The Limits of Power: The World and United States Foreign Policy, 1945-1954 0060124474, 9780060124472

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THE LIMITS OF POWER

Books by Gabriel Kolko T he Roots

of

T he Politics

A merican Foreign Policy War:

of

The World and United States Foreign Policy, 1943-1945

Railroads

and

T he T riumph

R egulation, 1877-1916

of

Conservatism:

A Reinterpretation o f American History, 1900-1916

Wealth

and

Power

in

A merica:

An Analysis o f Social Class and Income Distribution

Joyce and Gabriel Kolko

THE LIMITS OF POWER The World and United States Foreign Policy, 1945-1954

HARPER & ROW, PUBLISHERS New York • Evanston • San Francisco • London

Copyright © 1972 by Joyce and Gabriel Kolko. All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information address Harper & Row, Publishers, Inc., 49 East 33rd Street, New York, N.Y. 10016. Published simultaneously in Canada by Fitzhenry & Whiteside Limited, Toronto.

t h e lim its o f p o w e r.

FIRST EDITION STANDARD BOOK NUMBER:

06-012447-4

LIBRARY OF CONGRESS CATALOG CARD NUMBER:

70-156530

To Wray

Contents

A b b r e v i a t i o n s and A cronyms U sed I ntroduction 1

xi

BOOK I: The G lo b a l Crisis from t h e End o f th e W ar u n t i l E a r ly 1947 1 2 3 4 5 6 7 8 9 10 11

The Reconstruction of the World Economy 11 American Diplomacy and Russia, 1945-1946 29 Great Britain and the New World Economy 59 Military Power and Foreign Policy, 1945-1946 91 The Future of Germany 111 The Political Economy of Western Europe, 1945-1946 146 The Transformation of Eastern Europe, 1945-1947 176 Greece and the Middle East: Tradition and Turmoil 218 China: From Chaos to Revolution 246 Korea, 1945-1948: The American Way of Liberation 277 The Dilemma of Japan 300

BOOK II: From t h e T rum an D o c trin e t o t h e K o rean W ar 12 The 1947 Crisis: The Truman Doctrine and American Globalism 329 13 The Marshall Plan, I: Foundations of Policy 359 14 Czechoslovakia and the Consolidation of Soviet Power 15 Heir to Empire: The Near East and Mastery of the World’s Oil 403

384

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CONTENTS

16 The Marshall Plan, II: The Economics of European Restoration 428 17 The Failure of the Marshall Plan, 1949-1950 453 18 Military Power and Diplomatic Policy, 1947-1949: Definitions and Confrontations 477 19 The Restoration of Japan 510 20 China: The Triumphant Revolution, 1947-1950 534 BOOK III: The K o rean W ar an d th e Limits o f A m erican P ow er 21 Korea: From Civil War to Global Crisis 565 22 Korea: The War with China 600 23 The Dilemmas of World Economic Power, 1950-1953 618 24 Europe and the Dilemmas of Military Power, 1950-1952 649 25 Eisenhower and the Crisis of American Power 674 Conclusion: The Limits of Integration

notes INDEX

717 799

709

Abbreviations and Acronyms Used

AFL — American Federation of Labor AK — Home Army, Poland AMG — American Military Government, Korea ANTIFAS — Anti-Nazi organizations in Germany, 1945 CD — Christian Democrats, Italy CDU — Christian Democratic Union, Germany CEEC — Committee of European Economic Cooperation CGT — General Confederation of Labor, France CIA — Central Intelligence Agency CIO — Congress of Industrial Organizations Cominform — Communist Information Bureau CP — Communist Party CRS — French elite police EAM — National Liberation Front, Greece ECA — U.S. Economic Cooperation Administration ECE — Economic Commission for Europe EDC — European Defense Community EEC — Emergency Economic Commission, Europe (also EECE) ELAS — Greek People’s Liberation Army EPU — European Payments Union ERP — European Recovery Program FEC — Far Eastern Commission FO — an anti-CGT French trade union, Force Ouvrière GATT — General Agreement on Tariffs and Trade IBRD — International Bank for Reconstruction and Development ICFTU — International Confederation of Free Trade Unions IMF — International Monetary Fund ITO — International Trade Organization

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ACRONYMS

USED

JCS — Joint Chiefs of Staff, U.S. KKE — Greek Communist Party KMT — Kuomintang, China KPD — German Communist Party LDP — Liberal Democratic Party, Germany MSA — Mutual Security Act NATO — North Atlantic Treaty Organization NSC — National Security Council, U.S. OEEC — Organization for European Economic Cooperation ROK — Republic of Korea SCAP — Supreme Commander for the Allied Powers, Japan SFIO — French Socialist Party SED — German Socialist Unity Party SNOF — Slav-Macedonian National Liberation Front, Greece (later NOF) SPD — German Social Democratic Party SWNCC — State-War-Navy Coordinating Committee TUC — Trades Union Congress, England UMT — Universal Military Training UNRRA — United Nations Relief and Rehabilitation Administration WFTU — World Federation of Trade Unions

Introduction World War II was a prelude to the profound and irreversible crisis in world affairs and the structure of societies which is the hallmark of our times. The war had come to an end, but no respite allowed the wounds of the long era of violence to heal completely. Two vast epics of bloodletting within thirty years’ time had inflicted seemingly irreparable damage to traditional societies everywhere. From the moment World War II ended, civil war, uprisings, and the specter of them replaced the conflict between the Axis and allies in many nations, and implacable hostility superseded tense relations between the Soviet Union and the other members of what had scarcely been more than a temporary alliance of convenience bom wholly out of necessity. After global conflagration came not peace, but sustained violence in numerous areas of the world—violence that was to intensify with the inevitable, broadening process of social transformation and decolonization that became the dominant experience of the postwar epoch. For the individual in vast regions of the world, the war’s outcome left hunger, pain, and chaos. Politically, conflict and rivalry wracked nations, and civil war spread in Greece and in Asia. Outside of the Western Hemi­ sphere, ruin and the urge toward reconstruction were the defining impera­ tives in all the areas that war had touched. Affecting the very fabric of world civilization, the postwar strife threatened to undermine the United States’ reasons for having fought two great wars and its specific aims in the postwar world. Surrounded by this vast upheaval, the United States found itself im­ measurably enriched and, without rival, the strongest nation on the globe. l

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It emerged from the war self-conscious of its new strength and confident of its ability to direct world reconstruction along lines compatible with its goals. And these objectives, carefully formulated during the war, were deceptively simple: Essentially, the United States* aim was to restructure the world so that American business could trade, operate, and profit with­ out restrictions everywhere. On this there was absolute unanimity among the American leaders, and it was around this core that they elaborated their policies and programs. They could not consider or foresee all the dimen­ sions of what was essential to the attainment of their objective, but certain assumptions were implicit, and these in turn defined the boundaries of future policy options. American business could operate only in a world composed of politically reliable and stable capitalist nations, and with free access to essential raw materials. Such a universal order precluded the Left from power and necessitated conservative, and ultimately subservient, polit­ ical control throughout the globe. This essential aim also required limita­ tions on independence and development in the Third World that might conflict with the interests of American capitalism. The United States therefore ended the war with a comprehensive and remarkably precise vision of an ideal world economic order, but with only a hazy definition of the political prerequisites for such a system. With these objectives before it, Washington confronted the major challenges to their fulfillment. Preeminent among these were the prewar system of world capi­ talism and its accumulation of trade and investment restrictions and au­ tarchic economic nationalism that World War I and the subsequent depression had created. Traditional nationalism, consequently, was an ob­ stacle to America’s attainment of its goals, and this shaped the United States’ relations to Britain and its huge economic alliance, the sterling bloc. Washington’s dealings with Britain throughout the war had been pro­ foundly troubled because of London’s reticence in collaborating with American plans for restructuring world trade. To the English such a pro­ gram looked very much like expansion in the name of an internationalism that ill concealed the more tangible advancement of American power along quite conventional lines. This rivalry among nominal allies was to become a basic theme of the postwar experience as well, because in attempting to attain the leading role for itself in the international economy the English had to consider whether the United States might also recast Britain’s oncedominant role in major areas of the earth. It was this same effort to foster a reformed world economy that compelled the United States to turn its attention, with unprecedented energy and

Introduction

3

expense, to the future of the European continent and Germany’s special position in it. The failure of Germany and Japan to collaborate economi­ cally with the world throughout the interwar period was, in Washington’s opinion, the source of most of the misfortunes that had befallen mankind. And however weak Europe might be at the moment, the United States had to consider how its reemergence—with or without Germany—might poten­ tially affect the United States’ contemplated role on the Continent should Europe once again assume an independent role. Allied with Russia, or even a resurgent Germany, Western Europe could become the critical, perhaps decisive, factor in international economic and political power. And it was an unshakable premise of America’s policy that world capitalism become a unified system that would cease being divided into autonomous rivals. Its desire and need for global economic reform, integration, and expan­ sion almost immediately required the United States to confront the infi­ nitely more complex issue of the political preconditions for establishing an ideal world order. This meant relating not only to the forces of nationalism and conservatism that had so aggressively undermined America’s goals until 1945 but more especially to the ascendant movements of change we may loosely associate with the Left—forces that posed a fundamental threat to America’s future in the world. The war had brought to fruition all the crises in the civil war within societies that World War I had unleashed, a conflict that interwar fascism and reaction had forcibly, but only temporar­ ily, suppressed. The intensity of these national social and class conflicts was to increase with time, spreading to Asia and the Third World even as the United States was now compelled to consider how best to cope with the immediate threat of the radicalized European workers. The manner in which America balanced its desire for the reformation of European capital­ ism against its need to preserve it immediately as a system in any form, in order to later attempt to integrate it, is a key chapter in postwar history involving all of Europe and Japan. For the sake of its own future in the world, Washington had to resolve whether it wished to aid in the restoration of the traditional ruling classes of Germany and Japan—the very elements who had conducted wars against America in the past. To American leaders, the European Left included the Communists as well as radicalized Social Democrats whose militancy the war had tempo­ rarily revived. But such a narrow definition can become a misleading liter­ ary convenience when it associates the working class too narrowly with specific political expressions, for the workers* most radical activities invari­ ably found their expressions in spontaneous mass actions, from strikes to

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the formation of workers’ councils, which were the truly fundamental and immediate threats to the established orders. In reality the Left was the ascendant working class, transcending and frequently opposing the Com­ munists time and again—in the largest sense an aggressive element in European society agitating for basic change. Elsewhere, mainly in Asia, the Left was the radical anticolonial movement, the active, armed peasants and individuals in and also beyond the Communist parties. The Left was every­ where an overriding aspect of the postwar scene on which the United States had scarcely calculated during most of the war, a force that was to compel Washington time and again to address itself to the indispensable political preconditions for the ultimate attainment of its primary objectives. In much of Asia and Europe a resurgent and formidable Left was a major effect of World War II, just as the Soviet Union was the main outcome of World War I. Each war had generated vast upheavals and a period of flux, and the United States’ own goals and interests had colored its responses to them. Washington neither feared nor suspected that the world was irrevoca­ bly in transition, decentralized, unpredictable, and beyond the control of any nation—and especially its own mastery. But, in the short run, Ameri­ can leaders had to consider whether the Left had the will and capacity to act and take power—and how to respond in the event it did. At the same time they had to confront the question of the future of the USSR, a prospect that the deepening wartime diplomatic crisis between Russia and the West had left enshrouded in dark pessimism. The Left and Russia usually ap­ peared as synonymous in America’s litany, as Washington often assigned the Kremlin powers in the world that must have surprised the quite circum­ spect rulers of that war-devastated country. For the USSR’s very existence was a reminder of the profound weakening of European capitalism and the traditional order after World War I, and potentially a catalyst for under­ mining capitalism in the future. But was Russia, given America’s selfassigned destiny, the critical problem for the United States to confront in the postwar era? To place this question in perspective, one has only to ask, given its articulation of its larger goals, what the United States’ policy would have been regarding innumerable problems and areas had the Bol­ shevik Revolution never occurred. As it was, during the war the Russians repeatedly showed their conservatism in their inhibiting advice to the vari­ ous Communist parties and their refusal to move freely into the power vacuum capitalism’s weakness had created everywhere. And what were the possibilities of negotiations and conventional diplomacy in resolving the outstanding issues with the Soviet Union, such as Eastern Europe, the

Introduction

5

future of Germany, and Russia’s future role in the world, especially given America’s definitions of the causes of the world’s problems as well as its own interests? In light of American needs and perspectives, and the nature of the postwar upheaval and the forces of our age, were expansion and conflict inevitable? Washington never dissociated the USSR from the Left, not only because bolshevism is but one twentieth-century expression of a much larger revolutionary trend but also because it was often politically conve­ nient for America’s leaders to fix the blame for capitalism’s failures on the cautious men in the Kremlin. It was no less certain that the intricate effort to reshape and guide the nonsocialist world’s destiny also threatened to bring with it much tension and conflict between anti-Soviet allies who were grouped together in a rather tenuous alliance of convenience. If, in the end, all of Washington’s postwar leaders superficially attribute to one cause—Russia—the justifica­ tion for everything they wish to do, it is only because such a style of explanation becomes critical to the very conduct and future of an American foreign policy for which these men have yet to find domestic legitimation and enthusiasm. To locate true motives and isolate real objectives is our task here, and it is a story in which one must separate as well as interrelate the problems of Russia, England, Western capitalism, and the revolution in much of the world in the overriding context of the United States’ expansion and advancement of its national interest. During World War II the United States had confidently planned for the future, believing that its newly created international economic organiza­ tions as well as the United Nations would form a sufficient foundation for the application of its power and the relatively quick attainment of its goals. It based this optimistic assumption on the continuation of an essentially static social order throughout the world. Only after the conflict could Washington gauge the war’s trauma and dislocations and fully determine the adequacy of the world organizations it had hoped would suffice to attain the framework within which it would realize its objectives. But World War I had shown the extent to which international affairs had become integrally linked to internal social and class dynamics, with great power intervention defining and limiting movements of change, shattering pluralism and diver­ sity in the nation-state, and linking social progress in one area to global political and economic events. That first global conflagration had partially transformed world politics from conventional wars between states into international alliances of classes as well—classes forced to act in unison to survive as national entities. This theme of internationalization of the process

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of national change is also crucial to the World War II experience and central to postwar history. Given America’s global ends, the manner in which it developed its instruments to seek the inextricably linked reforma­ tion of world capitalism and the defeat of the Left is one of the major dimensions of postwar history—and the experiences of our lifetime. And so the United States entered the postwar era, incomparably the most powerful nation in modem history. Its strength was economic rather than ideological, for here the inspiration and initiative rest with national revolu­ tionaries whom the Americans could abhor and fear—and the Russians, at best, might only halfheartedly and belatedly endorse. The United States’ military power and technology were no less formidable than its economic resources, but the manner in which to apply them, and the areas of the world to which they were relevant, it had to balance against larger economic priorities and domestic political constraints. How Washington was to con­ clude its search for a military strategy capable of substituting technology for the appeals and unsuspected decisive potency of revolutionary ideologies in the Third World is vital not only to the history of the postwar decade but to the nature of our existence and the future of mankind. It is a story integrally linked to the very character of the postwar world and the enor­ mously ambitious destiny that America’s leaders assumed in it. We have not written a book about the “Cold War,” an egregious term that burdens one’s comprehension of the postwar era with oversimplifica­ tions and evokes the wrong questions. At best, that unfortunate phrase describes United States-Soviet diplomacy in the narrowest context, as if the relationship subsumes most that is crucial in the history of our times. It gives us no framework within which to understand the fact that the postwar experience, the formal cold peace between Russia and the United States notwithstanding, has been one of conflict, war, repression, and ever-mount­ ing violence. That process has occurred despite literal peace between Russia and the West essentially because the larger, more significant context for understanding postwar history is the entire globe and the revolution, the counterrevolution, and the great, often violent, interaction between the United States, its European allies, and the vast social and economic trans­ formation in the Third World that is the defining fact of our world. It is only in this context that Soviet-American relations should be placed, and it is here that the limits of the notion of the Cold War become most apparent. For that static concept conditions us not to probe further the real character of the forces of intervention and expansion—and therefore vio-

Introduction

1

lence—in our times. It minimizes the nature and causes of mankind's fate today, leading us to believe that conflict and violence are accidental rather than inevitable consequences of the objectives of American foreign policy and the imperatives it has imposed on movements of social transformation throughout the world. To approach the history of the postwar world as if Soviet-American rivalry encompasses its major theme—a notion implicit in the term “Cold War”—is to leave most of the critical dimensions of our epoch off to the side of any picture in a bewildering, disconnected profusion. Such a special­ ized focus leads to myopia, for the bulk of the crucial events of our time are interrelated, and one cannot truly understand anything without compre­ hending a great deal more than United States-Soviet diplomacy. This global context, and the goals motivating the conduct of American foreign policy, are the main subject of our book. Its length is a necessary function of the topic’s scope as well as our disbelief in the premise, which has dominated American academic life for decades, that ideological correctness on contem­ porary foreign relations is an adequate substitute for accuracy and depth. Therefore the need for a comparative history which draws deeply on Ameri­ can documentary sources as well as those of foreign nations—an analysis which defines structures and purposes and the manner in which they were actually expressed in the real world of diplomacy and conflict. With neces­ sary detail comes greater perspective, even if it demands greater patience. This, then, is a history of United States foreign policy during the crucial postwar decade, a period that is a microcosm of the entire postwar experi­ ence and during which most of America’s basic problems—and failures— emerge. We have seen enough of the subsequent documents, unpublished as well as published, to feel confident that the post-1954 events are but an extension of the principles and procedures crystallized during the first postwar decade. That policy and practice has been deliberative and quite consistent because the goals, structure, and requirements of the United States* social system have remained durable throughout the period. The notion of American leadership’s errors or misperceptions is reassuring to those who believe the society can be redeemed merely by abler, superior men. But that species of liberal theory ignores the reasons for the constancy and also the justifications and explanations for action any careful student of the facts will encounter during any judiciously objective search of the historical sources. Official speeches and memoirs are, of course, frequently devoid of revelations of true motives. But articulate men, with a clear sense of purpose and objectives, invariably are at the helm; even their obfuscations

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often have reasons. And where the insight and articulated purposes of actors do not suffice, descriptions of the constancy and patterns in their actions will. As we shall see repeatedly, it is thè expansive interests of American capitalism as an economy with specific structural needs that guide the definition of foreign economic policy and the United States’ larger global role and needs. This fact, so internalized by those who rule, delineates the options of the men who decide policy just as it shapes the lives of those who pay for—and fulfill—it. America is not an abstract, classless society of men of equivalent interests and power; yet it remains now to show the manner in which this overriding social reality determines the definition and implementation of American foreign policy in the world. But of this, more follows.

BOOK !

The Global Crisis from the End of the W ar until Early 1947

1 The Reconstruction of the W orld Economy The United States’ ultimate objective at the end of World War II was both to sustain and to reform world capitalism. The tension between doing both eventually prevented America from accomplishing either in a shape fully satisfactory to itself. The task confronting Washington was to dissolve the impact not merely of World War II on the structure of the world economy but of the depression of 1929 and World War I as well—to reverse, in brief, most of the consequences of twentieth-century history. “The main prize of the victory of the United Nations,” the State Department summed up the United States’ vision in November 1945, “is a limited and temporary power to establish the kind of world we want to live in .” ** That was the prodigious task before it. The goal was monumental, and always beyond attainment. The clarity with which the men in power perceived it, however, reflected the intensely sophisticated wartime discussions of economic peace aims that had espe­ cially preoccupied the State Department. What they could not overcome was the direct contradictions between the various instrumentalities and policies with which the United States hoped to achieve its goals, the incom­ patibility between reforming world capitalism and stemming the seemingly no less imminent threat of the Left and Communism, and the fact that the other non-Communist states were always to retain a very different concep­ tion of their national interest from the one that Washington advanced for them. ♦Superior figures refer to Notes beginning on page 717. il

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In essence, during and immediately after World War II the key American leaders articulated an economic interpretation of the sources of world con­ flict that usefully complemented their vision of the United States' postwar global needs. With or without such a rationale, the structural problems and goals of the American economy would have persisted, but the fact remains that the conjunction between an American-sponsored internationalist ideology and objective national necessity was made, and it was to grow with time. Cordell Hull, who assumed major responsibility for the United States’ wartime definition of its economic goals, was completely devoted to the premise that economic rivalry was the primary cause of world military conflict and that if one could remove barriers to freer trade and the ex­ change of raw materials and goods, universal harmony would follow. “In­ ternational monetary and financial problems have been a source of conflict for a generation,” Secretary of the Treasury Henry Morgenthau, Jr., typi­ cally explained to the Senate in June 1945. “We must see that after this war they do not become the basis for new conflicts.” The danger was that as a result of wartime exchange and trade controls, all the prewar impediments to trade were emerging “. . . with greater ingenuity and with greater effec­ tiveness than ever before .”2 In the name of future peace, therefore, the United States committed itself to the reconstruction of prewar world capitalism—to the elimination of trade and financial barriers, exclusive trading blocs, and restrictive policies of every sort. It more frequently advanced this solution, however, on behalf of long-term American prosperity, and it was this motive that the rest of the world—capitalist and noncapitalist alike—most fully appreciated. This purpose, too, shaped the contours of functional United States trade and financial policies and convinced the remainder of the world that in the name of universal welfare the United States was actually advancing its own self-interest. For when American leaders referred to multilateral trade or the “open door,” not for a moment did they conceive of the emergence of a situation in which United States businessmen were naturally excluded from some central, even dominant role in a region because of superior competition from other countries. Virtually synonymous with multilateral trade, in Washington’s definition, was greater American economic activity and expansion. “[T]he establishment of a liberal trading system and the attainment of an expanding world economy,” to cite Secretary of State James F. Byrnes’s well-worn phrase taken from Hull, was one of the most frequent themes in the policy statements of key American leaders in the years following the

The Reconstruction o f the World Economy

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war.3 Unless it were attained, “American exports will face new and greater obstacles in various foreign markets . . . ,” the tireless State Department trade specialist, Willard L. Thorp, warned in November 1945.4 His su­ perior, Assistant Secretary William L. Clayton, was always candid about the goals of this policy: “So, let us admit right off that our objective has as its background the needs and interests of the people of the United States. . . . We need markets—big markets—around the world in which to buy and sell. We ask no special privileges in any of these markets.“5 Men such as Clayton were aware of the critical weight which a relatively small increase in American exports or investments overseas might have in sharply increas­ ing net profits of United States firms, but above all they were concerned with the nation’s shifting position and dependence on foreign raw materials. “Due to the serious depletion of our natural resources during the war, we must now import many metals and minerals. . . . Indeed we are today net importers of practically all the important metals and minerals except two —coal and oil. Who knows how long we can go without importing oil?” Given this vital dependence, which extended well beyond principle but had far-reaching implications to the economic sinews of national power, “ . . . what happens to American-owned reserves of such materials abroad is a matter of national concern.”6 There was a point, in brief, at which the question of nominal ideology would prove secondary to that of “national security and interest.” In the area of petroleum, preeminently, this consider­ ation was repeatedly to justify American efforts to create dominant and exclusive positions in various countries. The necessary conclusion of this vision, as we shall see again and again, was the belief that socialism, state ownership, and Third World economic development were fundamentally inimical to American global objectives. Decision-makers articulated this assumption both privately and publicly, with sophistication or at times rather baldly. “The selective processes of society’s evolution through the ages have proved that the institution of private property ranks with those of religion and the family as a bulwark of civilization,” Assistant Secretary of State Spruille Braden declared in September 1946. “To tamper with private enterprise, except to apply wellconceived, legal, and essential controls, will precipitate a disintegration of life and liberty as we conceive and treasure them.”7 Key American leaders who were not, as in Braden’s case, also personally major overseas investors fully shared such premises. “. . . [Ojur foreign trade, export and import, must in the long run be privately handled and privately financed if it is to serve well this country and world economy,” Truman stated in June 1946;

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“[o]ur common aim is the return of our foreign commerce and investments to private channels as soon as possible.”8Even when temporarily unattaina­ ble, these values and objectives helped to reorient the goals and tools of American foreign economic policy after periods of enforced compromises. What was clear from such premises was that the American vision of the new world economy it was seeking to recast from the materials of the old had no place in it for socialism or for the exclusion, for whatever the reason, of American investment. “We believe that the best way to get oil and develop it,” Thorp phrased it in a variation of this theme in February 1948, “is through the operation of private oil companies. . . . We are trying in general and in particular to convince these other countries that it is very much in their own interest to let down the barriers and permit foreign capital to come in and help develop their reserves and their resources.”9 Certain it was that such “freedom” was deemed essential to American economic and strategic interests. The historian will search in vain for any dissenting analyses in Washing­ ton of the causes of the world’s economic malaise, alternative responses to it, and other less self-serving goals the United States might seek to attain in the ideal world system the American leaders were to articulate so clearly. Key leaders readily confronted the operational disparity between the loftier justifications for American objectives and crass self-interest. What the United States would not consider, however, was that the problem facing the world was not simply the maladjustment of the trade and financial struc­ ture, which was to prove but a reflection of much deeper ills, but the beginning of a vast, slowly evolving shift in the control of world power and the purposes and actions of the larger bulk of mankind. For the Americans based their definition of the global situation on their evaluation of European events, first and foremost, and on power-in-hand or as it had been in the past when England or Germany defined the course of world affairs. They did not estimate the potential of Asia, Latin America, or Africa as being of central importance. And they saw even the current economic problems of Europe, ultimately, as something superficial and short-lived. Given the disparity between its articulated goals and the realities of both Europe and the world, and the fact that the political and social precondi­ tions for the attainment of its economic ends scarcely prevailed, the basis for subsequent American interventionism was further intensified. By 1946, only the United States was strong enough to attempt to reform world capitalism and to define ambitious goals that by necessity were to lay down major obstacles to the revolutionary social, political, and economic patterns

The Reconstruction o f the World Economy

15

already evolving throughout the world. Washington was almost immedi­ ately to learn that to reform and integrate the remaining capitalist nations, it would first have to preserve them. Such a policy was to involve gains, and losses too. Its success was ultimately to prove partial and temporary. In its role as a reformer of the world economy in order to achieve its own national interest and expand, the United States was able to evoke liberal rhetoric even as it sought to penetrate and assimilate Britain’s former economic power. And in its function as a preserver of the vestiges of capitalism and moribund social classes and systems, it was also to call upon its power and conservative sense of order. There was no contradiction in this seeming duality; they are simply the two sides of what was ultimately to prove a remarkably consistent and clear national policy throughout the postwar era and down to this very day. The Legacy for Reform The trauma of the Great Depression defined Washington’s wartime plans for the reconstruction of the world economy. Perhaps the most disturbing outcome of the depression had been the creation of increasingly exclusive trade blocs—of which Britain’s sterling bloc was far and away the most important—that tended increasingly to reduce the United States’ impor­ tance in world trade. One of the immediate effects of this tendency was that while the world manufacturing export trade fell off generally after 1929, during the recovery that occurred after 1932 the United States’ absolute share of the world manufacturing exports declined dramatically until warinduced demand restored it. At the same time, the growing American raw materials and food deficits caused imports of such goods not to fall, if at all, as deeply as exports, so that, in constant dollars, the United States sustained a negative balance of trade during seven years of the post-1929 decade^ With the sterling bloc controlling one-third of all world trade, exchange restrictions in many other nations, and cartels dominating as much as one-half of world trade, the United States as an increasingly dependent raw materials importer, unable to sell as much manufactured goods as was essential to maintain its prosperity, determined to undo the consequences of the depression. Despite publicized exceptions. United States investments as a whole in Europe in the two decades after 1920 had proved immensely profitable. As buyer and seller, investor and trader, the reform of the depression and war-wracked world economy was also an absolute requisite

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of prosperity and profits for the United States.10 But the motive behind this aspiration was not only self-interest, though it was primarily that, but also the awareness of Hull and others that the corollaries of economic blocs were military and political blocs not merely independent of the United States but also in competition with it. Economics was the key, therefore, to a politi­ cally integrated world system as well as economic prosperity, and England they considered to be the prime factor in such an ambitious reconstruction. The English had with reluctance endorsed the contours of the American postwar vision in Article VII of the Lend Lease Agreement of February 1942, but not without first making it general enough to provide for the contingencies their own economic weakness might later necessitate. Yet taking Article VII as an abstract proposition, the wartime British govern­ ment also hoped England might later be able to exist in a world in which Hull’s few and simple premises of lower trade barriers and nondiscrimina­ tion might prevail. Only its very realistic sense of the extent to which England had mortgaged a great part of the imperial legacy of centuries to fight the war caused it to insist on reservations in all wartime advances toward the realization of the American goal. The reform of the world financial system was the only significant struc­ tural step the United States was able to implement, and the rest would remain in the realm of articulating principles to which the United States tried to obtain allied accession. The July 1944 Bretton Woods Conference led to the formation of the International Monetary Fund (IMF), which sought to eliminate foreign exchange impediments to trade, and the Interna­ tional Bank for Reconstruction and Development (IBRD), both of which were constructed so that the United States could dominate their policies via the voting mechanisms. The IM F’s framers designed it not merely to imple­ ment disinterested principle but to reflect the United States’ control of the majority of the world’s monetary gold and its ability to provide a large part of its future capital. The IBRD was tailored to give a govemmentally assured framework for future private capital investment, much of which would be American. Underlying these organizations was the American belief, optimistic to the core, that one could plan for the future by overcom­ ing the problems of the past and that the postwar world would essentially offer the same difficulties—challenges that America could master within a few years. It would be a world, as Henry Morgenthau put it, “. . . in which international trade and international investment can be carried on by busi­ nessmen on business principles.” 11 The dissolution of the exceptional

The Reconstruction o f the World Economy

17

depression and wartime exchange and trade controls and mechanisms would, in essence, lay the foundation for a reconstructed, liberalized world capitalism which American leaders, from Wilson to Hull, had long cher­ ished. What the Bretton Woods Conference had been to the reconstruction of the world financial structure, Washington planners hoped a world trade conference and charter would be to exports and trade. Yet during the war itself they considered only the principles of such an organization, if only because the English, while nominally in favor of the purpose, were wary regarding its details. After the beginning of 1945 the State Department, under Clayton’s supervision, preoccupied itself with translating Hull’s prin­ ciples into a blueprint for a formal organization—the International Trade Organization (ITO)—intended to free world commerce by lowering tariffs drastically, opening raw materials to all nations (the United States in partic­ ular), and dissolving trade restrictions of nearly every sort. Until the British translated their own essentially favorable policy into a timetable, one that took into account their specific needs, there could be no progress on the ITO—for British and sterling bloc trade was the key to the planned reformation. The ITO principles, as we shall see, were preemi­ nently a statement of United States goals rather than a description of its practice, if only because the Americans had yet to resolve the inevitable contradiction of their restrictionism as an agricultural nation and exporter —and this, too, the British understood. The resolution of this internal conflict, as well as America’s relations with England, form a major chapter in postwar history. The ideological underpinning for a world trade reform was essentially the same as for finance. Excluded altogether, scarcely even imagined, were colonial transformations that might deprive the industrial world of access to raw materials and markets. Most explicit was the assumption, as Clair Wilcox, one of Clayton’s key assistants, phrased it, that “. . . freedom of international trade depends on the preservation of freedom in domestic economic life. . . governed by competition between independent enterprises in free markets.” 12 In effect, without the continuation of world capitalism the structure could not be reformed on the terms America envisaged. The Soviet Union, Washington fully appreciated, would have no place in such a world economic order, for its economy could be integrated into world capitalism only haphazardly at best. The capitalist nations might ignore bolshevism or outflank it—but it could have no integral role as an aspect of a new, infinitely more complicated world system attempting to bring

18

THE

LIMITS

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reality closer to its desires. Yet more significant was the no less logical opposition to socialism and national planned economies in Europe, an American premise which both the rise of the Left in politics and the exten­ sion of Soviet power into Eastern Europe challenged even before the end of the war. In brief, the American response to Eastern European develop­ ments, anticolonial revolutions, British Labourism, and managed Western European capitalism to a very great measure reflected the American desire to attain its own deeply rooted wartime and historical goals—and needs— for the world economy. While some American leaders, such as Henry Morgenthau, at times called America’s wartime plans essentially nonpolitical in nature, organized on ‘.‘a strictly business basis,” they could not help but inevitably acknowl­ edge that such business carried with it political prerequisites regarding the Left, social change, and the USSR.13 And this assumption of the perma­ nency and continuation of capitalism, in something like the form in which it had existed for many preceding decades, was for many nations the crux of their dilemma, inescapably requiring them to confront the American problem along with their own internal conditions. For if the Americans were to achieve their goals, they would have to preserve the essence of the ancien régime, if only temporarily, as a precondition for the reformation of traditional capitalism—and the advancement and attainment of United States interests. If, in the last analysis, one cannot divorce principle from its practice and fulfillment, and we must spell out the application of these American objec­ tives in regard to England, Eastern Europe, and, indeed, the whole world until 1954, this economic foundation of the conduct of American diplomacy and its objective needs warrants constant attention. For the admixture of the United States’ advocacy of a superficial reformism of the prewar struc­ tures of economic power, and the degree to which such goals must be profoundly counterrevolutionary in the very different postwar context, is the central theme of postwar history. While the United States articulated and advanced principles, it also planned during World War II to apply its formidably enlarged economic power to achieve its goals, and it is only when economic pressures proved unsuccessful in the postwar era that the mobilization and, in some instances, application of military power became essential. Since American leaders erroneously conceived England as the main bar­ rier to the attainment of their postwar economic goals, they also thought

The Reconstruction o f the World Economy

19

purely economic levers to be adequate. Here, as elsewhere, Washington saw economic power in the form of Lend Lease aid, food, and relief and recon­ struction assistance largely as sufficient. By the end of the war, however, the limited application of military power, in the form of the stabilizing presence of United States troops in Western Europe, was also accepted as a lesser means of creating the preconditions for the fulfillment of American aspira­ tions. A society’s goals, in the last analysis, reflect its objective needs—eco­ nomic, strategic, and political—in the light of the requirements of its very specific structure of power. Since this power structure in America has existed over many decades in a capitalist form, its demands are the common premises for the application of American power—one that theorists attrib­ ute to social consensus and sanction, but which in reality has always re­ flected the class structure and class needs. With time, such structural imperatives and limits appear to take on independent characteristics, so that whether academics or businessmen administer it, the state invariably re­ sponds in nearly identical ways to similar challenges. Apart from the fact that no bureaucrat, however chosen, could rise to a position of responsibility without continuous and proven conformity to norms of conduct and goals defined by the society’s economic power structure which is, in the last analysis, the source of national goals, there is little intrinsic significance in the nature of the bureaucratic selection process and administrative elite. Indeed, officials may be chosen by entirely “democratic” means at any given time and still function according to criteria established for them. Routine administrative responsibility, even at the highest level, demands reliability to established norms—standards that precedent defines for the bureaucrat, no matter what his class origins. When the state apparatus considers innovative policies more likely to have larger consequences, his­ torically it has invariably sought the advice of, or formally involved in the bureaucratic administration, the interested elements of the economic power structure. However, there is some curious interest in the fact that the objectives handed down to the State Department from the era of Woodrow Wilson, when the United States became the world’s foremost power, were left to William L. Clayton to administer as assistant secretary and then as under secretary of state. Clayton, who took over the department’s Economic Affairs division upon Hull’s retirement, also held 40 percent of the stock in the world’s largest cotton merchant house and constantly defined official policy on issues that directly affected his firm’s activity.14 More significant

20

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is that even before the Texas millionaire’s arrival on the scene, his predeces­ sors had legacied to him the major contours and many of the key instru­ ments of postwar foreign economic diplomacy. Por given the needs of the American social system, as other men of power defined them, there was precious little space for new initiatives. Apart from the reform of the world financial and trade structures, even before the peace America’s wartime leaders had already begun to apply their immense economic resources to help attain their economic peace aims. For the postwar needs of the American economy transcended any man or specific interest, but impinged on the issue, so central to the future of American capitalism, of whether the society would return to the conditions of the prewar depression, isolated in a world of revolution and profound change, or sustain the wartime prosperity and contain the forces of upheaval in world politics and economy. The Specter o f Depression The deeply etched memory of the decade-long depression of 1929 hung over all American plans for the postwar era. The war had ended that crisis in American society, but the question remained whether peace would re­ store it. The historical analyst is perpetually challenged and confounded by the danger that the effects of a policy may only rarely reveal its true motives, and specific interests and causal elements may distort its visible roots. But at the end of World War II the leadership of the United States determined on a policy intended to prevent the return of an economic and social crisis in American society—a policy that explicitly demanded that they resolve America’s dilemma in the world arena. The official and unofficial wartime debate on the postwar economic chal­ lenge was immense in scope and alone sufficient for a book. Yet the facts —and goals—were clear in the minds of nearly all commentators: the depression had damaged profoundly the United States' position in the world economy, lowering by almost half its share of a far smaller world trade, and the problem in the postwar era was to restore and then extend this share, to