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Becoming a State-in-the-World: Lessons Learned from the American Occupation of Germany

Published online by Cambridge University Press:  30 November 2012

Grant Madsen
Grant Madsen*
Affiliation:
Brigham Young University
*
[email protected]
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Abstract

For students of American Political Development, the emergence of globalization and Americanization as themes of inquiry has spurred a growing interest in explaining America's rise as “a legal-economic and geopolitical hegemon.” An important episode in this rise came during the American occupation of Germany after World War II. In postwar Germany, America's military government realized that the American public remained unwilling to support (over the long term) the global projection of what Michael Mann has called “despotic power.” To achieve its fundamental goal of reorienting Germany toward a peaceful coexistence with the Unites States, military government turned instead to what Mann has called “infrastructural power” (power projected “through” society by state institutions). In pivoting from despotic to infrastructural power, three important consequences followed for the occupation. (1) Because it relied on the development of new infrastructures within a new German state, the occupation saw institutional “genesis” in which the Germans themselves influenced the pathway and timing of military government policy. (2) In creating new state institutions, military government performed “policy bricolage,” creatively reconstructing institutions “from” the ruins of war-torn Europe (as opposed to “on” its ruins). (3) Financial policy took a central place in military government's focus because it allowed for “increasing returns” in advancing military government's interests. Collectively, military government's experience provided lessons for an American state in the world.

Type
The Military in American Political Development
Information
Studies in American Political Development , Volume 26 , Issue 2 , October 2012 , pp. 163 - 179
Copyright
Copyright © Cambridge University Press 2012

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66. This, too, is consistent with Mann's understanding of “infrastructural power.” As Mann explains, “Infrastructural power is a two-way street: It also enables civil society parties to control the state, as Marxists and pluralists emphasize.” Mann, The Sources of Social Power, 2:59.

67. See Clay, “Food Situation in U.S. Zone, 18 May 1946, From Clay Personal for Echols,” The Papers of General Lucius D. Clay, 1:208 and “Food Situation in U.S. Zone, 16 March 1946, From Clay Personal for Berry,” ibid., 1:179.

68. “Transfer from Karlsruhe to French Zone (From Clay Personal to McNarney),” ibid., 235.

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73. This seemed to be in part because Douglas was the brother-in-law of Jack McCloy. (See Eisenberg, Drawing the Line, 67.)

74. “Interview with General Lucius Clay: Interview #17,” conducted by Jean Edward Smith (February 9, 1971), Lucius Clay Oral History, Dwight D. Eisenhower Presidential Library, Abilene, Kansas (DDEPL), 579. In short, McCloy advised Clay to take advantage of the flexibility McCloy himself had worked to include in the directive.

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81. “General Order No. 52, September 12, 1945,” German Assignment, JDP.

82. Eisenberg, Drawing the Line, 146–47.

83. Dodge, “German Assignment,” 2, JDP.

84. Ibid.

85. See Bernard Bernstein and Richard D. McKinzie, “Oral History Interview with Bernard Bernstein” (July 23, 1975), Harry S. Truman Presidential Library, Independence Missouri (hereafter HSTP).

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93. “Letter from Joseph M. Dodge to Russell Nixon. November 8, 1945,” German Assignment, JDP. On this point, I depart most clearly from revisionist accounts of the German occupation. See Eisenberg, Drawing the Line, 146–47: “Bernstein's replacement was a long-anticipated, but nonetheless momentous change. For months, he had used his berth to lobby passionately for denazification, industrial disarmament, and economic decentralization.” On my account, Eisenberg et al. see in Dodge a “conservative restoration” largely because they ignore the importance of finance to economic concentration. See especially Gabriel and Kolko, Joyce (The Limits of Power: The World and United States Foreign Policy, 1945–1954 (New York: Harper & Row), 142)Google Scholar: “Essentially, Dodge, like Clay's top advisers, expected to work within the framework of Germany's prewar banking and industrial system.” In my view, Kolko gets the facts exactly backwards.

94. “November 2, 1945,” German Assignment, JDP.

95. “November 13, 1945,” “November 22, 1945,” and “November 27, 1945,” Ibid.

96. Buchheim, “The Establishment of the Bank Deutscher Länder,” 67.

97. “Letter to Gen. Lucius D. Clay, January 20, 1947” German Assignment, JDP.

98. Buchheim, “The Establishment of the Bank Deutscher Länder,” 68.

99. Ibid., 75.

100. Ibid., 73–75; also Gramer, Regina Ursula, “From Decartelization to Reconcentration: The Mixed Legacy of American-Led Corporate Reconstruction in Germany,” in The United States and Germany in the Era of the Cold War, 1945–1990, eds. Junker, Detlef et al. (New York: Cambridge University Press, 2004), 290Google Scholar.

101. Buchheim, “The Establishment of the Bank Deutscher Länder,” 70–80.

102. Clay, Decision in Germany, 334.

103. Most of the literature on this question suggests that Clay adopted a kind of American “corporatism” as a means to solving the economic problem. As Marie-Laure Djelic argues, by 1947 military government had decided to rebuild “a strong West German industry, along the lines of the American corporate model” (Djelic, Marie-Laure, Exporting the American Model: the Post-war Transformation of European Business (Oxford: Oxford University Press, 1998), 163CrossRefGoogle Scholar). See also Maier, “The Politics of Productivity”; Hogan, The Marshall Plan; Hogan, Michael J., “Corporatism,” The Journal of American History 77, no. 1 (1990)CrossRefGoogle Scholar. As I suggest in what follows, Clay largely concluded that German recovery did not require industrial restructuring (along American lines or otherwise) nor did concentrated industry prove antithetical to democratic institutions—with the exception of banking. Rather, once the financial system had been reset, the normal incentives of market economies would naturally revive a largely modern industrial base. As goods became available at real prices, the state would gain the confidence of the populace. Clay could therefore become increasingly agnostic about industrial reorganization.

104. Tooze, The Wages of Destruction, 295.

105. James, “The Reichsbank 1876–1945,” 39–40.

106. Tooze, The Wages of Destruction, 295–98.

107. See Baltensperger, Ernst and Bundesbank, Deutsche, Fifty Years of the Deutsche Mark: Central Bank and the Currency in Germany since 1948 (Oxford: Oxford University Press, 1999), 41–42Google Scholar.

108. Colm, Gerhard, Dodge, Joseph, and Goldsmith, Raymond W., “A Plan for the Liquidation of War Finance and the Financial Rehabilitation of Germany,” Zeitschrift für die gesamte Staatswissenschaft 111 (1955): 207Google Scholar.

109. “September 17, 1945,” German Assignment, JDP.

110. “November 13, 1945,” Reports from Germany, German Assignment, Box 2: Correspondence, JDP.

111. John D. Hilldring, “Cable ‘Mission on anti-inflation,’ (January 25, 1946),” German Assignment, Box 1: Correspondence from Gen. Lucius Clay, JDP.

112. Lloyd, E. M. H., “Price Control and Control of Inflation,” The Review of Economics and Statistics 27, no. 4 (1945): 149CrossRefGoogle Scholar. Curiously, despite disagreeing on almost all other points, Milton Friedman concurred with Paul Samuelson and Robert Solow's view that economic knowledge in the immediate postwar lacked a clear understanding of inflation. See the introductory pages of Friedman as well Samuelson and Solow in: Samuelson, Paul A. and Solow, Robert M., “Analytical Aspects of Anti-Inflation Policy,” The American Economic Review 50, no. 2 (1960)Google Scholar; and Friedman, Milton, “The Role of Monetary Policy,” The American Economic Review 58, no. 1 (1968)Google Scholar.

113. “Reports from Germany,” German Assignment, Box 2: Correspondence, JDP. See also Bresciani-Turroni, Costantino and Sayers, Millicent E., The Economics of Inflation: a Study of Currency Depreciation in Post-war Germany (London: G. Allen & Unwin ltd., 1937)Google Scholar; Dupriez, Léon H., Monetary Reconstruction in Belgium (New York: Carnegie Endowment for International Peace King's Crown Press, 1947)CrossRefGoogle Scholar; Foa, Bruno, Monetary Reconstruction in Italy (New York: Carnegie Endowment for International Peace King's Crown Press, 1949)Google Scholar. In Dodge's notes he does not indicate whether he read the English translations of these works or had them summarized and translated while in Germany (or later). Contextually, though, it seems clear that he consulted them around the time of his assignment in Germany and that he referred to these as notes for devising policy. See “Notes on Inflation,” Budget Bureau, Box 10: Inflation, JDP.

114. Dodge, “Notes on Inflation” Budget Bureau, Box 10, Inflation, JDP.

115. Ibid., also “Address of the President: The Annual Convention of The American Bankers Association,” Detroit, Michigan, 28 Sept. 1948, Additional Papers, 8.

116. The Colm-Dodge-Goldsmith report remained top secret for several years after Clay received it. Gerhard Colm and Raymond Goldsmith had both emigrated from Germany before the war. An additional economist working for Dodge in the Finance Division, Taylor Ostrander, recommended them to help with it. A number of additional economists in the Finance Division also helped with the technical analysis that made up the appendices included in it. I focus largely on Dodge because his initial vision provided the outline of the report; in reality, though, the final Cold-Dodge-Goldsmith report reflected the work of many hands. See, for a full discussion of the report: Kindleberger, Charles P. and Ostrander, F. Taylor. “The 1948 Monetary Reform in Western Germany,” International Financial History in the Twentieth Century, ed. Flandreau, Marc, Holtfrerich, Carl-Ludwig, and James, Harold (Cambridge: Cambridge University Press, 2003)Google Scholar.

117. Colm et al., “A Plan for the Liquidation of War Finance,” 215, 207.

118. Colm et al., “A Plan for the Liquidation of War Finance,” 211–14. The report explained the reasoning for the ninety percent reduction: “The ratio of liquid funds in 1935 to national income in that year was approximately .60. If this ratio, which was a normal one for most pre-war years, were to be re-established in 1946, it would be necessary to reduce the sum of currency and deposits to about 20 billion DM. This represents a reduction of more than 90 percent in the present total of currency and deposits, it is an important reason for the recommendation in the present report that new currency be exchanged for old, in the ratio of 10 RM = 1 DM” (222).

119. “Interview with General Lucius Clay: Interview #21,” conducted by Jean Edward Smith (March 3, 1971), Lucius Clay Oral History (DDEPL), 682–83.

120. “Letter from John C. de Wilde,” German Assignment, JDP: “You may have heard that thanks to a herculean effort of Ken Galbraith who got the acting Secretary to intervene with the Secretary of War, the War Department finally agreed to instruct Clay to go ahead with the CDG plan without alteration. Clay accordingly introduced the plan at the 73rd meeting of the Coordinating Committee on August 29, and it was referred to the Finance Directorate.” Dodge and Galbraith worked together through the summer on the currency plan (see also “Letter from Joseph M. Dodge to Dr. Gerhard Colm. July 1, 1946,” and “Letter to Gen. Lucius D. Clay, July 15, 1946,” JDP). It appears that Galbraith used much of what he learned from this experience in drafting his paper: Galbraith, John Kenneth, “Recovery in Europe,” in Planning Pamphlets (Washington: National Planning Association, 1946)Google Scholar.

121. See Clay, “Fiscal Reform (From Clay Personal for Echols),” The Papers of General Lucius D. Clay, 1:245.

122. Ibid, 1:246.

123. As quoted in LaFeber, Walter, America, Russia, and the Cold War, 1945–2002, Updated 9th ed. (Boston: McGraw-Hill, 2004), 58Google Scholar.

124. There is an extensive literature on this. See among many: Hogan, The Marshall Plan; Mausbach, Wilfried, Zwischen Morgenthau und Marshall: das wirtschaftspolitische Deutschlandkonzept der USA, 1944–1947 (Düsseldorf: Droste, 1996)Google Scholar; Hardach, Gerd, “The Marshall Plan,” The United States and Germany in the era of the Cold War, 1945–1990, eds. Junker, Detlef et al. (New York: Cambridge University Press, 2004)Google Scholar; Wala, Michael, “The Marshall Plan and the Origins of the Cold War”The United States and Germany in the era of the Cold War, 1945–1990, eds. Junker, Detlef et al. (New York: Cambridge University Press, 2004)Google Scholar.

125. Buchheim, Christoph, “From Enlightened Hegemony to Partnership: The Unisted States and West Germany in the World Economy, 1945–1948,” in The United States and Germany in the era of the Cold War, 1945–1990, eds. Junker, Detlef et al. (New York: Cambridge University Press, 2004), 259Google Scholar; Mierzejewski, Alfred C., Ludwig Erhard: a Biography (Chapel Hill: University of North Carolina Press, 2004), 67Google Scholar.

126. This episode, including the quotations, comes from Smith, Lucius D. Clay: an American Life, 484–5. See also Mierzejewski, Ludwig Erhard: a Biography, 69–70.

127. Ibid., 486.

128. “The New Rate” (broadcast, 21 June 1948), reprinted in Erhard, Ludwig, The Economics of Success (Princeton: Van Nostrand, 1963), 50–51Google Scholar.

129. Buchheim, “The Establishment of the Bank Deutscher Länder,” 61.

130. Clay, “Conditions in Germany, September 18, 1948,” The Papers of General Lucius D. Clay, 2:858–59.

131. Giersch, Herbert et al., The Fading Miracle: Four Decades of Market Economy in Germany (Cambridge: Cambridge University Press, 1994), 42Google Scholar.

132. Mierzejewski, Ludwig Erhard: a Biography, 73; and Giersch et al., The Fading Miracle, 42.

133. Clay, Decision in Germany, 219–20.

134. See Pierson, “Increasing Returns, Path Dependence, and the Study of Politics.”

135. Giersch et al., The Fading Miracle, 41.

136. See Van Hook, Rebuilding Germany: The Creation of the Social Market Economy, 1945–1957, 4 note 5; Steege, Black market, Cold War: Everyday Life in Berlin, 1946–1949, 13.

137. Thomas A. Schwartz, “‘No Harder Enterprise,” 31.

138. Clay, Decision in Germany, 210, 214. In fairness, Clay also felt that these reforms were “given too much credit for the recovery which followed,” suggesting instead that these reforms were important precursors and compliments to the Marshall Plan. In short, the combination of banking reform, currency reform, and the integration of European markets in conjunction with economic aid all worked to bring about economic recovery in Germany (see pages 215–26).