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Frank A. Southard, Jr. Oral History Interview

Oral History Interview with
Frank A. Southard, Jr.

Director, Office of International Finance, Treasury Dept., 1947-48; associate director, Research and Statistics, in charge of International Section, Board of Governors, Federal Reserve System, 1948-49; U.S. executive director, International Monetary Fund and special assistant to Secretary of the Treasury, Director of International Monetary Fund, 1949-62; and U.S. alternate governor, board of governors of International Bank and Monetary Fund, 1949-62.

Washington, D.C.
March 16, 1973
by Richard D. McKinzie

[Notices and Restrictions | Interview Transcript | List of Subjects Discussed]


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.

RESTRICTIONS
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 It may not be published in full except by permission of the Harry S. Truman Library.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 February, 1976
Harry S. Truman Library
Independence, Missouri

[Top of the Page | Notices and Restrictions | Interview Transcript | List of Subjects Discussed]


Oral History Interview with
Frank A. Southard, Jr.

Washington, D.C.
March 16, 1973
by Richard D. McKinzie

[1]

MCKINZIE: Mr. Southard, do you recall how you happened to be approached by John Snyder in the middle of 1947 to come down and work for the Treasury Department? You mentioned previously that you'd been back at Cornell in the economics department after the war.

SOUTHARD: Well, I'm not sure of what caused him, to approach me. The direct approach was made to me by Andrew Overby, who was then Special Assistant to the Secretary of the Treasury, and who had been borrowed by Snyder from the Federal Reserve Bank in New York. Secretary Snyder wanted (well, if we back up a moment please), the position held by Harry White as Executive

[2]

Director on the Fund board representing the United States was vacant with the resignation of White. And Snyder wanted to propose to the President that the President nominate Overby, because it is a Senate confirmation position, to be the U.S. Director in the Fund. So, he had to find for himself, someone to take over the international work in the Treasury. And so Overby approached me, and I came down to discuss it in, I guess, roughly March, 1947. I first said, "No, I couldn't leave Cornell so soon again on leave of absence," but then I decided that was the wrong decision, and the president of Cornell agreed I could take another year of leave beginning the 15th of July.

Why was my name -- I didn't know Overby at all, and I didn't know Secretary Snyder. Edward Foley, who was then -- I guess he was then General Counsel, but he later became Under Secretary under Snyder (Under Secretary of the Treasury) -- told me that he was the one that suggested my name to Snyder. It could have been true. I'd

[3]

known Foley when I was in the Treasury before the war and we'd been together in the war -- that's possible. But in any case, I came at the request of Snyder, and took over on the 15th of July 1947 the position of Director of the Office of International Finance, which was created as of that day to handle the Treasury's international work.

MCKINZTE: Did you find that a lot had changed since you were in the Treasury the early part of the war years? That is to say, the Treasury was more involved under Snyder in international matters.

SOUTHARD: I don't think that would be accurate. The Treasury under [Henry Jr.] Morgenthau, up to the time I left it -- and I was only there from January of '41 up to the time I went in the Navy in July of '42 -- the Treasury was very active because Morgenthau was close to [Franklin D.]

[4]

Roosevelt and Morgenthau had a pretty good team around him. But the real difference is, of course, that there was only one preoccupation in the Treasury in that period and that was the coming war. We were involved in lend-lease very actively, and economic warfare, pre-emptive buying and plans for wartime operations, since everyone prior to Pearl Harbor, I think, was proceeding on the assumption that one way or another we were going to get in the war. So it was a totally different atmosphere, but the Treasury was thoroughly active. I would say the difference was twofold: First under Morgenthau, Harry White and company, there was very little easy collaboration with let's say the State Department and so on. If we collaborated we had to do it privately. Whereas, of course, under Snyder and the Truman setup there was a relaxed collaboration, and then, in addition, by the time I came back the U.S. had joined the Fund and the Bank, and the Bretton Woods Agreement

[5]

Act had been passed by Congress, and it provided for the setting up of a National Council -- I've forgotten the full name -- National Council...

MCKINZIE: National Advisory Council on International Monetary and Financial Policy.

SOUTHARD: ...and in that period under Snyder the Council was very active. It still exists. I think it has become a much more pro forma body, but it was very active then. He always sat in the chair and called meetings regularly. And this provided a ready-made interdepartmental collaboration -- it was very easy.

MCKINZIE: Well, you've come immediately to one of the major questions I wanted to ask you to discuss, and that was about the State Department and the effect of the close personal relationship of Secretary Snyder with President Truman? Some scholars have said that that gave the Treasury a kind of special in. That Secretary Snyder did

[6]

in fact know in some cases, better, maybe, than State what the President was thinking about.

SOUTHARD: Well, there's no question, of course, that Snyder was back and forth across the street to see the President anytime he needed to be, either on his initiative or the President's. He did have that kind of easy access. But I think we do have to bear in mind that the Secretary of State also had ready access to Truman, and I don't think that the Treasury had so clear a line to the White House that the State Department was in any real sense "frozen out." If we take the work that was done on the two really great international initiatives of the Truman administration in my field; one was the Greek-Turkey aid, and the other of course, was the Marshall plan. Now in both of those the lead was taken by the State Department in my experience, in the sense that it was the State Department that was chairing the setup. In the

[7]

case of the Marshall plan I was chairman of the interdepartmental group that was working on the purely financial side, but we were, in fact, meeting in the State Department Building, and we were meeting weekends and everything else. And people like Ty [C. Tyler] Wood, who, incidentally, is still in town -- I don't know whether you've talked with him -- and, now General [George A.] Lincoln, who was then a colonel, I guess, and was very active, we were all physically over in the State Department, and the State Department was really taking the lead. I had the feeling that we in the Treasury were firmly in the saddle on the financial side of all that work. But the State Department was the one that was putting all the pieces together. We were fully active in the general committee, and we had our own financial group that was doing the financial side.

MCKINZIE: Do you recall those discussions which took place in late summer of '47 and the fall, about how much Marshall plan aid would be in fact

[8]

required? There were two or three figures bandied about. I think the CEEC in Europe came up with originally a twenty-nine billion dollar figure, and then it was cut to twenty-one, and then of course, down to about seventeen. The Treasury Department and you yourself were much involved in that.

SOUTHARD: Yes, we were, but not in the sense that I could say that we were the ones that did the work in that. We were collaborators with the other people in State.

MCKINZIE: How much time did you spend on Capitol Hill the summer of '47?

SOUTHARD: The summer of '47 nearly none. And there again the continuing kind of liaison, day-to-day trying to keep Senators and Congressmen informed was being managed by State. It was not until, as far as we in the Treasury were concerned -- as far as my personal appearances are concerned and

[9]

those of Secretary Snyder -- it was not until, we really were putting the thing together and were ready to go into testimony that we began being in contact with it.

Now, I could back up and say there was one other thing where the Treasury was taking the lead. There had been worked out before I came back to Washington, of course, the big loan to the United Kingdom, the Anglo-American Loan Agreement. And the British resumed convertibility I guess the day I came to town, June 15, 1947. And it was evident immediately that they were in deep trouble. This was a premature effort. I had nothing to do with the drafting of the agreement or with the decision to hold the British to it; but almost the first thing that I was told when I got here by a young man that I brought in who was borrowed from another department, Lowell Pumphrey, who came in to see me. He said, "You know, there's no question at all that the British are in trouble." So the first thing that we had

[10]

to deal with was the almost complete collapse of sterling and the spending of the entire loan in a futile effort to support convertibility of sterling. So we had to do some frantic improvising and late night meetings with the British in the Treasury, and Snyder having quick meetings with the Secretary of State and so on, in his office, to try to decide what to do next -- someway, if you will, of reading into the agreement an escape clause which wasn't there, because it was drafted with no escape clauses in it.

MCKINZIE: Did the British themselves have any suggestions?

SOUTHARD: Sure. They wanted to be able to stop convertibility. And in the meantime, to spend the money. Well, we agreed that they'd stop convertibility. We froze the balance of the loa -- there wasn't all that much left. Then in subsequent weeks when the British were as hard up as they could be and desperately needed the balance of

[11]

the loan, Secretary Snyder, with me with him, went up and talked privately to Senator [Arthur H.] Vandenberg and some others telling them that we really had no choice except to let the British spend the rest of the money. There was no other source of money at that time; the Marshall plan didn't exist, and lend-lease was over. The people we talked to nodded their heads and said, "Okay, if this is what you feel should be, we won't criticize it." There the Treasury was taking the lead. But in the Marshall plan, we were partners with State, who, in my opinion, was really taking the lead in all of the planning and in planning all the testimony. We went up, Secretary Snyder and I and some others, to testify on the financial side of it.

MCKINZIE: I noticed that about every day or every other day you wrote with [Thomas J.] Lynch...

SOUTHARD: Who was then General Counsel.

[12]

MCKINZIE: ...memorandum to Secretary Snyder giving a fairly full account of what various people had told the committees of Congress. I take it, then, you were the Treasury's contact on Capitol Hill for the period of the presentation of the Marshall plan.

SOUTHARD: Yes. We were up there much more often than our own testimony called for. I was just saying that when it came to active testimony we did only a small part of the whole testimony. I think the record will show that.

MCKINZIE: Was there any Treasury feeling that you ought to confine your remarks simply to financial remarks or was there some dealing with the sort of reconstructed isolationists on Capitol Hill, and a kind of commitment to the general cause?

SOUTHARD: I can't recall that I was doing a whole lot of missionary work outside of the committee rooms. My memory is getting faint on that, but

[13]

I can't recall, that I was, at least, and I don't believe other Treasury people were. Of course, the financial side of the program was a very big side of it. We were testifying on the whole question of repayment terms, if any, use of counterpart funds -- all of this fell to us to make the case up on Capitol Hill.

MCKINZIE: How did you happen to go to the Federal Reserve in 1948?

SOUTHARD: Well, I had planned to return to Cornell at the end of the year; and you may remember that there were not very many people that thought that President Truman was going to be reelected, and I really think that included Secretary Snyder. At least he was busy clearing out his collection of bric-a-brac, and so on. So he had never proposed that I stay down here, because, as he told me later, he didn't have anything to offer, because he didn't feel that prior to the election he was in any position to make any

[14]

forecasts that he himself would be there. I had every intention of going back to Cornell. Then the Federal Reserve approached me to come there and take over their international work. The then Chairman of the Federal Reserve was Thomas B. McCabe, who had been president of Scott Pager. I thought it over and decided that I should resign from Cornell and stay in Government service.

MCKINZIE: That was a fairly major career decision about getting out of the academic world.

SOUTHARD: Yes. I realized that at the end of three crowded semesters back at Cornell I was getting head over heels in university administration, and that inevitably, if I stayed in university work, I was going to end up in administration as dean or college president, I wasn't going to stay in teaching. I liked that sort of thing -- policy making if you will. So, I decided that I really wasn't making a choice between

[15]

teaching and research on the one hand, and Government work at the policy level on the other; I was making a decision between the Government policy level on the one hand, and university administration on the other. True, I might have been able to hang on to some teaching, but looking around at friends of mine who had thought they could do that, I saw almost none of them ever succeeded in making the compromise between university administration and continuing teaching.

Well, then, I hardly made that decision and got over to Federal Reserve until Mr. Truman was elected, and Mr. Snyder found that he was going to continue to be Secretary of the Treasury. So then he asked me if I would do both jobs for about six months. Not as Director of the Office of International Finance but as Special Assistant to the Secretary of the Treasury and Associate Director of Research in the Federal Reserve, He said he had to have

[16]

somebody at the policy level, so I agreed to do it; and I shuttled back and forth half a day one place and half a day the other for some months.

MCKINZIE: So you never completely got out of international finance

SOUTHARD: I never got out of the Treasury, really. Then it was proposed that Mr. Overby become the Deputy Managing Director of the Monetary Fund. That position hadn't existed before; but the then Managing Director of the Fund, Camille Gutt of Belgium, felt he had to have a deputy -- they had a Vice President in the Bank and he had to have one, which was fair enough. And so the IMF Board agreed to create the position, and then he invited Overby to take the position, and Overby decided he would like to do so. So Snyder, again, had to find someone to be U.S. Executive Director in the Fund. Of course, the nomination would be made by the President, but you know how the Government

[17]

operates. This position was within the purview of the Secretary of the Treasury, and by and large the President would do what the Secretary recommended. So then Snyder asked me if I would be willing to be U.S. Executive Director and continue to be Special Assistant Secretary to the Secretary of Treasury, without salary; and I did so. So, that meant that in March '49 I resigned from Federal Reserve, and went to the Fund. I had those two titles from then until 1962 under each Secretary of the Treasury in both Republican and Democratic administrations.

MCKINZIE: It was a good way to keep liaison between the two.

SOUTHARD: Yes. Because as Special Assistant to the Secretary of the Treasury I could act as a Treasury official at times in international meetings at Paris and so on, under that title without getting myself involved as U.S. Executive Director in the Fund; oftimes that was very useful.

[18]

So I continued, therefore, for the rest of Snyder's time to be his adviser in international financial matters.

MCKINZIE: When you first took the job there was rather a difficult controversy breaking, was there not, about the European Payments Union? Do you recall all of that business?

SOUTHARD: Oh, yes. It wasn’t when I first took the job.

MCKINZIE: Well, shortly thereafter. Wonder if you could maybe think back in your memory and tell us about that?

SOUTHARD: Well, yes I can, I guess. This was at a time when Richard Bissell was one of the Deputy Administrators in the Marshall plan setup in Washington under [Paul] Hoffman. He was a very active man, very energetic intellectually, and he and his people were the ones who proposed the idea of a payments union. It first started out

[19]

in a preliminary form for a year under an awkward name, Inter-European Payments Arrangement or something like that.

The main controversy within the NAC, in which I was active, was not over the idea of developing some such payments arrangement which might help countries to break out of rigid bilateralism on the payment side. Some of us, and it certainly was true of me, felt very strongly that the scheme should be very positively oriented so that it would force less and less bilateralism, as the time went on, by having a combination of book settlements and of hard currency settlements within the group, so that you had partial convertibility within the ERP area, and therefore, the contrast between that area and the dollar area would be less and less sharp. And I think that it is accurate to say that Dick Bissell and some of his colleagues at first were thinking in terms of a very slight mechanism to step up

[20]

progressively, the percentage of hard currency settlement as a country became more and more indebted under the plan. I think the main thing that was achieved in that controversy was that we came out of it with a sharper, steeper progression of hard currency settlement in the scheme, so that the amount that had to be settled in hard currency as against book settlement became higher and higher.

MCKINZIE: So, from your view, then, there was some benefit, some help for the Fund?

SOUTHARD: I would say that, while we had strenuous arguments, I don't think anyone really was fighting in principle here, and the end result, I think, was amiably agreed within the group. I guess Bissell still would have preferred what he came in with, and I would have preferred something even harder, but it was a reasonable compromise and it worked all right. The Treasury effort during that whole period, and

[21]

it was my effort here in the Fund to keep pushing hard for European and other countries -- the British Commonwealth, for example -- that were on a largely inconvertible currency basis to make progress toward convertibility in place of discrimination against the dollar area by rigid exchange controls. Whenever we saw evidence that a country situation was improving, we would press hard to get it to reduce its discrimination against the dollar area. The Treasury, not only in the Truman period but thereafter, was always pushing hard on that issue right down to 1958 when we reached the point where European currencies largely became convertible.

MCKINZIE: In those very early days -- first three years or so of operation of the Fund and the Bank -- how much was that really a United States operation? To what extent was the United States in a position to, and in fact to what extent did the United States direct matters? I know Eugene Black used to send memorandums to President Truman saying

[22]

what the International Bank did and was going to do.

SOUTHARD: I won't answer for the Bank. As far as the Fund was concerned the American voice was, of course, the overwhelming voice not only because we had at that time a considerably larger percentage vote than we have today, as new members have progressively come in. I guess it was very nearly forty percent when I first came in. Not only because of that, but because of the overwhelming financial power of the United States; so that if we took a policy or operating position and pushed it, it was extremely difficult for other countries to resist us. This is a sheer question of power, and the United States had tremendous power, of course, at that time to call the plays if it really wanted to.

To elaborate, during the period of the Marshall plan we pushed through a decision -- the so-called ERP decision -- in the Fund, which in effect said

[23]

that, in view of the huge amount of aid which the U.S. was giving and in view of the kinds of payments problems that the countries in Europe faced, it was not desirable that the Fund's resources be used by them. For all practical purposes we put the Fund "on ice" financially during that period. Not only were there no agreed policies as to how to use the Fund, but the U.S. was disinterested in seeing the Fund used during that period when the U.S. was providing ERP aid, aid to Korea, aid to Taiwan, aid to other parts of the world. Moreover, a lot of the other countries, India and South America and so on, had come out of the war with substantial earnings that they couldn't spend during the war. So reserve-wise they were not in great difficulty. This U.S. view that the Funds resources should not be used in that period was not liked by a lot of other countries, who kept pressing to loosen up the Fund; but we held that line, and of course, had the power

[24]

to hold it. We had enough allies that we could push it through and maintain it. We held it until we began phasing out the ERP, and we then began joining in efforts to formulate policies in the Fund for use of the Fund's resources. Here we took the lead and the Treasury was in the forefront of this; and I was their agent here to establish that the Fund's resources should be used in situations where there was good prospect of repayment and should be used only temporarily, rather than getting frozen inadvertently into long term credits. So we succeeded in pushing through, over strenuous objections from the British and others, a policy of conditionality in the use of the Fund's resources, which was finally agreed in 1952 -- just at the end of the Truman period -- which is the basic policy in the Fund which is still followed today. This is the so-called tranche policy, in which countries have an automatic portion of their drawing right

[25]

based on their quota in the Fund that they can use under any circumstances, and they have a next portion of their quota they can use with very mild conditionality, and then moving up to through the twenty-five percent tranches in the quota to where the Fund insists on greater and greater performance by the country to deal with or correct its payments imbalance. To work out that policy took a lot of strenuous fighting against countries that wanted much greater automaticity in the use of the Fund's resources.

MCKINZIE: Were the specifics of those policies ironed out within the Fund, or was there a Treasury position which you communicated?

SOUTHARD: We were developing ideas within the U.S. Government in the NAC where the Treasury was very active. I was heavily involved because I had to do the negotiating in the Fund. There was great skepticism in the Treasury as to whether there was yet any basis on which to

[26]

begin using the Fund's resources. This was a process of negotiation, of give and take, that went on within the U.S. Government and within the Fund. We started working on policy on use of the Fund's resources in 1951, it was sometime in '52 when agreement was reached. The differences of view were large, with the U.S. being very doubtful if any could be found to use the Fund's resources safely and the views of other countries who insisted that the Articles of Agreement allow any country to draw 25 percent of its quota every year. To bridge that gap was a process of very elaborate and complicated negotiation, in which the U.S. played a very active part, and in which I was in continuous touch with the National Advisory Council staff committee, which at that period included Treasury, State, Federal Reserve, EXIM Bank, and Commerce.

We had to be very careful to use the power which the U.S. had as wisely and prudently as we could. Secretary Snyder, himself, was a devoted

[27]

believer in the Fund and what the Bretton Woods Agreement stood for in the world -- the one world concept that was involved. He was possibly not very sophisticated in these matters, but he was a man with very strong convictions, and gave unwavering support to the Fund, at a time when a lot of people would have written it off, including the British.

MCKINZIE: May I probe that point just a second? John Maynard Keynes had a plan during the war that made the Bank and the Fund look terribly small in comparison. He had this huge idea -- International Stabilization Fund or whatever it was. Did the British continue in this idea that there should be more resources available?

SOUTHARD: Well the British were in these years -- and I'm talking now about '48, '49, '50, '51 -- taking the lead in the Fund, among those (including the European group), who felt that the Fund really should be automatic, and you can say

[28]

that they were still pushing the Keynes line. They never put it in those terms. I never heard an Englishman say, "Well, after all, Keynes had the right idea and the Articles of Agreement were really wrong." They were just doing their best to thrust automaticity into the framework of the Articles, where we on the American side believed that the Articles intended that the use of the Fund's resources should be short term and conditional. They found an ideological reason, and found language in the Articles to support it, for saying, "There should be a pool of Fund resources readily available." And this was the basic fight, and it got to be at times rather bitter -- bitter in the sense that the confrontation day after day across the table of the Fund Board was not pleasant in many instances. So, they were arguing the Keynes line, but without using Keynes' name. We were conscious that the line we were following in the first years -- I say "we," I think this was generally

[29]

true of the American side -- we were conscious that the line we were following we couldn't follow forever. In this early period we didn't really believe the Fund could function properly anyway, with the postwar uncertainties and the huge rehabilitation monies needed. So we didn't think that this was the time for the Fund's resources to be used. There is no question that if we had allowed them to be used as the others wanted the resources would have been all used and would have been completely frozen for some years.

So, in effect, we were very deliberately trying to save the Fund for the period when we thought it could be of use. We felt by '51 that we were approaching that time, and then we wholeheartedly joined in trying to turn the Fund into something more nearly like what the others wanted. But we fought it out and we established conditionality in the use of the Fund's resources.

Now the time came -- it was after the Truman administration -- when the British themselves

[30]

became the great advocates of conditionality. When it came to use of Fund resources by various countries they'd say, "Oh, well now, we have to have performance." So, the old fight ended finally, and everybody accepted conditionality. Nobody since then has seriously challenged the tranche policy of ascending conditionality in use of Fund resources. Of course, countries may wish that there was less conditionality in their case, but nobody fights it out in principle anymore. All agree that the IMF has to be a revolving fund and the only way it can revolve is by prudent use of its resources. This means that countries should not use the resources when it is clear that they wouldn't be able to repay and that they haven't got a program Of action to deal with their difficulties. We can say that the U.S. played a leading role in developing this line of policy but I don't think it's fair to say that we did it all by ourselves. The Fund staff and Managing Director basically agreed

[31]

with the U.S. view and did their best to keep providing ideas and drafts and groping along to get an agreement.

MCKINZIE: Did you find yourself with divided loyalties, in a sense -- the Treasury position on the one, and to the hope for the future of the Fund on the other?

SOUTHARD: Sure. Well, not under the Truman administration; Snyder was so profoundly in favor of the Fund. During the early period of the Eisenhower administration, when I was dealing actively with Secretary [George S.] Humphrey, I was dealing with a man who didn't really believe in most "internationalism," although he did make the big tough decision -- imaginative decision -- for the 1.3 billion dollar Fund operation with the British after the Suez fiasco. This was the decision that put the Fund on the map, and this was Humphrey's decision. He took that decision not out of any ideological support for the

[32]

Fund, because he really didn't think it all made a whole lot of sense; he took it because he was a great, big businessman who told me when I had a final session with him all alone, "Look, I've always thought we ought to go for broke if we are going to do anything. Now what's the British quota?"

I said, "1.3 billion."

He said, "Well, could you handle 1.3 billion?"

I said, "Well, sure Mr. Secretary, if you'll tell me you'll support it, we can handle it." I would never have dreamed of proposing anything like that.

He said, "Okay, that's what we'll do." But this was the decision of a man who for no ideological reason -- no reason of great international relations -- just was convinced that you had to do something at that particular moment for the British, and "if you are going to do it, you tell me how much we can do and let's go do it."

[33]

But after him I must say that the other Secretaries of the Treasury, without exception, Republican or Democrat, from my point of view were all fully committed to the idea of the Fund and an international order, whether it was Secretary [Robert B.] Anderson, Secretary [Douglas] Dillon, or [Henry H.] Fowler. I never had to do any indoctrinating with them. What I had to do on occasion was to -- in that period we were talking about -- was to press against the great feeling on the part of many people, even Bill [William McChesney, Jr.] Martin, who was then Assistant Secretary of the Treasury, that the time had not been reached when the Fund could be more active.

It was a question of judgment -- of pushing to get agreement that we had really reached the time in the rehabilitation of the world when something like the Fund really could begin to function. I felt that by '50 we had; it wasn't until '51, '52 that we really got on the U.S. side an agreement that, "Yes, let's pitch in and

[34]

see what we can work out in the Fund."

MCKINZIE: Now you say by '50 we'd reached it. Reaching it involves lots of things, doesn't it and is one component of that the economic sophistication of the member states?

SOUTHARD: I just thought that there had been enough rehabilitation so that you could begin cautiously opening up the Fund, because I felt that we on the U.S. side had gotten ourselves in a sterile position in which we were saying "no" to everything in the Fund. Countries had paid their gold -- most of them had paid 25 percent of quota in gold -- and they were worse off than if they hadn't even joined the Fund.

They had paid that much in gold to the Fund, and they couldn't even draw the equivalent in dollars. So I was sitting in the Fund Board day after day saying, "No, we don't think it's time." Well then a lot of them were saying, "Well, then we'd better get out, at least we

[35]

could use the gold if we had to." So I argued in the U.S. in 1950 that the U.S. had to make some kind of gesture, to make a beginning at showing that the Fund could function. Well, I lost on that proposal in 1950. But 1951-52 we were close to the time when we could begin working out new lines of policy, including gold tranche policy.

MCKINZIE: Did you ever attend any of the Board of Directors Meetings with Secretary Snyder, the annual Board of Directors Meeting of the Fund?

SOUTHARD: Oh, the annual meetings. Oh, sure, from the beginning.

MCKINZIE: At what point did those begin to become in some sense reflective of the problems of the cold war? I read some accounts of those where there would be some -- that the Czechs got very tough.

SOUTHARD: The U.S. of course was firmly supporting

[36]

the Republic of China on Taiwan, and was faced by efforts of the Czechs and some other countries such as India to unseat Taiwan and seat Peking, both in the U.N. and in the Bank and Fund.

We had Communist members -- there weren't many, but there was Poland, Yugoslavia and Czechoslovakia. Poland withdrew in 1950 of its own volition accusing the Bank and Fund of being tools of the U.S. In Paris in '50 at the annual meeting a resolution was proposed to the effect that the true and rightful member of the Fund was the People's Republic of China and that the Chiang Kai-shek "clique" should be unseated. We took the lead in fighting that down then and other occasions and we didn't have much trouble, of course, in those years. So that was one thing. But that was easy, because beginning with the Korean war the opposition couldn't summon up any real support and we always hid behind the U.N. We used to say, "Well, this is really a political issue, and the U.N. hasn't

[37]

acted."

The other issue was the Czechoslovak issue, and in retrospect I don't know whether we were wise or not. I had to take the brunt of it, because I was really the prosecutor in the Fund Board. The Czechs in 1953 changed their exchange rate (par value) without the approval of the Fund, and they had to be challenged -- that was all right. This was cold war in the sense that I took the lead in the Fund Board of pressing the case against Czechoslovakia that they were in violation of the Articles. The Czechs mounted an elaborate and skillful defense, because there is a so-called Russian provision in the Articles which in effect says, if the exchange rate doesn't play any role in a country it can change it anytime it wishes. So they invoked that provision and they had a good point on their side. We tried to get information from the State Department and elsewhere to prove that the Czech

[38]

exchange rate was meaningful -- that there were transactions at that rate, tourists, for example, if there were any; embassy payments, or what not. It was a thin list, because, of course, it was a tightly controlled Communist system. I think we would have lost on that issue in the end; but we added a charge that the Czechs weren't providing information as called for under Article 19. And that was the one I won on, because the Czechs wouldn't provide certain information. They had a very skillful delegation, and we really had what amounted to a trial, if you will, in the Fund Board. I took the lead because no other Executive Director would. We pressed the charges and we won, because the Czechs would not provide certain information on grounds of national defense. But there is no provision in the Articles for a national defense escape clause, and we knew that. So, then we went into the annual meeting in 1954 and we masterminded a resolution which gave the Czechs

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three months to purge themselves of this violation of the Articles, which they never did. After which, they were automatically out. Now this aroused a good deal of unhappiness, because probably a majority of the Executive Directors and a majority of the countries were not in favor of the Czechs being pushed out. But again we had the power still at that time to push it through. There is weighted voting, you know, in the Fund, and there were enough countries like the Australians and the Nationalist Chinese, who had big quotas relatively speaking, and who supported us. So, this was the only important cold war issue at an annual meeting.

MCKINZIE: Right. At the end of the Truman administration, and the beginning of the Eisenhower administration it was sometimes very dangerous to be in an international organization, because of the [Joseph] McCarthy business. What are your recollections of all of that? Did you at all get in any trouble?

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SOUTHARD: Well., I was heavily caught up in the McCarthy thing. We had a lot of problems, as you know, because we had had people on the Treasury staff, Frank Coe, Lud Ullman, [William H.] Taylor, and some who were still there, including Harold Glasser, who were involved on the McCarthy charges. I myself had worked in the Treasury under Harry White before I entered the Navy.

MCKINZIE: Before your Navy experience -- yes, I knew that.

SOUTHARD: So, I was the subject of repeated FBI investigation, especially because I had come to the Treasury originally at his invitation.

MCKINZIE: Did you have one of those hearings that they held?

SOUTHARD: No. Not on my own case. The records were pretty clear including the fact that I left to go in the Navy, and then when I came back, since I had been feuding from Italy with Harry White

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on some matters, I left to go back to Cornell, So the record was fairly clear that I wasn't part of any so-called "apparatus," if there was an apparatus. I never had any particular trouble; there must be a huge dossier on me somewhere in the FBI and I had to be cleared. But then I came to the Fund and here was Frank Coe, as Secretary of the Fund, and Bill Taylor was on the Fund staff, as was Irving [S.] Friedman. This was not a very happy period. I was in front of McCarthy, at one hearing on Bill Taylor, and committee investigators had gone back to find out what I had done during '47-'48 under Snyder to deal with some people -- including Saul Adler. "What had we done? Why hadn't we done this? Why had we done that," and so on? Well, we survived it.

MCKINZIE: But it didn't, as far as you were concerned, affect your attitude toward what you should be doing professionally? I'm trying to get at

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the point of whether it made you hyper-cautious?

SOUTHARD: No, this was an agonizing period, because, of course, I had access to some files and I knew whatever there was thought to be known about people. The Eisenhower administration pressed very hard, and I had to be part of the process of pressing to try to force the Fund to try to get rid of a couple of people -- Frank Coe and Bill Taylor. We were putting the heat on poor Ivar Rooth, who was then the Managing Director -- a very gentle man, a Swede, to dismiss Coe. But it didn't effect the support that the U.S. gave to the Fund. It never affected my own professional activities. I'm not quite sure why, but it didn't.

MCKINZIE: Did you ever have an awareness that politicians clearly understood enough economics to be able to give you the kind of support that you needed? Let me be a little more precise. Did you have any indication that Truman clearly

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understood international economics? You know, John Maynard Keynes once called Franklin Roosevelt something like an "economic ignoramus" or something. What about President Truman and all of this?

SOUTHARD: I was only once in a meeting with him, because Snyder thought it would be interesting to me to go over and sit at the table with the President, when he and others were working on a speech in the international field. The President was knowledgeable. He was putting the right kinds of questions. He was raising the right kinds of issues. Secretary Snyder, with whom my relations were very close, indeed, and always have been ever since then -- always kept telling me that he had no difficulty at all in getting good support from the President on international matters, whether it was the Fund, or the Bank, or anything else -- the Marshall plan and all the rest of it. Snyder, himself, had very strong

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convictions in the international field, as I said earlier I think he was a first rate Secretary of the Treasury, and was vastly underrated and had a bad press.

MCKINZIE: To what do you attribute that?

SOUTHARD: I don't know. He's a kind of a homespun man. He didn't give these smart newspapermen the feeling that they were dealing with a man who was their equal intellectually, and you know, what happens in this. This is going on all the time. But