HISTORY AND CULTURE:
The Marshall Plan

By Peter J. Duignan and Lewis H. Gann

An essay by Hoover fellows Peter Duignan and the late Lewis H. Gann on the fiftieth anniversary of "the greatest voluntary transfer of resources from one country to another."

The Marshall Plan formed the greatest voluntary transfer of resources from one country to another known to history. Technically known as the European Recovery Program, the plan was passed by the U.S. Congress with a decisive majority and was signed by President Truman on April 3, 1948--just in time to influence the Italian election in that year.

The Marshall Plan did not, in and of itself, cause Western European economic recovery. Indeed, there was little direct correlation between the amount of U.S. aid received and the speed of economic recovery in the various recipient countries. France and Britain obtained much more aid per capita than West Germany, which nevertheless progressed more quickly than either. But the Marshall Plan (guided by the European Cooperation Administration, ECA) helped to tide Western Europe over a dangerous period. The plan provided new confidence to Western Europe; the plan furnished money, food, fuel, and machinery at a time when the Western European economies were all in disarray. Marshall Plan experts argued in favor of free trade, decentralized management, breaking up of cartels, the elimination of quotas and customs, and labor-saving technologies.

Manuscript draft of a speech on post-war reconstruction in Europe. Such documents record the evolution of the Marshall Plan, which promoted economic recovery with innovative and bold initiatives. The original draft is in the Truman presidential library, and a copy is filed in the Hoover Institution Archives.

The Americans also delivered know-how. For example, at the Doboelman soap works in Holland, American experts showed the Dutch how to cut processing time from five days to two hours with new machinery. In Norway, fishermen used a new type of net made from yarn spun in Italy. In Offenbach in West Germany, Marshall Plan leather revived the handbag industry; in Lille, Marshall Plan coal kept a steel factory in business; and in Roubaix, Marshall Plan wood maintained one of the world's largest textile mills. In 1945, only twenty-five thousand tractors were in use on French farms; four years later, Marshall Plan aid had put another two hundred thousand tractors in the field. Overall, American investment in Western Europe grew apace, and more and more U.S. patents found customers abroad. Americans had good reason for talking about "the American century."

A host of U.S. technical experts, consultants, and managers also contributed their experience to Western Europe. But there was also a reverse flow of Europeans to the United States. As William James Adams, an economist, puts it with regard to France:

Under the Marshall Plan, France dispatched large numbers of business executives, trade unionists, civil servants to the United States with an eye toward absorption of American productivity. They returned not only with . . . butch haircuts and wineless lunches, but also with an appreciation of how business was conducted in a relatively dynamic, seemingly disorganized setting.

Above all, the Marshall Plan was designed to push Europeans toward political and economic cooperation--a major objective of U.S. policymakers. Paul G. Hoffman, who headed the ECA, predicted European unification through a common market. Aid was administered through the OEEC (Organization for European Economic Cooperation, created in 1948, replaced in 1961 by the OECD, Organization for Economic Cooperation and Development). In terms of a narrowly conceived realpolitik, the Americans might have benefited from dealing separately with their European allies in a strictly bilateral fashion. In practice, the Americans looked toward a new Western European economic association.

The Marshall planners were convinced that only a prosperous Europe could resist communism. The Plan worked.

The United States was both a lobbyist for a united Europe and also a role model. Surely, European federalists argued, the United States could not have developed into the world's greatest economic power had the fifty states remained divided by customs barriers and if a New Yorker visiting California were obliged to show his passport every time he crossed the border of a state. The OEEC created a network of transnational bodies and transnational committees to deal with specialized questions. (These included the European Payments Union [EPU], set up in 1950, and a central bank and clearinghouse for intra-European trade and payments. By 1959 the European currencies had largely become convertible, and the EPU was replaced by the European Monetary Agreement.)

Yet the Marshall Plan was only passed against heavy U.S. domestic opposition. American isolationists resented having to spend American taxpayers' money on foreign countries that had already defaulted on their previous debts from World War I. Businessmen didn't want to reconstruct competitor European industries. Congressmen only wanted to give food, not loans. The Soviet Union and its allies all the world over denounced the plan for strengthening the hold of U.S. capitalism on Western Europe; hence the Soviet Union would not become a beneficiary of the plan, nor would Moscow permit any of its satellites to participate. Even pro-American Europeans were bound to feel uneasy. It was hard to ask a foreign country for aid, harder still to ask aid from a donor whom visiting European dignitaries had traditionally described in unflattering terms. A handful of purists also complained because of the plan's Keynesian connotations, its refusal to leave European recovery to the free market alone.

Nevertheless, the plan worked. It succeeded in part because it gained widespread political acceptance within the United States itself--a remarkable political achievement. The plan represented a new welfare capitalism--confident, committed to raising productivity, raising wages, expanding markets, and establishing good labor relations by depoliticizing trade unionism. The Marshall planners were convinced that only a prosperous Europe would resist communism and that only a prosperous Europe would provide expanding markets for U.S. as well as European producers. On the whole, the plan was well administered; there were no scandals, no massive diversion of funds into the pockets of political and bureaucratic racketeers. Yet the expenditure involved was astronomical by the standards of the time. The Marshall Plan and other forms of foreign assistance between them cost the United States $17.6 billion (or $120 billion in current value for the Marshall Plan alone)--as we said, the largest voluntary transfer of resources in history. Ten years after the end of the greatest war in history, Western Europe had not only fully recovered but had become far more prosperous and productive than before.

Peter J. Duignan is a senior fellow at the Hoover Institution.