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Economic integration was never There was underground arbitrage: US soldiers would sell things like $4 watches to Rysdysn soldiers for 10,000 marks, then redeem at official rate of 10:1 and clear a$996 profit. The mess cost US 6.75B in today’s money. Or 675m then? Much Catch-22
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West forks off the Deutschmark which Soviets ban in Berlin. Siege on by May 18. I had no idea this currency fork was such a big part of the story.
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The Berlin Magistrat votes to restrict Soviet marks to East Berlin. Soviets bring in communist mobs to beat up those who voted for the West. Both sides introduce their own notes. Train turned back at border. This feels like a real version of the CHAZ/CHOP Seattle nonsense.
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Aside: this kind of shit could easily happen in the US now. It would just be more sophisticated and involve muni bonds or something if feds and states/cities have breakdown. Currency shenanigans are a big marker of systemic breakdown. See also Indian demonetization.
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Everyone ready for bedtime story? Alright so Clay Rabbit and Sokolovsky Rabbit are fighting over Berlin and have banned each other’s currency. Deutschmarks are trading 1:4 against East marks. It’s a mess even without Softbank around to play games.
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A lot of this story revolves around US-UK physical control of Ruhr. Everybody wanted a piece of that to feature in their story. France wanted it internationalized to use it to reindustrialize. Soviets wanted Germany intact so they’d have a claim on it. Reparations golden goose.
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Airlift continues as western parties fail to craft alt strategy. Soviets continue to insist on Potsdam framework, quadripartite decision on Berlin and rejection of currency schism. City needs 1400 tons of food, 2000 tons of coal a day. West also blockades industrial exports.
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A general feature of hostile geopolitics and international relations is rejecting all agreements except the most recent one that favors you. Since all treaties are made with imperfect info, if trust to perfect it breaks down you revert to last imperfect checkpoint.
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Potsdam was obviously a mess of an agreement made in fog of war conditions. But it suited Soviets to entrench there. For US new equilibrium that allowed Marshall reconstruction over Morganthau pastoralization was better and control of Ruhr allowed them to unilaterally go there.
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The treaties of international relations are like a series of really bad patches to a non-existent OS. They reflect the power balance and imperfect information of the last time the parties were temporarily not in conflict. Very Hobbesian.
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Clay is hawkish. Soviets can’t afford to lose Berlin because Tito’s Yugoslavia has just defected from eastern bloc. West positions B-29s in UK as a nuclear bluff but don’t know Stalin knows it’s a bluff because they are not nuclear capable and his spy MacLean has told him.
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Sidebar: I wanted to read this book since I thought it would be salient to post-Covid reconstruction. It is and isn’t. Marshall Plan was less reconstruction, more a retcon of WW2 endgame into Cold War opening and a NATO bootstrap. But maybe Covid too is an inter-war thing too.
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If so, what was the World War leading up to Covid and what is the Cold War we’re segueing into? “Europe reconstruction” = “climate” The rest of the mapping is murky af. Anyway back to the story.
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Failed attempt to resolve impasse as western ambassadors meet Stalin. Both sides misread other. West Germany is starting to recovery and heading towards forming a government in Bonn. Stalin is desperate to stop it. West is desperate because ground situation in Berlin is explosive
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The extent to which this is directly an economic regime mismatch coming to a head in a literal currency war leading to physical conflict 🤯 I hadn’t realized the extent to which the blockade and airlift were sideshows to a currency/economic conflict triggered by Marshall Plan.
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This is Stalin’s last ditch attempt to stop West Germany from forming. He doesn’t have strong hopes of succeeding and is actually playing for full control of Berlin as consolation prize. But most Berliners hate the idea and desperate to stay with the West. Riots, etc.
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Again parallels to post-Covid. Different plans will have different success rates, creating tectonic pressures at interface points. Where are Berlins of today, vulnerable to post-Covid economic schisms? We’ve already seen Blue governors/mayors vs Trump+Mitch fiscal battles.
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Back in US, Truman facing an election year, and facing criticism of warmongering from his progressive party opponent Henry Wallace, who is in Stalin’s pocket (shades of Jill Stein? 🤔) goes behind Marshall’s back to try sending his own unprepared emissary Fred Vinson to Stalin.
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Sideshow at UN. Allies get a resolution out, Soviets veto it. Some tedious messiness around Argentina chairing the council under pressure from both sides. Moving on. Truman wins re-election against Republican Dewey, in what’s seen as an upset. Winter has arrived in Berlin.
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Democrats now control both houses. Truman wants Vandenburg as Marshall’s replacement but he wants to stay a Republican senator. Acheson gets the job. Berlin city council under its own competing elections in West and East. Communist goons trying to derail it. Planes still flying.
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End of 1948, 2B in Marshall Plan funding (20B today) has already flowed and production surpasses pre-war levels for the first time.
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Another lesson for post-Covid. Berlin city election, not Truman re-election, is the one to learn from. The bad guys are the ones a) trying to build a wall b) using armed forces to interfere in elections and intimidate voters. Good thing Berlin didn’t have electoral college.
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Today’s OECD came out of Marshall a Plan era OEEC, the org Hoffman bullied into accepting the beginnings of a common market by 1950. Barriers down. Payments union up. Brits unhappy. Seeds of Brexit planted. Also seeds of shows like Yes, Prine Minister.
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COMECON evolved to extract for the Soviets not assist. They also carried away 2x in German war booty industrial equipment etc than was lost to bombing in the war. Russia suffered mightily in the war, but it’s really hard to see anything even close to good in Stalinism.
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Meanwhile, back on early 1949, Gresham’s Law is in effect in Berlin. and bad East marks are driving out good Deutschmarks. Everybody is trying to spend away East marks which is officially at par, and hoarding DMs. UN gives up hopeless currency mediation.
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With much US arm-twisting, UK and France agree to simultaneously declare East marks no longer legal tender in their Berlin zones, on March 20, 5 days after UN effort is quietly buried by a pro-US Cuban chair. Currency schism is done. And allied airlift has survived winter.
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Shadowy negotiations begin to end Berlin standoff. Acheson emissary Jessup meets Stalin emissary Malik. Molotov out, Vyshinsky in. Marshall Plan triggers spy/propaganda game. Kennan shepherds early covert stuff. In UK, James Bond receives his 00 rating. George Smiley joins MI6.
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May 12, 1949. Blockade over. Stalin fails to mess with Acheson via Jessup-Malik talks to stall the creation of the FRG. Kinda a whimper rather than a bang.
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Kennan retreats from the stage, cut out of the last act. Gloomy and moody, ultimately resisting the natural outcomes of his own doctrines. In a way both he and Stalin saw the beginning of the Cold War as a chess game and both lost. Acheson won by treating it like tic-tac-toe.
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What led to allies prevailing was simple economic success in the West. The Soviets could not bear economic cost of holding Berlin hostage. As in 2 world wars and the Civil War, what won the conflict for the US was economics. Kennan never really developed an intuition for that.
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