Marshall Plan

Map of Cold-War era Europe showing countries that received Marshall Plan aid. The red columns show the relative amount of total aid per nation.

The Marshall Plan (from its enactment, officially the European Recovery Program (ERP)), was the primary plan of the United States for rebuilding the allied countries of Europe and containing communism after World War II. The initiative was named for Secretary of State George C. Marshall and was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan.

The reconstruction plan was developed at a meeting of participating European states on July 12, 1947. The plan was in operation for four fiscal years beginning in July 1947. During that period, some $13 billion of economic and technical assistance—equivalent to around $130 billion in 2006—was given to help the recovery of the European countries that had joined in the Organization for Economic Cooperation and Development (OECD).

The result of this effort was the creation of a stable economy and political system of democracy in Western Europe, as well as the emergence of a security alliance, NATO, that kept the peace during the Cold War by deterring the Soviet Union. Investing in the defeated enemies of the Axis rather than punishing them was truly one of the high points of American foreign policy of the twentieth century. By the time the plan reached completion, the economy of every participant state but Germany had grown well past pre-war levels. Over the next two decades, Western Europe as a whole would enjoy unprecedented growth and prosperity. The Marshall Plan has also long been seen as one of the precursors of European integration, as it erased tariff trade barriers and set up institutions to coordinate the economy on a continental level. An intended consequence was also the systematic adoption of American managerial techniques.

Clearly, the U.S. had understandable self-interest in creating the Marshall Plan, as it had no viable trading partners in the world after both Western Europe and Japan were devastated by war. It was very much to the benefit of the American economy to rebuild war-torn Europe. However, the Marshall Plan stands in marked contrast to the outright vindictive policies of most of the victors in World War I who exacted heavy reparations from the defeated powers, and through the resulting German resentment, unwittingly laid considerable groundwork for World War II. The U.S. resisted this temptation and instead undertook a largely magnanimous approach as a national policy.

Before the Marshall Plan

After six years of war, much of Europe was devastated after millions were killed or injured. Fighting had occurred throughout much of the continent, encompassing an area far larger than that of the First World War. Sustained aerial bombardment meant that most major cities had been badly damaged, with industrial production especially hard-hit. Many of the continent's greatest cities, including Warsaw and Berlin, lay in ruins. Others, such as London and Rotterdam, had been severely damaged. The region's economic structure was ruined, and millions had been made homeless. Although the Dutch famine of 1944 had abated with an influx of aid, the general devastation of agriculture had led to conditions of starvation in several parts of the continent, which was to be exacerbated by the particularly harsh winter of 1946–1947 in northwestern Europe. Especially damaged was the transportation infrastructure, as railways, bridges, and roads had all been heavily targeted by air strikes, while much merchant shipping had been sunk. By and large the small towns and villages in Western Europe had suffered little damage, but the destruction of transportation left them economically isolated. None of these problems could be easily remedied, as most nations engaged in the war had exhausted their treasuries in its execution.

After the First World War the European economy had also been greatly damaged, and a deep recession lasted well into the 1920s, leading to instability and a general global downturn. The United States, despite a resurgence of isolationism, had attempted to promote European growth, mainly through partnerships with the major American banks. When Germany was unable to pay its World War I reparations, the Americans also intervened by extending a large loan to Germany, a debt the Americans were left with when war was declared in 1941.

In Washington there was a consensus that the events after the First World War should not be repeated. The State Department under Harry S. Truman was dedicated to pursuing an activist foreign policy, but Congress was somewhat less interested. Originally, it was hoped that little would need to be done to rebuild Europe and that the United Kingdom and France, with the help of their colonies, would quickly rebuild their economies. By 1947 there was still little progress, however. A series of cold winters aggravated an already poor situation. The European economies did not seem to be growing as high unemployment and food shortages led to strikes and unrest in several nations. In 1947 the European economies were still well below their pre-war levels and were showing few signs of growth. Agricultural production was 83 percent of 1938 levels, industrial production was 88 percent, and exports only 59 percent.

The shortage of food was one of the most acute problems. Before the war, Western Europe had depended on the large food surpluses of Eastern Europe, but these routes were largely cut off by the iron curtain. The situation was especially bad in Germany where in 1946–1947 the average kilocalorie intake per day was only 1,800, an amount insufficient for long-term health. William Clayton reported to Washington that "millions of people are slowly starving." The overall economy was greatly affected by the shortage of coal, aggravated by the cold winter of 1946–1947. In Germany, homes went unheated and hundreds froze to death. In Britain, the situation was not as severe, but domestic demand meant that industrial production came to a halt. The humanitarian desire to end these problems was one motivation for the plan.

The only major power whose infrastructure had not been significantly harmed was the United States. It had entered the war later than most European countries, and had only suffered limited damage to its own territory. American gold reserves were still intact, as was its massive agricultural and manufacturing base; the country was enjoying a robust economy. The war years had seen the fastest period of economic growth in the nation's history, as American factories supported both its own war effort and that of its allies. After the war, these plants quickly retooled to produce consumer goods, and the scarcity of the war years was replaced by a boom in consumer spending. The long term health of the economy was dependent on trade, however, as continued prosperity would require markets to export these goods. Marshall Plan aid would largely be used by the Europeans to buy manufactured goods and raw materials from the United States.

Another strong motivating factor for the United States, and an important difference from the post World War I era, was the beginning of the Cold War. Some in the American government had grown deeply suspicious of Soviet actions. George Kennan, one of the leaders in developing the plan, was already predicting a bipolar division of the world. To him the Marshall Plan was the centerpiece of the new doctrine of containment. It should be noted that when the Marshall Plan was initiated, the wartime alliances were still somewhat intact, the Cold War had not yet truly begun, and for most of those who developed the Marshall Plan, fear of the Soviet Union was not the overriding concern it would be in later years.

Still, the power and popularity of indigenous Communist parties in several Western European states was worrisome. In both France and Italy, the poverty of the postwar era had provided fuel for their communist parties, which had also played central roles in the resistance movements of the war. These parties had seen significant electoral success in the postwar elections, with the Communists becoming the largest single party in France. Although most historians feel today that the threat of France and Italy falling to the communists was remote, it was regarded as a very real possibility by American policy makers at the time. The American government of Harry Truman began to show awareness of these problems in 1946, notably with Winston Churchill's Iron Curtain speech, given in Truman's presence. The United States needed to adopt a definite position on the world scene or fear losing credibility. The emerging doctrine of containment argued that the United States needed to substantially aid non-communist countries to stop the spread of Soviet influence. There was also some hope that the Eastern European nations would join the plan, and thus be pulled out of the emerging Soviet bloc.

In view of increased concerns by General Lucius D. Clay and the Joint Chief of Staff over growing communist influence in Germany, as well as the failure of the rest of the European economy to recover without the German industrial base on which it previously had been dependent, Secretary of State General George Marshall, citing "national security grounds," was finally able to convince President Truman to repeal the punitive U.S. occupation directive JCS 1067 in the summer of 1947, replacing it with JCS 1779. In July 1947, JCS 1067, which had directed the U.S. forces of occupation in Germany to “take no steps looking toward the economic rehabilitation of Germany," was thus replaced by JCS 1779 which instead stressed that "an orderly, prosperous Europe requires the economic contributions of a stable and productive Germany.” JCS 1067 had then been in effect for over two years.

Even before the Marshall Plan, the United States spent large amounts to help Europe recover. An estimated $9 billion was spent during the period from 1945 to 1947. Much of this aid was indirect, coming in the form of continued lend-lease agreements, and through the many efforts of American troops to restore infrastructure and help refugees. A number of bilateral aid agreements had been signed, perhaps the most important of which was the Truman Doctrine's pledge to provide military assistance to Greece and Turkey. The infant United Nations also launched a series of humanitarian and relief efforts almost wholly funded by the United States. These efforts had important effects, but they lacked any central organization and planning, and failed to meet many of Europe's more fundamental needs.

Early ideas

U.S. Secretary of State George Marshall

Long before Marshall's speech, a number of figures had raised the notion of a reconstruction plan for Europe. U.S. Secretary of State James F. Byrnes presented an early version of the plan during his speech Restatement of Policy on Germany held at the Stuttgart Opera House on September 6, 1946. In a series of reports called "The President's Economic Mission to Germany and Austria," commissioned by Harry S. Truman, former President Herbert Hoover presented a very critical view of the result of current occupation policies in Germany. In the reports, Hoover provided proposals for a fundamental change of occupation policy. In addition, General Lucius D. Clay asked industrialist Lewis H. Brown to inspect postwar Germany and draft "A Report on Germany" in 1947, containing basic facts relating to the problems in Germany with recommendations for reconstruction. Undersecretary of State Dean Acheson had made a major speech on the issue, which had mostly been ignored, and Vice President Alben W. Barkley had also raised the idea.

The main alternative to large quantities of American aid was to take it from Germany. In 1944 this notion became known as the Morgenthau plan, named after U.S. Treasury Secretary Henry Morgenthau, Jr. It advocated extracting massive war reparations from Germany to help rebuild those countries it had attacked, and also to prevent Germany from ever being rebuilt. Closely related was the Monnet plan of French bureaucrat Jean Monnet that proposed giving France control over the German coal areas of the Ruhr and Saar, using these resources to bring France to 150 percent of pre-war industrial production. In 1946 the occupying powers agreed to put strict limits on how quickly Germany could reindustrialize. Limits were placed on how much coal and steel could be produced. The first German industrial plan, also known as the "level of industry agreement," was signed in early 1946 and stated that German heavy industry was to be reduced to 50 percent of its 1938 levels by the destruction of 1,500 listed manufacturing plants. The problems inherent in this plan became apparent by the end of 1946, and the agreement was revised several times, the last time in 1949. Dismantling of factories continued, however, into 1950. Germany had long been the industrial giant of Europe, and its poverty held back the general European recovery. The continued scarcity in Germany also led to considerable expenses for the occupying powers, which were obligated to try to make up the most important shortfalls. These factors, combined with widespread public condemnation of the plans after their leaking to the press, led to the de facto rejection of the Monnet and Morgenthau plans. Some of their ideas, however, did partly live on in the Joint Chiefs of Staff Directive 1067, a plan which was effectively the basis for U.S. Occupation policy until July 1947. The mineral-rich industrial centers of Saar and Silesia were removed from Germany, a number of civilian industries were destroyed in order to limit production, and the Ruhr Area was in danger of being removed as late as 1947. By April of 1947, however, Truman, Marshall, and Undersecretary of State Dean Acheson were convinced of the need for substantial quantities of aid from the United States.

The idea of a reconstruction plan was also an outgrowth of the ideological shift that had occurred in the United States in the Great Depression. The economic calamity of the 1930s had convinced many that the unfettered free market could not guarantee economic well-being. Many who had worked on designing the New Deal programs to revive the American economy now sought to apply these lessons to Europe. At the same time the Great Depression had shown the dangers of tariffs and protectionism, creating a strong belief in the need for free trade and European economic integration.

The Speech

Did you know?

The European Recovery Program was named the Marshall Plan for the U.S. Secretary of State George C. Marshall

The earlier public discussions of the need for reconstruction had largely been ignored, as it was not clear that they would be establishing an official administration policy. It was decided that all doubt must be removed by a major address by Secretary of State George Marshall. Marshall gave the address to the graduating class of Harvard University on June 5, 1947. Standing on the steps of Memorial Church in Harvard Yard, he outlined the U.S. government's preparedness to contribute to European recovery. The speech, written by Charles Bohlen, contained virtually no details and no numbers. The most important element of the speech was the call for the Europeans to meet and create their own plan for rebuilding Europe, and that the United States would then fund this plan.

The administration felt that the plan would likely be unpopular among many Americans, and the speech was mainly directed at a European audience. In an attempt to keep the speech out of American newspapers, journalists were not contacted, and on the same day Truman called a press conference to take away headlines. By contrast Acheson was dispatched to contact the European media, especially the British media, and the speech was read in its entirety on the BBC.

Rejection by the Soviets

British Foreign Secretary Ernest Bevin heard Marshall's radio broadcast speech and immediately contacted French Foreign Minister Georges Bidault to begin preparing a European response to the offer. The two agreed that it would be necessary to invite the Soviets as the other major allied power. Marshall's speech had explicitly included an invitation to the Soviets, feeling that excluding them would have been too clear a sign of distrust. State Department officials, however, knew that Josef Stalin would almost certainly not participate, and that any plan that did send large amounts of aid to the Soviets was unlikely to be approved by Congress.

Stalin was at first cautiously interested in the plan. He felt that the Soviet Union stood in a good position after the war and would be able to dictate the terms of the aid. He thus dispatched foreign minister Vyacheslav Molotov to Paris to meet with Bevin and Bidault. The British and French leadership shared the American lack of genuine interest in Soviet participation, and they presented Molotov with conditions that the Soviets could never accept. The most important condition was that every country to join the plan would need to have its economic situation independently assessed, scrutiny the Soviets could not accept. Bevin and Bidault also insisted that any aid be accompanied by the creation of a unified European economy, incompatible with the strict Soviet command economy. Molotov rejected the plan.

On July 12, a larger meeting was convened in Paris. Every country of Europe was invited, with the exceptions of Spain (which had stayed out of World War II but had sympathized with the Axis powers) and the small states of Andorra, San Marino, Monaco, and Liechtenstein. The Soviet Union was invited with the understanding that it would refuse. The states of the future Eastern Bloc were also approached, and Czechoslovakia and Poland agreed to attend. In one of the clearest signs of Soviet control over the region, the Czechoslovak foreign minister, Jan Masaryk, was summoned to Moscow and berated by Stalin for thinking of joining the Marshall Plan. Stalin saw the plan as a significant threat to Soviet control over Eastern Europe and believed that economic integration with the West would allow these countries to escape Soviet domination. The Americans shared this view and hoped that economic aid could counter the growing Soviet influence. They were not too surprised, therefore, when the Czechoslovakian and Polish delegations were prevented from attending the Paris meeting. The other Eastern European states immediately rejected the offer. Finland also declined in order to avoid antagonizing the Soviets. The Soviet Union's "alternative" to the Marshall Plan, which was purported to involve Soviet subsidies and trade with Eastern Europe, became known as the Molotov Plan, and later, COMECON.

Negotiations

Turning the plan into a reality required negotiations among the participating nations and getting the plan passed by the United States Congress. Thus 16 nations met in Paris to determine what form the American aid would take and how it would be divided. The negotiations were long and complex, with each nation having its own interests. France's major concern was not allowing Germany to be rebuilt to its previous threatening power. The Benelux (Belgium, the Netherlands, and Luxembourg) countries, despite also suffering under the Nazis, had long been closely linked to the German economy and felt their prosperity depended on its revival. The Scandinavian nations, especially Sweden, insisted that their long-standing trading relationships with the Eastern Bloc nations not be disrupted and that their neutrality not be infringed. Britain insisted on special status, concerned that if it were treated equally with the devastated continental powers it would receive virtually no aid. The Americans were pushing the importance of free trade and European unity to form a bulwark against communism. The Truman administration, represented by William Clayton, promised the Europeans that they would be free to structure the plan themselves, but the administration also reminded the Europeans that for the plan to be implemented, it would have to pass Congress. The majority of Congress was committed to free trade and European integration, and also was hesitant to spend too much of the aid money on Germany.

Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington. In this document the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress. The plan met sharp opposition in Congress, mostly from the portion of the Republican Party that was weary of massive government spending, advocating a more isolationist policy. This group's most prominent representative was Robert A. Taft. The plan also had opponents on the left, including Henry A. Wallace, the former Vice-President and Presidential nominee of the Progressive Party in 1948. Wallace saw the plan as a subsidy for American exporters and as a sure way to polarize the world between East and West. This opposition was greatly reduced by the shock of the overthrow of the democratic government of Czechoslovakia in February 1948. Soon after, a bill granting an initial $5 billion passed Congress with strong bipartisan support. The Congress would eventually donate $12.4 billion in aid over the four years of the plan.

Truman signed the Marshall Plan into law on April 3, 1948, establishing the Economic Cooperation Administration (ECA) to administer the program. ECA was headed by economic cooperation administrator Paul G. Hoffman. In the same year, the participating countries (Austria, Belgium, Denmark, France, West Germany, Great Britain, Greece, Iceland, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, Turkey, and the United States) signed an accord establishing a master coordinating agency, the Organization for European Economic Cooperation (later called the Organization for Economic Cooperation and Development, OECD), which was headed by France’s Robert Marjolin.

Implementation

The first substantial aid went to Greece and Turkey in January 1947, which were seen as the front line in the battle against communist expansion and were already receiving aid under the Truman Doctrine. Initially the U.K. had supported the anti-communist factions in those countries, but due to its dire economic condition it requested the U.S. to continue its efforts. The ECA formally began operation in July 1948.

First page of the Marshall Plan

The official mission statement of ECA was to give a boost to the Europe economy: to promote European production, to bolster European currency, and to facilitate international trade, especially with the United States, whose economic interest required Europe to become wealthy enough to import U.S. goods. Another unofficial goal of ECA (and of the Marshall Plan) was the containment of growing Soviet influence in Europe, evident especially in the growing strength of communist parties in Czechoslovakia, France, and Italy.

The Marshall Plan money was transferred to the governments of the European nations. The funds were jointly administered by the local governments and the ECA. Each European capital had an ECA envoy, generally a prominent American businessperson, who would advise on the process. The cooperative allocation of funds was encouraged, and panels of government, business, and labor leaders were convened to examine the economy and see where aid was needed.

The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad. At the start of the plan these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War, an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Of the some $13 billion allotted by mid-1951, $3.4 billion had been spent on imports of raw materials and semi-manufactured products, $3.2 billion on food, feed, and fertilizer, $1.9 billion on machines, vehicles, and equipment, and $1.6 billion on fuel.

Also established were counterpart funds, which used Marshall Plan aid to establish funds in the local currency. According to ECA rules, 60 percent of these funds had to be invested in industry. This was prominent in Germany, where these government-administered funds played a crucial role by being loaned to private enterprises which would spend the money rebuilding. These funds played a central role in the reindustrialization of Germany. In 1949–1950, for instance, 40 percent of the investment in the German coal industry was by these funds. The companies were obligated to repay the loans to the government, and the money would then be lent out to another group of businesses. This process has continued to this day in the guise of the state owned KfW bank (a Reconstruction bank). The Special Fund, then supervised by the Federal Economics Ministry, was worth over DM 10 billion in 1971. In 1997 it was worth DM 23 billion. Through the revolving loan system, the fund had, by the end of 1995, made low-interest loans to German citizens amounting to around DM 140 billion. The other 40 percent of the counterpart funds were used to pay down the debt, stabilize the currency, or invest in non-industrial projects. France made the most extensive use of counterpart funds, using them to reduce the budget deficit. In France, and most other countries, the counterpart fund money was absorbed into general government revenues, and not recycled as in Germany.

A far less expensive, but also quite effective, ECA initiative was the Technical Assistance Program. This program funded groups of European engineers and industrialists to visit the United States and tour mines, factories, and smelters so that they could then copy the American advances at home. At the same time several hundred American technical advisers were sent to Europe.

Expenditures

The Marshall Plan aid was divided among the participant states on a roughly per capita basis. A larger amount was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for general European revival. Somewhat more aid per capita was also directed towards the Allied nations, with less for those that had been part of the Axis or remained neutral. The table below shows Marshall Plan aid by country and year (in millions of dollars) from The Marshall Plan Fifty Years Later. There is no clear consensus on exact amounts, as different scholars differ on exactly what elements of American aid during this period was part of the Marshall Plan.

Country	1948–1949 ($ millions)	1949–1950 ($ millions)	1950–1951 ($ millions)	Cumulative ($ millions)
Austria	232	166	70	488
Belgium and Luxembourg	195	222	360	777
Denmark	103	87	195	385
France	1,085	691	520	2,296
Germany (Only refers to the Anglo-American and French occupation zones, which later became the Federal Republic of Germany in 1949. The plan itself technically included all of Germany, but it was not implemented in the Soviet zone of control.)	510	438	500	1,448
Greece	175	156	45	366
Iceland	6	22	15	43
Ireland	88	45	—	133
Italy and Trieste	594	405	205	1,204
Netherlands	471	302	355	1,128
Norway	82	90	200	372
Portugal	—	—	70	70
Sweden	39	48	260	347
Czechoslovakia	—	—	250	250
Turkey	28	59	50	137
United Kingdom	1,316	921	1,060	3,297

Effects

One of a number of posters created to promote the Marshall Plan in Europe

The Marshall Plan ended in 1951, as originally scheduled. Any effort to extend it was halted by the growing cost of the Korean War and rearmament. Republicans hostile to the plan had also gained seats in the 1950 Congressional elections, and conservative opposition to the plan was revived. Thus the plan ended in 1951, though various other forms of American aid to Europe continued afterwards.

The years 1948 to 1952 saw the fastest period of growth in European history. Industrial production increased by 35 percent. Agricultural production substantially surpassed pre-war levels. The poverty and starvation of the immediate postwar years disappeared, and Western Europe embarked upon an unprecedented two decades of growth that saw standards of living increase dramatically. There is some debate among historians over how much this should be credited to the Marshall Plan. Most reject the idea that it alone miraculously revived Europe, as evidence shows that a general recovery was already underway. Most believe that the Marshall Plan sped this recovery, but did not initiate it.

The political effects of the Marshall Plan may have been just as important as the economic ones. Marshall Plan aid allowed the nations of Western Europe to relax austerity measures and rationing, reducing discontent and bringing political stability. The communist influence on Western Europe was greatly reduced, and throughout the region communist parties faded in popularity in the years after the Marshall Plan. The trade relations fostered by the Marshall Plan help forge the North Atlantic alliance that would persist throughout the Cold War. At the same time the nonparticipation of the states of Eastern Europe was one of the first clear signs that the continent was now divided.

The Marshall Plan also played an important role in European integration. Both the Americans and many of the European leaders felt that European integration was necessary to secure the peace and prosperity of Europe, and thus used Marshall Plan guidelines to foster integration. In some ways this effort failed, as the OEEC never grew to be more than an agent of economic cooperation. Rather it was the separate European Coal and Steel Community, which notably excluded Britain, that would eventually grow into the European Union. However, the OEEC served as both a testing and training ground for the structures and bureaucrats that would later be used by the European Economic Community. The Marshall Plan, linked into the Bretton Woods System, also mandated free trade throughout the region.

While some modern historians today feel some of the praise for the Marshall Plan is exaggerated, it is still viewed favorably and many thus feel that a similar project would help other areas of the world. After the fall of communism several proposed a "Marshall Plan for Eastern Europe" that would help revive that region. Others have proposed a Marshall Plan for Africa to help that continent, and former U.S. Vice President Al Gore suggested a Global Marshall Plan. Marshall Plan style proposals for other parts of the world have been a perennial idea. For instance, Tony Blair and Gordon Brown have referred to their African aid goals as "a Marshall Plan." After the end of the Cold War many felt Eastern Europe needed a rebuilding plan.

The Marshall "Help" Plan almost ended in 1950 for the Netherlands, when the United States announced the "decisive battle against communism" in Korea and asked the Dutch government to send troops. When the Dutch government refused, the U.S. threatened to recall the Marshall help.

Effects in Germany

The West German economic recovery was partly due to the economic aid provided by the Marshall Plan, but mainly to the currency reform of 1948 which replaced the German Reichsmark with the Deutsche Mark as legal tender, halting rampant inflation. This act to strengthen the German economy had been explicitly forbidden during the two years that the occupation directive JCS 1067 was in effect. The Allied dismantling of the West German coal and steel industry finally ended in 1950.

Contrary to popular belief, the Marshall Plan, which was extended to also include the newly formed West Germany in 1949, was not the main force behind the German recovery. Had that been the case, other countries such as Great Britain and France (which both received more economic assistance than Germany) should have experienced the same phenomenon. In fact, the amount of monetary aid received by Germany through the Marshall Plan was by far overshadowed by the amount the Germans meanwhile had to pay as reparations and by the charges the Allies made on the Germans for the cost of occupation ($2.4 billion per year).

Even so, in Germany the myth of the Marshall Plan is still alive. Many Germans believe that Germany was the exclusive beneficiary of the plan, that it consisted of a free gift of vast sums of money, and that it was solely responsible for the German economic recovery in the 1950s.

Repayment

The Organization for European Economic Cooperation had taken the leading role in allocating funds, and the ECA arranged for the transfer of the goods. The American supplier was paid in dollars, which were credited against the appropriate European Recovery Program funds. The European recipient, however, was not given the goods as a gift, but had to pay for them in local currency, which was then deposited by the government in a counterpart fund. This money, in turn, could be used by the ERP countries for further investment projects.

Most of the participating ERP governments were aware from the beginning that they would never have to return the counterpart fund money to the U.S.; it was eventually absorbed into their national budgets and "disappeared." Originally the total American aid to Germany (in contrast to grants given to other countries in Europe) had to be repaid. But under the London debts agreement of 1953, the repayable amount was reduced to about $1 billion. Aid granted after July 1, 1951 amounted to around $270 million, of which Germany had to repay $16.9 million to the Washington Export-Import Bank of the United States. In reality, Germany did not know until 1953 exactly how much money it would have to pay back to the U.S., and insisted that money was given out only in the form of interest-bearing loans—a revolving system ensuring the funds would grow rather than shrink. A lending bank was charged with overseeing the program. European Recovery Program loans were mostly used to support small- and medium-sized businesses. Germany paid the U.S. back in installments (the last check was handed over in June 1971). However, the money was not paid from the ERP fund, but from the central government budget.

Areas without the Marshall Plan

Large parts of the world devastated by the Second World War did not benefit from the Marshall Plan. The only major Western European nation excluded was Francisco Franco's Spain. After the war, it pursued a policy of self-sufficiency, currency controls, and quotas with little success. With the escalation of the Cold War, the United States reconsidered its position, and in 1951, embraced Spain as an ally. Over the next decade, a considerable amount of American aid would go to Spain, but less than its neighbors had received under the Marshall Plan.

While the western portion of the Soviet Union had been as badly affected as any part of the world by the war, the eastern portion of the country was largely untouched and had seen a rapid industrialization during the war. The Soviets also imposed large reparations payments on the Axis allies that were in its sphere of influence. Finland, Hungary, Romania, and especially East Germany were forced to pay vast sums and ship large amounts of supplies to the U.S.S.R. These reparation payments meant that the Soviet Union received almost as much as any of the countries receiving Marshall Plan aid.

Eastern Europe saw no Marshall Plan money, as their communist governments refused aid, and moreover received little help from the Soviets. The Soviets did establish COMECON in response to the Marshall Plan, but it was far less generous, with many economists arguing it was mostly a one way transfer of resources—from Soviet satellites to the Soviet Union. Economic recovery in the east was much slower than in the west, and some feel the economies never fully recovered in the communist period, resulting in the formation of the shortage economies and a gap in wealth between East and West. The police states that emerged in much of Eastern Europe could enforce rationing and austerity measures that would have been impossible in the west, allowing some resources to be moved towards reconstruction. One Eastern European state, Yugoslavia, did receive some aid from the United States during this period, but this is generally not considered Marshall Plan aid.

Japan too, had been badly damaged by the war. However, the American people and Congress were far less sympathetic towards the Japanese than they were to the Europeans. Japan was also not considered to have as great a strategic or economic importance to the United States. Thus no grand reconstruction plan was ever created, and the Japanese economic recovery before 1950 was slow. However, in 1950 the Korean War broke out and Japan became the main staging ground for the United Nations war effort, and a crucial supplier of material. One well known example is that of the Toyota company. In June 1950, the company produced three hundred trucks, and was on the verge of going out of business. The first months of the war saw the military order over five thousand vehicles, and the company was revived. During the four years of the Korean War, the Japanese economy saw a substantially larger infusion of cash than had any of the Marshall Plan nations.

Canada, like the United States, was little damaged by the war and in 1945 was one of the world's largest economies. However, the Canadian economy had long been more dependent on trade with Europe than the American economy, and after the war there were signs that the Canadian economy was struggling. In April 1948 the U.S. Congress passed the provision in the plan that allowed the aid to be used in purchasing goods from Canada. The new provision ensured the health of that nation's economy as Canada made over 1 billion dollars in the first two years of operation. This contrasted heavily with the treatment Argentina, another major economy dependant on its agricultural exports with Europe, received from the ECA, as the country was deliberately excluded from participation in the plan due to political differences between the U.S. and then-president Perón. This would damage the Argentine agricultural sector and help to precipitate an economic crisis in the country.

Hong Kong, despite being seriously damaged during the Battle of Hong Kong and occupation in World War II, received no aid from other countries. Hong Kong initiated a series of reforms which called for deregulation, business tax cuts, and a laissez-faire attitude towards business. As a result of these changes, Hong Kong developed into one of the most successful economic zones in the world.

Revisionist Arguments

The early students of the Marshall Plan saw it as an unmitigated success of American generosity. Criticism of the Marshall Plan, however, became prominent among historians of the revisionist school, such as Walter LaFeber, during the 1960s and 1970s. They argued that the plan was American economic imperialism, and that it was an attempt to gain control over Western Europe just as the Soviets controlled Eastern Europe. Far from generosity, the plan was the result of U.S. geopolitical goals.

Other historians emphasize the benefits of the plan to U.S. industry. One result of the destruction in Europe as a result of two world wars was that U.S. farming and industry had world superiority. American private enterprise thus could only gain financially from opening new markets and free trade policies. Yet while European reconstruction required products from the U.S., the Europeans in the immediate aftermath of the Second World War did not have the money to buy these supplies. That was, it is argued, the basic economic problem; essentially European capitalism suffered from a dollar shortage. The U.S. had large balance of trade surpluses, and U.S. reserves were large and increasing. The credit facilities of the IMF and the International Bank for Reconstruction and Development could not cope with Western Europe's large trade deficits, and the IMF was only supposed to grant loans for current-account deficits, not for capital finance and reconstruction purposes. The U.S., therefore, began to create dollar credits in Europe, by various routes of which the Marshall Plan was one.

In the 1980s, a new school developed with some historians arguing that the Marshall Plan might not have played as decisive a role in Europe's recovery as was previously believed. The first person to make this argument was the economic historian Alan S. Milward and the analysis was developed by the German historian Gerd Hardach. Such critics have pointed out that economic growth in many European countries revived before the large-scale arrival of U.S. aid, and was fastest among some of the lesser recipients. While aid from the Marshall Plan eased immediate difficulties and contributed to the recovery of some key sectors, growth from the postwar nadir was largely an independent process. European socialists argue that a similar amount of reconstruction money could have been obtained by nationalizing the holdings of wealthy Europeans who deposited their money in U.S. banks during World War II.

References

ISBN links support NWE through referral fees

• Arkes, Hadley. Bureaucracy, the Marshall Plan, and the National Interest. Princeton, NJ: Princeton University Press, 1973. ISBN 978-0691046075
• Bothwell, Robert. The Big Chill: Canada and the Cold War. Canadian Institute for International Affairs/Institut Canadien des Affaires Internationales Contemporary Affairs Series, No. 1. Toronto: Irwin Publishing Ltd., 1998. ISBN 978-0772525185
• Crafts, Nicholas, and Gianni Toniolo (eds.). Economic Growth in Europe Since 1945. Cambridge: Cambridge University Press, 1996. ISBN 0521496276
• Fossedal, Gregory A. Our Finest Hour: Will Clayton, the Marshall Plan, and the Triumph of Democracy. Stanford, CA: Hoover Institution Press. Publication, No. 412. 1993. ISBN 0817992022
• Gaddis, John Lewis. We Now Know: Rethinking Cold War History. New York: Oxford University Press, 1997. ISBN 978-0198780700
• Grogin, Robert C. Natural Enemies: The United States and the Soviet Union in the Cold War, 1917-1991. Lanham, MD: Lexington Books, 2001. ISBN 0739101609
• Hardach, Gerd. Der Marshall-Plan. Deutscher Taschenbuch Verlag, 1994. ISBN 978-3423046367
• Hogan, Michael J. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952. Cambridge: Cambridge University Press, 1987. ISBN 0521251400
• Mee, Charles L. The Marshall Plan: The Launching of the Pax Americana. New York: Simon and Schuster, 1984. ISBN 0671421492
• Milward, Alan S. The Reconstruction of Western Europe, 1945-51. London: Routledge, 2006. ISBN 0415379229
• Schain, Martin (ed.). The Marshall Plan: Fifty Years After. New York: Palgrave, 2001. ISBN 0312229623
• Stueck, William Whitney (ed.). The Korean War in World History. Lexington, KY: University Press of Kentucky, 2004. ISBN 0813123062
• Wallich, Henry Christopher. Mainsprings of the German Revival. Praeger, 1976. ISBN 978-0837190174

External links

All links retrieved June 14, 2023.

• Speech by J. F. Byrnes, United States Secretary of State, Restatement of Policy on Germany, Stuttgart, September 6, 1946.
• George C. Marshall Foundation.
• National Archives and Records Administration. The Marshall Plan.

Credits

New World Encyclopedia writers and editors rewrote and completed the Wikipedia article in accordance with New World Encyclopedia standards. This article abides by terms of the Creative Commons CC-by-sa 3.0 License (CC-by-sa), which may be used and disseminated with proper attribution. Credit is due under the terms of this license that can reference both the New World Encyclopedia contributors and the selfless volunteer contributors of the Wikimedia Foundation. To cite this article click here for a list of acceptable citing formats.The history of earlier contributions by wikipedians is accessible to researchers here:

• Marshall Plan  ^history

The history of this article since it was imported to New World Encyclopedia:

• History of "Marshall Plan"

Note: Some restrictions may apply to use of individual images which are separately licensed.