The Cost of Victory: Converting a War Economy to Peace
These concerns did not stop at American shores. What did the planners envision for the Japanese economy, and did they drop the ball by not thinking more about the prospect that China – a wartime ally – would one day challenge the United States? The conversation has been edited for clarity and length. DANIEL MOSS: Describe domestic economic conditions and how did they shape Washington’s decisions in 1945?
MARC GALLICCHIO: From the beginning of this year, with the imminent defeat of Germany, people were starting to look beyond the war. Not only the general public, but also business leaders, who were concerned that insufficient emphasis had been placed on reconverting to a peacetime economy. If peace suddenly broke out in the United States, the economy would be unprepared. Manufacturers were still in war mode, mainly producing goods for the military. There were restrictions on consumer activity, there was food rationing, price limits imposed. It was feared that if the war suddenly ended, all these soldiers and sailors would return home and the national economy would not be able to absorb them into the workforce.
There was this growing chorus of complaints among executives and legislators – you’re starting to see it in the newspapers – that the military is absorbing too much manpower and material. Now that they have a one-front war to fight, the questions were growing as to why so much was needed to fight just Japan when they had fought both Japan and Germany? The concern was that all those wartime jobs and contracts would end and companies would not be ready to transition to domestic production.
The fear of unemployment was great. This turned out to be less of a problem than expected, but access to consumer goods and concerns about inflation were real issues. In the early summer of 1945, the coal industry warned that unless there were more miners there would be shortages. For this they needed personnel freed from the army, which was reluctant. Transporting people and goods across the United States became more difficult after four years. There was a lot of track maintenance to do. So there were petitions for the early release of people of various professions and the military just didn’t want to do that.
DM: What priority did Truman give to these economic pressures, given the development of the atomic bomb and concerns about the implications of Russia’s entry into the war against Japan?
MG: Before Truman went to the final summit of the war in Potsdam in July, he sided with the army. But Treasury Secretary Fred Vinson, whom Truman had great confidence in, opposed the army’s position. We don’t know what Truman would have done if he didn’t have the bomb.
Truman receives these extraordinary cables from Vinson in Potsdam telling him that there will be a serious crisis if the United States does not move more forcefully towards reconversion. Vinson begins to suggest that the military surely doesn’t need all these resources. We need unconditional surrender, but perhaps we can achieve it through blockade and bombardment, which would allow us to have fewer men. The military were against this view because they believed it would lead to a protracted war, the American public would lose interest, and the Japanese would use this to their advantage. What Vinson was proposing to avert disaster was a modification of unconditional surrender. He didn’t outright say that, but that probably would have been the result.
Truman learns in Potsdam that the bomb may be deployed months before the planned invasion of Japan and probably before the arrival of Russia. I don’t think he thought the bomb would necessarily keep Russia out. His primary reason for using it was to bring about Japan’s defeat, though he may have considered it a bonus the possibility that the war would be over before Russia got too far into Northeast Asia.
The bomb made the invasion pointless. It also meant that this slow crisis in the US economy could be resolved.
DM: There has been intense debate about whether to modify the demand for unconditional surrender in the hope of getting Japan to lay down its arms. What kind of compromise, if any, was made?
MG: The idea that an imperial institution would remain never made its way into the declaration issued in Potsdam. But there was this idea of a liberal peace that would allow soldiers to return to Japan, allow the country to reintegrate into the global community, to have access to raw materials overseas – instead of controlling them. Japan would be integrated into a liberal post-war international economy. They could have a government of their own choosing once they convince the peaceful nations of the world that they are no longer a threat. You could read between the lines and say that if the Emperor shut things down quickly, he would be someone who could lead Japan to that state described in Potsdam.
DM: The fight against Covid has often been framed in martial terms. Did the United States have what amounted to a wartime economy at the height of the pandemic?
MG: We did not get extensive regulation of the global economy. There were big restrictions on bars, restaurants, airlines. State support was there, but it was not as pervasive in people’s lives as it was during World War II. What didn’t surprise me at all was the huge demand for the lifting of restrictions on social life and the economy.
We have this collective memory of World War II as being a time when there was unity, when everyone was willing to sacrifice and that contrasts with later wars like Vietnam, where there was a lot of controversy . But in 1945, that was simply no longer the case. There was growing dissent, a lot of anger, directed especially against the army.
DM: Have American officials given much thought to what the Japanese economy might look like after the war?
MG: There have been clashes between the New Dealers and pro-Truman business planners and advisers. People like Henry Stimson, Secretary of War, and Joseph Grew, Under Secretary of State, considered Japan to have done a remarkable job of industrialization since the late 19th century. They did not see the monarchy as an inherently dangerous institution, as far as the United States was concerned. All you had to do was sweep the militarists away. Their fear was that if you removed the emperor and carried out deep and wide-ranging reforms, it would sow the seeds of revolution and communism.
Then there were the New Dealers who saw the problems as much deeper. They felt that in the process of modernization, Japan never outgrew a feudal structure. They believed that the status of emperor strengthened the power of the military and large industrial conglomerates. To achieve a truly democratic Japan, we must get rid of the emperor, get rid of the big corporations and democratize Japan socially and economically. Liberate women, allow trade unions to organize properly, etc.
Many critics of unconditional surrender said after the war that Truman should have told Japan he could keep the Emperor, since that’s what ended up happening anyway. But it is important to note that after an unconditional surrender, the Emperor did not have the same authority he would have had if Truman had pledged to keep Hirohito on the throne. Ultimately, the United States was able to implement a host of important reforms because Truman insisted on unconditional surrender and occupation. One of the biggest reforms was a new constitution that reduced the Emperor to the figurehead that Grew and Stimson mistakenly claimed he had always been.
DM: In 1945, what would they have thought if they had been told that China was going to become the main rival of the United States?
MG: For a while, China was not really expected to play a leading role in the Far East. This was part of the reason why people like Stimson and Grew believed it was necessary to rebuild Japan quickly so that it could be a force of stability. None of them had foreseen the emergence of a behemoth in China.
DM: Was it a mistake to pay insufficient attention to what China might become?
MG: China is kind of pushed off the page. American military thinking was sequential in that the goal was to first defeat Japan and then look over the horizon and see what happened. It may seem like a short-sighted policy, but the point of view was “look, if we have Japan, we can keep the rest of the world out of the Pacific and we will be able to defend the United States no matter what. in China”.
People just wanted to get it over with, bring the boys home. Even though American power was at high tide, that tide was also beginning to run out. The stamina was not there.
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Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was Bloomberg News’ economics editor.
More stories like this are available at bloomberg.com/opinion