The Marshall Plan

by Benn Steil

  Yet “a concrete outline for the Marshall Plan” only took shape, Acheson later reflected, with the return of Will Clayton from a six-week desolation tour of western Europe on May 19. While Kennan was laboring away on PPS/1, Clayton was organizing his own thoughts for Marshall. “Will was genuinely alarmed that Europe was on the brink of disaster,” recounted Paul Nitze, then a forty-year-old deputy director of the Department’s Office of International Trade Policy.50 Clayton now communicated his diagnosis to Acheson in a consequential memo dated May 27. Acheson contrasted it with Kennan’s report, which “dwell[ed] more on difficulties and dangers . . . than on the imperative need for action.” Action was Clayton’s preoccupation. Acheson, who considered Clayton “one of the most powerful and persuasive advocates” he ever dealt with in government, sent the memo “on at once to the General.”51 It would have “a powerful impact both upon the content of [Marshall’s forthcoming] speech and probably upon his decision to make it.”52

  Even more so in recitation than in writing, Clayton was able to impart to his audience a sense of urgency. His stories of fearful peasants, workers, and merchants hoarding to avoid hunger were vivid and compelling in a way that numbers, dire as they were, failed to capture.

  Parisians were starving. But why? Clayton explained that it was not that farmers could not grow enough, or that they could not deliver what they grew; farmers would simply not supply cities with food as long as the latter could produce nothing to offer in return. Money was losing acceptability as a voucher for tomorrow’s goods; inflation was destroying its value.

  “It is now obvious,” Clayton wrote, “that we grossly underestimated the destruction to the European economy by the war. We understood the physical destruction,” but failed to understand how “economic dislocation[,] nationalization of industries, drastic land reform, severance of long-standing commercial ties, [and] disappearance of private commercial firms through death or loss of capital” would destroy the productive apparatus. Capitalism, Clayton was sure, was the source of Europe’s former economic strength, and reviving it was essential to preventing “social and political disintegration.”53

  Large-scale aid, Clayton said, was necessary “to save Europe from starvation and chaos.” He estimated the need at $18–21 billion ($227 billion in today’s money), spread over three years; Nitze estimated $25 billion ($270 billion today) over five years. But aid was not enough. Clayton, again like Kennan, wanted a reconstruction plan to be drawn up by “the principal European nations”—the U.K., France, and Italy. Yet whereas Kennan envisioned the United States providing only “friendly” assistance in its drafting, Clayton envisioned a more assertive American role. In Acheson’s words, Clayton wanted the plan merely to “appear to come” from Europe. He would, further, brook no outside interference. Other countries might pitch in with “surplus food and raw materials,” but this was not to be “another UNRRA.” The United States, he said, “must run this show.”54

  Clayton insisted that the plan “should be based on a European economic federation on the order of the Belgium-Netherlands-Luxembourg Customs Union.” Europe, he insisted, “cannot recover . . . if her economy continues to be divided into many small watertight compartments.” Clayton was no theoretician, but the theory of customs unions—the idea that maximizing output required free movement of the various factors of production—was in vogue, and would have appealed to his free market instincts. Customs unions were multistate free trade zones with common external tariffs. Economists at the time argued that the rise of the United States to industrial supremacy in the early twentieth century had been assisted by the fact that it operated as such a union among its semiautonomous states, allowing the country to take advantage of economies of scale and specialization according to comparative advantage. Europe, Clayton believed, needed to follow that model to catch up.

  Clayton further believed that the Bretton Woods vision of a stable global trading and payments system could not be realized without political action to restore a balance, or “equilibrium,” in world trade. Yet such equilibrium had not been seen since 1914, when it fell victim to the catastrophe of World War I and the collapse of the classical gold standard. Now, in the wake of a second world war, Europe could not export enough to pay for essential imports from the United States. Creating a United States of Europe, so the new thinking went, was the innovation necessary to restore equilibrium.

  Prominent Republicans, such as future secretary of state John Foster Dulles, shared this belief. Truman himself laid out a vision of it shortly after assuming the presidency in the spring of 1945. Pointing Stimson to a map, he explained that the challenge of securing a postwar settlement “was to help unify Europe by linking the breadbasket [of the east] with the industrial centers [of the northwest] through a flow of free trade.”55 Stimson agreed, believing further that German economic integration, and reintegration with wider Europe, had to be a critical component of this vision.56 Equally important, failure to act upon these convictions would mean that Europe would remain dependent on U.S. aid.

  “The old approach,” Reston wrote in the Times, “was to deal with the shattered economies of the several nations one at a time, lending now to Britain, then to France, then to Italy, etc.” But this had failed. Recovery in May 1947 seemed as far off as it did after Germany’s surrender two years earlier. “The new approach is based on the growing conviction that the problems of all these countries are interrelated and that Europe cannot recover by shoring up, one at a time, the various national economies.”57 Over in London, The Economist cheered the new approach: “let the United States knock heads together and impose an agreement,” it said; “there are plenty of Europeans who would welcome American dictation, if it were for a good cause.”58

  ON MAY 23, ACHESON RECEIVED PPS/1, in fulfillment of Marshall’s directive—a “general orientation” plan for aid to western Europe. It read as if the prose were Kennan’s. And as with every paper written under his direction, it was.

  Kennan began almost defensively, with a statement of what the plan was not. “Communist activities” were not “the root of the difficulties of western Europe,” he wrote. Rather, “the present crisis” was a product of “the disruptive effect of the war on the economic, political, and social structure of Europe and . . . a profound exhaustion of physical plant and spiritual vigor. This situation has been aggravated . . . by the division of the continent into east and west.”

  But this division was, of course, a product of the Soviet occupation of the eastern continent and the installation of Communist-led governments. And “further communist successes would create serious danger to American security,” Kennan wrote. Yet American aid had to be directed “not to the combatting of communism as such but to the restoration of the economic health and vigor of European society.” It was “economic maladjustment which makes European society vulnerable to exploitation by any and all totalitarian movements,” a vulnerability “which Russian communism is now exploiting.”

  The concision of the prose created the risk that readers would perceive, wrongly, that the PPS was downplaying the Soviet-backed communist threat in Europe. But Kennan was anxious to frame communism as just another brand of totalitarianism, which the American public already understood to be a threat. “[T]he United States approach to world problems,” he said, must not appear to be “a defensive reaction to communist pressure.” This appearance had colored the media’s interpretation of the Truman Doctrine, which had become shorthand for “a blank check to give economic and military aid to any area in the world where the communists show signs of being successful.” Partly to “correct this misunderstanding,” the Europeans themselves would need to draw up the economic program.

  There was, finally, the critical question of how to define the program’s borders. To exclude the East was to invite blame for creating the iron curtain; to include it was to invite Soviet sabotage. The solution, Kennan argued, was to advance the project as a “general European (not just western European)” o
ne, but in a manner ensuring that “the Russian satellite countries would either exclude themselves by unwillingness to accept the proposed conditions or agree to abandon the exclusive orientation of their economies.” Either way the satellites chose, the United States would win diplomatically.

  Kennan’s objective for American economic intervention was clear: ensuring western Europe’s ability to resist communist subversion. But as for the form that intervention would take, he was groping blindly. He was no economist, and had no aptitude for playing one. The two suggestions he lobbed out meekly were to find a way to move Rhineland coal to areas of need and to provide immediate unspecified assistance to Italy. His critical insight was that there was a psychological precondition for Europe’s revival, and that bold American action was necessary to create it. Yet no further could he go without others who would be essential to transforming Marshall’s message into a plan.

  KENNAN PROVIDED THE STRATEGIC LOGIC behind a European recovery program. Clayton offered the vision of an integrated western Europe that could carry it out. The third major influence on the program’s development was not even present in Washington; his views were never solicited, and he would remain an outsider at every point in the process.

  Lucius Dubignon Clay was born in Marietta, Georgia, in 1898, one year later than he claimed in order to qualify for West Point.59 His father, a three-term senator, passed down to him a knack for navigating obstacles in Washington. Being of a more monocratic bent, however, the younger Clay resisted the many calls to follow his father’s path into electoral politics. In his graduating class of 137, Clay came first in history, first in English, and 128th in conduct. “If we lived in an earlier age, he would have been a baron or a duke,” observed a Washington colleague. “He would be a benevolent one, but he’d be an autocrat nonetheless.”60

  Like the others in the top quarter of his class, he was assigned to the Army Corps of Engineers in 1918. Though he persisted in seeking out combat opportunities, he would rise to the rank of brigadier general in 1942—at age forty-three, the youngest ever—without seeing battle. In his various civil and military engineering posts in the United States, Latin America, and Asia, he developed an unrivaled reputation for bringing order, discipline, focus, and accountability to the most complex logistical tasks. In March of 1942, Marshall appointed him director of matériel in the War Department, where he managed the Army’s prodigious procurement activities and administered Allied military aid. There he became known as a formidable master of bureaucratic bottlenecks. He was, according to one colleague, “forceful, persuasive, and bright as hell.”61

  In October 1944, Clay transferred to Europe to manage logistics for General Eisenhower. But the stint was brief. Byrnes, then director of the Office of War Mobilization, called him back in November to take over management of war production. The personal bonds he established with Eisenhower and Byrnes would remain strong in the years to come. Yet he lasted less than five months in that job before FDR, acting on the force of a remarkable consensus among his advisers, tapped him to be deputy military governor of Germany on March 31, 1945. In practice, he would run the American zone of the country.

  With Germany in physical, financial, and moral ruin, it was a daunting assignment. His prior experience had given him “as much familiarity with an entire economy of a nation as anyone could have.” Yet knowing little of the German nation and nothing of the language, he tried to beg out of it. Once he understood the matter was settled, however, he focused on clearing away constraints on his ability to run the country. Enlisting Byrnes’ support, he ensured that he would report to Eisenhower, and not to a bureaucracy in Washington. The official order confirming his new position came down on April 17, five days after FDR’s death.

  Press coverage of Clay’s appointment was enthusiastic, though in part for the wrong reason. The Washington Post thought that the task “call[ed] for authoritarianism,” which Clay would muster unashamedly. The New York Herald Tribune concurred, suggesting that meant “life will be hard for the German[s].”62 Yet Clay would press his authority to make it otherwise. He was determined to create a well-fed citizenry that could rebuild the country and, in the shortest possible order, govern it effectively and responsibly. In this effort, he would find himself confronting his government’s official policy head-on.

  Clay’s appointment had been vigorously supported by Treasury Secretary Morgenthau, yet the two could not have disagreed on occupation policy more completely. Clay was not given the occupation directive, JCS 1067, until he boarded the plane for Paris, and did not read the Morgenthau Plan upon which it was based until arriving at Eisenhower’s headquarters in Reims.63 But Clay quickly “realized that the cost to the United States was going to be terrific unless we could get this thing moving again—which we were not permitted to do if we literally followed our instructions.” He also thought the directive “too vindictive . . . to have long suited the American people.”64 His issues with it were more than technical; they were moral and strategic.

  Clay’s unvarnished views on Germany were summarized in a memo he wrote to Marshall on May 2, 1947—six weeks after he formally became military governor.65 Germany, Clay said, was bankrupt. It avoided starvation only through Washington’s disease-and-unrest appropriations, and had no prospect of supporting itself without the means to pay for imports. Its coffers were empty, its debts unmanageable, its credit nonexistent. And Allied policy blocked all avenues to profitable export.66 Without change, the country would become an intolerable drain on American resources and political energies.

  Clay had fought to get the occupation directive repealed and replaced in the spring of 1945, but “got nowhere.” He would repeatedly exploit its disease-and-unrest loophole, which gave him the authority to deviate from its harsh approach, but there were limits to how far even he could bend a policy without breaking it. He was convinced that the directive’s requirement that he bust up “large” agricultural estates, which were small by American standards, was economic madness; but he did it. “If we hadn’t had 1067, I am sure that our original approach would have been quite different,” he reflected years later. “We would have been instructed from the very beginning to assist in getting the Germans back on their feet.” Making them “citizens of the world again” sooner would have helped “to get Europe back on its feet again” sooner and at less cost.67 In a March 1946 cable to Washington, Clay put the issue in the context of containing communism. “There is no choice between becoming a Communist on 1500 calories and a believer in democracy on 1000 calories,” he wrote. “It is my sincere belief that our proposed ration allowance in Germany will not only defeat our objectives in middle Europe but will pave the road to a Communist Germany.”68

  Clay’s thinking had notable influence on Marshall in the wake of his fruitless efforts in Moscow to engage Stalin in a new cooperative approach to Germany. The directive be damned, Marshall instructed Clay to put Bizonia on a self-sustaining basis.

  The U.S. and U.K. would take the first steps toward localizing administrative power in Germany on May 23, 1947, when they formally agreed to German participation on a new Bizonal Economic Council, a precursor to a West German government. The moral and economic albatross of JCS 1067, which now seemed purposeless in light of America’s atomic monopoly, would be replaced in July by JCS 1779, which made the creation of a self-supporting German economy a primary goal of American occupation policy. The United States would thereafter be committed to West German economic unification and (limited) self-government. By October, even the denazification program was to be handed over to Germans.

  Abandoning denazification was more a matter of necessity than enlightenment: the United States and Britain could no longer afford Germany as an enemy. As Noel Annan, a British intelligence officer in Germany, put it, “it is odious to find oneself in alliance with a people who had been willing to go along with Hitler to keep Communism at bay. But the best hope for the West was to encourage the Germans themselves to create a Western democratic s
tate.”69

  They provided such encouragement not merely by alleviating physical deprivations, but by permitting an indigenous German culture of sorts to begin reviving in the bombed-out cities. “In the midst of the most desolate metropolis in the world,” Vienna-born Jewish novelist and journalist Hilde Spiel wrote of Berlin, “among grey and bleached skeletons of houses, theatres of a splendour such as a Londoner might seek in vain . . . are rising again.” Much had changed since 1945, when the Americans lured Germans into theaters with promises of cowboy films, only to show them shocking footage of concentration camp liberations instead.

  The German and Austrian literary exile communities in the United States and Britain, many of whose prominent members were Jewish or married to Jews, were split over whether they should welcome the transformation. Perhaps the earliest sophisticated treatments of the moral question of German national war guilt to emerge from this community were Thomas Mann’s Doctor Faustus, published in October 1947, and Carl Zuckmayer’s The Devil’s General, a play that opened to controversy and popular acclaim in Frankfurt in November.70

  The Bizonia authorities could not begin physically reviving Germany, however, without cooperation from Germany’s neighbors. “Germany could not raise enough food to be self-supporting,” Clay stressed. And it could not “export without having its revenues from these exports confiscated by the country buying those products, since all of them held unpaid German securities.”71 Its neighbors would not extend it trade credit or, in the case of France, even consent to the country controlling its own strategic industrial and commodity resources. This is where the wider European context became critical. German recovery would have to be embedded in a European recovery, with American grants substituting for German reparations.