Introduction

      On a July afternoon in 1945, in the spa town of Bad Homburg, at the same time that President Harry S. Truman, Marshal Joseph Stalin, and Prime Minister Winston Churchill negotiated the borders of postwar Europe—and right after delivering the news that the United States had successfully tested the world’s first atomic bomb—Secretary of War Henry Stimson found a quiet moment to lunch with two of his top generals, Dwight D. Eisenhower and Lucius Clay. The lunch gave Eisenhower a break, a chance to finally relax after Germany’s surrender (which made him military governor for the American zone of conquered Germany). By the end of the year, he would return to the States to become army chief of staff, one in a series of appointments that ultimately led to the presidency. Clay, his good friend, joined the lunch as Eisenhower’s heir apparent to govern Germany once Eisenhower returned to the States. An engineer by training, Clay helped mastermind American production during the war. Many in Washington considered him the most able administrator within the army.

      Stimson, by contrast, was near the end of his public service. He had first entered government as a U.S. Attorney in 1906 and had achieved a long and storied career that included two stints as secretary of war and one as secretary of state, serving such different presidents as William Howard Taft, Herbert Hoover, and finally Franklin Roosevelt. Yet that afternoon Stimson wanted to talk about his term as the governor-general of the Philippines in the late 1920s (then an American territory). He reminisced about governing a foreign people under the American flag.¹

      The afternoon was pleasant—mild temperatures and sunshine. In contrast to the unremitting strain of war, it provided a longed-for respite. The villa in Bad Homburg did not betray the horrendous destruction meted out upon the Germans just about everywhere else. Stimson compared his experience in the Philippines with the orders Washington had just delivered to Eisenhower and Clay for governing Germany—orders that instructed military government to “take no steps” that might lead to “the economic rehabilitation of Germany.”² Clay and Eisenhower worried about their orders. The orders “had to be based on the theory that there was going to be a [functioning] German government” after the war. In reality, “there wasn’t any government.” On top of that, “there was a real shortage of manpower” because “much of the manpower [was in prison] camps” or dead, and “our real big job was to get enough … agriculture going to really keep this country alive.” The Germans faced “starvation and mass deaths,” and all three men agreed that “Americans, of course, would never permit even their former enemies to starve.”³

      The Philippines taught Stimson that policy should never seem “vindictive.” An occupied people already chafe under foreign authority, and if the occupiers complicate those resentments by undermining the local economy, the occupied people often revolt.⁴ This had been his observation in the Philippines, where his efforts to bring economic growth and a modicum of welfare provisions had quickly been undone by American tariffs and punitive measures enacted at the advent of the Great Depression.⁵ As a result, in regard to the orders to do nothing to help the German economy, Stimson said, “don’t put too much effort in carrying them out the way they’re written because you’ve got a job to do first which is to bring about law and order and the ability of the people in this country to live.”⁶ Stimson saw “no purpose in the deliberate destruction of the German economy,” since “its reconstruction was essential to create an atmosphere in which it might be possible to develop a true spirit of democracy.”⁷ Stimson preached to the choir. Growing up in Georgia at the end of the nineteenth century, Clay had a clear sense of how occupations could lose the support of the occupied—particularly if the occupied felt exploited. Clay made the point later to reporters: he would be “damn sure there weren’t any carpetbaggers in the military government.”⁸ Eisenhower agreed. He too had served in the Philippines where he learned the difficulties involved in governing abroad.

      * * *

      This book focuses on the concerns discussed by Stimson, Eisenhower, and Clay on that warm afternoon in Germany. On the one hand, it explains how the army found itself capable of governing a foreign people, and particularly the Germans and Japanese after World War II. In this sense, the book acts as an institutional history of military government starting after the Spanish-American War—or roughly that point at which the United States began routinely using its military to govern non-Americans outside the continental United States.⁹ The country’s recent efforts in Iraq and Afghanistan highlight the fact that a history of military government is long overdue.¹⁰ As a recent army operational guide notes, “military forces have fought only eleven wars considered conventional.…” while conducting “hundreds of other military operations … where the majority of effort consisted of stability tasks.” In short, “Contrary to popular belief, the military history of the United States is one characterized by such operations, interrupted by distinct episodes of major combat.”¹¹

      On the other hand, this book is an intellectual history of the political economy that military government created during the occupations of Germany and Japan. It explains why military government first seized on economic development as a key feature of successful “stability” operations, and how that initial interest grew into a distinct policy regime during the occupations of Germany and Japan. The book then shows how that policy regime came to dominate not only postwar Germany and Japan, but ultimately the United States in the 1950s. Because few of the people involved in its creation were economists or, in most cases, politicians, it never got a name in the American context. Eisenhower tried a variety of terms: “conservative dynamism” or “dynamic conservatism” and finally “modern Republicanism.” But none of these terms fit exactly.¹²

      The story is held together by the careers of the men who held positions in and around the army starting at the turn of the century. These men rose through the army’s ranks and, by the 1950s, found themselves in powerful political positions. The group included most famously Generals Eisenhower, Clay, and Douglas MacArthur, along with lesser-known occupation officials such as the Detroit banker Joseph Dodge, Generals William Draper and William Marquat, and foreign leaders such as Ludwig Erhard and Hayato Ikeda. Writing in the 1950s, the sociologist and critic C. Wright Mills identified this group as part of “the power elite,” the men who dominated global politics in the years after the war.¹³

      By focusing on these individuals, and in an effort to remain fair to both the institutional analysis and the intellectual history, a number of important topics get a much smaller treatment than they deserve. For example, the book barely touches upon military strategy in World Wars I and II; it does not take up every military occupation, especially Korea after the Second World War; and it does not take up the causes or course of the Cold War. Instead, the book remains true to its focus on the figures who link military government as an institution with the economic policy that came out of military government and returned to the United States in the middle decades of the twentieth century.

      As Stimson first intimated to Eisenhower and Clay in 1945, economic policy worked in the service of a broader democratic vision for the Germans and Japanese. More to the point, it could prevent yet another world war. Indeed, the failure to achieve a lasting peace after the First World War weighed heavily upon military government after the Second. Prosperity might provide a tangible sign to the Germans and Japanese that the future lay in partnership with the United States, rather than in opposition. At the same time, military governors understood that a giant gap existed between wanting economic recovery and causing economic recovery. If nothing else, the barely concluded Great Depression taught this fact.

      The first year of occupation saw mostly failure in military government’s effort to bridge that gap. Then, late in 1945 officials in Germany stumbled upon a critical insight that turned things around. On the advice of a number of German economists, they began to think more about public finance. Postwar planning had assumed that the centralized and hierarchical structure of firms in Germany and Japan enabled totalitarian political structures.¹⁴ The initial instructions to military government included orders to break apart large conglomerates in both countries. But as time passed,