Q: Professor Galbraith, how was it that America ended the war in the state in which she did, and what was different about it from the America that had been before?
A: Oh! There's no doubt the war made an enormous difference in the American economy. Before the war we had 15%, maybe sometimes more, unemployed. A very stagnant, unhappy economy and the war - war production - production of munitions, production of armaments - put enormous sums of money into the economy, put millions of people to work - not only men, but women - Rosie the Riveter - and we emerged from the war with virtual full employment. And also - I might take credit for this - stable prices. I was for much of the war the price star. You could lower prices without my permission but you couldn't raise them without my permission.
Q; Moving across to Europe, what was the situation in 1944/1945. What were the intentions economically with Germany and what happened as a result of those intentions?
A: In 1945 and 1946, there was a great change of attitude toward Germany. I was again somewhat involved in this. I was in 1946 in charge of what was called, economic security policy in the State Department, Germany and Japan. And during these months we moved from a punitive attitude, the Germans must suffer. The Morgenthau Plan, the Pasturalisation of Germany, to - and reparations - let me say a word about that in a moment. We've moved from that to the clear indication that Germany must be able to look after itself. Must have an economy that would serve the German people. That was the great change in 1945 and 1946.
Q: You mention reparations. Now why aren't reparations a good idea? Why shouldn't the Germans have to pay?
A: The matter of reparations is a bit of history. In World War One and after, at Versailles, the idea was that Germany should pay, in cash - in those days in gold. That was one of the great errors of the Versailles Conference, which was remote from any matter of economic reality and was the great corrective idea of John Maynard Keynes. that could not - a country could not automatically find the where with all to pay particularly if it didn't have the industry, productive industry to export goods. So, - and that idea was still very strong in the early forties during the discussion of reparations and, in the policy immediately after the war. And the result, I regret to say, was the one idea that was worse than the one Keynes attacked so vigorously. That was the notion of reparations in kind. First of all the social effect of it was terrible. For the - a German town or a Japanese city to see people coming in and removing the very substance of livelihood, the machinery, the productive machinery, was incredibly cruel. But the other thing was that that machinery wasn't worth much anyway. There was no - it was not necessarily related to any productive use in the recipient country. So while the Russians made some use of reparations in kind, elsewhere, for other countries it was a vacant idea.
Q: The Russians for example would say it was quite right that they should pay and they got indeed very very angry with the Americans and with the British and to a certain extent they were very angry about that. What do you have to say, why don't the Russians have a case? They wanted this money.
A: Well the Russians were then, as since, propelled by bureaucratic force. They had the idea that the German machinery, machine tools, German productive equipment, could replace some of the enormous losses the Germans had inflicted on them and that idea got hold and the Russians went ahead with it. But it's my impression - this is an impression - that that equipment served very little purpose in the post war recovery of the Soviet Union. That the Soviets eventually found that their reparations in kind were not very more - much more useful than they would have been for us.
Q: What was the actual effect of reparations on Germany? Can you give me an idea? What did it actually mean?
A: The effect overall was very slight. As I say there was the movement of some reparations to the Soviet Union, there were some things that went to France too, but not much, and the overall effect was to continue in 1946 and '47, the stasis, the stagnation of the German economy and to make it and the German people, in some measure the responsibility of their former enemies.
Q: What was actually feared, what was the fear in Washington what would happen to Germany if something wasn't changed? What were the fears in '45/46 about Germany?
A: There were (clears throat) there were two views. There were two views of Germany and what would happen to Germany in Washington in 1945 and 1946. Two views very much in conflict. There were first the sense that the Germans, here was World War One, World War Two, were a threat to peaceful, civilised existence and they must some how be punished. Some how be made helpless and came from that the idea of the pasturalisation of Germany, that Germany should not be allowed to have any of the heavy industry that supported war, and the famous Morgenthau Plan. The other view, which by the time I became involved actively in 1946 - I don't want to exaggerate my own position here, there were many others involved in this matter - My view was that Germany must have the where with all to have a peaceful and productive existence, otherwise that German would be a dead weight on the economies of the other western countries and therefore the primary problem was to get Germans back in charge of their own economy and get the German economy serving the German people.
Q: Now the Soviets at this time were very fearful about what Washington and what Britain were doing, that they were seen as trying to create a separate divided Germany, you've got the whole business of the currency. Is this a correct way of looking at things? Is this what was really behind the Burns Stuttgart speech, was this setting out an agenda for a Germany which would be separate from the Soviet zone, which would be firmly allied to the west, can you tell me something about that?
A: Well I listened to the Burns Stuttgart speech with marked approval, because in fact I had written most of it, and I - those of us who worked on it, and Burns, were not thinking in anti-Soviet terms. We were thinking in terms of how we could get the three occupied areas in the west, the French, the British and the Fren - and the American together (clears throat) as a producing unit, and in some measure get Germany in charge of their own policy and economy and back in as a productive force. That was certainly my idea in working with Jim Burns and drafting that speech. I was not, at that time, in any way anxious to create problems with the Soviet Union, and on that I had the close - the strong approval of a much stronger figure than I was, that was Lucius Clay, who also believed that it was possible to have a revival in the three zones in the West, without antagonising unduly the Soviets.
Q: I believe it was the case at that time, certainly with Clay, that it wasn't the Russians that were giving Clay and the Americans trouble, it was the French. Can you tell me something about that, why was that?
A: Well there were two people that were in opposition, two groups in opposition to Lucius Clay at that time. The French, not surprisingly, had a sense of anger, a sense of suffered aggression, much stronger than we did. After all France had been occupied hadn't it? And there was also a merging in Washington at that time - to some extent in our military, the notion that we had irreconcilable political and social differences with the Soviet Union and therefore we had to assert the role of democracy and the role of capitalism against the seeming success of the Soviet system, including, of course, the Soviet war machine. So those two attitudes were both in evidence at that time.