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The Division of Germany and American Policy on Reparations

Bruce Kuklick

The Western Political Quarterly, Vol. 23, No. 2. (Jun., 1970), pp. 276-293.

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THE DIVISION O F GERMANY AND AMERICAN POLICY O N REPARATIONS

BRUCEKUKLICKYale Univers i t y

M OST ACCOUNTS of U.S. diplomacy in the period immediately follow-ing World War I1 emphasize that the Americans lacked any coherentlydeveloped and ideologically refined policies. The United States, it isargued, responded to the consistent expansionist aims of the Soviet Uni0n.l Thisapproach, however, neglects to consider that since 1933 the Americans, led by Sec-retary of State Cordell Hull, had committed themselves with ever increasing assur-ance to a single set of ideas in formulating foreign policy. Throughout this decade-and-a-half the primary goal of diplomacy was the creation of a world multilateraltrade system in which barriers to commerce and payments would be reduced tomoderate levels and would be applied by each country without discrimination.Within the system the markets of all nations would be opened to U.S. goods, andAmerican business interests would be free to establish themselves anywhere: under-consumption of U.S.-produced goods at home meant that stability was to beachieved by selling abroad. But these positive economic benefits for the UnitedStates were not viewed in isolation. The expansion of trade, at least theoretically,would raise living standards everywhere and bring prosperity to all countries; itwould remove the specter of depression which haunted the Americans throughoutthe thirties and into the wartime period. The new world order would also eliminatethose economic frictions which Americans universally believed were the funda-mental causes of war. Economic autarchy and bilateral trade agreements wouldvanish, and with them would go the basic clashes that resulted in global violence.Lastly, international multilateralism would almost ensure the establishment ofpacific political democracies, similar to that of the United States, all over the earth.

Although these premises, to a great extent economic in orientation, haverarely been examined by historians, an understanding of them is indespensable tograsping the development of American diplomacy in the immediate postwar period.The conflict of the policies generated by this interrelated group of assumptions withthe policies of the other allies, particularly the Russians, eventually led to the coldwar. In this essay I shall attempt to show how these ideas provide a frameworkfor comprehending the vital but little-understood question of American reparationspolicy toward Germany and also the Balkans. The reparations issue illuminatesthe importance of multilateralism to American decision-making and illustrates thedynamic character of the U.S. strategy which dominated the peace and created thebasis for a divided Europe.NOTE: This essay is a summary from readily available published sources of a much longerstudy now underway. I would like to thank Leo Ribuffo of Yale University for hisinvaluable help with an earlier version.'See, for example, such standard accounts as Herbert Feis, Between W ar and Peace (Prince-ton, 1960), and, on Germany, John L. Snell, Wartime Origins of the East-WestDilemma Over Germany (New Orleans, 1960). Citations may be found in them formany of the noncontroversial points which I have not footnoted.


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277HE DIVISION OF GERMANYIWith the Yalta Conference about to take place, the United States first had to

set out its German reparations policy in concrete terms. Plans for the postwarGerman economy had been discussed earlier with extreme ambiguity, and even atthis time the Americans were quite inexplicit about their objectives. Reparationspolicy was only to be defined after other political and economic issues were fixed;thus it was "residual." But it was also "major" in that no concessions could bemade which would jeopardize or conflict with related political and economic mat-t e r ~ . ~his recognition of the connection of reparations to other policy was limited,however, to abstract generalizations; the United States operated in the Crimeaas if reparations were an area in which concessions could be granted.The U.S.S.R. was expected to make the initial proposals concerning repara-tions, and indeed at the first Tripartite Military meeting at Yalta the Russians pre-sented a plan on which they elaborated at the Foreign Ministers' meeting on Feb-ruary 7, two days later. Their ideas did not essentially conflict with the generalUnited States directives but added two specific measures. The first was that atotal of twenty billion dollars in reparations, half of which was to go to theU.S.S.R., be collected in capital goods and services; the second was that a secretreparations conference meet to discuss the problem in Moscow with representa-tives of the Big Three.sAfter Secretary of State Edward Stettinius of the United States and ForeignAffairs Secretary Anthony Eden of Great Britain requested time for study, theplan was brought up again at a February 9 conference. Stettinius first attemptedto water it down and suggested that the Reparations Commission, which all agreedshould be constituted, "should take into consideration in its initial studies. . ." theproposals of the Soviets for $20 billion of reparations. Both Molotov, RussianCommisar for Foreign Affairs, and his deputy, Ivan Maisky, argued that the addi-tional phrase "as a basis" be added to the American suggestion. "The final figuresarrived at by the Commission might be a l i t t le more or less t h a n $20,000,000,000;however, the Soviet Delegation urged that this be accepted as the basis." Aftersome lukewarm objections, Stettinius finally acquiesced to the extent that theAmerican and Soviet delegations agreed "the Reparations Commission should con-sider in its initial studies as a basis for discussion.. ." the Soviet sum.4 Edenremained opposed.At the plenary meeting on the tenth, Churchill and Stalin disputed the sameissue. Roosevelt, like Stettinius, tried weakly to mediate. At first he too, likeChurchill, took exception to the inclusion of a figure, but his reason was that theAmerican people would think that money, and not goods, was to be extracted fromGermany. Although Roosevelt continually reemphasized this point, his objection=Fore ignRelations of the U nited States, T h e Conferences at Malta and Yalta , 1945 (Wash-

ington, 1955), pp. 193-97. This volume is hereafter referred to as Yal ta . Its sister vol-umes in this series, T h e Conference of Berlin (Po tsda m) Vo l. I (1960), V o l . I 1 (1960).1944 Vo l . 111 Th e Bri tish Com monw eal th and Europe (1965), and 1944 V o l . I VEurope (1966), are hereafter referred to as Potsdam I, Potsdam 11, 1944 I11 and 1944I V , respectively.

a Yalta, pp. 620-24, 702-8.'Ibid., pp. 807-12 (italics mine).


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278 THE WESTERN POLITICAL QUARTERLYwas not to the sum but only to the confusion to which the average American mightbe subject. Even Churchill, who obviously wanted help at this time, thought Roose-velt's view irrelevant. When Stalin queried him, F.D.R. said he agreed "com-pletely" that $20 billion be taken as a basis. As H. Freeman Matthews of the StateDepartment's European M airs Division wrote, "The President made it clear thatwhat he feared was a system of reparations paid in money." Roosevelt finally didsupport Stalin, and Churchill refused to go along.s

Aware of his famous proclivities for making no definite and binding arrange-ments, historians have made little of F.D.R.'s "commitment" concerning the twentybillion dollan. In commenting on this aspect of his behavior, Robert Sherwoodclaims the record demonstrates that the President "was carefully making no com-mitments what~oe ver ."~ ut the record does not demonstrate this. Stettinius laterapprovingly cited Molotov as saying that the figure be a little more or a little 1ess.lWhen he sided with Molotov to win Britain to the Russian proposal, the Secretarypointed out to Eden that the ten-year period suggested for reparations paymentswas also simply mentioned as a basis for discussion. Perhaps they would take place"in seven years."8 Neither the Americans nor the Soviets were committed, Stet-tinius went on, to ten years or $20 billion. He also favorably quoted Maisky tothe effect that the U.S.S.R. plan "did not commit the allies to the exact figure."The United States did not consent, Stettinius recalled, to $10 billion to the Rus-sians as an "agreed a m o ~ n t . " ~ere, clearly, Stettinius conceived the U.S. commit-ment to be not merely to discuss $10 billion in reparation to the Soviet but to basethe reparation figure on it, i.e., the Soviet Union was to get a definite amount"around" $10 billion. Indeed, when Stalin debated with Churchill about thefigure, Roosevelt did not demur at the Soviet understanding of the proposal, thatthe Commission could change the figures and modify them in any way. A newfigure could be fixed, Stalin said; the Russian basis was not " sancr~sanct ."~~aterat dinner that evening the President made it "clear" he did not agree with theBritish idea of mentioning no figure at all.='

This contrast of F.D.R.'s position with that of the British is crucial and largelyoverlooked. If the Americans were not "committed" to some figure around thetwenty billion dollar mark (i.e., committed to regarding the twenty billions as a"basis") but only to L'discussing" t, why did the British not go along? O r to put thequestion the other way, if only "discussion" was at issue, why did the Americans notback the British and refuse to name a "basis"? Eden answered this question quitefrankly: he said that "rightly or wrongly, the British government felt that even thenaming of a sum as the basis of discussions would commit them."12'Zb id . , pp. 909, 915, 983.'Roosevelt and Hopkins: An Intimate Biography (rev. ed. ;New York, 19 50 ), p. 862.Roosevelt and the Russians, ed. Walter Johnson (Garden City, 194 9), p. 230.Yalta, p. 875.Johnson, op. cit., pp. 255, 299.lo Ynlta , p. 875.l1 Johnson, op. c it . , p. 265." Yalta, p. 903.


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279HE DIVISION OF GERMANYT h e dynamics of th e reparation s negotiations seem to reveal an anc ient princi-ple of bureaucratic logic: if the Soviets could set the agenda for the Reparations

Commission and have discussions begin at the $20 billion level, they would be inan excellent position to achieve what they wanted in the normal give-and-take ofnegotiations. I n acquiescing to the Soviet de ma nd , the Americans were comm ittingthemselves to serious bargaining with the Russians over a substantial monetaryfigure. T h e U .S .S. R . could expect to get several billion dollars in reparation s foritself. Althou gh it is not completely clear to w hat exten t the Americans werecommitted, it is equally clear that they were committed to much more than theyadm itted later. Just how a nd why it was necessary to modify this original bargainis revealed only in the diplomatic maneuverings which filled the interim betweenthe Yalta an d P otsdam conferences.I IOn March 12, F.D.R. appointed Isador Lubin to head the American dele-gation to the R eparation s Com mission which was to meet in Moscow. Some sixweeks later President Truman appointed over Lubin an independent oilman andDe mo cratic fund -raiser, Edw in Pauley. T h e significance of this change was not loston the press: The United S tates News, now U.S. News and World Rep ort, reportedthat Pauley's assignment was evidence of America's changing attitude toward Rus-sia. W he n Lu bin received his job, it stated,

this country's interest was confined primarily to making certain that Germany is so strippedof productive capacity that she will be unable to go to war for many decades to come. Dr.Lubin, a quiet, capable, and clearheaded statistician and economist, was considered wellchosen for the job he was expected to do. . . . But, as matters have developed, bargainingamong the victors is expected to be a principal characteristic of the reparations settlement.. . . so President Truman replaced Dr. Lupin with Mr. Pauley, the shrewd, practical oiloperator."

Truman described Pauley as "a tough, mean so-and-so" and credited thesuccess of th e repa ratio ns policy solely to his toughn ess. T h e President also ind i-cated that the Russians had some idea of a change: he recorded that Pauley'sarrival in Moscow was greeted by a radio attack on "U.S. industrialists who aredoing their utmost to restore Germ an heavy industry."14 Nonetheless, th e changesin policy augured by Pauley's appointment certainly cannot be attributed to himalone. W ith Ge rma n collapse imminent, the need for cooperation w ith the Rus-sians was diminishing. Tr um an an d those who surrounded him were in generalagreement t ha t a stronger policy ough t to be pursued w ith the U .S.S.R. which, inthe most simple terms, was preventing the implementation of U.S. multilateralismin Eastern Europ e. T h e famous policy me eting of April 23, 1945, attended byTruman and advisors like Averell Harriman and James Forrestal showed a con-sensus among the chief presidential confidants that, by this time at the very least,a firmer line was to be taken. Pauley, although certainly not their instrumen t, wasmerely on e amo ng m any responsible for a shift in po licy.la United States News, 18 ( 11 May 1945), 62.

Jonathan Daniels, Th e M an of Indep enden ce (New York, 1 950), pp. 305-6; Harry S Tru -man, Me mo irs: Y ea r of Decisions (Garden City, 1955), I, 310.


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280 THE WESTERN POLITICAL QUARTERLYAt the time of his appointment State Department officials working on the

reparations problem had decided the $20 billion reparations figure was to be "dis-carded." The thought was not, however, to ignore the commitment or the pro-posed basis of discussion but to "de-emphasize" it; the amount was consideredbeyond Germany's capacity to pay.15 Nevertheless, the State Department stillrecognized a commitment to the Russians. On July 2 Acting Secretary of StateJoseph Grew wired Pauley that the State Department was not opposed "to thediscussion of an amount of reparations." It felt that $20 billion was too high, butthat a sum approaching $12 or $14 billion would be "more appropriate." The $20billion figure could, however, still " be adopted as a starting point for explorationand discussi~n."~~ut Pauley, a new appointee, tended to act independently ofthe Department and hesitated to name a sum. He had become very concerned withthe great economic significance of reparations which, in his eyes, ruled out thesetting of a specific amount. Pauley feared that a Germany burdened by heavyreparations would make intolerable problems for Great Britain and the UnitedStates. One or both of them would be forced to make loans for Germany to payher reparations debts or watch her sink into economic chaos. Thus, contrary to hisinstructions from Grew, Pauley concentrated on moving the Reparations Commis-sion away from a fixed figure and refused to discuss a sum.17

The Russians also appear to have realized the importance of reparations inregard to Germany's economic future. Whatever the complications, they ~vouldsupport any policy which would help them rebuild a homeland devastated by war.Hence, Pauley wired the Secretary of State on July 14 that Russia had nowobjected to one of the general principles formulated at the behest of the Americanson the Reparations Commission and forwarded to the Secretary of State a weekbefore. This principle, later to become famous as the "first charge" principle, stipu-lated that "in working out the economic balance of Germany," reparations pay-ments were to be made only if a means were provided to pay for any neededessential imports into Germany.18 In short, Great Britain and the United Stateswanted Germany to pay her bills before reparations were taken from her. Exportswere first to pay for imports; only thereafter could they be considered reparations.

The "first charge" principle, which became the crux of disagreement betweenthe Russians and the Western powers, reflects the entire American conception ofthe postwar world and must be discussed at some length. In one way or anotherthe United States had adhered to the "first charge" position before, but Pauleyformulated it on a practical as well as an intellectual level. From that time on, allAmerican officials were to maintain that there was a direct relationship betweenthe ability of the German economy to meet reparations claims and to export to payfor needed imports. There thus appeared to be much reason in the American= U S . Congress, Senate, Subcommittee to Investigate the Administration of the InternalSecurity Act and Other Internal Security Laws of the Committee of the Judiciary,Committee Print, Th e Morgenthau Diary (Germany) in two volumes (Washington,1 9 6 7 ) , p. 1223. These volumes are hereafter referred to as Th e Morgenthau D iary." P o t s d a m I , p. 519.l7 Potsdam I, pp. 51 1 , 522-23." Potsdam I, pp. 528, 537 .


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THE DIVISION OF GERMANY 28 1demand that the Russians not be permitted to take in reparations what shouldfirst go to pay off Germany's legitimate creditors. The U S , would not pumpmoney into one end of the German economy while the U.S.S.R. took it out a t theother. Time and time again at Potsdam and in the future the United States madethis argument to the Soviet power in a way calculated clearly to display the out-rageousness of the U.S.S.R. proposals.

But was tlzere a direct relationship between the ability to meet reparationspayments and the ability to export? he American briefing book paper on repara-tions used at Yalta indicated that to avoid certain difficulties in the collection ofreparations goods, the goods should be those "that Germany is able to deliver and theclaimant nations are willing to receive. . . ." In a similar paper prepared for Pots-dam, the American program for German exports also contained tw o conditions:the first concerned "the types and quantities of equipment and supplies whichGermany would have to make available on reparations account. . ."; the second,"the types and quantities of goods which Germany would have to export in orderto make payment for such imports as are essential to the German Theinternal German economy might be strong enough to produce reparations goods;these goods, being free, would probably be readily accepted by all claimant nations.Nevertheless, other countries might not be willing to trade with Germany, i.e., theymight not be willing to pay for, with suitable imports, whatever exports Germanywas capable of producing. This situation might occur because of restrictive tradeagreements, because of Germany's supplying the same goods free as reparations,or because of any number of other factors. Indeed, the condition of postwar Ger-many indicated that just this stress might exist. ~ e k a nndustrial pdtential, fromwhich reparations would be paid, was much stronger than her ability to enter theinternational export market competitively. The concentration of war damage, theloss of key foreign trade items, the confiscation of liquid assets and shipping, thesundering of export connections, and the chaotic state of the world economic systemcould all be expected to affect the ability to export more than production forr e p a r a t i ~ n . ~ ~

The fundamental point of the first charge principle was that Germany be ableto export successfully. If the principle were fulfilled, Germany would at the veryleast have met an important requirement for participation in multilateralism. Butin the world commercial system as it then existed, the principle meant more thanthis. Only the United States was in a position to pay for imports from Germany,and it was the Western European economies which the United States was attempt-ing to rehabilitate, and which in all likelihood would next be able to trade withthe new Reich. If the principle were actually realized, Germany would be gearedto the immense productivity of the United States, and she would trade with her keytraditional exporters, that is Western Europe and the United States. The Ameri-cans, moreover, always emphasized that trade had to be conducted in a non-discriminatory manner. On a practical level, the principle was almost equivalent''See Y a l t a , p. 195, and Potsdam I, p. 448."See Manuel Gottlieb, "The Reparations Problem Again," C a n ad i an J o u ~ n a l f E c o no m i csand Political Science, 16 (1 95 0) , 36-37. I am much indebted to this brilliant but little-known article.


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282 THE WESTERN POLITICAL QUARTERLYto the whole of the U.S. position on the world economy: Russia would be deniedreparations until G erman y was integrated into a m ultilateral order.

The principle embodied much more than a simple concern that the U.S.would have to finance the Germ an economy. With o r without reparations Ger-many would need substantial monetary support in the near future because of thechaotic state of the postwar world. I n fact, for the next two years the Am ericansbelieved that all the European economies would operate at a deficit status, and, asoth er scholars have shown, the A mericans were, if anything, ea ger to aid theseeconomies; they were, that is, eager to finance the Germans. The United Stateswould not, however, allow the Germans to produce reconstniction material for theU.S.S.R. until their exports were fully acceptable in international markets.21 TheUnited States would compromise only after the Hullian grand scheme were real-ized. W hen the Am ericans proclaimed to the U.S .S.R. the sanctity of the firstcharge principle, they were saying they would finance German multilateralism butno t aid Soviet Allies.The American commitment to multilateralism that the first charge involvedis closely connected to another significant problem which ought to be analyzedseparately. Suppose the Americans were to capitu late to the Soviets on the repa ra-tions program; suppose also, as appeared likely to occur, that in the near futureGerm any were to produce goods for reparations b ut n ot for export. Bilateraleconomic relationships would develop between the Russians and the Germans:Ge rm any would become th e supplier of heavy industry to the U.S.S.R. and migh tpossibly be draw n into a Soviet economic orbit.The United States went to the Potsdam Conference fully aware that repara-tions was no t a secondary issue wh ich could be com promised. A policy of lowreparations, or at least a strictly controlled reparations policy, was an integral partof a general program for bringing about an economically rehabilitated, U.S.-oriented Germany. Consequently a "re-definition" of the United States policy putforward at Yalta took place between February and July of 1945. Th is "re-defini-tion" brought the United States into basic conflict with the U.S.S.R. and broad-ened into a policy whose central elements affected the place of Germany in theWest and the relation of the W est to Russia.

T h e intricate negotiations at P otsdam on the economic treatmen t of G erman yreflected in large measure the inability of the Americans to see how Soviet demandsfo r reparations would be limited when an inter-allied occupation w as to take place.Perhaps for this reason no progress was made on the reparations issue during thefirst few days of the conference. But on the twen ty-third of July the new Un itedStates Secretary of State , James Byrnes, mad e a proposal whose consequences wereto prove extraordinary. In a mee ting with Molotov the Secretary first expresseddismay about the development of the reparations question and then completely setaside previous discussion. He said that some Soviet positions-among them the

Manuel Gottlieb, "The German Economic Potential," Social Research, 17 (1950), 89; PaulY. Hammond, "Directives for the Occupation of Germany," in American Civi l Mil i taryDecisions, ed. Harold Stein (Birmingham, 1963), pp. 432-33.


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283HE DIVISION OF GERMANYwide definition of war booty and, most recently, the demand that German terri-. .tory go to the Poles-seemed inconsistent with an overall economic policy forGermany. Having been instructed by William L. Clayton, Assistant Secretary ofState for Economic Affairs, Byrnes suggested to Molotov that each country takereparations from its own zone and make some exchanges in goods with the powersin control of the other zones. In other matters Germany was to be treated as aneconomic whole. Molotov replied that Stalin "strongly favored an overall plan forreparations . . . and would be quite prepared to consider reducing their reparationsclaims." 2 2 For the next few days at every available opportunity Byrnes brought upthe zonal reparations scheme while the Soviets made concessions on their originaldemands for $10 billion and attempted to compromise on the "first charge" princi-ple. The Americans, however, consistently declined to name a sum and refusedto consider any weakening of the principle.23 Finally, on the twenty-ninth in ameeting with Truman, Molotov at last submitted and accepted the Byrnes proposal"in principle." Although bickering over details occupied the next three days, onAugust 1 the conferees agreed to a plan similar to Byrnes' original s ~ g g e s t i o n . ~ ~

Although the Soviets did not assent to the zonal proposition until the end ofthe conference, they were never implacable about it. They disliked the idea butwere willing to go along with it if they could obtain in addition a fixed amountin heavy industrial reparations from the British and American zones. After theUnited States made it clear that it would specify no amount, they settled for a per-centage of the industrial capital equipment to be removed as unnecessary when aminimal German peace economy was determined. The three powers also providedfor some trading between the Russian and the Western zones.

Most significant throughout these discussions is that the United States avoidedany direct discussion of the effect of the plan on the German economy. When hefirst a,greed to i t on the twenty-ninth,MR. MOLOTOVnquired whether we still intended to have some central German administra-tion, not a government, but some central organization which the Control Council couldoperate in matters affecting finance, transport, foreign trade, etc, on which it had been agreedto treat Germany as an economic whole. He pointed out that if reparations were not treatedas a whole, what would happen to overall treatment of economic matters.THESECRETARYointed out that under his scheme nothing was changed in regard to overalltreatment of German finance, transport, foreign trade, etc. The Secretary subsequentlyrepeated this statement in reply to a further observation of Mr. Molotov that the reparationsproposal would affect the overall economic administration of germ an^.'^The British most clearly analyzed the consequences of the American program. SirDavid Waley, the Senior Treasury representative on the English delegation and amember of the Reparations Commission, thought the "most serious feature" of theAmerican plan was that the United States "had now given up hope of collaborat-ing with the Russians in the administration of Germany as a single economic

Churchill commented that in the event of "the breakdown of the con-22P o t sdam I I , pp. 274-75; James Bymes, Speaking Frankly (New York, 1947), p. 83. 23 See Potsdam I I , pp. 279-81,297-98; 430 ; 450-5 1 ; 466. l4 Potsdam I I , pp. 473 ;586-87. 25 Potsdam I I , p. 474. Is Llewellyn Woodward, Bri ti sh Foreign Policy in the Second W or ld W a r (London, 1962), p. 566.


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284 THE WESTERN POLITICAL QUARTERLYference," the nations would have to "fall back on the proposal of the Secretary ofState, and each of us fall back on our own zones."27 After Churchill and Edenhad been replaced by representatives of the new Labour government, the new Brit-ish Foreign Secretary, Ernest Bevin, apparently failed to catch one implication ofthe American program to which the U.S. and Russia had already consented. WhenBevin protested about an important omission,MR. STALIN ointed out that they had agreed to delete the whole paragraph.THEPRESIDENTaid that this was what he had understood.MR. BEVIN aid he did not agree.MR. BYRNESsked why they did not handle this in their own way since they were in controlin their zone.MR. BEVINeplied because it cut across the agreement to treat Germany as a whole economy.It would divide Germany into three zones."

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

Despite protests to the contrary the United States did realize its reparationsprogram presented obstacles to the unification of Germany. This is made clear inan August 16 letter written by Assistant Secretary Clayton and the Director of theOffice of Financial and Development Policy, Collado. They stated:There appears to be an unfortunate tendency to interpret the reparations operating agree-ment as an indication of complete abandonment of four power treatment of Germany. Thisis not stated in the texts and should not be accepted as a necessary conclusion even thoughthere may be many among the military forces who believe that a zonal treatment or a tri-partite treatment of the western zones will be the only practicable method of ~ p e r a t i o n . ~The American briefing book paper on the "agreement on treatment of Germanyas an economic unit" also indicated the consequences of a plan such as the Ameri-cans were proposing:The continuation of present combined arrangements among the Western Allies to the exclu- sion of Russia for supply and other economic and financial matters after SHAEF has been terminated would involve serious dangers. I t would greatly prejudice the chances of reaching " Potsdam 11,p. 389. " Potsdam 11,pp. 520-21. " Potsdam 11,pp. 439-40, 450, 475. 90Po t sdam11,pp. 938-39.


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285HE DIVISION OF GERMANYagreement with the Russians on economic matters, and it would tend toward the establish-ment of an economic wall between Eastern and Western Germany, and, probably betweenEastern and Western Europe. The economy of Eastern Germany can be readily assimilatedinto an Eastern economic sphere. In contrast, acceptance by the Western powers of the taskof finding a place for a Western German economy would create extreme difficulties and wouldgreatly intensify the post-war economic problems of the United States, Great Britain, andWestern Europe."In other words the program that Byrnes had decided to follow would be instru-mental in creating a divided Europe.

IVWhat reasons did the United States have for adopting a policy which laid the

groundwork for a dismembered Germany? What rationale existed for the policyand what explanation can be given for that rationale? In answering these questionsone must first evaluate three more or less "official" considerations that the UnitedStates mentioned at one time or another in defending its proposal of zonal repara-tions. In his first discussion with Molotov Byrnes claimed that the wide Sovietdefinition of war booty precluded a common program because it would allow theSoviets to take what they wished from their zone of occupation as wa r b o o t y ratherthan as reparations. This was true, but one must recognize that rather than fight-ing the Soviet definition- and this the Americans had previously done- theUnited States accepted the July 21 Soviet definition of war booty on July 22.32More important than the willingness to accept this definition, however, was theAmerican realization that controversy over definitions was here essentially imma-terial. What was necessary was agreement on the total amounts to be extractedfrom Germany by the victorious powers-no matter what the removals werecalled. As a U.S. official put it, the diplomats needed "concrete applications" ofthe definitions, i.e., a calculation of how much went to whom.33 The Americanswere not prepared to seek agreement on a calculation because they refused to namean amount. Definitions were a minor consideration in United States policy.

Closely related to the reasoning used in respect to definitions was U.S. reason-ing regarding the Polish border question and reparations and regarding Sovietremovals and reparations. In the first place the Americans argued that the col-lection of reparations would be complicated because Poland had received a sliceof Germany to administer. This meant i n fact that the Poles would acquire thisterritory and that there would be less "Germany" from which the powers couldextract reparations. I n the second place, American argument went, because theSoviets had already begun extensive removals, the computation of reparationswould be rendered difficult if not impossible. But this reasoning by the UnitedStates cannot be considered fundamental. The Americans had extensive informa-tion concerning the effects on the payment of reparations of the cession of areas toPoland. Stalin had agreed to "renounce" reparations to make up for the Poleshaving taken a part of Germany. In addition Molotov told the foreign ministersthat, although this German territory could not be used for the computation of'' Potsdam I , pp. 440-41. =Potsdam 11,pp. 274,895 , 943, 1557; 846-47; 853-54. 'Potsdam 11, pp. 850-52.


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286 THE WESTERN POLITICAL QUARTERLYreparations, Poland need receive no reparations; her share could be consideredmaterial in her own new territory. Moreover, Molotov expressed willingness toreduce the Soviet share first to 9.7, next to 9.0, then to 8.5, and finally to 8 billiondollars to make up for any Russian removals already made.34 This represented anextraordinary sum in relation to what the Russians could already be expected tohave taken. The Americans ignored all these concessions. Neither the question ofPolish Germany nor that of Soviet removals can be considered a prime determinantof U.S. policy.

If it is conceded that these three issues offer little to explain United Statespolicy, it is necessary to evaluate the more complicated analysis which has becomethe standard explanation of U.S. aim~.~"ccording to this interpretation, twoconflicting goals finally forced the Americans into a position permitting only mod-erate reparations. First, it is claimed, the Americans had no wish to support theGerman economy as they had done after World War I. They were against greatindustrial removals or recurring reparations which would bring economic chaosand force the United States once again to rescue German finances. Second, accord-ing to the usual version, the United States also did not want Germany restored tofirst-rank industrial power. Hence, policy-makers had another reason for limitingcurrent production reparation which would entail that the Allies leave a great manyGerman manufacturing plants standing. After the reparation period, Germanymight again become a major industrial source of supply with many nations depen-dent on her for goods. The Americans would be unable to achieve her "economicdisarmament." Thus, the desire to prohibit Germany from becoming a great finan-cial burden but also from becoming an economic threat drove the United Statesto seek a moderate policy. Initial reparations would include only that industrialequipment whose removal was consistent with a future stable German economyand subsequent current production reparations were to be minimal.We must recognize that these two elements are vital for understanding UnitedStates diplomacy but in a way different from that normally indicated. To compre-hend their relevance it is necessary to review the purpose of the Russian repara-tions policy.

During the war, the Russians had suffered a total of about fifteen million cas-ualties and had endured the devastation of their most productive farmlands andimportant urban and industrial centers. Their first postwar priority was an intenseneed to rebuild the economy and recoup the terrible wartime losses. The severereparations program that the Soviet leaders envisaged was designed to begin toaccomplish these tasks. The U.S.S.R. also wished to weaken permanently thatcountry which had laid waste the homeland twice within twenty-five years. Coinci-dent with the need to rebuild was the perhaps unreasoned desire to exact revengeon the German aggressor. These two Russian aims are interestingly and conclu-sively revealed in Stettinius' account of the February tenth Plenary Meeting atYalta :Stalin, on the question of German reparations, spoke with great emotion, which was in sharpcontrast to his usual, calm even manner. On several occasions he arose, stepped behind his34 Potsdam 11,pp. 209, 296-98, 841-42, 854-56, 877-87." See Feis, op . c i t. , p. 256, and Snell, o p . cit., pp. 210-11, 214-16.


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287HE DIVISION OF GERMANYchair, and spoke from that position, gesturing to emphasize hi point. The terrible Germandestruction in Russia obviously had moved him deeply. Although he did not orate or evenraise his voice, he spoke with intensity."

Although the Russians hoped to use reparations to promote Soviet reconstruc-tion, they also hoped that reparations would be supplemented by long-term aidfrom the United States. Several informal inquiries had been made along these linesthroughout 1944 and early 1945. John Winant, the American Ambassador inBritain, wired F.D.R. as early as August 1944, that a combined program of repara-tions and aid to the Russians was im~erative.~~he first formal appeal from theU.S.S.R. came in January of 1945.38 When Stettinius told Molotov a t Yalta thatthe United States wanted to come to agreement on the economic treatment ofGermany, Molotov replied that the Russians expected reparations and lookedforward to long term American credits.39At Potsdam when Byrnes ruled out an overall program, the Russians dickeredfor days in order to get a substantial amount of heavy industrial equipment fromthe Western-controlled Ruhr. They wanted to bind the Americans and the Britishto an agreement to deliver a fixed amount of this equipment across the reparationszones, but finally consented to a percentage of the equipment which was not neededin the western zones for a peace-time German economy instead of a fixed value ofsuch goods. Stalin still rather ungraciously claimed that the settlement "was theopposite of liberal."40By the time Stalin and Truman met at Berlin the United States had beenstalling the Russians for seven months on some sort of aid program. Indeed, threeweeks before Yalta both Roosevelt and the State Department had decided that theissue of postwar credits was not to be discussed with the Russians in the Crimea.Roosevelt said at this time that the U.S. would hold back "until we get what wewant."41 The State Department position, as described by a member of the Treas-ury, was that-among other things- Soviet political dealing with Bulgaria,Poland, Rumania, and the Baltic states had to be "settled" in a manner satisfactoryto the U.S. before the Russians would get a long-term credit.42Thus, at the Potsdam Conference one would expect the Russians to stressreparations even more because of the difficulties they were facing in obtainingAmerican aid. But the Byrnes proposal on reparations effectively precluded thepossibility that the Russians would secure extensive reparations for reconstruction.The heartland of Germany with its industry essential to Soviet redevelopment wasin Western hands, and the eastern sector was largely agricultural and nearly uselessfrom the immediate Russian point of view.Much of the accepted analysis is therefore true. On the one hand the U.S.reparations position was motivated by the unwillingness of the Americans to sup-% Johnson, op. c i t ., p. 264. " E. F. Penrose, Economic Planning for the Peace (Princeton, 1953), pp. 241-42. "Herbert Feis, Churchill , Roosevelt , and Stalin (Princeton, 1957), pp. 641-48. " Y a l t a , p. 610. Potsdam 11, p. 516. John Blum, Y e a r s o f W a r , 1941-1945: From the Morgenthau Diaries (Boston, 1967), p.

305." he- ~ o r ~ e n t h a uiary , p. 867.


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288 TH E WESTERN POLITICAL QUARTER LYport a program whose consequence would be a "deindustrialized" Germany. Butthis fact must be connected with the adoption of the zonal idea: Byrnes' schemeprevented the Russians from gaining equipment for reconstruction from the westernzones. Certainly it is credible for the United States, for whatever reasons, to havewished to maintain German economic stability on an industrial basis, and there isno evidence to indicate that the United States at this time desired to rebuild astrong Germany as a "buffer" against the Soviets. Nevertheless, there was a dia-lectic involved in slowing Russian reconstruction and leaving western Germanindustry inviolate: it clearly had the direct effect, if not the intention, of tellingthe Russians that the Americans preferred to rebuild a stable industrial Germanythan to help Soviet allies recover from an exhausting war. The United States fav-ored German stability over Russian reconstruction to such an extent that it waswilling to sacrifice the eastern zone of Germany for the achievement of such anend. To be sure, this policy which denied the Russians much needed industrialequipment for reconstruction and cut off Russian influence in Western Germanywas not altogether consonant with American fears of a renascent Germany.Although policy was already anti-Soviet, it was not yet pro-German. Americanswere surely not anxious in the summer of 1945 to rebuild Germany as a majorindustrial power, and it is here that the second argument advanced in the usualanalysis must be examined.

On the other hand, it is maintained, U.S. diplomats opposed reparations fromcurrent production because they would lead ultimately to the creation of an indus-trial Germany with many nations dependent on her. But this fact also cannot beviewed in isolation. The debate between the Russians and the Americans concern-ing imports, and not reparations, being a "first charge" on exports was intimatelyinvolved with the status of the German international trade position in a very subtleway. What troubled the Americans was not simply that current production repara-tions would eventually make Germany an industrial competitor of the UnitedStates. Rather, these reparations would thwart in a basic fashion the constructionof a global trade system in which Germany was to play an integral role; Germanywould get a head-start in obtaining international markets, and again might be ledto autarchy. Equally dangerous was the possibility that current production repara-tions would create substantial bilateral trade relations between the Soviets and theGermans. Germany might become the supplier of heavy industry to the Russiansand be drawn into their economic orbit. Not only did these reparations imperilmultilateralism, the very heart of American foreign economic policy, but they alsopresaged a fundamental threat to American security interests.

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


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289HE DIVISION OF GERMANYseen only in terms of its larger implications: to curtail these reparations provideda means of controlling and regulating German industrial growth when its controland regulation were threatened by the Russian demand for severe reparations.American policy was designed to punish Russia for frustrating multilateralism inthe East and to secure it in the West.

But there is another aspect of this explanation which in a sense holds the keyto the whole reparations question. If the Russians succeeded in their demands,and the United States did not support Germany, Herbert Feis writes, the Ameri-cans would be obliged "to witness prolonged misery and discontent in Germany;or to agree to the exercise of state controls of German economic life which wouldease the way toward Communi~m."~~ommenting on the Soviet renunciation ofGerman dismemberment in a more speculative passage, Feis theorizes: "Perhaps-who is to know?-Soviet aims reached even beyond this to the idea that ifGermany was allowed to remain whole, and the awful destruction continued, itmight be easier to bring it under communal domination later on."44 Now in onesense it is pure exaggeration to argue that American policy was motivated by a fearof a Soviet takeover of one sort or another in Germany. The Russians at this timehad enormous reconstruction requirements and were simply not equipped toembark on expansion into Western Europe. The United States occupied the posi-tion of strength, wielding overwhelming economic power and additionally con-trolling the military secret of the atom bomb. Moreover, there is reason to believethat Stalin had good grounds for wanting to continue Allied unity: he fearedGerman resurgence and needed American financial credits. At Yalta he had com-mented as follows:They all knew that as long as the three of them lived none of them would involve theircountries in aggressive actions. . . .He said the main thing was to prevent quarrels in thefuture between the three Great Powers and that the task, therefore, was to secure their unityfor the future.. . . H e said the greatest danger was conflict between the three Great Powersrepresented here, but that if unity could be preserved there was little danger of the renewalof German aggression.#I t is worthwhile in this context to quote Stalin's well-known statement to the Polishminister Mikolajczyk that "communism fitted Germany as a saddle fitted a cow."Remarking on this, Isaac Deutscher writes:It harmonized so perfectly with the whole trend of his policy vis-d-vis Germany, it was sospontaneous, so organic, so much in line with what we know of this old disbelief in westernEuropean communism, and it accorded so much with all that he said and did in those days,that it could not have been sheer tactical bluff."'

Thus, in one very clear sense it is difficult to believe that Stalin was about totake over Germany or that the U.S. felt he had this expansionist ambition. Indi-rectly, however, Feis does make an important point. Because the United Statesregarded the establishment of a multilateral trade system as central to the conductof its foreign policy, it could hardly regard with equanimity the emergence of non-" B e tw een W ar and P eace , p. 255.Churchil l , Roosevelt , and Sta lin, pp. 619-20.* Yal ta , pp. 665-66.Stal in: A Political Biography (New York, 1949 ) ,p. 537.


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290 THE WESTERN POLITICAL QUARTERLYcapitalist Russia as a great power. Moreover, the prostrate economic, social, andpolitical conditions of all Europe could only produce movement to the left. Inanother sense all of U.S. diplomacy may be construed as a response to the dangerit saw in the existence of the Soviet system and to the possibility that, favored bythe U.S.S.R., systems like theirs would spread with postwar upheavals.This driving impulse to "transform" the Russian state and integrate the Sovieteconomy into the Western sphere took many forms. The Morgenthau Plan, sobelabored as "pro Communist," was in part a conservative attempt at just suchintegration. With the complete deindustrialization of Germany it required, repara-tions from current production would be nonexistent. Soviet reparations would havebeen limited entirely to what could have been taken initially in industrial removals,and this would have been a relatively small amount in terms of what the Russianswere asking. But then the Soviet Union was to be reconstructed by American aid.With Germany insignificant the United States would have assumed the place ofsupplier to all of Eastern Europe and consequently the U.S.S.R. was to have gradu-ally adapted to Western ways: it would also be repaying the United States by ship-ments of strategic raw materials. Nonetheless, American distaste for the U.S.S.R.was so great a t the end of the war that the Americans refused to pursue this kindof integration. The Morgenthau Plan was increasingly diluted from October of1944 as the consensus grew to push a hard line.

Oddly enough, as United States reparations policy became more anti-Sovietafter Yalta, it was first affected by considerations inherent in the modified versionsof the Morgenthau plan. F.D.R.'s tentative agreement to the Russian reparationsproposal was brushed aside because, in part, a Germany subject to extensive indus-trial dismantling would not produce anything near this amount in reparations.But as a "hard" peace receded into the background, German deindustrializationwas not ~tressed.~'At this point it seems possible that reparations from currentproduction could certainly have been accepted by the Americans. To be sureRussian demands for deindustrialization and current production reparations werecontradictory. Nevertheless, if the United States had been willing to forego assur-ance of Western control of the German industrial economy, a program of repara-tions from current production and a "moderate" or "soft" peace could have beencombined. But no discussion of such a course of action took place. The UnitedStates was unwilling both to give up its primary influence in the reconstructionof the German economy and to finance Russian reconstruction. Ironically, a"hard" peace & la Morgenthau -which many Americans believed to be pro-Soviet-could alone justify an anti-Soviet program of reparations. Only at Potsdamdid the Americans reconcile their desire to secure a Western-oriented, industrialGermany with their desire for low reparations. But to achieve this reconciliationByrnes had to cede the largely agrictultural eastern zone to the Russians. From itthey could get little in the way of reparations and could not prevent Anglo-American control of the rest of Germany." Penrose, op. cit . , pp. 280-82.


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291HE DIVISION OF GERMANY

What kind of reparations policy did the Americans pursue elsewhere? InRumania and Hungary in the early fall of 1944 the U.S. developed reparationsprocedures which prove extraordinary in illuminating what occurred in Germany.48The U.S.S.R. obviously controlled the Balkans, and because the United States onlyresponded to the Soviet's maneuvers, it was unnecessary to disguise the basic issuesat stake, or to mask the motivations of big-power diplomacy. The Americans freelyadmitted those principles basic to their understanding of the reparations questionin Eastern Europe. These principles are essentially consonant with the set of factorsignored in explanations of the German situation.

In taking the predominant role in the Rumanian negotiations, the Russiansrepeatedly cited the Anglo-American precedent in Italy, where the Americans andthe British, doing the fighting, promptly excluded the Soviets from effective par-ticipation in the surrender. The Americans admitted the justifiability of Russianp r o c e d ~ r e , ~ ~nd the U.S.S.R. quickly assumed functional control of the AlliedControl Commission. Moreover, two weeks before the armistice was signed inMoscow on September 13, the Soviets asked for $300 million in reparations.Opposed to setting a definite sum, because Allied reparations policy was still"undetermined," the Americans still acquiesced readily. But Secretary of StateCordell Hull did cable Averell Harriman, conducting the Rumanian negotiationsin Moscow, that the United States did not feel its agreement in this instance to be"setting a precedent in any way for the reparations settlement with Germany orany other satellite countries." 50

Slightly over a month later Hull again informed Harriman of the StateDepartment's concern over reparations- this time over the U.S.S.R.'s demand for$400 million from Hungary, then also attempting to bow out of the war.51 InHungary, however, the U.S. was not willing to give in so easily. Harriman urgedWashington to remain adamant in its position that no specific sum be mentioned"and refuse to yield even at the risk of a breakdown of negotiation^."^^ Stettinius,newly-appointed as Secretary, was not, however, willing to go so far as Harriman.He advised the Ambassador to sign the armistice with a reservation concerning thepower the U.S. would have on the Russian-dominated Allied Control Commission.The Americans were willing to allow the U.S.S.R. to exact a specific sum in repara-tions if they could have an equal share with the Soviets in determining exactly howit was to be exacted. The Russians refused to concede this point and indicatedthat they intended to run as they pleased the Control Commission and its economicsection, which would handle the reparations problem. The United States thenreserved the right to reopen the question of the detailed manner in which the poli-cies of the Control Commission would be carried out.5348 I am specifically indebted to Dr. Gabriel Kolko for this suggestion. 49 1944 IV,p. 161. 50 1944 IV,pp. 222, 228. 5' I944 111,pp. 906-7.52 1944 111,p. 46 1.53 1944 111,pp. 47 3, 963-68, 979.


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292 TH E WESTERN PO LI TI CAL Q UARTERLYThere was much room for a discussion of boundary disputes and definitions

in the context of the Rumanian and Hungarian negotiations, but the U.S. in noway brought up these secondary matters, as it did later in regard to Germany. I ncontrol in Germany the Americans had argued that a jointly administered repara-tions program was justifiable only if there were agreement on these largely irrele-vant questions. When the U.S.S.R. was in control, the Americans claimed a jointlyadministered reparations program was necessary to protect American interests inthe restoration of world multilateralism and in Hungary's investment and trade.64

American policy-makers were acutely aware of the economic effects of repara-tions policy. In respect to Germany they had refused to discuss the matter ortreated it as negligible. But with Hungary, Harriman emphasized: "Whoever con-trols reparations deliveries could practically control the Hungarian economy andexercise an important economic influence in other directions." He was so impressedby the relevance of reparations procedures to economic matters that he suggested inan only too far-seeing fashion that the Americans might explain to the Russiansthat lack of cooperation over reparations "cannot help but affect the final Lend-Lease settlement adversely to the Soviet interest." The State Department, however,declined to raise the issue of Lend Lease in connection with this d i scuss i~n .~~

But there is another aspect of these negotiations which best illustrates the main-springs of American policy in Germany. Regarding both Rumania and Hungarythe Americans reasoned again and again that "the reparations settlements with allenemy countries should be decided jointly after discussion and deliberation by theUnited States, United Kingdom, Soviet Union and other interested countries ratherthan unilaterally and should be treated as related parts of one broad problem."66

The striking contrast between this principle and the one which evolved withthe zonal reparation plan and called specifically for unilateral action by the powersnecessitates but one conclusion: where the United States was in full economic con-trol, it was determined to retain such control; where another exercised control, itdemanded equal representation. In this respect American policy in this area maybe analyzed in terms of what William A. William has so suggestively argued is anenduring component of its diplomacy: the desire by the Americans to maintaindominance in those areas where they exercise influence and to obtain an "opendoor" in those areas where influence is exercised by others.57

VIIIn regard to Germany, the Americans refused to operate on what may well be

termed the primary realities of the Russian position- the need to rebuild, the fearof a resurgent Reich, and the desire to form a supreme entente with the West.Instead United States policy-makers emphasized the Russian attempt to establisha sphere of influence in the East and what they felt was the ideological evil of sucha sphere of influence. They seemed unable to comprehend that, for those who did1944 111,pp. 917-18. 1944 111, pp. 952, 955. * See, for example, 1944 111, p. 908.T he Trag edy of American Diploma cy (rev,ed. ; New York, 1 9 6 2 ) , passim.


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59 Bb77 Kuklick.division

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