by Prins, Nomi
Aldrich Supports the Marshall Plan
For Truman, navigating postwar peace less than a decade after the Great Depression without economic fallout would prove challenging.
The World Bank and the IMF had been shaped at Bretton Woods and then refined by Congress with input from the private banking community. Another pillar of global reconstructive and foreign policy efforts, the Marshall Plan, would provide further aide to “friendly” countries in the early years of the Cold War. The plan would also establish the bedrock upon which the nation’s premier bankers would propel their international lending and other foreign businesses.
Truman carefully unveiled the Marshall Plan in the spring of 1947. To foster public support, he played it up as a way to counter the threat of Communism. He warned the nation that Europe was disintegrating economically, and said he feared that Greece and Turkey would come under Communist control. In addition, the Communist Party had become the biggest left-wing party in France and Italy. America’s new perceived enemy was not Germany or the Nazis but the doctrine of Communism, which was manifesting itself more broadly in the postwar era. Recall Aldrich’s speech associating capitalism with democracy, linking bankers’ goals with American foreign policy ones. Communism was opposed to capitalism, and as such it stood in the way of American prosperity.
Truman’s concerns directly led to the Truman Doctrine, a foreign policy initiative by which the United States agreed to support Greece and Turkey economically and militarily to keep them from falling prey to Soviet expansion. The Truman Doctrine became the cornerstone of the more expansive Marshall Plan, which divided the non-Communist and Communist allies for the purposes of apportioning economic aid.
In a speech at Harvard on June 5, 1947, Secretary of State George Marshall, a retired general, announced the US-led economic assistance program that the Europeans would administer on the western side of the Iron Curtain. Congress approved $13 billion to reconstruct Western Europe for two reasons: first, to aid Europe’s fight against Communism; and second, to bolster trading partners for American industry and banks.
Additionally, as more currencies became readily available to be converted to the dollar, it would become easier to solve the problem of dollar scarcity without new restrictions, which would be “disastrous both for the United States and for the people of Europe.” The more dollars in the world, the fewer barriers to foreign trade. The Marshall Plan wasn’t just about helping allies; it was also about ensuring the domination of the dollar, a plan supported by President Truman and the bankers.13 The theme of Communism vs. American democracy would be the selling point to the broader population.
Even before the Marshall Plan was approved, banks had begun negotiating private postwar loans to allied countries. In 1945, Chase became the first big bank to start the process with a loan to the Netherlands. The firm continued lending money to France alongside the Morgan Bank. Giannini flew to the country of his forebears, Italy, to extend credit to Italian banks. These divisions enabled banks to profit in postwar reconstruction efforts along nationalist lines. The White House took note. “The President [Truman] and I are pleased,” John Snyder, then head of the Office of War Mobilization and Reconversion, wrote Giannini. “I regard this type of action as a positive contribution to worldwide recovery.”14
Aldrich’s support for the Marshall Plan was solid from the start. Arriving in New York from England on July 1, 1947, he declared that it provided “new hope for the people of Europe.”15 To further establish the supremacy of private business in global affairs, Aldrich also sought to establish “a [nonpartisan] Government Corporation . . . as the United States Corporation for European Reconstitution . . . to encourage direct investment by American firms and corporations in the plants and industrial equipment of Western Europe.”
Hence, Aldrich would combine the notions of political stability (lending to developing nations and fighting Communism, which often amounted to the same thing) and private direct investment. Big banks would be engaged in both efforts.
The Marshall Plan wouldn’t just help distribute financial aid; it would give each major US bank its own European country to play in. Chase would beat them. From 1948 to 1952, the bank amassed the biggest commitments to Europe, at nearly $1 billion, followed closely by National City Bank. The Bank of America, with its focus on Italy, stood in sixth place, with $389 million.16
The Marshall Plan delivered a bevy of new opportunities for US banks in Europe. But it also enabled major European banks to spring back to life through incoming funds and associated US political relationships, though at first in the shadows of their American counterparts. Again, it was Aldrich who put the situation into perspective. President Coolidge had said that “the business of America is business,” but to Aldrich the business of the world was business, and it was there for the American banker to take.
The mass-circulation Life magazine put its weight behind the Marshall Plan by underscoring the need to fight Communists:
Last week in Paris, the 16 nations that responded to Secretary of State George C. Marshall’s plea for a concrete European recovery plan put their reports in a green manila folder, bounded up with a ribbon of shocking pink and sent it to Washington. The Europeans said they needed $22.4 billion worth of goods and dollars in the next four years. . . . Whether the US Congress and the American people were prepared for the sacrifices such a program would entail was far from clear. . . . [But] Paris, LIFE correspondent Charles Wertenbaker cabled, “if no new credits are allowed, France will be virtually bankrupt in 3 weeks. No American aid would mean big communist gains.”17
In late 1947, Chase extended its German and Japanese branches, becoming the first US bank invited to expand in postwar Germany. (National City and Bank of America made it to Japan first, mostly to service US military bases.)
The National Advisory Council and the Rise of John McCloy
As important as his Treasury secretary post was in shaping economic policy, Snyder held an even more critical position in foreign financial policy as the first chairman of the less-known but powerful National Advisory Council, the entity that called the shots for the World Bank and IMF.
Congress had established the council to be the “coordinating agency for United States international financial policy” and as a mechanism to direct that policy through the international financial organizations. In particular, the council dealt with the settlement of lend-lease and other wartime arrangements, including the terms of foreign loans, details of assistance programs, and the evolving policies of the IMF and World Bank.18 Snyder carried a vast amount of influence over those entities, as many major decisions were discussed privately at the council meetings and decided upon there.
There was one ambitious lawyer who understood the significance of Snyder’s role. That was John McCloy, an outspoken Republican whose career would traverse many public service and private roles (including the chairmanship of Chase in the 1950s), and who had just served as assistant secretary of war under FDR’s war secretary, Henry Stimson. McCloy and Snyder would form an alliance that would alter the way the World Bank operated, and the influence that private bankers would have over it.
It was Snyder who made the final decision to appoint McCloy as head of the World Bank. McCloy, a stocky Irishman with steely eyes, had been raised by his mother in Philadelphia. He went on to become the most influential banker of the mid-twentieth century. He had been a partner at Cravath, Henderson, and de Gersdorff, a powerful Wall Street law firm, for a decade before he was tapped to enter FDR’s advisory circle.
After the war, McCloy returned to his old law firm, but his public service didn’t translate into the career trajectory that he had hoped for. Letting his impatience be known, he received many offers elsewhere, including an ambassadorship to Moscow; the presidency of his alma mater, Amherst College; and the presidency of Standard Oil. At that point, none other than Nelson Rockefeller swooped in with an enticing proposition that would allow McCloy to stay in New York and get paid well—
as a partner at the family’s law firm, Milbank, Tweed, Hope, and Hadley.19
The job brought McCloy the status he sought. He began a new stage of his private career at Milbank, Tweed on January 1, 1946. The firm’s most important client was Chase, the Rockefeller’s family bank. But McCloy would soon return to Washington.
Truman had appointed Eugene Meyer, the seventy-year-old veteran banker and publisher of the Washington Post, to be the first head of the World Bank. But after just six months, Meyer abruptly announced his resignation on December 4, 1946.20 Officially, he explained he had only intended to be there for the kick-off. But privately, he admitted that his disagreements with the other directors’ more liberal views about lending had made things untenable for him. His position remained vacant for three months.
When Snyder first approached McCloy for the role in January 1947, he rejected it. But Snyder was adamant. After inviting McCloy to Washington for several meetings and traveling to New York to discuss how to accommodate his stipulations about the job—conditions that included more control over the direction of the World Bank and the right to appoint two of his friends—Snyder agreed to his terms.
Not only did Snyder approve of McCloy’s colleagues, but he also approved McCloy’s condition that World Bank bonds would be sold through Wall Street banks. This seemingly minor acquiescence would forever transform the World Bank into a securities vending machine for private banks that would profit from distributing these bonds globally and augment World Bank loans with their private ones. McCloy had effectively privatized the World Bank. The bankers would decide which bonds they could sell, which meant they would have control over which countries the World Bank would support, and for what amounts.
With that deal made, McCloy officially became president of the World Bank on March 17, 1947.21 His Wall Street supporters, who wanted the World Bank to lean away from the liberal views of the New Dealers, were a powerful lot. They included Harold Stanley of Morgan Stanley; Baxter Johnson of Chemical Bank; W. Randolph Burgess, vice chairman of National City Bank; and George Whitney, president of J. P. Morgan.22 McCloy delivered for all of them.
A compelling but overlooked aspect of McCloy’s appointment reflected the postwar elitism of the body itself. The bank’s lending program was based on a supply of funds from the countries enjoying surpluses, particularly those holding dollars. It so happened that “the only countries [with] dollars to spare [were] the United States and Canada.” As a result, all loans made would largely stem from money raised by selling the World Bank’s securities in the United States.23
This gave the United States the ultimate power by providing the most initial capital, and thus obtaining control over the future direction of World Bank financial initiatives—all directives for which would, in turn, be predicated on how bankers could distribute the bonds backing those loans to investors. The World Bank would do more to expand US banking globally than any other treaty, agreement, or entity that came before it.
To solidify private banking control, McCloy continued to emphasize that “a large part of the Bank capital be raised by the sale of securities to the investment public.” McCloy’s like-minded colleagues at the World Bank—vice president Robert Garner, vice president of General Foods and former treasurer of Guaranty Trust; and Chase vice president Eugene Black, who replaced the “liberal” US director Emilio Collado—concurred with the plan that would make the World Bank an extension of Wall Street. McCloy stressed Garner and Black’s wide experience in the “distribution of securities.”24 In other words, they were skilled in the art of the sale, which meant getting private investors to back the whole enterprise.
The World Bank triumvirate was supported by other powerful men as well. After expressing his delight over their appointments to Snyder on March 1, 1947,25 Nelson Rockefeller offered the three American directors his Georgetown mansion, plus drinks, food, and servants, for a three-month period while they hammered out strategies. No wives were allowed.26 Neither were the other directors.27 This was to be an exclusive rendezvous.
It is important to note here that the original plan as agreed upon at Bretton Woods did not include handing the management and organization of the World Bank over to Wall Street. But the new World Bankers seemed almost contemptuous of the more idealistic aspects of the original intent behind Bretton Woods, that quaint old notion of balancing economic benefits across nations for the betterment of the world. Armed with a flourish of media fanfare from the main newspapers, they set about constructing a bond-manufacturing machine.
With the Cold War hanging heavily in the political atmosphere, the World Bank also became a political mechanism to thwart Communism, with funding provided only to non-Communist countries. Politics drove loan decisions: Western allies got the most money and on the best terms.
McCloy’s Return to Wall Street via Germany
By early 1948, World Bank loans had spread to Asia, Latin America, and various African countries. Within ten months, the media were declaring McCloy’s World Bank initiative and its bonds an utter success. It was McCloy’s particular view that Latin America should be more open to private investment. This view was widely shared by the banking community, the 1929 Crash of the region’s bonds notwithstanding.
In a letter to Snyder on January 7, 1949, McCloy pressed the opening of Latin America in this manner: “I believe that both of our institutions should be more and more devoted to the flow of private capital into that area.” Snyder approved of the progress that McCloy’s Latin American loaning program was making.28 With Snyder and McCloy’s coordinated efforts, the doors of Latin America were pried open to allow a rush of private investment, which reduced the ability of the region to control its own economic destiny. These developments significantly extended America’s political control over the region, propping up the dictators that toed the US line and punishing the ones who didn’t by means of might and money.
In the background, the man who had penned the initial plan for the IMF, Harry White, was forced to resign from the IMF and dragged before the House Un-American Activities Committee in August 1948. Congressman Richard Nixon and others pelted him with questions about his alleged Communist loyalties. Three days after testifying, he died. He was fifty-five. The extent of his involvement with Soviet spy rings and his motivations have been a subject of debate in the history profession since his death, overshadowing the means by which his plans were augmented by the banker contingent.
The Economic Cooperation Administration
The Marshall Plan easily passed through Congress on April 3, 1948. Also called the Foreign Assistance Act of 1948 and the Economic Cooperation Act of 1948, it was approved by the Senate by a vote of 69 to 17 and passed the House by a vote of 329 to 74.29
Truman set up the Economic Cooperation Administration to oversee the Marshall Plan. In practice, it controlled many foreign economic activities, including trading patterns and international finance initiatives. Aldrich made it a point to throw his backing behind the entity. As a result, the correspondent banks came to Chase to service a large chunk of their international financing needs. He had again successfully steered the fortunes of Chase and public foreign policy concurrently.
As he expanded the Chase empire to support the foreign policy goals of the US government, Aldrich thought it only fair to obtain federal assurances of safety for Chase’s private endeavors in return. So he requested that the Treasury Department back the risk Chase was taking in setting up private offices in war-torn countries.
On July 27, 1948, Snyder obtained support for Aldrich’s request from Secretary of the Army Kenneth Royall, to whom he wrote, “The American Express Company, Inc., and the Chase National Bank have requested that the agreements executed by them be amended to exclude any liability for the loss under certain specified circumstances of . . . foreign funds lost, stolen, captured or destroyed by or because of enemy action. . . . The Treasury Department feels that the requests . . . are not unreasonable and is willing to enter into agreement with these two
banks, and other banks similarly.”30
The United States ultimately approved approximately $13 billion in aid during the four years that the Marshall Plan was active. At first, Europe’s economy slowly improved, though it was unclear if that was related to the US monies. As far as the American people were concerned, though, the Marshall Plan was an anti-Communism device as marketed by Truman, the bankers, and the popular press. It was fear rather than altruism at work.
Truman’s Four Points Plan
Though Truman employed antibanker rhetoric in his 1948 presidential election campaign, as most Democratic presidential candidates tended to do for political reasons, he maintained a balance between appearing prolabor and hard on Communism. With the exception of throwing some political capital at the Wall Street Seventeen—a case involving investment bank price rigging, which went on for years and was dismissed under the Eisenhower administration—Truman didn’t get much in the way of the New York bankers. In fact, he brought those he deemed trustworthy into his cabinet or appointed them to committees.
Truman unveiled his “Four Points” plan during his 1949 inaugural address. The first point was support for the United Nations. The second was reiterating US determination to work for world recovery by giving full measure to the Marshall Plan in promoting trade for all the world’s markets. The third point centered on the North Atlantic Security plan. He said, “We will strengthen freedom-loving nations against the dangers of aggression . . . within the recognized framework of the United Nations charter and in the pattern of the Western Hemisphere arrangement.” In his fourth point, Truman proposed a program for sharing American scientific and industrial progress with the rest of the world.
McCloy, still smarting because he believed Marshall Plan financing might upend financing for the World Bank, expressed his frustration with Point Four to the New York Times, where he pouted that the World Bank “would simply have to take a back seat to Point Four aid in the developing world.”31