Morgenthau Plan - JCS 1067

JCS 1067

A Handbook for Military Government in Germany was ready in August 1944: it advocated a quick restoration of normal life for the German people and reconstruction of Germany. Henry Morgenthau, Jr. brought it to the attention of President Franklin D. Roosevelt who, after reading it, rejected it with the words:

Too many people here and in England hold the view that the German people as a whole are not responsible for what has taken place – that only a few Nazis are responsible. That unfortunately is not based on fact. The German people must have it driven home to them that the whole nation has been engaged in a lawless conspiracy against the decencies of modern civilization.

A new document was drafted, the Joint Chiefs of Staff directive 1067 (JCS 1067). Here the US military government of occupation in Germany was ordered to "…take no steps looking toward the economic rehabilitation of Germany designed to maintain or strengthen the German economy" and it was also ordered that starvation, disease and civil unrest were to be kept below such levels where they would pose a danger to the troops of occupation.

The directive was formally issued to Eisenhower in the spring of 1945, and it applied only to the US zone (although attempts had been made to get the other Allies to accept it). The occupation directive remained secret until October 17, 1945. It was made known to the public two months after the US had succeeded in incorporating much of it into the Potsdam Agreement.

On March 20, 1945 President Roosevelt was warned that the JCS 1067 was not workable: it would let the Germans "stew in their own juice". Roosevelt's response was "Let them have soup kitchens! Let their economy sink!" Asked if he wanted the German people to starve, he replied, "Why not?"

On May 10, 1945 Truman signed the JCS 1067. Ignoring the amendments to JCS 1067 that had been inserted by McCloy of the War Department, Morgenthau told his staff that it was a big day for the Treasury, and that he hoped that "someone doesn't recognize it as the Morgenthau Plan."

In occupied Germany Morgenthau left a direct legacy through what in OMGUS commonly were called "Morgenthau boys". These were U.S. Treasury officials whom Dwight D. Eisenhower has "loaned" in to the Army of occupation. These people ensured that the JCS 1067 was interpreted as strictly as possible. They were most active in the first crucial months of the occupation, but continued their activities for almost two years following the resignation of Morgenthau in mid 1945 and some time later also of their leader Colonel Bernard Bernstein, who was "the repository of the Morgenthau spirit in the army of occupation".

Morgenthau had been able to wield considerable influence over Joint Chiefs of Staff Directive 1067. JCS 1067 was a basis for U.S. occupation policy until July 1947, and like the Morgenthau Plan, was intended to reduce German living standards. The production of oil, rubber, merchant ships, and aircraft were prohibited. Occupation forces were not to assist with economic development apart from the agricultural sector.

In his 1950 book Decision in Germany, Clay wrote, "It seemed obvious to us even then that Germany would starve unless it could produce for export and that immediate steps would have to be taken to revive industrial production". Lewis Douglas, chief adviser to General Lucius Clay, U.S. High Commissioner, denounced JCS Directive 1067 saying, "This thing was assembled by economic idiots. It makes no sense to forbid the most skilled workers in Europe from producing as much as they can in a continent that is desperately short of everything" Douglas went to Washington in the hopes of having the directive revised but was unable to do so.

The U.S. Senate Judiciary Committee asserted: "During the first two years of the Allied occupation the Treasury program of industrial dismantlement was vigorously pursued by American officials."

In July 1947 JCS 1067, which had directed the U.S. forces of occupation in Germany to "...take no steps looking toward the economic rehabilitation of Germany designed to maintain or strengthen the German economy", was replaced by JCS 1779 which instead stated that "An orderly, prosperous Europe requires the economic contributions of a stable and productive Germany."

It took over two months for General Clay to overcome continued resistance to the new directive JCS 1779, but on July 10, 1947, it was finally approved at a meeting of the SWNCC (State-War-Navy Coordinating Committee). The final version of the document "was purged of the most important elements of the Morgenthau plan."

Vladimir Petrov, an expert on the financial aspects of the occupation, wrote: "By forbidding the American Army to maintain price, wage, and market controls, it (JCS 1067) literally decreed, as a State Department official put it, economic chaos."

In 1947 the U.S. Congress warned that the continuation of the present policies

...can only mean one of two things, (a) That a considerable part of the German population must be "liquidated" through diseases, malnutrition, and slow starvation for a period of years to come, with the resultant dangers to the rest of Europe from pestilence and the spread of plagues that know no boundaries; or (b) the continuation both of large occupying forces to hold down "unrest" and the affording of relief mainly drawn from the United States to prevent actual starvation.

Conditions in Germany reached their lowest point in 1947. Living conditions were considered worse in 1947 than in 1945 or 1946. At an average ration of 1040 calories a day, malnutrition was at its worst stage in post-war Germany. Herbert Hoover asserted that this amount of rations was hardly more than the amount which caused thousands in the Nazi concentration camps to die from starvation.

Vladimir Petrov concluded: "The victorious Allies... delayed by several years the economic reconstruction of the war torn continent, a reconstruction which subsequently cost the U.S. billions of dollars."

In view of increased concerns by General Lucius D. Clay and the Joint Chiefs of Staff over communist influence in Germany, as well as of the failure of the rest of the European economy to recover without the German industrial base on which it was dependent, in the summer of 1947, Secretary of State George Marshall, citing "national security grounds," was finally able to convince President Harry S. Truman to remove JCS 1067, and replace it with JCS 1779. JCS 1067 had then been in effect for over two years.

The "Morgenthau boys" resigned en masse when the JCS 1779 was approved, but before they went the Morgenthau followers in the decartelization division of OMGUS accomplished one last task in the spring of 1947, the destruction of the old German banking system. By breaking the relationships between German banks they cut off the flow of credit between them, limiting them to short-term financing only, thus preventing the rehabilitation of German industry and with immediate adverse effects on the economy in the U.S. occupation zone.

With the change of occupation policy, most significantly thanks to the currency reform of 1948, Germany eventually made an impressive recovery, later known as the Wirtschaftswunder ("economic miracle").