ECONOMIC TRIBULATION
It is inconsistent to show solicitude for the welfare of Germany or the German people and at the same time to support the Potsdam agreements, because, as we have seen, the latter were intended not to help Germany recover but rather to prevent her from doing so. Potsdam was based on the Morgenthau Plan and the Morgenthau Plan had stipulated:
“The sole purpose of the military in control of the German economy shall be to facilitate military operations and military occupation. The Allied Military Government shall not assume responsibility for such economic problems as price controls, rationing, unemployment, production, reconstruction, distribution, consumption, housing, or transportation, or take any measures designed to maintain or strengthen the German economy, except those which are essential to military operations. The responsibility for sustaining the German economy and people rests with the German people with such facilities as may be available under the circumstances. “(emphasis added) “Under the circumstances” must be underscored as meaning an absence of essential facilities. The territorial losses and seizures; the program of overcrowding through expulsions of millions of eastern Germans; the wholesale enslavement of German manpower; the liquidation of German science and managerial, technical, and professional classes through de-nazification; the settling of the low level of industry decided upon, coupled with the industrial sacking and elimination of all German external resources – all these measures on top of the war devastation cannot be described as anything but a program to throw Germany and her people into a state of collapse. But these are not the only acts of repression. Taxes have been raised to confiscatory levels which stifle incentives and prevent operation of the free enterprise system. They have helped to socialize German economy and kill the profit motive. They have corrupted public morals for even the poor must contrive to dodge them in order to have enough income to buy shoes.[1] We have refused to establish an exchange value for the German mark in terms of other currencies, preventing privately handled imports and exports and throwing what little external trade there is into the hands of the military government. And instead of trying to work out some intelligent plan for the resuscitation of the collapsed financial system we have proceeded to make matters far worse by such actions as the printing of vast sums of occupation currency which will almost certainly help create the 1923 inflation disaster and complete the destruction of the German middle class.[2] Such a result would serve the ends of Soviet Russia, but hardly those of the other powers.
Economic Prostration
It is difficult to imagine the depth of German depression. When the United States reached the bottom of 1932, industrial production had fallen to 60 per cent of normal. The depression was so severe – the losses so enormous, the unemployment so widespread – that it almost brought a revolution. Industrial production in Germany a year after V-E Day was 10 per cent of what used to be normal. Production in our zone has gradually risen until it reached a high of about 12 per cent of the old normal, or about 20 per cent of the new permitted levels. With the cut in rations, however, the index began a steady decline.[3] On May 4, Brig. Gen. William H. Draper, AMG director of economics, reported that output in our zone was “far below that necessary to maintain the minimum standard of living.” The report went on to give production figures for individual industries as percentages of capacity. Here are a few samples: chemicals 25 per cent; electric power 20 per cent; building materials 20 per cent; steel products 13 per cent; ceramics 5 per cent; farm machinery 22 per cent; electrical equipment 15 per cent; automotive and industrial machinery 10 per cent.[4] The following summer it was reported that less than 30 per cent of available industry in our zone was in operation.[5] Deputy Military Governor Clay at the end of August declared that it will take at least four more years for Germany to recover sufficiently to bring production up to the bare subsistence levels set under the deindustrialization program.[6]
War destruction plus the Allied program of repression have created thorough disorganization. Of the plants not bombed out completely, many were obsolete, others located in areas where residential destruction was so complete that there was no room for workers, or where available transportation and communications could serve only a fraction of production.[7] Freight carrying has been slow and unreliable, able to meet only 70 per cent of the low demand. Passenger service is covering only 30 per cent of German requirements. Cars are jammed and passengers even hang on the sides and tops. Railroad shortages lie in rolling stock, ships, manpower, coal, and result in part from bottlenecks and the inevitable inefficiency of military control.[8] Low coal production has been a key problem resulting in part from lack of civilian goods available to miners and their families. The AMG official in charge said in July, 1946, that the miners must be fed better and treated better in other ways to get improved output. “We are going to have to provide decent housing and we are going to have to make consumer goods available, as an incentive for the miners to dig. At present they cannot even buy needle and thread with which to patch their pants . . . There is no slowdown conspiracy nor underground political sabotage by the workers, it is just that they have not enough incentive to work.”[9]
A high ranking British officer a few days earlier had admitted that anti-British sentiment is growing in the Ruhr. He said: “The Germans are just beginning to appreciate the economic hardships imposed upon them by allied policy. It is natural there should be a stiffening of the German attitude toward this policy, and that the British should receive the brunt of this stiffening since the reparation program takes more from the British zone than from other parts of Germany.” He pointed out that the miners lack incentive due to the absence of food and other necessities and added: “In a vicious economic cycle we do not have consumer goods because manufacturing plants lack the coal to make them. Therefore we must have more coal for production.”[10] Bottlenecks and shortages permeate the whole German economy as the inevitable consequence of war destruction and the production prohibitions enforced under the level of industry plan. In July, 1946, for example, it was reported that the metal shortage had halted the production of plows, while the supply of horseshoes and nails was about exhausted. The number of motor trucks in Berlin, with its 3,000,000 inhabitants and area five times that of Chicago, was down to 8,000. Solder was not available even for mending pots and pans. Shoe cobblers were using old portfolios, dice boxes, helmet liners, any piece of salvage leather they could find to repair shoes. Although 50,000 school children were out of shoes, the supply of shoe nails was about exhausted. Because of lack of permanganate of potash, caused by dismantlement of I.G. Farben plants, the manufacture of saccharine, vitally needed on account of the sugar famine as well as by diabetics, was threatened. Manufacture of adhesive tape, muslin, bandages, and surgical dressings was halted in Thuringia because cotton mills appropriated by the Russians would not furnish raw materials. Cement production, sorely needed for reconstruction, was low because of dismantlements and shortage of machinery and tools.[11]
Reports reveal that such industries as rug, fabric, cutlery, toy, and musical instrument factories, fortunate to have survived the war, lack fuel and raw materials.[12] Current German production has been far less than enough to supply current minimum needs of the populace. For the first year, it was possible to draw on reserve supplies left over from pre-surrender days and spared in the looting and destruction even of vast leftover food stores by the armies of the victors.[13] But these reserves were gradually exhausted, leaving a dark prospect for the future. Clothes wore out and could not be replaced, due to the virtual nonexistence of textiles for civilian use. In consequence, as one report put it: “The best dressed frauleins in Berlin this spring will wear a combination of window curtains and old bedclothes.”[14] Desperation for money to buy food on the black markets to supplement the starvation rations, has led the Germans to sell their assets, disposing first of what they need the least. Their rings have gone, then watches, bracelets, that other pair of shoes, dresses, jackets, suits. As one Berlin reporter put it: “Last winter there was no coal, and Berliners burned every tree in town and for several miles around. Cold is the most miserable of all living conditions, and as people get closer and closer to the primitive, it’s natural that they look to the future. At first I was amazed to see girls walking down Berlin streets in summer clad in long coats of fox, or squirrel, or sheep. Then I realized. Remembering last winter; looking toward another winter without fuel – they’ve sold the clothing least needed. And I’m not kidding when I say a lot of these frauleins are down to their last fur coat.”[15]
Associated Press bulletin from Hereford, Germany, dated September 9, 1946 reads:
“The British officially informed Germans in their zone today they could expect no coal for heating this winter.”[16] A little later an arrangement was made for miners to work Sundays, so that the average family of four in the merged American and British zone could have fuel this winter equivalent in heating value of a little over half a ton of hard coal for a six months period.[17] A month later the unions voted not to work on Sundays. In the face of this grim prospect, the best that could be hoped for in the way of food by the population living on the very edge of starvation, suffering from famine edema, swelling of joints, and all the other terrors of gradual starvation, as stated before, was an increase in rations to the “grim and dangerous” 1,500 calorie level throughout the 1946-47 winter. In June, 1946, Col. H.B. Hester, in charge of the American military government food branch, predicted a disastrous famine in Germany the next winter unless the ration level was raised by October.[18] His report followed another by Col. W.L. Wilson, chief of public health and welfare, that the condition of the conquered people was sinking rapidly under the present ration.[19] In the French zone 5,000 have died weekly of starvation.[20] In mid-summer of 1946, in Berlin, 19,000 very serious tuberculosis cases for whom no beds were available were reported officially by American authorities. The Senate of Hamburg issued an appeal to England and the entire world to send food and medicines to “avert terrible epidemics and mass deaths.” Hamburg motormen and conductors were imperiling safety of public transport by “fainting from hunger” and dropping at their posts from long undernourishment and weakness while on duty. The Medical Council of Cologne informed the British military authorities that the population there “is facing catastrophe” unless food was quickly provided, adding that “resistance to infectious diseases, especially tuberculosis, is vanishing.” Authorities in the Rhineland sent an appeal from Düsseldorf to the British military government to “close the murderous food gap,” in order to check rapidly spreading disease and epidemics caused by hunger.” A medical authority said:
“Many thousands of men, women, and children, who, with what reserves in strength and vitality they still possessed, managed to live through the rigors, cold and hunger of last winter, will not survive this winter, after another year’s depletion in their power of resistance to diseases fostered by starvation and semistarvation. Death’s harvest indeed may be appalling.”[21] With this frightful prospect it will behoove relief organizations to operate at maximum capacity if millions of lives are to be saved.
Economic Dismemberment
Big Four officials have laid all the blame for Germany’s distress on the war and zonal separation. In their view Potsdam would afford the best possible solution to all difficulties if only zonal division could be corrected. German territory west of the Oder-Neisse line was divided into four zones to be occupied and administered by the military forces of Russia, Great Britain, the United States, and France.
Russia’s zone, comprising the eastern half of Prussia west of the Oder-Neisse river line is the best balanced of the four zones. In addition to containing some 45 per cent of Germany’s manufacturing during the war, it produced more than enough food for its own consumption and mines brown coal and other minerals. Other sections of the Reich had been heavily dependent upon it for many key raw materials and manufactures. Stripped as it has been, it nevertheless supplies Russia with a sizable flow of goods taken as reparation.
Britain’s zone comprises the western half of Prussia. Within it is the Ruhr District which contains the continent’s most valuable natural resources, especially large deposits of high grade coal close to Europe’s best iron ores, and lies in the midst of Europe’s densest concentration of population in a region served by excellent rail and water transportation. Molotov rightly called it “Europe’s workshop.” Despite intensive cultivation the zone suffers a heavy food deficit, and even coal production has been at a low ebb since V-E Day. Administration costs are 320 million dollars a year above revenues.
The American zone lies in the central and southern sections of the Reich. Most of it is mountainous and largely scenic. It is not and cannot become self-sufficient in food production and is highly dependent upon various imports. It perfectly illustrates the essential interdependence of all sections of German economy. All of its hard coal requirements must be imported from the Ruhr or Saar regions, and 83 per cent of the steel required by its many manufacturing establishments must come from the outside. Lack of coal has forced partial or total closing of many industries; for example, the pharmaceutical industry, which needs coal tar; the tire business, which needs buna made from coal; and various fabricating, processing and finishing establishments. Because of the steel shortage, the largest tin can manufacturer in Bavaria closed so that some 10 million tins badly needed to put up the 1946 crop of peas, beans, and fruit, were not made. Large numbers are unemployed and administration is costing the American taxpayers 200 million dollars a year.
France’s zone consists mostly of provincial fragments of former Germany bordering on France and contains no complete political or economic entities. Its chief asset is the Saar Basin, rich in coal and steel. Although intensively cultivated, the zone is not self-sufficient in food, because of heavy specialization in vineyards and orchards. It must import its potatoes from Bavaria, for example, and other zones rely upon its food specialties.
One of the outstanding facts about Germany is the dependence of each section, and now each zone, upon all the others – for food, steel, coal, timber, and other essentials. The peace settlements did not anticipate economic separation of Germany’s highly interdependent regions. Since the zones were set up strictly for administrative purposes and were not supposed to exert any divisive influence upon Germany economy, zonal boundary lines were laid out promiscuously across political and economic subdivisions. The belief that the zones would remain one thing and German economy another is clearly shown in the early statements and declarations of policy.
Potsdam directs that “during the period of occupation Germany shall be treated as an economic unit,” and an earlier Big Four statement on control machinery for Germany decrees that:
“The Control Council, whose decisions shall be unanimous, will ensure appropriate uniformity of action by the Commanders in Chief in their respective zones of occupation and will reach agreed decisions on the chief questions affecting Germany as a whole.”
This demand for results made impossible by the conditions laid down simultaneously has been about as effective as commanding the sun to stand still. Insisted upon by Russia the requirement that Control Council decisions “shall be unanimous” has in practice barred “agreed decisions on the chief questions affecting Germany as a whole,” and has brought anything but uniformity of zonal action. It has killed Control Council effectiveness just as the veto power also insisted upon by Russia has destroyed the effectiveness of the Security Council of the United Nations Organization.
France has been particularly obstructive in Control Council voting. Although British and American delegations insisted upon inclusion of France in the Four Power control and occupation of the Reich, France has never signed the Potsdam agreements. In consequence she is not bound by the agreements, yet is able to veto their execution.[22] She has frankly admitted her opposition to German unification and, for her own presumed self-protection and territorial aggrandizement, has demanded that Germany be Balkanized and destroyed as a power factor of Europe. To achieve this end she had obdurately insisted, as mentioned before, that the whole of western Germany be broken off and either internationalized or added to France. Upon taking her place among the Big Four, she served notice that until these demands were met, she would veto all Control Council decisions aiming to treat the Reich as an economic unit and thereafter lived up to her promise – even to such a fine point as rejecting a national postage stamp.
France has been by no means alone in blocking unified economic administration. Russia has been almost as obstructive and would probably have been more so had France not been so obliging. Even Britain and the United States have not hesitated to balk whenever it appeared selfishly advantageous for them to do so. In the absence of “agreed decisions” calling for uniform action in all zones, the Reich has become divided into four economically deficient and unbalanced “air tight” compartments, each administered exclusively by its occupying power as though it were a colony or protectorate. More difficult to surmount than those of independent states, zonal boundaries form such barriers to interzonal intercourse that what little trade occurs must be barter deals arranged by special treaty. [23] Although such economic dismemberment would alone guarantee economic disorganitation, it cannot rightly be made to serve as a scape-goat for all the sins of Potsdam, nor for the British and American zonal deficits. Even in the absence of zonal separation the other harsh and repressive measures ordered at Potsdam would assure German economic paralysis.
Disregarding this manifest fact, many officials find it convenient to lay all the blame on the zonal barriers and to argue that if they could be eliminated Potsdam would be transformed from a dismal failure into a dazzling success. The thesis may enable them to avoid admitting the colossal blunder Potsdam really is, but it also serves as a bar to taking the steps necessary to meet the trouble fundamentally.
Put forward as a general panacea for all German administrative ills, economic anschluss of as many zones as possible has become the chief objective of our zonal authorities. In the attempt to break down French and Russian objections, they offered to divide the Reich into a number of federated states and to guarantee German disarmament for 25 or even 40 years. After this proposal was rejected on the ground that it was wholly inadequate and would lead to war, they offered to merge the American zone economically “with one, two, or three other zones.”[24] In making the offer, AMG Commander in Chief, General McNarney, observed:
“The United States Government proposes this arrangement because of its belief that Germany can no longer be administered in four air tight compartsments without free economic intercourse, unless paralysis is to result. The United States Government is unwilling to permit creeping economic paralysis to grow if it is possible to attain economic unity between its zone and any other zone in Germany, as a prelude to economic unity for all Germany.”[25]
Although Russia and France turned down the offer, Britain accepted and the task of effecting economic unification of the British and American zones was undertaken.
Even if such an economic merger can be made effective in the absence of political unification, which is doubtful, it is but one short step in a long way that must be traveled before substantial permanent amelioration of Germany’s plight can be attained. On the other hand, the merger partitions the Reich between East and West and intensifies and embitters the conflict between the two.
Reference Notes:
[1] Hal Foust, Berlin, July 5, 1946, Chicago Tribune Press Service.
[2] Edd Johnson, Berlin, April 30, 1946, Chicago Sun Foreign Service.
[3] Hal Foust, Berlin, June 2, 1946, Chicago Tribune Press Service.
[4] Hal Foust, Berlin, May 4, 1946, Chicago Tribune Press Service.
[5] John Fisher, Washington, Aug. 22, 1946, Chicago Tribune Press Service, quoting Prof. Jas. K. Pollock.
[6] Associated Press, Berlin, Aug. 31, 1946.
[7] Same as No. 6.
[8] Hal Foust, Berlin, April 27, 1946, Chicago Tribune Press Service.
[9] Hal Foust, Berlin, July 23, 1946, Chicago Tribune Press Service, quoting Max H. Forester, Chief of Coal and Mining Div. of AMG.
[10] Hal Foust, Berlin, July 17, 1946, Chicago Tribune Press Service.
[11] Hal Foust, Berlin, July 29, 1946, Chicago Tribune Press Service.
[12] Hal Foust, Berlin, Feb. 26, 1946, Chicago Tribune Press Service.
[13] Reuters, Frankfurt-on-Main, Germany, Dec. 16, 1945.
[14] Edward P. Morgan, Berlin, Mar. 12, 1946, Chicago Daily News Foreign Service.
[15] Jack Bell, Berlin, July 21, 1946, Chicago Daily News Foreign Service.
[16] Associated Press, Hereford, Germany, Sept. 9, 1946.
[17] Hal Foust, Berlin, Sept. 21, 1946, Chicago Tribune Press Service.
[18] John Elliott, Berlin, June 2, 1946, Special to The Chicago Sun.
[19] Hal Foust, Berlin, June 3, 1946, Chicago Tribune Press Service.
[20] James P. Warburg, New York, The Chicago Sun , Aug. 8, 1946.
[21] Karl H. von Wiegand, Paris, Aug. 3, 1946, Chicago Herald-American.
[22] Same as No. 20.
[23] Edward P. Morgan, Berlin, May 25, 1946, Chicago Daily News Foreign Service.
[24] Associated Press, Berlin, July 21, 1946.
[25]Hal Foust, Berlin, July 20, 1946, Chicago Tribune Press Service
