cit., p. 157: “For the United States, however, this lull in relations with Latin America, temporary though it may be, poses a rather serious question of principle. If the attitudes of our own public and the policies of our government are subject to considerable short-run fluctuations, how will it be possible to find international acceptance of American world leadership which circumstances seem to impose upon this nation? Clearly, there can be no confidence in any country's leadership unless its policies, whatever they may be, are clearly defined and reasonably stable.”

66 Quoted by Campbell, op. cit., p. 368. For comment on U. S. policy see The Economist, March 27, 1948, p. 505; May 18, 1948, p. 762; and June 12, 1948, pp. 958–59.

67 For a report that anti-American feeling is still growing in Latin America as a result of the slighting of Pan-American cooperation (and aid), see New York Times, June 17, 1952.

68 For a review of efforts at cooperation, see Schaaf, C. H., “Economic Cooperation in Asia,” International Conciliation (New York: Carnegie Endowment for International Peace, 04, 1950)Google Scholar; and Survey of United States International Finance, 1950 (cited in n. 14 pp. 61–64.

69 Just such jealousy arose pursuant to the Mutual Security Act of 1951, in which equal amounts of aid were allocated to Israel and all the Arab states combined. Nationalistic elements in the latter called for a rejection of the aid on the ground that the distribution was “an insult” and was based on a “dangerous principle” of equality of importance of five Arab states with Israel. (See New York Times, June 26, 1951.) The U. S. government was reported in early 1953 as reconsidering its distribution of aid to the Middle East, with the intent of wooing the Arab states from Russian influence by equalizing aid to each nation in the area.

70 Witness the 1951–1953 presentation and justification of the Mutual Security Program by four regions covering the entire non-Soviet world.

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