Numbers appearing in square brackets (ex. ) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.
Opened March, 1979
Oral History Interview with
July 22, 1974
by Richard D. McKinzie
MCKINZIE: Professor Fetter, perhaps to begin I could ask you how an established academician happened to go into Government service in 1942?
FETTER: I had had some experience both with the U.S. Government and foreign governments before. When I'd just finished my graduate work at Princeton and Harvard, I went with Professor Kemmerer's financial commission to Chile in 1925, and then was with him on other commissions in Poland, in Ecuador, and in Bolivia in the
late 1920's. I then spent a year with his mission in China in 1929, when the Chiang Kai-shek government had just come to power.
I have one impression about that that might be worth mentioning. We were employees of the Chiang Government. How much of this we -- because I think I didn't differ much in my opinion with the others -- sensed at the time and how much was good second-guessing, I don't know, but certainly, as I look back on it, Chiang missed a great opportunity. Nominally, he had a unified China, probably on paper a China more unified than it had been for centuries. Although we didn't have proof at the time, I think we rather sensed the way in which his wife's relatives were simply looting the country. In retrospect, if there's any causality in historical development, the Chinese Communists deserved
to win, not in the sense that we'd like them to win; but that in view of the way in which the Chiang government behaved; it would have been very surprising if the Communists or somebody like the Communists hadn't taken over. The opinion I got -- and this was all secondhand -- of the crowd that was around Madame Chiang Kai-shek was an extremely unfavorable one.
Then I went back to teaching at Princeton. In 1934, the summer that I moved to Haverford College, I had an experience that I smile about when I reflect on it. The Foreign Policy Association, with the friendly cooperation of the Cuban Government of the day, sent a mission to Cuba which presented an extended report called, Problems of the New Cuba. It was published both in English and in a Spanish translation. The head of
that mission was Raymond Buell, an extremely able person who died some 25 years ago. One of the other members of the mission, whose name came to mind only a few weeks ago when I read of his death, was Ernest Gruening, later Governor of Alaska and United States Senator, who handled one of the sections of our work. I handled the work on the public debt and on public finance.
As I recall it, and I can't be sure on this, this was when [Fulgencio] Batista was just coming to power, and he was looked upon as the hope of liberation and freedom, a better day for Cuba.
In 1939, I went to Ecuador for the Export-Import Bank and spent about two months there, making a recommendation as to which of the proposals that the Ecuadorians had made for Export-Import Bank funds were worthwhile, and I made my report to the Export-Import Bank.
That's when I first met Warren Lee Pearson, who at that time was the head of the Bank. As I'll mention later, I met him again some 12 years later when he was the head of the German debt settlement commission in London.
The following year, I went back to Ecuador with the title of Advisor to the Central Bank of Ecuador. And this was to me, a very fruitful experience, and also it showed me the intricacies of Government.
There was, at that time, a piece of legislation (I think it was called, "Public 63"), which authorized the American Government to lend officials to South American governments to help them in various measures of administrative reform and economic policy. And as I got the story from my friends in Washington, the Ecuadorian Government had asked for two men, one in the field of public finance and one in
the field of monetary and banking policy. The Government said they would be quite prepared to send a man in public finance. Harold Glasser was his name; he was the assistant director of the Division of Monetary Affairs in the Treasury Department under Harry White. .And Glasser went down there for a year. The Government -- and again this is what I was told, and I think circumstantial evidence indicates it's correct -- said they were not in a position to send down anyone on monetary matters. I suspect it was that the Government did not want at that time to take a position on monetary policy for Ecuador. But they suggested to the Ecuadorian authorities that they get in touch with the Federal Reserve Bank of New York to see whether the Federal Reserve could recommend anyone. And, at the same time, the State Department called the Federal Reserve
and said in effect, "Fetter would be quite an acceptable person for us." So, I was sent down there and spent the better part of two and a half months with an office in the Central Bank.
One of the men I came in touch with there is a person who has since figured quite prominently in Ecuadorian history, Galo Plaza, whose father had been President of Ecuador at an earlier date and, like more than one South American President, had spent some of his time in exile. His son, Galo Plaza, who at that time was a man of probably not more than 35, was prominent in the government; later he became the President.
I remember Galo Plaza telling me of his experience in this country. I met his father at one time, and his father was an imperious type. You could well believe the story, as
his son told it to me, that he went to the University of California and played football, and at the end of the year he had pretty good grades. His father asked him how a boy like him could have gotten such good grades.
And the son said, "Well, they're pretty easy on football players here," whereupon the father exploded and said that if this was it, he wouldn't spend his money sending his son to the University of California.
The son also told me -- and again this is something I was not able to document -- that not only did he play football at the University of California, but he played either with or against Red Grange on Red Grange's first barnstorming tour in '25 or '26; and I could well believe it. Galo Plaza was a tremendous fellow, physically. Either he or one of his friends told me he had broken both of his arms, as a boy, bullfighting.
MCKINZIE: When you met him there and you were in this position as advisor to the Bank, was there any feeling at that time that somehow the world situation was going to require some kind of massive American assistance to get things on an even keel or was that not?
FETTER: I wasn't conscious of it. We were very conscious, certainly, of the German penetration there, and again, although I didn't have firsthand information, I could sense the split between the three German communities, the old German community, the refugees, and what you might call the Nazi representatives there. There were many stories that were told about that.
I remember one. There was a very offensive young secretary of the Hitler type in the German legation. There was a very fine restaurant run by a German refugee. (A number of small businesses in Ecuador were run by Italian
and German refugees) It was generally believed that the man who was running this restaurant had been hit by the German ethnic laws. In the lobby to his restaurant was a picture of a beautiful blonde woman, and the story was that one day this arrogant young Nazi attaché was coming to dine and he said to the proprietor, "May I ask, who is this lovely blonde lady?"
The reply was, "Why, Mr. Minister, that is our Aryan grandmother."
One had the feeling that the new groups -- there were some Italians there; too -- were making a real contribution to the economic life of Ecuador. You asked the question as to whether there was a sensing of the American struggle; I would say only in a most general way. But there is one thing that I remember very clearly, and the fact that almost no one knows anything about this today shows how much
strategic concepts have changed.
One of the great problems then, diplomatically, with Ecuador was the possibility of buying or at least getting bases in the Galapagos Islands; that's all water over the dam.
I also remember the tremendous shock in Ecuador -- this was on my second trip there, 1940 -- when Paris fell, because Ecuador had been culturally tied with France in a way that it had not been with any other country. The wealthy cocoa planters had sent their wives and their children to Paris to live and to be educated. It was a statement which I heard many times, and I think it was substantially correct, that you could recognize if an Ecuadorian woman or young man belonged to the real aristocracy because he or she spoke Spanish with a notable French accent.
This reminds me of one other thing about the old general, the father of Galo Plaza. Years earlier I happened to have crossed on the same boat on which he was going to Europe, and I had just come back from spending three or four months with the Kemmerer commission in Ecuador, so I introduced myself to the general. And we had interesting conversations and he said to me (this conversation was in Spanish, as I recall it), "America is a very fine place to educate boys, but not girls." He added, "Non es buena per las ninas porque devoelven demasiado independientes."
MCKINZIE: He preferred Paris.
FETTER: He sent his daughters to Paris, but he sent his sons to the United States.
There is one other little thing that might be of interest in connection with my second visit to Ecuador, when I was advisor of the
Central Bank. The man who was with me was Harold Glasser. Glasser later came into some unfavorable publicity, because he was charged with having some Communist connections, and also he took the 5th Amendment one time. I was very much interested in this when I read about it, because, as far as my contacts with Glasser were concerned, he was an extremely conscientious, almost meticulous public servant. One of the great problems that I discussed with him (great from his point of view) before we went down was where could he get a portable pasteurizer to prepare the milk for his children. Our contacts down there were probably a couple times a week; we'd get together and generally the theme of it was, how can we help these Ecuadorians when the government is so corrupt? And so, several years later I was quite amazed when I read that he had been asked by one of the
committees if he had engaged in espionage for a foreign power while he was in Ecuador, and he took the 5th Amendment. I suspect that this was done, not to the fact that he had been engaged in such espionage, but that he was a pretty stiff-necked fellow and had a very strong feeling on some things. But certainly in my connections with him, I never got the slightest indication that this is what he may have been doing when we weren't together.
MCKINZIE: What you've indicated so far is that you had built up quite a few contacts in the State Department by the time the U.S. entered the war in 1941. It was not then a bolt out of the blue when this business of the lend-lease came up.
FETTER: No. Sometime in the fall of '42 I got a call from someone in Washington, asking me
whether I might be free to go on leave from Haverford and do some work with lend-lease. I went down, and details are a little blurred after more than 30 years, but we had a discussion and it ended up that I was to go to India as a member of the lend-lease mission which was headed by Fred Ecker. He was then vice-president of the Metropolitan Life Insurance Company. And for approximately six weeks to two months, I went down two or three days a week getting my preliminary training and briefing, and doing odd jobs around the lend-lease. Then from the end of January on, I was waiting to leave when the first plane could take us. And it was nearly eight weeks after we were cleared and ready to go before we could get transportation to India.
One thing I remember in that period was how little information there was in Washington about the problems of India and the Near East.
It apparently had been the assumption, as I get it, that anything connected with India (probably the same went for Burma) was handled through London.
As I say, I had a number of weeks there when I was, in effect, on my own. My instructions were, "Do what you can to be useful." I helped on a few things on lend-lease, but I was free to go to other agencies and see what I could find out that would be useful for the work in India. I went to the Fed, I went to the State Department, I went to the Bureau of Foreign and Domestic Commerce, and literally what I could learn about India from them was no more than anyone could have gotten from clipping the New York Times for the previous year. The only place that did have any background was in the Office of Strategic Services. And curiously enough, this was not the dirty
tricks end of it; this was the research end. I found a most penetrating, comprehensive study of the political and the economic problems of India in a study that was done, as I recall it, by Professor Brown of the University of Pennsylvania, who was a Sanskrit scholar and who had spent some years in India. And I can say, literally, that he knew more about India than all the other offices of the Government put together, as far as I could find out.
MCKINZIE: When you were doing this casting about for information and familiarizing yourself with lend-lease, was there much talk about what long-range effect lend-lease was going to have on the recipients? There were clauses in the lend-lease agreement which required postwar cooperation, particularly in matters of trade, and presumably Cordell Hull had something to
do with that. I was wondering if there was any thought about how this might effect a place like India?
FETTER: There may have been, but it doesn't stand out in my mind. At least at the level in which I was operating, the question was, "Is this something that is appropriate to send to India to further their activities in the war?" If this steel was wanted for a military purpose, that decision was made largely by the military officers; we were working with civilian lend-lease, and the question would be, "If this is going for equipment for housing, is it housing essential for maintaining a working population?" (I use that as an illustration; it may not have been the exact thing.)
So, a constant term was "lend-leaseability," and I'm afraid we had very little to do with the big issues of what is going to happen after the
war. It was, is this something which is essential for carrying on the war? We had a larger thing, which I suppose in modern economic terminology might be called a "cost benefit analysis." Is putting resources into sending this shipment into India a greater contribution toward winning the war than putting the resources into something else? So, we had literally nothing to do, except as we wanted to talk in our spare moments, with the question of postwar policy.
MCKINZIE: When you finally did get this flight to India, what circumstances greeted you?
FETTER: We had a mission there of about six or eight people. We had, for a few days or perhaps a few weeks, headquarters in what was the office of the American representative there, Mr. Phillips (he didn't have the rank
of Ambassador, but he was Special Representative). And then we moved into an office of our own and our job was essentially this: the Indians want so many nails, they want so many dynamos, they want possibly so many undershirts, so many pairs of shoes. We had to go and ask just what the purpose was for this. We had to ask whether it was possible to satisfy that from a domestic source. And we also asked the question which is a question which the Indians sometimes didn't like us to ask; we'd say, "Yes, we know that the metal is necessary to build a house, but are you using any metal for non-essential purposes which could be diverted to that?" And I think that, as I look back on some of our toughest questions and perhaps some of the questions we asked which made us least popular with the Indians, one was when we said, "Yes, we know the steel we're sending
you is going to be used, but how about the steel that you already have here?"
MCKINZIE: Well, now were those questions that you had to ask, in your view, appropriate questions? The Soviet Union took the position that it was none of the U.S.'s business when those questions were asked, and quite often they wouldn't supply the information.
FETTER: Yes, I know it. Now, by and large we got the information, I think. Of course, in the case of the Soviet Union, I believe the questions were more in connection with military.
MCKINZIE: You then perceived that in an aid effort of that sort it was proper to know what production capacities of the recipient was and enough about the whole economy of that country in order to be able to best use that which the U.S. had to give?
FETTER: Yes. Without doing it in the formal way, we had to have a picture of the whole Indian economy. As I suggested before, the mere fact that these nails or that this machinery was going to be used for something that was clearly related to the war was not, from the point of view of our instructions, a necessary reason for granting it. So, we became, without perhaps formally defining ourselves in that role, people judging the Indian economy, how its resources could be best allocated. We thought of our job in connection with the whole Indian economy and not the specific. Now that you've prompted my memory on this, as I recall it, both the discussions that I had, and -- even more -- the discussions that the chief of our mission, Fred Ecker, had, often hinged on this. There was a constant pressure on the Indians, to tell them that it is not enough to show
that this particular thing that we're sending is important. What we want to know is, "Is this something that should be diverted from American use to your use, rather than having you divert something from some alternative Indian use?" And that was a constant subject, I wouldn't say of friction, but at least of insistence on our part for clarification.
MCKINZIE: With what officials in the Indian Government did you have to deal?
FETTER: The official I dealt with most in the Indian Government was Yeates, an Englishman who had been, I think, assistant director of the Indian Census and had been converted into a lend-lease specialist. The head of our mission, Ecker, dealt higher up, and occasionally we would consult with the military people there. I remember that I had discussions with Colonel
Keating, who later became Senator Keating from New York. I don't recall the details, but here would be something that would be coming in that wasn't a military request but had something to do with the production of military products. We'd stop in and see the military officers and say, "What's your judgment on this?"
MCKINZIE: Franklin Roosevelt's dislike of British colonialism is well-known and Secretary Hull's dislike of the British sterling bloc is well-known. Were those ever factors in your dealings with people in India?
FETTER: Not directly, and we never had what you'd call arguments with the Indian officials on this. And I might add one comment here.
We on our commission were aware of it, but we found that a number of people back in the States were not aware of the distinction
between what was known as "HMG," or "His Majesty's Government," and the Government of India. There were some problems about this that arose after the war, when it developed that certain things had been requested by a white man, and, hence, someone in Washington thought they must have gone to the British Government. But a high proportion of the officials we dealt with of the Indian Government, were British and not Indians. I remember the surprise of some official in Washington when he learned that when things had been requested by a white man, they may have gone to the Government of India.
This may have been personal more than anything affecting our group, but I sensed at the time a feeling on the part of the British officials, "the British Empire will always be here." And I think all of us a little bit
reacted against the notion that the British were just going to continue to control India from there on out. I'm a little hard put in my own mind to say how much of this is my own thought and how much the thought of others, but I think there was a pretty general agreement in our informal discussions that British rule in India was over, whether it would be over in two years, five years, or twenty years. The spirit of nationalism was a pretty vigorous force then. The fact that many of the Indians were cooperating outwardly and, perhaps, sincerely with the British due to the feeling that, at the moment it was much better to have the British here than to have the Germans here. We had enough contact with Indians to get off-the-record denunciations of the British from people with whom we were working and who were as far as we could see, loyal servants at the
moment. It left a number of us I'm sure -- certainly me and a number of others -- with a feeling of, "Well, time is running out. We don't know when it's going to run out." (It ran out faster than we figured.)
MCKINZIE: You didn't hear them talk much about what was going to happen as a result of the huge sterling balances they were going to have at the end of the war?
FETTER: There was a good deal of discussion of that, but we weren't involved in it. It was something that didn't affect our particular job; there's only so much you could do.
I can remember a story which I'd heard many years before and I'm sure it was told a couple of times in our group. An American visited India in 1913 and met a prominent Indian who denounced the British in every way, shape, and form. When he finished, the American said,
"What you say may be true, but have you ever thought what the situation of your country would be if it were ruled by Germany or Russia?"
The Indian replied, "Yes, and that's why I'm such a loyal subject of the British crown."
And we had a feeling that there were a good many thousands of Indians who had much that feeling. They may not have expressed it, but as long as Germany was a threat they were for the British. When Germany was no longer a threat, the British were to get out in a hurry.
MCKINZIE: What brought you back from India?
FETTER: I was there for a total of nine months and there was some rotation of people. I think that most of the original Ecker people had gone home; Ecker had returned; one of the other men had returned; and I don't know whether I
specifically requested it or not, but there was an informal understanding (if not an understanding, a practice) that a year out there and you came back. Most people wanted to come back.
When I came back, I transferred to the State Department and at first was in the position with a title something like Advisor on British Commonwealth Affairs, which involved doing a miscellany of jobs. Then I became head of the Division of Lend-Lease and subsequently the head of the Division of Economic Development -- I say "head" of it; these were relatively small organizations. I was never in on what you would call "top level" things, but there are a few very definite recollections I have, and impressions. First, I had the greatest admiration for Will Clayton. I was tremendously impressed, not only by how well he did each
job, but by the stature of the man. He was a person who, if he had chosen to go into law, would have been a great jurist; if he'd gone into the teaching of classics, he would have been a leader in the classics profession; he could have been a fine college president. He was a man with relatively limited formal education but was a most successful businessman; and I have the greatest respect and regard for Will Clayton.
MCKINZIE: What do you think of his economics?
FETTER: It was a bit on the conservative side, but still, if you had to choose, I usually would go along with him. Incidentally, he was one of the few people there, I think, other than Harry White, who could stand up to [John Maynard] Keynes. Keynes was not a person who suffered fools gladly, and not only
didn't he suffer fools gladly, but he didn't suffer gladly people whom he thought were below him intellectually. And my impression was that he did not make himself too popular with the Americans, particularly toward the later days of his stay over here. He was tired and he was getting impatient, and what he thought were lesser minds annoyed him no end. Only once was I ever in a meeting with Keynes; I don't say that I met him, but I was in a gathering where he was. And I more than once I have thought back both on the strange things that happened in Government and also on the fact that Keynes probably was past his prime. Here was a man who supposed to have had a more revolutionary effect on economic thinking than anyone since Adam Smith, and he was a bit frustrated by the opposition, some of which he felt petty, to his ideas.
The particular conference in which we were involved the discussion of whether certain particular products would go under lend-lease, and the Americans had ruled out ping pong balls to be used for recreation places behind the lines. This was a lack of political savvy on Keynes part, but he made his great plea on behalf of ping pong balls, pointing out with considerable logic that for the boys who had been under fire for a week or ten days, ping pong balls may be as essential as anything else. But it really didn't go over very well, and it seemed to the Americans that ping pong balls were not something which should come under lend-lease. This was my one and only meeting with Lord Keynes.
There was one other meeting that left an impression on me. There was to be a big meeting in Secretary [Henry J.] Morgenthau's office,
at which the various people who were in charge of the lend-lease in the Army, the Navy, and probably civilian agencies were to report to Morgenthau on how they were to carry out a directive that President Roosevelt had given them. I had not been in on higher policy, but I'd done something of the low level work, and I went along there carrying a brief case. I remember I sat next to James Waterhouse Angell, then the Professor of Economics at Columbia and now retired and living in Massachusetts. And there was an imposing array of military and naval brass there. The Army representative made a report which, in effect was, "We have the President's instructions as to how we're to allocate lend-lease, and we will carry them out." The instructions were that a certain amount of material was to go to British, looking on the war as a joint enterprise, and that we
would look at American resources, not in the relation to what the American Army said, "We would like," but what the top command said was best suited to carry on the war. And as far as I could see, the Army carried out instructions. The Navy representatives then gave a report which, in effect, said, "We will carry out the President's instructions insofar as the Navy thinks it's advisable to carry out the President's instructions." I wasn't aware really of what the background of this was, but when this particular official made it, you could just feel a hush go over the group.
Angell turned to me and said, "This is scandalous!"
Morgenthau (this being my first and only time I'd seen him in a meeting, and about whom I'd sometimes heard critical comments) I thought
as magnificent. He had a big bowl of apples up on the table, and more than once he referred to himself as a Duchess County apple farmer. Now, whether he was actually chewing an apple while he made these comments, I don't know, but at least figuratively he was a Duchess County apple farmer. After the Navy had, in effect, issued a mutinous statement that they and not the President of the United States were running the Navy, Morgenthau said, in effect, "I don't think that what you have reported here is in accord with the President's instructions." There was sort of a hush, and the Admiral sat there with pursed lips. Morgenthau said, "I think that you'd better call back to the Secretary's office and clarify this."
And the spokesman of the Navy said, in effect, "Well, I think it'd be very difficult to get in touch with the Secretary now."
Morgenthau sat just as calm as if he were chewing a Duchess County apple, and said, "There's a phone in there; we can wait."
And so he went in and the audience sat there like kids in school; how does the teacher handle a sassy boy? And Morgenthau literally took those admirals, took their pants down, and spanked them in front of the audience. After about five minutes the Navy man returned and in effect said, "The Secretary says that it's appropriate to carry things out the way in which you have suggested we should." The Admirals sat there with pursed lips, and the business continued.
Now, undoubtedly, this could be checked against Morgenthau's diary, but that is my recollection of it, and it gave me a picture of the mutinous attitude of the Navy and of the way in which, at least in that situation,
Morgenthau handled it beautifully. Of course, he knew he had the power of the President in back of him.
MCKINZIE: Professor Fetter, did it seem, to you, a hindrance to the operation of lend-lease to have so many chiefs involved? That is to say, to have the State Department handling, in a sense, policy but at the same time sharing policy responsibility with the Treasury Department and with the military people? Was there a clear idea of what was happening and unanimity?
FETTER: Well, again, I wasn't high enough in the policy making organization to be really conscious of the details on that. There was certainly a very strong feeling that the Treasury under Harry White was running its own foreign policy, that Harry White did pretty much as he pleased. There used to be a statement, which
probably wasn't literally true, that Harry White thought it was more important to pass on information to the Russians than to pass it on to the State Department. There may have been a bit of venom in that, but even taking away all of the innuendos and all of the unfairness of that statement, the Treasury Department made available mighty little information that it didn't have to. And I think that you'd have to get the real story on the frustrations on this from people higher up, because we just got, at our level, what drifted down.
MCKINZIE: With what major issues did you cope when you came back and were assigned to this office of lend-lease?
FETTER: One of the big issues was the question of lend-lease settlements and how much we were to get from the various countries. It was
particularly acute (and I wasn't involved deeply in it) with the South Africans, because they had a large gold reserve.
I remember one of the issues that came up repeatedly was the question of making payments in credits which could be used within the paying country. As regards the British, almost from the beginning, the comments used to come up, usually through congressional circles, substantially to this effect; "We realize the British don't have dollars; we're not going to be hardhearted. But they've got a lot of pounds; just pay us in pounds and that's all we want." And the British consistently said, "From our point of view, a payment in pounds is the same as a payment in dollars, because if we give you pounds which you're free to use, it simply means that our source of dollars dries up." And in manifold forms this thing would come up. I don't know whether I ever
drafted any letters, but I was certainly aware of the questions which were coming into Will Clayton and others. And the economists there in the State Department almost completely agreed with the British. We might disagree on how much they could pay, but we agreed on a point that if the British say, "Here are ten million pounds, you can use them," this was, in effect, the same as turning over in the equivalent in dollars New York. So, the British were constantly saying, "We won't pay anything in pounds that we're not prepared to pay in dollars." Congress was saying, "We're bighearted; we don't want dollars. Just give us pounds." And one of the most interesting aspects of this, as I recall it -- and my recollection is so different from what I think is the view that has gone down in history that it ought to be checked -- was that if not originating this idea
at least actively pr