Eleanor Lansing Dulles and the Vienna Black Market

By Nathan Marcus, Ben-Gurion University. 

On 29 August 1945, Eleanor Lansing Dulles drove into Vienna on the backseat of Adolf Hitler’s requisitioned touring car and as part of a US convoy that further included a bullet-proof limousine formerly owned by Benito Mussolini. Eleanor, the younger sister of Allen Welsh Dulles, director of American Intelligence Operations in Europe and John Foster Dulles, the Senator and future Secretary of State, arrived as a member of John E. Erhardt’s staff, the political advisor to General Mark Clark, Chief of US Military Forces in occupied Austria. Until 1949 Eleanor Dulles served as US Financial Attaché in Vienna, advising Erhardt on questions of economics and finance and coordinating US efforts to help reconstruct Austria’s postwar economy.

Photo: US Military Police strip-searching suspected black marketeers on the Vienna Naschmarkt in 1945.

Dulles, born in Watertown (NY) in 1895, had studied at Bryn Mawr College before taking a doctorate in economics from Harvard University in 1926 with a dissertation on inflation and the French Franc after WWI. Appointed Director of the Social Security Board under President Franklin D. Roosevelt in 1936, she joined the State Department as an Economic Officer in 1942, where she got involved in economic postwar planning for Europe. In the summer of 1944, she attended the Bretton Woods conference and in April 1945 joined Erhardt’s staff and boarded a steamship to Britain.

US economic and financial policy for postwar Austria focused on preventing a repeat of the catastrophic hyperinflation that had ravaged the country after the First World War. Upon arrival in Austria, Dulles’ first goal was to obtain the decoupling of the Austrian economy and currency from Germany’s and to ensure price stability through monetary reforms. There was no free market in Austria as rationing and price controls instituted under the Nazis continued, but the illegal black-market could be gauged for information on prices and supply. Indeed, in her reports sent back to Washington, the black-market featured prominently, but it is conspicuously absent from her published memoirs. (1) This surprising silence needs explaining, since during a series of interviews conducted on behalf of Columbia University’s Oral History Research, which much of her memoirs were based on, she still remembered the Austrian black-market vividly.(2)

The discrepancy is perhaps best explained by Dulles’ personal ambiguity regarding the Vienna black-market. As a financial officer in charge of US policy on Austrian economic reconstruction, the black-market constituted a source of disorder and lack of control. Indeed, her professional analyses from 1945 depicted the Vienna black-market negatively, as an institution that endangered monetary stability and that should not be allowed to exist. In her interviews conducted twenty years later, she took pride in the fact that as an official, she had stayed away from black-marketeering, but she now acknowledged that for Viennese citizens the institution had been a lifesaver. As will be shown, she had experienced no qualms frequenting black markets as a private citizen outside of Austria, but as a US official in Vienna, she could not but denounce and object to the local version. This inconsistency probably explains best why in her official memoirs black-markets are absent. The story she wished to tell her readers was one of US assistance and benevolence, which does not square well with suppressing black-market trades that most Viennese relied on for survival.

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Because the Soviets at first kept their Western Allies out of Vienna, Erhardt’s staff worked from Salzburg during June and July 1945. Dulles’ first dispatch to the Department of State from 1 July 1945, summarized her initial impression that in Salzburg there existed “no significant black market, although a small amount of personal barter is carried on.” (3) Dulles also discounted the notion of an extensive black-market in her next report ten days later, arguing that

there are a number of reports of attempts to barter goods but the methods used are evidence of the difficulties involved, and there are no signs that barter is being carried on in large volume. There are on the contrary indications that no significant black market exists and only personal barter on a small scale is reported. (4)

A third and last report from Salzburg at the end of August provided a more profound analysis of the economic conditions in Austria. Focusing on the danger of penned-up inflation, it continued to deny the existence of a black-market, noting that only “few signs of illegal trading, of speculation or of excess prices” existed. However, there was a danger that black-markets would “flourish” if the food supply improved, even just slightly. According to Dulles, people were so flush with Reichsmark that they would use these “idle funds” to illegally buy any products available. (5) She concluded that she had reports from the Soviet zone according to which Red Army troops there were already excessively involved in illegal trades, though she considered these somewhat unreliable. (6)

Dulles’ analysis of the black-market changed with her arrival in Vienna. Already on 5 September 1945, less than a week after settling into the Hotel Regina, Dulles dispatched a four-page report on the city’s black-market, which she termed “extremely difficult to characterize” because it kept constantly changing. (7) Her report acknowledged the Vienna black-market as a recognized institution, but claimed that it existed only because Austrian and Russian authorities tolerated it. Demand was high because official channels failed to supply sufficient food and the city’s inhabitants could not “keep alive without dealing in the black market” with prices, though “extremely varied,” accordingly high. While she noted that steps were being taken to enforce restrictions and “repress illegal sales,” she lamented the lack of a “firm and generally recognized policy.” In her analysis, Russian troops, who received at least a third of their pay in local currency, were all too eager to buy valuables and the influx of large amounts of Reichsmark smuggled from Czechoslovakia also stimulated inflation. Dulles repeated her warning that if the supply situation were to improve materially, it would increase the volume of black-market business and make enforcing restrictions ever more difficult. (8)

As a professional economist charged with coordinating US efforts towards the rehabilitation of the Austrian economy, Dulles condemned the Vienna black-market. She and her colleagues aimed at managing the Austrian economy, and the black-market was an institution that eluded their control. To them, the combination of penned-up demand, monetary overhang and lack of supplies meant that the black-market harbored the danger of hyperinflation. Her official reports therefore presented the black-market as an unwanted institution, one to be fought and subdued. Its existence was blamed on Austrian incompetence, Russian insubordination and a general lack of control. At the same time, her reports show an almost callous disregard for the importance of the black-market for the city’s civilian population Even though Dulles acknowledged that the black-market was vital for the physical survival of Austrian civilians, she could not describe it as a legitimate institution to be tolerated, but only as one that was harmful to US aims of economic reconstruction.

Her oral history interviews, recorded between 1962 and 1967, offer a more nuanced reflection. Like in her published memoirs, Dulles remembers that “people were starving” and collapsing in the street, but immediately explains that “you could get anything, if you were willing to be a black marketeer.” (9) Throughout, Dulles is adamant that she herself never got involved in the black-market, even if most of her colleagues had and there remained only “about five of us in the mission who never did any black marketeering.” (10) Since US policy was to stabilize and control the Austrian economy, she considered the involvement of US personnel in the black-market “a terrible situation.” However, she remembers that in Germany, US involvement in black-marketeering had been “considered pretty respectable,” and that buying valuables on the cheap from Germans and “despicable” Nazis against a package of cigarettes was “not considered evil” but “legitimate”. (11) In Austria, though, the “whole moral tone of the thing” had been different so that “if you got something valuable from an Austrian, it was considered smart but shady.” (12)  As Dulles remembers,

If a mission person was in the black market, he kept it very quiet. Some military men didn’t care. Some of them were discreet. Some of them really went to the point where they were sent home. But it was a terrible situation. The poverty was unspeakable and the housing conditions were extremely bad. (13)

Dulles disapproves of the participation of US personnel in the black-market, but explains that it was the dire economic situation which made black-marketeering so profitable and attractive.

Dulles’ contrasting views on Germany and Austria help us understand her opposition to the black-market in Vienna. The Moscow declaration of 1943, which categorized Austria as a victim of Nazi aggression to be liberated by the Allies, meant that US policy was to benefit the country and its citizens. Dulles considered black-marketeering harmful to the overall economic interests of Austria, and therefore US personnel was to refrain from getting involved. The Germans, however, were a defeated enemy nation, so that taking material advantage was considered just among Americans. There is some irony here. To punish Germans, American soldiers helped civilians survive by bartering US cigarettes for valuables, while supporting and assisting Austrians meant in fact harming their interests by suppressing the vital black-market.

In October 1945, Dulles helped arrange the first Austrian currency reform, which successfully replaced German Reichsmarks with Austrian schillings, but failed to reduce money circulation significantly. Therefore, the Vienna “black market kept on” and even US Army supplies “went into the black market to some extent” as the value of US “cigarettes kept mounting” and a weekly army ration bought “hundreds of dollars’ worth of Austrian treasures, antiques, china, silver, painting and so on.” (114) Dulles, beholden to her professional integrity, remains adamant during these interviews that she herself never was directly involved. She remembers that Julius Meinl, the owner of the eponymous chain of stores, who was “very, very ingenious in getting materials form Hungary, Yugoslavia, Czechoslovakia and so on” wanted to give her “things that I knew he had obtained in the black market and I had to fight this off because I didn’t want to be a party to it.” (15)

Dulles aversion to the black-market, however, was purely professional and governed by US long-term policy vis-à-vis Austria. The black-market was proof of the authorities’ lack of control over the Austrian economy, and her professional integrity prevented her from contributing to this dangerous unruliness. Abroad, however, things were different. In 1947, Dulles with two girl-friends went on vacation to Prague and, “of course, out of country, we didn’t have quite the same inhibitions as to black market” and she exchanged “a few” dollars into local currency through a black-market dealer, (but the “black market items of interest” that could be bought did not appeal to her). (16) When she travelled to Budapest the following year, she not only dined at “a good restaurant which was run in the black market and had a very nice dinner with Hungarian music,” but also “bought a few things, particularly a fine Hungarian doll” for her daughter’s upcoming birthday. (17) Finally, she remembers that during a visit to Berlin, friends bought her a camera on the black-market to take with her to Vienna:

Friends bought me a camera at that time – perfectly respectable people – for I think a tenth of what it was worth. I didn’t do the black-marketeering but these friends had it and they said this was all right. I never did that in Austria, even indirectly. (18)

Dulles’ professional disapproval of the Vienna black-market was inconsistent with her private actions when travelling outside of Austria, where she turned to black-marketeering like everyone else in Europe.

So why did her published memoirs not mention the Vienna black market at all? (19) From the viewpoint of an economist advising US administrators on financial matters, the black-market was a problem that evaded their control and posed dangers to stability. As an expert, Dulles took pride in not partaking in the black-market and viewed her restraint as a sign of professional integrity. In her official reports, the Vienna black-market was considered undesirable and detrimental to US policy, but her oral history interviews show that she also understood that black-marketeering was the only way many people survived and therefore not totally unacceptable. In her published memoirs she could not solve this discrepancy between what she had considered to be the need to suppress the black-market and its legitimacy as source of survival for many Viennese. She could also not have honestly written about her repression of the black-market in Vienna without mentioning her own black-marketeering in Prague, Budapest or Berlin. Finally, since her memoirs were published at the height of the Cold War, they had to portray US involvement in postwar Austria as disinterested and entirely beneficial for Austrians. The historical reality, which on the one hand demanded she condone “illegal trades” in Vienna but on the other hand allowed her to frequent black-markets abroad, was morally too ambiguous to fit into the clear-cut recollections of a benevolent economic expert who had labored successfully to save Austrians from hunger and material misery.

(1) Eleanor Lansing Dulles, Changes of a Lifetime, A Memoir, Englewood Cliffs (NJ): Prentice-Hall., Inc., 1980.

(2) Dulles, Eleanor, Oral History interviews by John T. Mason, Jr., 1967, The Reminiscences of Eleanor Lansing Dulles, interview nr. 9, Oral History Archives at Columbia, Rare Book & Manuscript Library, Columbia University, New York, NY, 1967.

(3) “Encl. no 1 to despatch no 53 political division, Salzburg Austria”, 1 July 1945 in NARA, Central File: Decimal File 863.51, Internal Affairs Of States, Austria, Financial Conditions. Budget. Dept. Bond Issues. Loans. Public Securities. Credits., January 27, 1945 – November 9, 1946.

(4) “MG Operations and the Financial situation in the American Occupied Zone of Austria during May and June 1945”, 11 July 1945 in NARA, Central File: Decimal File 863.51, Internal Affairs Of States, Austria, Financial Conditions. Budget. Dept. Bond Issues. Loans. Public Securities. Credits., January 27, 1945 – November 9, 1946.

(5) “Financial conditions in the American occupied zone of Austria July 1945, prepared by Mrs Eleanor Dulles” 23 August 1945 in NARA, Central File: Decimal File 863.51, Internal Affairs Of States, Austria, Financial Conditions. Budget. Dept. Bond Issues. Loans. Public Securities. Credits., January 27, 1945 – November 9, 1946.

(6) “Encl. no. 1 to Despatch no. Political Division Salzburg Austria”, 23 August 1945 in NARA, Central File: Decimal File 863.51, Internal Affairs Of States, Austria, Financial Conditions. Budget. Dept. Bond Issues. Loans. Public Securities. Credits., January 27, 1945 – November 9, 1946.

(7) Dulles, “Memo on Black Market” 5 September 1945 in NARA, Central File: Decimal File 863.5017, Internal Affairs Of States, Economic Matters., Statistics, General., Austria, Cost Of Living., April 7, 1945 – September 5, 1945.

(8) Dulles, “Memo on Black Market”.

(9) Dulles, interview nr. 9, pp. 389-90; Dulles, Changes of a Lifetime, pp. 186-227.

(10) Dulles, interview nr. 9, p. 390.

(11) Dulles, interview nr. 9, pp. 390-1.

(12) Dulles, interview nr. 9, pp. 390-1 and Dulles, interview nr. 10, p. 412.

(13) Dulles, interview nr. 9, p. 391.

(14) Dulles, interview nr. 11, pp. 471-3.

(15) Dulles, interview nr. 11, p. 449.

(16) Dulles, interview nr. 11, pp. 474-5.

(17) Dulles, interview nr. 11, p. 479.

(18) Dulles, interview nr. 10, p. 412.

(19) Dulles, Changes of a Lifetime, pp. 186-227.