Marshall Plan

• 1. Introduction

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  The Marshall Plan sent $13.3 billion across the Atlantic to rebuild a continent that had been reduced to rubble. Named after Secretary of State George C. Marshall, it ran for four years beginning on the 3rd of April, 1948, and reshaped the map of modern Europe in ways that still echo today. How did a Harvard speech with virtually no numbers become the most ambitious peacetime economic intervention in American history? Why did the Soviet Union walk out of the negotiations before they even began? And how much of Europe's postwar miracle can actually be traced back to those dollars? The answers involve a Harvard commencement address that Truman tried to bury in the press cycle, a graduate student's thesis that helped sell the plan to Congress, and a covert fund that quietly bankrolled artists and intellectuals across the Western world.

• 2. A Continent in Ruins

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  From July 1945 through June 1946, the United States shipped 16.5 million tons of food to Europe and Japan, enough to provide 400 calories a day for one year to 300 million people. That staggering transfer represented one-sixth of the American food supply, and it still was not enough. By 1947 most Europeans were surviving on 1,500 calories per day or less.

  The destruction was not only physical. Trade routes that had taken generations to build had been severed almost completely. Agricultural production across Europe stood at only 83% of 1938 levels, industrial production at 88%, and exports at just 59% of prewar figures. Transportation infrastructure was in a particularly desperate state. Railways, bridges, and docks had been specifically targeted by airstrikes, and the sinking of merchant shipping had isolated many communities that had otherwise escaped the worst bombing.

  Germany presented the starkest challenge of all. In the western zones of occupation, the bombing had destroyed five million houses and apartments. Twelve million refugees from the east had crowded in. A country that had fed itself at 80% self-sufficiency before the war could now manage only 50% in the western zones, and actual food production in those zones ran 30% below prewar levels throughout 1946-48. A drought killed a major portion of the wheat crop one year; the brutal winter of 1946-47 destroyed most of what grew the following season.

  Historian Nicholas Balabkins put the core problem starkly: as long as German industrial capacity was kept idle, the economic recovery of Europe was delayed. The conclusion Washington drew by July 1947 was that an orderly and prosperous Europe required what the official language called the economic contributions of a stable and productive Germany.

• 3. The Harvard Speech

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  On the 5th of June, 1947, Secretary of State George Marshall stepped up to a podium at Harvard University and delivered an address that contained virtually no details and no numbers. More a challenge than a plan, it asked European leaders to design their own recovery program and promised that the United States would then fund it.

  Marshall had arrived at this moment after six weeks of exhausting and ultimately futile negotiations in Moscow. Soviet Foreign Minister Vyacheslav Molotov had refused to supply accounts of Soviet assets removed from Germany, pressed for a delay rather than an acceleration in economic rehabilitation, and rejected every American and British proposal. Marshall came away personally convinced that Stalin had no interest in helping restore economic health in Western Europe. The Harvard address was his response.

  The speech was written at Marshall's request and guidance by Charles Bohlen. Its language was plain and its argument pragmatic: the modern system of the division of labor was in danger of breaking down, and the consequences for the United States itself should be apparent. Marshall offered aid to any government willing to assist in recovery, without directing the offer against any specific country. The Soviet Union was explicitly included.

  The Truman administration expected the speech to be unpopular at home, and actively tried to keep it out of American papers. On the same day, Truman called a press conference to draw headlines away from it. But Under Secretary of State Dean Acheson was simultaneously dispatched to contact the European media, and the speech was read in its entirety on the BBC. British Foreign Secretary Ernest Bevin heard the broadcast and immediately telephoned French Foreign Minister Georges Bidault to begin drafting a European response. The plan had found its audience.

• 4. Selling It to Congress

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  Republicans controlled Congress and Democrats controlled the White House when the Marshall Plan came up for a vote, which meant its passage required genuine bipartisan construction. The man who built that coalition was Senator Arthur H. Vandenberg of Michigan, chairman of the Senate Foreign Relations Committee, who outmaneuvered the conservative isolationist wing of his own party.

  Vandenberg's counterpart on the skeptical side was Senator Kenneth S. Wherry of Nebraska, who led a twenty-member conservative bloc based in the rural Midwest. Wherry's faction called the plan a wasteful operation rat-hole and argued that supporting socialist governments in Western Europe was no way to oppose communism. Senator Robert A. Taft of Ohio hedged: he said the plan lacked economic justification but admitted it was absolutely necessary in the world battle against communism.

  Opposition from the left was led by former Vice President Henry A. Wallace, who warned the plan would polarize the world between East and West and amounted to a subsidy for American exporters. His argument lost much of its force in February 1948 when a communist coup in Czechoslovakia shocked American public opinion.

  A key piece of the legislative puzzle came from an unlikely source. Malcolm Crawford, an International Law and Diplomacy graduate student at Harvard, had written his master's thesis on financing postwar business in Britain and France. Future Supreme Court Justice Abe Fortas read it and presented it to President Truman. Crawford's concept of strategic partnerships provided the mechanism for selling the plan to Congress: instead of the federal government handing money directly to Europe, American businesses would provide technology and materials as strategic partners, and the government would purchase stock in those businesses as reimbursement.

  In the end, only 17 senators voted against the plan on the 13th of March, 1948. Congress eventually allocated $12.4 billion in aid over the four years of the program.

• 5. Soviet Rejection and Eastern Bloc Fallout

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  At the Paris Peace Conference on the 10th of October, 1946, Molotov had already voiced Soviet fears in plain language: if American capital was given a free hand in the small states ruined by the war, it would buy up local industries and become the master in those states. Yet when Marshall's speech arrived in 1947, Stalin was initially open to the offer. He directed Eastern Bloc countries not to reject economic conditions being placed on them.

  Stalin changed his position only when he learned two things: that credit would be extended only under conditions of economic cooperation, and that aid would go to all of Germany, not just the western zones. The second condition alarmed him because it would hamper Soviet influence in western Germany. After Molotov reported from Paris in July 1947 that the conditions were non-negotiable, Stalin moved to kill the plan entirely.

  The most dramatic episode in the Soviet rejection played out around Czechoslovakia. Jan Masaryk, the Czech foreign minister, was summoned to Moscow and personally berated by Stalin for considering participation in the Marshall Plan. Poland's prime minister, Józef Cyrankiewicz, was rewarded for his country's rejection with a substantial trade agreement: a five-year deal that included roughly the equivalent of $450 million in long-term credit, 200,000 tonnes of grain, and transfers of heavy machinery and factories.

  In late September 1947, the Soviets convened a meeting of nine European communist parties at the resort town of Szklarska Poręba in southwest Poland. The gathering's chair, Andrei Zhdanov, was in permanent radio contact with the Kremlin. He directed French and Italian communist parties to make maximum efforts to sabotage the implementation of the plan and to redirect their mission toward destroying capitalist economy. When party leaders asked whether they should prepare for armed revolt, Zhdanov did not answer. In a follow-up conversation with Stalin, he explained that armed struggle was impossible and that resistance must proceed under the slogan of national independence.

• 6. Money, Machinery, and Productivity

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  President Truman signed the Economic Cooperation Act into law on the 3rd of April, 1948, and the United States did not simply write checks. Of the roughly $13 billion allotted by mid-1951, about $3.4 billion went to imports of raw materials and semi-manufactured products, $3.2 billion to food, feed, and fertilizer, $1.9 billion to machines, vehicles, and equipment, and $1.6 billion to fuel.

  The mechanics were designed to be self-reinforcing. The United States delivered goods and provided services, mainly transatlantic shipping, to participating governments. Those governments sold the commodities to businesses and individuals, who paid the dollar value in local currency into special ERP accounts at their central banks. Sixty percent of these so-called counterpart funds had to be invested in industry. The companies that borrowed the money were obligated to repay it, and the money was then lent out again to another group of businesses.

  In Germany this revolving mechanism proved particularly durable. In 1949-50, for instance, 40% of all investment in the German coal industry came from these funds. The institutional structure that administered them survived the Marshall Plan itself; by 1971 the Special Fund was worth over ten billion Deutsche Marks, and by 1997 it had grown to DM 23 billion. Through the revolving loan system, by the end of 1995 it had made low-interest loans to German citizens amounting to around DM 140 billion. That institution still exists today as the state-owned KfW bank.

  Apart from capital, the plan ran an ambitious Technical Assistance Program. France alone sent 500 missions carrying 4,700 businessmen and experts to tour American factories, farms, stores, and offices. French visitors were particularly struck by the fact that an American worker could purchase a new automobile for nine months of work, compared to thirty months in France. The program funded 24,000 European engineers, leaders, and industrialists to visit America in total. The United States Bureau of Labor Statistics contributed the analytical framework, performing productivity calculations and producing Factory Performance Reports that identified weaknesses in specific industries country by country. The entire Technical Assistance Program cost $300 million, of which the United States paid only one-third.

• 7. Covert Dimensions

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  Five percent of Marshall Plan funds were quietly channeled to the Central Intelligence Agency. That came to roughly $685 million spread over six years. The money flowed through the Office of Policy Coordination toward labor unions, newspapers, student groups, artists, and intellectuals who were countering Soviet-subsidized anti-American movements across Western Europe.

  The largest single recipient was the Congress for Cultural Freedom. Its founding conference was held in Berlin in June 1950 and brought together a remarkable gathering of Western intellectuals: Raymond Aron, Alfred Ayer, Benedetto Croce, John Dewey, Karl Jaspers, Arthur Koestler, Bertrand Russell, Arthur M. Schlesinger Jr., Ignazio Silone, and Tennessee Williams, among others. The participants included conservatives, but non-communist and former communist leftists outnumbered them. No agents were operating among the Soviets or in their satellite states; the CIA activity was entirely focused on the West.

• 8. Legacy and Limits

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  By 1952, as funding ended, the economy of every participant state had surpassed prewar levels. Output in 1951 was at least 35% higher than in 1938 for all Marshall Plan recipients. Industrial production across the participating countries increased 35% between 1948 and 1952. The poverty and starvation of the immediate postwar years had been replaced by what became an unprecedented two decades of growth.

  Economic historians J. Bradford DeLong and Barry Eichengreen gave the program a pointed assessment: they called it history's most successful structural adjustment program, but they were careful about the mechanism. They argued that the Marshall Plan was not large enough to have significantly accelerated recovery by financing investment or easing commodity bottlenecks alone. Its deeper contribution was to push European political economy toward more market and fewer controls, setting the structural conditions for what followed.

  Belgian economic historian Herman Van der Wee used stronger language, describing the plan as a great success that made a decisive contribution to renewing the transport system, modernizing industrial and agricultural equipment, resuming normal production, raising productivity, and facilitating intra-European trade. Paul Hoffman, head of the Economic Cooperation Administration, told Congress in 1949 that Marshall aid had provided the critical margin on which all other investment needed for European recovery depended.

  The plan's political consequences may have been equally significant. By allowing Western European governments to relax austerity measures and rationing, it reduced social discontent and undercut the appeal of communist parties, which faded in popularity across the region. The trade relationships it fostered helped bind together the North Atlantic alliance that became NATO. And its institutional legacy, the Organisation for European Economic Co-operation, became the training ground for the structures that later grew into the European Economic Community. The Marshall Plan's aid accounted for only about 3% of the combined national income of recipient countries between 1948 and 1951, a fact that continues to make economists cautious about direct attribution. Yet the phrase has taken on a life of its own, as Graham T. Allison observed: the Marshall Plan has become a favorite analogy for policy-makers, yet few know much about it.