The Marshall Plan


marshall plan

General George C. Marshall, for whom the plan was named

In March 1947 Harry Truman unveiled what later became known as the Truman Doctrine, pledging United States support for European countries, so that they could exercise self-determination and resist a communist takeover. The first practical elements of this policy came in May 1947, with aid packages for Greece ($400 million) and Turkey ($100 million). Yet much more was to come in June, with the promulgation of the European Recovery Program (ERP). It became better known as the ‘Marshall Plan’ after its chief promoter, Secretary of State George Marshall. Members of the government viewed the economic reconstruction of Europe as a matter of great urgency, for two reasons. First, economic instability would generate political instability and probably give rise to communist revolutions. Secondly, US trade depended on a productive, prosperous Europe. Marshall himself explained this in a speech to Harvard University students in June 1947:

 
Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the [European] people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the United States of America. 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.
 

Aid with conditions


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Bomb damage in West Berlin. West Germany was a major recipient of Marshall Plan aid

The US scheduled a conference for July 1947 in Paris, to negotiate how much aid was needed to rebuild Europe and its economies. Delegates attended from sixteen European countries; the Soviet Union, Poland, Czechoslovakia and Hungary did not attend, the last three because of pressure from Moscow. The European delegates drafted a reconstruction plan that required $22 billion of credit. Truman whittled this down to $17 billion in draft legislation he sent to Congress in early 1948. Isolationists in Congress attempted to block funding for the Marshall Plan. They resented the expenditure of American taxpayers’ money on foreign countries, many of which had defaulted on their debts to the US from World War I. Many American businesses weren’t keen on reconstructing European industries that would grow to compete with their own. Some suggested giving food and materials only, rather than credit. The left-wing in America and elsewhere condemned the Marshall Plan as a covert operation for strengthening the grip of US-led capitalism on Western Europe. A few economic purists complained because of the plan’s significant interference in European markets. Nevertheless, Congress approved the Marshall Plan and authorised an initial payment of $5.3 billion in April 1948.

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Propaganda supporting American Marshall Plan aid to Europe

“What the Machiavellis among us never under-stood was why the Soviet Union did not join the Marshall Plan and disrupt it, as they have done with many organisations. It would not cost anything. It would be simple to agree in principle and object in practice. The fear in Washington was that the Soviet bear might hug the Marshall Plan to death. Soviet abstention left the West free to operate its own recovery programme, with the Soviet Union excluded at its own insistence.”
Charles Kindleberger, historian

Marshall Plan funds were not just a ‘blank cheque’ for European governments. The US was determined to target essential areas of development and avoid corruption or ‘skimming’. The Americans also set rigorous conditions on Marshall Plan funding, reserving the right to cease this funding if recipient nations did not follow certain directives. The US Congress established the Economic Cooperation Administration (ECA) to oversee the distribution of its funds. Its representatives were stationed in European countries and played a pivotal role in approving, directing and monitoring Marshall Plan money. Local governments were required to adopt certain economic policies; ECA bureaucrats studied their economies and decided where and how funds were needed most. Countries importing certain types of raw materials or manufactured goods had to buy them from American suppliers. The ECA also provided advice on management and productivity, as noted by Duignan:

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.

American benefits

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As this French image suggests, not all were happy with American aid to post-war Europe

The Marshall Plan facilitated the rapid recovery of Europe’s national economies – but it also had obvious advantages for America. Not only was the Marshall Plan successful in stabilising many European governments and blocking Soviet expansion, it built a ‘new Europe’ where political economy was based on free trade rather than protectionism and self-interest. This allowed American exporters to enter European markets more easily than before World War II. Other advantages for the United States included:

Soviet containment. The Marshall Plan stabilised the economies and the political situation in several European nations bordering the Soviet sphere of influence. This reduced the likelihood of communist takeovers in these countries, which would have given Moscow an excuse to annex them.

Liberalisation. The Marshall Plan encouraged the development of democratic systems of government in Europe. Since some European countries, such as Germany and Austria, had no positive experience of democracy, it was important to create conditions of prosperity under liberal democratic governments.

Profit for American companies. Because most of the resources and goods purchased with Marshall Plan funds came from the US itself, this benefited American exporters and domestic industries. It allowed the US to recover from a short-term economic slump in 1946-7 and enter a period of economic boom. American corporations built networks and trade links in Europe that continued well after the Marshall Plan had run its course.

Encouragement of free trade. Prior to World War II most European nations had protectionist economic policies – in other words, it was difficult for foreign traders to export to European markets. The conditions of the Marshall Plan rebuilt the national economies of Europe and incorporated free trade policies and practices, which would later prove profitable for American producers and manufacturers.

Propaganda value. The Marshall Plan was cleverly marketed by the American government as a generous and visionary policy, to allow the rebuilding of Europe. The conditions on Marshall Plan funds, however, were not publicly advertised. The Americans made the offer of funding to the USSR and Soviet-bloc countries, knowing that the conditions would make it impossible for them to accept.

Top eight recipient nations of Marshall Plan funds (US dollars)

1948/49 1949/50 1950/51 Total
United Kingdom $1316m $921m $1060m $3297m
France $1085m $691m $520m $2296m
Germany $510m $438m $500m $1448m
Italy $594m $405m $205m $1204m
Netherlands $471m $302m $355m $1128m
Belgium/Luxembourg $195m $222m $360m $777m
Austria $232m $166m $70m $468m
Denmark $103m $87m $195m $385m

5keypoints

 
 
 

1. The Marshall Plan was another name for the European Recovery Plan (ERP), approved by Harry Truman in 1947.
2. From 1947 to 1951, billions of dollars of US loans were advanced to European nations for post-war rebuilding.
3. These loans came with strict conditions, such as the adoption of liberal, democratic and capitalist policies.
4. This aid enabled the reconstruction of Europe, while advancing American commercial and foreign policy interests.
5. In the context of the Cold War, the Marshall Plan helped weak and war-ravaged governments and economies to recover, without falling prey to communist infiltration and thus being swallowed by the Soviet bloc.


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This page was written by Jennifer Llewellyn, Jim Southey and Steve Thompson. To reference this page, use the following citation:
J. Llewellyn et al, “The Marshall Plan”, Alpha History, accessed [today’s date], http://alphahistory.com/coldwar/marshall-plan/.