Breadcrumb

Dr. Raymond Vernon Oral History Interview

Oral History Interview with
Dr. Raymond Vernon

Assistant Director, Trading and Exchange Division, U.S. Dept. of State, 1942-46; Asst. Chief, International Resources Division, 1946-48; Member of Mission on Japanese Combines, 1946; Adviser on Commercial Policy, 1948; Member, U.S. Delegation, Gen. Agreement on Tariffs and Trade, Geneva, 1950, Torquay, England, 1951, Vice Chairman, U.S. Delegation, Geneva, 1952; Deputy Director, Office of Economic Defense and Trade Policy, 1951, and Acting Director, 1954.

Cambridge, Massachusetts
July 19, 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 It may not be published in full except by permission of the Harry S. Truman Library.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 May, 1976
Harry S. Truman Library
Independence, Missouri

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



Oral History Interview with
Dr. Raymond Vernon

Cambridge, Massachusetts
July 19, 1973
by Richard D. McKinzie

[1]

MCKINZIE: Professor Vernon, maybe we could start by asking how you happened to get into Government service in the first place. You had prepared yourself more or less for an academic career and in the 1930s ended up in the Securities and Exchange Commission. Was this part of any game plan on your part?

VERNON: Heaven forbid I should have a game plan. I got out of City College in the acute depths of the depression, February 1933, and I managed by knocking on doors to get a couple of different jobs, one with the National Bureau of Economic Research, where I worked for Wesley Mitchell and Arthur Burns

[2]

on business cycles, and one in an advertising agency where I worked nights on whether Lever Brothers' advertising sold soap. The first one proved a little bit too reclusive for me at that age, and the second a little bit too crass, though I enjoyed both, I must say. So, when the SEC invited me to come to Washington, it seemed an easy compromise between the two: some action, some research. In any case I wanted to leave New York; so, that was the combination.

The SEC became an irrelevancy once the war had started, and since I had an eye disability and couldn't get more war-connected activity, I knocked about in Government trying to find war-related jobs. One of the jobs I did was the military affairs guides for the reoccupation of Western Europe and Japan, where I specialized on securities markets, capital markets, financial intermediaries, and so on.

[3]

MCKINZIE: Did you go down to the University of Virginia and work in that program down there?

VERNON: No, I worked entirely shuttling between Philadelphia and Washington, the SEC being then in Philadelphia. Then, by sheerest accident I was selected as a kind of third choice when the Mission on Japanese Combines was being set up under Corwin Edwards. They were looking for somebody who knew something about the securities markets, financial intermediaries, insurance companies, and all of that; and out of sheer desperation they chose me. Out of that experience I was invited by the State Department to head up a section on international restrictive business practices, patents, trademarks, and so on. This was part of -- whatever it was then called -- the Office of International Trade Policy, I guess. And I worked my way up through that not too complicated bureaucracy until I became John Leddy's deputy and then finally

[4]

Acting Director of the successor office, the Office of Economic Defense and Trade Policy.

MCKINZIE: Let's go back and sort of work at the end of the war, and we might even take it back to how had you got onto this mission on Japanese combines in 1946? What was the kind of background preparation, as you recall, and the thinking in the Government about what should happen?

VERNON: About the mission itself?

MCKINZIE: Yes.

VERNON: Well, first, briefly, about myself. Having written these military affairs guides I had a smattering of ignorance already about Japan's securities markets and financial structure. Whoever was doing the putting together of this mission (I'll describe what the purpose of the mission was in a moment) had a fixed notion in his head that he wanted someone from the SEC. There were a

[5]

couple of logical candidates well ahead of me in the list. They both turned out (it was either one or two of them) -- one of them later went on to become the chairman of the Long Island Lighting Company, as I remember -- they couldn't go, or wouldn't go, and I could and did.

I had never met Corwin Edwards. I didn't know anything about the Government's policies toward Japan. I didn't know anything about the Joint Chief's post-surrender directive. In short, I didn't know anything. But it was known by one or two people in the Federal Reserve Board that I had done this work on Japan. Also I was busy knocking on doors again, which was my favorite preoccupation in the years -- just from sheer habit -- after having gone into the employment world during the depression. So, somehow or another it got around. I had myself interviewed by the Board of Economic Warfare, by the Foreign Economic Administration, by everyone under the sun. They all turned me down as being obviously

[6]

not very useful material for their purposes. A lot of my present friends were engaged in the turndown process, including Charlie [Charles P.] Kindleberger, Ed [Edward S.] Mason and others; but, anyhow, I survived that. It was then that I learned the importance of graduating from Harvard and not from CCNY.

I forget now the processes of interviewing which led to my being accepted on this mission, but from the very first, Corwin Edwards and I hit it off famously, and we are close friends to this very day. We entered the scene with a tradition which stemmed out of Thurman Arnold, Corwin Edwards, Joe Borkin, a string of people associated with anti-trust in the Department of Justice, hence, terribly ethnocentric. This was the U.S. perception of how markets should be as the leading, advanced perception. Every other culture's perception was regarded sort of pathological, or at least involved

[7]

in going through a cultural evolution which will one day reach the high plane of the American culture. That thread in U.S. policy had been given verbal recognition here and there in a variety of contexts. One of them was in the Joint Chiefs' post-surrender directive 1066, if memory serves me right.

MCKINZIE: 1067.

VERNON: 1067, which said to the Supreme Commander, "You will abolish all excessive concentrations....", about a sentence and a half. MacArthur's role was a very interesting one. He took this directive quite literally, apparently. He hired a curious character off Wall Street, who is still around somewhere. I sometimes run into his name, but I never can remember it. He sort of single-handedly was going to go around breaking up the Japanese trusts; and then after four or five months of this decided he had better get back home to Wall Street.

[8]

Our group came in about January 1946, about as he left. I don't think there was any significant overlap. If there was it was an overlap of a few days, during which he announced that he had largely succeeded in dissolving the trusts and there were a few cleanup operations to engage in. It may have seemed so from his point of view. Everything seemed busted in Japan in January '46, and perhaps he thought the trust problem was liquidated too.

Well, eight of us were dispatched to Japan, most of us from Government agencies, with the exception of a professor of law of Ohio University, whose name escapes me, but it doesn't matter; and some people from the Federal Trade Commission, the Department of Justice, Edwards, and myself, eight in all. We spent three extraordinarily rewarding months in Japan, from January to March 1946, during which time we were given all sorts of cooperation by MacArthur. I never detected any sense of hostility or resentment; quite the contrary.

[9]

MacArthur had requested a mission to help him with this; and while some people thought that this was passing the buck, because he found the job distasteful, I never saw any evidence of that interpretation.

We had the facilities of SCAP made available to us -- Supreme Commander for the Allied Forces in the Pacific -- and each of us exploited them in his own way. I learned more, I think, in that three month period than any three months of my life. And of course, what one learned, if he could listen with even half an ear, was the incredible ethnocentricity of the American position, and the complexity of the phenomenon with which he was dealing.

My job was two-fold: it was to understand in detail one of the major Zaibatsu structures, the Yoshida structure; and then to understand the financial institutions and their role, whatever they might be. And I wrote various pieces of the report of the Mission on Japanese Combines, which

[10]

was published, and then wrote most of an unpublished document which was sort of the economic analysis of the reconstitution of the Zaibatsu in a period of reconstruction in Japan.

MCKINZIE: Could you talk about the reconstruction of Japan before we move? How soon should Japan be integrated into the economy of the Far East, how long should it be reduced, to use a word that's applied to Germany, to a "pastoral situation?"

VERNON: Well, there were actually three threads, three different views, then later four. One was the remnants of the Morgenthau doctrine. That was never of any importance in Japan. Though here and there an individual embodying that view might appear, it was never of any consequence. Outsiders sometimes thought that that was the dominant thing. They were dead wrong on this.

Then there was the passionate ideologue view which (a) believed that classical competition was

[11]

the most desirable of all situations; (b) that classical competition was possible in Japan, and usually, (c) that it somehow related, also, to the political process. Excessive concentrations of economic power were bad not only for their economic effects, but also because they were antithetical to a democratic Japan. That was the second thread.

There was a third group, which I epitomized. I wasn't terribly important to any of this, but at least I represented a point of view, that in terms of sheer productivity you had to loosen up the Japanese society and its institutions which I assumed intuitively -- without any evidence I should add -- were being restrained by the existing tight structure of business and society.

MCKINZIE: Was it a logical criticism of that, though, that by doing so you might bring about the greater East Asian co-prosperity sphere inadvertently?

VERNON: Not at that stage. That was not a significant

[12]

factor. You couldn't picture this supine Japan doing anything more than barely struggling to its knees, much less gobbling up Asia, If that ever appeared, it wouldn't appear for many years to come.

There was a fourth group, which later became epitomized and somewhat documented in the Acheson memoirs, and, as I remember, alluded to in the Kennan memoirs, with whom you would associate the names of Wally Butterworth, as well as a guy who later went on to head Pittsburgh Plate Glass, and presumably Kennan himself. This group thought about deconcentration as a policy to punish and restrain Japan, just as many of the Japanese did. And, making that interpretation, they assumed that the appropriate policy in order to permit Japan to expand was the opposite of the policy that was being applied. In a misinterpretation of both motivation and process, they succeeded in reversing the deconcentration program; but not so soon that it

[13]

didn't have some of the salutary effects that was hoped for, I should add. We can get to that if you like.

In any case, the Mission on Japanese Combines wrote a report which, insofar as it had a guiding philosophy, was determined principally by Corwin Edwards and myself, in that order. It was "Let's loosen the society up some. This is the time to do it, when it's lying flat on its back." The social and psychic and institutional pain involved in doing it will be less now than later when it starts to move. We had various proposals which were then brought back to Washington. I then moved into the State Department and became the man in the State Department who, with the office that was direct liaison to the Far East Commission, and notably with the cooperation of Henry Owen who is now at the Brookings Institution, spent the year selling the program to the rest of the Government and the Far East Commission. The program having

[14]

been more or less sold in something like the form in which it was originally proposed -- it may have been even before the program was sold -- a permanent member of the SCAP staff, not a mission man, but a man who would work for General MacArthur, was dispatched to do what was thought to be the carrying out of this program.

He turned out to be someone whose views lay between number one and number two in my four categories, a real religioso, thoroughly convinced that the Japanese restrictionism was a primitive and somewhat distasteful form of barbarism, and thoroughly committed in an ideological way to an atomistic society. He set about instituting the program in a way which did have overtones of punitiveness in it. Fortunately those overtones never dominated the program, but they were there; and we watched with some distress from afar as he began to reintroduce elements of a punitive tone -- sort of the missionary telling the black man, "When we take

[15]

away your witch idols you will cry, but it is good for you, and you deserve to have your hands slapped because you're not worshipping true gods anyway." There was that element in the program.

MCKINZIE: But while all that was going on, you had in other parts of the Government people like Will Clayton, who were saying that if there was going to be peace and prosperity in the world it had to be through the integration of economies. I suppose it would not have been incorrect to characterize Will Clayton as a kind of free trader and an integrationist in the pure sense of that; and yet here you had people who were squelching that movement, and Dean Acheson later, in his memoirs, refers to the failure of the United States to rebuild the great workshops of the Far East and of Europe and Germany.

VERNON: Well, occupied area policy lay outside of Clayton's day-to-day operations, and in the German case you went up through, essentially, [John H]

[16]

Hilldring and then interagency activity; and on the Japan side you went up through Butterworth, and then, later I guess it was, through John Foster Dulles when he was getting the peace treaty put together. Yes, it had some of the Clayton element in it, as when later on we had so much to do with bringing Japan back into the GATT structure. We were the prime movers in that; I was centrally involved in that. But still, it was, insofar as there was a link between the two worlds, I suppose it was as much John Leddy and myself as anybody. It was on that level, low down in the Department that the link occurred.

Well, in any event, there was then -- I can't attach this to the dates, but I suppose it would turn out to be '49, when in a very dramatic, very discontinuous shift in U.S. policy, it was decided: "enough of punishing Japan. This bastion of the Far East has to be brought back as a workhorse of

[17]

the Americans." Not for Clayton's reasons, but because of the cold war reasons; a very cold warish kind of calculation. By the "cold warriors," not by the Claytons.

Instructions were sent to MacArthur, essentially to abandon the deconcentration policy. And MacArthur, in an incredible response, sent us an 18 page unclassified airgram, saying in effect, "By God, this is the greatest policy the United States ever had, and I urge you to continue it." And be it said for the inadequacy of leaks, this unclassified airgram never had its intended effect, and the policy was discontinued and reversed. But, one of the fascinating footnotes is, of course, that if you look at the most dynamic of Japanese enterprises today, Sony, Matsushita, Toyota and Nissan, they are all non-Zaibatsu enterprises, very interesting elements of Japanese initiative. It's a measure of our inability to plumb the future. When Joe Dodge did his report on the state of the Japanese society, which I guess must have been 1950, his gloomy prediction

[18]

of the future of Japan, which reeks through the report, was conventional wisdom of the time. No one expected Japan to get up on its hind legs and start to roar.

MCKINZIE: Did this mission meet often with members of MacArthur's staff while it was in Japan in January and March?

VERNON: No. Each of us went his own way, did his own interviewing, interviewed those members of MacArthur's staff that we thought it was useful to interview. Frank Tamagna was very important to me, as was a chap by the name of Bogdan; they are both around somewhere. But we each did our own thing and then we came together with documents and began to iron them out under Edwards' general direction.

When we prepared the report I do believe we sent it to MacArthur's staff for comment, and I don't recall the comments were terribly important

[19]

or critical. The report was more or less, in essence, taken as written.

MCKINZIE: How did you get on Harry Hawkins' staff?

VERNON: Well, I never was on Harry Hawkins' staff.

MCKINZIE: Well, in the same...

VERNON: In the same area. Well, my first job, which was restrictive business practices, patents, and trademarks was in the Industry Branch of the International Resources Division of the Office of International Trade Policy. My first contact with international trade was in the restrictive business practices area, when the ITO charter was being negotiated. I was then the chief of this innocuously named Industry Branch, and, therefore, I was the chief action officer for Chapter 5 of the ITO Charter on restrictive business practices. So, as it got negotiated and then the drafts were sent back, it

[20]

was for me to develop a governmental opinion on whether this approach or that was appropriate. The other man on that was my predecessor in this job, Robert Terrill, who was actually on the scene at Havana with Leddy and Wilcox.

Then, gradually, as I kept working in this field, I naturally enough began to be assimilated into the larger activities of that office, and finally to the work of GATT. As you may or may not remember, that entity was excised from the ITO Charter and put in place as a temporary agreement -- that event taking place, I suppose in Geneva while the ITO Charter had been negotiated in Havana. Formerly Chapter 4 of the ITO Charter, contained a dreary long, incredible article, known as Article 18, which it was thought was going to be terribly important. It was the article which dealt with all the things that developing countries could do, the restrictions that they could place on their industry; it's amusing to look back on it. Then

[21]

it was thought to be a very important, but on the whole very narrowly constrained, exception to the general rules.

Our blindness, our tunnel vision, really, our conception that we were forging a world with classical competitive conditions, is really bemusing as you look back on it. In any case, because it was thought to be both complex and tortuous, and yet important, it was assumed that there would have to be some specialist in the office who would spend full time on it and I was asked to do this; and by that time I learned all I could about patents and trademarks and international restrictive business practices. I'd managed to get placed in the bilateral treaties of friendship, commerce, and navigation of the U.S., a standard clause on the subject. I had managed to some extent, with Bob Bowie's overwhelming help on the German end, to keep the deconcentration laws rolling a little bit longer than they otherwise would have rolled; they didn't roll for very long in

[22]

Germany. And, as you know, we were renegotiating the copyright agreement; the patent convention looked as if it were going to be there forever and couldn't be changed much; so there wasn't much to do anymore.

MCKINZIE: To what extent did this kind of work bear upon what was going on in Germany, or had gone on in Germany, where there were some industrial teams over there, as I recall, already raiding, if not the German patent office, at least some German plants for designs and...

VERNON: Well, that confuses several different things.

MCKINZIE: Okay.

VERNON: First there were the reparations agreement which allowed people to dismantle a plant and take it away. We all had rights in that regard; and the Russians really exercised theirs, and the others

[23]

essentially didn't. The British didn't know what to do with the Volkswagen plant, for example; they couldn't imagine it of any use, so they left it there. It probably wouldn't have been any use in British hands anyway. But anyhow, the patent business is something else again; you can't raid a patent. A patent is a monopoly right granted by a sovereign in return for which the inventor discloses what he invented, and you can buy the disclosure for 25 cents from the U.S. Patent Office, which anybody could do.

MCKINZIE: And did.

VERNON: And did. But that's a monopoly granted by the United States to an inventor, and there was an agreement among the Allied governments, that those monopoly rights would in effect be cancelled; that all German patents would be available to anybody on a royalty-free basis which is the same as canceling them. That's what you mean by raiding

[24]

German patents, but it had a meaning quite different from what a layman would suppose.

MCKINZIE: Yes, thank you. I've talked to a number of people who worked in the GATT-ITO negotiations. Most of them say that they think this was probably a pretty good idea, that the GATT provisions were excised from the larger idea. Do you concur in that, that there were provisions for full employment, or all kinds of other...

VERNON: Well, actually there was no choice. The ITO Charter was doomed, given the preoccupations of the U.S. Government, given its sense of priorities at the time, given the fact that the process of the ITO Charter was overrun by the Marshall plan, by the postwar shortages of Europe, the Anglo-American loan and the U.S.-French loan, the operations of the International Monetary Fund and so on. You couldn't get anything higher than an Assistant Secretary, say Willard Thorp, to even think about

[25]

getting the ITO Charter through Congress. The Charter was introduced in the various committees of the House and the Senate, and languished there with nobody high enough in Government, neither the Secretary of State, nor the White House, willing to expend any time, effort, or bargaining power to jimmy it out of committee.

So, there it sat and I remember writing a release announcing its demise, I think, in December 1950, saying in effect that the U.S. Government was discontinuing its efforts to try to get this thing ratified. No other country would ratify it, I think, except Liberia; they were all waiting on us.

In the meanwhile we had taken the GATT and put it in effect. We had taken Chapter 5 and, either then or later, introduced it in the Economic and Social Council as a resolution, thinking naively that that would mean something. The commodity agreement chapter was being, in effect, used as a

[26]

guide for the negotiation of commodity agreements. So, it was only the hortatory stuff that wasn't somewhere being used as quasi-legislation, and the hortatory stuff never had much bite in it anyway. The full employment articles and the protection of foreign investments provisions were all that was left.

MCKINZIE: Do you recall the processes or the circumstances under which you drafted Chapter 5, since you were the chief action officer? Who did you get help from? What kind of discussions took place? And people today are concerned -- I guess, the word is policy alternatives -- with the sort of dissenting opinions that you had to fortify yourself against.

VERNON: Well, I'm not sure I understand the context of the question and remark. Do you mean, was there an alternative to Chapter 5 which might have been pursued?

MCKINZIE: Yes, one which you had to argue out in your

[27]

own shop.

VERNON: Oh, in our own shop. Well, that's not the atmosphere in which these things were done. Let me see if I can capture it. There were the true believers and the scoffers. The true believers believed in the anti-trust, the classical market, the atomization of economic activity. They gravitated to the jobs that represented the institutionalization of those views, while others gravitated to other jobs, and there was so much to be done that every man's taste for action had its release in its own field, and there was not much energy spent on the mutual process of canceling each other out, as one might have done in a period of noncreativity.

So, while it is true you had to clear telegrams, the passion of the convinced, of the ideologue, was so strong in many of these fields. The guy who had the action copy of the telegram was nine-tenths in command. Also the primacy of the State Department

[28]

in those days in relation to Commerce -- not so much Treasury, Treasury was a little more complicated, but certainly Commerce -- was such, and the trust and confidence of the White House in the State Department was such, that the trouble of clearance wasn't all that great. The real struggles developed later when the Marshall plan was launched, which is well after the ITO Charter had been negotiated, and the question was a reconciliation of those two philosophical approaches.

So, I don't recall that there were any really bitter, difficult struggles in getting Chapter 5 negotiated. In any event, the substance of Chapter 5 was there before I arrived at the State Department, developed by Edwards and Terrill primarily, I guess, and my job was refinement and elaboration and that sort of thing.

MCKINZIE: Could you talk about in a kind of narrative way, going to Geneva in 1950 for those negotiations?

[29]

VERNON: Oh, yes, the fourth session.

MCKINZIE: When it later went back to Geneva, I guess.

VERNON: That's right. Well, before we get into that, the largest single other element that is worth introducing into the picture, of course, is the reconciliation of the philosophical approach of the GATT with the desire to speed European recovery.

Now, of course, the conflict which arose was obvious; all the Europeans had import barriers, and licensing of goods, and the licensing of foreign exchange transactions, and when you are in a situation of that kind it's readily apparent that two countries, if they simultaneously lift their restrictions, can engage in a higher volume of trade without any fear that either of them will be having to use foreign exchange. It's a simple step from there to the view that you can take a group of 15 or 16 countries and by simultaneously lifting

[30]

their restriction, and then financing the imbalances that might occur, in some generous way, you can get them to trade more with each other. Obviously you couldn't introduce the U.S. into the system because it would swamp those markets. All these markets were high priced and had shortages; our market was lower priced and had no equally severe shortages, and, therefore, the essence of the trade policy and payments policy of the Marshall plan was a liberalization among a limited group of countries which meant discrimination against everybody else. In that context you went up against the philosophical approach of the IMF which said, "Yes, you could do this, provided that you did it against countries with scarce currency, which was the dollar, therefore you couldn't do it against Japan, or against Finland, because they don't have a scarce currency. There was that philosophy which was antithetical to the Marshall plan philosophy, and then there was the

[31]

GATT which said that Belgium couldn't do it because Belgium didn't have a scarcity of currency, and, therefore, though Belgium was thought by the Europeans to be part of Europe, it was thought by the GATT and the IMF to be a country not entitled to discriminate. So, it was a reconciliation of those conflicts that constituted the biggest single issue, I think, in that period of trying to find some modus vivendi.

MCKINZIE: How did this reconciliation take place? How did it work itself out?

VERNON: It was a continuous hassle amongst at least three parties and sometimes more. There was the European Bureau of the State Department, which was concerned, theoretically with the political aspects of the Marshall plan, but which had economists in it like Miriam Camp (who later married a man named Camps, thereby continuing history). Leddy, Camp,

[32]

and Vernon constituted an almost continuous negotiating triad. Leddy standing for the classical GATT-ITO approach; Miriam standing for "let's get on with European Recovery;" and my job being that of peacemaker and compromise-developer, which compromise then would have to be negotiated out with the Marshall plan people. And by that time oftentimes the remaining difficulties were negotiable. And then there were the Treasury and Commerce and Agriculture hovering on the edges of all this.

Well, the general formula was essentially that the arrangements for the Marshall plan were temporary and interim. They were a process which it was intended would lead as rapidly as may be to the full convertibility of the European currencies, and the little old detours and aberrations on the way were not to be taken too seriously, just so long as you never lost sight of the ultimate objective of convertibility; and rather to the surprise of those

[33]

people that argued this slightly disingenuous position, that's the way it worked out. It was an abstract concept which happened to coincide with history. Therefore, whenever I went to the GATT -- not so much the first time, but at subsequent times, at Torquay and later on back to Geneva as the acting head of the delegation -- my role was the role of "Mr. Compromise," "Mr. Water on two shoulders." Be it said to the everlasting credit of Leddy, he sort of looked the other way at times; he couldn't quite give up the rather pure form of adherence to GATT and all that; but on the other hand he's such a sensible and well-balanced guy, that neither would he quite block the process that was going on.

The Code of Trade Liberalization, for example, which was, I guess adopted in '49 or early '50, was a kind of epitomization of this. It was invented simultaneously by the British, the French and the State Department. But none of us was inventing

[34]

anything; I mean it was in the air and we all of us settled on it at about the same time. While I was peddling it through the State Department to a reluctant Leddy, to a not-so-reluctant Thorp, and to a joyous Miriam Camps, the British and the French were negotiating almost the identical formula with each other and they introduced it just about the time we cleared our own positions; so that when they announced their intentions to us -- I went over to Paris to join the U.S. delegation there for the purpose -- there was nothing to it, it had already been cleared in the State Department in substance. It was a very creative period, but we were all creating out of a common environment more than everything else.

And then the job was to never lose sight of the ultimate objective of convertibility, and that objective was won partly because the British were discovering that for their own reasons, they didn't care for all this ad hoc discrimination that they

[35]

were engaged in. The Labor government about this time lost and the Conservatives came in, and differentiating their political product, the Conservatives always differentiated in favor of a sort of a free market.

Second of all, the British Government mandarins were getting tired of all this clutter and fuss and mess of detailed trade arrangements, were looking for broad principles, and were rediscovering Alfred Marshall. So, they had their own internal dynamics for wanting to go back to a kind of open process, a fact which began to be apparent in the meetings of the GATT around '51 or '52. Also, the European currencies were gaining additional reserves. At the same time, we in the U.S. were keeping our eye constantly on the goal of convertibility and trying to end discrimination against the dollar. It all converged on a common policy, which probably would have happened no matter who was in the saddle. There was a kind of determinism in the process that

[36]

I find fascinating.

MCKINZIE: You are not putting much emphasis on our negotiation in all of that.

VERNON: Well, there are necessary conditions, and sufficient ones. Our negotiation taken by itself would not have been a sufficient condition. Nothing could have been done against the sort of laying back, intransigence, unwillingness to be dragged along of the British and the French. We could have railed and howled and yelled, but it wouldn't have availed us had it not been for these other forces. The objective fact that European currencies were getting stronger, coupled with the British desire for a more open system; it all added up, and those were the necessary and the sufficient conditions. Sure, if we hadn't ideologically wanted to push this, events might have been slower; they might never have happened. But with negotiation

[37]

they added up to a sufficiency. It's an interesting process to have lived through.

MCKINZIE: Could you talk about the European Payments Union and your role in getting that set up?

VERNON: Well, of course, it was [Robert] Triffin more than anybody else who did this, and I would say critically Tomlinson in Paris. Tomlinson's wife is the only foreigner, I was told, who was voted a pension by the French Government for his noble services on behalf of France. Tomlinson was our Treasury attaches in Paris. He was dying, still in his thirties, of some kind of heart disease that was going to kill him shortly. Out of sheer ability and energy, and a willingness to take long risks, he made his mark before they planted him; he made himself indispensable to [Jean] Monnet and captured also the loyalty of the then Secretary of Treasury.

MCKINZIE: Oh, you don't mean Vinson?

[38]

VERNON: No. John somebody.

MCKINZIE: Snyder.

VERNON: Snyder. And Acheson had a lot of respect for Tommy which made him a vast power in Paris, which is critical. Triffin, I forget where he was at the time, was the diddler and creator of all kinds of mechanisms, and he had a grasp of the intricacies of the process which was indispensable. Back in Washington, there were two people -- Dick...

MCKINZIE: [Richard M.] Bissell.

VERNON: Bissell, and the other, Jim McCullough -- a man you would want to interview, by the way. They were really the key guys. My job was the job of essentially seeing to it that the State Department came along, and finding a philosophical basis for making it consistent with IMF-GATT objectives.

MCKINZIE: Of course, for the layman the obvious

[39]

question is, why did you need the EPU when you had the IMF?

VERNON: Oh, the EPU was wholly different. First of all the EPU required day to day operational decisions. It differed from the IMF in the same way that an executive decision would differ from a constitutional provision almost. Here you had the central banks in constant touch with each other in Europe, constantly asking themselves if the lines of credit being extended were going to be sufficient to carry the code of trade liberalization along, or whether there were going to be breakdowns, whether the various tranches were going to be sufficient to cover this or that; constant modification, constant revision. It took operating almost on a telephonic basis to keep that thing going. The underlying principles were clear; there was to be a free credit swing, and then a little bit of pain, and then a little more pain, and then a lot more pain.

[40]

MCKINZIE: Was that the Helsinki Doctrine?

VERNON: No, the Helsinki Doctrine said, "You fellows can discriminate as long as you like with each other, but you've got no rights to discriminate against currencies that are as weak as yours, and therefore, you've got no right to discriminate against the Finns. You can discriminate against the Americans but not the Finns. And that's what that was about.

MCKINZIE: Did you introduce this idea?

VERNON: Yes, it was a perfectly obvious idea. And it gained notoriety enough not because it was a terribly important provision, but because the Marshall plan people, on my insistence, sent a telegram (I don't know why we did it this way), to Helsinki which was in their code "Telegram number one to Helsinki," enunciating this doctrine as an assurance to the Finns, as I remember, transmitted to our Ambassador there.

[41]

MCKINZIE: It was not then worked out in Helsinki?

VERNON: No, it was not worked out in Helsinki, it was an affirmation of our policy and our assurances. You have to remember the American position in the world; it was running the world -- or thought it was -- and its relation to EPU therefore, was one remove away. In light of our other interests in the world, we were playing the honest broker between our Western Europeans, our Marshall planners who are in a separate agency, and our traditional GATTists and ITOists who are in another world.

MCKINZIE: I wonder if you might talk about economists in the State Department during the Truman years? Would it be fair to classify them generally as believers in the Clayton view of international economics or were there some a little more nationalistic? The question is prompted by the recent historical writings that contend that every economist in the State Department was somehow a follower of

[42]

the free trade position.

VERNON: Well, there was a critical group, narrow in base, deep in penetration; Corse, Leddy, Wilcox, Brown, Hawkins, not so much Thorp. Thorp was broader gauged. Certainly not Ed Mason, who left the State Department about the time I came in, who is also much more eclectic. And ultimately Clayton, who had a passionate commitment to a certain view of the world, open, competitive, non-discriminatory. They were the ideologues, but in a very decent and constructive sense; if this happened to coincide with U.S. interests, they were not conscious of it.

That is to say, as you trace it historically, my suspicion is the reason why the Americans became identified with the open door, non-discriminatory position, probably goes back to their struggle with those two great colonial powers, Britain and France. And that goes back to a period which probably

[43]

begins in acute form about 1895 and carries on through to World War II. The punctuation marks in that relationship were our struggle with the British in Mexico in the period from about 1900 to World War I over oil and mining, and the British, according to our lights, playing dirty poker, using their government and all that sort of stuff. Later, our struggle in the Ottoman empire with [Nubar Sarkia] Gulbenkian and the British and the French over the Iraq oil concessions; our efforts to penetrate Asian and African markets, were repeatedly rebuffed by the British and French colonial interests.

And then finally the Southern interests were very important. The Southern Senators, the Congressman, who being completely wrapped up in agricultural exports, existed on, in part, their ability to continue to export apples and tobacco, and citrus and cotton. And their