Victoria Hill: Good afternoon. This is a terrific turn out. I'm Victoria Hill, Acting Chief of the Humanities and Social Sciences Division. On behalf of the staff of HSS and the Library of Congress, I would like to welcome you to this afternoon's talk by Ed Miller. This lecture is part of an ongoing series of programs in the Humanities and Social Sciences Division. Ed Miller has been active in many different ways in the Library of Congress, and today we're pleased to have Ed as our scholar and author. I have several people to thank, including Rod Katz and Abby Yokelson [spelled phonetically], Main Reading Room Specialists; and a special thank to the sales shop, who is offering books for sale in the foyer as you walk in, and Ed will be signing books after the event. Also a special thanks to the ITS folks for webcasting this afternoon's talk. You should know that it is webcast and if you ask questions during the question and answer, you are giving permission for your voice to be heard and your face to be shown. And now to introduce the speaker today is Deanna Marcum, Associate Librarian for the Library Services. [applause] Deanna Marcum: Thank you, Tori and welcome everyone. You know we have many book programs here at the Library of Congress, but rarely do I have the pleasure of introducing an author who has so many connections, deep connections to this institution, and more importantly to the work that we all do. Edward S. Miller, or Ed as we so affectionately call him, first arrived at the Library in the l970s to begin research on his first book, War Plan Orange: The U.S. Strategy to Defeat Japan 1897 - 1945. Based on research in formerly secret archives and through a wide variety of collections here at the Library of Congress, the book reveals the Navy's strategy to defeat Japan four decades prior to the attack on Pearl Harbor. Published by the Naval Institute Press in 1991, War Plan Orange won five distinguished history book awards. Not bad for someone who keeps claiming he's not really a historian. Ed's educational studies at Syracuse and Harvard in Economics -- hello, we do have some more seats up here, by the way. I'll interrupt my introduction just to encourage you to come up and take a seat. During Ed's professional career, he served as Chief Financial Officer of AMAX, INC., one of the Nation's largest metal and mining companies as well as at the U.S. Synthetic Fuels Corporation. Following his retirement, Ed and his wife, Joyce, who is with us today also and we welcome her, moved to Washington, D.C., in part so that Ed could continue his life-long interest in historical research. This knowledge of history and his thorough knowledge of finances and economics led to the writing of the book we're here to talk about today, Bankrupting the Enemy: The U.S. Financial Siege of Japan Before Pearl Harbor. Ed is able to interpret the complex financial strategies intended to bankrupt Japan prior to World War II, while also, and this is one of the things I most appreciated about the book, while I'm learning about these economic strategies, I'm also learning a lot about women's fashion during that period in American History, and it's -- the changes that took place in women's fashion and the impact of those changes on trade between the two countries, it's really a very fascinating story. Ed calculates that he has used at least 11 of our reading rooms researching these two books, including vast general collections in History, Economics, and Military Science, as well as the special format divisions. Ed even uses microfilm; it's so wonderful. He's the kind of reader we love to have come to the Library because he understands that the information is important, and he'll go after it, whatever format it happens to be in. But he's used the general collections and most of our special format collections and of course the Asian division materials as well. And I'm very happy to see so many of the librarians and curators from those divisions here today because I know through this process, they became deeply involved in Ed's research and are very happy always when someone they've been able to help produces a book. And they can take special pride in that. So it's a kind of reunion for all of us and we're very pleased about that. Finally I want to tell you that Ed is not just a user of the Library of Congress collections, Ed is really part of our staff family. Ed decided to share his experience as a researcher by assisting other researchers who come to the Library of Congress to do their work and he is a Research Guidance volunteer with the Visitor Services Office. And he serves at the desks in the Reader Registration Office and he's out at the Information Desk in the Jefferson building, and I know that it is the lucky library user who comes to this institution on the day that Ed is at the Reader Registration Desk because when they go in and talk about what they think they would like to do, he very quickly sends them to the right place, gets them oriented, and they're ready to go. Ed and Joyce are also generous donors to the Library of Congress through their membership in the James Madison Counsel, the libraries private sector advisory board. And they have established the Edward S. and Joyce I. Miller American History Trust Fund, which is intended to enrich the libraries general collections. For all of these things, for Ed as a human being, for Ed as a researcher, for Ed as a library helper, and for Ed and Joyce's generosity, we are deeply grateful. And I'm so happy that all of you are here today to have an opportunity to learn more about the research Ed's been doing. Please join me in welcoming Ed Miller. [applause] Ed Miller: Well, thank you, Deanna. I'm really overwhelmed. You missed one thing. Janice said I came here to Washington, moved to Washington to do research, that is half true; the other reason is I came to be near my money. [laughter] Somebody on the way in today asked me, "What is your book about?" I said, "It's about $30." [laughter] So let me begin with a bit of history. I'm usually here on Thursdays instructing new researchers where to find things, but today I'm in my own subject because some years ago, I did write this book called, War Plan Orange, which was about American war -- planning to defeat Japan which began long before the war, and its broad concept was an offensive war ending in violent, economic warfare, that is by blockade and bombing to win and that's how the war in fact was won. And this drew my interest to another kind of war that the United States waged against Japan before Pearl Harbor. It was non-violent, but still deadly, and it was waged by deploying the power of the dollar. Only recently have the International records of the Treasury and the Fed, Federal Reserve, been opened up to researchers under the Holocaust Era Records Act so now the full story can be told. So let's begin in 1937. President Franklin Roosevelt was exasperated by the dictators in Europe and especially by the Japanese attack on China, and he famously declared that the democracies ought to quarantine the aggressors. Now we didn't mean military action or sea blockades, he wanted a modern method, he said. After Japanese bombers sank a U.S. gunboat, he turned to his energetic Secretary of the Treasury, Henry Morganthau, Jr., for ideas. And Morganthau turned to a staff lawyer, Herman Alafont [spelled phonetically], who represents a kind of person you'll be hearing about in the book, a mid-level bureaucrat, brilliant men, graduates of top universities, and very keen to enhance the role of their agencies in tough foreign policy. Alafont recommended invoking the financial powers of the Trading with the Enemy Act of 1917, that's where my title comes from, Bankrupt the Enemy, trading with the enemy. If you go on Amazon, you'll find all kinds of books like Sharing with the Enemy, Sleeping with the Enemy -- [laughter] -- okay. It's a very popular topic. So Trading with the Enemy Act and F.D.R. said, "My God, I'd forgotten all about it." Now at this time the country was leaning towards isolation. Congress was passing laws to keep the United States out of foreign wars, but with bizarre side effects. The Johnson Act, 1934, it punished countries that had defaulted on his First World War loans and it became a crime to lend money to England or to France, but not to Germany or Japan. In 1935 a new [unintelligible] Act barred the sale of munitions to all countries fighting a war, but Roosevelt refused to label the fighting in Asia a war because that would've deprived China of weapons, which it needed, whereas Japan was self-sufficient. In 1937 an amendment ruled that even ordinary commodities could not be sold to belligerents at war except on a cash and carry basis, that is, pay dollars immediately and carry it away in foreign ships. Roosevelt did not play his trump card, namely the awesome financial powers available to him that rested on two words in the Trading with the Enemy Act. And here's the background. During the First World War, the Wilson Administration pushed for a law to forbid trade with enemies, either directly or through neutrals, a sensible thing, but a bureaucratic dog fight erupted in Washington. The Secretary of Commerce wanted to control exports directly. The Treasury Secretary, William Gibbs McAdoo, who happened to be Wilson's son-in-law, he wanted to freeze and control German assets. They compromised so that there would be both a commerce export license and a Treasury license to pay dollars from blocked enemy accounts. In the last few days as it was going through the Senate, a slick lawyer from the Fed named Milton C. Elliot, who was an early model of my technically savvy and hawkish bureaucrat, he slipped in the so-called paragraph 5B, and it passed. That article said that a President could invoke controls on foreign transactions and freeze foreign assets of an enemy country or otherwise. [laughter] Okay. So in 1923 the Peace Treaties eliminated all our enemies. The United States has no more enemies, the Act lapses, for all practical purpose, except those two words of Paragraph 5B. In fact Roosevelt forgot that he had invoked those powers in his first term, at first to declare a bank holiday and later to raise the price of gold. And I might mention that act is still on the books. In the 1970s it was renamed the War Powers Act, and today there are still 400 active executive orders which rest on those two words in the paragraph in Trading with the Enemy Act. Well, Roosevelt backed off from financial sanctions against Japan, and for the next three years, after 1937, the idea was forgotten once again. And there were four reasons for this, which I'll describe and then tell you about in detail. First, Japan's dollar earnings were shrinking. This was both due to problems in marketing their goods and to U.S. exclusionary policies like tariffs. Secondly, a U.S. Government Analyst were keeping a watch on Japan's finances and believed that it would soon deplete its reserves and have to halt the war in China. Third, America embargoed some commodities directly, initially those in short supply and needed for its defense, but eventually even products that were abundant. And those export controls were cumbersome and not all that effective. Finally, the dollar became the dominant world currency surpassing the British pound sterling because after September 1939, it was the only currency freely convertible by any and all holders. And the U.S. Treasury was the sole buyer of gold in the world. And with the rest of the world at war, strategic materials were only available from the United States, and to a small extent from other Western Hemisphere countries that also sold only for dollars. Now I'm going to go through these. Turning to reason number one, Japan exported only one major article that Americans wanted, namely raw silk, which was the thread made by unwinding silkworm cocoons. It's remarkable that in the 1920s, a thread spun by insects -- think about that by insects -- was this country's largest import; nearly all of it came from Japan, and nearly all was used for elegant women's clothing, which Deanna mentioned. Too many Japanese families depended on this silk industry. Along the way American silk manufacturers had to overcome many obstacles. For example back in the bustle and petticoat era, a fancy outfit that a woman wore was cut from 10 square yards of fabric. By the way, my wife Joyce was wondering my research into women's underwear -- [laughter] -- but I assured her it was legitimate. Then by the 1920s the skimpy outfits of the flappers, they were wearing outfits cut from only two square yards; however, a garment industry sprang up to sell more dresses, which counter-balanced that. Silk fabrics had defects that were due to the unevenness of the yarn, but there was good quality control in America and new innovations like crepe fabrics, textured fabrics that covered up the defects. Silk held its own even against rayon, which sold for $1.50 a pound verses $6 for silk and things went along pretty well in the '20s. But then came The Great Depression. The silk cloth industry literally evaporated, it was a luxury product. U.S. production dropped from 47 million square yards in 1929 to only 6 million in 1939 and the price of raw silk in Japan crashed by 75percent; however, the silk trade with Japan survived for a final decade because of a new vogue for silk stockings to go along with short skirts, which was another legitimate investigation I made. [laughter] American women inspired by Hollywood demanded sheer hosiery that cost the equivalent, get this, of $20 in today's money. I'm told good pantyhose today costs around $5. So silk hung on as Japan's primary dollar earner until nylon day, May 15, 1939, when DuPont introduced nylon stockings at the New York World's Fair, and they were beautiful and flawless and more durable. By 1941 they had captured 30 percent of the hosiery market. By, with new factories that were on track to take 100 percent of the market in 1943. So nylon substitution was about to bleed Japan of $100 million per year of dollar earnings, which was twice its annual oil imports from the United States. By the way these numbers sound trivial to today, but you have to remember that in dollar terms, the United States' economy is now 150 times larger and the Japanese economy is 500 times larger in dollar terms than back then. I suggest mentally multiplying by 1,000; that is when I say million, think billion. Well, Japan tried desperately to sell other products to earn dollars. It had an enormous cotton textile industry, which was in fact the number one world exporter, but it didn't gain even 1 percent of the U.S. market and even that was soon blocked by so-called voluntary quotas. Anyway cotton was a losing game for Japan. It needed American long staple cotton for strength and to blend with cheaper Indian cotton, so it actually spent more dollars than it took in. Japan also tried exporting specialty farm products, like green tea, camphor, menthol for Kool cigarettes, and small tablewares and consumer goods that were made in workshops and even in households. But these manufacturers were eviscerated by the Smoot-Holly Tariffs Act, which levied vicious duties on Japanese trifles. Only Japan was pummeled by so-called compound duties; such as 50 percent of value and two cents per piece on cheap plastic sets of dolls for girls and toy soldiers for boys, which weren't even produced in America. The combined tariff was over 100 percent. Among the 20,000 tariff rates set by Congress, which I examined, I found some on Japanese articles as high as 200, 400 percent, even 800 percent, the highest in U.S. history. The only non-Japanese exception I found was men's opera hats from France, even the rich suffered. Japan had one contrary small success in selling luxury ocean products, crabmeat and albacore tuna, and fish liver oils, but all of these other exports to America amounted to only half the value of silk. So that's the trade background. The second circumstance preceding dollar warfare was that American experts were continually evaluating Japan's monetary problem. They had privileged information, inside information for two reasons. First, Essential Bank of Japan held most of its reserves in gold and it began shipping gold bars to the West coast every week for sale to the Treasure, in order to settle Japan's big trade deficits due to the war. And the second privileged information they had was the fact that the proceeds of those gold sales, in fact all of Japan's dollar transactions cleared through American banks, which had to report the transactions to the Treasury and to the Fed. From 1937 through early '41, the analysts of those two financial agencies and of the State Department and the Embassy in Tokyo, and even Army and Navy Intelligence, kept a suspicious watch. They concluded that Japan would go bust in the next six to 24 months. In other words in 1938 the analyst said doomsday would be in 1939 and in 1939 the analyst said in 1940 and so on. The date always slipped further ahead. There was a lot of confusion as to why this happened because Japan had stopped publishing statistics after 1937, and the Americans had to guess wildly at whether the subsidies for gold mining were effective or how much smashed gold, which was jewelry and plate that the patriotic Japanese surrendered for Yen to the government and it took them time to realize that Japan could not mobilize dollars by selling off its foreign investments or remarket old dollar bonds that Japanese investors had repurchased. The fact of the matter is that the American experts were duped by a scam, by a Japanese scam. Japan was building a war chest right under their noses in lower Manhattan. It began when they yanked their gold deposits out of London in 1938, and it continued with the proceeds of these excess gold sales to the Treasury. And they hid those dollars at 120 Broadway in an account at the New York Agency of the Yokohama Specie Bank, this was Japan's largest overseas bank, nominally private, but actually government controlled. Technically the money was parked surreptitiously in what was called a custody account, which was fraudulent accounting. I explain how in this book. On August 3, 1940, an alert officer of the New York Fed spotted a strange transaction, which led to investigations, and which led to Japanese bank officials confessing under threat of criminal penalties. By the end of 1940, Washington understood that Japan had hidden up to $160 million as a war chest. This was equivalent to three years of oil purchases, for example. By January 1941, Japan knew the game was up, it stopped shipping gold, and it raced to spend those dollars, or to get them out of the United States before the freeze. Okay. The third situation, meanwhile what was going on was experiments by the United States with direct restriction of exports. Roosevelt had no legal authority with foreign trade except munitions, unless he invoked the financial powers of the Trading with the Enemy Act, but he didn't. In 1938 and '39 he resorted to moral embargo so-called, by asking industry voluntarily to deny Japan products needed for aerial bombing: planes, aviation, gasoline, light metals, plant designs, and machinery. A bigger step came in July 1940, after the fall of France, when Congress in a rush empowered Roosevelt to restrict exports of any commodities needed for defense that were in short supply. Now, knowing about there would be inevitable scramble for power in Washington, Roosevelt finessed the bureaucracy by appointing a military man, General Russell R. Maxwell [spelled phonetically], as Administrator of Export Control to report directly to the White House. Roosevelt, himself identified many essential commodities and limited the sales to Latin America and to the British. At first these actions didn't bother Japan, until October 1940 when scrap iron and steel exports were halted. Japan made steel by two processes: one is called the basic open-hearth process and the other the electric furnace process, which required respectively 50 percent scrap and 100 percent scrap in the furnaces. As a recent industrializer, Japan was short of scrap, whereas the U.S. had torn up railroads and junk machinery during the Depression, which was uneconomic to ship to the mills in Pittsburg from places like California and Texas. So scrap was cheap and abundant and Japan had stockpiled several years' worth. In early 1941 America added to the embargo sales of other metals, most chemicals, machine tools, and even a few innocent products like certain foods and pharmaceuticals. Cordell Hull, the free-trade oriented Secretary of State objected, but his only victory was to assure that oil would continue to flow to Japan, non-aviation grades of oil and he was supported in this by the Navy, which felt unready for war. The fourth and final pre-condition of financial warfare was the sudden dominance of the dollar. In the gold standard years and through the 1930s, most currencies were convertible to each other through the foreign exchange markets and at rates that didn't fluctuate nearly as much as nowadays. So Japan continually acquired dollars by swapping the hard currency it earned by exporting to the Pacific dominions and colonies of the British, the Dutch, and the French Empires, and from silver that it earned from the China trade. The Yen itself, however, wasn't convertible except in the Yen block, which meant the Korea, Taiwan, Manchuria, and North China, but the Japanese Empire had almost no war commodities that Japan needed. The situation changed abruptly in September 1939, when Britain and the rest of Europe laid on exchange controls, at first rather laxly, but intensely after mid 1940, which John Maynard Keynes complained about that they let a lot of dollars escape during the phony war period. After that time Japan, for example, when it sold textiles to India and was paid in sterling-type currencies, could only spend that, those proceeds within the fortified sterling area, which had nothing to sell that Japan needed, such as oil. It couldn't convert those earnings to dollars to buy in the Americas, which did have what it needed. Okay. That was a long wind up and now the pitch. We arrive at the beginning of 1941, when attitudes in Washington underwent a tectonic shift. Harry Dexter White, who was Morgenthau's resident genius and another power grabber, urged him to freeze Japan's dollar assets before the secret stash got away. But more importantly, F.D.R. appointed a new Assistant Secretary of State, Dean Atchison. Atchison was a lawyer who wore a sporty mustache, and he was a former Under Secretary of the Treasury and vigorously anti-access. He is my supreme example of that kind of mid-level bureaucrat, seizing the reigns of policy to gallop ahead with financial warfare. By the way, Deanna, in the movie Atchison will be played by Geraldo Rivera. [laughter] Finding himself in charge of the State Department's tiny regulatory division under the Neutrality Acts, he made a power grab to take over General Maxwell's Export Control Agency, but Hull slapped him down. Nursing his wounds, he got tutored by hard liners in the Treasury and the Justice Departments and by visiting British Managers of Economic Warfare, which the British called the fourth arm of the military service. Atchison pushed to freeze Japanese assets through invoking the Trading with the Enemy Act. And in March 1941 he even got regulations drafted, but again, nothing happened. The Treasury, the customary administrator, was distracted by funding Lend-Lease. Now, you know Washington abhors a vacuum and into the breach marched the Chief of General Maxwell's Projects Division to investigate Japanese dependence on raw materials of the United States and the allies. He recruited 60 experts from the various Washington agencies, like the Bureau of Minds and the Forestry Agency and the Commerce Department. In April 1941, these various study teams wrote 37 documents entitled, The Economic Vulnerability of Japan in -- and then you insert oil or copper or iron. Almost all of these studies advocated halting trade. Some of them cleverly suggested indirect ways to hurt Japan. For example, America did not export aluminum or oxide oil for aluminums melting, but it could deny two small, but vital ingredients, Floor spar and Petroleum Coat to halt their aluminum production. The most intriguing study was one on phosphate and pot ash fertilizers because Japan was the world's most intensive user of fertilizers. They predicted that harvests of wheat and other grains, except rice, which depends on nitrogen that these harvests would collapse after two years of embargo and this proved right on the mark during the war. By mid-war the grains were slumping badly. Now these vulnerability reports, although fragmented, were the only serious investigations of the impact of a halt of trade on at least some parts of the Japanese economy. After that the export control is lobbied to freeze Japanese assets for which they had absolutely no legal authority, just more bureaucratic hubris, but the rush of events bypassed them. Matters came to a head rapidly. In June 1941, Roosevelt froze German and Italian assets, just as he had previously frozen the assets of conquered countries to protect them from the Nazis. U.S. Intelligence reported that Japan would occupy Southern French Indo-China, threaten Singapore, and when it did, Roosevelt finally invoked the Trading with the Enemy Act on July 26, 1941 and froze Japan's assets and the British and Dutch immediately did the same. Now Roosevelt intended a cooling off period of a couple of months followed by a limited resumption of trade, most notably exports of oil at 50 percent of the 1935, '36 level of exports. In the words of historian Jonathan Utley he intended to bring Japan to its senses and not to its knees, but having been wearied by other bureaucratic squabbles, he assigned the freeze administration not to the Treasury as was customary, but to a committee of three assistant secretaries: Dean Atchison of State, Edward Foley of the Treasury, and Francis Shea of Justice. Now the latter two, also lawyers, were younger and relative lightweights, so it was Atchison who effectively controlled and made policy; and his policy was not another drop of oil for Japan. And indeed the committee refused to unfreeze any dollars for any kind of trade. Let me talk about oil a little bit. Japan desperately needed gasoline and crude oil, not only for its military, but also for civilian uses for transportation and its fishing boats. It was already rationing buses to two and a half gallons per week and one quart for private cars. Japan imported 90 percent of its oil needs, of which 10 percent from the Dutch East Indies and 80 percent from the United States. There's a weird back-story to oil, which goes like this. In 1941 Japan was buying only from California because of closure of the Panama Canal to its ships and because of a possible shortage of oil on the East Coast. Now California produced 15 percent of U.S. crude, and it refined every grade of product, and it was a wash in surplus oil. The wells and refineries were cutting back. Meanwhile, in May 1941, the United States loaned to Britain one-fifth of its Atlantic tanker fleet that brought the oil from Texas up to New York in order to deliver Lend-Lease oil to England. The petroleum administrator, Harold Ickes argued that this would cause a shortage of gasoline in the Northeast, and he demanded rationing. Well could California help out with all that surplus oil? No, it could not. There were no tankers available; there was no pipelines at that time east of Bakersfield, California. Railroad tank cars were scarce and outrageously expensive, and yet when F.D.R. announced the freeze, he blamed Japanese buying in California as a cause of the supposed shortage in New York; he lied knowingly. What actually happened was that oil companies improvised enough transportation by devices like deep loading and diverting tanker voyages and using barges, and in the fall of 1941 the Senate committee debunked the shortage that never happened and it excoriated Ickes. In any case it turned out the British didn't even need the tankers and they returned them all by November. Okay, back to the story. After the freeze of July 26, Japanese diplomats and bankers lobbied anxiously to unfreeze dollars, especially for oil. There were two empty tankers stranded in California and they especially wanted dollar licenses to pay for a mere $178,000 of oil for those ships for which Japan actually held valid export licenses. Well Atchison, who was now the king pin, accused them of hiding dollars in Brazil and whisking currency out of New York bank accounts, which was true in a small way. The Japanese offered to bring dollar bills from the Shanghai free market. Denied. Or to deliver gold. Denied. They offered to bring silk on a ship that was repatriating Americans. Denied. Well by September 1941, the Japanese realized that the dollar freeze was airtight, and they then threw a Hail Mary pass. They offered to barter on a gigantic scale, but in a moment of political naivety, they hired as their agent an attorney named Raul Desrenine [spelled phonetically]. He was a right-wing zealot, a critic of the New Deal, who had earlier tried to finance steel to Japanese firms in Manchuria. Desrenine and his Japanese associates, including Mitsui and Company, proposed to swap commodities without using dollars. Here's what they did. They offered to swap high-grade silk suitable for parachutes, the U.S. estimated it needed about 200,000 military parachutes, in exchange for American goods of which two-thirds was to be oil and gasoline and the rest a kind of a hodgepodge, including cotton, and paper tapes for IBM machines, and even hops for beer. That proposal with some follow-on swaps amounted to $60 million in each direction that is a two-way deal of $120 million, including enough oil for about a year. The scheme got as high as Vice-President Henry Wallace, who Desrenine had particularly attacked as a Communist-Fascist socialist, but he was the czar of economic mobilization and what did Wallace do? He referred it of course to Dean Atchison -- [laughter] -- and guess what happened. Denied, on the rather dubious grounds that it would violate the law, the law which Atchison himself had created. All of this happened just as the Japanese cabinet was moving toward a decision for war. By the way, Deanna, Deserine almost later went to jail, but that's another story. Okay. The narrative now degenerates into bickering over trivialities. What about a cargo that cleared Seattle one hour before the freeze went into effect? What about mink furs from friendly Southeast Asia that were already paid for by importers here, but were stranded in [unintelligible] waiting cancelled ships? The foreign ministries of two great powers sank to squabbling over family remittances of immigrants, magazine subscriptions, and $11 worth of ceramic squirrels. [laughter] The final squeeze on frozen dollars that Japan failed to extract from its bank accounts, which were then down to $30 million, came in November 1941. The Yokohama Specie Bank in New York was going broke. It owed interest on Japanese bonds owned by Americans, and it needed funds to pay diplomatic salaries and such, but it could not recover $19 million that it had advanced for raw silk that arrived here in warehouses before the freeze because the U.S. government had impounded the silk and it was leisurely testing the quality despite two previous inspections. So bankruptcy of the Specie Bank loomed no later than the end of 1941. This was the last straw. The Japanese diplomats realized they would not unlock any dollars to spend, not ever. Meanwhile, the negotiations between Ambassador Nomura and Cordell Hull dragged on. America's demands for its four principles, mainly involved rolling back Japanese conquests in Asia, and Japan's major demand was to loosen the freeze and resume some trade. And as you know, Japan was meanwhile plotting the attack. On November 22, as aircraft carriers were gathering for the voyage to Pearl Harbor, Dean Atchison wrote a self-congratulatory tribute to the efficacy of the freeze, how wonderful it was working. Had he unbent his rules just a little bit, perhaps the war might have been deferred, but we'll never know. Now that was a counterfactual question, a "What if" question, but I end the book with a grander speculation, namely, how badly would Japan's economy and people have suffered if it had not attacked, but hunkered down and endured the dollar freeze for say another two years? Surprisingly there was no such American study. The vulnerability studies of April 1941 did not address the entire economy, nor did the Japanese cabinet agencies make any such study that I can identify. The authorities in both countries offered only limited observations. Both sides predicted when the stockpiles of a few materials would run out and when certain industries would probably shut down, generally seen as a matter of months. And both sides mused that Japan faced impoverishment, or pauperization, or disintegration, or other platitudes for bankruptcy, but without any comprehensive or scientific study. Well I wanted to conclude my book with an evaluation of potential Japanese suffering, but I didn't want to invent one out of [unintelligible] cloth, not even silk cloth. So one day in the bowels of the Library of Congress, just down the hall, I discovered an unpublished study 500 pages long, which was written during the war, 1943-1945, by a joint team from the OSS, the Office of Strategic Services and the State Department. The title is, The Place of Foreign Trade in the Japanese Economy. The principle author was Arthur B. Hershey [spelled phonetically], a young Federal Reserve economist, who was born in China, but educated at Yale and Columbia. It attempted to predict Japan's economic fate five years after losing the war, but, and this is important, it was based entirely on data from the early and mid 1930s, which was the only factual information available here at that time, so I saw fit. As I plowed through it, I realized that there was a similarity between two hypothetical eras: one, Hershey's look at a Japan impoverished after a few years of post-war reconstruction, or two, a Japan at peace, but impoverished in the early 1940s by the dollar freeze. Well with the audacity that only a degree in economics provides, I converted Hershey's figures to dollars, I calibrated for differences such as the neutering of gold during the freeze verses loss of the Empire after the war, I calculated per capita figures because Japan's population would grow from 70 million to 80 million in that ten year period, despite war losses and many other adjustments. Now Hershey had emphasized the dismal terms of trade. During the 1930s prices of Japanese exports like silk, were falling while prices of the industrial commodities and machinery that it needed were rising so Japan had to work harder to stay even. And like many economists he projected a return of the depression after the war, similar circumstances so he expected a dire situation. He couldn't reliably guess at Japan's exports, especially silk verses nylon, so he calculated how much the country would have to import to survive, and then he reverse engineered into the exports necessary to finance it. He premised a Case A and a Case B on two levels of nutrition. Case A assumed a food intake of 2,250 calories per person per day, which was about the same as in the 1930s and of this five-sixths from starches mainly rice and only three percent from protein from three ounces of fish. In comparison, Americans at that time ate 3,150 calories. However, the average Japanese male was 5 foot 3 and a half inches tall before the war and females 4 foot 10 and a half, so in body mass they probably weren't undernourished. Nevertheless, under the freeze Japan would have to divert most of its meager income to food and fertilizer and basic materials for food, and clothing, and housing leaving little for export industries and infrastructure. Japan's decade of spectacular economic growth in the 30s would be negated. But Case B was far worse. Hershey assumed the standard of living would be rolled back to the 19th Century. Exports would be feeble, just some farm specialties and handy crafts amounting to one-third of pre-war exports, and so imports would suffer accordingly. Calories would drop to 1,800. Anyone who's dieted on 1,800 calories a day knows what that feels like. Ten million people would try to flee the crowded cities for the countryside where conditions might be even worse. No Japanese would have been cheered up by Hershey's remark that the standard of living would not necessarily fall below that of China or India. I concluded that the impact of the freeze lay somewhere between Case A and Case B. I pictured the Japanese people under the freeze, nourished barely adequately without much protein or variety, wearing shabby rayon staple clothing that dissolved in the rain, and wearing wooden shoes, crowded by a housing shortage, electricity rationed, transportation crumbling. Life in Japan under a long-term freeze would have probably resembled life in the most miserable counties of America in the depths of the depression, something like Tobacco Road, but with nowhere to escape and no hope for relief. We'll never know because Japan chose to attack Pearl Harbor even before the stockpiles gave out. So that brings me to a final speculation. Was there any course open to Japan other than the slow strangulation or war? During the Tokyo War Crimes trials, high officials insisted that those were the only two choices, but in my imagination Japan might have negotiated to withdraw from China gradually in return for some thawing of the freeze. It might have renounced the alliance with Germany, especially after Hitler began to lose. It might even have joined the Allies against Hitler. Now don't laugh because the model for this is 1914. Japan joined the Ally side, did a little bit of fighting, it scooped up colonies, and it prospered by selling ships and munitions to the Allies. Imagine a replay, a rich industrial Japan at the end of World War Two, with the largest regional Navy and Army, just as the Far East was de-colonizing. It would have attained economic security and trade riches that eluded it when the United States froze its dollars and Japan made the worst possible choice of attacking Pearl Harbor. Thank you. [applause] Victoria Hill: Ed has said that he could take a few questions and then afterwards he'll sign his book. Rod? Male Speaker: How do you know that Atchison acted on his own to punish the Japanese? Isn't it possible that he was acting for Roosevelt in pushing them to the wall and possibly provoking the war? Ed Miller: The question is, did Atchison act on his own or was he really secretly doing Roosevelt's bidding? The standard historian's interpretation, there's almost no documentations, the standard interpretation is right after the freeze where Roosevelt said, "We'll do it for a couple of months and then try the easing up," Roosevelt went off for two weeks to meet Churchill in Newfoundland, and when he came back, Atchison's iron-bound freeze was already in effect, and it was politically popular. And so Roosevelt said, "Well, let's let it go at that, on that basis," and that's sort of become the standard interpretation. Roosevelt was cagey; he never wrote anything. It is possible that with nudges and winks, he prodded Atchison, who was one of his favorites he brought him back into the administration early in '41, and that Atchison was being a good soldier and doing what was expected. In his memoirs he doesn't mention a word about this, he just talks about the, this one Japanese ship left in California, that like the USS Maine and the War of Jenkins Ear was the cause of a great war, but it's certainly possible that something was going on, but I'm sticking with the standard interpretation that he did it on his own. Tom? Male Speaker: How and where did you find those 37 vulnerability reports? Are those in those new archives that are recently opened? Ed Miller: No. Those vulnerability studies were part of the, were done under the Export Control Administration, which has been opened for years and years. There's about two miles of records of the wartime trade controls. The -- Male Speaker: Down in the archives? Ed Miller: Yeah, I'm sorry, yes, in the National Archives. You may have copies here; I don't think so. They were widely distributed. They were distributed throughout, maybe 50 copies were distributed throughout the government so they're not hard to find. They were part of a -- Maxwell's men during that hiatus when the Treasury was looking the other way, tried to put together a total report for how to conduct economic war against France of which this was the biggest part, but that report has disappeared. I cannot find it anywhere. I know that General Marshall got it; Admiral Stark got it. I wish I could find it, but I couldn't. But I'm pretty sure that everything that's in there, I've mentioned. Yes, sir? Male Speaker: During the 30s when incremental limitations were put on Japan, was there any reduction of their aggressiveness? Ed Miller: Reduction of what? Male Speaker: Aggressiveness. Ed Miller: Did the run up to the war, the embargos -- Male Speaker: --Yes. Ed Miller: -- and eventually the freeze, I guess, did that stop, slow down Japan? The answer is no, it did not. It was a failed policy basically. Japan did slow down its war in China, but due to military reasons. Once they had conquered most of North China and the ports, they did slow down, but then as you know they moved into Indochina and threatened East Asia, and so it did not slow them down, no. It was a failed policy. The United States has imposed dollar sanctions at least 75 times during the Cold War and a number of times since and I'm not sure how effective they've been. It certainly wasn't effective the first time out. Yes, sir? Male Speaker: At this rate [unintelligible] na�ve question here, but it seems to me that the people Atchison and others who were implementing all of these controls must have been able to see that they would eventually lead to war. Did they want war with Japan? Did they anticipate -- Ed Miller: That's a very good question. Did these heavy-handed controllers want war to provoke Japan? There's evidence on both sides. Certainly they wanted, they were hawkish, they wanted to play the hard line, slap these fellas down. We're not ready to go to war, but let's use the powers we have to deny them the ability to wage war. It backfired. The Japanese chose to go the other way. Did they actually want to provoke a war? They certainly didn't say so in writing. It was all about forcing them to back down, using non-war coercive methods. Perhaps some of them wanted war, but they're certainly not in the documents. Male Speaker: Thank you. Female Speaker: Did you have a question? Male Speaker: I just have a quick question. As far as did you find that the U.S. coordinated its economic warfare policies with the Dutch, specifically Dutch East Indies and the British in the far East because I know that as far as like Anderson's book on the role of oil and U.S. Foreign policies from the same period, there's a lot of coordination to essentially embargo Japan. You mentioned 10 percent of Japan's oil came from the Dutch East Indies and that was also cut off at great risk to the Dutch East Indies. Was there any sort of higher-level coordination or was it really just on oil that we coordinated with the British and the Dutch? Ed Miller: Right. The question is did America coordinate with the British and Dutch Allies in these embargos and freezes? The answer is yes. The British the following day - Churchill said he would follow within the hour and he did. The next day the British froze Japanese assets and the Dutch East Indies [unintelligible] was conquered, but there was a Dutch Government in New York which looked after the Indies. They did coordinate at a high level. The Dutch were surprisingly resistant seeing how exposed the Dutch East Indies were. The Japanese did send a delegation to negotiate oil from the Indies. The Japanese were getting very little from the Indies before. It was all going to Australia and India and the other - and a lot for ships. The Dutch were servicing the ships in the Far East. They did negotiate with the Japanese. The Dutch had enough oil that something like 60 percent of their oil would be sufficient to supply Japan, they wouldn't have needed American oil, but they were surprisingly vigorous in resisting the Japanese. They only upped their -- the Japanese only got 10 percent of the Dutch East Indies oil after November 1940 so they still totally needed the American oil. Also the Dutch didn't make high-grade gasoline and other such products that Japan needed. They could get crude oil. I kind of shortchanged the British and Dutch because I wanted to focus on the dollar as the key to the situation. Yes, sir? Male Speaker: I'm surprised. The Germans made oil from coal. They also had secrets, our secrets basically, how we put octane in the gasoline to run their tanks. Why is it that that technology was not shared with the Japanese and they would have made synthetic oil rather than the crude? Ed Miller: Question: why didn't the Japanese make synthetic oil like the Germans did? They did try. In Manchuria there are huge low-grade deposits of oil shale, which is an oil bearing rock, and they had huge plans to be 50 percent self-sufficient by the middle 1940s and nothing. It was trifling. One of the odd problems, is they were short of steel to build these huge reactor vessels in which you bake the oil out of the shale. Even the United States today doesn't produce shale oil, despite all our technology. The Germans made it from coal, which is a different matter, but they had slave labor and much better technology, adequate steel, all of Europe's resources at their feet. But it was still very small. You know the largest German plants produced 60,000 barrels a day. The United States consumes 18 million barrels a day. It wouldn't serve the United States for [laughs] an hour. Yes, sir? Male Speaker: In the course of your research in writing the book up, did your opinion change or were more questions raised as far as how much of a surprise attach Pearl Harbor really was? Have you -- has your thinking been affected by that? Ed Miller: Did I come to think that Pearl Harbor was more inevitable because of the severity of the controls? I haven't actually thought about that, but I think I'd have to say yes because I realized there was not only an oil embargo, which a hundred other historians have written about, but there was this dollar freeze, which was really much harsher than just embargoing particular commodities. After all there was other oil in the world; South America produced oil, Mexico, Peru, but without dollars Japan couldn't do anything. The other thing was the reason I dwelt on silk and other things is Japan faced a long-term disaster. They weren't going to be able to earn any dollars under peacetime conditions and this was really driving it to the wall. They really were exhausting their gold and other reserves. So I guess I would say that it probably elevated the stature of the hawks like Yamamoto, who wanted to attack. It made it easier for him to sell his program. Jeff? Male Speaker: A question on, you know after '41 the Japanese still conducted war, which is I assume a big draw on resources for four years, and it looked like a war well beyond '45, before the atomic bomb. How do you reconcile the analysis, okay that they were drained as an economic area and they had a bleak future, when they could maintain a vigorous war effort for four years if not longer in that particular process as far as the resourcefulness of their economy and that kind of stuff? I'm just curious what your thoughts are on how they were able to maintain that war effort for four or five years after this embargo and the shortages that they encountered during [inaudible]. Ed Miller: The question is how could the Japanese fight a four-year war when they were short of commodities? Well it was very simple they went down and conquered the Dutch East Indies within two months and simply took the oil there. As it turned out that didn't work too well. By the way the Dutch did blow up the refineries and sabotaged them, but they didn't do a very good job. Within a few months they were back online near fully. However the problem was tankers. They had no anti-submarine protection in bringing the oil to Japan for refining was soon halted by American submarine attacks. American submarines sank 60 percent of the Japanese merchant marine and altogether 80 percent was sunk by American attacks. So -- in fact late in the war they had to move the fleet to Singapore to be near the oil, rather than base it in Japan where they couldn't get any oil. So that's the answer. And the U.S. was well aware of this that the Japanese might move into the Indies, which meant they'd have to conquer Singapore and the Philippines to protect them. I have studies in here of Japan's stockpile condition. Our Navy overestimated how much Japan had in oil. They thought Japan had enough for two years of war in the stockpiles. The United States, by the way, were selling steel tanks, knockdown steel [unintelligible] oil tanks that were going to Japan. They got it wrong. The civilians and the export controllers figured Japan had only enough for six months, and they were much nearer to the mark, but the conquest of the Indies made it happen. As far as other products like steel and copper, they had stockpiles of scrap, but basically they simply cut off materials for the civilian sector, except the most vital things like railroad bridges and things like that. Victoria Hill: I'm going to cut off the questions and answers, but I want to thank Ed Miller so much for his terrific talk and if you'd like to speak with him later, he'll be signing his book up at the front of the room. [applause]