The Marshall Plan (Studies in Economic History and Policy: USA in the Twentieth Century)

Studies in Economic History and Policy: USA in the Twentieth Century

by Michael J. Hogan

Michael Hogan shows how The Marshall Plan was more than an effort to put American aid behind the economic reconstruction of Europe. American officials hoped to refashion Western Europe into a smaller version of the integrated single-market and mixed capitalist economy that existed in the United States. Professor Hogan's emphasis on integration is part of a major reinterpretation that sees the Marshall Plan as an extension of American domestic and foreign-policy developments stretching back through the interwar period to the Progressive Era. Michael Hogan is Professor of History at Ohio State University and editor of Diplomatic History.

Genres: History, Economics, European History, American History, International Relations

500 pages, Paperback

First published July 1, 1987

About the author

Michael J. Hogan (born 1943) is an American academic who has served in the administrations or on the faculty of many American universities, wrote or edited numerous books, contributed as an adviser to the U. S. Department of State and several documentaries. Currently he is a distinguished professor of history at the University of Illinois at Springfield.

Reviews

[Stefania Dzhanamova · Rating 4 out of 5]

Michael J. Hogan's book places the Marshall Plan in an American economical framework that he traces back to the 1920s.

As he argues, the Marshall Plan can be seen as "a logical extension" of domestic- and foreign- policy developments going back to the first American effort to reconstruct war-torn Europe in the aftermath of the First World War. American Marshall Planners, like the Republicans before them, tried to transform political problems into technical ones by substituting old European ways of conducting business and old habits of class conflict with American methods of scientific management and corporative collaboration. Marshall Planners, however, were far more interested than their predecessors in cutting "the web of exchange controls, quotas, and import licenses and the tangled network of over two hundred bilateral trade and payments agreements" that hampered European commerce and prevented the most efficient use of local resources. They also demanded European self-help and redoubled efforts to reduce reparations, fix exchange rates, and make currencies convertible, claiming, as the Republicans had claimed earlier, that these measures would permit individual initiative and normal market systems to integrate economies and stimulate growth.

As Republicans had in the first postwar period, Marshall Planners attempted to absorb Germany into a wider Western European system and thus reconcile its recovery with the economic and security needs of its neighbors. The French continued to be the greatest obstacle to changes in this direction. According to Hogan, French demands for German disaggregation, for industrial reparations and controls, and for limits on German sovereignty recalled French policy in the 1920s, so American recovery planners – as before – resorted to economic collaboration with the British to overcome French resistance. They exchanged American aid for concessions on reparations and joined Britain in defeating French proposals for international ownership of the Ruhr and permanent limits on German production. These initiatives, together with supranational controls over key resources, security guarantees, and the division of Germany, removed many of the political and financial obstacles that had stalled economic recovery after 1929. Out of them also came a series of compromises that led first to the formation of the Federal Republic and then to its integration into a unified European economic system that Marshall Planners viewed as the key to reconciling Germany's revival with France's economic and security concerns.

As Hogan emphasizes, both recovery periods witnessed an Anglo-American partnership that reconciled French hopes for economic and political dominance with the reintegration of Germany. Yet, just as in the first postwar period, the partnership between the two countries was unstable and evolved out of initially different British and American strategies for rebuilding the European and world systems. The British again found themselves "in a paradoxical position": they depended on American financial support to rebuild their economy, but the terms of this support were often incompatible with their ambitions. They had started the Marshall Plan years looking toward an independent bloc of Western European and British Commonwealth countries and then "retreated to the vision of a North Atlantic community in which Britain would serve as the linchpin between two continents". These central goal of British diplomacy ruled out the kind of Anglo-European integration the Americans had in mind. The British were determined to shield themselves against supranational authorities, which the Americans hoped to build, and "natural market forces", which the Americans hoped to unleash.

Therefore, observes Hogan, during both post-war periods American recovery planners forged an uneasy partnership with the British, balanced Germany's revival with France's security, and sought to promote both European integration and German reintegration. In addition, they urged the Europeans to stabilize currencies, fix realistic exchange rates, reduce reparations, and eliminate other obstacles to the flow of goods and capital. This is why, reasons Hogan, the Marshall Plan was the continuation of the recovery program of the post-WWI era.
However, in the second post-war period, heightened fears of Soviet expansion led the State Department and the Pentagon to match economic aid with military commitments. These agencies also broke new ground with the North Atlantic Treaty and the related efforts to integrate Western European defense systems, efforts that complemented those of the Marshall Planners to such extent that integration became "the conceptual link between strategic and economic goals". In American thinking, integration was the way to reconcile Germany's recovery with France's security and bring both together in "a unit of sufficient scale" to contain the Soviets. Out of the US efforts came what Hogan calls "the New Deal synthesis", a policy that guided American efforts to remake Western Europe in the likeness of the United States. Its key component was greater productivity, which would put participating countries on a self-supporting basis and thus facilitate their entry into the multilateral system of world trade that American leaders considered to be crucial to economic prosperity and democratic freedom in the United States. Benefits would also come from translating the problem of economic growth into a technical problem solvable by adopting American methods of private production, including American engineering, manufacturing, and marketing techniques.

This formidable task met with strong opposition. Marshall Planners had to convince some European governments to reduce public expenditures, others to increase them. They had to defeat Communists in the trade-union movement, win British support for Europe's integration, and get the French to go along with Germany's reintegration. In addition, Marshall Planners faced challenges from conservatives in Congress who had long been critical of the Truman administration's foreign policies. Within three years, the political balance in both the United States and Western Europe would begin to shift. The outbreak of fighting in Korea, and particularly the Chinese intervention of November 1950, would add to the pressure on American resources and force the Truman administration to reverse its policy of using economic rather than military power to fortify Western Europe. This policy, which initially had relegated rearmament to a secondary strategy, gave way to one that placed it above reconstruction, and out of this shift came a massive expansion of defense expenditures on both sides of the Atlantic. "The economic dislocations that followed, together with greater American pressure to rearm Germany, led to a wave of anti-Amer- icanism in Western Europe and, in some countries, to a political fragmentation that pitted the forces of the Left against those of the Right," writes Hogan. Something similar occurred in the United States: congressional opponents attacked the administration's military commitments to Western Europe, and finally combined forces to bring the Marshall Plan to a premature conclusion.

All of the aforementioned themes are covered in-depth in THE MARSHALL PLAN. Michael J. Hogan has conducted his research meticulously, and despite the book's rather daunting for me, with a lot of economic terminology, introduction, he successfully, and compellingly, describes the manner in which tensions developed between the United States and its allies and analyzes the outcome of these struggles. His historical account of this significant economic policy is rich and important. Recommendable.

[Greg · Rating 5 out of 5]

The Marshall Plan rested squarely on an American conviction that European economic recovery was essential to the long-term interests of the United States.

The mythology of the Marshall Plan goes a little something like this: “Once upon a time there was a horrible war that killed a lot of people and destroyed much of a continent. One of the victors of that war, out of the goodness of their hearts, wanted to help their allies, who had suffered greatly, as well as the people in the countries they defeated, who deserved a second chance. So they generously gave the all of those countries a lot of money, which they used to fix their countries and everyone lived happily ever after.” Since many believe versions of this tale, it is popular to invoke the Marshall Plan as catch-all, quasi-utopian solutions to complex, big issues; a Marshall Plan for this, that, or the other.

As David McCullough wrote in Truman , in post-World War II Europe “[m]illions of people were slowly starving. A collapse in Europe would mean revolution and a tailspin for the American economy.” Military victory opened a new Pandora’s Box, leading George Kennan to write the report “Certain Aspects of the European Recovery Problem from the United States Standpoint.” It served as the template for a commencement speech that Secretary of State George Marshall delivered at Harvard on June 5, 1947. In it he outlined the idea of a European Recovery Program (ERP), “Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.” He said “it would be neither fitting or efficacious” for the U.S. to provide “friendly aid” in order to impose its will. Rebuilding Europe “was the business of Europeans” and that “the program should be a joint one, agreed to by a number, if not all, European nations.” In reality, the offer was implicitly part of a larger policy to contain the growth of influence and power of the Soviet Union and its satellites, an important consideration to get congressional support for funding the ERP. Another tactic to help it along was to remove the name Truman, which had too much partisan political baggage. Truman felt naming it after Marshall, who was the most trusted man in American politics since George Washington, would make it more palatable to congressional Republicans. As a general in 1940, it was on his word alone, delivered in closed hearings, that Congress agreed to dramatically increase military spending in anticipation of what would become WWII. As the chief of staff of the army at Franklin D. Roosevelt’s side, he created and led the strategy that won the war. Now his name would be attached to the program designed to win the peace.

More than two years after the Nazi surrender, Europe remained in a state of economic and social chaos. Germany was divided into four sections and more of a concept than a nation. Its industrial capacity being taken apart and out of the country. Financial systems of every European nation could not service or balance payments, credit, and debt as they tried to rebuild, which led to wild fluctuations in inflation, supply, and demand. Raw materials were scarce or too expensive to exploit. Power structures within and among nations were unclear. Initial attempts to include the Soviet Union and the nations under its control were rebuffed almost immediately. It took almost a year until legislation was passed and an annual appropriation of more than $4 billion was approved.

As Michael J. Hogan documents, the idea of American intervention was a natural progression of foreign policy that stretched back to the McKinley administration in 1896. The politics of the New Deal “committed public officials more firmly to the principles of multilateralism and made the government more responsible for organizing the international economy.” With the exception of a minority of congressional Republicans who believed that European recovery funds would nurture socialist policies and programs, the program had broad political support reasoning, “The strategic assumptions behind this policy held that an integrated economic order, particularly one headed by supranational institutions, would help to control German nationalism, reconcile Germany’s recovery with France’s economic and security concerns, and thus create a balance of power in the West sufficient to contain Soviet power in the East.” In other words, Economic stability in Western Europe would limit defense expenditures. “According to those who testified on behalf of the [European Recovery Program at a congressional hearing], the political isolation of the United States would lead to a militarization of American society. In a hostile world, the American people would have to live in an armed camp and bear the burden of skyrocketing defense expenditures.”

Three fundamental tensions defined the Marshall Plan: the role Americans should play in European policy making, internal European domestic politics, and the primacy sought by the British in world affairs. Many critics, often rightly, felt many of the Americans sent to Europe to oversee and implement the plan “wanted to refashion Western Europe in the image of the United States” and a tendency to see issues only from how it would support American interests. “British and American leaders tangled on almost every issue” and Americans were often seen as being “patronizing.” There was great conflict about the role Americans should play—if any at all—in the Organization of European Economic Cooperation (OEEC), which consisted only of Western European nations. Ultimately, American leaders were allowed by invitation only to have observer status in executive committee meetings—they were allowed seats at the head table, but were restricted in what they could say.

Adding to this perception was a fear, most profoundly felt in France, about Germany’s industrial capacity. They were wary that “American policy placed Germany’s recovery above” other nations and could potentially awaken its worst military tendencies. These insecurities mounted as planners from both sides of the Atlantic wrestled with unprecedented economic problems. “The Americans wanted to harness free-market forces to the cause of economic integration and multilateralism. The British wanted to bottle them up in a socialist empiricism that sheltered their economy, kept them at arms-length from the Continent, and safeguarded their reserve position and ties to the Commonwealth.” Complicating factors included an imbalance in European nations’ soft currency, American hard currency, and a British mindset to preserve their pound sterling area even if it undermined other currencies. Americans wanted to establish a multilateral, single European market that was modeled on their economic experience. Europeans were protective of bilateral, ad-hoc trading policies that

...subsidized inefficient producers and high-priced sales, permitted government controls instead of price mechanisms to determine the distribution of resources, and encouraged participating countries to earn dollars through the operation of the payments system rather than through exports to the Western Hemisphere...” The Americans were thoroughly discouraged, and none more so that [Secretary of the Treasury John] Snyder, who was appalled by the Labour government’s drift toward “international state planning.” Snyder wore his faith in free enterprise like a chastity belt.

Most significant, however, was the desire of Great Britain’s political leaders to carve out special terms to restore and preserve the nation’s role as a global power. They feared the U.S. “did not take account of Britain’s position in other areas of the world. After all, they insisted, Great Britain was not ‘just another European country.’” The British still had dreams of restoring the glory of the empire on the world diplomatic stage. Their leaders saw an emerging world of the three great superpowers with themselves as the leaders of a strong, independent European buffer between the Americans and the Soviets, a “nodal point of three systems.”

They preferred their own room with connecting doors to the United States and the Continent and protested when the Americans suggested a suite with the Europeans. Although the British saw nothing improper in a “special relationship” with their transatlantic relatives, they were appalled at the prospect of sharing close and continuous quarters with the Italians, the French, and the Germans. So intimate a union could diminish their sterling dowry, compromise their socialist virtue, and alienate the affection of their offspring in the Commonwealth, who might well desert them.

The French feared this might lead a type of Anglo-Saxon hegemony and dominance. The British, on the other hand, were wary of continental alliances that might hinder their wish to be first among equals. When the French too the initiative to form a larger market of France, Italy, and the Benelux nations into a “Fritalux” common market, British leaders moved quickly to undermine it.

Complicating this situation was the fate of Germany and the emerging Cold War. The four powers division of Germany became two spheres of influence at the center of a global power struggle. The Soviets tepidly advocated for a weak, unified, “neutral Germany that played West against East to the detriment of European recovery and security.” Instead, Western policymakers toiled to integrate West Germany militarily and economically into the European sphere while trying to avert France’s fears. This also created tension between funding priorities for the military North Atlantic Treaty Organization (NATO) and the OEEC and the American Economic Cooperation Administration (ECA).

The goal, as it emerged from a ECA study, was to enhance Western Europe’s military strength without eroding living standards and making participating countries vulnerable to a resurgent Communist threat from “within.” The way to achieve this goal was through accelerated efforts to tap underutilized resources in Germany, Italy, and Belgium, restrain inflationary pressures, and allocate scarce commodities efficiently…If rearmament overshadowed recovery, if the North Atlantic Treaty superseded the Marshall Plan, economies would falter, living standards would collapse, and social peace would give way to resumption of the political struggle that had always posed a greater threat than Soviet arms to the security of Western Europe.

The tipping point that shifted Marshall Plan funding from economic aid to military spending—which ultimately killed the Plan altogether—was the beginning of the Korean War. Since that war would draw significantly more from the the American treasury, it became more important to solidify NATO to make it a viable bulwark against potential Soviet military aggression in the West. Moreover, Europeans would have a greater responsibility to implement an American-style diplomacy. But French foreign minister Robert Schuman feared that British and German interests would create “new iron curtains on our side of [the] present Iron Curtain.” Realizing that Britain’s aspirations, however unrealistic they might have been, would not be addressed in a timely way, Schuman embarked on direct negotiation with Germany to formalize their interdependence and directly confront France’s misgivings about her historical rival.

The Schuman Plan made it easier for Europe to weather the loss of Marshall economic aid. It “laid the political and economic bases for a final settlement between the Germans and their former enemies in the West. In a real sense, it amounted to the treaty of peace that had never been signed.” It created a binational authority to regulate coal and steel production, which “reconciled Germany’s recovery with France’s economic and security concerns.” And, in a move that further satisfied American policymakers, “the Schuman Plan pointed to a European neo-capitalism founded on the New Deal synthesis.”

There is no question that the Marshall Plan, despite being curtailed by military geopolitics, was a great success. “By March 1951, industrial production in Western Europe had climbed 13 percent above the level of a year earlier, 39 percent above the prewar level.” Additionally, American demand for raw materials to build its military capacity “swelled European gold and dollar reserves and narrowed the dollar gap to such an extent that Marshall aid to Great Britain could be suspended at the end of 1950.”

During the Marshall Plan period, Western Europe’s aggregate gross national product jumped by more than 32 precent, from $120 billion to $159 billion; agricultural production climbed 11 percent above the prewar level, just slightly less than the target set in 1948; and industrial output increased by 40 percent against the same bench mark, greatly exceeding the OEEC’s original projection.

But it would be a mistake to give the U.S. all the credit in the upswing. Subsequent research found that “80-90 percent of capital formation in the major European economies” came from “local resources.”

The success of the Marshall Plan had many parents, but they had to work together. Over three years, the U.S. contributed more than $13 billion to the program as well as technical assistance that “involved the transfer not of commodities and resources but of knowledge, skill, and other services of great importance by little cost. In the most profound sense, it involved the transfer of attitudes, habits, and values as well, indeed, of a who way of life that Marshall Planners associated with progress in the marketplace of politics and social relationships…This was the American way of life.” What made it work in Europe was the ability of local populations to merge these ideas with their own social and political circumstances. Together they sowed the seeds for a modern Europe, that is still evolving. The recent experience of the Brexit vote and its ongoing aftermath proves that idea of British exceptionalism continues to live. Perhaps Europeans could look back on the history of the Marshall Plan to once again find their way to collective peace and prosperity.

This is an academic history. Readers looking for the prose of a David McCullough, a Robert Caro, or a Taylor Branch won’t find it here. Hogan’s dense writing covers every, at times, excruciating detail of what happened and is filled a jumble of acronyms that can try a reader’s patience. This is a book of reasoned, well thought out ideas and meticulous documentation with a no-nonsense analysis about one of the most important episodes of 20th century history. I wish all diplomats and politicians involved with foreign relations would read it. Certainly the morons running U.S. foreign policy today should. But I doubt any of them have ever picked up any book without pictures. That’s too bad, because Hogan’s narrative is completely up to the task of teaching them how to think big and accomplish big, substantive ideas.