This Day in Economic History (Marshall Plan Maps European Postwar Recovery)

June 5, 1947—Two years after the end of a war that had devastated Europe, George C. Marshall, the American “organizer of victory” over fascism, announced a plan to rescue the region from economic collapse, setting the stage for an alliance that eventually defeated another totalitarian power.

The Marshall Plan, proposed in a commencement address at Harvard by the Secretary of State, pumped nearly $13 billion in aid into the European economy. While initially it comprised mostly desperately needed shipments of food, staples, fuel and machinery from the United States, the focus turned to investment in industrial capacity that paved the way for long-term recovery.

A couple of aspects of this plan were extraordinary:

  

I    1) Its size. “Almost $13 billion” doesn’t sound like much, but that was in 1947 dollars. That translates to $107.1 billion in 2011 currency.  It was an amazing amount of money committed by a nation that itself had recently endured a decade-long depression. 

        2) Unprecedented generosity of victors. Living in a world recreated by the Marshall Plan, it’s easy to lose sight of the break with the past that this represented. But going back to the Romans—and even beyond—it was a far different story, writes David Fromkin, in his history In the Time of the Americans: FDR, Truman, Eisenhower, Marshall, MacArthur: The Generation That Changed America’s Role in the World (1995): “Prior to twentieth century America, the rule had been: losers pay. Now one of the victors chose to pay. A country that had been so isolationist that it regarded nothing that happened abroad as of vital concern took upon itself responsibility for the whole of the European continent: so far had it traveled in so short a time.”

Marshall, notes Fromkin, was one of a quintet of Americans (also including Franklin Roosevelt, Harry Truman, Dwight Eisenhower, and Douglas MacArthur) who came to adulthood when Theodore Roosevelt helped thrust the nation onto the world stage, then played roles a decade later when the United States entered WWI under Woodrow Wilson. In essence, they brought to fruition the Wilsonian concept that, in Fromkin’s words, “those who had won the world should serve the interests of all of its peoples, everywhere.”

The Army Chief of Staff during the war, Marshall had been tapped by President Harry Truman to become Secretary of State at a time of administration unrest and European fear. The prior head of the State Department, James F. Byrnes, had seen his relationship with his former friend and Senate colleague deteriorate because of Byrnes’ failure to keep the President informed and his disagreement with the domestic Fair Deal program, which he regarded as socialistic.

Once Truman appointed Marshall to the office, the President confided to his diary, “We'll have a real State Department now.” And so it was, particularly in the formation of the Marshall Plan.

Several people had a hand in the drafting of the proposal (more formally known as the European Recovery Program. A number of State Department officials, including the author of the famous containment “long telegram,” George F. Kennan, along with the President’s counsel, Clark Clifford, and Truman's later Secretary of State, Dean Acheson, contributed bits and pieces. The initial draft was created by Soviet expert Charles Bohlen, then revised by Marshall.

(The one person who preferred not to have his name on the program was the President. At that point, his popularity was plummeting, and more and more pundits and Democratic Party regulars were discounting his reelection chances. Truman, wanting the program to have a chance of success, believed that its best chance for passage was through association with Marshall. Anyway, the President reasoned, his Secretary of State was as responsible as anyone else for it, so why not attach his name to it?)

In a sign of Marshall’s prismatic style, there are no glittering phrases in the Harvard commencement address, just a solid summary of the facts and options—the kind of convincing presentation that he had made while Army Chief of Staff to President Roosevelt. As it was, the situation in Europe was so dire that it required no rhetorical amplification.

The German economy had been on the equivalent of a war footing once Hitler began his massive rearmament program shortly after coming to power, and we know now that he looked to Eastern Europe—and the dispossessed properties of the nation’s own Jews—as a means of disguising the utter failure of the Nazi-planned economy. Losses in Eastern Europe deprived Germans of their prior safety valve, and Allied air raids damaged the country’s infrastructure. And matters weren’t much better throughout the rest of Europe, even among the victors (who, after all, had to endure their own privation and sacrifice).

Besides its offer of massive aid, the Marshall Plan appealed to Europeans for another critical reason: they would participate in the plan’s execution. The Truman Administration recognized that, though the physical infrastructure of the continent might be close to a state of collapse, its intellectual infrastructure—in this case, its business culture and acumen—remained intact. Leaders in these countries would know best where their most urgent needs were. By securing their buy-in to the program, Truman and Marshall were also gaining their political good will and trust.

The latter would be sorely needed, because Joseph Stalin was intent on frustrating the aims of the program. It wasn't simply, as historian Walter LaFeber observed in an interview for a PBS American Experience documentary on Truman, because Germany “was the nation that had invaded the Soviet Union twice in 30 years and this was the nation that Stalin had essentially fought World War II for to keep down forever.” Stalin’s paranoia and thirst for absolute power not only played no small role in the Soviet dictator having his Foreign Minister, Vyacheslav M. Molotov, reject the plan out of hand as “totally unsatisfactory," but also compelled the nations of Eastern Europe—by this time, behind the Iron Curtain—to turn down the much-needed aid, too.

In the end, Soviet intransigence and saber-rattling tipped the balance toward Congressional approval of the plan. Both sides of the aisle had qualms about the massive aid, with both Arthur Vanderberg (R-Mich.), chairman of the Senator Foreign Relations Committee, and Sam Rayburn (D-Texas), the once-and-future Speaker of the House, initially incredulous about the amounts requested. A Soviet-backed coup in Czechoslavakia in February 1948 finally woke Americans and their representatives to the susceptibility of starving masses to totalitarian appeals, \and in April—10 months after Marshall first made the proposal—the European Recovery Program was passed by Congress.

Outright fear, then, accomplished what both altruism and enlightened self-interest could not. Even without the Red Army, however, as Acheson told Congress, the situation had to be dealt with. Such economic uncertainty reigned in Germany that Lucky Strike cigarettes were the only valuable, common currency.

Truman, Marshall, Acheson, and the other great minds behind the plan recognized what has become glaringly obvious in recent years: the globalization of finance and commerce. The Great Depression in America, they knew, had been exacerbated by the simultaneous downturn in Europe, which deprived the United States of markets for its foodstuffs and materials. Europe could go “down the drain” without the program, Truman told Rayburn: “And you and I have both lived through one depression, and we don’t want to live through another one, do we, Sam?”

In this regard, it is instructive to regard the predicament now confronting Barack Obama. The President, The New York Times reported the other day, is “at the mercy of actors in Europe, China and Congress whose political interests often conflict with his own.”

The situation faced by the Truman Administration, however, was arguably worse. Yet, led by Marshall, the State Department faced up to their issues soberly and with faith. “Avoid trivia,” Kennan recalled Marshall’s one piece of advice on preparing recommendations on how to save Europe. It’s not a bad strategy to be employed in the current—and any future—complicated, international financial situation, either.