A History of Money and Banking in the United States: The Colonial Era to World War II (68 page)

A History of Money and Banking in the United States:
The Colonial Era to World War II

direct “barter” arrangements that angered the United States and other Western countries in totally bypassing gold and other international banking or financial arrangements.

In the anti-German propaganda of the 1930s, the German barter deals were agreements in which Germany somehow invariably emerged as coercive victor and exploiter of the other country involved, even though they were mutually agreed upon and therefore presumably mutually beneficial exchanges.40 Actually, there was nothing either diabolic or unilaterally exploitive about the barter deals. Part of the essence of the barter arrangements has been neglected by historians—the deliberate overvaluation of the exchange rates of
both
currencies involved in the deals. The German mark, as we have seen, was deliberately overvalued as the alternative to the spectre of currency depreciation; the situation of the other currencies was a bit more complex. Thus, in the barter agreements between Germany and the various Balkan countries (especially Rumania, Hungary, Bulgaria, and Yugoslavia), in which the Balkans exchanged agricultural products for German-manufactured goods, the Balkan currencies were also fixed at an artificially overvalued rate vis-

à-vis gold and the currencies of Britain and the other Western countries. This meant that Germany agreed to pay higher than world market rates for Balkan agricultural products while the latter paid higher rates for German-manufactured products.

For the Balkan countries, the point of all this was to force Balkan consumers of manufactured goods to subsidize their own peasants and agriculturists. The external consequence was that Germany was able to freeze out Britain and other Western countries from buying Balkan food and raw materials; and since the British could not compete in paying for Balkan 40Thus, see Douglas Miller,
You Can’t Do Business With Hitler
(Boston, 1941), esp. pp. 73–77; and Michael A. Heilperin,
The Trade of Nations
(New York: Alfred Knopf, 1947), pp. 114–17. Miller was commercial attaché at the U.S. Embassy in Berlin throughout the 1930s.

The New Deal and the

471

International Monetary System

produce, the Balkan countries, in the bilateral world of the 1930s, did not have sufficient pounds or dollars to buy manufactured goods from the West. Thus, Britain and the West were deprived of raw materials and markets for their manufactures by the astute policies of Hjalmar Schacht and the mutually agreeable barter agreements between Germany and the Balkan and other, including Latin American, countries.41 May not Western anger at successful German competition through bilateral agreements and Western desire to liquidate such competition have been important factors in the Western drive for war against Germany?

Lloyd Gardner has demonstrated the early hostility of the United States toward German economic controls and barter arrangements, its attempts to pressure Germany to shift to a multilateral, “Open-Door” system for American products, and the repeated American rebuffs to German proposals for bilateral exchanges between the two countries. As early as June 26, 1933, the influential American consul-general at Berlin, George Messersmith, was warning that such continued policies would make “Germany a danger to world peace for years to come.”42

In pursuing this aggressive policy, President Roosevelt overrode Agricultural Adjustment Administration chief George Peek, who favored accepting bilateral deals with Germany and, perhaps not coincidentally, was to be an ardent “isolationist” in the late 1930s. Instead, Roosevelt followed the policy of the leading interventionist and spokesman for an “Open Door” to American products, Secretary of State Cordell Hull, as well as his assistant secretary, Francis B. Sayre, son-in-law of Woodrow Wilson. By 1935, American officials were calling 41For an explanation of the workings of the German barter agreements, see Ludwig von Mises,
Human Action
(New Haven, Conn.: Yale University Press, 1949), pp. 796–99. Also on the agreements, see Hjalmar Schacht,
Confessions of “The Old Wizard”
(Boston: Houghton Mifflin, 1956), pp. 302–05.

42Lloyd Gardner,
New Deal Diplomacy
, p. 98.

472

A History of Money and Banking in the United States:
The Colonial Era to World War II

Germany an “aggressor” because of its successful bilateral trade competition, and Japan was similarly castigated for much the same reasons. By late 1938, J. Pierrepont Moffat, head of the Western European Division of the State Department, was complaining that German control of Central and Eastern Europe would mean “a still further extension of the area under a closed economy.” And, more specifically, in May 1940, Assistant Secretary of State Breckenridge Long warned that a German-dominated Europe would mean that “every commercial order will be routed to Berlin and filled under its orders somewhere in Europe rather than in the United States.”43

And shortly before American entry into the war, John J. McCloy, later to be U.S. high commissioner of occupied Germany, was to write in a draft for a speech by Secretary of War Henry Stimson:

With German control of the buyers of Europe and her practice of governmental control of all trade, it would be well within her power as well as the pattern she has thus far displayed, to shut off our trade with Europe, with South America and with the Far East.44

Not only were Hull and the United States ardent in pressing an anti-German policy against its bilateral trade system, but sometimes Secretary Hull had to whip even Britain into line.

Thus, in early 1936, Cordell Hull warned the British ambassador that the “clearing arrangements reached by Britain with Argentina, Germany, Italy and other countries were handicap-ping the efforts of this Government to carry forward its broad program with the favored-nation policy underlying it.” The tendency of these British arrangements was to “drive straight toward bilateral trading,” and they were therefore milestones on the road to war.45

43Smith, “American Foreign Relations, 1920–1942,” p. 247; Lloyd Gardner,
New Deal Diplomacy
, p. 99.

44Lloyd Gardner, “New Deal, New Frontiers,” p. 118.

45Tansill,
Back Door to War
, p. 441.

The New Deal and the

473

International Monetary System

One of the United States government’s biggest economic worries was the growing competition of Germany and its bilateral trade in Latin America. As early as 1935, Cordell Hull had concluded that Germany was “straining every tendon to undermine United States trading relations with Latin America.”46 A great deal of political pressure was used to combat German competition. Thus, in the mid-1930s, the American Chamber of Commerce in Brazil repeatedly pressed the State Department to scuttle the Germany-Brazil barter deal, which the chamber termed the “greatest single obstacle to free trade in South America.” Brazil was finally induced to cancel its agreement with Germany in exchange for a $60 million loan from the U.S. America’s exporters, grouped in the National Foreign Trade Council, issued resolutions against German trade methods, and pressured the government for stronger action. And in late 1938 President Roosevelt asked Professor James Harvey Rogers, an economist and disciple of Irving Fisher, to make a currency study of all of South America in order to minimize “German and Italian influence on this side of the Atlantic.”

It is no wonder that German diplomats in Brazil, Chile, and Uruguay reported home that the United States was “exerting very strong pressure against Germany commercially,” which included economic, commercial, and political opposition designed to drive Germany out of the Brazilian and other South American markets.47

In the spring of 1935, the German ambassador to Washington, desperately anxious to bring an end to American political and economic warfare, asked the United States what Germany could do to end American hostilities. The American answer, which amounted to a demand for unconditional economic surrender, was that Germany abandon its economic policy in 46Smith, “American Foreign Relations, 1920–1942,” p. 247.

47Lloyd Gardner,
New Deal Diplomacy
, pp. 59–60.

474

A History of Money and Banking in the United States:
The Colonial Era to World War II

favor of America. The American reply “really meant,” noted Pierrepont Moffat, “a fundamental acceptance by Germany of our trade philosophy, and a thoroughgoing partnership with us along the road of equality of treatment and the reduction of trade barriers.” The United States further indicated that it was interested that Germany accept, not so much the
principle
of the most-favored national clause in all international trade, but specifically for
American
exports.48

When war broke out in September 1939, Bernard Baruch’s reaction was to tell President Roosevelt that “if we keep our prices down there is no reason why we shouldn’t get the customers of the belligerent nations that they have had to drop because of the war. And in that event,” Baruch exulted, “Germany’s barter system will be destroyed.”49 But particularly significant is the retrospective comment made by Secretary Hull:

[W]ar did not break out between the United States and any country with which we had been able to negotiate a trade agreement. It is also a fact that, with very few exceptions, the countries with which we signed trade agreements joined together in resisting the Axis. The political lineup follows the economic lineup.50

48Ibid., p. 103. It might be noted that in the spring of 1936, Secretary Hull refused to settle for a bilateral deal to sell Germany a large store of American cotton; Hull denounced the idea as “blackmail.” The predictable result was that in the next couple of years the sources of raw cotton imported into Germany shifted sharply from the United States to Brazil and Egypt, which had been willing to make barter sales of cotton.

Ibid., p. 104; Arthur Schweitzer,
Big Business in the Third Reich
(Bloomington: Indiana University Press, 1964), p. 316.

49Francis Neilson,
The Tragedy of Europe
(Appleton, Wis.: C.C. Nelson, 1946), 5, p. 289. For a brief but illuminating study of German-American trade and currency hostility in the 1930s leading to World War II, see Thomas H. Etzold,
Why America Fought Germany in World War II
(St.

Louis: Forums in History, Forum Press, 1973).

50Cordell Hull,
Memoirs of Cordell Hull
(New York, 1948), 1, p. 81.

The New Deal and the

475

International Monetary System

Considering that Secretary Hull was a leading maker of American foreign policy throughout the 1930s and through World War II, it is certainly a possibility that his remarks should be taken, not as a quaint testimony to Hull’s
idée fixe
on reciprocal trade, but as a positive causal statement of the thrust of American foreign policy. Read in that light, Hull’s remark becomes a significant admission rather than a flight of speculative fancy.

Reinforcing this interpretation would be a similar reading of the testimony before the House of Representatives in 1945 of top Treasury aide Harry Dexter White, defending the Bretton Woods agreements. White declared:

I think it [a Bretton Woods system] would very definitely have made a considerable contribution to checking the war and possibly might have prevented it. A great many of the devices which Germany and Japan utilized would have been illegal in the international sphere, had these countries been participating members.51

Is White saying that the Allies deliberately made war upon the Axis because of these bilateral, exchange control and other competitive devices, which a Bretton Woods—or for that matter a 1920s—system would have precluded?

We may take as our final testimony to the possible economic causes of World War II the assertion by the influential
Times
of London, well after the start of the war:

One of the fundamental causes of this war has been the unrelaxing efforts of Germany since 1918 to secure wide enough foreign markets to straighten her finances at the very time when all her competitors were forced by their own debts to adopt exactly the same course. Continuous friction was inevitable.52

51Richard N. Gardner,
Sterling-Dollar Diplomacy
(Oxford: Clarendon Press, 1956), p. 141.

52
The Times
(London), October 11, 1940; quoted in Neilson,
Tragedy of
Europe
, 5, p. 286.

476

A History of Money and Banking in the United States:
The Colonial Era to World War II

THE SECOND NEW DEAL:

THE DOLLAR TRIUMPHANT

Whether and to what extent German economic nationalism was a cause for the American drive toward war, one point is certain: that, even before official American entry into the war, one of America’s principal war aims was to reconstruct an international monetary order. A corollary aim was to replace economic nationalism and bilateralism by the Hullian kind of multilateral trading and “Open Door” for American goods. But the most insistent drive, and the particularly successful one, was to reconstruct an international monetary system. The system in view was to resemble the gold-exchange system of the 1920s quite closely. Once again, all the major world’s currencies were to abandon fluctuating and nationally determined exchange rates on behalf of fixed parities with other currencies and of all of them with gold. Once again, there was to be no full-fledged or internal gold standard for any of these nations, while in theory all currencies were to be fixed in terms of one key currency, which would form a gold-exchange standard on which other nations could pyramid their own supply of domestic money.

But there were two crucial differences from the 1920s. One was that while the key currency was to be the only currency redeemable in gold, there was to be no further embarrassing possibility of internal redemption in gold; gold was only to be a method of international payment between central banks, and never again an actual money held by the public. In this way, the key currency—and the rest of the world in response—could expand and inflate much further than in the 1920s, freed as they were from the check of domestic redemption. But the second difference was more politically far-reaching: for instead of two joint-partner key currencies, the pound and the dollar, with the dollar as workhorse junior subaltern, the
only
key currency now was to be the dollar, which was to be fixed at $35 to the gold ounce. The pound had had it; and just as the United States was to use World War II to replace British imperialism with its own far-flung empire, so in the monetary sphere, the United States
The New Deal and the