Why and How the Corporate Rich and the CFR Reshaped the Global Economy after World War II
…and Then Fought a War They Knew They Would Lose in Vietnam
by G. William Domhoff
In this document I want to show — in painstaking detail — just why and how the corporate and financial leaders in the United States actively influenced American foreign policy between 1939 and 1941, with the goal of shaping the world to their economic and political liking after World War II. They then financed and eventually openly fought an war to maintain British and French dominance in Southeast Asia from 1945 to 1975 as part of their larger vision. Contrary to the most widespread opinion, a good part of their rationale was economic at a time when the American economy was still suffering from the Great Depression, which was unlike anything seen before or since. They fully believed that they absolutely needed a huge chunk of the world as trading partners, sources of raw materials, and investment outlets if they ever were going to make the American economy highly productive and profitable again without having to accept greater government involvement in the economy, which was anathema to most of them. Nor did they want higher government taxes. They also rejected the idea of having to deal with strong unions, or any unions at all, for that matter, which could cut into both their profits and their control over each and every decision within their corporations, a story that is told in another document on this site.
Note again the italicized phrase in the previous paragraph about „greater government involvement in the economy.“ They warned one and all that increased government control would lead to socialism and a loss of freedom, which supposedly meant a country like the Soviet Union. Some of them may have believed this claim, but most of the American corporate rich — the owners and managers of large incorporated income-producing properties in all sectors of the economy — knew that there are degrees of government involvement, and that it was possible to run a high-employment, private-property market economy with government social supports for low-income people, as well as some government investment in the economy if necessary. Indeed, they knew full well that Sweden, for example, was being written about in the 1930s as a „third way.“
It is my belief that what they really didn’t like about the idea of intervention in the economy by the elected democratic officials of the federal government — that is, by the president and Congress — was that they might lose some of their power, privilege, and profits (ranked in that order), which they had enjoyed without any lasting challenge for many decades until their own short sightedness helped drive the economy into a major depression between 1929 and 1933 (through decisions not unlike those that led to the financial collapse of 2007-2008). It was the Great Depression that led a large majority of American voters to put the Democrats in power in a desperate situation; about 25% were unemployed by 1933. The result was a „New Deal“ that led to some improvements in the economic situation, more government support for low-income people, however meager and temporary, and to more authority for elected officials and the hired employees they appointed to carry out their directives.
This document has three major parts, so it is not for the faint of heart. It tells a step-by-step story. It is assembled from various chapters I wrote for books in the past, and then updated on several points based on new research in archives by a wide range of scholars. In those past chapters I was writing about these events in order to argue that rival theorists were wrong on one or another issue, but here I put aside old academic disputes. Suffice it to say that everything that follows refutes any academic theory that denies that there is a corporate-based dominant class in the United States that has far more power than unions, environmentalists, consumer activists, various kinds of independent experts, or government officials.
The account that follows also implicitly disagrees with those many people outside the academy called conspiracy theorists, or conspiracists, who start with the premise of an alleged secretive worldwide elite that has been out to rule the world since the late 18th century, with full success always just over the horizon for the last 80 years now, but never materializing. They overstate the power of the corporate rich, fail to appreciate the divisions between internationalists and nationalists in the corporate community, misunderstand the motives and goals of the corporate rich, misunderstand and distort the role of the policy-discussion groups I discuss, make many inaccurate historical claims, and make false claims about alleged connections between the top American leaders and elites in rival countries.
Since this document has a strong focus on one particular organization — the Council on Foreign Relations — this introduction is important in explaining my general viewpoint in a way that I hope will make sense to all but the most conventional or conspiratorial of thinkers. I see general policy-discussion organizations such as the Council on Foreign Relations, along with the „think tanks“ that provide advice to them, as the main ways in which corporate leaders attempt to reach policy consensus among themselves and impress their views upon government. As I have claimed since the early 1970s (e.g., Domhoff, 1970a, 1971, 1974, 1979; 2014, p. 93), they have four main functions within the corporate community and three roles in relation to the general public:
- They provide a setting in which corporate leaders can familiarize themselves with general policy issues by listening to and questioning the experts from think tanks and university research institutes.
- They provide a forum in which conflicts between moderate conservatives and ultraconservatives can be discussed and compromised, usually by including experts of both persuasions within the discussion group, along with an occasional liberal on some issues.
- They provide an informal training ground for new leadership. It is within these organizations that corporate leaders can determine in an informal fashion which of their peers are best suited for service in government and as spokespersons to other groups.
- They provide an informal recruiting ground for determining which policy experts may be best suited for government service, either as faceless staff aides to the corporate leaders who take government positions or as high-level appointees in their own right.
In addition, the policy groups have three useful roles in relation to the rest of society:
- These groups legitimate their members as serious and expert persons capable of government service. This image is created because group members are portrayed as giving of their own time to take part in highly selective organizations that are nonpartisan and nonprofit in nature.
- They convey the concerns, goals, and expectations of the corporate community to those young experts and young professors who want to further their careers by receiving foundation grants, invitations to work at think tanks, and invitations to take part in policy discussion groups.
- Through such avenues as books, journals, policy statements, press releases, and speakers, these groups try to influence the climate of opinion both in Washington and the country at large.
Turning specifically to the Council on Foreign Relations („CFR“ or „the Council“), it was never a secret. Nor was it secretive about its relationship with the British Institute of International Affairs, established in 1920 with the same purposes as the CFR. (In 1926 its name was changed to the Royal Institute of International Affairs.) In the case of the CFR, it had little or no influence between its founding in 1921 and the late 1930s, which were years in which the more ultraconservative and nationally oriented leaders within the corporate community were the dominant segment of the corporate community in terms of foreign affairs, especially in terms of their closer relationship with the isolationist Republicans in Congress (Schulzinger, 1984, Chapters 1-2; Wala, 1994, Chapters 1-2). Thus, it is their relative policy weakness, not their strength, which explains why the more internationally oriented corporate leaders created the Council on Foreign Relations. They hoped to convince at least some of the ultraconservatives, along with the general public and elected officials, to take a different direction.
The CFR publishes annual reports, makes it positions known through articles in its highly regarded journal, Foreign Affairs, and has sponsored events and historical pamphlets commemorating what it considers to be significant milestones. This picture is opposite of what conspiratorial thinkers claim, as I showed in a detailed critique of three well-known and widely read conspiracists of the 1960s, Dan Smoot, Phyllis Schlafly, and Reverend William S. McBirnie (Domhoff, 1970b, Chapter 8). This was all to no avail, of course, except that it now can be confessed that the main targets of the chapter were those mainstream scholars that called anyone they disagreed with a conspiratorial theorist. However, this covert stratagem failed as miserably as the ostensible goal.
After the role of the CFR’s role in shaping postwar foreign policy is demonstrated in the first section of the chapter, I turn in the second section to a detailed account of how international corporate leaders, Wall Street financiers, and policy experts concerned with international relations worked through the war-peace study groups to develop the plans that shaped the economic framework for an increasingly internationalized postwar economy, starting with the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, commonly known as the World Bank. At the same time, I also show how the plans for the IMF were modified, watered down, and made more pliable to American interests by the New York bankers and the ultraconservative corporation leaders in the corporate community. To emphasize the power of the nationalists, pejoratively called isolationists by the internationalists, I note here in passing that they were able to block Congressional approval of the International Trade Organization, the forerunner of the World Trade Organization, forcing the executive branch to make do with a limited version of the full panoply of what corporate planners had hoped to create (R. Gardner, 1980).
Then, in the final section, I make the case that the postwar planning I describe in the first two sections, and especially the first section, provided the context and explicit policy guidelines that led step-by-fatal-step to 30 years of warfare in Vietnam, first by the French, with military and financial aid from the United States, and then by the Americans themselves. At the same time, I express my agreement with the magisterial work of historian Fredrik Logevall (1999, 2012) that American foreign policy leaders could have chosen a different course at many different critical junctures, but they somehow always managed to fall back on their longstanding geopolitical concern for economic and political predominance in the world. They wanted to hold, and succeeded in holding, a preponderance of power (Leffler, 1992)
The Council on Foreign Relations and the postwar world
It is my contention that the starting point for understanding how and why a new conception of the American national interest and a new framework for the postwar world economy were developed between 1939 and 1942 can be found in the work of the war-peace study groups that were sponsored by the CFR, which worked closely with the State Department in those years. This claim builds on detailed studies by historian Laurence Shoup (1974; 1977) and my own historical research in several different archives, but it is grounded in the research of many other scholars as well.
In putting great emphasis on the Council and its war-peace study groups, I am not denying that other private organizations and internationally oriented mass media played a role in influencing government officials and public opinion. As Robert Divine (1967) showed in detail, there were at the time many such organizations supported by internationalists around the country. Moreover, the magazines of publisher Henry Luce, and particularly Time and Fortune, pushed very hard for postwar planning from 1940 to 1944, often chiding the White House and State Department for failing to keep up with a public opinion that increasingly favored American involvement in the war and in postwar planning once France fell and Germany attacked Great Britain. As early as January 1940, for example, a 19-member Fortune Roundtable discussion group, consisting of a cross section of business leaders, lawyers, and association officials, called for United States participation in organizing for the postwar peace discussions.
Despite the existence of several organizations, complete with personal and financial rivalries among their leaders, it is still the case that many of the leaders of the other organizations were members of the Council or its postwar planning groups, including Luce and the organizer of his roundtable discussion groups. In fact, the Luce empire’s published reports were sometimes versions of what academic experts were proposing to the State Department as part of their confidential work for the CFR. In short, the Council was the sustained and well-financed core of an internationalist corporate perspective that projected a very large role for the United States in the postwar world. Its function was to create and organize the policy goals of the internationalist segment of the dominant class.
The Council on Foreign Relations had its origins in the years after World War I when many American leaders returned from the Paris Peace Conference dissatisfied with both their preparation for the negotiations and the outcome of the conference. They also believed that the growing economic power of the United States should lead to greater involvement and leadership in world affairs than the nation previously had shown. The formal founding of the CFR in 1921 was based on the merger of a New York businessmen’s discussion group and a fledgling Institute of International Affairs, which consisted in good part of statesmen and academic experts. As Divine (1967, p. 20) summarizes, the new CFR was restricted to 650 members, 400 from New York and 250 from the rest of the country, and had a membership roster that read like a Who’s Who of American leaders. Partners from Wall Street’s J. P. Morgan and Company interacted with professors, international lawyers, corporate leaders, syndicated columnists, clergymen, and State Department officials. This small membership constantly has to be kept in mind because the CFR from the 1920s to the late 1960s cannot be directly compared without more detailed study to the much larger CFR that came to be in the 1970s.
In any event, there is ample systematic evidence to support Divine’s contention that the Council way back then was the province of internationally oriented bankers and corporate executives in New York and surrounding areas, as well as of academic experts and journalists. It also is well established that its funding for projects came from large foundations directed by business leaders who were members of the Council in significant numbers (e.g., Domhoff, 1970b, Chapter 5; Schulzinger, 1984; Shoup & Minter, 1977, Chapters 1-3; Wala, 1994).
Both then and now, the Council endeavors to realize its internationalist aims through discussion groups, research studies, book length monographs on a wide variety of countries and issues, and articles in Foreign Affairs. In attempting to foster its perspective, the Council has seen its primary adversaries as isolationists in Congress and the nationally oriented ultraconservative business executives who do not want the United States to become entangled in world affairs outside America’s own „backyard,“ the southern half of the Western Hemisphere. In the early 1930s, its leaders vigorously entered a national debate in opposition to „self sufficiency“ and greater government control of the economy, and supported such steps toward internationalism as the Export Import Bank of 1933 and the Reciprocal Trade Act of 1934 (L. Gardner, 1964; Shoup, 1974; Woods, 2003).
Any private group seeking to influence the White House and State Department must know who is making decisions, when secret decisions are likely to be discussed and made, and what kinds of arguments and information are being utilized in making these decisions. Furthermore, to influence decisions a private group must have legitimacy in the eyes of decision makers and access to them (Shoup, 1974, pp. 16-17). There is reason to believe that the Council had such information, legitimacy, and access by the 1930s. Respected scholars conducted its studies. Its leaders were regarded as highly informed about foreign affairs. Government officials were often members of its discussion groups. Then too, many members had served in government positions or as government advisers, and maintained close social relations with key decision makers when they returned to private life. For example, CFR director Henry L. Stimson, a New York corporation lawyer for most of his adult life, had been secretary of war under Taft, secretary of state under Hoover, and was named secretary of war by Roosevelt in June 1940, a position he held until the end of the war.
However, perhaps the best single example of this point about access and legitimacy for the crucial era under consideration in this document is banker Norman H. Davis, president of the CFR from 1936 until his death in 1944. His relationships with top decision makers in the State Department and White House were long standing and close, particularly with Secretary of State Cordell Hull and Roosevelt. The son of a successful businessman in Tennessee, Davis became a millionaire by means of financial dealings in Cuba between 1902 and 1917. Through his friendships with Henry P. Davison, a partner in J. P. Morgan, and Richard M. Bissell, president of Hartford Fire Insurance, Davis became a financial adviser to the secretary of treasury on foreign loans during World War I.
Davis also was a financial adviser to the American delegation to the Paris Peace Conference in 1919, where he worked with Thomas Lamont, another Morgan partner. He then served briefly as an assistant secretary of treasury and undersecretary of state before turning to a banking career in New York in March 1921. At this point Davis involved himself in the affairs of the Democratic Party, through which he became friends with fellow Tennessean Cordell Hull, then a congressman and chairman of the national party. During this time he also became friends with Roosevelt. In 1928 Roosevelt had begun work as a private citizen on an international development trust to stimulate foreign trade, and Davis helped him with the project (L. Gardner, 1964, p. 19, and see also the letter from Roosevelt to Davis dated October 8, 1928, in the Davis Collection in the Library of Congress). In addition, Davis was a delegate to international conferences under Republican presidents in 1927 and 1932, and Roosevelt made him an ambassador at large in 1933 and then head of the American Red Cross in 1938.
Outside the political sphere, Davis was considered a „well known friend of the Morgan Company,“ according to former Roosevelt adviser Raymond Moley (Shoup, 1974, p. 27). (For Davis‘ own detailed account of his relation to the Morgan interests, see his undated memorandum to Hull in the Davis Collection in the Library of Congress). Davis became the Morgan partners‘ Cuban representative as early as 1912, and negotiated a $10 million loan from Morgan for the Cuban government in 1914. In 1926, when Sumner Welles, a friend of Roosevelt’s who became his undersecretary of state, wanted a job with the Morgan affiliated Guaranty Trust Bank, „he wrote Davis, who offered to arrange for Welles to see the officials of the Guaranty“ (Shoup, 1974, p. 27). By the time he was elected CFR president, Davis also was a trustee of the Bank of New York and Trust Company.
Davis had direct and frequent access to Roosevelt and Hull in the years between 1940 and 1942, when postwar planning was in its crucial formative phase. For example, there were two telephones in Davis‘ office at the American Red Cross, one for normal calls, the other a direct line to the White House. As for Hull, his appointment calendar shows that Davis met with him in his office several times a week; he also played croquet with Davis most nights of the week (Shoup, 1974, p. 30).
Similar relationships between council leaders and foreign policy leaders will become apparent as the story of postwar planning unfolds. However, the more important questions is whether government officials relied upon and reshaped their thinking based the information and recommendations of CFR experts later hired by the state department to do government planning. It is that critical issue that I address in the next section, showing that the postwar planners of the Council on Foreign Relations in fact provided the bulk of the State Department’s postwar planning in 1940 and 1941 from the outside, and became part of the State Department in 1942, when serious planning within the government finally was undertaken.
Why isn’t there more focus on the CFR?
However, before I turn to the role of the CFR in shaping the postwar world and setting the stage for the Vietnam War, I want to discuss the possible reasons why most historians and political scientists that study international relations, American foreign policy, and American diplomatic history do not pay any attention to the Council on Foreign Relations, even though they often mention many of the same people I do as being crucial in creating new policies. Their accounts in effect trace the role of a network of individuals, sometimes noting their former positions as financiers, executives, or professors, but they do not discuss theorganizational network (in this case, the policy-planning network) of which the individual networks are a part (Breiger, 1974; Dreiling & Darves, 2011).
The possibility of considering the CFR as a source of policy ideas and personnel for the government may have been laid to rest as far as most scholars are concerned by a 1984 history of the organization, the Wise Men of Foreign Affairs (1984), by diplomatic historian Robert Schulzinger, the author of several books before and after that date, including several editions of his textbook on U.S. Diplomacy Since 1900 (2002). Schulzinger portrays the Council and its study groups as conventional and banal, not at all innovative. He quotes a letter of resignation from the CFR in 1972 by the witty left-liberal Harvard economist John K. Galbraith, which says that it is „the seat of boredom“ and only „serviceable“ for those who want to know „what the latest cliché is“ (Schulzinger, 1984, pp. ix and 209).
In addition, Schulzinger concludes that the CFR’s war-peace study groups had minor and marginal impacts at best, and were usually ignored by the real decision-makers, such as Secretary of State Cordell Hull and Secretary of Treasury Henry Morgenthau. In doing so, he focuses on discussions of scenarios for postwar disarmament, which of course went nowhere, and on ambitious plans for a world government that were watered down to the United Nations (in which the CFR planners in fact had a considerable influence as what Roosevelt called „my postwar advisers“ (Shoup & Minter, 1977, p. 170). Schulzinger (1984, p. 77) also points out that many of the ideas talked about by a study group concerned with territorial issues were „overtaken by events,“ such as the Nazi invasion of the Soviet Union and the Japanese attack on Pearl Harbor. Turf wars between CFR leaders and other international organizations, along with their competition for funding from foundations, are discussed in a fair amount of detail, revealing their all-too-human pettiness, self-importance, and ambition (e.g., Schulzinger, 1984, pp. 109-111).
The possibility that the Council should be taken seriously becomes even less likely when Schulzinger notes that conspiracists on the right have written about it as the current incarnation of the secretive one-world movement that I alluded to earlier. Nor does it provide any encouragement to researchers when he adds that the CFR has been written about as The Imperial Brain Trust by two „radical scholars,“ who claim that it „produces results that are against both the interests of the American people and of the people of the world.“ He strengthens this point, and links the conspiracists on the right to the radical scholars, by citing a highly critical review of The Imperial Brain Trust by William P. Bundy, a wealthy Bostonian and a prominent member of the CFR from the 1950s through the 1980s, as well as an architect of the Vietnam War as a member of the Kennedy and Johnson administrations. Bundy wrote that the two radicals mentioned by Schulzinger were „avowed Marxists“ whose views bore „a striking resemblance“ to the „picture of the Council“ that is presented by the Far Right“ (Schulzinger, 1984, p. 227).
Since I am neither a Marxist nor a conspiracist, and hopefully not banal and conventional, somewhat different problems may explain why my new archival findings in my earlier efforts did not attract any attention or interest on the part of scholars who specialize in foreign relations (Domhoff, 1970b, Chapter 5; 1990 Chapters 5, 6, and 8). Knowing that the academic world is organized into small circles of experts that do not want to spend valuable time dealing with claims by outsiders of unknown abilities and qualifications, I realize it is unlikely that scholars on any aspect of foreign policy or international relations would take seriously the claims of a political sociologist who focuses primarily on the general nature of the American power structure. Because I never spent more than two or three years at the time doing interviewing and archival research on the specific substantive issue I was dealing with, whether it was the Agricultural Adjustment Act, the Social Security Act, the National Labor Relations Act, urban renewal in New Haven, or the war-peace studies of the CFR, I recognize that the depth of my knowledge on any given topic is suspect to lifelong specialists. However, I always took the time to learn the names of the established academic authorities on a given topic, and to read their work and the reviews of their work. I then situated my own efforts in relation to theirs.
My past work on foreign policy also may have been ignored because I am not prepared to steer clear of new findings simply because they were developed by a historian that theorizes within a Marxian framework. Although my work on the National Labor Relations Act and Social Security Act convinced me that Marxists are far off base on the New Deal (Domhoff & Webber, 2011, pp. 235-241), I find the empirical work on the CFR and postwar foreign policy by Marxist historian Laurence Shoup, one of the two „avowedly Marxist“ scholars referred to by William P. Bundy (Schulzinger, 1984, p. 227), to be excellent on the basis of my own reading and re-reading of the reports and recommendations written by the war-peace study groups, along with my further archival research on the origins of the IMF and the World Bank. However, I do find the presentation of Shoup’s findings in his 1974 dissertation at Northwestern to be better formulated than in The Imperial Brain Trust (1977), his co-authored book with William Minter. I therefore generally prefer to cite Shoup’s dissertation more than the co-authored book, as can be seen in the citations in this document up to this point. But I do not back away from my positive characterization of the main findings in the book, based for the most part on Shoup’s dissertation, which I extolled in a Foreword to the book.
With the likely objections to my emphasis on the role of the Council on Foreign Relations fully in mind, and with the charge of conspiratorial thinking always lurking in the background, I now turn to my account of how the American vision for the postwar world was shaped and realized, with the Vietnam War as one important consequence of that vision.
The CFR and the „Grand Area“ strategy
World War II began in Europe in early September 1939. By September 12, CFR leaders were meeting with Assistant Secretary of State George Messersmith, a longtime member of the Council, to offer their services on postwar planning. Messersmith spoke later in the day with Undersecretary of Welles and Secretary of State Hull, both of whom expressed interest in the idea. Shortly thereafter CFR president Norman Davis talked with his friend Hull and received verbal approval of the plan (Shoup, 1974, p. 64). The State Department also conveyed its approval of the plan to the Rockefeller Foundation, which gave the Council $44,500 on December 6 to begin its work. This foundation support continued for the life of what turned out to be a five year project, and it amounted to over $10 million in 2013 dollars.
Members of the State Department and the CFR met at Messersmith’s home in mid December to finalize the arrangements. According to the plan, the Council would set up study groups to „engage in a continuous study of the courses of the war, to ascertain how the hostilities affect the United States and to elaborate concrete proposals designed to safeguard American interests in the settlement which will be undertaken when hostilities cease“ (Shoup, 1974, pp. 64-66, quoting a CFR Memorandum). In short, the postwar national interest was to be the main concern of the Council’s work.
„Studies of American Interests in the War and the Peace,“ as the project was officially named, began with five study groups: Economic; Financial; Security and Armaments; Territorial; and Future World Organization. However, the first two were quickly made into one Economic and Financial Group, and the Future World Organization Group became the Political Group. Later, in May 1941, a Peace Aims Group was created to ascertain the peace aims of other countries through private discussions in New York with their leaders and representatives.
Each group had a leader, or „rapporteur“ in council language, along with a research secretary and 10 to 15 members. Three of the groups had co-rapporteurs. Almost 100 people participated in the groups between 1940 and 1945. They were a cross section of top level American leadership in finance, business, law, media, universities, and the military, and they included academic experts in economics, geography, and political science as well as White House advisers and other government advisers. „Through these individuals,“ Shoup (1974, p. 68) reports, „at least five cabinet-level departments and fourteen government agencies, bureaus, and offices were interlocked with the War Peace Studies at one time or another. They collectively attended 362 meetings and prepared 682 separate documents for the Department of State and President. Up to 25 copies of each recommendation were distributed to the appropriate desks of the Department and two for the President.“ Unknown to anyone until 1945, the several Soviet spies working in the State Department and White House at the time very likely sent copies of these reports to the Politburo and Stalin, so the American plans were probably accessible to Soviet strategists at the time (Haynes & Klehr, 1999; Haynes, Klehr, & Vassiliev, 2009; Weinstein & Vassiliev, 1999).
Isaiah Bowman, president of Johns Hopkins University, a director of the Council, and one of the nation’s leading geographers, was the leader of the Territorial Group. His role within the CFR and in the government from the 1920s to 1950s has been outlined in impressive detail in a biography by geographer Neil Smith (2003). Whitney H. Shepardson, a lawyer businessman in New York, headed the Political Group; he had served as an assistant to Woodrow Wilson’s closest adviser, Colonel Edward M. House, at the Paris Peace Conference and helped found the Council. In 1942 he went to London to help set up a parallel set of committees with the Royal Institute of International Affairs, which was the British counterpart to the CFR. International lawyer Allen W. Dulles, later the president of the CFR in the late 1940s and the head of the CIA in the Eisenhower Administration, along with The New York Times‘ military expert, Hanson W. Baldwin, were co-leaders of the Security and Armaments Group. Hamilton Fish Armstrong, editor of the Council’s Foreign Affairs and a major figure in the overall war peace studies as vice-chairman under Davis, was the leader of the Peace Aims Group.
The key figures in the Economic and Financial Group, which played the most prominent role in several of the issues of primary concern in this document, were two former presidents of the American Economic Association, Jacob Viner and Alvin H. Hansen. Viner, a professor at the University of Chicago, was the most highly regarded international economist of his era. He began his career of advising government and policy groups during World War I and was an adviser to the Council on Foreign Relations throughout the 1930s as well as an advisor role to the Department of Treasury. Hansen, who went to Harvard in 1938 from the University of Minnesota at the time, was the most visible and renowned Keynesian economist in the country (Galbraith, 1971, pp. 49-50). He had numerous advisory roles within the federal government, serving as a consultant to the State Department, Federal Reserve Board, and National Resources Planning Board, among others, during the time of his involvement with the Council project.
On the basis of their backgrounds, neither Viner nor Hansen could be considered a likely candidate for an important advisory position. Both were raised in modest financial circumstances far from the centers of American wealth and power. Viner was born in Canada and did not become a citizen until he was 22 years old; however, he did receive his Ph.D. at Harvard and rose quickly in the professorial ranks at the University of Chicago. Hansen was born and raised in South Dakota, the son of immigrants from Scandinavia, and he worked as a schoolteacher and school principal before earning his Ph.D. at the University of Chicago at the age of 32. He did not arrive at Harvard until he was nearly 50, about the same time he became a Keynesian. Both Viner and Hansen, then, are testimony to the social mobility that is possible through involvement in American academic circles.
Despite differing theoretical orientations, Viner and Hansen worked closely in the Economic and Financial Group, and they were joined by other economists with a similar range of views, including Percy Bidwell, Winfield Riefler, Eugene Staley, and Arthur Upgren. William Diebold, Jr., served as research secretary. The fact that experts of diverse orientations were hired by the CFR for its project suggests a flexibility and farsightedness said to be lacking in the higher circles by many skeptics about the ability of at least some corporate leaders to look at the big picture and think ahead.
The Economic and Financial Group had two direct connections to the White House. The first was economist Lauchlin Currie, an early Keynesian who had worked at the Federal Reserve Board in the mid I 930s and joined the White House in 1939 as Roosevelt’s administrative assistant with special duties in the field of economics, a position he held until 1945. He was considered the White House liaison to the group (Roosevelt Papers: Official File 3719, November 27, 1941). He joined the discussion group officially in February 1943. (He was also a Soviet spy, it turned out (Haynes & Klehr, 1999; Haynes, et al., 2009).) Benjamin V. Cohen, a New York corporation lawyer famous for his partnership with Thomas Corcoran in crafting important New Deal legislation, including the Securities and Exchange Commission Act and the Public Utilities Holding Company Act, was the other Economic and Financial Group connection to the White House was. He joined the in September 1941.
The Economic and Financial Group later developed ties with a new policy discussion group, the Committee for Economic Development (CED), which was created in 1942 by moderate conservatives within the corporate community that had close relationships with the Department of Commerce. One of the founders of the CED, business executive Ralph Flanders, joined the Economic and Financial Group in July 1942. Another important connection between the CFR and the CED was provided by one of the aforementioned economists, Arthur Upgren, who had a major role through the Commerce Department in organizing the CED (Collins, 1981; Domhoff, 2013, for details on the origins and ongoing efforts of the CED).
At the same time as the CFR was organizing its study groups, the Department of State created its own internal structure for postwar planning. In mid September 1939, after a series of meetings with council leaders, Hull appointed a special assistant, Leo Pasvolsky, to guide government postwar planning. Shortly thereafter, on December 12, Pasvolsky drafted a plan for a new departmental division to study the problems of peace and reconstruction (Shoup, 1974, p. 70). Then, in late December, the department formed a policy committee named The Advisory Committee on Problems of Foreign Relations, with Undersecretary Welles as chairman. All members were officers of the State Department except Davis of the CFR and lawyer George Rublee, a founding member of the CFR and the director of the federal government’s Inter-governmental Committee on Political Refugees.
It is important to look more closely at the State Department’s planning structure and personnel in order to understand the central role played by the CFR. First, the special assistant to Hull, Leo Pasvolsky, had been an employee of the Brookings Institution, a private think tank, from 1923 to 1935, and then received his Ph.D. in international economics from Brookings in 1936. He also had been a member of the CFR since 1938. After working for the Bureau of Foreign and Domestic Commerce in 1934-35 and the Division of Trade Agreements within the Department of State in 1935-36, he became a special assistant to Hull from 1936 to 1938, and then again from 1939 to 1946, when he returned full time to the Brookings Institution until his death in 1953. All this suggests that Pasvolsky was as close to private postwar economic planners as he was to the decision-makers on foreign policy.
The division of policy studies envisioned by Pasvolsky in his memorandum of December 12, 1939, did not come into being until early in 1941 due to the lack of personnel in the department. Indeed, Pasvolsky’s memorandum indicated that the division’s own research would be minimal at first and stated that it „would stress assembly of materials and the attempt to influence the research activities of unofficial organizations (Shoup, 1974, p. 71, his paraphrase of the memorandum). Not to mince words, any early planning would come from the Council under the general guidance of the State Department. Much of this guidance came from Pasvolsky himself, who regularly attended meetings of the Economic and Financial Group.
As for the state department’s policy level Advisory Committee on Problems of Foreign Policy, it did very little before it became defunct in the summer of 1940 because the pressure of immediate events was too great for thinking about postwar problems in the understaffed department as the war in Europe escalated in 1940. It was not replaced until late December 1941, after the United States had entered the war, when it was enlarged and renamed the Advisory Committee on Postwar Foreign Policy.
It is in this context of meager state department postwar planning, then, that the Council carried out its own postwar planning efforts. Furthermore, as the previous several paragraphs demonstrate, the CFR had direct connections with Hull, Welles, and Pasvolsky. It was an ideal situation in which an outside group could have great influence. That is, the part of the government concerned with foreign policy was both understaffed (and therefore „weak“) and permeable, which meant that outsiders such as the members of the CFR might be able to influence it directly.
As already noted, the earliest and most important council planning for the purposes of this section took place within the Economic and Financial Group. It began modestly with four papers dated March 9, 1940. They analyzed the effect of the war on United States trade, concluding that there had been no serious consequences up to that point. Similarly, five papers dated April 6 were primarily descriptive in nature, dealing with the possible impact on American trade of price fixing and monetary exchange controls by the belligerents. Two papers dated May 1 provide an indication of the direction council planning might take.
The first of these papers warned that a way would have to be found to increase American imports in order to bring about a necessary increase in exports. The second concluded that high American tariffs had not had a big influence in restricting American imports. Although reducing tariffs would help to increase imports, boosting industrial activity and consumer income would do even more to increase them. Given the almost exclusive emphasis Hull put on reducing foreign and domestic tariffs to foster the international economy he single mindedly sought, this conclusion is the first piece of evidence that the Council was going to develop its own analysis rather than reinforcing the State Department’s usual conception of the national interest in relation to economic issues. Thus, because many scholars who study international relations and American foreign policy believe that State Department economic policy was based on an amorphous „Wilsonianism“ between 1940 and 1947, any divergences between Hull and the Council perspective are evidence for CFR influence.
The Nazi invasion of France in May 1940 and the subsequent attack on Great Britain turned the attention of both the State Department and the Council to the problem of stabilizing the economies of Latin American countries that previously had depended upon their exports to continental Europe. There were numerous meetings and exchanges of information between State and the Council from May to October in relation to this work. At a plenary meeting of all council groups on June 28, the project’s official contact with the State Department, Hugh R. Wilson, urged that materials given to the department should be couched as practical recommendations (Shoup, 1974, p. 91). Pasvolsky then outlined the close relationship that had developed, stating that:
He had gone over many details with Mr. Hansen, had suggested some directions of work, and had pointed out to Mr. Hansen the great usefulness of the work already done. The relations between the groups and the State Department were such that, for economic matters, he might be asked at any time about the usefulness of a proposed investigation. He did not think lack of knowledge of general policies ought to prove a serious obstacle. (Shoup, 1974, p. 91, quoting CFR Memorandum E-A10, June 28, 1940).
On June 10, State Department planners suggested it might be necessary to set up a single trading organization to market all surplus agriculture production in the Western Hemisphere. This would make it possible to bargain in the face of Germany’s great economic power. However, it was realized that this kind of solution was not in keeping with American values and would be criticized by the corporate community. When Roosevelt asked on June 15 for a recommendation by June 20 on what to do about the economic problems of Latin America, it was decided that as an interim measure the government’s Reconstruction Finance Corporation should supply the money to buy the surplus products. On September 26, Congress gave the Reconstruction Finance Corporation $500 million to carry out this policy.
Moreover, the Economic and Financial Group had concluded in a paper of June 7, three days before the first State Department memorandum, that a „Pan-American Trade Bloc“ would not work because it would be weak in needed raw materials and unable to consume the agricultural surpluses of Canada and the southern half of Latin America. There were too many national economies in the hemisphere that were competitive with each other rather than complementary. Furthermore, economic isolation in the Western Hemisphere would cost the United States almost two thirds of its foreign trade (Shoup, 1974, p. 102). As if that were not enough, CFR planners shortly thereafter concluded that any Western Hemisphere cartel for selling to Germany was doomed to failure because the self-sufficiency of the German bloc was such that it could not be forced to trade with the Western Hemisphere (Shoup, 1974, p. 106).
It was in analyzing this problem that the Council began to define the national interest in terms of the minimum geographical area that was necessary for the productive functioning of the American economy without drastic controls and major governmental intervention, both of which were out of the question for the entire corporate community and Wall Street. A report of June 28, entitled „Geographical Distribution of United States Foreign Trade: A Study in National Interest,“ showed both the increasing importance of the country’s manufacturing exports as compared to agricultural exports and the increasing importance of Asia and Oceania for both exports and imports. As Shoup (1974, pp. 107-108) summarizes, „They concluded that the Far East and Western Hemisphere probably bore the same relationship to the United States as America had to Europe in the past — a source of raw materials and a market for manufactures.“
Equally important, and essential in understanding the hegemonic role undertaken by the United States, other studies soon concluded that the economies of Great Britain and Japan could not function adequately in harmony with the American economy without a large part of the world as markets and suppliers of raw materials. It was emphasized that Japan’s trade needs could be accommodated as part of a larger solution to world economic problems, but that the United States‘ problems could not be solved if Japan excluded the American economy from Asia. This economic argument, as argued in detail in section three, provides the starting point for the policies that later led to the application of a communist containment policy to Southeast Asia and then to war in Vietnam. While strategic and ideological dimensions were later added to concerns about Southeast Asia, it is the critical economic issue in relation to the British and Japanese economies that is usually overlooked in most standard accounts of American postwar foreign policy.
The council refined its analysis from July through September with „detailed study of the location, production, and trade of key commodities and manufactures on a world wide basis and within the framework of blocs [of nations]“ (Shoup, 1974, p. 109). The four blocs were (1) the Western Hemisphere, (2) continental Europe and Mediterranean Basin (excluding the Soviet Union), (3) the Pacific area and Far East; and (4) the British Empire (excluding Canada). Due in good part to the export competition between the southern countries of Latin America on the one hand and Australia, New Zealand, and India on the other, Great Britain itself was seen as an essential market for dealing with agricultural surpluses. Only with Great Britain included was there a non German area that was self sufficient and harmonious, as a memorandum of September 6 concluded (Shoup, 1974, p. 110).
These economic issues were embodied in CFR Memorandum E-B19 of October 19, 1940 that was the first full statement of the national interest from the CFR. It „set forth the political, military, territorial and economic requirements of the United States in its potential leadership of the non German world area including the United Kingdom itself as well as the Western Hemisphere and the Far East“ (Shoup, 1974, p. 111, quoting E-B19). After summarizing changes in the nature and direction of American trade, it stated that „the foremost requirement of the United States in a world in which it proposes to hold unquestioned power [my italics] is the rapid fulfillment of a program of complete re armament“ (Shoup, 1974, p. 113, quoting E-B19). The maintenance of British resistance to the Nazis would have to be supported through new forms of aid, as had been suggested in a brief memorandum of October 15. Also necessary was the „coordination and cooperation of the United States with other countries to secure the limitation of any exercise of sovereignty by foreign nations that constitutes a threat to the minimum world area essential for the security and economic prosperity of the United States and the Western Hemisphere“ (Shoup, 1974, p. 113, quoting E-B19). Finally, there would have to be new monetary, investment, and trade arrangements, which are discussion in the second section of this document.
The introduction to this document makes quite clear what the American political and economic interests were in aiding Great Britain in its war with Germany: political concessions by the British and more favorable economic arrangements for the U.S. economy. It is astoundingly blunt:
The most important features of the immediate war situation — the continued resistance by Britain and certain military and naval implications growing out of it — are considered. These relate to the extent to which the United States, by more extensive expenditures in both a geographic and a financial sense, some of which may be actually a quid pro quo for desired political arrangements, may secure a larger area for economic and military collaboration, thus minimizing costs of economic readjustments that would be greater for a smaller area. (CFR Memorandum E-B19, 1940, p. 1, italics in the original)
This breathtaking memorandum was discussed by members of all four study groups then in existence, and with Pasvolsky present as well, on October 19, 1940, the date it was issued. When the question of Japanese expansion arose, Pasvolsky suggested a study of economic warfare, including an emphasis on the effectiveness of the American trade sanctions against Japan that were beginning at the time. The result was a memorandum of November 23 detailing the great vulnerability of Japan to such sanctions by the United States. Secretary of War Stimson and several other cabinet members already were advocates of an oil embargo, but military leaders feared the United States was not yet prepared militarily for any hostilities (Langer & Gleason, 1953, pp. 34-35).
Members of the Political Group present at the plenary session doubted that Germany would settle for a stalemate in the war, so Pasvolsky suggested that the Political Group might „suggest blocs that it thought might result from the war, and then see what could be done in economic terms within each area. There would be two cores to start on; the first, Germany and the minimum territory she could be assumed to take in the war; the second the United States. Working outward from these cores, one could build up several possible blocs on a political basis, and then examine their economic potentialities“ (Shoup, 1974, p. 11, quoting E-A10).
State Department planners at the staff level, inactive from July to October on postwar questions, resumed their meetings on October 15. They had been organized as the Interdepartmental Group to Consider Postwar Economic Problems and Policies because the group now included representatives from the Tariff Commission, the Federal Reserve Board, and the Agriculture, Treasury, and Commerce departments. Pasvolsky, as chair of the group, proposed a series of commodity studies that paralleled those already completed by the Council; he also gave all members a set of the CFR studies (Shoup, 1974, pp. 124-127). The interdepartmental group’s work on commodity issues was more extensive than that of the Council because of the greater resources the departments and agencies had received by that point, but the „the Council’s initial goal of giving direction to the work of the government had clearly been achieved“ (Shoup, 1974, p. 128).
As the State Department resumed its planning studies, the Political Group at the CFR refined its questions about several of its basic assumptions in an October 19 report for the Economic and Financial Group. It reaffirmed its belief that Germany would not cease its efforts against Britain under any circumstances, meaning that the prolonged coexistence of a German bloc and an American led bloc was politically unlikely even if it were economically feasible. The Political Group also questioned the political viability of one non German bloc dominated by the United States; such a large area might bring charges of imperialism and perhaps alienate some Latin American countries. The Political Group therefore raised the possibility of two democratic blocs in the non German world, one led by Britain, one led by the United States, with close coordination between the two. Finally, the Political Group raised the possibility that economic sanctions would not make Japan more open to negotiations (Shoup, 1974, pp. 132-134). In other words, there were differences in perspective between the Political Group and the Economic and Financial Group that needed to be ironed out.
Members from all council planning groups attended a general meeting to discuss these issues on December 14, 1940, still a full year before American entry into the war. While some disagreements remained after the meeting, a general consensus was reached on three key issues. First, most participants thought there was a need to plan as if there would be a Germanized Western Europe for the immediate future; however, everyone agreed they preferred the defeat of Germany and the integration of Western Europe into the Western Hemisphere/Asia/British Empire bloc, which was now being called the „Grand Area.“ Second, there was general agreement that the Grand Area could not be broken into two democratic blocs because of the danger that Great Britain might try to maintain its empire and exclude the United States from free trade and investment within it. Third, it was agreed that important American economic and strategic interests in Asia were being threatened by Japanese expansionism. The conclusions concerning American interests in Asia were considered so pressing that they were embodied in a memorandum dated January 15, 1941, under the title „American Far Eastern Policy.“
Using one quote from within this policy report, Shoup (1974, p. 137) summarizes the new perspective on the American national interest in Asia as follows, and in the process demonstrates the strategic factors that combined with economic issues in shaping postwar policies toward Southeast Asia:
The main interests of the United States in Southeast Asia were dual in nature. The first was purely economic. The memorandum stated that the „Philippine Islands, the Dutch East Indies, and British Malaya are prime sources of raw material very important to the United States in war and peace; control of these lands by a potentially hostile power would greatly limit our freedom of action.“
The second CFR concern was a strategic one that had political, economic, and psychological aspects. A Japanese takeover of Southeast Asia would impair the British war effort against Hitler, threatening sources of supply and weakening the whole British position in Asia. It was feared that many people might view a Japanese takeover in that region as the beginning of the disintegration of the British Empire. In addition, there was concern that Australia and New Zealand might decide to focus on home defense (Shoup, 1974, p. 137). The report therefore suggested that the United States should take the initiative by (1) giving all possible aid to China in its war with Japanese invaders, (2) building up the defenses of countries in Southeast Asia, and (3) cutting off American exports to Japan of such materials as steel armor, machine tools, copper and zinc under „the excuse of our own defense needs“ (CFR Memorandum E-B26, January 15, 1941, p. 3).
In late February 1941, when trade sanctions already were being imposed on Japan, the State Department began its own studies of the possibilities of full economic warfare with Japan. Sixteen commodity committees were created „to determine which United States exports to Japan were essential to that country“ (Shoup, 1974, p. 140). Two reports were completed by late March and early April, and 38 additional studies by August 1. Inevitably, these studies led to the abandonment of postwar planning by the aforementioned Interdepartmental Group because the commodity studies required the services of all available government staff. The CFR was once again left with the main planning capability on postwar issues.
In early 1941, two closely related issues dominated the planning of council leaders now that the conception of the Grand Area had been firmly established in general discussions at the end of 1940. The first was to gain the acceptance of the Grand Area strategy by both American and British decision makers. This goal was pursued by pressing for a joint British American statement of war aims. The second issue concerned the planning of the economic and political organizations that would be needed to integrate the Grand Area; this problem led to a report on tariffs and preferences as integrating mechanisms in February 1941 and to several reports in the second half of 1941 on new international monetary, investment, and development organizations. The issue of war aims turned out to be an immensely tangled one for a variety of reasons that will be explained shortly. The issue of economic integrating mechanisms is not central to my purpose here, so it is dealt with in great detail in the second section to show the role of CFR planners in the creation of the IMF and the World Bank.
Before turning to the problem of establishing war aims, it is important to state that CFR leaders and planners began to take positions within the government in 1941, a process that was to be intensified greatly a year later. For example, when an Economic Defense Board headed by Vice President Henry Wallace was established on July 30, 1941, to consider postwar economic issues, Wallace appointed economist Riefler of the Economic and Financial Group as his chief adviser. About the same time, Upgren, an economist in the same planning group, became head of the newly created National Economics Unit within the Department of Commerce. It was from this position that he performed staff functions in creating the Committee for Economic Development. Finally, Hansen was appointed as the United States chairman of the Joint Economic Committee of the United States and Canada (Shoup, 1974, p. 160). It is likely that these positions provided CFR economists with new avenues for arguing the Council perspective. At the least, they were listening posts from which more could be learned in terms of government thinking concerning postwar planning, making the government even more vulnerable to penetration by private elites.
The first report from the Economic and Financial Group concerning war aims, dated April 17, 1941, began with an analysis of what government leaders in various countries had said up to that point relating to war aims. After characterizing the main themes, it noted that both Churchill and Roosevelt had avoided specific statements because they believed that defending freedom by defeating the Nazis was war aim enough. Rather than recommending specific war aims at the time, the report ended with several suggestions for the „tenor“ of war aims. These suggestions were based on the assumption „that the United States and Great Britain have a somewhat similar interest in a more closely integrated world economic order“ (CFR Memorandum E-B32, p. 13).
First, national self determination should be qualified because „a more closely integrated world economic order will almost certainly require some restrictions on sovereignty.“ Second, „stress should be laid on economic harmony as basic to political liberty and national security.“ Third, government should guarantee the economic security of individuals. Fourth, specific aspects of reconstruction should be discussed. Fifth, „the benefits of a world economy should be contrasted with autarchy.“ Finally, no war reparations should be demanded of enemy countries, and aims should apply to the whole world (CFR Memorandum E-B32, p. 14).
Council leaders pushed their concern for a war-aims statement more vigorously at the dinner meetings held by Vice President Wallace to discuss postwar goals. A meeting on May 3, 1941, was especially important because it produced a lengthy memorandum to the president. Thirteen of the nineteen people present at the dinner were connected with the CFR, including such important figures in the war peace studies as Armstrong, Bowman, Dulles, Hansen, Riefler, and Viner. A detailed history of the Atlantic Charter of August 1941, which was the first public statement of American British war aims, treats this memorandum at great length and concludes that „It is notable that a good many of the phrases in the ‚Memorandum‘ recur in the Atlantic Charter“ (Wilson, 1969, p. 299, footnote 12). I think this overlap in language provides another type of evidence for the importance of the CFR planners within government at this point, which supplements evidence based on personal access to decision-makers and direct appointments for CFR members,.
The memorandum urged a conference between the president and Churchill. It stated as a first principle that America „should and would take much more responsibility in the coming peace than in the peace which is now past“ (Wilson, 1969, p. 176, quoting the memorandum). It said the United States should claim a dominant position in the postwar world. It stressed that „it is important to come to agreements while Great Britain is willing to deal“ and that there should be „an immediate opening of conversations leading to the establishment of common institutions.“ In addition, it suggested that an agenda for such discussions should include „immediate and joint action,“ discussion of access to raw materials, and plans for postwar cooperation. Finally, the memorandum suggested „a statement of our alternative to Hitler’s new order,“ and reminded the president that „the need for a vigorous lead was repeated over and over…. Without outspoken leadership, we are in the position of fighting something with nothing“ (Wilson, 1969, pp. 177-178).
The council made a formal recommendation concerning war aims on June 22 in a document that is seen as providing important background for postwar planning by historian Alfred Eckes (1975, pp. 37-38). It began with the two functions of war aims — propaganda and the definition of the national interest — and analyzed the relationship between them:
Statements of war aims have two functions: propaganda and definition of national interests. The latter is undoubtedly the more difficult and is of basic importance, as a failure of propagandistic and promissory war aims to correspond to the accepted view of national interests might jeopardize the entire peace settlement. Therefore, our national interest must first be defined so that promises incompatible with it may be avoided. It is with this aspect of war aims that the present memorandum is concerned. (CFR Memorandum E-B36, June 22, 1941, p. 1)
The document then defined the national interest as:
(1) the full use of the world’s economic resources implying full employment and a reduction in business cycle fluctuation; and, (2) the most efficient use of the world’s resources implying an interchange of goods among all parts of the world according to comparative advantages of each part in producing certain goods. (CFR Memorandum E-B36, 1941, p. 1)
Based on these interests, it called for postwar international anti-depression policies, new policies on monetary stabilization and investment, international commissions for special purposes, and a lowering of trade barriers. It concluded:
One clear and explicit statement must accompany any such list of American war aims: A declaration that the United States, because it recognizes that its interests are in the proper functioning of a world economy, has worldwide responsibilities, and will take part in schemes of international economic cooperation, whether involving new international institutions or only negotiations between governments and will make concessions in its own economic policy to help establish the new requirements provided, of course, that other countries will do the same. (CFR Memorandum E-B36, 1941, p. 5)
The Political Group added a political dimension to the issue of war aims on July 10. It said that the most important aim was „the decisive defeat of the Axis aggressors as rapidly as possible,“ calling for total American mobilization and full military collaboration with Great Britain, „regardless of risk.“ The second aim was the restoration of civil order, including the political reconstruction of Germany to make it an „acceptable member of the international community.“ Third, there was a need for the establishment of an effective system of international security, essentially through a joint policing effort by the United States and Great Britain (CFR Memorandum P-B23, July 10, 1941, pp. 1-2).
The CFR statements on war aims are also notable for what they do not emphasize as a panacea: the simple doctrine of free trade espoused by Hull. In the April 19, 1941 memorandum, the emphasis on a world economy is coupled with a criticism of making free trade the central focus. „Positive measures of government policy,“ meaning the kind of international economic organizations envisioned by the planners, are essential, and there was an explicit rejection of mere „free trade.“ However, it continued:
…the issue should not be cast in terms of free trade versus autarchy. It is doubtful if the idea of free trade now has very much appeal save to a small group of businessmen and economists. Nor is it likely that anything approaching free trade will be achieved for a long time to come. Rather, we should stress the value to all concerned of a greater interchange of goods, to be brought about in part by a removal of trade barriers and in part by positive measures of government policy. (CFR Memorandum E-B32, April 1941. p. 14)
Similarly, the report on war aims of June 22, 1941, contained a paragraph on free trade that is even more openly critical of Hull’s approach:
Old shibboleths should play no part in a statement of war aims. For instance, „free trade“ sounds attractive to relatively few people and conveys an idea of reversion to the past rather than a willingness to accept a flexible approach to new problems. Such phrases also tend to paralyze the thinking of those addicted to them, by appearing as cure alls. When used, these ideas should be conjoined with other proposals indicating awareness of the new techniques required by complex difficulties. (CFR Memorandum E-B36, 1941, p. 3)
Council planners also emphasized their criticisms of the free trade approach in published statements. For example, the research secretary for the Economic and Financial Group, William Diebold (1941, p. 111), in his book on New Directions in Our Trade Policy, stated the larger and more power oriented view of council planners as follows: „The war has made it crystal clear that trade policy is an instrument of foreign policy which must be made to serve the national interest as a whole rather than the limited ends implied in the slogan ‚to promote foreign trade.'“ What the Council leaders had in mind for the postwar world, then, was far more than „Wilsonianism“ based in „Lockean liberalism,“ as many academic experts on international relations would have it. Instead, CFR spokespersons saw the United States as a nation that should use its political and military power to create the international economic and political institutions necessary for the expanding world economy they believed essential for the proper functioning of the American, British, and Japanese economies.
However, two problems faced council planners in trying to establish this outlook as the national interest, and it was not until 1942 that these obstacles were fully overcome. The first was that Roosevelt did not want to go beyond general statements of objectives because he did not want arguments with allies, and in particular the British, over specific policies and institutions (Dobson, 1986, p. 65). He also wanted to avoid arousing the strong isolationist voices in Congress who were speaking against any statements or steps that might commit the United States to join the actual fighting. The second problem was that the British wanted to delay discussions of common economic actions as long as possible with the hope they would be able to obtain better terms if the United States entered the war.
That said, persuading Roosevelt to make war aims explicit was not an insurmountable task because he already shared an internationalist vision. For him such a statement was a matter of timing, which is the rightful province of a brilliant political leader in charge of a government during a time of war. But persuading Britain was another matter. It was greatly weakened financially by American demands that it pay cash for goods from 1939 to 1941, sell off assets in the United States to pay for goods, and limit commercial exports, which made it difficult to develop financial reserves. Great Britain thus feared it would be totally subordinated after the war by the United States, as indeed it was. Furthermore, the British were not confident the Americans would adopt the economic policies that would be needed to prevent another world depression. Although their planners were in fairly close formal and informal contact with council planners, as demonstrated in section two of this document, there would still be the problem of dealing with Congress after the war. There even was doubt among the British that Hull was serious about his emphasis on free trade. The American position in talks in 1941 over trade in wheat, for example, was highly discriminatory in favor of American farmers, and completely contradicted Hull’s grand principles even though he claimed otherwise (Dobson, 1986, pp. 80-84 and Chapter 4).
It is therefore not surprising that the British-American statement on postwar economic aims in the Atlantic Charter was satisfactory to neither Hull nor the Council leaders. The statement had an escape clause on free trade that disappointed Hull, and its lack of any statement beyond free trade and equal access to raw materials was not enough for council leaders. The upshot of several days of cagey bargaining between American and British leaders, recounted in detail in Wilson (1969, Chapter 9) and Dobson (1986, Chapter 3), was a laudatory general statement of war aims that only spoke as follows on key economic issues: „They will endeavor, with due regard for their existing obligations, to further the enjoyment by all States, great or small, victor or vanquished, of access on equal terms to the trade and raw materials of the world“ (Wilson, 1969, p. 200).
CFR leaders reacted to this statement with five brief reports that analyzed its implications and suggested ways to spell out economic cooperation more fully. The fifth of these reports, formally dated January 3, 1942, but already shared and discussed with State Department officials two months earlier, suggested a joint British-American declaration devoted to economic issues. It was similar to what State Department officials had been proposing to the British in the context of other negotiations to be discussed shortly, but it emphasized positive government measures and international collaboration as well as freer trade:
A just and durable peace requires that governments make it their purpose to collaborate on an international basis for the promotion of full employment, increased production, higher living standards, improved labor conditions, social security, and economic stability, in their own countries and throughout the world.
In recognition of this fact, the two Governments declare that:
(A) In their relations with each other and with other countries, they intend to pursue appropriate and coordinated economic policies, in which all countries are invited to participate, that have as their objective the effective world wide use of the world’s productive resources of men and material, to further the purposes set out above.
(B) In order to achieve and maintain the full and most effective world wide use of the world’s productive resources of men and material, they intend to pursue within their respective countries on the basis of international collaboration, appropriate internal economic policies that have as their objective the full use of each country’s domestic productive resources of men and material.
(CFR Memorandum E-B45, 1942, p. 1)
Dissatisfaction with the Atlantic Charter as a statement of war aims also strengthened the resolve of state department officials and CFR leaders to obtain a more explicit statement of British cooperation in the context of the ongoing „lend lease“ negotiations. These negotiations were an attempt to establish what „considerations“ Great Britain would provide after the war in exchange for the vast amount of free war aid the United States had been providing since late March 1941. (Here a brief historical reminder may be in order: A congressional bill, passed on March 11, 1941, gave the president a free hand in deciding the nature of what future British repayment would be in exchange for the lend-lease aid of war materiel, foodstuffs, and other necessities to support the British against the Nazi attack.) In early discussions of what the considerations should be, officials in the Treasury Department thought in terms of such noncash repayments as returning undamaged military equipment and providing raw materials. When the State Department took over the negotiations in May 1941, however, the emphasis switched to „considerations“ relating to the ordering of the postwar world. The idea was to use the Lend Lease Agreement to force the British to open up their empire to the American economy and to join the United States in creating a multilateral world economy (Dobson, 1986, pp. 41-46). It was in part British resistance to these demands that led the State Department to try to use the meeting between Roosevelt and Churchill in August 1941 to realize its objectives. When that approach was only partially successful, the battleground returned to the Lend Lease Agreement. Finally, in February 1942 (and here I am telescoping an extremely complicated set of negotiations that will be discussed again in the second section), Roosevelt insisted on closure on the issue. Shortly thereafter, the British agreed to a statement more acceptable to the State Department. Hull later called the statement the „foundation“ for „all our postwar planning in the economic field“ (Eckes, 1975, p. 40). Council planners also were satisfied with it because it did not begin and end with free trade, and clearly incorporated some of their thinking. The key statement contained several echoes of the Council’s proposed joint statement cited above:
„In the final determination of the benefits to be provided to the United States of America by the Government of the United Kingdom in return for aid furnished under the Act of Congress of March 11, 1941, the terms and conditions thereof shall be such as not to burden commerce between the two countries, but to promote mutually advantageous economic relations between them and the betterment of world wide economic relations. To that end, they shall include provision for agreed action by the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods, which are the material foundations of the liberty and welfare of all peoples; to the elimination of all forms of discriminatory treatment in international commerce, and to the reduction of tariffs and other trade barriers; and, in general, to the attainment of all the economic objectives set forth in the Joint Declaration made on August 14, 1941, by the President of the United States of America and the Prime Minister of the United Kingdom“ (R. Gardner, 1980, pp. 56-59).
This statement reveals the considerable congruity between council statements and official government aims. So do other public statements, reports, and actions by government officials during 1941 concerning the national interest, which are very similar to what is found in council memorandums in 1940. On February 21, for example, Assistant Secretary of State Dean Acheson, who was involved in planning discussions based on war-peace documents within the state department, spoke on „World Crisis and the American Farmer“ to a farm audience in Des Moines, Iowa. He began by saying that „Future solidarity of the Americas in the interest of hemisphere defense involves economic problems of a long range character. The Western Hemisphere, as its economy is organized today, produces vast surpluses of agricultural and other extractive products which have hitherto been disposed of in markets outside the Western Hemisphere“ (Shoup, 1974, p. 142, quoting Acheson). Although some steps could be taken to deal with these surpluses within the hemisphere, Acheson went on, the fact was that the economies of countries in the Western Hemisphere were closely related to those in other parts of the world. Because the hemisphere „does not contain the essential characteristics of a self contained economic area,“ it had to look elsewhere for market outlets for large surpluses of extractive products. Above all, this hemisphere must continue to have unrestricted access to the great British markets“ (Shoup, 1974, p. 142, quoting Acheson).
Lynn R. Edminister, a special assistant to Hull, gave a speech similar to Acheson’s on May 21. Three key statements paralleling the CFR’s Grand Area analysis read as follows:
„Every possible advantage would be taken by totalitarian dictatorships of the dependence of this hemisphere upon over seas markets for the sale of its vast surpluses of agricultural and other extractive products. It follows from all this that our country should exercise leadership, in policy and action, in an endeavor to establish and maintain the largest possible sphere in the world within which trade and other economic relations can be conducted on the basis of liberal principles and of cooperation to the mutual advantage of all nations which are witting to participate. In laying the groundwork for future international economic cooperation, it is essential that we take all possible immediate steps to assure that the largest possible grouping shall be formed as the nucleus of such cooperation. To that end the closest possible cooperation between the United States and British empire is indispensable“ (Shoup, 1974, pp. 167-168, quoting Edminister).
Reports from the state department’s Division of Research, which finally had been created in February 1941 with a three-person staff, also reflected similar postwar goals. Shoup (1974, p. 186) summarizes a report of September 11 as follows:
Trade barriers had to be reduced and discrimination abolished to give all countries equal access to world markets and to increase trade generally. International monetary structures had to be set up, free from exchange controls and in such a way as to allow balancing of international payments with stable exchange rates. Also necessary were adequate facilities for international investment of capital and action to avoid depression.
Another striking parallel appears in the rationale that was used in preparing for possible military action against Japan in late 1941. After Japan moved into Southeast Asia in July of that year, government leaders imposed an immediate embargo that led to lengthy and tense negotiations. The negotiations broke down in late November because Japan would not agree to the key American demand that it evacuate Chinese territory. The three top government decision makers who functioned as the War Council, Hull, Stimson, and Secretary of Navy Frank Knox, then decided that „Roosevelt should inform Congress and the American people that if Japan attacked Singapore or the East Indies the security of the United States would be endangered and war might result“ (Shoup, 1974, p. 196). In a declaration that was preempted by the Japanese attack on Pearl Harbor on December 7, 1941, they stated the national interest in terms of assumptions very similar to those developed by council planners in the latter half of 1940. The first and sixth paragraphs read as follows:
„This situation, precipitated solely by Japanese aggression, holds unmistakable threats to our interests, especially our interest in peace and peaceful trade, and to our responsibility for the security of the Philippine Archipelago. The successful defense of the United States, in a military sense, is dependent upon supplies of vital materials which we import in large quantities from this region of the world. To permit Japanese domination and control of the major sources of world supplies of tin and rubber and tungsten would jeopardize our safety in a manner and to an extent that cannot be tolerated. If the Japanese should carry out their now threatened attacks upon and were to succeed in conquering the regions which they are menacing in the southwestern Pacific, our commerce with the Netherlands East Indies and Malaya would be at their mercy and probably be cut off. Our imports from those regions are of vital importance to us. We need those imports in time of peace. With the spirit of exploitation and destruction of commerce which prevails among the partners in the Axis Alliance, and with our needs what they are now in this period of emergency, all interruption of our trade with that area would be catastrophic (Shoup, 1974.p. 197, quoting the document).
Indeed, even the wording in this statement by the War Council has similarities to the „American Far Eastern Policy“ report by the CFR’s Economic and Financial Group dated January 15, 1941. That report began with the words „It is to the interest of the United States to check a Japanese advance into southeastern Asia,“ and then provides the following explanation in the second paragraph:
The Philippine Islands, the Dutch East Indies, and British Malaya are prime sources of raw materials very important to the United States in peace and war; control of these lands by a potentially hostile power would greatly limit our freedom of action. Toward the Philippines we have special obligations of a historical and moral nature. A Japanese occupation of the countries of southeastern Asia would further injure our interests by weakening the British war effort against Hitler, as it would threaten the chief source of supply for the war in the Near East, lead the Australians and New Zealanders to concentrate on home defenses, and would have serious psychological repercussions throughout the world particularly in Asia, since it would appear to many as the beginning of the disintegration of the British Empire. Conversely, the frustration of Japanese plans for expansion would appear as a defeat for the totalitarian partners in the Tripartite Pact. (CFR Memorandum E-B26, p. 1)
Once the United States entered the war with a definition of the national interest that at the very least can be called consonant with the aims of the CFR, council leaders worked closely with appointed officials to intensify planning efforts inside the government and to assure that these efforts were controlled within the State Department, not some other agency or department. On December 28, 1941, President Roosevelt decreed „all recommendations on postwar problems of international relations from all departments and agencies of the government should be submitted to the president through the Secretary of State“ (Shoup, 1974, p. 200). This decision put the Department of Treasury and Vice President Wallace’s Economic Defense Board, now renamed the Board of Economic Warfare, in subordinate roles.
On the same day, the president also approved a new 14 member Advisory Committee on Postwar Foreign Policy. Council president Norman H. Davis had a large hand in its formation:
„The immediate origins of the Advisory Committee on Postwar Foreign Policy can be traced to a September 12, 1941, memorandum drafted by Leo Pasvolsky in consultation with Norman H. Davis. Pasvolsky, acting on directions from Secretary Hull, proposed an Advisory Committee structure, noting that this suggestion was ‚the result of a recent conversation between Mr. Norman Davis and myself, arranged in accordance with your desires in the matter. It has been read and approved by Mr. Davis“ (Shoup & Minter, 1977, p. 148).
The members of the Advisory Committee came primarily from the State Department and the CFR, which is worth reporting in detail to provide evidence that the CFR and the government were as tightly linked on postwar planning as I have claimed they were. Nine were government officials and five were private citizens chosen „because of their high personal qualifications for policy consideration and because of their capacity to represent informed public opinion and interests“ (Notter, 1949, pp. 72-73). Four of the five private citizens (Armstrong, Bowman, Davis, and former United States Steel chairman Myron Taylor) were members of the Council on Foreign Relations. The fifth, New York Times journalist Anne O’Hare McCormick, could not be a council member because it was a male only organization until the 1970s. Of the government officials, four were also members of the CFR or its war peace groups, including White House adviser Cohen and planner Pasvolsky. (Later, in early 1943, after the Advisory Committee faded in importance, six of the members (Hull, Welles, Davis, Taylor, Bowman, and Pasvolsky) took the main responsibility for political issues and became known as the Informal Political Agenda Group. Roosevelt called them „my postwar advisers“ (Shoup, 1974, p. 203). All but Hull were members of the Council, and two, Davis and Bowman, were highly involved in the war peace studies.)
During 1941 and 1942, the Advisory Committee worked primarily through a series of subcommittees. Once again, the details on the members of these subcommittees are important in providing evidence of the close ties between the CFR and government planning at this point. Bowman, rapporteur of the CFR’s Territorial Group, also chaired the government’s Territorial Subcommittee. Davis chaired both the Security Subcommittee and the Coordination Subcommittee, whose function was to provide „contact with private organizations actively discussing postwar problems,“ a vague-sounding mandate that certainly included the CFR, and thereby legitimated its role as a governmental link to the private sector (Notter, 1949, p. 80). Welles chaired the Political Subcommittee. When a Special Subcommittee on European Organization was created in May 1943 to consider boundary questions and region-wide organizations, Armstrong chaired it. Of the eight members of the special subcommittee drawn from other subcommittees, five were members of the CFR or its war peace groups. As for the two members of the special subcommittee from outside the already established subcommittees, they were Percy W. Bidwell and Jacob Viner, revealing once again the importance of experts from the CFR’s Economic and Financial Group to the government.
Although the Advisory Committee and subcommittee appointments provided a close liaison between the CFR and the State Department at the policy level, council leaders nonetheless sought similar coordination at the research level as well. The issue was discussed at a meeting between council leaders and department officials on February 21, 1942:
Early in this meeting Armstrong proposed that a decision about liaison and coordination between the Council on Foreign Relations and the Advisory Committee should be made. Welles then asked if the Advisory Committee could take over the research staff of the Council without disrupting its endeavors. Armstrong replied that the Council’s labors might be seriously impaired and proposed instead that the research secretaries of the Council should work in the Department two or three days each week, attending the subcommittee meetings. The Council would thus be in ‚close relation to the actual functioning of the Advisory Committee.‘ Welles agreed, stating that he ‚wished to have the most effective liaison that could be devised‘ (Shoup, 1974, p. 208, with the two internal quotes drawn from the minutes of the meeting).
Due to this rather extraordinary degree of coordination, the CFR’s war-peace discussion groups held their meetings early in the week, freeing the research secretaries to meet with the departmental subcommittees later in the week. This allowed the secretaries the opportunity to communicate the research needs of the department to the Council groups. They were given the title of „consultants“ and received travel expenses and a per diem allowance from the government.
In my view, this combination of appointments at both the policy and research levels of the state department’s postwar planning structure is powerful evidence that the Council played a major role in defining the postwar national interest. Moreover, additional evidence for the importance of these appointments arises from the fact that some regular staff members believed that the consultants were dominating the research work through prior consultation with each other and council leaders. In particular, Harley Notter, who later wrote the official departmental history of postwar planning, complained bitterly of the Council takeover in several memos to Pasvolsky in early 1942 (Shoup, 1974, pp. 247-249). Finally, in September, Notter drafted a letter of resignation stating his situation was no longer tenable for two reasons. The first was that he was receiving one set of instructions from Welles and another from Pasvolsky, which reflected a power struggle between Hull and Welles that included both personal conflicts and complex issues concerning the structure of the projected United Nations. The second concerned the power of the CFR within the department’s Division of Research:
I have consistently opposed every move tending to give it increasing control of the research of this Division, and, though you have also consistently stated that such a policy was far from your objectives, the actual facts already visibly show that Departmental control is fast losing ground. Control by the Council has developed, in my judgment, to the point where, through Mr. Bowman’s close cooperation with you, and his other methods and those of Mr. Armstrong on the Committee, which proceed unchanged in their main theme, the outcome is clear. The moves have been so piecemeal that no one of them offered decisive objection; that is still so, but now I take my stand on the cumulative trend. (Shoup, 1974, p. 250, quoting a letter in the Notter File in the National Archives)
Notter apparently changed his mind about resigning. The letter was never sent even though nothing changed in the relationship between the Council and the department. In his official history Notter (1949) gives no real sense of how large the Council’s role was nor of his dissatisfaction with it. Tellingly, his superficial account of postwar planning is a major source for many inadequate histories of postwar planning.
In addition to the personnel evidence for CFR involvement in government decision-making, it is also possible to show that the expressions of the national interest in 1942 were similar to the perspective advocated by the CFR. First, Shoup (1974, Chapter 8) summarizes a number of reports and speeches that provide evidence of this nature that is congruent with evidence I mentioned earlier in the document for 1941. Second, council planners inside and outside the State Department were the earliest and strongest proponents of an unconditional surrender by Germany and Japan, which was considered essential by CFR planners if their plans for a new world economic and political order were to be realized. Members of the Council’s Political and Security/Armaments groups repeatedly emphasized the difficulties that arose after the armistice with Germany in World War I. The issue of armistice versus unconditional surrender was debated within the State Department in the Security Subcommittee headed by Davis. His call for unconditional surrender was supported by the army and navy representatives on the subcommittee, both of whom had been active in council groups and were selected for the subcommittee by Davis (Shoup, 1974, p. 232). According to a memorandum from Notter to Pasvolsky dated April 8, 1943, Davis and the two military officers dominated the proceedings of the subcommittee (Gaddis, 1987, 8; Shoup, 1974, p. 233).
Third, the planning for international organizations to integrate the postwar world also provides evidence that the substance of the Council’s earlier concerns was being taken as part of the national interest. The plans for the United Nations, worked out within the Informal Political Agenda Group with the aid of Pasvolsky and others, reflected the Council’s interest in the political integration of the postwar world (Shoup, 1974, pp. 238-246). However, it is also true that such an organization was sought by other private groups and Hull as well (Divine, 1967). It further can be shown that the CFR’s monetary objectives were embodied in the planning for the IMF within the Treasury Department, as will be demonstrated in great detail in the next section.
There is much more than could be said about the scores of planning problems that had to be faced on economic, transportation, political, territorial, population, and reconstruction issues in the years between 1942 and 1945, and the war-peace groups produced hundreds of reports for government agencies relating to them. The task of analyzing these reports and their impact is one for future researchers. However, I believe enough has been said to show that the postwar international policies of the United States grew out of economic and strategic considerations that reflect the concerns, analyses, and goals of the CFR’s war peace study groups between the years 1940 and 1942. In addition, the Council’s definition of the postwar national interest had been accepted within the government by the end of 1942 at the latest. The only new postwar policy issue of major import that faced council planners and government decision-makers between 1943 and 1946 was the incorporation of the German economy and Western Europe into the Grand Area. Council planners worked diligently on this issue with State Department officials to defeat a last minute Treasury Department plan to deindustrialize Germany, which Morgenthau slipped into the appendix of a Roosevelt Churchill meeting at which the State Department was not represented. It turned out to be a tempest in a teapot, with the Morgenthau plan having no chance of being adopted (Shoup & Minter, 1977, pp. 189-195).
In concluding this section, it is worth noting that the war-peace groups devoted little or no time to discussing the Soviet Union or communism, and offered no recommendations on these topics. While it is clear that none of the members of these groups liked the Soviet Union or communism, they were discussed primarily in connection with Eastern Europe. Recognizing the weak and underdeveloped nature of the fragmented economies in the small countries of that region, some council planners suggested the creation of an Eastern European customs union. Such a customs union might lead to a regional economy that could serve as a market for Western Europe and as a buffer against the Soviet Union (Shoup, 1974, p. 241).
However, CFR leaders and government decision makers were divided as to the possibility of such an outcome. When Armstrong argued at a State Department subcommittee meeting on March 7, 1942, that steps should be taken to keep those countries from becoming communist, Assistant Secretary of State A. A. Berle, Jr., „immediately reminded Armstrong that Soviet help was indispensable for a United Nations victory and that the department should be cautious about moves to put hostile states on that country’s borders“ (Shoup, 1974, p. 241, paraphrasing State Department minutes). When Armstrong pressed the same point at a meeting of the department’s Territorial Subcommittee on October 9, 1942, Bowman thought there was no choice but to accept a Soviet takeover of those countries (Shoup, 1974, p. 242). Historian John Gaddis (1972, p. 137) also uses comments by Bowman to suggest that by 1943 American decision makers were prepared to acquiesce in Soviet hegemony in Eastern Europe. In short, there was neither strong emphasis nor great unity on the question of Eastern Europe, the primary area where there was a threat of communism at the time. Germany and Japan were the dangers to the Grand Area as the necessary living space for the American economy, and neither the Soviet Union nor Eastern Europe was a part of that area. Thus, it seems very unlikely that the Cold War was due to any American desire to liberate or trade with Eastern Europe. It was a later development that has been intensely studied for many decades, and this document has nothing to add to that discussion except for the case of the Vietnam War.
The Origins of the IMF and World Bank
The starting point for understanding American postwar monetary policy and its growing economic dominance is in the policy discussions in 1940 and 1941 in the war-peace study groups of the Council on Foreign Relations. My case for this claim builds on the work of Eckes (1975), Notter (1949), Robert Oliver (1975), Shoup (1974), my own reading of the war-peace documents that relate to the origins of the IMF and World Bank, and my research in the Morgenthau Diaries and the papers of Jacob Viner and Alvin Hansen.
The Economic and Financial Group, led by Viner and Hansen, was once again the most important of the study groups on a critical long-range economic issue. Viner was not only active in the CFR throughout the 1930s, he also was an adviser to Secretary of Treasury Henry Morgenthau during the New Deal; in 1934 he helped create and manage the exchange stabilization fund within the Treasury, which was a precursor of the IMF. In 1935 he helped Morgenthau in negotiating a pact with Great Britain and France through which national exchange stabilization funds were used to stabilize currency values (J. Blum, 1959, Chapter 4). This Tripartite Pact, which grew to include several smaller democratic countries as well, was only a step or two from an international stabilization fund, which was the original and main purpose of the IMF. Not insignificantly, Viner also happened to be the person who first brought Harry Dexter White, often credited as the creator of the IMF, into the Treasury Department in the summer of 1934. He hired White to write a summary report on American monetary and banking legislation „with a view to planning a long term legislative program for the Administration“ (Rees, 1973, p. 40, quoting Viner’s letter to White). White, already a leftist in his political orientation, and by the late 1930s a person who provided secret information to Soviet spies inside and outside the American government until he was exposed in 1945, then joined the department on a full time basis, resigning his professorship at Lawrence College (Haynes & Klehr, 1999, pp. 125-126; Weinstein & Vassiliev, 1999, pp. 157-169).
Hansen, as the leader of the liberal Keynesians, was best known for his emphasis on public spending for domestic projects, but he was knowledgeable about monetary issues as well. His several government appointments included an advisory position at the Federal Reserve Board. As will be shown shortly, he had a little-known role in coordinating an international monetary policy with Keynes himself. Other economists from the Economic and Financial Group, especially Winfield Riefler and Arthur Upgren, also were active on the IMF project.
Working under the auspices of the CFR, Viner, Hansen, and their co-workers provided the rationale and context for White and other experts in the state and treasury departments to create the plans for the IMF. More than providing context, however, they also played a mediating role between American and British government experts on monetary issues and between Treasury and other agencies in the American government. Later, Viner worked directly with White on the original IMF proposal, and Hansen played a critical role in improving the plan through his advisory position at the Federal Reserve Board and his membership on the interdepartmental technical committee that approved the final draft.
The starting point for the deliberations of the Economic and Financial Group on international monetary questions can be found in CFR Memorandum E-B34 of July 24, 1941. It was meant primarily as a general framework for studies of the international monetary, investment, and trade organizations that would be needed to integrate the Grand Area. It begins with a good summary of the Council vision and strategy discussed in the previous section. Entitled „Methods of Economic Collaboration: The Role of the Grand Area in American Economic Policy,“ it began with a statement of purpose, an overview of the war situation at that moment, and a review of the Grand Area concept that is useful for its conciseness and directness:
„The purpose of this memorandum is to summarize the concept of the Grand Area in terms of its meaning for American policy, its function in the present war, and its possible role in the postwar period. The memorandum is the introduction to a series concerned with the methods of integrating the Grand Area economically.“
It continued with a section on „The Grand Area and American defense that starts with an excellent overview of the American economy and its needs, which is worth quoting to once again give a sense of the breadth and depth of the Council’s blueprint for the postwar world:
The economy of the United States is geared to the export of certain manufactured and agricultural products, and the import of numerous raw materials and foodstuffs. The success of German arms from the invasion of Poland onward brought most of Europe under Nazi domination and threatened the rest of the world. Faced with these facts, the Economic and Financial Group sought to determine the area (excluding continental Europe, which for the present was lost) that, from the economic point of view, was best suited to the defense of the United States. Such an area would have to: (1) contain the basic raw materials necessary to the full functioning of American industry, and (2) have the fewest possible stresses making for its own disintegration, such as unwieldy export surpluses or severe shortages of consumers‘ goods.
With this end in view, a series of studies was made to ascertain the „degree of complementarism“ in the trade of several blocs: the Western Hemisphere, the British Empire (except Canada), and the Far East. (The relevant memoranda are listed in the Appendix.) From the point of view of the United States, the Western Hemisphere is an inadequate area because it lacks important raw materials, which we get from southeastern Asia, and it is burdened with surpluses normally exported to Europe, especially the United Kingdom. An extension of the area in opposite directions to take in these two economically important regions thus becomes necessary. The extension brings new problems, but it was found that the United States can best defend itself — from an economic point of view- in an area comprising most of the non German world. This has been called the ‚Grand Area.‘ It includes the Western Hemisphere, the United Kingdom, the remainder of the British Commonwealth and Empire, the Dutch East Indies, China, and Japan.
(CFR Memorandum E-B34, 1941, p. 1)
After a discussion of the German controlled bloc and the relative unimportance of the Soviet Union to the American economy, it stressed the role of the Grand Area in military preparedness and in avoiding adjustments in the American economy:
„The Grand Area, then, is the amount of the world the United States can defend most economically, that is, with the least readjustment of the American economy. To maintain a maximum defense effort, the United States must avoid economic readjustment caused by constriction of the trading area if the military cost of defending the area is not too great. What such constriction might mean in weakening the defense economy can best be seen by imagining the strain on American supplies of labor, materials, and industrial capacity of the attempt to manufacture substitutes for or to do without rubber, tin, jute, and numerous vegetable oils, instead of importing these products from southeastern Asia. Similarly, to the extent that the United States and other countries can continue to export their surpluses, some dangerous stresses in the domestic economy are prevented from developing.“
The above might seem more than enough as a blunt call for an international economy built around American needs, but there is more by way of frank geopolitics that could lead to American wars in Asia:
It is important for the United States to defend the Grand Area and to prevent the capture of any of its parts by the Germans. Similarly, the Grand Area must be defended from defection from within, (1) by making it economically possible for all member countries to live in the area, and (2) by preventing any country — particularly Japan — from destroying the area for its own political reasons. Some studies of the economic aspects of these problems have been made, others are projected. It is not the role of the Economic and Financial Group to determine how the area is to be defended nor to assess whether such a defense is feasible, though broad military considerations have of course played some part in determining the area, and it has been assumed that keeping the area intact is not patently impossible from a military viewpoint. Similarly, the methods of political collaboration needed to integrate the area, and the diplomacy required for keeping it intact, do not fall into the Group’s sphere, except insofar as economic weapons and enticements are part of that diplomacy and the institutional structure for solving economic problems is called political. Economic collaboration within the area, however, is an important field of study for the Group. Such collaboration to secure integration is necessary to transform the economic potential of the area into military power, and is at the same time a part of the defense of the area. By creating a working economic organization for the Grand Area, we make that area more viable and stronger both economically and, presumably, politically. (CFR Memorandum E-B34, 1941, pp. 2-3)
Two pages later, the document turned to the importance of collaboration with Great Britain in integrating the Grand Area, emphasizing that this economic collaboration must begin during the war, not after:
Anglo American collaboration is the key to the integration of the Grand Area, both as a wartime measure and in forging an enduring peace on the lines desired by the two countries. Many of the problems facing the peace makers will be determined by wartime policies and the developments of war economics. It is likely to be easier to continue economic collaboration begun in wartime than to start anew at the peace settlement. It seems important, then, that the United States and British Empire countries work together within the framework of the Grand Area economy in wartime, and plan their policies so far as is compatible with the immediate war effort to provide the best possible basis for coping with problems of the peace. (CFR Memorandum E-B34, 1941, pp. 4-5)
The document went on to say that there would be problems in integrating the Grand Area. There would be a need for a „conscious program“ to insure that it did not come apart:
„The statistical neatness of the Grand Area will not cause it to function automatically simply because Germany controls most of Europe although the blockade and its consequences stimulate this development. The condition of „buying first from one another,“ on which it is based, would itself require a considerable degree of trade readjustment and raise certain problems of transportation. The Grand Area was defined on the basis of peacetime trade; the conditions of war change demand patterns and create hazards, such as the destruction of shipping and production capacity. Japan’s expansionist policy continues to threaten the integration of the Grand Area. These problems may not be ignored; some have already been the subjects of study (see Appendix). Above all, it appears certain that the integration of the Grand Area requires a conscious program of broadly conceived measures for (1) knitting the parts of the area closer together economically and (2) securing the full use of the economic resources of the whole area“ (CFR Memorandum E-B34, 1941, p. 5).
In fact, there might be problems with the British in particular, who were unlikely to be willing to open up their empire to American corporations, so it was critical to force the issue under the pressure of war:
The integration of the Grand Area is based on American British collaboration. At the same time, America and British interests are neither identical nor entirely parallel. Not only will there be disagreements as to what policy is best, but also real clashes of interest which can be resolved only to the hurt of certain groups within one or the other country. In wartime the tendency is for such clashes of interest to be submerged and subordinated to the single goal of winning the war. At the peace and after it, they tend to re emerge, sometimes more sharply than ever. With outside pressure of a common enemy removed, such conflicts of interest can easily destroy the whole program of continued international cooperation. One of the most important tasks of the Grand Area studies will be to detect present and prospective clashes of interest, define them so far as possible, and seek means of eliminating, alleviating, or compromising them. (CFR Memorandum E-B34, 1941, p. 5)
Finally, there was an outline of proposed studies relating to the economic integration of the Grand Area. Those concerning „Financial Collaboration“ and „Monetary and Exchange Problems“ directly concern the origins of the IMF and World Bank. They show that at least some corporate internationalists with access to the White House and State Department were proposing a dramatic alternative expansion for the American economy. The outline included financial collaboration international financial institutions, stabilization of exchanges, international anti depression measures, and development programs“ (CFR Memorandum E-B34, 1941, p. 6)
I have quoted at length from what I think is a rather amazing and comprehensive design for the American future not only because it is a direct challenge to any historian or international relations expert who thinks that the creation of a postwar international economy was a minor item on the American agenda during the war, but also because it reveals the actual framework within which government monetary planners worked. The blueprint is of further interest because it warns of the problems with Great Britain that were in fact to make the creation of the IMF very difficult. Merely generating a plan for an international exchange stabilization fund, as (Viner, 1942, p. 174) pointed out, was in fact a „comparatively easy“ task. Moreover, there also was a good chance that such a plan would gain general acceptance in the world community because the expected differences of opinion did not „particularly follow national lines“ or reflect „important and conscious conflicts of vested interest“ (Viner, 1942, p. 173). Nonetheless, there were major problems in creating a plan that suited the British, and negotiations with them were to be highly complex and seemingly endless over a three year period.
To understand the work of British and American planners, it is necessary to keep the British perspective in mind. Britain’s economic and financial position had not only been greatly weakened by its war with the Nazis, which is obvious, but by its financial dealings with the United States as well. Due to the neutrality laws passed by Congress in 1935 at the insistence of isolationists, British purchases of war related materials between 1939 and 1941 had to be on a cash and-carry basis. This arrangement rather quickly drained British reserves of American dollars. As the pressure on Great Britain’s finances increased, the American Treasury insisted that the British sell their assets in the United States to make their payments. While these asset sales made further immediate payments possible, they also meant that Great Britain would be less able to earn American dollars in the future.
American officials in the Treasury Department kept a sharp eye on the British gold supply as well. They wanted to be sure that the British were not hoarding gold before they would try to bring about changes in the neutrality laws. When Morgenthau learned in December 1940 that the British had $42 million in new gold waiting in Capetown, South Africa, he immediately recommended that Roosevelt ask for it. The gold was picked up a few weeks later with much fanfare. The British were deeply insulted by what they saw as a crass maneuver by a nation already in possession of most of the world’s gold supply. The Americans seemed to be out to weaken the British empire (Dobson, 1986, pp. 25-28). Recall, too, that in March 1941, with Great Britain nearing bankruptcy in terms of dollars and gold, Roosevelt pushed the Lend Lease Bill through Congress, which made it possible to provide unrestricted aid to the British in exchange for future repayments or „considerations.“ The bill gave the president remarkable freedom in deciding what the repayments or considerations would be, and this freedom was to become very important in negotiations concerning the nature and scope if the IMF.
However, lend lease did not solve all of Great Britain’s immediate problems. The American Treasury quickly insisted on restrictions on British commercial exports that were in competition with American exports. Officially, these restrictions were demanded in order to maintain American public support for the lend lease program; however, there was considerable suspicion in Great Britain that these restrictions also were meant to further diminish Britain’s declining economic power (Dobson, 1986; R. Gardner, 1980, pp. 173-175). Whatever the intent, the restriction on its exports did help to keep Great Britain on a short financial tether.
British leaders also were very wary of American pronouncements in favor of free trade, which had been a staple of the State Department under Hull. As noted in the previous section, there were two reasons for this wariness. First, the British were not at all sure that the Americans would accept free trade in practice. Second, free trade by itself was seen as a very antiquated and dangerous doctrine by a British government influenced by the experience of the Great Depression and Keynesian doctrines. Simply put, the British firmly believed that free trade without commitment to anti-depression fiscal, monetary, and social policies in the United States would drag the world economy into any future depression that began in the United States. They believed American policy failures had contributed to the abandonment of relatively free trade in the early 1930s, and they did not want to see those failures repeated at their expense.
Although British officials realized that many leaders in the State Department, Treasury Department, and CFR understood this point, they were not at all confident that the reactionaries, nationalists, and isolationists so prevalent among ultaconservatives in the corporate community and Congress would accept the New Deal and Keynesian policies necessary to safeguard an open world economy. Subsequent events proved them to be right many a time, including the ongoing Great Recession that began in 2007. Indeed, Keynesianism was and still is openly hated in the classical laissez faire thinking of American ultraconservatives, albeit for self-serving reasons, and even by conventional New Dealers such as Secretary of Treasury Morgenthau (Domhoff, 2013)
Given the antipathy Morgenthau and many members of Congress had toward Keynesian economics, it is ironic that Keynes himself was one of the chief British advisers and negotiators in relation to lend lease repayments and a future international monetary stabilization fund. I say ironic because Keynes not only saw the large economic problems better than most officials, making him a brilliant adversary for the American negotiators, but he instinctively generated resistance in many key American leaders due to his polished and arrogant style, and his penchant for clever verbal put-downs that annoyed them no end.
Keynes arrived in the United States in May 1941, to negotiate the details of the lend lease agreement that had been passed by Congress two months before. It was right at the time when CFR leaders and officials in the State Department were thinking about how to gain British acceptance of the Grand Area strategy. Anticipating that there would be British resistance to these ideas because they implied Great Britain’s subordination to the United States, the American negotiators hit upon the idea of linking the lend lease agreements with their plans for the postwar world. That is, the „consideration“ they sought from the British in exchange for vast amounts of war materiel and other supplies was acceptance of the American plan — nothing more, nothing less.
The lend lease negotiations were focused on the issue of lowering tariffs and removing other trade barriers, which meant in practice that the British Empire, protected by „imperial preferences,“ would be opened up to American trade and investment. But Keynes kept pointing out that Great Britain would have a balance of payments problem after the war, and that the Americans therefore would have to accept more imports and give loans to the British if they expected to increase trade with the British Empire. Furthermore, the acceptance of more imports might necessitate Keynesian policies in the United States to increase the level of activity in the domestic economy. Thus, any plan for international economic cooperation would have to include more than simple trade agreements. Keynes also was aware of the fact that there were important people in London who would oppose American postwar plans because the plans would undermine the empire and hasten Britain’s decline as a world power. Eckes (1975, p. 39) provides a graphic summary of the issues involved in the negotiations:
„John Maynard Keynes, England’s leading financial negotiator, realized that, without parallel arrangements to assure an expansionary world economy, to reconstruct war debilitated nations, and to erase currency imbalances, Britain could not adjust to the cold shower of American competition. Thus, on one visit to Washington in 1941, Keynes bluntly dismissed the „lunatic proposals of Mr. Hull,“ and warned that without American financial assistance Britain might be compelled to select an autarkic course in the postwar period. Of course, more than economic considerations shaped the British position. Advocates of imperial preference argued vigorously that nondiscrimination spelled the death of Britain’s historic empire and England’s decline as a world power.“
Not surprisingly, then, there was very little meeting of the minds during the spring and summer of 1941. The British knew the Americans would not cut off aid in the midst of the war. They also hoped that the United States eventually would come into the war on their side, and that the terms of lend lease could be made less onerous for the British in that event. As for the Americans, they did not want to become more specific than acceptance of the general principles of the Grand Area strategy. This was partly because officials of the executive branch did not want to make promises until they were sure Congressional opinion had become more sympathetic to internationalism. However, it also involved a fact I emphasized earlier. The State Department had very little planning capability at the time, to which it needs to be added that the Treasury had not even begun to develop any plans for monetary policy. Then, too, Roosevelt did not decided until the United States entered the war whether State, Treasury, or Wallace’s Economic Defense Board would take the lead in coordinating postwar planning.
When Keynes returned to London in July 1941, the negotiations were at an impasse and officials in the State Department were extremely annoyed. The American negotiators, as explained in the previous section, therefore turned their attention to gaining British acquiescence to their plans through the creation of the joint British American statement of war aims called the Atlantic Charter. As may be recalled, these war aims included a call for equal access for all nations „to the trade and raw materials“ of the world; however, the statement also said that this economic freedom would be practiced „with due respect for existing obligations,“ which leaders in the State Department and the Council saw as an escape clause for British protectionism (e.g., R. Gardner, 1980, p. 46).
It is in this context, then, that planning for what came to be called the International Monetary Fund actually began in the fall of 1941. Most commentators on the origins of the IMF believe that the planning began independently in the United States and England, with White taking the lead for the Americans and Keynes for the British (R. Gardner, 1980, p. 71; van Dormael, 1978, Chapter 4). However, I found further evidence in the Viner Papers, Hansen Papers, and the Morgenthau Diaries showing that the situation was more coordinated than some accounts suggest, with Hansen and Viner playing a mediating role between experts from the two countries. For example, the Economic and Financial Group initiated a series of four off the record meetings with British economists on September 20, 1941, to discuss general issues of collaboration. Also present was the secretary of the Royal Institute of International Affairs, mentioned earlier as the London counterpart to the CFR. According to the summary of the discussion, a wide range of economic topics was covered in a general way (CFR Memorandum E-A20, September 20, 1941).
Shortly thereafter, Hansen traveled to London, where Keynes was thinking about methods to implement American proposals in a way that would be satisfactory to Great Britain. Despite his anti internationalist assertions while in the United States, Keynes realized that it would be very hard to resist the economic and political power of the Americans. He also knew that Britain’s recovery would be slow and painful without American trade and loans. He therefore began working on a plan for international currency stabilization that could lead to the liberalized expansion of international trade that the Americans sought. The essence of his plan was the establishment of a very large international currency exchange and credit granting institution that could be drawn upon relatively easily by any country that was temporarily short of any given foreign currency due to trade imbalances. Functioning on the principle of a friendly and trusting bank, the „international clearing union,“ as the projected institution was called, would make it possible for countries to „overdraft“ their accounts for a period of time so that expansionary trade could be continued. In effect, it was a bank that made temporary loans of foreign currencies from a fund that was based on no more than the promise of the member countries to provide the needed currencies when called for. Each country would provide the clearing union with a line of credit, but would not have to provide the currency until it actually was needed. As will be seen, the Americans were very nervous about this plan. They were afraid that some countries would not provide the currency when it was asked for. Even more, they feared there would be an unlimited call for American currency with no assurance that the countries needing the loans were living within their means.
It was during this time that Hansen arrived on the scene in London to confer personally with Keynes. Keynes’s first major biographer, economist Roy F. Harrod (1951, p. 527-528), explained the visit as follows, noting that Hansen’s „mandate“ from the government was „obscure“:
At this period there occurred a useful visit by Professor Alvin Hansen, the well-known economist, and Mr. Gulick, a consultant of the National Planning Board and expert on the TVA. Although sponsored by the State Department, the nature of their mandate was obscure. They advocated Anglo American cooperation to prevent world depression, and proposed the establishment of an International Economic Board to advise collaborating governments with respect to internal policy designed to promote full employment, economic stability, and world trade…. They also advocated an International Resources Survey and an International Development Corporation, with a view to promoting wise development overseas.
The British were somewhat surprised by these progressive proposals, according to Harrod (1951, p. 528), who also recalled that the proposals were on a higher level of political sophistication than the simple Wilsonian trade doctrines of Hull: „These proposals were cordially welcomed; the doctrine seemed to belong to a different world of thought from that which took the elimination of discrimination in foreign trade to be the panacea for the world’s ills.“
Hansen wrote to Viner about his discussions with Keynes as soon as he returned to the United States, noting that the suggestions he had made to Keynes followed lines that had been talked about in the Economic and Financial Group. He also reported that he already had discussed the new proposals and his visit to Keynes with Hull and Wallace, and that he would be talking with Morgenthau the next day (Viner Papers: Hansen to Viner, October 20, 1941). Viner replied enthusiastically in a letter of October 24. He also suggested that Hansen be in touch with Riefler, who had been in the Economic and Financial Group from the outset and was now working with Wallace at the Economic Defense Board. He made this suggestion because Riefler „is working intensively along the same lines and has a very interesting draft of a specific Anglo American post war financing organization“ (Viner Papers: Viner to Hansen, October 24, 1941). Hansen replied on October 28 with news that he had a revised draft of his plan based on „numerous conversations.“ He reported that he had been unable to contact Riefler as yet. He then suggested that the next meeting of the Council planning group might be the place for further discussions:
I see no reason why our Council on Foreign Relations, in view of its confidential relations with the State Department, might not have a full discussion of this draft, as well as of Riefler’s proposals. Possibly you, Riefler, and I might have a special discussion of it at lunchtime on Saturday. (Viner Papers: Hansen to Viner, October 28, 1941, my italics)
Unfortunately, this particular trail of paper ends at this point, a problem that will recur at other crucial junctures in the archival record because none of the principals was a compulsive record keeper. In this instance, however, the line of thought can be picked up to some degree in other documents. On November 28, for example, the Economic and Financial Group summarized the proposals by Hansen and Riefler in a memorandum entitled „International Collaboration to Secure the Coordination of Stabilization Policies and to Stimulate Investment“ (CFR Memorandum E-B44). The emphasis was once again placed on the need for expansionary domestic policies in order to make possible open or „multilateral“ international trade. A few days later, Hansen was able to make this general point again through another avenue, the government-sponsored Canadian American Committee that he co-chaired. On December 5, the committee sent the White House and State Department a proposal for an International Stabilization and Development Board that would make suggestions about how the United States, Great Britain, and Canada could coordinate their economies. Hansen also sent a letter directly to Roosevelt dated December 15, which contained the resolution of the Canadian American Committee in favor of the joint stabilization board. However, none of the documents or resolutions discussed in this paragraph deals with the specific problem of monetary policy. As will be shown, Viner was carrying this issue in conjunction with White.
It was at this point that the Japanese attack on Pearl Harbor brought the United States into the war. While American involvement focused official attention even more on day-to-day issues, it also led to decisions on postwar planning that had been delayed for over a year. Morgenthau consolidated Treasury responsibility for foreign economic planning in White’s hands early in December. A week later, on Sunday morning, December 14, Morgenthau called White to ask him to begin work on a monetary stabilization fund. This call was summarized the next day by White in a memo for the files (Morgenthau Diaries: Treasury Department Order No. 43). Then, in late December Roosevelt gave the order putting State in charge of postwar planning and assigning a secondary role to Treasury and the Economic Defense Board.
I was unsuccessful in determining why Morgenthau decided to call White about monetary policy on that particular Sunday in mid-December. There are no hints in his detailed records for the two previous weeks, nor in White’s papers. On the basis of retrospective accounts by White’s associates (Eckes, 1975, p. 46), there is some reason to believe that White actually had been working on monetary plans throughout the fall, and that Morgenthau’s call only made official what had been going on unofficially. Such a possibility would not be surprising because White’s longstanding involvement with monetary policy began with his work for Morgenthau and Viner on exchange stabilization in 1935 and 1936 (J. Blum, 1959, Chapter 4). Whatever the exact origins of Morgenthau’s order, the more general issue is the possible influence of council planners on White’s plan. As the Treasury Department’s liaison with the State Department on postwar planning issues in the previous two years (Notter, 1949), White was well aware of the internationalist proposals being sent to State by the Council study groups. We also know from Harrod (1951, p. 539) that White had direct conversations about foreign economic issues with Hansen and from the Morgenthau Diaries that he „continually supported the fiscal proposals of Alvin Hansen“ (J. Blum, 1970, p. 430).
However, the most important linkage between the war-peace project and White was Viner, who worked regularly as a consultant within the Treasury Department during this period. The Morgenthau Diaries reveal that he was present for general meetings at the Treasury on December 1, 2, 11, 12, 22, and 23. Moreover, there is documentary evidence from his reappointment letter of January 1, 1942, and subsequent memos by White and another department official, that he aided in the drafting of the original proposal for an International Monetary Fund. Given Viner’s earlier relationship with White and his deep involvement in the CFR’s postwar planning, the documentary evidence concerning Viner’s work with White at Treasury is the „smoking gun“ that demonstrates the influence of experts connected with major private interests outside the American government on monetary policy. True enough, there are class and state „structures,“ and there is a general ideological „atmosphere,“ but in addition there is also direct input from an outside expert on a specific decision in a situation of potential conflict and great uncertainty. It is the necessity of this level of interaction in a volatile economic system within a fragmented and permeable that is missed by theorists critical of the type of analysis presented in this document.
The first direct evidence of Viner’s involvement is his letter of appointment for 1942, which states that he will be paid from the „Exchange Stabilization Fund“:
January 1, 1942
Sir: You are hereby appointed Special Assistant and Consulting Expert in the Office of the Secretary, with compensation at the rate of nine thousand dollars per annum, payable from the appropriation „Exchange Stabilization Fund.“ In addition to your salary, you will be allowed five dollars per diem; in lieu of subsistence while on duty in Washington, D.C.
Signed, Henry M. Morgenthau
(Morgenthau Diaries, Book 483:180)
In the first week of January, when the first plan seems to have been finalized, Viner was at the Treasury Department on the fifth, sixth, and seventh. On January 6 White asked Undersecretary of State Sumner Welles if he would be interested in introducing a resolution in favor of an „interallied“ stabilization fund at the conference of American ministers in Rio de Janiero later in the month. When Welles responded positively, White sent a memo to Morgenthau on January 8. It included the plan and reported that White had asked Viner to approve it:
In the event Mr. Welles decides at Rio to propose a resolution on the establishment of a Stabilization Fund, I have in mind submitting the appended draft for his consideration. This draft was prepared in this Division, and is a much shorter draft than the one I showed you before. I have asked Mr. Southard to go over it with the Legal Division and Mr. Viner, and after they have approved, to submit it to you for your tentative approval. (Morgenthau Diaries, Book 483:222)
One week later, on January 15, Southard sent a copy of the proposal to Undersecretary of Treasury Daniel Bell with the following preface that asserts the role of Viner in creating the plan. It is the clincher, so to speak:
Mr. White discussed the proposal for such a Fund with the Secretary early in January and received the Secretary’s approval of the idea in principle. The draft prepared by Mr. White grew out of several discussions within the Treasury which included Mr. Bernard Bernstein [a department employee] and Jacob Viner. (Morgenthau Diaries, Book 486:1)
On the same day as the Southard memo, White contacted Morgenthau from Rio, where White was assisting Welles at the Inter American Conference. He asked permission for Welles to submit the proposal to the meeting. Before making a decision, Morgenthau called in Bernstein to brief him on the issue. Bernstein wrote the following memo to the file after the briefing. It is quoted here because it once again shows the central role played by Viner:
I told him that there was one point which Jacob Viner thought should be cleared with him [Morgenthau] and that was whether the subject of this resolution should be cleared first with the British before it is presented down there, and if presented, whether it should be done by the British and Treasury representatives in Washington or by the President to Churchill. (Morgenthau Diaries, Book 486:4)
Morgenthau thought about the issue, and then decided to wait on introducing any resolution rather than bothering the president. Two days later, however, Welles himself wired Morgenthau asking him to reconsider. Welles argued that he did not think it was necessary to check with the British. He also enclosed a simplified statement of the possible resolution. On January 19, Morgenthau telephoned White, asked him if Welles felt strongly about the issue, and then gave the go-ahead when White replied in the affirmative (Morgenthau Diaries, Book 486:179, 208).
There are other reasons to believe that Morgenthau relied heavily on Viner. On January 21, for example, Morgenthau asked Viner and Lauchlin Currie, the White House economist who kept track of the war-peace studies for the President, to suggest ways to raise money for the war in all 12 Federal Reserve Districts. Even more intriguing is the following conversation about Viner, which appears in the Morgenthau Diaries for February 1. (The so-called Morgenthau „diaries“ are in reality the transcriptions of his secret telephone tap and office tape recorder.) In this instance the tape recorder captured the following conversation that involved (1) a possible new employee and (2) a loan to China. Just when it comes to the point where we might learn something about White’s personal feelings toward Viner, the tape recorder fails. However, I believe enough is said to suggest that White had personal reasons to play down Viner’s role in the department:
Morgenthau: Harry [i.e., White], get Viner to help you.
White: Mr. Secretary, anything at all that is even in Mr. Viner’s field, I always ask him to help me. I am always glad of his help.
Morgenthau: Well, that hasn’t always been so.
White: That has always been true except where we have questions where I know we are opposed on domestic policy and in which I didn’t think it would be a help but a hindrance, as far as I was concerned, but on foreign policy.
White: Or monetary matters.
Bell: It is always better to have Jake in after something is prepared, because he will argue for two hours before he gets started.
White: He is helpful and I am always glad to have him.
Bell: It is very helpful to get his criticism on documents that have been prepared.
White: But again, thinking of somebody for Haas‘ division, you know, Viner is in a little different position than he would be if Haas had somebody in his division. There are men who might come in the same capacity as Viner, but who might or might not come in a…
Morgenthau: Well, the man I had in mind would be in the same relation to the rest of us as Viner is. Now, if you ask me who Viner is responsible to, I don’t know. He has never raised the question. He is here to help all of us.
Bernstein: Well, he is responsible to you, but we all use him.
Morgenthau: Including Harry.
White: Very definitely, and I am very glad to.
Bernstein: He really sits in on most of our conferences.
Foley [another department official]: He has been in on all this China thing.
White: Whenever he in the Treasury he is always in.
Foley: He was in Harry’s office on all of this (the loan to China).
Morgenthau: I believe Harry. I don’t know why Harry is suddenly sensitive on that one.
White: Because three times in the last week you have reminded me to get him in. I always do. I don’t know whether that was an indication that you think I don’t.
Morgenthau: Well, sometime when we are alone I will tell you why.
White: O.K. I will try to give you some names of those (possible employees) I hear about and I will ask other men about Hardy. Maybe I got a peculiar notion about him (Hardy).
Morgenthau: Well, you men needn’t wait. I will just tell Harry now and get it off my chest, that is all.
And there the dialogue abruptly ends. (Morgenthau Diaries, Book 491, p. 72)
The 12-page plan drawn up by White and Viner in either late December 1941 or early January 1942 can be compared with the Keynes plan at this point as background for the later role of Hansen and Viner. Briefly, the plan called for a fund of $5 billion, considerably less than what Keynes envisioned. The fund would be „subscribed,“ unlike Keynes’s plan, meaning that each country would put in a certain amount of its currency and gold beforehand so that the fund would have currencies to lend and exchange. The size of the subscription would depend on the size, power, and trade volume of the country. The voting arrangements on policy issues were structured in such a way that the United States would have 60 percent of the votes as long as its friendly Latin American neighbors voted with it (Eckes, 1975, p. 49).
Generally speaking, the differences between the American and British plans reflected the economic situations of the two countries. Great Britain, as a debtor nation, wanted an institution that could make currency loans without putting any restrictions on the borrowing countries. As a country without much gold, it did not want gold to have the large role proposed for it by the Americans. Britain also wanted to be sure that creditor nations such as the United States would be forced to loan out their currency rather than holding onto it in times of economic downturn or trade imbalance. The United States, as a creditor nation with a huge gold supply, wanted the fund to be able to insure that borrowing countries were not headed for financial disaster or using the currency loans as disguised investment loans. It wanted a role for its gold as a restraint on over-borrowing and as an assurance to conservative bankers and members of Congress.
The negotiations over the two plans proved to be long and difficult, but the British ultimately had to concede to the Americans on almost every basic point. British acquiescence became easier when the Americans agreed to a mechanism by which other countries would be assured that the Americans could not limit the supply of their currency without suffering some penalty. Despite the American dominance, however, Keynes was not totally disappointed by the outcome because he thought the American plan was far better than nothing at all, and far more than he had expected from the American government. In a confidential letter to fellow British negotiators of April 19, 1943, before the most intense debates had taken place, Keynes concluded that the White plan „represents a big advance,“ but added that „it is a long time too soon to even breathe a suggestion of compromise“ (van Dormael, 1978, p. 75).
The draft IMF plan of early 1942 was finalized in late April. A clean draft was typed for presentation to Morgenthau on May 8, but was backdated to March for some unknown reason (van Dormael, 1978, p. 45). Morgenthau quickly accepted the final draft, and then strategized with White about the next step to take. Both hoped to move quickly, and White wanted to avoid the State Department by sending the plan directly to the White House. Morgenthau compromised on that suggestion by sending the plan to the president and the State Department at the same time, but Roosevelt put a stop to any unilateral moves by sending his copy to Hull and telling him to work on the project with Treasury. At the same time, Roosevelt lodged responsibility for carrying through the project with Treasury. In actuality, Roosevelt’s decision reflected arrangements for interdepartmental cooperation on monetary issues that went back to early 1940, and that respected the large role on foreign economic issues that had developed for the Treasury Department in the 1930s (J. Blum, 1967; Notter, 1949, Chapter 2).
At this point an interdepartmental committee was created to discuss White’s proposal and make alterations if necessary. White was named chairman. The main conflicts within the committee were between State and Treasury, but they were not over substantive matters. Rather, the main issues were the timetable and format for international discussions (Eckes, 1975, pp. 60-62). The State Department wanted to move slowly until other international economic issues with Britain were resolved and public opinion and Congress were sure to be favorable. The department also wanted to honor Britain’s insistence that it have agreement with the United States before other nations were consulted. Treasury, on the other hand, wanted to move more rapidly and consult widely with other nations. It was not nearly as concerned with British sensibilities as was the State Department, a fact understood by the British (Dobson, 1986).
Morgenthau had a tendency to interpret State’s concern as a dislike for the plan, but it seems more likely that Hull, and then Roosevelt, decided on a more cautious course for sound political reasons: „Hull seemed genuinely convinced that the administration must prepare the public for the United States‘ global responsibilities, and he was certain that premature disclosure would only polarize the public, damage the Democratic Party, and shatter the prospects for international cooperation“ (Eckes, 1975, p. 63).
Although Hull resisted high level and visible negotiations on monetary stabilization issues, he finally agreed in July 1942 to preliminary talks if they were confined to experts from a few major nations. He did so because the two officials in his own department involved in monetary planning, corporation lawyers Dean Acheson and A. A. Berle, Jr., argued that further delay might weaken British supporters of international economic cooperation and increase the possibility that other countries would turn to unilateral decisions to solve their economic problems (Eckes, 1975, p. 63).
In addition to preliminary discussions with a few countries, the Americans continued to argue among themselves about the relative merits of what came to be called the White Plan and the Keynes Plan. But for all the disagreements over the two plans, they were in fact more similar than they were different. This fact became clear in a lengthy discussion of them in the CFR’s Economic and Financial Group on March 6, 1943. The discussion also is of interest because it reveals differences between Viner and Hansen, with Viner favoring the fund approach and Hansen favoring Keynes‘ overdraft proposal. However, Viner won the day by pointing out that many countries do not recognize a line of credit as a real obligation. He therefore argued that it was better to have the money (and gold) beforehand:
Mr. Viner thought that the memorandum (by Hansen) overemphasized the case in favor of the overdraft method of stabilization as opposed to the fund arrangement. Both require the same basic commitment to be made in the first instance, that a country will provide a certain amount of money — whether as a direct contribution to the Fund or as a line of credit for the Clearing Union — for use in connection with exchange stabilization. Under the Fund plan, the money is made available from the start and there is never any question that the Fund has access to it; under the overdraft plan, however, subsequent legal action may be necessary actually to make available money that has been nominally set aside for this purpose. If a Central Bank claimed it had no free assets when the Clearing Union wished to draw on the line of credit, no money might be forthcoming unless a priority had been legally arranged for. A country wishing to avoid its obligations might find it easier to cancel a line of credit than to seize a deposit of the International Fund. (CFR Memorandum E-A24, 1943, p. 4)
By the end of the discussion, Hansen said that „the difference between the two stabilization plans was less than he had believed“ (CFR Memorandum E-A24, 1943, p. 5). He therefore made changes in the memorandum on the two plans that he was preparing for circulation in the White House and State Department, and from that point on he worked to improve the fund concept and to convince the British to accept it. Viner clearly had the upper hand on the issue in council discussions, and probably at the Treasury as well.
Hansen and Viner continued to mediate between Keynes and White in the spring and summer of 1943. Keynes and Viner corresponded (R. Gardner, 1980, p. 86, footnote 4). Hansen sent an advanced copy of the memorandum altered in the discussions with Viner to Keynes through Redvers Opie, a British economist who served as his country’s liaison with the American Treasury, and especially with White. Opie replied with a lengthy letter marked „personal and private“ to Hansen on May 19 regarding Keynes‘ reactions. It shows that Hansen was trying to shape the American proposal to deal with Keynes‘ concerns, and that he was being kept abreast of Keynes‘ latest thoughts. It also reveals that parts of the negotiations were considered „difficult points“ that Opie could not „deal with in writing.“ This resort to personal conversations makes it harder to reconstruct the decisional process to the total satisfaction of skeptics, but the thrust of the negotiations is nonetheless quite clear, as this revealing letter from Opie to Hansen shows:
Just before I left for the Food Conference I received a letter from Keynes thanking me and you for sending him an advance copy of your memorandum on „International Adjustment of Exchange Rates.“ As you expected Keynes was very glad that you stressed the need for getting creditor countries to share responsibility for making adjustments to restore international equilibrium. There are one or two points arising out of Keynes‘ letter to me that I should like to take up with you orally on the first opportunity but, since that is unlikely to be until after June 3, perhaps I had better raise one or two points now. The first is interesting in the light of your revised figure of $12 billion for the resources of the Fund. Keynes suggested that it would be easier to reach acceptable quotas if the total were raised to $15 billion leaving the United States at $4 billion, on the assumption that the whole world has to be covered.
The second point refers to the limitation on the obligation of creditor countries. Keynes surmises that a maximum obligation will have to be accepted and he believes that $4 billion for the United States should be reasonably adequate. The real problem which then arises is the same in the Stabilisation Fund as in the Clearing Union, namely what to do when a currency becomes scarce. We have the same difficulty in understanding what the processes would be in the Stabilisation Fund solution. I should like very much to discuss this with you off the record when I return. Thirdly, Keynes agrees that the source of funds for long term foreign investment should be a different institution and also that for the Commodity Control the case for separation for the reasons which you give is not equally clear.
I should be most grateful if you could treat this letter as a personal exchange between you and me and I look forward to discussing one or two more difficult points which I cannot deal with in writing.
(Hansen Papers, Opie to Hansen, May 19, 1943, Harvard University Library).
The final American plan was honed by a technical committee formed in May 1943. Among the 24 experts from five different departments and agencies were two members of the Council’s Economic and Financial Group, Benjamin V. Cohen, representing the White House, and Hansen, one of the representatives from the Federal Reserve Board. As might be expected by now, it was Hansen and the Federal Reserve delegation that raised the most serious questions. Hansen continued to push to make the plan more acceptable to Keynes, and the other Federal Reserve participants raised concerns relating to the amount of gold each country had to contribute and the way it would be utilized. The thrust of these recommendations can be found in several letters and outlines, but the main points and their political implications are best stated in a personal letter from Hansen to White on June 11:
Since we had our conference with you, the staff at the Federal Reserve has again gone over the whole matter and Goldenweiser is sending you a summary statement of the main points. I am sending you this personal note since I can’t come Monday so that you will know my own point of view. It seems to me that our suggestions can quite easily be incorporated into your plan. You have frequently stressed the importance of having a plan that could get the approval of Congress. In my judgment, the modifications which we have suggested would help very much to get this approval, for the following reasons:
1. The American contribution would not be increased beyond the $2 billion you have suggested. 2. The contribution of other countries would be very greatly increased to $13 billion. 3. The Fund would be stronger in its gold holdings under our proposal. This, I think, would be pleasing to Congress. 4. The American voting power while small (rightly so with our relatively small contribution) would rapidly grow if we purchased large amounts of gold from the Fund. 5. The plan looks toward future limitation by the Fund of new gold production. This meets one type of opposition to gold purchases.
Our proposal suggests that decision can be made by majority vote. While this may not be pleasing to many Congressmen, I think they can be sold on our suggestion since if in fact we buy a large amount of gold, our voting power would rapidly rise. Thus, the ultimate control by the United States would become very great if in fact we were called upon to supply a large amount of the credit. It seems to me that these suggestions would really greatly strengthen your plan and I hope that you will give them, as I am sure you will, earnest consideration. I regret that I cannot be at your meeting on Monday.
(Hansen Papers: Hansen to White, June 11, 1943)
The general similarity in outlook between Hansen and White did not mean that these suggestions were gracefully accepted. In fact, White became annoyed with Hansen and the Federal Reserve experts when they raised their fears about the consequences of unlimited American gold purchases during a three day conference later in June with monetary specialists from 19 countries. As Eckes (1975, p. 95) tells the story:
When Alvin Hansen openly questioned the wisdom of an American commitment to accept all gold mined in the world, White lost his patience. Such theoretical ideas sound good at an economic conference, he retorted, but that group does not determine government policy. To allay fears that Washington might do as Hansen proposed — restrict its gold purchases — White vigorously reaffirmed the Treasury’s longstanding promise to buy and sell gold at $35 per ounce. From White’s standpoint this commitment to interconvertibility was imperative if others were to have confidence in the postwar system.“
Still, White made some of the changes suggested by Hansen, the Federal Reserve, and experts from other nations. The size of the fund was increased to $8 billion, the amount of gold in each country’s quota was increased to 50 percent, and countries were given more flexibility in adjusting their exchange rates during the first three years of the fund’s operation (Eckes, 1975, pp. 95-96; van Dormael, 1978, p. 86).
The new draft became the basis for formal technical discussions between the United States and Great Britain in September 1943. With both countries now eager for agreement for their separate political reasons, the discussions moved along very easily compared to the past. Keynes abandoned his plan for a clearing union based on an overdraft principle, asking in return for a fund of $ 10 billion, not $8 billion, and agreement that countries would not be deprived of their flexibility in altering their exchange rates. Although White and Keynes continued to argue and compromise for three weeks over technical issues, it was understood once the clearing union concept was dropped by the British that there were no differences that could not be resolved (Eckes, 1975, pp. 97-98).
The stage was now set for a meeting of 44 nations in Bretton Woods, New Hampshire. In terms of the international harmony and cooperation the meeting symbolized, including participation by the Soviet Union, the Bretton Woods Conference was the historic occasion it is usually called. It also provided the opportunity to bring congressional leaders of both parties and pressure group leaders into the process. All such people who were present at the conference became enthusiastic supporters of the outcome, including Republican Senator Charles Tobey of New Hampshire, who had been feared as a potential isolationist opponent. Another positive outcome of the meeting was the enormous media coverage for the idea of international monetary agreements, which was seen as the opening round in shaping elite public opinion in favor of the agreement.
In terms of substance, however, very little was changed in the draft proposal for the IMF that had been agreed to by the American and British negotiators (R. Gardner, 1980, p. 110). Most of the arguments among nations concerned the relative size of their contributions to the fund, with countries lobbying for larger contributions than their rivals and neighbors for two reasons. First, they wanted to look like greater powers in the eyes of their own citizens and other countries than they in fact were. Second, the larger a nation’s contribution, the more it could draw upon the fund for the currencies of other countries.
In addition to ratifying the plan for the IMF, the Bretton Woods Conference also agreed to plans for a World Bank. Plans for the bank had been discussed in both the Economic and Financial Group of the war peace studies and the Treasury Department from 1941 onwards. However, they had been put to the side during the disputes over the exchange stabilization fund because the bank was relatively noncontroversial in the eyes of government officials and American bankers. Originally, there were aspects of White’s suggestions for the bank that were highly liberal and controversial. But these aspects were removed in informal discussions within the government at a fairly early stage, as explained in a very detailed history of the bank by Robert W. Oliver (1975, pp. 110-125, 138-144). The plan for the bank endorsed at Bretton Woods was written by Keynes and other European experts on the cruise to the United States for the conference, and it was very similar to a moderate plan drafted by White and sent to Keynes. It was little more than a fund for guaranteeing foreign investments, and there was no opposition to it in Congress even from those who vigorously opposed the IMF (Eckes, 1975, p. 132).
The final hurdle facing the Bretton Woods agreements was approval by a majority in the House and Senate. The State Department fully supported the plan and worked closely with the Treasury to win its acceptance (Eckes, 1975; R. Gardner, 1980; Oliver, 1975; van Dormael, 1978). Taking no chances, officials in the Treasury and State made an all-out effort to spread their message through speeches, endorsements, and favorable newspaper and magazine articles. Most of those in the general public who knew anything about the plan were positive, but only 23 percent of the respondents in one poll „could even relate Bretton Woods to world affairs“ (Eckes, 1975, p. 196). As is so often the case, the battle would be fought out among highly interested partisans in the „attentive public“ and Congress.
There was widespread business and agricultural support for the IMF and World Bank. The ultaconservative American Farm Bureau Federation testified in favor of it, and a Business and Industry Committee for Bretton Woods was formed that included officers from such major corporations as General Mills, American President Lines, Bristol Myers, and Hilton Hotels (Paterson, 1973, p. 151, footnote 15). Significantly, the support committee included two prominent leaders of the highly conservative NAM, Charles Hook of American Rolling Mills and James H. Rand of Remington Rand.
The main opposition to the plan came from the banking community, especially from big banks in New York. It needs to be stressed that this opposition was not anti-internationalist. It was based first of all in a desire to maintain the large influence on monetary policy that traditionally had been enjoyed by large banks, and secondly on a fear that overly liberal currency policies might lead to postwar inflation (Eckes, 1975, p. 176). Working through the American Bankers Association and the Federal Reserve Bank of New York, the bankers‘ alternative was an approach based on British American collaboration in currency stabilization. Called the „key currency“ approach, it would first stabilize monetary relations between the United States and Great Britain, partly through a large loan to the British, and then build out to other nations. An international organization such as the CFR planners and White envisioned would come later if at all (Eckes, 1975, pp. 88-89). Neither the Canadian nor the British government liked the plan, which reinforced the opposition of American officials and their advisers to it (Eckes, 1975, pp. 176-177; Williams, 1944, p. 234).
The author of this alternative plan was economist John H. Williams, vice president of the New York Federal Reserve Bank and dean of the Harvard Graduate School of Public Administration. He also had been a member of the Economic and Financial Group from February through November of 1940. Like Hansen, he recognized that the success of any monetary plan was dependent on avoiding depression in major countries. His ideas were discussed within the Economic and Financial Group and published in the Council’s journal,Foreign Affairs (1943, 1944). Clearly, then, there were differences over the IMF among members of the Council on Foreign Relations, with Williams and major commercial bankers fighting a proposal that had been shaped and supported by the war peace project.
The board of the Federal Reserve Bank of New York urged the key currency plan on the board of governors of the Federal Reserve in Washington, but the Washington board rejected its pleas in favor of the White Plan. Revealing once again the degree to which this battle was within the in group, Hansen played a major role as an adviser to the board of governors in defeating Williams‘ plan:
Consultant Alvin Hansen, who was instrumental in shaping the Federal Reserve position on this issue, asserted that, if Bretton Woods failed, there was little hope for supplementary economic agreements on investments, commodities, and commercial policy. And, without a network of international ties, parallel political agreements designed to assure future peace would surely fail. „Having become internationalists on political lines,“ Hansen claimed, „there is the gravest danger that the United States will remain isolationist on economic lines.“ Unless the United States provided the leadership and demonstrated its commitment to permanent international arrangements, „nationalistic policies tending toward economic isolation are almost certain to prevail. Economic nationalism and isolationism, rival economic blocks, and international friction will likely be intensified“ (Eckes, 1975, p. 119).
Williams and the New York bankers did not speak for all bankers, by any means. For example, Edward Brown, president of the First National Bank of Chicago, who had been at Bretton Woods, joined the aforementioned Business and Industry for Bretton Woods Committee (Paterson, 1973, pp. 150-151). He claimed that many other bankers throughout the country agreed with him (van Dormael, 1978, p. 254). Earle Cocke, an Atlanta banker, wrote of his approval of the agreements because the IMF would increase export sales of southern cotton, tobacco, and peanuts (Eckes, 1975, p. 170). Since southern Democrats were great believers in free trade until the mid-1950s, they needed little prompting from Cocke in the 1940s.
Although the New York bankers were relatively isolated within the corporate community in their opposition to the Bretton Woods agreements, and were seen as engaging in a special-interest kind of pleading by other corporate leaders, they nonetheless were an important factor in the legislative struggle because they gave great moral support to the isolationist Republicans on the House Banking and Currency Committee. In particular, they had a close relationship with Congressman Charles Dewey of Illinois, the main isolationist spokesperson. Until two weeks before the final vote, it looked like Dewey had organized a majority on the committee to block the plan (Eckes, 1975, pp. 192-194).
The coalition between internationalist New York bankers and isolationist House Republicans was held together in good measure by the claim that the IMF would be wrongly used by needy countries to provide themselves with short-term reconstruction and transition loans under the excuse of monetary adjustments. The answer to this argument came in a „Hegelian compromise intended to satisfy both the government and the bankers“ (Eckes, 1975, p. 191). Its sponsor was the CED, the new organization of big business moderates discussed briefly in the previous section, The CED had been formed in 1942 by business leaders working with Secretary of Commerce Jesse Jones, himself a Houston entrepreneur of great wealth and influence. Its stated goal was to plan for the transition to a postwar economy in a cooperative way in conjunction with the government and other groups, but its unstated goal was to minimize government involvement in the economy (Eakins, 1966). In 1943 it hired Viner, Upgren, and John H. Williams to help fellow economist Calvin B. Hoover with a major study of international policy, the conclusion of which was the need to develop mechanisms to avoid depressions and advance free trade (Whitham, 2010a, 2010b). Its members and expert advisers were similar in perspective to leaders of the Council on Foreign Relations, and in the postwar years the committee became the domestic parallel of the Council, sharing a great many members with its older counterpart. It also took the lead in advocating the tariff agreements and other legislation that set the stage for the development of a globalizing economy by the 1970s (Collins, 1981; Domhoff, 2013).
The compromise fashioned within the CED suggested that any possibility of the fund being used wrongly for short-term loans could be dealt with by authorizing the proposed World Bank to make short term stabilization loans as well as long term loans for reconstruction and development:
With the bank taking a more active role in the abnormal postwar period, the fund, designed primarily to cushion short term fluctuations in an orderly world where international transactions tended to balance, would not have to assume the burden of financing unstable conditions. According to the CED analysis, if the bank engaged in stabilization lending, the fund would not misuse its resources and become frozen with unwanted currencies, as the bankers feared. (Eckes, 1975, p. 191)
This proposal, along with the addition of a high-level government advisory committee to advise American appointees to the fund and bank on how to vote, satisfied the bankers. Some observers argued at the time that the Hegelian compromise was largely symbolic, giving the bankers a way to save face and accept the inevitable (Eckes, 1975, p. 192). However, the important point is that corporate supporters of the fund had found a way to assuage banker opposition. This capitulation by the bankers, along with the ascendancy of Harry S. Truman to the presidency after Roosevelt’s death, led to a „remarkable turnaround“ on the House Banking and Currency Committee; the majority who had opposed the bill was now reduced to three isolationist „irreconcilables“ from the Midwest (Eckes, 1975, p. 197). The bill authorizing the president to accept membership in the IMF and the World Bank sailed through both the House and Senate by wide margins when the vote finally came after the usual apocalyptic and/or grandiose speechifying.
There was one more battle to be fought once the fund and bank were legislated. It was with the British at a conference of all member nations at Savannah, Georgia, during March 1946. The British lost on the location of the two institutions and on the degree to which experts would be hedged in by political overseers. By the end of the conference the fund and the bank were clearly dominated by the American government and American bankers. Keynes left the conference very embittered by the American high-handedness.
American leaders were indeed less generous in their sharing of power than either White or hired CFR experts had envisioned. Still, as Hansen later wrote, „No one familiar with the political realities of the time is likely to argue that a more ambitious scheme could have been realized“ (Eckes, 1975, p. 79, quoting Hansen, 1965, p. 177). In that sense, the final outcome demonstrates the great power of ultraconservative corporate leaders and bankers through Congress. But the very existence of international financial and monetary organizations that would play the role planned for them by the CFR demonstrates the even greater power of the corporate moderates in shaping the larger picture. At both levels, the general and the specific, it was corporate leaders that had the real power, not the experts the corporate moderates had employed or the members of Congress.
And yet, after all this back and forth, the IMF did not come into its own until the 1950s because it was not designed to handle the transition to peacetime. In particular, it was understood by the corporate moderates that the United States would have to make a large loan to Great Britain. Even with this understanding, the planners went wrong in underestimating the devastation of the British economy and the time that would be needed to reconstruct it. In addition, the Americans linked the granting of the loan to Great Britain’s ratification of its participation in the IMF (R. Gardner, 1980, pp. 191, 196-197, and Chapter 11; van Dormael, 1978, pp. 274-275). The loan was carrot, stick, and necessity.
Nor did the plans for lower tariffs and an expansion of international trade unfold without delays and problems. In particular, the nationally oriented ultraconservatives in the corporate community fought a rearguard action against most of these plans, and even some pro-trade business leaders were hesitant beause they thought that the final draft for the International Trade Organization did not press hard for fully open trade (R. Gardner, 1980, pp. 371-380). In fact, the internationalists had no real successes on trade issues until the passage of the Reciprocal Trade Act in 1962, which opened the way for the internationalization of the American economy. This is a story that has been told elsewhere in considerable detail based on an extensive literature (Collins, 1981; Domhoff, 1990, Chapter 8; 2013, Chapters 5-6).
The Grand Area and the Vietnam War
The plans developed inside the CFR and the state department between 1940 and 1944 to create a postwar Grand Area and an international monetary regime within which the United States economy could reach its full potential provided the context that eventually led to the Vietnam War. If we keep in mind that Southeast Asia was considered essential to the Grand Area from as early as the summer of 1940, and that council planners were prepared by the winter of 1940 to advocate war to keep Japan out of that area, then we can begin to appreciate the remarkable continuity that is found on the importance of Vietnam in the postwar reports and books of the Council, and in the official position papers of the National Security Council created in 1947.
True enough, as all sources stress, after 1945 the American leaders decided they had to acquiesce in the French and British governments‘ insistence on retaining their pre-war colonies, but that’s not the whole story. Moreover, the Cold War and the resultant containment policy came to be very important in the thinking of postwar government officials. But that’s not the end of the matter either. The Cold War changed the nature of the threat, but many of the earlier policy concerns remained, or at least they were mentioned in CFR policy documents and official national security documents time after time from 1965 through 1968. The American leaders wanted, first, healthy Japanese and British economies that could function in harmony with an expanding American economy and, second, the ability to limit the power of nations that they perceived as threatening to their economically based conception of the American national interest. Since the definition of the national interest in terms of establishing and defending the Grand Area preceded the advent of the Soviet and Chinese threats, the importance attached to Vietnam cannot be attributed solely to a fear of a USSR-China bloc that did not develop until 1949, or to a philosophical dislike of communism based on „Lockean liberalism,“ as is the wont of some scholarly analysts.
All this said, it is still the case that the step-by-step process that led to the Vietnam War was not inevitable and foreordained by events in the 1940s or even the early 1960s. The American leaders always „had real choices about which way to go,“ and those choices were „evident not only in retrospect but also at the time,“ but even so „the policy always moved in the direction of deeper U.S. involvement,“ concludes the preeminent historian of the Vietnam War, Fredrik Logevall(2012, p. 710). Furthermore, the world economy and power relations among nations kept changing throughout the decades, as did the American power wielders‘ conception of their interests. This was especially the case for President Lyndon B. Johnson due to a landslide election victory in 1964, complete Democratic dominance of Congress, public sentiment against escalating the war, and the realization on the part of the architects of the war that the Sino-Soviet split was real and that Vietnam would not become a Chinese puppet. But the number of American troops climbed from a few thousand when President Dwight D. Eisenhower left office to 8,000 in mid-1962, almost 16,000 when President John F. Kennedy was assassinated in November, 1693, and 23,000 in 1964; by the end of 1965, there were 180,000 American troops in Vietnam (Logevall, 1999, 2004, 2012).
Based on the Economic and Financial Group’s call in 1940 for the inclusion of Southeast Asia in the Grand Area, the road toward the Vietnam War began in the deliberations of the War-Peace Studies‘ Territorial Group, which first discussed postwar political arrangements for Southeast Asia on March 18, May 20, and July 6, 1942. Three main people figured prominently in these discussions, and all three were later involved in government planning through lobbying state department officials or formal appointments of one kind or another. Isaiah Bowman, the geographer mentioned earlier as the president of Johns Hopkins University, was the leader of the Territorial Group. Hamilton Fish Armstrong, mentioned earlier as one of the leaders of the War-Peace Studies and as the editor of Foreign Affairs, was a member of the Territorial Group as well as the chair of the Peace Aims Group. Finally, Rupert Emerson, a Harvard political scientist who was an expert on Southeast Asia, with a special focus on the rise of nationalism in the area, was a member of the Territorial Group.
As the „Digests of Discussions“ for the Territorial Group’s three meetings between early March and early July make clear, the question of freedom for the native peoples of Southeast Asia was constantly balanced with the need to secure American interests. In the context of anticipating what China might want in Indochina, Bowman drew some conclusions about power that seem to reflect the bottom line for later American strategizing about the area:
The course of the discussion led Mr. Bowman to observe that a general idealized scheme, as, for example, of complete Asiatic freedom, sometimes runs counter to proposals which were more practical. He was not opposed to the aspirations of the Chinese, but he did not think we could proceed from victory to the ideal, but must go from victory to that security which is a prime condition for the realization of the ideal. Security must take first precedence. It is, in the first instance, a matter of power — power exercised from critical points. The problem is how to make the exercise of that power international in character to such an extent that it will avoid conventional forms of imperialism [my italics]. The eventual question will be how to provide for a later period of genuine international collaboration on a wider basis. All of the ideal principles of the Atlantic Charter, for instance, will be empty words without a prior guarantee of security through power. We should come out and say this openly and frankly. At the same time, we can point to our Latin American good neighbor policy of the last decade as proof of our contention that the possession of overwhelming power need not result in that abuse of power characteristic of imperialism. (CFR Memorandum T-A25, 1942, p. 9)
American decision makers never came out and said anything like this openly and frankly, as Bowman suggested they should, but his comments seem to reflect the mindset of the American foreign-policy establishment at that time. The issue was power, and the United States had preponderant power, as Leffler (1992) convincingly argues in his account of the rise of the United States in the 1940s. Within that context, the problem was to „avoid conventional forms of imperialism“ and at the same time point to Latin America and the good neighbor policy as evidence that the United States would not abuse its new imperial power.
Bowman, Armstrong, and Emerson also figure prominently in a detailed study of official governmental postwar planning for Southeast Asia by historian Gary Hess (1987 ). Bowman chaired the State Department’s Subcommittee on Territorial Problems, an example of the kind of direct connection that existed between the war-peace studies and the government. In addition, Armstrong was a member of this State Department subcommittee. Bowman and Armstrong also served on the department’s Subcommittee on Political Problems, within which „the most extensive discussion and significant recommendations “ concerning Southeast Asia took place in 1943, well after the original discussions at the Territorial Group of the war-peace studies (Hess, 1987 , p. 62).
Hess reports that the State Department’s Subcommittee on Territorial Problems, chaired by Bowman, and including Armstrong and U.S. Steel’s Myron Taylor among its members, gave early attention to colonialism in Southeast Asia. However, he further writes that „the most extensive discussion and the significant recommendations emerged later from the department’s Subcommittee on Political Problems,“ a subcommittee chaired by Welles, which included Armstrong, Bowman, and Taylor among its nine members (Hess, 1987 , p. 62). In fact, the membership of the two subcommittees overlapped almost entirely, except that Welles and one other person were not on the Territorial Subcommittee.
At the outset, both subcommittees hoped to push the European colonial powers toward a worldwide anti-colonial policy based on the principles of the Atlantic Charter. As the idea crystallized in the Subcommittee on Political Problems in August 1942, there would be a trusteeship arrangement whereby the major powers would oversee a gradual movement to independence by former colonies. However, the overbearing and counterproductive way in which France dealt with its colony in Indochina might require a special arrangement there according to Welles:
Welles drew an important distinction between the French colony and those of Britain and the Netherlands. While international administration of Indochina was necessitated by the French record, the British and Dutch could be restored to authority in their colonies provided they agreed to general supervision of, and to report to, the regional international trusteeship council. Hence the Southeast Asian trusteeship council, as envisioned in August, 1942, would have an overall responsibility for assuring the development of self government, but would exercise direct control only in Indochina. (Hess, 1987 , p. 66)
However, this solution, which also reflected Roosevelt’s views on French policy in Indochina, pleased no one. Hull and others in the State Department did not like the plan because the department had claimed it would treat all colonies the same, and in addition they did not want to weaken France in Europe (Kattenburg, 1980,pp. 13-14). The British did not like it because it forced them to give up some sovereignty over their colonies, and divided them from their French allies on colonial issues. The French didn’t like it because it took away their colony.
A little over a year later, on October 29, 1943, Bowman wrote a policy statement for the State Department that led to the eventual American position on Vietnam. It paralleled his earlier thinking and that of other council planners in both the Territorial Group and the Economic-Financial Group. In doing so, he was drawing in part on a September 1943, memorandum for the CFR’s Territorial Group, „Regionalism in Southeast Asia,“ in which Emerson floated the idea of a regional council „to establish non discriminatory trade policies;“ it was thought that such a regional council would place „political and economic control in hands likely to be friendly to the United States“ (T-B67, 1943, p. 6).
Bowman’s official report listed four alternatives for dealing with Vietnam that ranged from independence to complete French control without supervision. Independence was ruled out because of a fear of instability in the region. Complete French control was considered unacceptable due to France’s terrible record in Indochina, which was heavily criticized by Council planners and Roosevelt. Furthermore, a trusteeship such as Roosevelt favored was ruled out because, as Hess (1987 ,p. 74) summarizes, such a plan „depended upon all colonial powers accepting similar international control of their possessions,“ which was out of the question as far as the British were concerned. Thus, Bowman argued that the area had to be returned to French control through British-American power, but with „an international system providing for review and inspection of colonial areas“ (Hess, 1987 , p. 74). Bowman’s conclusions were reinforced by a report for the state department subcommittee by Emerson dated November 16, 1943. He too held that French control should be restored, but subject to international review and with the presumption it would lead to self-government for the country in the long run. In other words, the combination of Bowman and Emerson meant that a view similar to that of the CFR planners carried the day.
When Britain and France wouldn’t even agree to that much oversight, the United States felt it had no choice but to support France because of its distaste for an independent Vietnam led by communist-nationalists. Then, just two years later, with the rise of a communist-led nationalist movement fighting for independence in what was by then called Vietnam, and with the movement’s temporary takeover of many of the country’s provinces, American leaders were faced with a decision about supporting the French once again. They decided they could not risk granting independence to Vietnam because the nationalist movement had communist leadership, despite the close ties between the movement and a handful of American government officials in Vietnam who were part of the intelligence gathering activities of the Office of Strategic Services (Logevall, 2012, pp. 82-86, 98-105; Spector, 1983, pp. 36-42). Some of the OSS members, and perhaps a few officials in the state department back in Washington, thought it would make sense to support the communist leader of the movement, Ho Chi Minh, whom several of them knew personally. However, it soon became clear that top decision-makers, who tended to be more conservative and concerned about Europe, would support nationalists against a minor nation such as the Netherlands, as soon shown in Indonesia in 1947-48, but not the likes of Ho Chi Minh, with his close ties to Soviet and Chinese communist leaders (Kattenburg, 1980, pp. 5-8; Lawrence, 2005, Chapters 5-6).
In deciding to oppose the communist-led nationalists, American leaders knew from the start, based on reports from the field about the strength of Vietnamese nationalism, that they were likely to lose. As one OSS officer wrote in 1945, shortly before he was killed by the nationalists later that day: „Cochincina is burning, the French and British and finished here, and [the United States] ought to clear out of Southeast Asia“ (Logevall, 2012, p 117) Their policy goal became one of denying the area to communism for as long as possible. Given that minimal goal, their policy was successful until 1975, as Gelb and Betts (1996) argue. They did not deceive themselves about Vietnam, but they did not make their pessimistic views known to the general public. The policy advice they received was accurate about the great strength of the communist led nationalists, and the decision to fight for a stalemate was made with their eyes wide open. For that reason Gelb and Betts gave their book the title The Irony of Vietnam: The System Worked; it is a reaffirmation of the rationality of American experts, CFR leaders, and the U.S. government.
Once the decision was made to support France in Vietnam, American leaders had to follow French policy even while providing indirect financial support through the Marshall Plan from 1948 to 1950 and large amounts of direct military support from 1950 to 1954 (Logevall, 2012). The Americans could suggest, cajole, and even threaten, but the French now had the ultimate weapon: the threat to leave. And if any American leaders ever were tempted to deal with the Vietnamese leadership in the 1940s, based on the assessment that these leaders were first and foremost nationalists, that temptation disappeared when the communists won in China in 1949, followed shortly thereafter by the Korean War. From that point forward, according to historian Robert M. Blum (1982, p. 214) in his study of postwar policy in Southeast Asia, „The American containment policy in Southeast Asia arose from the ashes of its failed policy in China.“
Similarly, historian Brian VanDeMark (1991, pp. 4-5) says that the United States aided France because of a need for French cooperation in Europe, and later out of fears of communist expansion in Asia. Political scientist David Barrett (1993, pp. 13-14) begins his account of Vietnam decision-making in the Johnson administration with the loss of China to the communists in 1949 and the Korean War in 1950. Historian Andrew Rotter (1987, p. 84) provides a detailed account of policymaking within the Truman Administration to demonstrate that Burma, Malaya (which faced a small but tenacious Communist insurgency at the time), Thailand, and Indonesia (which had a significant Communist opposition throughout this era) figured along with Indochina and Japan in the thinking of foreign policy officials:
As the problems in China, Japan, and Western Europe intensified during 1949, drawing attention to Southeast Asia, U.S. policymakers came to regard Indochina, and especially Vietnam, as the key to the resolution of regional and international crises. Officials saw stability and prosperity in Indochina as necessary for the achievement of similar results in Burma, Thailand, Malaya, and Indonesia, and, more and more, as a prerequisite to the political and economic successes of the developed, non-Communist world.
Even though it is true that Southeast Asia in general became a more critical issue for the United States due to the revolution in China, there is still somewhat of a mystery in terms of including Indochina unless economic considerations are factored into the equation. As Gaddis (1987, pp. 74, 89) points out, the inclusion of Indochina within the American „defensive perimeter“ in Asia in the late 1940s actually was an „anomaly“ from a military standpoint. Earlier, the military had suggested a defense rooted primarily in islands stretching from the Aleutians, Midway, and Okinawa to British and Dutch islands in the southwest Pacific. Despite that military recommendation, a study by the State Department’s Policy Planning Staff in March 1949, and a National Security Council review in December of the same year, both concluded that Indochina was more vital than either Taiwan or Korea. Gaddis then lists the several reasons why American officials came to this conclusion, which dovetail with those pointed to by Rotter (1987):
American officials appear to have made an exception to their general rule of not regarding mainland areas as vital, in the case of Indochina, for several reasons: (1) the conviction that Ho Chi Minh was a more reliable instrument of the Kremlin than Mao Zedong; (2) the belief that the Soviet Union had designated Southeast Asia as a special target of opportunity; (3) concern over the importance of Southeast Asia as a source of food and raw materials; and (4) in an early version of what would come to be known as the „domino theory,“ fear of the strategic and psychological consequences for the rest of non communist Asia if Indochina should fall to communism. (Gaddis, 1987, p. 90)
Drawing on the work on the American occupation of Japan by Michael Schaller (1985), Gaddis stresses that the concern with food and raw materials involved support for the Japanese economy as well as keeping needed supplies from the Chinese communists. Then too, the importance of Southeast Asia at the time as a source of raw materials and markets for Europe as well as Japan is stressed in an account of an aid mission to Southeast Asia in 1950 written by its deputy chief (Hayes, 1971, pp. 12-22). In short, the enlarged concern with Southeast Asia is consistent with the CFR’s prewar conception of the future Grand Area.
The CFR itself devoted little direct attention to Southeast Asia in the postwar years until March 1950, when it formed a study group to reconsider the region. During the next year it created a joint study group with the Royal Institute of International Affairs to discuss the same area. The views of council leaders resulting from these discussion groups are best revealed in the book that came out of the joint study group. Shoup and Minter (1977, p. 226) summarize the book as follows, with the internal quotes coming from the book:
The book produced by the joint study group in January 1953 defined the American national interest in Southeast Asia almost exactly as had the War and Peace Studies Project — in economic and strategic terms. The book argued that „Southeast Asia contributes some of the most critical raw materials needed by Western Europe and the United States. It also makes an essential contribution to the food supply of India.“ Strategically, the „loss of any further portion“ of the Far East in general „could well have decisive effects on the balance of world power in the years ahead.
The first full statement of the American national interest in Southeast Asia was written in January 1952 by W. Averell Harriman, a director of the CFR and President Harry Truman’s director of mutual security. Shoup and Minter (1977, p. 234) conclude that Harriman’s document was „identical“ with the CFR view on why the area was of importance. Six months later, the National Security Council approved a statement of policy concerning Southeast Asia that had the usual emphasis on raw materials and the strategic role of the region, adding that „the loss of any single country would probably lead to a relatively swift submission to or an alignment with communism by the remaining countries in this group“ (Shoup & Minter, 1977, p. 234, quoting NSC memorandum 124/1). In addition, and in keeping with the now familiar Grand Area conception of the American national interest, the statement concluded „the loss of Southeast Asia, especially of Malaya and Indonesia, could result in such economic and political pressures in Japan as to make it extremely difficult to prevent Japan’s eventual accommodation to Communism“ (Shoup & Minter, 1977, p. 235, quoting NSC memorandum 124/1).
In October 1953, the Council organized a 40 person discussion group on Southeast Asia. Its research director, William Henderson, wrote a pamphlet for the closely related Foreign Policy Association in March 1955, based on his work for the group. It called Southeast Asia an „economic and strategic prize“ that was „worth fighting for“ (Shoup & Minter, 1977, pp. 227-228). A 1954-55 study group on the same region resulted in a book by the group’s research director, John K. King of the University of Virginia, which claimed the area was „of global strategic importance roughly comparable to Panama and Suez“ (Shoup & Minter, 1977, p. 229). Raw materials and the importance of the area to Japan also were part of his argument.
During the Eisenhower years, there was an equally strong, if not stronger, overlap between the CFR and key foreign policy decisions. Wall Street lawyer John Foster Dulles, a CFR member highly involved in its study groups, served as secretary of state. His brother, Allen, a member of the war peace study groups and the CFR president in the late 1940s, served as the director of the CIA. Then, too, Eisenhower had chaired a CFR study group on aid to Europe in 1949-1950, with Armstrong, Baldwin, Viner, and Williams from the war-peace studies among its 14 members; three staff members to the aid to Europe group had been staff members for the war-peace studies (Wala, 1994, pp. 126-135, 254). At its final meeting, several months after the Chinese Communist Army came to the rescue of their North Korean allies, and just before the news broke that Eisenhower had been appointed as the Supreme Allied Commander in Europe, he and other members of the group, with the help of National Security Director Harriman, wrote an urgent letter to President Truman. It called for an immediate military build-up in Europe (Wala, 1994, pp. 136-139).
With Eisenhower and the Dulles brothers playing the major role on foreign policy during the two Eisenhower Administrations, there was even more importance placed on the strategic importance of Vietnam. Eisenhower was ready to escalate support for French troops and land American troops as long as he had hopes that such actions might work (Logevall, 2012, Chapters 16-21). When French leaders and the growing anti-war movement in France asked why the Americans felt they could settle for a truce in Korea, but not in Vietnam, they replied with arguments about strategic and economic issues similar to those discussed in the war-peace studies, with frequent mentions of the implications of Vietnam for the economic health of Japan. In March of 1954 Secretary of State Dulles told a large audience at the Overseas Press Club in New York City that „Southeast Asia is the so-called ‚rice bowl‘ which helps to feed the densely populated region that extends from India to Japan. It is rich in many raw materials, such as tin, rubber, and iron ore. It offers industrial Japan potentially important markets and sources of raw material. The area has great strategic value“ (Logevall, 2012, p. 462) In keeping with arguments put forth during the Truman years, it was asserted that the loss of Vietnam and its nearby neighbors might lead to the possible fall of Burma, Malaysia and Indonesia. When military actions appeared to be futile, the Eisenhower Administration refused to join the French and British in negotiating a graceful exist, to their great annoyance (Logevall, 2012, Chapter 24).
At the same time, the National Security Council statements of 1954, 1956, 1958, and 1960 continued to define the national interest in Southeast Asia in terms of concepts similar to those invoked by the CFR and the Truman administration. Although the documents usually began with the immediate situation, and laid out the possible military options for dealing with the latest communist successes, they always explained the need for drastic actions in terms of the same concerns expressed by the Economic And Financial Group within the war-peace studies. Moreover, the last paragraph in the Eisenhower Administration statements were almost identical in language to the last paragraph of the policy statement under Truman: „The loss of Southeast Asia, especially of Malaya and Indonesia, could result in such economic and political pressure on Japan as to make it extremely difficult to prevent Japan’s eventual accommodation to communism“ (Shoup & Minter, 1977, p. 236, quoting NSC memorandum 5405).
Within this context, the CFR established a study group on Southeast Asia in 1959 that met over a two year period. Among the 43 members were several people that had been in the earlier studies of the subject, including Henderson and King, and one person, Philip Mosely, who had been a research secretary in the war peace studies and a State Department adviser on Southeast Asia after the war. The research director, Russell F. Fifield (1963) of the University of Michigan, in effect summarized the group’s outlook in his Southeast Asia in United States Politics. He repeated the same themes found in the work of CFR leaders and research scholars since the early 1940s. He also called for military involvement and supported the interdependency theory that had come to be known as the „falling dominoes“ principle: „Military defense against direct and indirect aggression must be a fundamental United States objective in Southeast Asia, for without security all other goals collapse like a row of dominoes when the first is pushed over“(Fifield, 1963, p. 407).
With this definition of the American national interest firmly established over nearly a 20 year period, the Kennedy administration had little discussion of basic assumptions as it gradually involved itself in Vietnam. Many commentators at the time had the impression that United States involvement in the war was unthinking and almost accidental, with no real understanding of the risks and costs. It was not until the publication of The Pentagon Papers (Gravel, 1971) that most people began to understand that both the leaders and their advisors knew from the start that they could not win the war. As political scientist John C. Donovan (1974) wrote in his study, The Cold Warriors: A Policy Making Elite: „The Kennedy administration did not question (even privately) the purposes of the American intervention in Vietnam. Kennedy and his advisers went along with the inherited assumption that the perpetuation of a non Communist regime in Saigon was vital to United States interests“ (Shoup & Minter, 1977, p. 237, quoting Donovan). In agreement, Gelb and Betts (1996, p. 73) conclude that for the Kennedy years, „Vietnam policy debates from the beginning of the administration centered on how to save Vietnam, not whether to save it.“
But the Kennedy escalation was not quite that simple or unthinking. He and his many appointees with longstanding involvement in the CFR believed they could do better than the French had done because they were not defending a colonial empire, thought of themselves as sympathetic to an independent non-Communist Vietnam, and had a hugely superior air force to that of France. Overlooking the major differences between the communist insurgencies in Malaysia and Vietnam, they drew hope from the fact that the British had finally triumphed in Malaysia by 1960 (Logevall, 2012, pp. 707-708).
After Lyndon Johnson won with 61.1% of the vote in 1964, in part by implying he was for peace in Vietnam, unlike his openly hawkish Republican challenger, it appeared that his overwhelming victory provided an opening to draw back from a situation that only had become worse during the Kennedy Administration. In addition, non-Southern Democrats, most newspapers editorial pages, and public opinion opposed greater involvement in the war. Most of all, the relative handful of foreign policy officials involved in the decision-making process now understood the depth of the Sino-Soviet split and knew that the Soviet Union and China had no interest in pressing for an expansion of the war. As for the communists in Hanoi, they had made it clear they would accept a coalitional government in South Vietnam and „negotiate an agreement that would have allowed the United States a face-saving means of disengagement,“ which also would have minimized any super-patriotic voter backlash based on right-wing claims about unnecessarily losing a war (Logevall, 2004, p. 104).
Once the full record of discussions and negotiations involving the major powers of the time became available, which included Canada and Great Britain as well as the Soviet Union, China, France, and the United States, it became even more clear than it was at the time that the American leaders had no intention of negotiating despite the many new circumstances and a likely defeat. Instead, they were planning to escalate the war as needed (Logevall, 2001, pp. 69-70). At the same time, it was also clear that they had less concern about defending a Grand Area or ensuring that a now-thriving Japanese economy had access to the former Indochina region. They understood the implications of the Sino-Soviet split, and they expressed little concern about China’s possible territorial aims.
Moreover, many of them doubted that North Vietnam and South Vietnam would become a puppet of China if they became one country under communist rule. For example, the top war planners for the Secretary of State and the Secretary of Defense wrote as follows to their bosses and the president concerning the likely outcome if they did not escalate: „the most likely result would be a Vietnamese-negotiated deal, under which an eventually unified Communist Vietnam would reassert its traditional hostility to Communist China and limit its own ambitions to Laos and Cambodia“ (Logevall, 2001, p. 75).
By late 1964, then, the key decision-makers who had the option of escalating the war or negotiating a graceful exit were no more worried about the communist threat than the CFR planners had been in the early 1940s. This time, though, they talked even more in terms of American „credibility“ and the country’s „standing“ in the world, and Democrats said they worried about a hawkish backlash even though a majority of the public opposed the war. That is, they were concerned with maintaining the unquestioned American power and prestige that their predecessors projected as a key aim for the United States after World War II, along with their own political positions.
In choosing to escalate the war, Johnson had the full backing of the most visible members of the corporate community, including those who were leaders in the CFR. In addition to the CFR members that held official positions in the Johnson Administration, its leaders organized the 48-person Committee for an Effective and Durable Peace in Asia to support the war effort. The committee ran an ad in the New York Times and 13 other newspapers across the country in early September 1965, which expressed its agreement with Johnson’s war aims in a ten-point statement of principles. It stressed that he „acted rightly and in the national interest“ in sending American troops into Vietnam. A Wall Street lawyer, Arthur H. Dean, the country’s chief negotiator at the talks that ended the fighting in Korea, chaired the committee. Most of the 48 members were bankers, corporate lawyers, and college presidents from all parts of the country, but there were several corporate CEOs as well. Several of them served on the Citizens Committee for Peace and Freedom in Vietnam and other pro-war committees that attempted to shape public opinion (e.g., Brinkley, 1992, pp. 248-250).
By 1967, however, many CFR leaders began to express doubts about further escalation, leading to a new study group on „A Re-examination of American Foreign Policy.“ Then, in late March 1968, shortly after a surprise attack on South Vietnam’s capital city, Johnson called together his senior advisory group on Vietnam for consultation because of divided opinion among his government advisors about what steps to take. Officially named the President’s Consultants on Foreign Policy, and informally called the „wise men,“ the advisory group had been constituted in September 1964 and announced in the New York Times, so it was no secret. Most of the sixteen original members were members of the CFR as well as former top state department appointees in the Truman, Eisenhower, and Kennedy administrations, or else leaders on Wall Street. They had supported Johnson’s decisions to escalate the war, including the dispatch of combat troops in July 1965, and had reassured him again in early November 1967 that he was on the right path (Gibbons, 1989, pp. 347-350; 1995, pp. 874-878; Isaacson & Thomas, 1986, Chapter 23).
At the March 1968 meeting, though, the great majority of those in attendance thought that de-escalation, negotiation, and eventual withdrawal were the only sensible steps. According to Shoup and Minter (1977, p. 242), 12 of the 14 men present at this crucial turning point were members of the CFR. Cyrus Vance, a Wall Street lawyer, the Deputy Secretary of Defense in the Kennedy Administration, and a CFR director, explained the group’s thinking to a former state department official who was writing a book on the dramatic change in Vietnam policy. „We were weighing not only what was happening in Vietnam,“ said Vance, „but the social and political effects in the United States, the impact on the U.S. economy, the attitudes of other nations; the divisiveness in the country was growing with such acuteness that it was threatening to tear the United States apart“ (Hoopes, 1969, pp. 215-216).
By this point all of the CFR leaders and advisors had been well aware of the tensions between China and the Soviet Union for several years, which made any lingering fear of a coordinated communist effort against American, European, and Japanese corporate involvement in the Third World less likely. They also knew that in 1965 Indonesian leaders had decimated the Indonesia Communist Party, by then the third largest Communist Party in the world, which eliminated communism as a threat in that large and resource-rich island empire. Within this changed geopolitical context, and knowing there was little no chance of victory, they thought it was time to try to deal with the increasing economic and political disruption on the home front (i.e., rising inflation, people in the streets). When Richard M. Nixon was elected president in 1968, it fell to a longtime CFR advisor and member, the Harvard-based strategist Henry Kissinger, to negotiate a gradual withdrawal from Vietnam.
In the end, the geopolitical and economic concerns of the leaders at the CFR, which reflected the general viewpoint of the internationalists within the corporate community, carried the United States to the brink of the Vietnam War between 1942 and 1964. Then they backed an escalation in 1965 through the President’s Consultants on Foreign Policy and the Committee for an Effective and Durable Peace in Asia. Three years later, as their interests continued to evolve in the light of new developments, and most of all facing eventual defeat and increasing domestic disruption, CFR leaders, now known by an adulatory younger generation of foreign policy mavens as „the wise men,“ called for a gradual withdrawal from the war for continuing dominance of Southeast Asia that they and their predecessors had supported since the mid-1940s.
It seems clear to me, in the light of historical research since the 1980s on the rise of American dominance after World War II and the origins of the Vietnam War, that earlier class-dominance scholarship based on Council on Foreign Relations files and contemporary accounts has been largely vindicated. Nuances and the details of internal conflicts among decision-makers have been added, and the work of Logevall (2012) and others has shown that the United States was restrained or forced to compromise on occasion by the countries with which it is allied. The scholarship based on archives released since the 1980s also shows the many mistakes the cocksure American leaders and experts made, despite all their bragging about how smart they were compared to the rest of us — which means that the world is different in some ways than they intended it to be. The new scholarship also reveals how often they misled their allies and the American public as to their intentions. Although the CFR is no longer the only game in town when it comes to foreign policy, because other policy-discussion groups and think tanks concerned with foreign policy have been created, the work in this document demonstrates once again the importance of the policy-planning network in general in understanding how class dominance is possible in the United States. Power is far more concentrated than most historians and social scientists assume, yet not at all in the ways imagined by the conspiracy theories of the left or right.
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First posted October 2013
This document’s URL: http://whorulesamerica.net/power/postwar_foreign_policy.html
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