By Eric Vandenbroeck and co-workers

What part one of this two-part major 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 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 halfway 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 allocation.

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 a 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. 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.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 ship lines 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 halfway 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 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 halfway 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 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 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 a 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 above 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 ship lines 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 halfway 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) that 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 to 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 oil embargo 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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