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  There were, in fact, numerous attempts to change the direction of economic policy in the American zone. From the very outset, Lewis Douglas, Clay’s financial adviser, dismissed JCS 1067 as the work of “economic idiots” who would “forbid the most skilled workers in Europe from producing as much as they can for a continent that is desperately short of everything.”78 As early as September 1945 a report drawn up by Calvin Hoover for the military government acknowledged the “conflict between an extreme degree of industrial disarmament spread over a number of key industries and the goal of maintaining a minimum German standard of living … while providing for the costs of the occupying forces.”79 In November, at Truman’s instigation, Byron Price, the wartime director of U.S. censorship, toured Germany; he recommended a complete revision of policy.80 By December 1945 Washington had done a complete volte-face. Now there was no intention “to eliminate or weaken German industries of a peaceful character.” The sole American “desire [was] to see Germany’s economy geared to a world system.”81 In his Stuttgart speech the following September, Byrnes admitted what Douglas had recognized from the beginning: “Recovery in Europe … will be slow indeed if Germany with her great resources of iron and coal is turned into a poorhouse.”82 With the merging of the American and British zones in January 1947, the aim became “the expansion of German exports … as rapidly as world conditions permit.”83 Yet progress at the time seemed desperately slow, something we tend today to forget. At the end of 1945 Clay had described the German economy as “practically at a standstill.”84 More than eighteen months later he had to threaten resignation to get the State Department to agree to a target for German industrial output of 75 percent of its prewar level, a target that was not in fact attained in the U.S.-U.K. bizone until the last quarter of 1948.85 As in the Japanese case, a policy intended to achieve economic stagnation simply raised the effective costs of occupation. As late as 1948 one German economist calculated that occupation costs would consume nearly half the total tax take for the year; even in 1950 they still accounted for more than a third of the federal government’s budget.86 Yet Germany was simultaneously receiving substantial aid from the United States.87 This was neither popular nor profitable. In both economies, fiscal chaos was matched by rampant inflation, which in Germany seemed reminiscent of the hyperinflation of 1923. And had not Hitler been the “foster-child of the inflation”?88

  It was not in fact an irenic desire to make a success of nation building that resolved the economic problems of occupied Japan and Germany. On the contrary—and this would prove crucial throughout the cold war period it was the fear of a rival empire. For an empire in denial, there is really only one way to act imperially with a clear conscience, and that is to combat someone else’s imperialism. In the doctrine of containment, born in 1947, the United States hit on the perfect ideology for its own peculiar kind of empire: the imperialism of anti-imperialism.

  The new rationale for American empire was sketched out in George F. Kennan’s top secret “long telegram” sent to Washington from Moscow in February 1946, in which he warned that “Nothing short of complete disarmament, delivery of our air and naval forces to Russia and resigning of powers of government to American Communists” would allay Stalin’s “baleful misgivings.”89 Truman drew his own conclusions from Kennan’s warning in his address to a joint session of both houses of Congress on March 12, 1947. “It must be the policy of the United States,” he declared, “to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures.”90 Just which outside pressures the Americans had in mind was spelled out by Kennan four months later in an anonymous and epoch-making article for Foreign Affairs, entitled “The Sources of Soviet Conduct,” which warned of “Soviet pressure against the free institutions of the Western world” and Moscow’s aim to “encroach … upon the interests of a peaceful and stable world.” “It is clear,” Kennan argued, “that the main element of any United States policy toward the Soviet Union must be that of long-term, patient but firm and vigilant containment of Russian expansive tendencies.” In this analysis, Russian imperialism was a given. Kennan’s point was that it was “something that can be contained by the adroit and vigilant application of counter-force at a series of constantly shifting geographical and political points, corresponding to the shifts and maneuvers of Soviet policy [and] … designed to confront the Russians with an unalterable counter-force at every point….”91 By 1950 official U.S. policy had outstripped even Kennan. In NSC 68 the National Security Council spelled out in alarming language the threat the United States now faced:

  The Soviet Union, unlike previous aspirants to hegemony, is animated by a new fanatic faith, antithetical to our own, and seeks to impose its absolute authority over the rest of the world…. The issues that face us are momentous, involving the fulfillment or destruction not only of this Republic but of civilization itself…. The fundamental design of those who control the Soviet Union and the international communist movement is to retain and solidify their absolute power, first in the Soviet Union and second in the areas now under their control. In the mind of the Soviet leaders, however, achievement of this design requires the dynamic extension of their authority and the ultimate elimination of any effective opposition to their authority…. The design, therefore, calls for the complete subversion or forcible destruction of the machinery of government and structure of society in the countries of the non-Soviet world and their replacement by an apparatus and structure subservient to and controlled from the Kremlin…. The United States, as the … center of power in the non-Soviet world and the bulwark of opposition to Soviet expansion, is the principal enemy whose integrity and vitality must be subverted or destroyed….92

  What made all this so persuasive, though in many ways it was coincidental, was the catastrophic failure in any way to “contain” communism in China, for by this time the Nationalist armies of Chiang Kai-shek had been driven right off the Chinese mainland by the Marxist Mao Zedong and his peasant army—the revolutionary heirs of postwar chaos, just as Lenin and the Bolsheviks had been thirty years before. Yet for all its defensive connotations, the American notion of containment, predicated though it was on the threat from another, malignant empire, was itself implicitly an imperial undertaking, as Truman himself let slip when he pronounced America’s responsibility to be even greater than those that had once faced “Darius I’s Persia, Alexander’s Greece, Hadrian’s Rome [and] Victoria’s Britain.” The only way to “save the world from totalitarianism,”93 Truman argued, was for “the whole world [to] adopt the American system,” for “the American system” could survive only by becoming “a world system.”94

  For a self-consciously anti-imperial political culture, containment offered the resolution of all the earlier tensions between republican virtue and the exercise of global power. It had one immediate and profoundly important consequence: in three distinct ways, it dramatically accelerated the pace of economic recovery in Japan and West Germany. First, both economies received a massive cash infusion in the form of direct American aid. Secondly, plans to change the structures of ownership and organization were shelved in favor of plans to maximize growth. Thirdly, rearmament, not only in the United States but in the former enemy countries themselves, provided a stimulus in its own right. The results deserved to be called a Wirtschaftswunder. What was truly wondrous, however, was that for the first time the American empire began to pay for itself.

  The recovery of Germany tends to get more attention than the recovery of Japan because it was a part of Secretary of State George Marshall’s celebrated plan for European reconstruction. But what went on in Asia was just as important, maybe even more so. Aid to Japan more than doubled: from January to December 1947 it amounted to $404 million, compared with less than $200 million for all of the previous year and a half. In 1948 American aid rose again, to $461 million. In 1949 it peaked at $534 million.95 The total amount, more than $1.5 billion, provided a helpful economic boost. At the same ti
me, the campaign to dissolve the zaibatsu was abandoned. Many, notably Mitsui and Mitsubishi, were never dissolved; the eighty or so that were wound up quickly reconstituted themselves. In 1951 just three firms accounted for 96 percent of pig iron output.96 The new macroeconomic approach was outlined in December 1948 in a nine-point “Line” drawn up by the Detroit banker Joseph Dodge. It was far from being a policy of liberalization: wage and price controls were imposed to counter inflation, and imports were also rationed, with priority given to the export industries.97 As for the purging of the Right, that was now forgotten.98 In John Dower’s words, power was firmly entrusted to the prime minister Yoshida Shigeru’s “ruling tripod of big business, bureaucracy and conservative party.”99

  In West Germany the story was broadly the same. Plans to dismantle the big industrial and financial concerns were largely shelved; the political position of Adenauer’s Christian Democrats remained dominant until the 1960s. The ensuing “economic miracle” was in fact less spectacular than Japan’s, but it was still more impressive than the recoveries seen nearly everywhere else in Europe.100 Prior to 1948, industrial output was still running at less than half its 1936 level; by March 1949 it had leaped to 89 percent. Annual exports nearly doubled in the same period.101 How much of this can be attributed to direct American aid and how much to changes of policy—particularly the currency reform of June 1948—is debatable. Unveiled by Marshall at Harvard in June 1947 and enacted the following April, the four-year European Recovery Program is sometimes discussed as if it had bought Western Europe for the United States the way dollars had once bought Alaska. But the amounts concerned should be kept in perspective. The total outlay averaged not much more than 1 percent of U.S. GNP. In any case, West Germany was not its principal beneficiary. In all, sixteen countries received Marshall aid, to the tune of $11.8 billion; there was a further $1.5 billion in the form of loans. Germany got just over 10 percent of the total, roughly half the amounts that went to France and—the single biggest recipient—Britain.102 Marshall aid in itself did not guarantee economic recovery; had it done so, Britain would have had the economic miracle, whereas it actually had the reverse. It seems more plausible to attribute the West German miracle to the surge of confidence generated by the new deutschmark, accompanied as it was by a lifting of price controls.103

  It has often been said that American aid boosted growth by instilling confidence. This may be true. But equally important may have been the confidence instilled by the continuing presence of American troops and the integration of the two countries into the new American structure of security treaties. The combination of dollars and deutschmarks might have achieved much less had not Clay decided to break the Soviet siege of West Berlin with an unprecedented eleven-month airlift between June 1948 and May 1949. Although the formal occupations of Japan and West Germany ended in, respectively, 1952 and 1955, substantial numbers of American troops remained there for another fifty years; indeed, remain there to this day.104 This was another unintended outcome. Before the chill of cold war had descended, the Americans had proposed a treaty to enforce demilitarization of Germany for twenty-five or even forty years, but it had been turned down by the other powers.105 By 1953 six American divisions were deployed in West Germany, along with nine other divisions from other members of the new North Atlantic Treaty Organization, including West Germany itself. Rearmament—not just of the United States but of the other NATO members—contributed a further stimulus to the industries of all concerned.

  The new policies inspired by containment did more than prime the pump of the occupied countries’ economies, thereby reducing the share of the costs of occupation the Americans themselves had to pay. By boosting Japanese and German growth under conditions of increasingly liberal trade, they created new and dynamic markets for American exports. As early as 1948 and 1949, goods sold to West Germany already accounted for close to 7 percent of total U.S. exports. By 1957 Germany and Japan had for the first time overtaken Great Britain in their importance for American trade (see figure 2). There was, in short, a self-interested rationale for stimulating the recovery of America’s erstwhile foes. In notes he prepared for Marshall before the announcement of the aid program, Kennan had argued that the money was needed “so that they [the Europeans] can buy from us” and so “that they will have enough self-confidence to withstand outside pressures.” Now the calculation was vindicated: the United States had “a very real economic interest in Europe” stemming “from Europe’s role … as a market and as a major source of supply for a variety of products and services.”106

  FIGURE 2

  Percentage Shares of American Exports, 1946–61

  Source: Historical Statistics of the United States, p. 903.

  At last, it seemed, the elusive virtuous circle had been established. American idealism could be assuaged because an imperial policy was being pursued in the name of anti-imperialism. But American self-interest could also be satisfied because the occupation of foreign countries turned out— after a remarkably short time—to pay a dividend. On this basis, it was possible to transform West Germany and Japan successfully from rogue regimes of the very worst type into paragons of capitalist economics and democratic politics.

  Only one puzzle remains. Why, if the combination of long-term occupation and mutual economic benefit proved so successful in these two cases, was it so seldom repeated elsewhere?

  MACARTHUR’S RUBICON

  In 1948, as the era of containment began, the United States was at the zenith of its relative economic power. In the preceding decade the output of the American economy had grown in real terms by two-thirds. It now accounted for roughly a third of total world output, three times the share of its rival empire, the Soviet Union.107 Despite accounting for just 6 percent of the world’s population, the United States produced nearly half the world’s total electrical power and held roughly the same proportion of the world’s monetary gold and gold-equivalent bank reserves. American firms controlled nearly three-fifths of the world’s total oil reserves. They dominated the international production of automobiles.108 Truman spoke with pardonable exaggeration when he declared: “We are the giant of the economic world. Whether we like it or not, the future pattern of economic relations depends on us. The world is watching to see what we shall do. The choice is ours.”109

  That choice took a distinctive and novel form. The United States embarked on a sustained push to reduce international trade barriers through multilateral negotiations under the General Agreement on Tariffs and Trade. Barriers to international capital movements were given less priority; it was thought preferable to revert to the pre-Depression system of fixed exchange rates, though with the dollar rather than gold bullion as the anchor. Two new international institutions were brought into being to manage the world’s financial system: the World Bank and the International Monetary Fund. But the essence of American “hegemony” was the preferential treatment of American allies when it came to the allocation of loans and grants of aid (whether for development or military purposes).110 Given the size of the American economy relative to those of even its wealthiest allies, sums that were, from an American viewpoint, relatively modest (see figure 3) could appear very large to the recipients. Total economic aid for the period 1946 to 1952 amounted to nearly 2 percent of U.S. GNP, half of it accounted for by the Marshall Plan. Over the ensuing decade—including the heady years when John F. Kennedy pledged to “pay any price, bear any burden [and] meet any hardship … to assure the survival and the success of liberty”—it dropped to below 1 percent.

  FIGURE 3

  United States Foreign Aid as a Percentage of GNP, 1946–73

  Source: Statistical Abstract of the United States, 1974.

  Far more important were American military expenditures. Having been slashed in the immediate aftermath of victory over Germany and Japan, these began to climb steeply after 1948, from under 4 percent of GDP to a peak of 14 percent in 1953, more than a fivefold increase in cash terms.111 Part of what this pu
rchased of course was increased stocks of atomic bombs: in 1947 the United States had possessed just fourteen, but by the end of 1950 the number had risen to nearly three hundred and by 1952 to more than eight hundred.112 There was a smaller but still substantial increase in the country’s conventional forces. Between 1948 and 1952 American military manpower rose by a factor of two and a half, reaching what was to prove the postwar peak of 3.4 million. Even after the Korean War, military readiness remained well above the level of the late 1940s. As late as 1973 the defense budget was still close to 6 percent of GDP, and the armed forces numbered 2.2 million.113 A substantial minority of these troops were stationed abroad in a network of old and new bases, some in territory directly controlled by the United States but most in politically independent countries that were American allies. By 1967 American service personnel were stationed in sixty-four countries: nineteen of them in Latin America, thirteen in Europe, eleven in Africa, eleven in the Near East and South Asia and ten in East Asia.114 The United States had treaties of alliance with no fewer than forty-eight different countries, ranging from Britain and West Germany to Australia and New Zealand, from Turkey and Iran to Pakistan and Saudi Arabia, from South Vietnam and South Korea to Taiwan and Japan.115 This has justly been called an empire by invitation. But what is striking is that the United States accepted so many of the invitations it received. According to one estimate, there were 168 separate instances of American armed intervention overseas between 1946 and 1965.116