What P.1 of this
two part investigation showed is Roosevelt's idea of a financial siege of Japan
in fact backfired by exacerbating rather than defusing Japan's
aggression. And for sure the attack on Pearl Harbor was not the result of a
deliberate Roosevelt strategy (as right-wing conspiracytheorists
claim), but a Roosevelt miscalculation.
However neither country
statistically assessed the impact on the standard of living of the Japanese
people. As shown on hand of the little-known 500-page study of Japan's foreign
trade during 1930-1938 and the dismal effect on Japan of loss of trade. The
study was written by the OSS and State Department during the war for postwar
occupation use. This study can usefully be adapted to estimate Japan's standard
of living after two or three years of dollar freeze if it had not gone to war.
The collapse of trade in both hypothetical eras–a frozen Japan in 1942-43 or
postwar defeated Japan–had many similarities. And the conclusion from this is
that an economic disaster faced the Japanese people under a prolonged dollar
freeze. The standard of living might have been reduced to that of India or
China. My procedure is certainly open to challenge. However, I felt that I
ought to make a shot at evaluating the effect of a hypothetical freeze of
several years.
The U.S. Oil Shortage that Never Was
U.S. Oil Exports to Japan, 1935-1941, and Possible
Annual Quotas after 26 July 1941
In July 1941
President Franklin D. Roosevelt cited a shortage of oil products on the U. S.
East Coast as an important rationale for halting oil sales to Japan, even
though Japan drew oil solely from California and that oil could not be shipped
to the Atlantic. Harold Ickes, the petroleum coordinator, along with his deputy
Ralph Davies and a hastily recruited team of experts from the industry,
evaluated the diversion to Lend-Lease service of fifty U.S. tankers, comprising
20 percent of the fleet that delivered most of the oil consumed in the
northeastern states. The diversion would result in a shortfall of liquids there
amounting to 20 percent, that is, 350,000 to 400,000 barrels per day. Because gasoline
was the largest volume product, and because Ickes insisted that nonessential
driving could be easily curtailed, he demanded a reduction of gasoline
consumption, initially of 10 percent in August versus July, with larger cuts to
follow. Trucks, buses, and taxis were exempted, which ultimately would result
in a 33 percent reduction for private passenger cars. Refineries in the region
were ordered to cut deliveries to retail gasoline stations. The stations were
told to close on nights and Sundays. But Ickes's importunings
were ineffective. Alarmed motorists filled their tanks and hoarded gasoline.1
The U.S. Senate appointed a special committee to investigate, chaired by
Senator Francis Maloney of Connecticut. (The House also named a merchant marine
committee to investigate.) In late August and early September the Maloney
committee convened to hear witnesses. Ralph Davies testified on behalf of
Ickes, who was traveling. He backtracked half way on his agency's estimates,
conceding that half the fancied East Coast shortfall of 353,000 barrels per
day could be overcome. by the end of 1941. Deep loading and other tanker
efficiencies, recommissioning idle ships, and employing barges had already
upped deliveries by 70,000 barrels per day. Ten thousand railroad tank cars
were to be pressed into service to haul another 73,700 barrels per day; the
railroads agreed to cut their freight rates in half (although still far higher
than tanker rates). He hoped 175,000 barrels per day would be delivered
gradually by Great Lakes tankers, reversing of regional pipeline flows to
supply inland parts of the Northeast, conservation, and coal substitution.
Davies humbly apologized for his sneer that inventories in northeastern storage
tanks were "sludge." Nevertheless, he persisted, restriction of
gasoline for motorists, by formal or informal rationing, would be necessary
throughout 1941 so that tankers could haul winter heating oil. Eventually, new
tankers and a pipeline from Texas would permanently solve the problem.2
The Maloney committee
also heard from angry retail gasoline operators. Rationing based on July's
sales, as Ickes wanted, ignored patterns of large summertime need in resort
areas and lower need in cities. The American Automobile Association declared
that pleasure driving was vastly exaggerated, and that 77 percent of auto trips
were for business or commuting.3 John J. Pelley, head of the Association of
American Railroads, belittled the shortage. He assured the senators that 20,000
tank cars (out of a U.S. fleet of 125,000, excluding 29,000 that hauled liquid
foods and chemicals) were standing idle because of the growth of ocean haulage
over recent years.4 A car could haul 200 barrels on a twenty-day Texas-New York
round trip, equivalent to 10 barrels delivered per day. Thus 20,000 idle cars
could move 200,000 barrels per day to the East Coast, more than Davies' feared
175,000-barrel extended shortage. Even 250,000 barrels per day by rail was
feasible, he told the amazed senators, by shortening turnaround times and hitching
together mile-long trains of 100 cars. The debate degenerated into arguments
about the meaning of "idle": Was a car idle if it stood empty for
just a day or two? And were there enough locomotives? It became clear that the
railroads were anxious not only for freight business but also to kill a
proposed Texas-New York pipeline that was stalled for lack of an allocation of steeP
On 11 September 1941
the Maloney committee accepted the railroaders' boast. It delivered a
blistering criticism of Ickes for falsely threatening a shortage and creating
alarm and confusion. Ickes's "frightening picture" was really "a
'shortage' in a large surplus-and not a shortage of products, or a lack of
facilities to transport them." While not quite accusing Ickes of promoting
a war scare, the senators commended the industry's efforts and unanimously
urged an end to rationing and calming the public's "mild form of
hysteria."6
Harold Ickes felt
personally insulted. Boiling mad, the petroleum coordinator demanded to be heard
when the Maloney committee reconvened on 1 and 2 October 1941. His staff had
sent telegrams to 188 companies that owned or leased railroad tank cars to
inquire how many they could offer for East Coast oil service. The responses
indicated that there were only 5,192 cars available in the entire United
States. Pelley's 20,000 cars had been wildly misrepresented, Ickes declared,
and his mischief incalculable. He persisted in his plans for even more
stringent rationing of gasoline as the autumn approached. Davies had warned
that 50 percent cuts for private autos would be necessary. Lifting restrictions
would be "stupid."7
Two weeks later
Harold Ickes suddenly changed his mind. A delegation of oil company executives
headed by William S. Farish, president of Standard
Oil of New Jersey, had come to him to request cancellation of rationing plans
because there would be no transportation shortage. The reason was that the
British were about to release most of the shuttle tankers. Prime Minister
Winston Churchill had told Parliament that losses to submarines had been far
less severe than feared. The oil executives politely suggested that if Ickes
persisted in rationing he ought to come up with a different explanation.
Davies meekly said it must be true if Farish said so.
He advised his boss to beat a retreat from heavy-handed rationing set for late October.s The imaginary shortage evaporated almost
overnight. Edwin W. Pauley, a wealthy oilman and Democratic party confidante
(and a later secretary of the navy) traveled to London for a study of the
United Kingdom oil situation. On his return he went directly to a lengthy
conference with Roosevelt. The administration then announced that forty
tankers would return to domestic service by the end of November 1941. The Lend-Lease
Administration directed British oil buying to Caribbean countries, freeing
still more U.S. tankers. November deliveries lifted East Coast fuel inventories
5 percent above (l year ear4er. Empty vessels were docking at Gulf Coast ports
ahead of scheduie. On 1 December shippers cut
coastwise tanker rates 20 percent. Expensive rail transportation, having peaked
at 143,000 barrels per day, abruptly ceased. As winter approached even Ickes
found the situation "satisfactory." He churlishly confided to his diary
that he always knew there was gasoline enough for "every desire" and
that he was merely trying to avoid winter hardships.9
A tantalizing
question is whether Britain actually needed any U.S. tankers in 1941. British
civilians were tightly rationed. Campaigns in the Mediterranean consumed less
oil than expected. Britain had expanded its tanker fleet by acquiring or
leasing bottoms from Nazi-occupied nations. In 1939 the British Empire operated
445 tankers. It built 30 more in 1940-41 and obtained use of about half the 375
tankers of Norway, Holland, and a few other countries. Sinkings in the Atlantic
through 1941 cost 117 tankers (75 empire and 41 others), and a few were lost in
other oceans. In 1941, therefore, the United Kingdom controlled about 30 percent
more tonnage than before the war. Although convoying lengthened turnaround
times by 20 to 30 percent, not every route was convoyed and the shiplines had abandoned many long-haul peacetime routes. In
the second half of 1941 losses in the Atlantic dropped sharply due to air
patrols from Iceland and the UK, enabling the British to rebuild depleted
stocks with Lend-Lease oil. They admitted to Pauley that before Lend-Lease a
lack of dollars forced them to buy from sterling area companies in the Persian
Gulf via the Cape of Good Hope route. Possibly they had underestimated the
shipping relief of shorter Lend-Lease voyages. Or perhaps they wished to
maximize their "free ride" of the U.S. shuttle haulage half way to
England.10
Throughout 1941
California was able to produce far more oil than it could ship. Although
southern and central parts of the state were amply serviced by pipelines, acute
shortages arose in service to regions from northern California to Alaska due to
requisitions of tankers to serve Britain and the Soviet Union. Only twenty-five
hundred railroad cars were on hand in the far West. In October the refineries
cut intakes of crude oil for lack of storage tanks. The shrinking market due to
transportation deficiencies and the halt of sales to Japan (which had loaded
the oil in its own tankers) induced the industry's Conservation Committee to
further restrict crude liftings, from 640,000 barrels per day in lllly to 613,000 in November and December 1941 with further
cuts to follow. II Roosevelt's citing of an East Coast shortage as a rationale
for denying to Japan California's oil products, which could not be shipped to
the Atlantic, had no basis in reality.
In no resource was
Japan more vulnerable than petroleum, for its economic life and especially for
its army and navy. The U.S. government was well aware that supplies from the
United States were irreplaceable. Shutting off the oil tap would tectonically
shift Japan's foreign policy, perhaps toward a diplomatic settlement of
tensions, or perhaps toward war before its storage reserves ran out and the
Imperial Army and Navy could no longer wage war As his aides readied financial
sanction orders, Roosevelt needed a further political justification for cutting
off oil from Japan, even partially. Oil was a unique commodity. It was, of
course, the lifeblood of Japanese naval and air forces, and it was vital to
segments of the Japanese economy. Japan could only obtain it in adequate
quantities from the United States, and if cut off, its reserve in storage tanks
would not last very long. Unlike the strategic resources that the United States
conserved for rearmament and its Allies, or that were vital to its own economy,
there was no domestic shortage of oil or refined products. Nevertheless, to
help justify an embargo the president offered a false rationale promoted by his
petroleum coordinator for national defense, Harold L. Ickes, that Japanese
buying caused a shortage in the United States. In fact, Japanese buying did not
at any time pinch American oil users, but the facts were complex. There was
both a predicted shortage on the Atlantic Coast and a glut of oil on the
Pacific Coast. Roosevelt linked the two circumstances in his policy even though
neither coast could solve the other's imbalance. In July 1941 President
Franklin D. Roosevelt cited a shortage of oil products on the U.S. East Coast
as an important rationale for halting oil sales to Japan, even though Japan
drew oil solely from California and that oil could not be shipped to the
Atlantic. Harold Ickes, the petroleum coordinator, along with his deputy Ralph
Davies and a hastily recruited team of experts from the industry, evaluated the
diversion to Lend-Lease service of fifty U.S. tankers, comprising 20 percent of
the fleet that delivered most of the oil consumed in the northeastern states.
The diversion would result in a shortfall of liquids there amounting to 20
percent, that is, 350,000 to 400,000 barrels per day. Because gasoline was the
largest volume product, and because Ickes insisted that nonessential driving
could be easily curtailed, he demanded a reduction of gasoline consumption,
initially of 10 percent in August versus July, with larger cuts to follow.
Trucks, buses, and taxis were exempted, which ultimately would result in a 33
percent reduction for private passenger cars. Refineries in the region were
ordered to cut deliveries to retail gasoline stations. The stations were told
to close on nights and Sundays. But Ickes's importunings
were ineffective. Alarmed motorists filled their tanks and hoarded gasoline.24
The U.S. Senate
appointed a special committee to investigate, chaired by Senator Francis
Maloney of Connecticut. (The House also named a merchant marine committee to
investigate.) In late August and early September the Maloney committee convened
to hear witnesses. Ralph Davies testified on behalf of Ickes, who was
traveling. He backtracked half way on his agency's estimates, conceding that
half the fancied East Coast shortfall of 353,000 barrels per day could be
overcome by the end of 1941. Deep loading and other tanker efficiencies,
recommissioning idle ships, and employing barges had already upped deliveries
by 70,000 barrels per day. Ten thousand railroad tank cars were to be pressed
into service to haul another 73,700 barrels per day; the railroads agreed to
cut their freight rates in half (although still far higher than tanker rates).
He hoped 175,000 barrels per day would be delivered gradually by Great Lakes
tankers, reversing of regional pipeline flows to supply inland parts of the
Northeast, conservation, and coal substitution. Davies humbly apologized for
his sneer that inventories in northeastern storage tanks were
"sludge." Nevertheless, he persisted, restriction of gasoline for
motorists, by formal or informal rationing, would be necessary throughout 1941
so that tankers could haul winter heating oil. Eventually, new tankers and a
pipeline from Texas would permanently solve the problem.25
The Maloney committee
also heard from angry retail gasoline operators. Rationing based on July's
sales, as Ickes wanted, ignored patterns of large summertime need in resort
areas and lower need in cities. The American Automobile Association declared
that pleasure driving was vastly exaggerated, and that 77 percent of auto trips
were for business or commuting.26 John J. Pelley, head of the Association of
American Railroads, belittled the shortage. He assured the senators that 20,000
tank cars (out of a U.S. fleet of 125,000, excluding 29,000 that hauled liquid
foods and chemicals) were standing idle because of the growth of ocean haulage
over recent years.27 A car could haul 200 barrels on a twenty-day Texas-New
York round trip, equivalent to 10 barrels delivered per day. Thus 20,000 idle
cars could move 200,000 barrels per day to the East Coast, more than Davies'
feared 175,000-barrel extended shortage. Even 250,000 barrels per day by rail
was feasible, he told the amazed senators, by shortening turnaround times and
hitching together mile-long trains of 100 cars. The debate degenerated into arguments
aba"ut the meaning of "idle": Was a
car idle if it stood empty for just a day or two? And were there enough
locomotives? It became clear that the railroads were anxious not only for
freight business but also to kill a proposed Texas-New York pipeline that was
stalled for lack of an allocation of steel. 28
On 11 September 1941
the Maloney committee accepted the railroaders' boast. It delivered a
blistering criticism of Ickes for falsely threatening a shortage and creating
alarm and confusion. Ickes's "frightening picture" was really "a
'shortage' in a large surplus-and not a shortage of products, or a lack of
facilities to transport them." While not quite accusing Ickes of promoting
a war scare, the senators commended the industry's efforts and unanimously
urged an end to rationing and calming the public's "mild form of
hysteria."29 Harold Ickes felt personally insulted. Boiling mad, the
petroleum coordinator demanded to be heard when the Maloney committee
reconvened on 1 and 2 October 1941. His staff had sent telegrams to 188
companies that owned or leased railroad tank cars to inquire how many they
could offer for East Coast oil service. The responses indicated that there were
only 5,192 cars available in the entire United States.
Pelley's 20,000 cars
had been wildly misrepresented, Ickes declared, and his mischief incalculable.
He persisted in his plans for even more stringent rationing of gasoline as the
autumn approached. Davies had warned that 50 percent cuts for private autos
would be necessary. Lifting restrictions would be "stupid."30
Two weeks later
Harold Ickes suddenly changed his mind. A delegation of oil company executives
headed by William S. Farish, president of Standard
Oil of New Jersey, had come to him to request cancellation of rationing plans
because there would be no transportation shortage. The reason was that the
British were about to release most of the shuttle tankers. Prime Minister
Winston Churchill had told Parliament that losses to submarines had been far
less severe than feared. The oil executives politely suggested that if Ickes
persisted in rationing he ought to come up with a different explanation. Davies
meekly said it must be true if Farish said so. He
advised his boss to beat a retreat from heavy-handed rationing set for late
October.32 The imaginary shortage evaporated almost overnight. Edwin W. Pauley,
a wealthy oilman and Democratic party confidante (and a later secretary of the
navy) traveled to London for a study of the United Kingdom oil situation. On
his return he went directly to a lengthy conference with Roosevelt. The
administration then announced that forty tankers would return to domestic
service by the end of November 1941. The Lend-Lease Administration directed
British oil buying to Caribbean countries, freeing still more U.S. tankers.
November deliveries lifted East Coast fuel inventories 5 percent abqve a year earlier. Empty vessels were docking at Gulf
Coast ports ahead of schedule. On 1 December shippers cut coastwise tanker
rates 20 percent. Expensive rail transportation, having peaked at 143,000
barrels per day, abruptly ceased. As winter approached even Ickes found the
situation "satisfactory." He churlishly confided to his diary that he
always knew there was gasoline enough for "every desire" and that he
was merely trying to avoid winter hardships.33
A tantalizing
question is whether Britain actually needed any U.S. tankers in 1941. British
civilians were tightly rationed. Campaigns in the Mediterranean consumed less
oil than expected. Britain had expanded its tanker fleet by acquiring or
leasing bottoms from Nazi-occupied nations. In 1939 the British Empire operated
445 tankers. It built 30 more in 1940-41 and obtained use of about half the 375
tankers of Norway, Holland, and a few other countries. Sinkings in the Atlantic
through 1941 cost 117 tankers (75 empire and 41 others), and a few were lost in
other oceans. In 1941, therefore, the United Kingdom controlled about 30
percent more tonnage than before the war. Although convoying lengthened turnaround
times by 20 to 30 percent, not every route was convoyed and the shiplines had abandoned many long-haul peacetime routes. In
the second half of 1941 losses in the Atlantic dropped sharply due to air
patrols from Iceland and the UK, enabling the British to rebuild depleted
stocks with Lend-Lease oil. They admitted to Pauley that before Lend-Lease a
lack of dollars forced them to buy from sterling area companies in the Persian
Gulf via the Cape of Good Hope route. Possibly they had underestimated the shipping
relief of shorter Lend-Lease voyages. Or perhaps they wished to maximize their
"free ride" of the U.S. shuttle haulage half way to England.33
Throughout 1941 California was able to produce far more oil than it could ship.
Although southern and central parts of the state were amply serviced by
pipelines, acute shortages arose in service to regions from northern California
to Alaska due to requisitions of tankers to serve Britain and the Soviet Union.
Only twenty-five hundred railroad cars were on hand in the far West. In October
the refineries cut intakes of crude oil for lack of storage tanks. The
shrinking market due to transportation deficiencies and the halt of sales to
Japan (which had loaded the oil in its own tankers) induced the industry's
Conservation Committee to further restrict crude liftings, from 640,000 barrels
per day in July to 613,000 in November and December 1941 with further cuts to
follow.11 Roosevelt's citing of an East Coast shortage as a rationale for
denying to Japan California's oil products, which could not be shipped to the
Atlantic, had no basis in reality.
P.S.: Plus of course there was also the so called
paragraph 5(b) empowered a president to freeze the assets of any country,
whether enemy or otherwise. Those two extra words kept 5(b) alive after other
sections of the act, which applied only to enemies, lapsed with the peace
treaties that ended World War I. The U.S. then had no enemies. Hence 5(b)
remained a powerful tool for future presidents. But strange is why congress inserted
those two words into the act in 1917. A senate investigation in the 1970s could
not determine why, even though presidents had invoked its powers four hundred
times. I attribute it a zealous Federal Reserve lawyer during a dog-fight
between the Commerce Department and Treasury Department in 1917 as to who would
administer the TWEA. FDR forgot about it, even though he invoked it in 1933 to
close the U.S. banking system and in 1934 to devalue gold. Yet when FDR was
first briefed on dollar sanctions against Japan in 1937, he said, "My God,
I had forgotten all about it." Thus the two strange words the later senate
investigation inquired about, were crucial because FDR did not have to ask
congress for powers to freeze the assets of non-enemies including Japan. (The
act is still in effect, renamed the War Powers Act.)
1. In the run-up to
the dollar freeze order of 26 July 1941, other domestic rationales for denying
oil to Japan had been debated in the administration. On 22 July Maxwell M.
Hamilton, chief of the State Department's Division of Far Eastern Affairs,
suggested "proceeding with some finesse" in any press statement about
oil by blaming it on "the defense needs of the United States." But
Roosevelt understood the regional oil economics and that there was plenty for
defense. He paid no attention to Hamilton then or when Welles repeated the
suggestion after the freeze. On 24 July, the same day as Ickes's outburst, he
personally told Nomura that public opinion strongly favored an oil embargo,
that he had thus far persuaded the public against it in order to maintain
peaceable relations. But due to Japan's aggressions "he had now lost the
basis of this argument" and hinted at an embargo. He instructed Admiral
Stark, the chief of naval operations who was going to lunch with the Japanese
ambassador, to tell Nomura "that it is rather difficult to make our people
understand why we cut oil and gas at home and then let Japan have all she
wants." The president added, "Of course, we understand this, because
Japan carries the oil in her own bottoms-and our shortage in the East is due
not to lack of oil and gas at the refineries, but to our inability to transport
it from the oil fields to points where needed." Roosevelt was soon to
ignore 'publicly his own astute observation.
That day, when FDR
summoned the cabinet for the decision to freeze Japanese assets, he took the
extraordinary step of telling the American public that there was an odious link
between the predicted East Coast gasoline shortage and oil sales to Japan.
While addressing a volunteer group for civil defense headed by Mayor Fiorello
LaGuardia of New York-the city bearing the largest volume of risk for rationing
of gasoline-FDR told the press,
You have been reading
that the Secretary of the Interior, as Oil Administrator, is faced with the
problem of not having enough gasoline to go around in the east coast, and how
he is asking everybody to curtail their consumption of gasoline. All right.
Now, I am-I might be called an American citizen living in Hyde Park, N.Y. And I
say; "That's a funny thing. Why am I asked to curtail my consumption of
gasoline when I read in the papers that thousands of tons of gasoline are going
out from Los Angeles-west coast-to Japan; and we are helping Japan in what
looks like an act of aggression.
Roosevelt's linking
of Atlantic and Pacific supplies was a brazen political canard to guide public
opinion and perhaps soothe Japanese anger. There was no conceivable possibility
of satisfying East Coast needs with West Coast oil. Nevertheless, in the weeks
following 26 July, as a relentless oilembargo by
means of the dollar freeze descended on Japan, Ickes continued to insist,
against the advice of government and private experts, against all remedies
offered by the industry, against the findings of a senatorial investigating
committee, and even against evidence that Britain did not need U.S. tankers,
that an East Coast gasoline crisis was inevitable. The specious rationale of a
shortage continued almost to the eve of Pearl Harbor: the United States could
not spare California oil for Japan because it was scarce in New York.
2. Office of
Intelligence Coordination and Liaison, Place of Foreign Trade, vol. 1, pt. 1,
iii.
3. OCL,Ibid., iv; vol. 1, pt. 2, tables 11-32 to 11-34.
4. Ibid., vol. 1, pt.
1, iii; 11-21.
5. Ibid., 2-21.
6. Ibid., 110-11.
7. Ibid., 121.
8. Ibid., 43-66,
91-97, 109-145; vol. 1, pt. 2 177-81, 205-12, 231-33, 254-63, 272, 294-98,
308-10, 344-45, 352-59.
9. Ibid., vol. 1, pt.
1, 6I~66, 114-I5, 134-37, 143, app. 145--48, 152-53, tables 1-20, 1-21, 1-22;
vol. 1, pt. 2,177-81,208-12,231-33,254-64,272-74,294-98, 305-6, 309-10, 319,
322, 327-28, 336-37, 339, 341, 344--45, 348--49, 352-59.
10. Ibid., vol. 1,
pt. 1,67-87.
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