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Speech delivered before
Now.York Board of Trade
New York, N . Y .
June 12, 1947
Recovery in Europe is lagging. Since V-E Day, this countiy has provided billions of dollars of assistance to Europe. Still we find the
continent struggling with shortages of food, of fuel, of raw materials,
of most of the essential ingredients for economic recovery and stability.
Until Europe can export enough to pay its own way in the world, we shall
find ourselves continually confronted with a hard choice: Vie must either
provide further billions of assistance or see economic, social, and political disintegration in that vital area. We face exactly this problem
in Germany; but, more importantly, our failure to handle it there on an
adequate scale will seriously reduce the chances of our success in the
rest of Europe. Other European countries are vitally dependent upon the
renewed flow of supplies from Germany, first and foremost of coal. The
reconstruction of the European economy is inseparable from the rehabilitation of Germany.
Before the war Germany, next to the United States and the United
Kingdom, was the most important trading nation in the world. As late as
1937, despite efforts of the Nazi regime to make Germany independent of
foreign supplies and markets, the country's foreign trade represented
about 9 per cent of the world's entire international commerce. Its exports reached $2.4 billion and its imports 5p2.2 billion, equivalent at
present prices to
billion in each direction. More than half of these
exports and imports came from or went into those areas of prewar Germany
that today constitute the American and British zones of occupation.
About two-thirds of the imports were raw materials and semi-finished
goods needed for the operation of the German industrial system. Almost
nine-tenths of the exports were finished industrial products. Germany
provided a highly important market for many foreign countries, and its
exports met essential needs in wide areas, especially in the rest of Continental Europe.
In 194-6, imports from other countries into the American and British
2ones of Germany totaled about ;,;6f?0 million, hore than four-fifths of
that amount represented foodstuffs needed to avert outright starvation
among the German population. Only about one-tenth of the total consisted
of raw materials for German industry, mainly American cotton and British
wool. The importation of industrial materials thus was only a very small
fraction of the quantity which the zones used to import before the war.
Exports were equally small. They amounted to only some $150 million and
three-fourths of that sum was provided by coal exports from the Ruhr
mines in the British zone. Host of the remainder was raw materials like
lumber and hops. Exports of industrial goods were negligible.
As a result of this situation, the American and British occupation
authorities had to finance an import surplus into their zones of occupation amounting to about £500 million in 194-6. Despite such a large outlay of money, the economic situation of the zones remained critical.
Food imports were just sufficient to keep the ration of the average

consumer around 1,550 calories per day, an amount one-fourth below the
minimum standard set up by the United Nations Food and Agricultural Organization, and two-fifths below the quantity needed for the maintenance of
an efficient labor force. The scarcity of imported raw materials was an
important factor restricting the revival of industrial activity. Stagnation in German industry has prevented an adequate flow of German exports
to pay for imports and to contribute to the recovery of other European
In December 19-46, the United States and the United Kingdom agreed
upon a new German foreign trade program based upon an economic merger of
the American and British zones of occupation. The two occupying powers
set the goal of making the combined zones self-supporting within a period
of three years by stimulating both imports and exports, and in the meantime agreed to share equally in financing the necessary import surplus.
They set up a Joint Export-Import Agency and implemented their agreement
a few days ago by establishing .a German Economic Council. This Council
will be composed of representatives of the legislatures of trie German
states located in the combined zones. It will be assisted by an Executive
Committee representing the governments of the German states, and by a number of executive directors, heading bizonal administrative departments.
Through these organizations the population of the occupied zones will be
mobilized for attaining the goals set by the Agency. It was hoped that
France and the vSoviet Union would join in the agreement and thus reestablish the economic unity of Germany, which is indispensable for the eventual rehabilitation of the Gorman economy and to which all four powers
had agreed at the Potsdam Conference of 1945- Unfortunately, the other
occupying powers refused to join in the merger, i nd the American and
British authorities had to proceed on their own, leaving the door open,
however, for future adherence by the other two powers.
In meeting our share of the cost of supporting Germany during this
interim period, we rely upon appropriations by the Congress to cover food
requirements. Raw materials and equipment for industrial rehabilitation,
on the other hand, are financed through credits from U . S. Government
agencies. The Commodity Credit Corporation shipped .<p30 million worth of
surplus cotton into the American zone to be processed by German firms.
The finished materials are exported to an extent sufficient to pay for
the imported cotton and the remainder is either exported in order to pay
for the importation of additional raw materials or is made available to
the domestic German economy. The U . S . Commercial Company agreed to finance similar shipments of raw materials for the ceramics, glass, chemical,
toy and other industries. At present, a second cotton credit of ^20 million is being negotiated with the Export-Import Bank of Washington and
American cotton exporters.
The two occupying powers also have established a joint revolving fund
of foreign exchange that can be used for importing other goods needed by
German industries. The fund consists of the proceeds of exports from the
combined zones in 194-5 and 1946, insofar as they have not been used already
for import payments, and of German external assets transferred to the two
occupying powers by neutral countries. This provides the Joint Export-Import Agency with a necessary working balance for priming the pump of German
export industries.

The actual start of the foreign trade drive has been somewhat delayed. For many months the unprecedented hardships of last winter disrupted transportation and production in Europe. The new export-import
organizations had to be set up and proper rules of procedure established.
±he exact specifications for the export-import programs, which had to be
submitted to the Agency by the German authorities, often were found unworkable. Already, however, the Agency is approving export and import
contracts at an accelerating rate. Moreover, the Agency has issued regulations facilitating the renewal of contacts between German and foreign
businessmen. American and other businessmen now may visit Germany in
substantial numbers, and after June 15 German exporters and foreign importers will be permitted to conclude contract negotiations by mail,
file Agency, however, has to. approve all import and export contracts,
either at its headquarters or through one of its branches, and it is designated to receive all foreign exchange proceeds from export shipments.
Ihese precautions are necessary in order to make sure that all export
proceeds are mobilized for the payment of essential imports.
Imports in 194-7 will have to include at least as much food as those
oi 194.6. The deficiency of fertilizer and agricultural machinery, and
the scarcity of able workers in Germany makes it unlikely that this year's
crop will be much in excess of last year's. Even if some progress in
German production is made, however, it could not be sufficient to bridge
the gap between present supplies and the minimum needed for the preservation of public health in the long run. In addition to food imports, the
combined zones will need imports of raw materials in substantially larger
volume than now contracted for. V/hile for some time to come it will not
he feasible to restore the proportion between imports of foodstuffs and of
industrial materials to the prewar ratio of one to two, the value of material imports will have to approximate that of foodstuffs to enable
German industry to reach a satisfactory level of operations.
Exports in 1947 are expected to consist of coal, textiles, and other
raw materials and industrial products, each of these three main categories to be of about equal value. In each case, however, reaching the goal
i l l mean a hard struggle. The authorities will have to decide whether
the overall European economy is better served by exporting Ruhr coal or
oy letting German industries use that coal for the production of exportable finished goods. If coal is to be used domestically, a given quantity
could yield far higher export proceeds than if it were exported as a raw
material. On the other hand, such a solution would be opposed bitterly
oy the industrial groups in those countries that depend upon German coal
exports. This dependence is far greater than before the war: Only limited quantities of British and Sileasian coal are available for export to
•jestern and Central Europe, and the shipment of American coal to Europe
is very expensive because of transport costs and cannot be easily expanded because of transportation difficulties. The present allotment of
Kuhr coal, agreed upon between the bizonal authorities and the French
Government, attempts to satisfy both domestic and foreign demand at least
to a somewhat higher extent than in 194-6, but the fulfillment of the program depends upon a substantial improvement in coal output. Coal production increased materially during the first three months of this year.
The advance, however, stopped in April and May, mainly because of labor
unrest caused by the tightening of the food situation. Satisfactory coal
exports from Germany thus will be possible only if increased domestic

production aided by increased imports makes available more food and other
consumer goods to the Ruhr miners.
Increased exportation of textiles will depend upon additional imports
of cotton and wool. Here again improvement of labor efficiency through
greater availability of food and other consumer goods is an important factor. Exports of lumber and potash encounter difficulties similar to those
faced by coal exports. Both these materials are needed urgently in the
German economy. Lumber is vitally important for pit props in the mines
and for housing—next to food, the most severe shortage hindering improvement in labor productivity. Potash for fertilizers is indispensable for
raising the output of German agriculture. On the other hand, Germany's
neighbors need those materials for exactly the same reasons.
Similar difficulties arise in the importation of industrial materials.
Since German exports have to pay for necessary food imports, imported materials should be primarily such as to make possible the production of exports. On the other hand, the considerations of labor policy which I .indicated earlier make it necessary also to import materials needed for the
production of goods for German consumption. Vie continually encounter this
problem of how much work individuals can and will do. As long as the wage
of a German worker can be used virtually only for buying the meager official
food rations and similar goods, the German worker has no inducement to increase his efforts in order to secure a higher income. Labor productivity
cannot be restored unless higher earnings are accompanied by a greater supply of consumer goods. To achieve this end would require a sharp increase
in the production of goods for domestic consumption. The occupation authorities must approve a program dividing available means between the importation of materials for export and for the domestic market. If a liberal
allotment is made for consumer goods, however, the decision will be severely
criticized by the uninformed public in the occupying countries, which have
to advance the funds for imports into the merged zones not directly covered
by German exports. If the allotment is not liberal, the Germans will be
inclined to feel that they are working for the occupying powers rather
than for themselves. Charges of exploitation of the combined zones by
American and British capital sound incredible to those who know the burden
that the American and British taxpayers have to bear in order to keep the
zones alive. Such accusations are often made, however, in Soviet newspapers and propaganda broadcasts to Germany, and it would not be surprising if some German workers were led to believe them. This would impair
the beneficial effects of our import policy upon the efficiency of German
Another difficulty is presented by the state of the German currency.
The occupation authorities have been able to maintain official prices and
wages at" only kQ to £5 per cent above the prewar level. Black market
prices, however, are either a multiple of the official quotations, or are
expressed in terms of cigarettes or foreign currency. Thus, the German
currency does not fulfill its function as a generally accepted means of
payment. The German price system was isolated fro'ii world market developments by the Nazi regime even before the war. This circumstance, aggravated by the disparity between legal and black market price levels makes
it impossible to" fix any given exchange rate as representing a reasonable
relation between the German and the world market price systems. Official
German prices would be completely out of line with world market prices

if they were converted into dollars at the exchange rate of 10 narks
equal to 1 dollar, which was established at the time of occupation for
purposes of military accounting. For this reason, the Joint Exportimport Agency has issued a list of so-called conversion factors, giving
lor each major type of commodities a specific relation between official
German prices in reichsmarks and world prices in dollars. For instance,
carbon brushes, which in Germany are selling for 100 marks, have a conversion factor of 30 cents per mark. This means that they are to be
offered in the world market for £30. On the other hand, certain pharmaceutical products have a conversion factor of 80 cents per mark, which
means that such goods selling in Germany for 100 marks are to be offered
m the world market for vBO. While this solution is not ideal, it is the
best that could be found at present.
In the long run, however, currency reform will be indispensable for
the rehabilitation of foreign trade with Germany. Such a reform should
be carried out by all four occupying powers in order not to create further barriers among the four zones of occupation. An American project
dealing with all aspects of the reform has for some time been under discussion among the occupying powers, and it is to be hoped that the relatively few unsolved problems can be settled in the near future.
Our efforts to reconstruct German foreign trade would be greatly
facilitated if Germany's economic unity were restored in accordance with
the Potsdam Agreement. Since the four zones are interdependent to a very
high degree, full merger would make possible a much more efficient economic operation. If, however, the four powers cannot agree on the terms
of unification, the American and British authorities will have to press
forward in their efforts to put at least their area of occupation back
on its own feet. This will require a reorientation of industrial production in the two zones, and an increase in industrial activity above
the level set by the four occupying powers about a year ago. Within this
framework the foreign trade program will make a decisive contribution to
the restoration of economic stability in Germany and thus in all of