THE UNTOLD STORY OF ECONOMIC CONFLICT IN THE SECOND GREAT WAR: BATTLE TO BRETTON WOODS, RHETORIC OF THE MARSHALL PLAN, GEORGE F. KENNAN, JOHN MAYNARD KEYNES, AND DISREGARDED ORIGINS OF THE COLD WAR by JAMES ERIC COPELAND THESIS Submitted in partial fulfillment of the requirements for the degree of Master of Arts in History at The University of Texas at Arlington May 2016 Arlington, Texas Supervising Committee: Joyce S. Goldberg, Supervising Professor Christopher C. Morris Kenneth Laine Ketner ABSTRACT THE UNTOLD STORY OF ECONOMIC CONFLICT IN THE SECOND GREAT WAR: BATTLE TO BRETTON WOODS, RHETORIC OF THE MARSHALL PLAN, GEORGE F. KENNAN, JOHN MAYNARD KEYNES, AND DISREGARDED ORIGINS OF THE COLD WAR James Eric Copeland, MA The University of Texas at Arlington, 2016 Supervising Professor: Joyce S. Goldberg Reflecting back in his Memoirs, George F. Kennan, wrote that the document that propelled his career was dispatched after a telegram informed the U.S. embassy in Moscow that the “Russians were evidencing an unwillingness to adhere to the World Bank and International Monetary Fund.”1 Kennan’s provocative narrative was published in 1967, more than two decades after he sent the famous Long Telegram. He published his Memoirs during the turbulence of the 60s, around the time President Johnson announced he would not seek re-election. By the time of publication, the Cold War narrative was entrenched in anti-Marxist rhetoric and any re-examination of the origin of the Cold War was subdued. Analysis of the Long Telegram in relation to World Bank remained unexplored. Two decades after Kennan published his Memoirs in 1986, the U.S. Government declassified a telegram he dispatched prior to the Long Telegram in January 1946. It was simply titled: “551 Bretton Woods Telegram.” The origin of the Cold War was the Soviet decision not to join the World Bank. Negotiations for the Bretton Woods Agreement began in February 1942, when John 1 George F. Kennan, Memoirs 1925-1950 (Boston, MA: Atlantic Monthly Press, 1967), 292. ii Maynard Keynes sent the U.S. Treasury his Proposals for an International Clearing Union. To understand the Soviet decision not to join the World Bank historians need to review the debates between the United States and Great Britain that led to Bretton Woods. Because the Soviet Union did not to join the World Bank, the United States created the National War Planning College and developed the Strategy of Containment. The rhetoric to convince Congress and the public to fund the Marshall Plan led to the development of neoclassical economic theory, which thwarted Keynes’ theory of internationalism promoted by global currency stabilization. iii Copyright © by James Eric Copeland 2016 All Rights Reserved ACKNOWLEDGEMENTS I thank the Texas Tech University Department of History and Philosophy for an environment for a young student to explore ideas and test the boundaries of interdisciplinary science in the arts. Specifically, I would like to acknowledge the influence of Kenneth Laine Ketner, Ph.D. and the Institute for Studies in Pragmaticism, which introduced me to the logic of Charles Sanders Peirce. The Military Intelligence Corps and 3rd Special Forces Group (Airborne) for providing me the opportunity to study and experience the complexity of international cooperation, such as the demining effort in Mozambique. I thank the Neeley School of Business at Texas Christian University for providing the course work for the Board of Certified Financial Planners™. I thank my professional colleagues for enduring me as I worked out economic theory by arguing with them and Janene Warren, MS, CFP™ for all her encouragement. I especially want to thank the University of Texas at Arlington for their dedication and patience as this research project continued over years. Joyce Goldberg, Ph.D.’s guidance is most profound. Christopher Morris, Ph.D., John Garrigus, Ph.D., Kenyon Zimmer, Ph.D. and Stephanie Cole, Ph.D.: I cannot thank you enough for your encouragement and willingness to tolerate an investment professional with an economic theory about everything. I would like to thank Lieutenant Commander Chad McDowell for the argument, which led me to graduate school. Georgina Mendoza McDowell, J.D. for going on the scavenger hunt for me at the U.S. Library of Congress that changed the trajectory of this thesis. Mom and Dad, I thank you for all the history vacations. I thank my brother-in-law Matt Schwegel for the song he wrote me about the Marshall Plan. Last, but not least, I want to thank the loves of my life: my wife Shannon and daughter Emma. April 18, 2016 v TABLE OF CONTENTS Acknowledgements ......................................................................................................... ii Abstract ......................................................................................................................... iii Introduction: John Maynard Keynes and George F. Kennan: A New World Bank and the Strategy of Containment .......................................................................... 1 Chapter 1: The Birth and Development of Keynesian Economics ..................................13 Chapter 2: Voyage to Bretton Woods: A Battle of Economic Ideas in the Midst of the Second Great War ....................................................................................42 Chapter 3: Arrival at Bretton Woods: a Conference and Telegram toward the Cold War ......................................................................................................................89 Chapter 4: Telegrams & the Ideological Implementation of the Marshall Plan ..............137 Conclusion: A New Religion or Scientific Method ........................................................193 Appendix A: Kennan: Price of Gold in Soviet Union January 2, 1946 ...........................211 Appendix B: Kennan: Bretton Woods Telegram January 2, 1946 .................................213 References .................................................................................................................219 Biographical Information ..............................................................................................232 vi Introduction JOHN MAYNARD KEYNES AND GEORGE F. KENNAN: A NEW WORLD BANK AND THE STRATEGY OF CONTAINMENT Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall; All the king's horses and all the king's men Couldn't put Humpty together again. Nursery Rhyme A young Serbian nationalist assassinated Archduke Franz Ferdinand, heir to the Austro-Hungarian throne, and his wife Sophie, Duchess of Honeberg, on June 28, 1914. The Great War that followed shocked the world. Contemporaries and historians have struggled to understand the causes of the war. The slaughter between nations and subsequent revolutions disrupted the conscience of peoples across the globe. Philosopher L. P. Jacks wrote in 1917: “In the space of two years, 6 million human beings have been slaughtered by other human beings, and the slaughter still goes on; 35 million have been mutilated, and the mutilation still goes on…on the one side a devastating whirlwind, a tempest of elemental forces, a wild chaos of death and ruin; on the other side, a chorus of talkers and speech-makers and article-writers; political philosophers building their cloud-castles….” He asked readers to “visualize…the slain…and…wounded” to find “meaning in the words, Oh, how I wish they would all shut up!”2 Winds carried mustard gas and chlorine gas fired from canisters to soldiers in trenches. Bullets and artillery butchered millions. Individual battles left hundreds of 2 L. P. Jacks, “The Insane Root: Even the lowest of the carnivorous animals do not kill members of their own species for no good reason,” January 1917 – reprinted The Atlantic: World War I: How the Great War Made the Modern World, October 27, 2014, 19. 1 thousands of casualties or more. In the Battle of the Somme, British and French forces suffered a million casualties when they failed to defeat German lines.3 The scope of the Great War in scale of death and destruction remains distant, cloudy, and ambiguous to many because nationalist interpretators of the war failed to comprehend the material economic consequences of the Great War and its aftermath, which would not be thoroughly considered until after the Second World War. John Maynard Keynes, Deputy Chancellor of the Exchequer of the Supreme Economic Council and attached to the British Treasury, resigned as the principal representative of the British Treasury at the Paris Peace Conference on June 7, 1919, as nations negotiated terms for peace.4 Keynes resigned primarily due to the harsh reparations imposed on Germany and Austria, and after his resignation, he worked on economic theory and A Treatise of Money. The League of Nations did not materialize with an international central bank designed to regulate the supply of money and currency rates based on trade imbalances created by creditor and debtor nations and the availability of commodities between trading partners. As Keynes argued for profound international economic coordination, the American public supported isolationism. Although President Woodrow Wilson supported the subpar League of Nations, the U.S. Congress and general public opposed his views of internationalism. He collapsed while promoting the Treaty of Versailles to the public. Without the underlying economic theories of Keynes as part of the Treaty of Versailles and participation of the United 3 Clare Sestanovich, “The War Year by Year,” The Atlantic, October