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Chapter 2

The War, the Economy, and the Army

By the end of the First World War, Douglas MacArthur, Dwight D. Eisenhower, and Lucius Clay were still too early in their professions to affect the subsequent peace. Yet the war had important consequences for these men as they moved forward in their careers. First, it taught them critical lessons in preparing for any subsequent wars; in particular, it focused their thoughts on the relationship between America’s industrial might and its military might. Second, the army continued to professionalize as key officers recognized that the army would be an important part of America’s increasing involvement in global politics. Third, individual soldiers became at least informally more informed about governing foreign people as they maintained America’s interwar external state. Finally, as the peace treaty negotiated at Versailles in 1919 led within a decade to the Great Depression and then a Second World War, Eisenhower and Clay in particular began to become more involved in domestic political economy and think about what mistakes had led to depression and a Second World War.

In this last regard—the lessons that followed the Treaty of Versailles—Woodrow Wilson cast the longest shadow. In many ways, he provided the blueprint for a global order that American foreign policy has often followed since. At the same time, he ignored or misunderstood enough of his plan to almost guarantee its failure.¹ In fairness to Wilson (and the statesman he negotiated with), World War I had drastically changed the globe. It involved almost thirty nations, killed almost ten million soldiers and sailors, and introduced the world to tanks and air power. It ended three empires (the Russian, Turkish, and Austro-Hungarian) and redrew the global map—especially in Central Europe and the Middle East. It ushered in the communist takeover of Russia and sparked colonial revolts in Southeast Asia, inspiring (among others) a very young Hõ Chí Minh to dedicate himself to Vietnamese independence. In many Western countries, the war legitimized labor rights and women’s suffrage, as those who bore the burdens of war became more active in shaping subsequent domestic politics. Making policy in the wake of these transitions would challenge the best of politicians.

Initially, in early 1917 and again in 1918, Wilson had defined America’s war aims in broad terms. The war must produce “some definite concert of power which will make it virtually impossible that any such catastrophe should ever overwhelm us again.” Indeed, only “a peace between equals can last,” and so he hoped to persuade the British, French, Italians, and other belligerents away from vindictiveness toward the Germans and Austro-Hungarians. With that “right state of mind” between nations, he aimed to tackle the “vexed questions of territory [and] racial and national allegiance.”² America would join the war, but only if the war were “the culminating and final war for human liberty,” the war to end all wars.³ “What we are striving for,” he told Congress, “is a new international order based upon broad and universal principles of right and justice—no mere peace of shreds and patches.”⁴ Anything less would desecrate the deaths of American boys lost on French battlefields and sully America’s role in international affairs.

First, he planned to tap the democratic desires of people around the world to enjoy national self-determination. “‘Self-determination’ is not a mere phrase. It is an imperative principle of action, which statesmen will henceforth ignore at their peril.”⁵ His hope, articulated in the language of democratic reform, was that ethnic and racial strife would disappear if nationalism could find an outlet within borders that reflected the ethnic and racial makeup of the people who lived there. Second, nationalism could be kept from becoming imperialism if mitigated by an international commitment to “Open Door” trade and finance. So long as every nation felt it could safely buy and sell on international markets, the justification for colonial competition might fade away.⁶ Finally, a League of Nations would act as the institutional underpinning to provide security to the world. “My conception of the league of nations is just this,” Wilson explained, “that it shall operate as the organized moral force of men throughout the world.”⁷ The league would become “the watchman of peace,” it was the “main object of the peace … the only thing that could complete it or make it worthwhile … the hope of the world.”⁸ Behind all of these goals lay Wilson’s eschatological reading of history as progressive. The future would be better than the past, and America (along with Wilson) could help history along its way.⁹

Many issues stood in the way of making those ideals reality, several of which seem obvious in retrospect. First, Wilson carried an idiosyncratic definition of self-determination that papered over the problems of implementing democracy and the “new international order” he had promised.¹⁰ Second, the plan for economic interdependence after the war ignored the financial reality that emerged from the war. Wilson assumed individual economies would seamlessly return to a global system that rested upon the gold standard. Over the next decade, this would be the largest source of ongoing crises. Wilson also failed to consider more thoughtfully the relationship between economic performance and democratic stability. In short, Wilson did not fully think through the ways in which economic nationalism might undermine the kind of democratic institutions he hoped to see around the world, let alone economic internationalism.

The astonishing cost of World War I had driven all belligerents off the gold standard during the war. In place of gold, each had printed money with varying degrees of abandon. As a result, by war’s end every country had a great deal more currency in circulation than it had held before, in some cases by multiples of ten or more. The surplus money created strong inflationary pressures that most countries tried to curb through price controls, rationing, and similar policies.¹¹ In addition to printing money, the belligerents borrowed from anyone who would lend. For the Allies this meant borrowing from each other and ultimately from the United States. Collectively, the Allies owed the United States about $12 billion. Britain owed $4.2 billion, France $3.4 billion, Italy $1.6 billion, and so on. Unfortunately for the French, they had loaned about $2.5 billion to Russia before the Bolshevik Revolution in 1917. The new communist regime had no intention of ever repaying this debt.¹²

After the war, Europe desperately needed capital to rebuild. Yet European currencies had lost much of their value. Only the United States had the means to make this investment because only the United States had deep reserves of the one form of money everyone trusted: gold.

All of this background helps clarify why the economic order Wilson sought not only failed to materialize, but, within a decade had wilted into the Great Depression. He insisted that the world return to an open and competitive market at a moment when the United States produced the lion’s share of important products, held a huge load of the world’s money, and also held enormous IOU’s from the countries it traded with.¹³ At Versailles, the French and British recognized how the arrangement tilted against them and pressed Wilson for debt forgiveness. As an incentive, they raised the question of German reparations, suggesting that Wilson forgive them their debts so that they could, in turn, forgive their debtor. After all, they reasoned, Wilson had suggested a magnanimous peace, and financial magnanimity expressed this idea as well as any other gesture. Moreover, America had come to the war late and suffered a fraction of British and French sacrifice. Debt forgiveness might equalize the American contribution to the Allied victory. Wilson’s close confidant Colonel E. M. House agreed: “Should [Americans] not be asked to consider a large share of these loans as a part of our necessary war expenditures, and should not an adjustment be suggested by us and not by our debtors?”¹⁴

Figure 1. US, German, French, and UK gold reserves as percentage of world stock, 1913–1930. Source: World Gold Council, “Central Bank Gold Reserves, An Historical Perspective Since 1845 (November 1999).”

But Wilson would have none of it. He saw debt and reparations as distinct moral and legal questions. German reparations constituted a “fine”—a punishment for bad behavior. The Allies should set reparations high enough to hurt—to become a disincentive against future bad behavior. By contrast, Allied debts represented legal obligations entered into voluntarily. If the Allies had no interest in paying their debts, maybe they should not fight such costly wars. Besides, in a roundabout way, wouldn’t debt forgiveness just encourage future war?¹⁵

In the end, Wilson got his way, but only to doom his ideals. America would collect on Allied debts, but the British and French passed their burden along to Germany in the form of staggering reparations totaling about 130 billion gold marks (roughly $33 billion in 1919 dollars, which, when viewed as a percentage of 2015 American GDP, amounts to $7.5 trillion).¹⁶ Since Germany had few reserves of gold at the end of the war, it had to pay in installments out of current production, meaning it had to generate trade surpluses to created leftover reserves for reparations. Yet, as the Economist explained in 1921 (just prior to the first reparations payment), while Germany would likely export about 3.5 billion marks of goods that year, it would import about 4.7 billion in food and other critical materials. With no planned surplus in the coming years, where would reparations come from?¹⁷

The more ominous problem, though, was that the plan essentially tied the entire global financial system to the fate of the German economy. Perhaps, under the best of circumstances, this might be a good idea. But in the chaos that followed the war, with Germany perilously close to political and economic anarchy, this was a very poor choice indeed. Over the next years, the world came to the brink of financial crisis again and again as this precarious structure nearly collapsed.

For Eisenhower and Clay in particular, this history created a heavy weight when they found themselves, after the Second World War, in a position to improve on Wilson’s effort after the First. They realized as quickly as any other American official that no matter how well the global financial system might be designed, it had to take into consideration the economic realities of the countries joining it. If individual countries did not enter into the global system on roughly equal grounds and with largely stable domestic economies, then the global system itself could exacerbate problems within domestic economies, creating a political backlash against the global order. Under such circumstances, the international component of Wilson’s scheme would not mitigate nationalist impulses within individual countries but exacerbate those impulses.

* * *

Even as they observed the consequences of the peace, many army leaders worried initially about the poor American performance during the war. Much like the Spanish-American War, American victory in the First World War concealed a host of failures. Most obviously, American industry had dramatically underperformed its potential. As early as 1914, a handful of prominent figures (Theodore Roosevelt, Henry Cabot Lodge, Elihu Root, and the editors of the New Republic) had recognized the link between industry and war and had warned that the country remained woefully unprepared.¹⁸ While Wilson had cited military preparation as a reason to pass the Revenue Act of 1916, he spoke only to the immediate needs of soldiers and sailors.¹⁹ No comprehensive plan for coordinating industry ever went into effect during the war.²⁰

In fact, contrary to the lore that emerged after the war, American entry had little to do with a “munitions industry” because no munitions industry really existed before it. Indeed, even after it began no munitions industry really emerged to feed it.²¹ Many industrial powerhouses ignored the war altogether—most conspicuously the auto industry where neither the Dodge brothers nor Henry Ford ever converted their factories to make tanks. Each continued to turn out cars and hold onto domestic market-share rather than supply this new weapon for the war effort.²²

The War Department made up for what couldn’t be bought by ordering as much as possible of what could. The result was a predictable mess. American industry produced over thirty million 75-mm artillery shells, for example, but only twelve million fuses for those shells. Similar mismatches abounded.²³ More worrisome, American industry rarely produced what mattered most for victory. While American soldiers used about 2,250 artillery pieces during the war, only 100 of them came from the United States. With the Dodge brothers and Henry Ford setting the (unpatriotic) standard, not a single American tank made its way to the front. America was home to the Wright brothers, yet the country managed only one thousand observational airplanes (by contrast, the French produced almost sixty-nine thousand combat planes). In many cases, General Pershing chose to buy or borrow what he could from the French and British. In all, the army consumed roughly eighteen thousand ship-tons of material in the war, of which ten thousand came from continental Europe.²⁴

Surprisingly, the slapdash procurement was not the army’s largest logistical problem. As odd as it seems in retrospect, the country had almost no merchant marine in the early part of the century: less than 10 percent of the country’s exports traveled on American ships. Thus, despite mass conscriptions and rapid mobilization, fewer than two hundred thousand troops had arrived in France during 1917. In early 1918, more than one million soldiers waited in the States for transport across the Atlantic.²⁵ In the end, most American soldiers made the voyage aboard British vessels (but only after the British extracted strategic concessions on the battlefield from Pershing in exchange for their ships).²⁶

The chaotic procurement eventually led to inflation. Part of the price rise resulted from the influx of European gold in the first years of war. But American entry in 1917 exacerbated matters. Government propaganda encouraged Americans to borrow from banks and buy Liberty Bonds that would help fund the war. The newly created Federal Reserve flooded the banking system with liquidity (in essence printed money) to make sure banks could accommodate the demand. The expansion of the money supply had predictable results: retail prices rose 17 percent in 1916, another 17 percent the next year, and an additional 15 percent in 1918. Wilson did not attempt to impose price controls, using exhortation and patriotic appeals to encourage “fair prices” instead.²⁷ But prices kept rising because borrowing kept going. All together the war cost about $33 billion: new taxes generated $11 billion of that; borrowing covered the remaining $22 billion.²⁸

The combination of poor coordination, haphazard purchasing, and industrial foot-dragging meant that the American economy saw almost no real economic growth between 1914 and 1920 despite the massive demand created by the war. Inflation made it appear as if the economy had doubled in size; once adjusted for inflation, that growth disappeared.

Wilson’s main effort to coordinate the wartime economy came in the creation of the War Industries Board (WIB); unfortunately, the board existed as a “clearinghouse for the self-regulation of business” rather than an agency with command-and-control powers.²⁹ Predictably, it was ignored. Matters did not improve much until March 1918, when Wilson elevated the charismatic Bernard Baruch to be chairman of the WIB. While the WIB still struggled to control industry, it at least succeeded in launching the public career of Bernard Baruch. Already known as a genius financier, his staunch Democratic credentials—and his campaign contributions—made him a logical choice when Wilson sought a figure to run the War Industries Board. From this point forward he remained in public life, advising presidents through depression and later wars.³⁰

* * *

Figure 2. U.S. real and nominal growth of GNP in World War I, 1914–1920. Source: Historical Statistics of the United States: Colonial Times to 1970, Bicentennial Edition, Part 1 (Washington, DC: Department of Commerce), Series F 1–5. Gross National Product, Total and Per Capita, in Current and 1958 Prices: 1869 to 1970, 224.

“If not depressed, I was mad, disappointed, and resented the fact that the war had passed me by.” Eisenhower had managed to find the dark lining in the silver cloud of world peace. The war had ended and, from his perspective, so had his chance to fight: he was “putting on weight in a meaningless chair-bound assignment, shuffling papers and filling out forms.”³¹

Eisenhower’s anxieties about missing the war mirrored the army’s sense of drift in the postwar period. “Where-oh-where was that welcome they told us of?” MacArthur wrote to a friend after finally arriving home in the spring of 1919. “Where were those bright eyes, slim ankles that had been kidding us in our dreams? Nothing—nothing like that.”³² Once again, no sooner had the fighting stopped, than many Americans moved to put the war behind them. Indeed, a kind of antiwar fervor spread through the country, questioning the “real” motives for war.³³ Army leaders had hoped the war had finally made the military an acceptable part of American society. They put forward proposals for enacting universal military service, only to realize how out of step they were. Congress responded with the National Defense Act (June 1920), which cut the army back to 280,000 men (it would be cut further to 125,000 in 1923). A future war would, Congress declared, require the same kind of sudden conscription that had marked preceding wars.

Daniel Read Anthony (R-KS), chair of the House War Department Subcommittee, hoped to reduce federal expenditures to as close to zero as possible. Specifically, he looked for “possibilities of cutting down the future development of tank, airplane and similar expensive units” for future savings.³⁴ He helped send the newly formed tank corps to oblivion by subsuming it under a jealous infantry determined to keep this new weapon outside of the American arsenal. Other countries would quickly jump past the United States in understanding and utilizing this critical new weapon.³⁵ “The peacetime Army was poor,” recalled Clay. “It had no vehicles, no equipment.… I can remember when we didn’t have our target practice for the entire year simply because we didn’t have ammunition.” In its place, the army had “only a certain sincerity, particularly among the younger officers, who had been the junior officers of World War I and who knew how badly we did … and who dedicated themselves to building a better Army.”³⁶

With no money and little congressional support, individual army leaders nevertheless looked to institutionalize the lessons from the world war. Often they would concede budget cuts if they came along with organizational reforms streamlining the army’s command structure. Out of this came the Army Industrial College, a center to train army leaders in the economics of war (the college opened its doors in 1923).³⁷

Less formally, those officers who remained in service looked for ways to improve themselves. “This was one of the reasons why the [West Point] Class of 1915 achieved such an outstanding World War II record,” observed Clay years later. “They were the ones who came back from World War I thoroughly convinced that we had to be more professional, and they really introduced a spirit of professionalism into the armed services. We were amateurs in World War I. We were professionals in World War II.”³⁸

Despite missing combat, Eisenhower decided to do what he could to anticipate a future war, and, despite congressional cuts, he sincerely believed that tanks would be crucial. In this he found a lifelong friend and partner, George Patton. “From the beginning,” Eisenhower commented later, “he and I got along famously.”³⁹ The two men concluded that tanks could fundamentally redefine battlefield tactics. If bunched together, they could punch through enemy lines and create havoc from the rear, making trench warfare obsolete. If combined with air support, they could deliver decisive blows and race across open territory. Excited by their insights, Eisenhower and Patton submitted articles in separate military journals.

Eisenhower’s contribution, “A Tank Discussion,” appeared in the latter half of 1920.⁴⁰ Unfortunately, along with extolling tank warfare, it took a swipe at Congress and the infantry for shelving research into the new weapon.⁴¹ As reward for his insight, the chief of the infantry told Eisenhower that his “ideas were not only wrong but dangerous” and that he should “not publish anything incompatible with solid infantry doctrine.” If he did, he “would be hauled before a court-martial.”⁴² (In the meantime, German officers began experimenting with tanks and came to roughly the same conclusion, leading to the idea of blitzkrieg launched with devastating effect in World War II.)⁴³

Implicit in Eisenhower’s strategic vision, however, lay a basic economic reality. Military success depended upon economic might and technological innovation. Future wars would turn on domestic production at least as much as tactical cunning or courage. Thus, already in the 1920s he understood the “tendencies toward mechanization, and the acute dependence of all elements of military life upon the industrial capacity of the nation,” and that led him to learn more about the way industry worked. “Large-scale motorization and mechanization and the development of air forces in unprecedented strength would characterize successful military forces of the future.”⁴⁴

* * *

At the end of World War I, French military leaders found an opportunity to accomplish something they had sought for years: control of the left bank of the Rhine River. The river provided a natural and formidable barrier to invasion, and holding it would guarantee against German backsliding during the peace negotiations. Thus, French leaders insisted that the Armistice of November 11, 1918, include a paragraph stating that, “The [territory] on the left bank of the Rhine shall be administered by the local troops of occupation … carried out by allied and United States garrisons holding the principal crossings of the Rhine.”⁴⁵ Initially, the Americans and British opposed this provision but ultimately gave in. Once again, the American army found itself governing territory outside U.S. borders as part of the American external state.

By December 1, American troops marched into Germany. While in theory the Allies shared overall policy for the occupation, in reality each country had a great deal of autonomy within its zone. The French and British showed less leniency than the Americans, who followed General John Pershing’s pronouncement that the Germans had a “duty … to regain their normal mode of life and to re-establish the schools, churches, hospitals and charitable institutions, and to continue in their regular local activities.” The Germans would “not be disturbed, but rather assisted and protected,” and all “existing laws and regulations, in so far as they do not interfere with the duty and security of the American troops, shall remain in force.”⁴⁶

This new form of military occupation differed from the experience of the Philippines in several important ways. First, American policy never envisioned annexing any part of Germany (indeed, American leaders had opposed the idea of occupation in the first place). In fact, since occupation had never been part of their country’s postwar aims, American leaders scoured the ranks for soldiers who could at least speak German. That was all it took to become an “officer in charge of civil affairs” (OCCA), and the OCCAs made up the core of military government. Each OCCA joined a combat unit and supervised nearby towns or villages. While the combat units stood ready to back the OCCA in case of conflict, it rarely happened.⁴⁷

Initially, the OCCAs attempted to reorganize local German government to match the organizational design of the American military. This immediately proved awkward and, as they soon realized, unwarranted. The local government already functioned with military-like efficiency. Indeed, OCCAs learned that they had gotten things entirely backward—that it would be far more efficient for the military government to mirror the civil structure of the German government. In fact, the British, French, and Belgians all took the latter approach, recognizing the inherent compatibility between the German state and their military governments.⁴⁸ Therein lay a second distinction from the Philippines. In the Philippines, the occupation had aimed to remake the Filipinos in America’s republican image. In Germany, military government issued only three rules in the American zone: no public gatherings, no alcohol sales during daytime hours (a nod to Prohibition back in the United States), and no carrying of weapons.⁴⁹ On the first Sunday of the occupation, American doughboys stunned the Germans by sitting next to them at church.⁵⁰

When it became clear that the occupation would last years rather than months, military government began promoting economic recovery. While the terms of the Armistice prohibited Germans from “military” production, the OCCAs lacked the will to enforce the rules, and the German economy in the American zone quickly improved. As the rest of Germany convulsed in political conflict, rampant inflation, and economic disorder, the American zone turned into an island of stability.⁵¹

Perhaps the largest misunderstanding among the Allies involved fraternization rules. The United States agreed to an anti-fraternization policy for the occupation: American soldiers should only interact with Germans over official business. For the French, the order aimed to quarantine “Bolshevism”—communist ideas that had started to sweep across Germany. By contrast and consistent with progressive ideas of virtue, American leaders hoped that soldiers would return home from Europe as sexually “pure” as they arrived. But the “anti-frat” policy (as doughboys called it) failed almost immediately, in large part because of the housing situation. The military had no place to billet troops in Germany and no interest in building barracks that it would soon vacate; thus, doughboys billeted with German families, and often enough those families included young girls. Almost immediately commanders started receiving requests from soldiers to marry their (often pregnant) German girlfriends.⁵²

At the end of the war, the army ordered Douglas MacArthur to lead his Forty-Second Division into the occupation zone. He remained until spring the next year and from this experience absorbed several lessons that mattered when he became proconsul in Japan. More than Eisenhower and Clay, he saw the political realities of occupation. When he later governed postwar Japan, he mirrored the German experience by leaving much of the Japanese civil structure in place (including, quite controversially, Emperor Hirohito). He never enforced anti-fraternization rules. Most of all, he hoped to duplicate the feeling he had when he left Germany. “When we received our orders to return to the United States,” he wrote years later, “the tearful departure looked more as we were leaving [home] instead of returning home.”⁵³

Not long after MacArthur departed Germany, Clay arrived. The army sent a number of engineers to help with the occupation. Like many soldiers, he could see the troubles affecting the rest of Germany. He, too, drew an important lesson from his experience. “I did see the inflation,” he recalled later. “I did see the difficulties under which the new German [Weimar] government was attempting to establish itself.”⁵⁴ As much as any American, he saw how economic chaos undermined the good intentions of democratic reforms.

* * *

By 1920, the Philippines had become a mostly autonomous, albeit legally anomalous, “quasi-sovereign.”⁵⁵ The insurrection had ceased, and Congress had granted the Filipinos an elective national legislature. More than 90 percent of eligible voters cast a ballot, and the national legislature held wide latitude in determining domestic policy. However, the government remained headed by an American governor-general who acted as executive and could veto any act of the national legislature. While he had to gain the consent of the Philippine legislature for his own initiatives, he ultimately answered to the American president, who had appointed him. The arrangement had force because the United States maintained a garrison on the islands that reported to the governor-general.⁵⁶

In 1922, the army ordered MacArthur to the Philippines as part of the garrison. His former boss Leonard Wood greeted him upon arrival (President Warren Harding had appointed Wood as governor-general the prior year). The Filipinos had “done fairly well with self-government,” Wood reported, but widespread graft and corruption had led to a doubling of government expenses with no improvement in public services. The courts had become “clogged,” small pox and cholera outbreaks had killed nearly sixty thousand Filipinos, and the Philippine government had used tax revenue to prop up a national bank that had gone bankrupt. Wood came to the Philippines to “clean things up.”⁵⁷ For their part, many Filipinos had grown weary of Wood’s “supervision.” In an effort to get around him, they continually sent delegations directly to the U.S. asking for immediate independence. Harding stood by his governor-general, but it irritated Wood to no end.⁵⁸ To appease the Filipinos, Wood put MacArthur to work, heading campaigns to vaccinate livestock, organize a local ROTC, and chase away jungle bandits.⁵⁹

While MacArthur labored in the Philippines, Eisenhower and Clay also gained experience in America’s external state—mostly in Panama. Efforts to build a canal there had begun in 1850, when American and British negotiators agreed (in the Clayton-Bulwer Treaty) not to compete with each other in constructing a passageway between the oceans. Of course, in 1850 neither country had the resources or technical know-how to compete anyway. But by the turn of the century the U.S. position had changed. President Theodore Roosevelt pressed for an American effort to create the canal, which led to the Hay—Bunau-Varilla Treaty between the United States and Panama. The treaty committed the United States to defending the independence of Panama and, in turn, granted the United States in perpetuity control of a zone stretching five miles to either side of a canal to be constructed by the Americans. The “United States would possess and exercise” governance of this area as “if it were the sovereign of the territory … to the entire exclusion of the exercise by the Republic of Panama of any such sovereign rights, power or authority.”⁶⁰ Congress followed ratification of the treaty with an act that vested in the president all “military, civil, and judicial powers as well as the power to make all rules and regulations necessary for the government of the” new territory, which Roosevelt delegated to the military.⁶¹ The Canal Zone became, like the Philippines, a part of the country’s external state, functioning in that space between flag and Constitution, administered through the military.⁶²

For Eisenhower and Clay, their service in the Canal Zone turned out to be life changing because each found in Panama a mentor who finally gave him the intellectual challenge he had missed at West Point. For Eisenhower, this man was General Fox Conner, who had already concluded in the early 1920s that a second world war lay near on the horizon. On his own, Conner decided to mentor the younger generation of officers to face the next world war, focusing on three in particular: George Marshall, George Patton, and Eisenhower.⁶³ “In the last war we fought for an ideal.… This time we shall be fighting for our very lives,” he told Eisenhower. “I believe that Germany and Japan will combine against us, and Russia may be with them.” The Allies would include “an ebbing empire [Britain] and a republic in the last stages of a mortal illness [France].”⁶⁴ By virtue of his position on General Pershing’s general staff in World War I, Conner could observe the dysfunctional command that existed between the French, British, and Americans. “When we go into [the next] war it will be in company with allies,” yet Conner stressed that there must be an “individual and single responsibility” at the top.⁶⁵

Conner had an extensive library, and Eisenhower read his way through it, covering the works of Shakespeare, Plato, Nietzsche, and (most important) the brilliant military theorist Carl von Clausewitz. Eisenhower and Conner then talked over the meaning of these works as they spent hours on horseback mapping the terrain, hacking through the jungle, or cutting roads. In retrospect, Eisenhower called it his “graduate school” in “military affairs and the humanities.”⁶⁶

Clay’s experience in Panama was equally influential. “I really found myself in Panama,” he later recalled. “[It] was an important assignment and you worked at being a soldier.” He served under an engineer named “Goff” Caples, who (like Fox Conner) was well-read and liked talking. “He was truly an independent thinker,” said Clay, particularly on questions having to do with “ethnic and political movements … a special tutor.”⁶⁷ Clay obtained his first command in Panama, a group of soldiers he rated as the best in his military career.⁶⁸

Clay and Eisenhower worked to do many of the same things in Panama that MacArthur did in the Philippines. They surveyed jungle, built barracks, cut roads, trained junior officers, and generally did the things that today might be called “development.” They also showed the kind of skill and intelligence that allowed them to quickly climb the army’s ranks.

In December of 1927, MacArthur learned that Henry Stimson, the former secretary of war, would replace Leonard Wood as governor-general of the Philippines. Stimson had returned to private life when Woodrow Wilson became president in 1912. When the U.S. entered World War I, he hoped for a military appointment based on his prior service. Wilson refused. So Stimson enlisted, quickly rising to the rank of colonel in the artillery. After the war he again returned to practicing law. But the decline of Leonard Wood’s health in 1927 led President Calvin Coolidge to seek a replacement and he asked Stimson to accept the governor-generalship. Stimson had just turned sixty, but decided to accept despite his age.⁶⁹

Unlike Wood, Stimson harbored fewer racial judgments about the Filipinos. He felt that they deserved independence. But in a hostile world, surrounded by hungry empires, they could not survive long if that independence came too soon. “The Philippines are protected from foreign submersion,” Stimson wrote, “solely by … [the] military power of the United States.” For a lasting independence, the Filipinos needed a national military capable of defending that independence, and institutionally speaking, this seemed far away. Japan, in particular, seemed eager to gobble up the islands.⁷⁰

More worrisome, the long-term success of the Philippines depended on the development of the internal institutions necessary to maintain democracy. Here, the islands seemed quite unprepared to stand on their own. The country needed a strong press, civic organizations, and established political parties. The national legislature had the form of democracy, but none of the social or civil infrastructure that would help it flourish.

In a move that characterized military government in the future, Stimson saw the solution to all problems in economic development. “There has been very little accumulation of capital [in the islands],” complained Stimson, “One result of this is that the revenues possible from taxation at present are quite insufficient … for military and diplomatic purposes.” More to the point, the lack of industrialization meant “no middle class or bourgeoisie between the educated ilustrado and the ignorant tao … which might serve, as it does in other countries, as the backbone of self-government.” In short, entrepreneurial capitalism would foster not only national independence but also civic virtue.⁷¹

During his stay in the Philippines, Stimson became familiar with MacArthur. But their time together (at least in Manila) proved short lived. In March 1929, newly elected President Herbert Hoover asked Stimson to come back to Washington to serve as secretary of state. Then, in August 1930, Hoover asked MacArthur to return as the chief of staff of the army. MacArthur hesitated. He enjoyed life in the Philippines, and leading the American army from Washington seemed like more headache than opportunity. So he deliberated—until his mother learned of his hesitation. She cabled him right away: “Your father would be ashamed of your timidity.”

“That settled it,” MacArthur said, and he quickly sent Hoover his acceptance.⁷²

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It is hard to imagine how the 1920s could have done more to prepare Dwight Eisenhower for his future. He had instinctively understood the weaponry and tactics of the next war. Moreover, he had found a mentor in Fox Conner who would guide his career thereafter. Conner had a plan for Eisenhower. The first part of the plan sent Eisenhower to the Command and General Staff College (which served to prepare mid-level officers for future command). Eisenhower flourished there, finishing at the top of his class. After this, Conner arranged for Eisenhower to become a part of the American Battle Monuments Commission directed by General Pershing. Eisenhower had the task of writing a handbook that explained the events commemorated by the war’s monuments and cemeteries. Ostensibly a guide for tourists, in reality it became a battle-by-battle summary of the war. More important, it gave Eisenhower a firsthand opportunity to walk the fields of France. By the time he had finished, Eisenhower had as clear an understanding of tactics in World War I as anyone. He also had a clear sense of the terrain Americans would travel in the next war.⁷³

In 1927, Eisenhower entered the Army War College, where he studied industrial conversion. His thesis took up “the administrative and economic War Powers of the President,” including the changes necessary to move the normally free economy toward a controlled war economy.⁷⁴ He considered everything from a command economy’s constitutionality to the nitty-gritty of administrative coordination, and recommended that “an agency … be set up … with a man at its head in whom is centralized full responsibility and adequate authority” to direct the economy.⁷⁵ His work helped open a new door to his career when Fox Conner managed to get Eisenhower a position with Brigadier General George Van Horn Moseley within the army’s planning division in Washington. The National Defense Act of 1920 instructed the army to develop an industrial conversion plan, but by the late 1920s, it remained to be written. Because of Eisenhower’s work at the Army War College, Moseley wanted him to write the report.

In working through the many issues involved in that report, Eisenhower decided upon an approach that became a hallmark of his management style thereafter. He spoke with everyone who had played a hand in the last effort to create a wartime economy. While most saw the project as pointless—they would never “again [be] called on to arm and equip a mass army”—“some manufacturers … [were] ready to cooperate.” Most important, he discovered Bernard Baruch.⁷⁶

Baruch eagerly talked with Eisenhower, explaining all the policies and powers he wished he had had. He also took to Eisenhower, and afterwards became a mentor along the lines of Conner. “He was ready to talk to me at any time,” Eisenhower noted.⁷⁷ In time of war, Baruch explained, the government needed the power to set price controls, provide central administration and public education, and hold total power to defeat inflation—in short, it needed all the powers denied the War Industries Board. While the Hoover administration seemed unlikely to embrace a report that recommended such broad government powers, Eisenhower accepted Baruch’s ideas wholeheartedly and defended them to his superiors.⁷⁸

By December 1930, Eisenhower had completed his Plan for Industrial Mobilization and forwarded it to Hoover (who promptly ignored it). He then wrote an accompanying article (published almost a year later in the Cavalry Journal), summarizing the contributions of the many people he interviewed.⁷⁹ Several themes ran throughout. First, while the “Government has wisely refrained, as far as practicable, from interfering with the operation within our own country of fundamental economic laws.… In war all this changes.” For example, “demand becomes not only abnormal but is measured in terms of national self-preservation rather than in capacity to pay. Time is vital.” In short, war reversed the natural laws of capitalism.⁸⁰

At the same time, the “problem facing the Federal Government in war is to be prepared to minimize damaging effects of sudden changes in industrial activity,” even while striving to “mobilize material, labor, and capital for the support of the fighting forces.”⁸¹ In other words, the less the state had to change, the better. Here, he adopted Baruch’s views, specifically on the question of outright nationalization of industry during war. “Who would run it?” Baruch asked. “After you … had taken it over and installed your Government employee as manager, what greater control would you have then than now! [Through taxation] you can choke it to death, deprive it of transportation, fuel, and power, divert its business, strengthen its rivals. Could any disciplinary means be more effective?” Besides, even “if [a federal] bureau could prove adequate to the task [of running industry] … the mere process of change would destroy efficiency at the outset.”⁸²

Indeed, efficiency remained the watchword throughout the plan, and it imagined that competition between various sectors of the economy (and among departments within the government) might create frictions that would undermine industrial output. Such competition “must not exist.” To overcome this, “the government must know the national needs—and by wise and conservative measures direct the efforts of the population toward meeting those needs.”⁸³ To do this, the plan envisioned centralized coordination, but also, and crucially, “the force of public opinion.” It encouraged the president to take advantage of the “unified and intensive public opinion” common at the outbreak of hostilities, because this unity, “[if] properly directed and employed under a popular leader, will make effective any reasonable, practical and efficient plan that may be adopted.”⁸⁴

The third theme, and what proved the most controversial, centered on controlling price levels during war. Here, again, Eisenhower followed Baruch, who favored widespread price controls across the entire economy. On the one hand, this solved the problem of war profiteering; on the other, it addressed an issue in terms that would prove very important for Eisenhower in the future. “Inflation enormously increases the cost of war and multiplies burdens on the backs of generations yet to come,” Baruch argued. “In the inevitable post-war deflation the debt, of course, remains at the inflated figure. Thus the bonds that our Government sold in the World War for 50-cent dollars must be paid through the years by taxes levied in 100-cent dollars.”⁸⁵ Altogether, Eisenhower’s report provided the basis for a planned economy along with the nuts-and-bolts of how to implement it—a valuable resource for American administrators when the next war came.

Thus, by 1930, one thing could be said about MacArthur, Eisenhower, and Clay as well as Henry Stimson. Each had, during the 1920s, gained invaluable experience in the tasks that awaited them. While the nation had made little effort to institutionalize military government as a core part of America’s external state, individual military leaders had gathered a great deal of experience and informal understanding of military government, political economy, and the art of governing. The initial lessons they learned came from the very practical problems of maintaining a civil society. They realized that it was already hard enough to subjugate a people and maintain some order. That task became impossible once military governments were seen as adding impoverishment to subjugation. Thus, in many cases they personally helped the local economy by cutting roads and building wharfs.

Put another way, military leaders absorbed Wilson’s contention that economic cooperation might foster peace, yet realized that Wilson had missed the local dimension of that promise. He had missed the fact that local economic stability became the prerequisite for global integration. The problem of the future—as military government played a much larger role in the lives of many more people around the world—would be learning how to achieve local economic stability. It was one thing to govern an agrarian archipelago or a narrow strip of Panamanian jungle. It would prove quite a different thing to govern densely populated and industrialized nations suffering after terrible defeats.