Raymond W. Goldsmith Oral History Interview

Notice
This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.

Numbers appearing in square brackets (ex. [45]) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.

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This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.

Opened July 1977
Harry S. Truman Library
Independence, Missouri

[1]

MCKINZIE: Professor Goldsmith, many historians would be interested in the kinds of people who worked on economic problems in the Truman administration. Would you tell me a little bit about how you first became associated with Government work in, I think, 1934?

GOLDSMITH: I started in 1934 at the Securities and Exchange Commission in the then very small

[2]

Research Division headed by Doctor Paul Gourrich, and slowly worked up as it was rapidly enlarged. I was for a number of years, from about '37 to about '39, in effect Deputy Director. When Dr. Gourrich got another job within the SEC, I became the head of the Research Section which became part of the Trading and Exchange Division. I stayed there until early '42 when I transferred to the War Production Board, where I worked in the economic side of the Planning Division, headed by Professor Simon Kuznets, the Nobel Prize man. The boss of the whole show was Robert Nathan, who since 1946 has had a fairly big consulting firm in Washington. I dealt mainly there with problems of war finance. I also worked on war expenditures and war production of other countries, allies as well as enemies, and wrote several reports in this field. Finally I wrote

[3]

a long memorandum on the submarine war together with James R. Newman, the well known writer.

I stayed on there until 1947, I think, when Mr. [Joseph] Dodge, whom I met in Berlin (as I will refer to in a minute), asked me to come along with him as economic adviser for the Austrian State Treaty negotiations in Vienna. David Ginsburg, a very well-known Washington attorney, was his legal adviser and really the brains.

Then after that I did a few odd jobs for the State Department until early 1948 when I went back to academic work, doing a three volume study: A Study of Saving in the United States. Let me get back to the most interesting part, which was the committee to evolve a plan for German currency reform.

Mr. Dodge at that time, i.e. in 1945-46,

[4]

was the head of the Finance Division, in General [Lucius D.] Clay's Military Government. On Clay's legal staff was Mr. David Ginsburg, who had, since he was very young, been drafted into the Army and was at that time a captain in the Army. He knew me because his wife and my wife were good friends, and we lived in the same apartment house in Washington.

I paid him a short visit in December 1945, after I was through with acting as statistical advisor to the American delegation to the Reparations Conference. We had talks, and then in the spring, they asked me and Gerhard Colm, who was by that time one of the top economists in the Bureau of the Budget. So we went over and we right away decided it was best to invite Mr. Dodge to join us. So it became a three-man group, the report which the mission submitted in the spring of 1946,

[5]

is usually known as the CDG, Colm-Dodge-Goldsmith, report. We were for about three months in Germany, traveled around half of the time and spent half of the time in Berlin. We had really argued out the essence of the plan on the plane flying over.

MCKINZIE: Whose original idea was it?

GOLDSMITH: Colm and myself, I can't disentangle the share of the two of us, but we had the basis of it when we went to Germany. Of course, we had to firm it up and one of the big jobs was, number one, to talk to all possible people in Germany who could help, and number two, also keep liaison, since at that time everything was quadripartite.

The British had a very good man at the head of their Finance Division. His name was Paul Chambers, he's now Sir Paul Chambers. He's been

[6]

chairman of Imperial Chemicals and came to grief when a merger didn't work out; but he's still a big shot. He came from the Indian civil service.

MCKINZIE: Who was the Frenchman?

GOLDSMITH: I forget the name of the man whom they had sent. I simply don't know. They played no great role. The Russians had an excellent man, Mr. Maletin who later became a vice minister of finance and may have already have been that when he was sent to Berlin. He came from around Murmansk, and his father was a fisherman, he was extremely smart, and also spoke excellent academic Russian, like cultivated people do.

So, we sat around with them and had a number of very interesting discussions. Of course, we never got together, everyone had his

[7]

instructions. One time, I remember that was around Easter 1946, the Russians invited us to take a trip with them to Prague, through the Russian occupied zone, but, I regret to say, since we just drove through, all we saw was Leipzig where we stayed one night.

Since the people who had been high up in the Nazi council were ruled out, we consulted a number of older people whom, generally, Dr. Colm knew from before 1933. We talked with all of them and there were numerous plans floating around. The report we made has been printed in one of the German economic periodicals and was translated a few years later after it was de-classified. So we traveled through the American zone, but also through the French zone and British zone. As a matter of fact, there was at that time a joint western sort of headquarters, I think in Minden.

The result of all this was a report which

[8]

when we left we submitted to General Clay, and it's that report which later was published in Germany.

This report really had two essential parts. The two essential parts were, first, that all monetary claims, currency, mortgages, whatever it was, must be written down in the ratio of ten to one, so what had been a hundred reichsmarks became ten deutsche marks . The second was, that since the first step, of course, could not do anything from the point of view of social equity, that the Germans were supposed to put some levy on those people who gained by this operation and to some extent to compensate those who lost. This was called an Ausgleichsabgabe -- equalization fund.

General Clay accepted the first part of the plan, but did not accept the second one, saying, "We are not here to introduce social

[9]

reforms into Germany. If the German Government wants to do that it's all right, but I'm not going to do it." He simply regarded this equalization levy as too close to socialism.

MCKINZIE: Had you discussed this point with him before you left?

GOLDSMITH: We had, of course, explained why we had made this suggestion. There is a description of his reaction in his book on his experience as military governor. I should say that I have the highest opinion of him as administrator. He was extremely fair and he mercilessly dealt with anybody on his staff who didn't have the answer. He never said so, but I'm sure that the reason he did not want to go into this second part, which we thought to be the really an intrinsic part of the whole plan, was that this was against his conservative feelings.

[10]

He was a very close personal friend of Jimmy [James F.] Byrnes, and Mr. and Mrs. Byrnes once visited Berlin, and of course, they stayed with the Clays.

The Germans, as you probably know, never did go ahead with the Ausgleichsabgabe we had envisaged. They did, of course, make some quite substantial compensation to people who suffered from the Nazis. But that was not what we had intended. Ours was to compensate the people who were losing by the currency reform. They did a few odds and ends, but after a few years the country was prosperous enough that nobody cared anymore. The ratio of ten to one unfortunately was somewhat changed in the actual reform which came one year later. In the early summer of 1948 the four powers broke up and at that time the whole quadripartite arrangement exploded, and it became obvious that the westerners were to do

[11]

in their zone what they wanted, and the Soviets in theirs what they wanted. There had already been available for many years, a supply of German bank notes printed, and the plates were never given to the Russians as far as I know. In Austria they were not given to them -- and the man who was the head of the finance division in Austria, the Professor of the University of Minnesota, [Arthur W.] Marget, always regarded as one of his main achievements that he had prevailed upon General Mark Clark not to hand the plates over to the Russians.

In '49, then when the quadripartite arrangements broke up officially, we put through a currency reform. But unfortunately, to be on the safe side, the actual write down became one to fifteen, because they froze part of the written down tenth.

My feeling has always been that this was a

[12]

serious mistake, because it led to a very low price level in Germany, and wage level, and it gave them a great competitive advantage, but by the fifties or so they lost it. But I think it was a serious mistake and a lot of the troubles that we've had in international monetary affairs, was due to their having over-cut the money supply.

When a devaluation is too sharp, you undervalue the currency and thereby give an advantage. That's what the French did in the 1920's, and which they did again in the late forties, with excellent effect each time; it's even possible that Clay and his advisers did this consciously, because late in '48 there came, of course, a great shift from treating the Germans as a conquered country to treating them as future Allies and, hence, of harming them as little as possible. That also led, of course,

[13]

to the stopping of reparations in kind.

All in all I'm quite proud of the plan. It's the nearest I've ever been in this life to the higher levels of policymaking and I think even after 20 years this will stand up. It would even have been better if it had been really a one to ten write down. It's difficult to figure out what it actually was, because a part the new marks were frozen in a way that differed according to all sorts of complicated regulations. The effect was that the money supply really was cut effectively by well over one to ten, I would say between one to twelve and one to fifteen, and I think that this gap was responsible for a great deal of the trouble by undervaluing the mark, the troubles we've had to the middle and late fifties. After that, of course, this disappeared, and the Japanese began to be the "bad boys."

[14]

MCKINZIE: At the time you were undergoing this study, did General Clay or anyone else on your staff talk to you about the place of Germany in the future of Europe?

GOLDSMITH: No. I think Clay was not given to general talk. He just handled one thing after the other as it came. He was an operator and administrator. I'm sure he had some ideas, but I don't remember that they were discussed. There were always, in the military government, two wings: the one which while, of course, not adopting the Morgenthau plan as