The Marshall Plan:  Rebuilding Europe³

On June 5, 1947, speaking to the graduating class at Harvard University, Secretary of State George C. Marshall laid the foundation, in the aftermath of World War II, for a U.S. program of assistance to the countries of Europe. At a time when great cities lay in ruins and national economies were devastated, Marshall called on America to “do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.”

The U.S. Congress approved Marshall’s longsighted proposal in 1948, and by 1952 the United States had channeled some $13 billion in economic aid and technical assistance to 16 European countries. During the program’s four years, participating countries saw their aggregate gross national product rise more than 30 percent and industrial production increase by 40 percent over prewar levels.

But the Marshall Plan, as it came to be known, was not just an American program. It was a joint European-American venture, one in which American resources were complemented with local resources, one in which the participants worked cooperatively toward the common goals of freedom and prosperity.

The Marshall Plan at 60⁴
By Erik Reinert and Jomo K.S.

Apart from its historical importance, the Marshall Plan experience offers valuable lessons that have relevance today. It represented a complete reversal of the preceding Morgenthau Plan, named after Treasury Secretary Henry Morgenthau Jr. In his 1945 book, Germany is Our Problem, Morgenthau promoted a de-industrialization plan, “converting Germany into a country principally agricultural and pastoral” to make sure it could never again go to war.

By late 1946, however, economic hardship and unemployment in Germany were worrying the United States, and former President Herbert Hoover was sent there on a fact-finding mission. Hoover’s third report of 18 March 1947 noted: “There is the illusion that the New Germany left after the annexations can be reduced to a ‘pastoral state’. It cannot be done unless we exterminate or move 25,000,000 people out of it.” Hoover well understood that an agricultural economy would be able to sustain a much smaller population than an
industrialized nation.

Hence, the only option was to re-industrialize. Less than three months later, Marshall’s landmark speech reversed policy. Germany and the rest of Europe were to be re-industrialized with policies that included heavy handed economic interventions, such as high duties, quotas and import prohibitions. Free trade would be possible only after reconstruction and international competitiveness had been achieved.

The Marshall Plan, A Strategy that Worked⁵

"Kennan and his new State Department Policy Planning Staff produced one of the master documents from which the Marshall Plan eventually flowed.... But there was a specifically European dimension to the Marshall effort. Europe's evil genie, said people like Kennan, Assistant Secretary of State Dean Acheson, and future ERP Ambassador Averell Harriman, was nationalism. If that root of Nazi-fascism and other 20th-century rivalries could be bottled up in an integrated European economic framework, the resulting prosperity might dampen nationalist competition, prevent future armed conflicts, and obviate U.S. involvement in future European wars."

...After a long winter of discussion, some stopgap help, and greatly increased tension in East-West relations, the European Recovery Program was born officially with an act of Congress signed by President Truman in April 1948. To administer the project, a new federal agency, the Economic Cooperation Administration (ECA), was established. Truman, a Democrat, signified his intent to secure bipartisan support for the program by appointing a Republican, Studebaker automobile company CEO Paul G. Hoffmann, as ECA head. Expenditures began to flow immediately, under tight congressional supervision.

The program's official enactment identified the supreme objective as creating in Western Europe "a healthy economy independent of extraordinary outside assistance" by 1952. To this end, comments the economic historian Immanuel Wexler, "the act stipulated a recovery plan based on four specific endeavors: (1) a strong production effort, (2) expansion of foreign trade, (3) the creation and maintenance of internal financial stability, and (4) the development of (European) economic cooperation."