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Chapter 4

The Army, the New Deal, and the Planning for the Postwar

Because of their duties in the Philippines and later in World War II, MacArthur, Eisenhower, and Clay missed what came to be called the Keynesian Revolution. In 1936, John Maynard Keynes wrote The General Theory of Employment, Interest and Money.¹ Prior to Keynes, most economists saw savings as the key to economic growth, where the more parsimoniously a people lived, the wealthier they would become. As Adam Smith argued, “Whatever a person saves from his revenue he adds to his capital.” What was true for one proved true for all: “As the capital of an individual can be increased only by what he saves … so the capital of society … can be increased in the same manner.”² In short, savings did not disappear from the economy; they made economic growth possible.

Among the many arguments in his enigmatic book, Keynes reversed Smith’s argument by pressing precisely on the question of what happened to savings.³ Nothing guaranteed their automatic conversion into investment Keynes believed. Entrepreneurs invested based on the expectations of future profits. If, for some reason (Keynes posited “animal spirits”), they lost confidence in the future, they would hold their money rather than invest. “With the separation between ownership and management which prevails to-day,” he explained, “and with the development of organised investment markets, a new factor of great importance has entered in.” A well-developed and efficient financial system “sometimes facilitates investment,” but just as often, it “adds greatly to the instability of the system.”⁴ In short, the creation of capital markets lent itself to a kind of “mass psychology of the market,” which could “change violently as the result of a sudden fluctuation of opinion.”⁵ Investment depended on the mood of the investors, not the supply of savings, interest rates, or thrift. In pessimistic times money sat idly, waiting for investors to feel courageous again. Economists ultimately called the phenomena a “liquidity trap”—a term meant to contradict Adam Smith’s claim that savings easily made their way back into circulation. Thus, “the equilibrium level of employment, i.e. the level at which there is no inducement to employers as a whole either to expand or to contract employment, will depend on the amount of current investment.”⁶

Keynes showed how, ironically, a high savings rate could kill growth. It could facilitate depression. He argued that a perfect balance of savings and investment was rare, “an optimum relationship” that “can only exist … by accident or design,” but hardly in the natural state of the economy.⁷ Put in simplest terms, Keynes argued that the economy’s vulnerability came from the investor class—rich capitalists and their hired guns—who could, in their flightiness and timidity, choke the economy into depression.

But an alternative existed. Government could “compensate” for the investor class by spending those idle savings when investors lost their nerve. It could “prime the pump” and return the economy to full employment. Indeed, only government could pursue the public interest over the narrow anxieties of the investor class and restore the economy to a full employment equilibrium.⁸

While it took time and developed piecemeal, eventually the Keynesian approach came to dominate the thinking of the New Dealers. For New Dealers, monopolists and reckless bankers—whose hatred Roosevelt had “welcomed” in 1936—need not be evil.⁹ Keynes showed they were just as dangerous by being timid, flighty, and narrow. They could effectively ruin the economy either way. The Keynesian approach had the additional advantage of showing that difficult and often controversial efforts to regulate and reorganize business were unnecessary. Rather, government simply needed to spend, and spend enough to restore the economy to full employment.¹⁰ Indeed, as spending on World War II ramped up, Keynes appeared to be a prophet: the American economy grew dramatically and unemployment disappeared.

By the mid-1930s, Roosevelt began to worry that he had prioritized the domestic economy at the expense of the international. His secretary of state, Cordell Hull, prevailed upon him to embrace the cause of free trade. While Hull never gained Roosevelt’s full confidence, Roosevelt did support the Reciprocal Trade Agreement Act of 1934, which gave him authority to grant “most favored nation status” and unilaterally reduce tariffs with a particular country. Then came a 1938 U.S.-British trade agreement, lowering tariffs on a handful of goods. Roosevelt’s interest in the global economy accelerated as war seemed inevitable. Starting with his “Good Neighbor” policy toward Latin America, Roosevelt increasingly saw economic diplomacy laying the foundation for security.¹¹

As Hull also began to think of war as inevitable, he initiated a Committee on Problems of Peace and Reconstruction, staffed largely with veterans of Woodrow Wilson’s administration. This group tried to divine “out of the experiences of the interwar years and out of the experiences of the [First World] war itself” what had gone so terribly wrong. They concluded that Wilson’s efforts had focused too narrowly on political reconstruction alone. “No program of constructive economic and social action agreed upon among all the victor powers of 1918 had come into being.” As a result, when “insecurity had grown” because of “problems left by the war,” and because of “the lag between national and international economic, social, and political policy on the one hand and swift technological development and desires for a higher standard of living on the other,” the precepts of “Christianity and democracy” had collapsed.¹²

By 1940, the committee made economic reconstruction, rather than political reconstruction, its starting point since “the common interests of nations were more generally recognized in the economic than in the political field.” This seemed a particularly good starting point because “the experiences of the interwar period”—that is, the global Depression—had “focused [policymakers’] attention on the effects of economic policies on international relations.” Echoing Walter Lippmann’s 1933 essay, the committee argued that a collapse of international trade would be followed by nationalist economic and political policies. Lack of global economic cooperation created an “important source of friction between nations and [was] a basic factor contributing to stability or instability within states.”¹³

But trade remained a particularly thorny issue, particularly with the British. When Roosevelt met with Winston Churchill to craft what became the Atlantic Charter in 1941 (the Charter stood as the fundamental document outlining American and British war aims), the State Department inserted a clause that the United States and Britain would “strive to promote mutually advantageous economic relations … through the elimination of any discrimination … against the importation of any product originating in the other country.” Churchill balked at this. The British, former champions of free trade, had since the depression realized the value of a preferential system of trade within their vast empire.

“Time being of the essence,” Roosevelt thought it best to compromise with Churchill. He rewrote the passage to say only that the two countries would “endeavor to further the enjoyment by all peoples of access, without discrimination and on equal terms to the markets and to the raw materials of the world which are needed for their economic prosperity.” Churchill reluctantly supported this broad, vague aim.¹⁴

By 1943, the idea of creating a global economic order had become fundamental to American postwar planning. In testimony before Congress, Hull explained that “when the day of victory comes, we and other nations will have before us a choice … as it was in 1918.” On the one hand, the world could choose “extreme nationalism, growing rivalries, jealousies and hatreds”; or it could choose “increased international cooperation in a wide variety of fields” and a chance at peace. “Of the various necessary fields of international collaboration one of the most essential is the field of economic life.” In what became almost a mantra in the postwar period, Hull said, “The political and social instability caused by economic distress is a fertile breeding ground of agitators and dictators, ready to plunge the peoples over whom they seize control into adventure and war.” Avoiding this outcome required “mutual willingness to cooperate in the fundamental business of earning a living.”¹⁵

Hull had placed his analytic eggs in the basket of economic determinism. Of course, on the surface, this did not distinguish his views from Roosevelt and the rest of the New Dealers. They, too, saw the political consequences of economic downturns. “Democracy has disappeared in several other great nations,” Roosevelt argued, “not because the people of those nations disliked democracy, but because they had grown tired of unemployment and insecurity.” After “seeing their children hungry while they sat helpless in the face of government confusion” they eventually settled for the security offered by authoritarian leaders such as Hitler.¹⁶

For Hull, however, the causal flow moved from the international to the domestic. Democracy had disappeared in other nations because the people in those nations sought a way to assert nationalist claims on the international stage. The collapse of an open economic system after World War I had left Germany and Japan, for example, in economic distress. As the Council of Foreign Relations explained in one of its Studies of American Interests, “high and discriminatory tariffs and colonial quotas were already limiting the possibilities of Japanese trade expansion by 1935.” The Japanese acted in a predictable way. “People in extreme economic distress have [often] turned to some new form of authoritative government.”¹⁷

In fairness, “I do not mean, of course, that flourishing international commerce is of itself a guarantee of peaceful international relations,” Hull explained.¹⁸ Still, he assumed that economic breakdown did more than provoke armed conflict; it produced distinctly illiberal regimes within countries cut off from the global market. As Dean Acheson (Hull’s assistant secretary of state) explained, “If you wish to control the entire trade and income of the United States … you could probably fix it so that everything produced here would be consumed here.” But this approach ignored the way law, politics, and trade had evolved together in the industrialization process. To cut off trade “would completely change our Constitution, our relations to property, human liberty, our very conceptions of law.”¹⁹

Hull found a combination of support and rivalry in Roosevelt’s treasury secretary, Henry Morgenthau, who became Hull’s “frenemy” (to apply a contemporary term). While Morgenthau may not have been the smartest or most innovative policymaker among the New Dealers, he knew how to make the bureaucracy work in his favor. Mostly, he understood how he could sway Roosevelt and keep the president’s attention on issues he cared about. In the freewheeling atmosphere of the Roosevelt administration, where lines of authority meant less than a relationship to the president, Morgenthau’s genius shined.

Morgenthau wanted a role in the postwar period and saw the effort to rebuild global finance as a natural fit for the Treasury Department, in part because his trusted adviser, Harry Dexter White, had already begun work on the problem. White recognized that under “the gold standard, exchange rates were fixed, so that the balance of payments had to adjust through domestic deflation,” and domestic deflations had run amok in the early 1930s, eventually sinking into global depression.²⁰ Keynes had shown how these deflationary recessions could become a vicious circle in which timid investors reinforced the very economic decline they feared. But how to prevent the gold standard from triggering a depression?

The obvious answer lay in getting rid of the gold standard. This would prevent nations from suffering “forced” deflations. Nations could simply devalue their currency anytime they got out of balance with their trading partners. Yet letting exchange rates fluctuate created two potential problems. First, it might discourage trade because merchants could never know for certain what the exchange rate would be—a phenomenon commonly known as “exchange risk.” International commerce had enough unknowns without adding the risk of profits evaporating because a country decided to suddenly depreciate its currency. The gold standard at least brought certainty to international trade.

Second, during the 1930s, American officials noted that as “many countries … played the game of artificially manipulating the exchange rates of their currencies in order to gain advantage in the international market place.” Countries would intentionally “depreciate their currencies in order to sell their exports more cheaply in external markets.” Global economics became a “kind of ‘beggar my neighbor’” game that led to a currency war “with everybody trying to depreciate against everybody else in order to gain trading advantage. This was a pretty chaotic system.”²¹ White tried to find a way to make exchange rates more flexible without letting them become capricious.

After some deliberation White struck on a solution that fit the general tenor of the New Deal. In place of the gold standard, he wanted an agency to actively manage, in the global interest, the world’s currencies. Initially called the International Stabilization Fund, this agency would act as an umpire for global finance. In the short term, it would have a reserve that it could use to provide loans for countries that found themselves (for whatever reason) temporarily low on foreign exchange. Thus, a country caught in a short-term crunch could avoid drastic measures to pay its foreign debts. In the long term, if a country suffered chronic deficits, the agency could give permission for a currency devaluation. Devaluations could happen, but not in the “beggar my neighbor” approach common in the interwar years.

By the spring of 1942 White gave Morgenthau a copy of his plan, titled “United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations.” In particular, Morgenthau appreciated that White’s plan shifted the postwar discussion from trade to finance—which meant that the Treasury could move into the heart of postwar policy. As White explained, “if the Treasury doesn’t initiate a conference on the subject it almost certainly will be initiated elsewhere, and it should be preeminently Treasury responsibility.”²²

It worked. Roosevelt gave Morgenthau the green light to proceed, but wanted consensus within the administration before going to the Allies. Through the following months representatives from Treasury, State, Commerce, the Federal Reserve, and the Board of Economic Warfare worked out the details.²³

Coincidentally, John Maynard Keynes had started work on a British plan to accomplish many of the same things entailed in White’s plan. He, too, sought an exchange rate regulated by an international agency. Yet his plan went well beyond White’s in that the International Clearing Union (his proposed agency) would have its own currency (the bancor) that it would substitute for gold. In simplest terms, Keynes proposed the construction of a central bank for the world, working something like the Federal Reserve, but with a global currency.

Under Keynes’ plan all global trade would be financed in bancor and serviced through the International Clearing Union. If a country ran too much of a trade deficit, the Clearing Union would penalize it by taxing it a small amount. But the same would be true for a country running perpetual surpluses: it, too, would be penalized. In the short term, deficit countries could make up their shortfall by borrowing from the surplus countries. As Keynes explained, “each country is allowed a certain margin of resources and a certain interval of time within which to effect a balance in its economic relations with the rest of the world.”²⁴

Keynes’ plan for an International Clearing Union remained consistent with his ideas about domestic depressions. In each case, his diagnosis suggested that unused money (“liquidity traps” again) caused a vicious cycle of deflation, ending in a permanently depressed global economy. Within a domestic economy, government could force this money back into circulation through borrowing and spending. Keynes aimed to accomplish the same thing on the international level through the clearing union.

Most important for the British, at its creation the International Clearing Union would create accounts in bancor for its member countries proportionate to their participation in global trade. Thus, from the get-go each country would have, in essence, start-up capital with which to trade. As Keynes understood, the British would end World War II as they had the First World War, in desperate need of investment capital with which to buy products from the world (and especially America). The overall arrangement made perfect sense for the British, who, at war’s end, would be heavily in debt again to the United States and would have little gold to buy internationally. Indeed, the plan made sense for just about every country not the United States because just about every country (particularly in Europe) would be in the same position as the British.

Unfortunately for Keynes, both Harry Dexter White and Henry Morgenthau harbored resentments toward their British allies, stemming from the war debt crisis of the previous decade. In their view, Britain had abandoned the gold standard to welch on its debts and used its imperial system to block American exports during the worst part of the Depression. Both men saw their plan fatally wounding the British Empire in the name of a globally open economy.²⁵ As a result, as Keynes and White brought their two plans together at Bretton Woods, New Hampshire, in the summer of 1944, Morgenthau’s stated claim—“We can accomplish [our] task only if we approach it not as bargainers but as partners”—was consistently undermined by White, who did his best to assert American over British interests whenever possible.²⁶

For example, where Keynes wanted an International Clearing Union with its own money, White insisted on an International Monetary Fund (IMF) using only dollars and controlled largely by the United States. Keynes hoped to have extensive start-up capital provided to debtor countries at the end of the war; the IMF had relatively small reserves. Keynes wanted to penalize both trade surplus and deficit countries to achieve balance; White managed to see the burden fall largely upon deficit nations. Keynes sought to disconnect international trade entirely from the gold standard through use of the bancor; White managed to ensure all global trade used dollars. But here, White made a decision that troubled American policymaking for decades after the war. Making the dollar the global trading currency allowed the United States to, in essence, force the rest of the world to follow its monetary policy: the United States could add or remove dollars from the world supply according to its needs. Ultimately, White agreed to peg the dollar to gold (at the rate of $35 an ounce). Foreign countries could redeem dollars at that rate from the “gold window” (as it came to be called). “To all intents and purposes,” Congressional Quarterly summed up, “the American gold bullion standard of $35 an ounce amounts to an international dollar standard with the U.S. Treasury in the role of central banker.”²⁷ White had essentially let the problems of the gold standard back into global finance through the back door.

The Bretton Woods Conference ultimately produced the Bretton Woods agreement, a treaty signed by forty-four nations, leading to what has subsequently been called (no surprise) the Bretton Woods system. Had Keynes gotten his way, the new global order would have more seamlessly matched the Keynesian approach to domestic economic management, something White did not realize at the time. Indeed, in advancing American interests over British, he unintentionally created a global system that would ultimately work at odds with the New Deal’s domestic political economy.²⁸ He also learned the wrong lessons of global finance coming out of World War I. Then European countries were deep in debt and faced staggering inflation. That was the disease. The symptoms had been the debt defaults, currency devaluations, and the turn to bilateral trade agreements. As American policymakers quickly realized, the same was true after World War II.

Morgenthau had not finished shaping the postwar order though. Around the same time White was negotiating with Keynes over the future of global finance, Morgenthau became increasingly interested in making postwar policy for the occupations of Germany and Japan.²⁹ Throughout 1943 and into 1944, State Department planners had included Germany within a broad framework for trade and international economic cooperation. A typical memo from 1943 felt “no illusions as to the difficulties in … creating an effective democracy” in Germany because it would be tempting to punish the Germans for the war. But the lessons of World War I offered instruction: “A minimum of bitterness against the peace terms is in order,” the drafters argued, “to avoid an appealing program for future nationalistic upheavals at home and disturbances abroad.” Moreover, “in the interest of fostering moderate government in Germany,” the drafters recommended “a program looking to the economic recovery of Germany … and to the assimilation of Germany … into the projected international order.”³⁰ In short, economic revival and a position within the new global system would foster a “moderate” German electorate willing to maintain the peace.

When Morgenthau learned of the State Department’s plans to include Germany in the international order, he recoiled in horror. He got hold of a draft of these plans and handed them privately to Roosevelt with a covering memo suggesting that the policies contradicted Roosevelt’s stated views on Germany.³¹ After reading several pages, Roosevelt threw the memo down on his desk. “Feed the Germans!” he said, “I’ll give them three bowls of soup a day, with nothing in them. Control inflation!” he continued, “Let them have all the inflation they want. I should worry. Control industry,” he concluded, “There’s not going to be any industry in Germany to control.”³² As Morgenthau knew, Roosevelt had expressed deep cynicism about the Germans throughout the war. They were “hopeless to retrain,” he told his assistant George Elsey one day. “We could do nothing with them.”³³ To Morgenthau, he had been blunter and cruder. “We either have to castrate the German people or you have got to treat them in such manner so they can’t just go on reproducing people who want to continue the way they have in the past.”³⁴

A lot can be and has been said about the debate that followed over a “hard” or “soft” peace for Germany.³⁵ In the briefest terms, Morgenthau found bureaucratic support for the “hard” peace from the most devoted of New Dealers (such as Harry Hopkins), who blended their frustration at big business with their moral outrage over Hitler’s genocide of Europe’s Jews. Morgenthau, Roosevelt’s only Jewish cabinet member, had become increasingly alarmed at the reports of atrocities and, by late 1943, had begun actively involving himself in persuading Roosevelt to do more to save Europe’s Jewry.³⁶ When it came to the postwar period, Morgenthau felt that nothing could be done about the German people’s desire to enslave the world. The only solution lay in devastating Germany’s ability to enslave the world. As he summarized in a memo to Roosevelt: “(1) The German people have the will to try [to conquer the world] again. (2) Programs for democracy, reeducation and kindness cannot destroy this will within any brief time. (3) Heavy industry is the core of Germany’s warmaking potential.” Thus, “We are more convinced than ever that if we really mean to deprive Germany of the ability to make war again … it is absolutely essential that she be deprived of her chemical, metallurgical and electrical industries. We don’t think that this alone will guarantee peace, but that it is one of the steps we must take now.”³⁷

Here, the New Deal’s antagonism toward “monopolists and reckless bankers” overlapped with Morgenthau’s prescription for postwar Germany. As if to symbolize the connection, soon after Congress concluded hearings into domestic monopolies (before the Temporary National Economic Committee), it began hearings on “the effects of … international cartels to the problem of national defense and the establishment of world peace” (before Committee on Military Affairs, Cartels, and National Security).³⁸ The investigation concluded that “our Axis enemies engaged in systematic economic warfare against the United States.” Indeed, as defeat approached, “German aggressors … are already deploying their economic reserves throughout the world in preparation for a third attempt at world domination.”³⁹ Within the context of the newly concluded Bretton Woods agreements, a “real cooperation of sovereign nations” meant “the end of the cartel system, which has in the past proven an insuperable barrier to international harmony,” a cartel system mastered by the Germans. Roosevelt agreed. “The history of the I.G. Farben trust by the Nazis reads like a detective story,” he wrote. “Defeat of the Nazi armies will have to be followed by the eradication of these weapons of economic warfare.”⁴⁰ Roosevelt seemed to suggest a neutering of the Germany economy. Morgenthau couldn’t agree more.

Morgenthau’s opposition came largely from Henry Stimson, the most vocal advocate for a “soft” peace within the administration. He felt Morgenthau missed the main lesson coming out of World War I. “The question is not whether we want Germans to suffer for their sins.” Stimson, as much as anyone else, “would like to see them suffer the tortures they have inflicted on others.” The only real “question is whether over the years a group of seventy million educated, efficient and imaginative people can be kept within bounds on such a low level of subsistence.” No matter how justified, Stimson asserted, it “would be very difficult, if not impossible, for them to understand any purpose or cause for such revolutionary changes other than mere vengeance of their enemies and this alone would strongly tend towards the most bitter reactions.”⁴¹ In short, in focusing on the question of the Germans’ ability to start another war, Stimson saw Morgenthau guaranteeing their desire for that war.

More immediately, enforcing poverty would be incredibly difficult. “I do not believe that is humanly possible,” Stimson told Roosevelt. “Even if you could do this,” he asked, is it “good for the rest of the world either economically or spiritually?”⁴² Stimson drew support from the British who agreed that “an indefinitely continued coercion of [millions of] … technically advanced people … would at best be an expensive undertaking” and would never guarantee “real security.” The British added that “there exists no convincing reason to anticipate that the victor powers would be willing and able indefinitely to apply coercion.” In fact, “the best guarantee of security, and the least expensive, would be the German people’s repudiation of militaristic ambitions and their assimilation, as an equal partner, into a cooperative world society.”⁴³

Roosevelt listened to the various viewpoints throughout 1944 and zigzagged back and forth without making up his mind. He favored Morgenthau’s position initially, only to slowly come around to Stimson’s. In the meantime, his health began to fail. He found it harder to make difficult decisions. In his last real conversation about postwar policy for Germany, Roosevelt explained to Morgenthau and representatives from State and the army that he “did not hold extremist views on the subject.” He “would let the Germans retain such industries as machine tools and locomotives manufacture.” At the same time, he felt “we should not be responsible for maintaining a minimum standard of living in Germany.” Of course, “we should feed the German people to prevent them from starving”; perhaps we could develop “soup kitchens for feeding the German people.” An army representative asked if Roosevelt would accept the idea that the occupation should take measures to prevent “disease and unrest,” and Roosevelt said he had no objection.

In general, though, he remained uncertain. “We [have] to get into the country first and take a look and see what [is] possible and impossible.”⁴⁴

With Roosevelt fading, Morgenthau pressed his views aggressively forward. In the end, he managed to include in the official instructions for military government much of what he wanted (even if the instructions often contained caveats based on maintaining security and civil order). True to his own bureaucratic expertise, he also knew that a lot depended on which military officer would run the occupation. It was a foregone conclusion that Eisenhower would be in charge initially. So, in August of 1944, Morgenthau went to Europe to try and commit Eisenhower to a “hard” peace.⁴⁵ As it turned out, he found a receptive listener. Eisenhower told Morgenthau that “following the conclusion of hostilities … the German people must not be allowed to escape a sense of guilt, of complicity in the tragedy that has engulfed the world.… The warmaking power of the country should be eliminated.”⁴⁶ Eisenhower “was perfectly willing to let them stew in their own juices”—a phrase Morgenthau often quoted in arguing his point with War Department officials.⁴⁷

Still, everyone in Washington also knew that Eisenhower did not want to be military governor. Indeed, he did not want military government.⁴⁸ So the question turned to who would replace him in that role. Initially, both Harry Hopkins and the head of the War Mobilization Office, James Byrnes, looked like possibilities, but both opted out.⁴⁹ A number of other names floated to the top of the list. Roosevelt ultimately approached John J. “Jack” McCloy, Stimson’s assistant secretary of war. But McCloy thought someone who had come up through the army might command more respect from the troops and other Allied military leaders. He also thought the person should have experience in logistics. He suggested Lucius Clay. Roosevelt agreed.⁵⁰

Clay fit all the right criteria. Politically, Clay had made friends with all the right people. He was an able administrator. Still, Morgenthau wanted to know where Clay stood. So before Clay left for Germany, the two men spoke. “You know that our attitude is pretty tough towards Germany,” Morgenthau said.

“Yes,” Clay replied.

“Well, are we together?”

“I think we are,” said Clay, much to Morgenthau’s approval.⁵¹

Confident that Clay would be tough on the Germans, Morgenthau finally “felt good” about the future of Germany.⁵² Indeed, as victory over Germany neared, Morgenthau had managed two very important achievements in shaping the postwar: he had crafted a new global framework for postwar finance and a tough policy for postwar Germany.

Fresh on the heels of these victories and just weeks after Germany’s surrender, Morgenthau appeared before the Senate Committee on Banking and Currency, where Robert Taft, the son of William Howard Taft, decided to ask about these two victories. Taft had joined the Senate in 1939 and had subsequently become one of the Roosevelt administration’s chief Republican antagonists. He assumed, based on the Bretton Woods agreements, that the administration wanted to “increase international trade.” But, he asked, “Is the purpose affected by the fact that Japan and Germany are practically out of international trade? Didn’t they have a very large volume of international trade before the war?”

“No,” Morgenthau replied. “That is a general misunderstanding, if you don’t mind my saying it.… continental Europe can so easily pick up Germany’s export and import trade that the disappearance of it will never be noticed.”

Taft seemed unsure. “Well, it seems to me—I don’t know—I have no particular view as to what ought to be done with Germany or Japan, but it seems … that whatever increase we might get in international trade by [the Bretton Woods agreements] … is going to be more than balanced by what we lose in international trade figures after completely eliminating Germany and Japan.” In short, “we say we have to make these people prosperous so they can buy our goods, but in Germany we say that we must make them absolutely flat so that they cannot buy our goods. It seems to me the two policies are practically contradictory.”

“If Germany is to be deindustrialized, as I hope she will,” Morgenthau explained, “all of the studies which we have made show that her former position in world trade, in the export and import fields, could so readily be absorbed by just continental Europe.”

Taft was confused. “I cannot see how you can take 150,000,000 people of the most highly industrialized nations in the world … and just bar them … from all international trade without substantially contradicting and to a large extent nullifying any good that may come from the other agreements.”

“If you had the time to spend an afternoon or an evening I would be very glad to come to your office and put all these figures before you,” Morgenthau said.⁵³

Taft thanked Morgenthau for the offer but did not follow up. Still, he spotted a central paradox in the postwar strategy coming out of the Roosevelt administration. Morgenthau found himself arguing that this new global economic framework would protect the United States from precisely those nations that had not attacked it, while the two nations responsible for the war would be excluded from it.

In the meantime, Clay prepared to leave for Germany to become Eisenhower’s successor as military governor of the U.S. zone. On the last day of March 1945, he went to see Roosevelt to get the president’s “blessing” before leaving for Europe. At the meeting, Roosevelt suggested that Clay think about “a giant TVA for Germany and all of Europe,” as “something that would have great meaning, great significance.”⁵⁴ But otherwise, Roosevelt did not ask any questions, nor did Clay. The meeting seemed somber and a bit awkward. As Clay left the president’s office, he turned to James Byrnes (who had accompanied him) and said, “Mr. Byrnes, we’ve been talking to a dying man.”⁵⁵ Byrnes didn’t believe it. He had spent a great deal of time with Roosevelt over the preceding months and saw no reason for worry. But less than two weeks later Roosevelt had passed away.