National Security and the Loss of Innocence

Chapter 3 (Part 1 of 4) of the book

The Discovery of First Principles, Volume 3

Edward J. Dodson

We are fond of saying ... that the United States is a government of laws, not men. However, that isn't entirely correct. We are primarily a government of laws, but it takes men to supply the "spirit" and "honor" to make the laws work with precision and efficiency and truth.[1] [Barry Goldwater]

The moment of glory for most of the military men and women who fought the Second World War had come and gone. Now, the question was what type of global order would emerge. The Italians, Germans, Japanese and their allied states lay prostrate and under foreign military occupation. Germany, Japan, Poland, Czechoslovakia, Ukraine, Georgia and much of Russia were in ruin. Agricultural and industrial production were at a standstill. Yet, hardly had the weapons of the combatants fallen silent -- leaving the survival of tens of millions of people in the balance -- than new struggles for geo-political power erupted around the world. The occupation forces of the United States and Britain suddenly found themselves charged with filling administrative voids left by fallen governments, responsibilities that challenged resources and organizational capabilities to their limit. Douglas MacArthur, firmly in control of Japanese affairs, quickly realized just how ill-prepared the victors were to act as enlightened stewards of the peace. " If we do not now devise some greater and more equitable system," he exclaimed, "Armageddon will be at our door."[2] Albert Einstein, interviewed shortly after the war, expressed a view shared by a sizable minority that "the only salvation for civilization and the human race lies in the creation of world government, with security of nations founded upon law."[3] At the urging of Italian journalist Antonio Borgese, the University of Chicago's Robert M. Hutchins agreed to chair a Committee to Frame a World Constitution. Hutchins joined many others who feared for the future, seeing very little in the new United Nations that removed the basis for confrontation between nation-states:

You can not at one and the same time join a world organization and stay out of it. You can not have all the advantages of membership in a world organization and none of the disadvantages. You can not have all the attributes of sovereignty and give up some of them. ...

Equally pernicious is the doctrine that all right lies with the big powers and that their security and spheres of influence are the primary concern of the world. This is the surest foundation for the next war. ...We cannot pretend to have a world society unless all the members of it are equally subject to law and unless the society is founded on justice, not to our allies alone, but also to our defeated enemies. An unjust peace and an unjust world organization make the next war inevitable.[4]
As the Allied forces closed in on Japan, Hutchins had enlisted many of the top atomic scientists in an attempt to convince U.S. President Harry S. Truman not to use the atom bomb on the Japanese people. James Byrnes met with physicist Leo Szilard but would do nothing to intervene. Byrnes reportedly told Szilard, "Congress would never understand how you could appropriate and spend two billion dollars and have nothing to show for it."[5] What a sad and sorrowful commentary on the human condition. The response of the West to the absence of moral values on the part of the Japanese militarists was to demonstrate a willingness to be even less moral. Rather than dropping the bomb offshore but close enough for the Japanese leadership to see, the military and political leadership of the United States elected to wipe out two entire population centers on the Japanese mainland. With so much of the world lying in ruins, the only questions now were what the new world order would look like and how long it might survive.

For a glimpse into the future and the possibility of Armageddon just over the horizon, the thoughtful had only to look at the Philippines. The liberation of the Filipinos by U.S. troops had ironically facilitated the reinstitution of prewar socio-political arrangements. The hopes of millions of propertyless peasants for relief from centuries of agrarian landlordism were thwarted, as well as the efforts of those who held to democratic principles and pressed for incremental reform. In the frenzy of anticommunist policy making, the U.S. then adopted in the Philippines a pattern of assistance that had the effect of exploiting the most vulnerable portion of the population in favor of U.S. corporate business interests:

The Congress came up with a series of legislative acts which, in effect, protected American agricultural interests through quotas, protected American manufactured goods through tariff agreements, and protected American investments through currency controls and parity with Filipinos for U.S. citizens doing business in the Philippines. ...The United States lost the opportunity for leadership while it still held the reins, using its great power instead to bully and blackmail the Filipinos into concessions to special interests.[6]

Douglas MacArthur unwittingly served these interests by supporting Manuel Roxas for the presidency of the Philippines Republic. Roxas had collaborated with the Japanese in order to preserve the position of the Filipinos privileged elite. After liberation, his agenda amounted to defending the interests of the propertied and maintaining order. William Manchester observes that "MacArthur -- with the full approval of ... Truman -- was supporting the Manila elite as a counterpoise to Filipino Marxists."[7] For the United States, then, already there were contradictions in the execution of foreign policy: sovereignty and the self-determination of peoples came to mean independence from direction by the Soviet Union, at whatever cost to individual liberty and freedom from oppression might be required.

A somewhat similar attitude eventually emerged toward Japan; however, while under MacArthur's firm control Japanese socio-political arrangements and institutions were subjected to a much more thorough overhaul. The majority of Japanese seemed to be breathing a final, exhausted sigh of relief, aware somehow that their island society was under the protection of this new shogun in a U.S. military officer's uniform. Almost nowhere else did the war's end have such a cleansing result. The fate of European societies awaited the peace conference and the test of will to be exercised by the victors. Not yet recognized for its significance on the future was the army of European Jewish refugees making their way to Palestine. All the ingredients were there for a major power confrontation: control of the Mediterranean, access to the oil and gas fields, the Zionist quest for a permanent Jewish state and rising Arab nationalism. Within a few weeks of Harry S. Truman taking over the U.S. Presidency, Secretary of State Stettinius brought him up-to-date on the situation in the Middle East:

It is very likely that efforts will be made by some of the Zionist leaders to obtain from you at an early date some commitments in favor of the Zionist program which is pressing for unlimited Jewish immigration into Palestine and the establishment there of a Jewish state. As you are aware, the Government and people of the United States have every sympathy for the persecuted Jews of Europe and are doing all in their power to relieve their suffering. The question of Palestine is, however, a highly complex one and involves questions which go far beyond the plight of the Jews in Europe.

There is continual tenseness in the situation in the Near East, largely as a result of the Palestine question, and as we have interests in that area which are vital to the United States, we feel that this whole subject is one that should be handled with the greatest care and with a view to the long-range interests of the country.[8]

Others in the State Department and the U.S. Congress as well as transnationals outside the government were already having second thoughts about what these vital interests were that Stettinius alluded to. The Philippines was something of a special case because the U.S. had formally guaranteed independence to the people of the Philippines. Among the American population there was no support for a prolonged and global U.S. presence. Even as the U.S. military prepared for the assault on the Japanese mainland, the U.S. military apparatus was already unraveling under public pressure for rapid demobilization. Faced with these circumstances, the U.S. military could hardly be relied upon to intervene in far-flung corners of the globe. All that can be said in favor of the U.S. position is that none of the other victorious European nations were in much of a position to take advantage. What the Soviets did have were armies of occupation sufficient in size to subdue any nationalistic uprisings (reasonably certain that the U.S. would refrain from military intervention). Thus, when Stettinius stepped down in favor of James F. Byrnes, the new U.S. Secretary of State had very few cards to play when dispatched by Truman to Paris and charged with reaching an accord with Bevin and Molotov -- his British and Soviet counterparts.

Byrnes joined the Truman administration with expectations of laying the final cornerstones for a brave new world of peoples ready to embrace democratic principles and institutions.[9] He eventually came to understand that almost none of the world's other public figures shared this vision. After such a war, during which the losses in human lives and physical capital had been so enormous, one had to have possessed a deep commitment to transnational values not to focus on making the defeated enemy pay for all that had occurred. Only a very few had the insight and a position of influence at the conference table.

With seeming reluctance but with its economic engine running at full throttle, the United States now moved to the center of the core powers among the surviving (or, more accurately, emerging) social democracies. What neither Truman nor most of the key decision-makers in the U.S. initially or fully understood was the depth to which the Old World had been shaken. For the peoples of the Old World, there was no clear blueprint developed for taking the next steps toward social democracy, particularly in those nations where oppression and foreign domination had been a way of life for centuries. That MacArthur was able to partially accomplish such a transition in Japan was an accident remarkable in history. To the good fortune of MacArthur and the Japanese, Truman's attention was focused elsewhere. MacArthur was able to take actions he deemed necessary to remove the last vestiges of Japanese feudalism and replace them with socio-political arrangements embracing a broader citizen participation in government. MacArthur realized the uniqueness and historic importance of his role; and, the Japanese people on the whole welcomed the opportunity MacArthur presented to them. They adapted and recovered from the war's destruction with remarkable resilience. Churchill, who by 1947 was at least as concerned with communist expansion as by the troubles plaguing Britain's empire, took notice of MacArthur's accomplishment:

In spite of what happened in the war, I have a regard for the Japanese nation and have pondered upon their long, romantic history. ...I am so glad you have been able to raise them up from the pit into which they had been thrown by the military castes, who only had a part of the facts before them. They ought to be our friends in the future, and I feel this wish has been a key to many of your important decisions.[10]

One might legitimately ask whether Churchill's admiration for General MacArthur's independence of action would have been so readily extended had MacArthur been a British commander rather than American. Truman later wrote:

We wanted Japan controlled by an American commander, acting on behalf of the Allies, who might co-ordinate their desires through a conference or council which we proposed to call the Far Eastern Advisory Commission.

I was determined that the Japanese occupation should not follow in the footsteps of our German experience. I did not want divided control or separate zones. I did not want to give the Russians an opportunity to behave as they had in Germany and Austria. I wanted the country administered in such a manner that it could be restored to its place in the society of nations.[11]

Churchill would later point to MacArthur's accomplishments in Japan (achieved, in part, by side-stepping British interference) as an example of what postwar reconstruction might have looked like had Eisenhower pursued a more aggressive military course in Europe. In any event, the political drama unfolding across Europe was of a manner few in the United States or Britain had foreseen. Those in the West were getting their first real look into the true nature of Bolshevism under the Stalinist regime.

In response to intense public pressure on their governments, British and U.S. occupation forces were being withdrawn from European territory despite the threat of Soviet military intervention in virtually every country with which the Soviets shared a common border. Stalin was determined to prevent the return to power of any government that might someday align with a resurgent Germany. He also recognized the significant challenge to his ambitions inherent in any extension of U.S. economic and military power. "What Stalin was really after," George Kennan wrote, "was the expulsion of American influence form the Eurasian land mass generally, and its replacement by that of his own regime."[121] As Kennan goes on to conclude, Truman's decisions to strongly support postwar reconstruction in Europe and to oppose communist expansion in Asia created a dangerous situation because Stalin was becoming less and less rational in his thinking and behavior.

Those in the U.S. and Britain who had distrusted Stalin and hated communism as much or more than they had feared Hitler and fascism were provided with strong ammunition for a full break with the Soviets. Few were as yet cognizant of the deteriorating situation in China, where communist forces were filling the void left by the departing Japanese in northern China, Manchuria and the Korean peninsula. Chiang Kai-shek desperately needed financial and military assistance from the United States, but with so many reports of corruption coming from U.S. military and government officials stationed in China, support for his regime was fast disappearing. Moreover, U.S. military strength in the Pacific had already fallen to the point that the remaining forces were having enormous difficulty performing routine maintenance on equipment or see to its transport for storage. By early 1946, in fact, nearly seven million personnel had been discharged from the U.S. Army alone.


For most Americans, the consequences of having a large portion of the world falling under communist domination had not yet entered into their thoughts or concerns. Even Truman could devote only a small portion of his energies to global issues. At the top of his list of domestic problems was how to remove wage and price controls without an automatic and devastating round of price increases. On the other side of the economic equation, war contracts were being canceled and millions of workers left idle, waiting for consumer demand to replace government buying. The executives of the nation's major industries had already embarked on a crusade to take back the gains made by workers during the war years, and the resulting conflict brought on nationwide strikes and walk outs. Truman realized that people whose jobs were disappearing or whose incomes were falling were bound to take out their frustrations on his administration and the Democratic Party. He had to use -- or create -- government powers to soften the impact of transition to a peacetime economy and somehow preserve something close to full employment without unleashing a broad increase in prices for consumer goods. The problems had already been anticipated by Roosevelt's advisers. Early in 1945, Marriner Eccles raised the issues with Fred Vinson, Roosevelt's price control czar:

Smart money is already going into capital assets for speculative purposes and to take advantage of a loophole in the tax structure. Blocked off by allocations, by rationing, and by price controls applying to scarce materials and goods, these liquid funds, including billions now invested in war bonds, could be used to produce a disastrous inflation of capital values that are not now subject to effective controls.[13]

Eccles later specifically (but mistakenly) described the dramatic increases in the value of agricultural land and of locations for housing and industrial development as the capital assets most affected. The solution, he believed, was to introduce a high tax on any gain from the sale of these assets. Inasmuch as capital goods are almost always losing exchange value through depreciation or functional obsolescence, the tax policy advanced by Eccles amounted to a heavy tax on the selling price of natural resource-laden lands and locations in the nation's cities and towns. Such a tax would have seriously reduced the supply of the source of production, as owners not pressed by cash flow needs would have simply pulled available landholdings off the market or offer them for lease rather than for sale. To his credit, however, Eccles realized that at the base of the upward pressure on prices was the problem of intense land speculation. He might have benefited by a visit with Harry Gunnison Brown, who in the early postwar years was still doggedly lecturing his students and professional colleagues on the principles of just and efficient taxation. Many of Brown's essays were published in the American Journal of Economics and Sociology, of which he was a member of the Board of Editors. His writing was often hard-hitting and critical of conventional wisdoms:

One of the most important illustrations of parasitism -- perhaps, in our society, the most important -- is to be found in the private enjoyment of the rent (including royalties) of natural resources and sites. Yet because of long habituation and, too, the common and unanalytical use of the term "real estate" to include both land and constructed capital such as buildings, the beginning student of economics ordinarily, has not even thought of such rent as involving parasitism or as essentially different from any other property income. ...

Whatever may be said as to an appropriate remedy, I believe it can be fairly insisted that a study of economics which claims any semblance of completeness -- which claims to deal at all adequately with the principles and significant phenomena of the subject -- but which does not bring the student face to face with the problem of parasitism, including in parasitism the institutional land rent system to which he is habituated, is pretense and sham.[14]

Brown's advice remained consistent. Society must capture the rental value of natural resource-laden lands and locations by means of taxation -- and free from confiscation the income from production and commerce. There was more to be done, most significantly the elimination of government's ability to arbitrarily expand the supply of currency in circulation (i.e., to self-create credit) by simple exchanges of government debt instruments for central bank notes - which could be used to make purchases of goods and services and to pay the salaries of government employees. However, as Harry Gunnison Brown knew, absent fundamental reform in the manner by which governments raised revenue no society could ever approach or sustain full employment. Half measures even in the right direction would not, Brown argued, do the job. "Taxation of future increases only, in the value of land, is at best, and even apart from its administrative complications and difficulties, a poor and inconsequential substitute for the socialization of rent,"[15] he wrote in an accompanying guide to his text on economics. Unfortunately, even among his peers, few were listening. Most had become captivated by the demand management strategies lifted from Keynes and expanded upon by economists anxious to create a new orthodoxy.

The absence of attention given to Harry Gunnison Brown's objections and proposals notwithstanding, the Congress of the United States instinctively rejected adding a heavy capital gains tax at a time of economic uncertainty. In fact, such was the rush to demobilize that the wartime excess profits tax was repealed as well -- long before industry returned to full production of peacetime goods. As one would expect, prices began to rise and the effects of these increases filtered throughout the economy. Eccles observed the general price inflation with great concern. Perhaps he did not have a full appreciation for the distinction between nature (as the source of wealth) and capital goods (as wealth); he did have a fair grasp of the nature of people:

In the period after V-J day, as in the war years, every economic group in the land wanted the benefits of inflation for itself, to be paid for by a different group. The farmer wanted a floor for his prices, but not a ceiling. The real-estate people, the building-materials people, wanted easy credit so that at inflated prices they could readily dispose of the houses and materials they had to sell. But they certainly resisted an excess-profits tax that would help the government recapture some of the profits that were thus made. Labor always wanted price controls, but vigorously resisted wage controls. The bankers wanted higher interest rates, but they did not want the federal banking agencies to have any other powers over the expansion of credit.[16]

Truman's response to these various pressures was to move as rapidly as possible to allow the forces of demand and supply to find an equilibrium price level. His advisers did what they could to bring this off without creating severe economic destabilization, but their efforts were feeble in the face of market pressures. It seems that not a one amongst them understood that the so-called price mechanism failed as a market clearing device when it came to natural resource-laden land and locations. Once the excess profits tax was removed, and in response to the extraordinarily low effective annual tax applied to land (i.e., the percent of location rent collected for societal purposes), another round of speculation in land was triggered. A similar investment climate hit the equities markets. Banks, flush with cash, were more than anxious to extend credit, fueling the fires of speculation-driven inflation even more.

Harry Gunnison Brown, sounding very much like a member of the rational expectationist school of economists, warned that faced with the probability of a prolonged period of rising prices people would spend rather than save. Doing so was only rational in an environment where paper currency experienced a continuously diminishing purchasing power. Those who had no real consumption needs (i.e., the truly wealthy) now renewed their investment activity into natural resource-laden lands or locations, where the prospects for gain over the longer run were strong. They quickly surmised that the nation's population was about to explode and that the demand for land on which to construct entire new communities would soon escalate. Precious metals, fine art work and anything considered a collectible -- with a tendency to outpace the general decline in purchasing power -- might also suffice as an investment. So long as consumers could absorb price increases for the goods and services they needed and wanted, producers could hold onto their profit margins and workers their jobs. Unfortunately, household incomes in the first years after the war ended did not keep pace, and markets were becoming saturated with goods a dwindling number of people could pay for. "The right solution," offered Harry Gunnison Brown, "would be to carry out a consistently anti-monopoly policy and thereby to be able to maintain both steadily active business and a stable general level of prices."[17] Absent the policies Brown advocated, the tenuous balance between those who controlled land, those who owned little more than themselves, and the owners of capital intensive industries moved dramatically in favor of the agrarian and industrial landlords. Movement much further in this direction would bring widespread unemployment and recession. Intervention was certainly needed to mitigate and hopefully prevent recession. Instead of structural reform, however, the only course that occurred to Truman and his advisers was to embrace the redistributive social programs long advanced by socialists.

Housing was an immediate problem of enormous proportions for the United States. Late in 1945 Truman ordered the sale (at little more than demolition cost) of some 320,000 temporary housing units built for workers in war plants all across the nation. He called upon the Congress to provide financing for the construction of five million housing units, and $400 million was appropriated to subsidize the production of scarce materials. Truman had asked for but did not get housing price controls. Government-insured mortgage financing, with little or no down payment required, so dramatically increased the number of potential home buyers that the price of an average building lot and house in 1950 doubled from that of 1940. Land was almost universally under-assessed; thus, as market prices increased the effective rate of taxation became almost nominal in many regions of the country. Harry Gunnison Brown and other adherents to the principles of political economy developed by Henry George understood the nature of the problem but were without power or influence to affect change. They could do little more than sound a distress signal from the wilderness. Their principal communications vehicle was the American Journal of Economics and Sociology:

Today [1946] an even larger proportion of the housing demand is in the low-price range than was true in 1940. During the 1930-40 decade the aggregate supply of housing exceeded the demand over most of the price range where new construction could seriously compete with existing dwellings, but increase in effective demand, that for which people could pay, was all concentrated at the lower end of the price scale, hence a good replacement market could not develop.

Since demand right along has exceeded supply insofar as cheap housing was concerned, few buildings were demolished and many socially undesirable dwellings had to provide shelter whether they were fit for it or not. It was about in this situation that we entered the war and, now that it is ended, it will be hopelessly impossible for the housing industry soon to supply sufficient dwellings to meet legitimate demands. ...

... Prices of existing structures have been marked up shockingly and without severe control will go much higher still, simply because it is physically impossible for us to construct houses as rapidly as we can sell and occupy them for sometime to come. (Here we speak only of structures; the speculative rise in urban land values, a special obstacle to adequate housing, is in addition to this.)[18]

The above analysis was offered by T. Swann Harding, a senior information specialist with the U.S. Department of Agriculture, and Will Lissner, executive editor of the American Journal of Economics and Sociology. For his part, all Eccles could think of was to sound a continuous warning against "unwarranted expansions of bank credit"[19] while he fought the Secretaries of the Treasury (Morganthau and then Vinson) to end the practice of allowing banks to borrow from the Federal Reserve Banks at below-market rates in order to purchase U.S. Government securities.

Nothing seemed to be working very well for Truman as he faced 1946. He was still in the process of bringing together cabinet officers of his own choosing and struggling to retain the support of fellow Democrats in the Congress. The nation was also reacting to the first signs of an awakened African-American minority, as many of this group's younger men returned from service in the military unwilling to suffer any longer the absence of equality of opportunity that prevailed everywhere for people whose skin was the wrong color. A large number of African-Americans had left the southern states for wartime employment in the northern cities. They arrived into northern cities ill-prepared to deal with an influx of poor people in need of housing and schooling. Racial tensions hardened. Detroit had exploded with racial violence during the war, and the return of millions of young white men to the cities - competing for jobs held during the war by minorities - heightened the fears of more race riots. Truman responded by creating a committee to recommend methods of improving the protections of civil rights for minorities. The committee's report infuriated Southerners by calling for the use of Federal authority to end segregation across the country. Truman had other worries as well. With Americans focused on the difficult problem of assimilating veterans and with industry concentrating on shifting to peacetime production, the President feared the nation would foolishly ignore the lessons of the last twenty-five odd years and turn inward. This he could not permit to happen, regardless of the consequences to his own political future. Yet, he was not yet convinced of the need to preserve the nation's state of military preparedness at anything like that required to fight the Second World War. What he championed was "a system of universal training during peacetime which would provide th[e] country with a well-trained and effectively organized citizen reserve to reinforce the professional armed forces in times of danger…"[20] The people and the Congress were not yet persuaded such a drastic break with the nation's past was necessary or under any circumstances a good thing.

Success in the foreign policy arena required that Truman operate in a way Franklin Roosevelt never thought of. Roosevelt's reliance on personal diplomacy had been foolish and egotistical, with results one expects when sound analysis and broad expression of opinion is ignored in favor of intuition. One consequence, writes George Kennan, was that "[t]he virtual elimination of the State Department as a factor in policy-making during the war, in favor of the military, carried over into the postwar period insofar as the military still had forces and occupational responsibilities abroad."[21] We can recall that to Eisenhower his priorities and objectives were wholly military, whereas those of his Soviet counterparts were always inherently political. Stalin was, of course, more than willing to accept the loss of hundreds of thousands of his troops and civilians in the interest of achieving political objectives. Roosevelt and Truman could not do so even had they been willing. For some time after the war, Truman shared the desire of most Americans to bring the troops home. George Kennan became a catalyst for a change in Truman's thinking and directives. It was Kennan who warned that a similar withdrawal of U.S. troops from Japan would open the door to communist infiltration. In October of 1947 he detailed his concerns to George Marshall, who had replaced James Byrnes as Secretary of State. Truman was by now wholly committed to anticommunism and to an anti-Soviet foreign policy, whatever the public rhetoric might be on particular issues.

Kennan's early and correct insights into Soviet intentions had enhanced his credibility and influence within the Administration, so much so that in February of 1948 he was dispatched to Japan to meet with MacArthur. He later recalled that their discussions centered on "the economic rehabilitation of Japan and the restoration of her ability to contribute constructively to the stability and prosperity of the Far Eastern region."[22] As a matter of strategic concern, the cornerstone of relations between the Americans and the Japanese was to establish Japan as a bulwark against communism. MacArthur's efforts to introduce democratic socio-political reforms -- some of which would have moved Japan closer to cooperative individualism than existed even the U.S. -- were subverted and sacrificed to anti-Soviet expediencies. And, not coincidentally, MacArthur's efforts to break up the zaibatsu (i.e., Japan's industrial cartels) were challenged by certain business interests in the United States. Defending his program of reform, MacArthur had written in late October of 1947 to Secretary of the Army, Kenneth C. Royall:

Involved in the failure or success of this program is the choice between a system of free private competitive enterprise ... [and] a system of private socialism largely owned and operated by and for the benefit of only 10 family clans.[23]

Some months later, a letter from MacArthur on what he had learned during his tenure a military governor of Japan was read to the entire U.S. Senate:

In any evaluation of the economic potential here in Japan it must be understood that the tearing down of the traditional pyramid of economic power which has given only a few Japanese families direct or indirect control over all commerce and industry, all raw materials, all transportation, internal and external, and all coal and other power resources, is the first essential step to the establishment here of an economic system based upon free private competitive enterprise which Japan has never known before. Even more it is indispensable to the growth of democratic government and life, as the abnormal economic system heretofore in existence can only thrive if the people are held in poverty and slavery.

The Japanese people, you may be sure, fully understand the nature of the forces which have so ruthlessly exploited them in the past. ...These things are so well understood by the Japanese people that apart from our desire to reshape Japanese life toward a capitalistic economy, if this concentration of economic power is not torn down and redistributed peacefully and in due order under the occupation, there is no slightest doubt that its cleansing will eventually occur through a blood bath of revolutionary violence.[24]

What Japan really needed -- and what MacArthur clearly saw was needed -- were firm institutional guarantees for individual liberty and an economic system sanctioning a fair field with no favors; instead, U.S. government representatives forged an alliance with the tightly-knit group of Japanese industrial-landlords, allowing them to continue to operate in quasi-monopolistic fashion behind protective walls. Additionally, Japanese producers gained access to the vast U.S. consumption economy. In return, Okinawa was maintained as a U.S. military base from which Soviet moves could be effectively checked. At the time, this seemed to U.S. policy makers as a key ingredient in their strategy of containment. Virtually no one thought the Japanese could one day compete with U.S. producers on anything but an inconsequential scale. Nor did many U.S. policy makers give much thought to the costs associated with maintaining a global military presence.

There was another tragic outcome associated with the ascendancy of Cold War anti-communist strategies. MacArthur's efforts to introduce a program of land redistribution was curtailed. Although nearly two million hectares of land was purchased and transferred to former tenant-farmers, doubling the number of agricultural landowners, the problems associated with Japan's system of land tenure were merely mitigated and, therefore, allowed to remain as a weight on the Japanese productive capacity. Urbanization and increasing population would eventually combine with seriously flawed systems of land tenure and taxation to drive up the price of land in Japan to astronomical levels. As the quantity of good agricultural land provided by nature was extremely limited in the first place, the land redistribution program as carried out actually reduced Japan's food producing capability. As observed by Peter Grilli and Yoshio Murakami, "[o]ne unexpected consequence of the reform program [was] the high degree of fractionalization of farmlands into small patches, separately owned and farmed."[25] None of the efficiencies associated with the introduction of modern farming equipment could be achieved in Japanese agriculture. Moreover, because the Japanese government failed to collect in taxation any of the annual rental value of these agricultural lands, the new owners were able to hoard land and engage in land speculation. Many became extremely wealthy as expanding Japanese industries purchased their holdings for construction of industrial plants and office centers. The number of Japanese who might have acquired personal fortunes from the sale of land was essentially fixed after 1947 when the land redistribution effort stalled. The result of all this was that Japan became an export driven economy, its people accepting enormous hardship and deprivation in the so-called national interest. Its industrial-landlords, in the meantime, consolidated and integrated their holdings and gradually improved the quality of their production -- becoming immensely wealthy in the process.

One must grant that from the vantage point of 1947, the future of the Japanese was none too clear. George Kennan returned to the U.S. greatly concerned that the Japanese government would be unable to cope with a determined (and Soviet-backed) communist uprising. He urged Marshall to direct MacArthur to strengthen the Japanese police force, create a maritime defense system and reach an accord with the zaibatsu. MacArthur intuitively had a better understanding of how communism could be thwarted; the key was to open up Japanese socio-political institutions to broad participation, promote the free exchange of goods and ideas and prevent monopolies from retaining a strangle hold over wealth production and distribution. MacArthur, almost alone among those who held positions of power, seemed to grasp as few others did, that monopoly was the real enemy of social-democracy. Unfortunately, neither the Soviets nor the economic nationalists and anti-communists in the U.S. gave MacArthur sufficient time to carry out one of the most ambitious programs of socio-political reform ever undertaken. Even so, MacArthur became the primary author of a new Japanese constitution, drafted along democratic lines (the then-existing constitution having been in effect since the nineteenth century Meiji restoration). His sense of mission in Japan was made crystal clear in a message he delivered in January of 1946:

A New Year has come. With it, a new day dawns for Japan. No longer is the future to be settled by the few. ...The removal of this national enslavement means freedom for the people, but at the same time it imposes on ... the individual [the] duty to think and act on his own initiative. The masses of Japan now have the power to govern and what is done must be done by themselves.[26]

If the fate of the Japanese people and their society was one of the great uncertainties in the aftermath of the war, circumstances elsewhere around the globe were even more chaotic. Once again, the boundaries and frontiers of nation-states were altered by the outcome of warfare. Soldiers of foreign armies occupied cities and towns previously governed by autocrats of defeated would-be empires. Millions of people were cast adrift, attempting to return to their homelands or find refuge elsewhere. Some had been gone for five or six years -- in exile, in hiding, or fighting any number of enemies as part of some country's military effort. A much smaller elite had traveled around the globe engaged in diplomacy, transnational conferences, journalism or political agitation. Eurasians of every ethnic group were among the millions of displaced persons, their family members missing or dead, their towns and villages destroyed, their populations disbursed or killed. None were more affected than those Jews who had found refuge within or outside of Europe or miraculously survived captivity. Millions of their brethren had been murdered by fascist executioners or by others who harbored ancient hatreds, prejudices and jealousies. The Second World War had unleashed the worst that ethnic nationalism had to offer. Nowhere was the slaughter greater than in Poland. Out of a population of over three million Polish Jews in 1939, less than five percent survived the war. Then, in the cruelest of fates, many who survived Nazi brutality later met their deaths in other lands at the hands of other enemies, or at sea while desperately trying to reach Palestine. Despite the risks, several hundred thousand Eurasian Jews risked everything in the migration. Abba Eban writes that "[a]n ardent urge overtook these homeless survivors to emigrate to Palestine." What for many had been a latent desire now became an imperative linked to ethnic survival. "Hitler," adds Abba Eban, "had made them nationalists."[27] Most had nowhere else to go or resources to get them there.

Before long, a new nation-state would emerge out of this desperate struggle by the Jewish people for a homeland, a sanctuary. Standing in the way of their quest for sovereignty were the region's Arab inhabitants as well as British authorities charged with preserving the status quo. Clement Attlee had pledged the Labour Party's support for open Jewish immigration to Palestine, but nothing had been done to facilitate the absorption of such a large influx of people from all over Europe. Arabs rejected a United Nations plan to partition Palestine into separate Arab and Jewish states. Tensions between Jews, Arabs and the British intensified until, finally, in mid-1946 fighting broke out between the Jewish Haganah and the British occupation forces. Unwilling and unable to commit the financial reserves and troops necessary to maintain order, Churchill called for the United Nations to release Britain from its responsibilities in Palestine. The opportunity for negotiating anything approaching peaceful establishment of a Jewish state had disappeared; desperate peoples, fearful of one another and unable to reconcile themselves to a joined future, hurled their fury at one another in a fight to the end. Jews nominally now had space on the earth set aside for themselves alone. They did not see it this way, but the leaders of the world's most powerful nation-states had decided to grant them an enormous privilege -- monopoly access to what nature provided in that one small part of the globe. For the Jews and Arabs destined to fight for control of Palestine, a critical mass was fast approaching. And yet, the fate of the Jews was merely one of the high stakes games being played out around the globe. As things turned out, there was to be no such thing as normalcy where affairs of state were concerned. Only a very few nation-states enjoyed the luxury of moving toward social democracy in a relatively peaceful, incremental fashion.
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