The Marshall Plan

by Benn Steil

  Clayton’s persistence on this issue exasperated his colleagues at State, who saw his efforts as a fruitless personal crusade that would hinder achievement of far more urgent and practical goals. “We are all in agreement with you on the point that a customs union is a desirable long-run objective,” Lovett cabled him in Geneva. But “to attempt to work it out now would bog Europe down in details and distract from the main effort.”50

  CLAYTON, CAFFERY, AND DOUGLAS WERE Marshall’s boots-on-the-ground in Paris, working to break down the statist mind-set among the Europeans. Lovett, Nitze, and the “planners” on the new State Department Recovery Committee in Washington, in contrast, cared most about getting a shovel-ready plan requiring no leaps of faith from skeptical congressmen. Meeting with Clayton and Caffery in Paris from August 4–6, Nitze nonetheless found common ground on the need to intensify American involvement.

  The three were angered by reports that “a number of countries” represented in the CEEC, or interests within them, were buying into the Communist line that they were doing the United States a favor by participating in the Marshall Plan—helping it to “ward off a depression.” This idea needed to be scotched, and American expectations set out in no uncertain terms. A timetable for tariff reduction, and eventual elimination, among the participating countries should, they decided, be made mandatory. Delegations should be told the quid pro quo they would provide in return for American aid: meeting targets for production, currency stabilization, and other structural reforms. Failure to reach output quotas for commodities and food would mean a cutoff of aid. Britain should be directed not only to boost its coal output but “to eliminate much of her housing program,” which was an intolerable “drain on steel and labor resources.”51 This came perilously close to Molotov’s charge that the Marshall Plan was, indeed, an American scheme to control Europe’s economies.

  The Europeans, hoping they could satisfy their benefactor with concessions to style rather than substance, had in late July considered hiring an American public relations firm to polish the presentation for Yankee tastes. Clayton shot down the idea, telling them such advice could be obtained from the State Department “on a ‘within the family’ basis.”52

  Marshall, though, was alert to the political dangers of offering too much familial advice. Do not, he cabled on August 11, “make suggestions . . . in [a] manner allowing us to be maneuvered into [a] position where . . . they would regard us as being committed.” Congress, he said, would react against being approached “on a crisis basis,” as they feel they were with Greece and Turkey. They would want some say on the terms.53

  Clayton was convinced Marshall was overreacting. “We are in no sense committed” to anything, he cabled Lovett the next day. “I have been saying just these things over and over to” the delegations.54 Spaak and others, however, would push “wholly unworkable and unacceptable” schemes unless the State Department steered them. John Hickerson, deputy director of the Office of European Affairs, reminded Marshall of his Harvard speech, where he pledged “friendly aid in the drafting of a European program.” American guidance was vital to ensure that the German economy ceases to be “a financial burden to the United States,” and that the production plans of the participating countries are based on the requirements of all of them, collectively.55

  Lovett, responding for Marshall, returned the frustration in a long August 14 cable, telling Clayton that it was the Europeans who were going off the track laid out in the secretary’s Harvard speech. This argument conceded, without acknowledging it, that the Europeans needed steering from Washington. The cable laid stress on the substance, rather than the desirability of the steering. Lovett said he would not accept “an itemized bill summing up prospective deficits against a background of present policies.” The Europeans had to “adjust themselves to certain basic changes . . . in their international position.” They had to “imagine [an] economic future without any outside support,” one in which they were obliged to sustain themselves only “by the most strenuous individual and collective effort.” Only then would they be entitled “to define the gaps” which American aid might fill. Still, he did not want Clayton threatening to withhold aid if specific policies were not adopted or production targets not met. This could backfire if it worsened political tensions in these countries.56

  Kennan stressed the importance of U.S. drafting assistance on the grounds of timing: it was a matter of vital national interest that Congress act on an aid program before the end of the year. France had, in July, banned all dollar purchases other than for food and fuel. Britain and Italy were expected to follow suit with severe import restrictions. One country after another would then cut imports to offset falling exports. If the United States did not create a trend “in the opposite direction,” it might “find [itself] confronted with something far more serious than the present European situation.”57 Another depression could befall the world, creating further opportunity for Soviet adventurism.

  Clayton agreed. He worried that progress on the report’s drafting might still come to naught without interim funds from Washington. On August 6, he suggested to Marshall that a special session of Congress might be needed to effect this. Britain, France, and Italy were, he said, in “critical” condition. They were running short of food. Without aid this year, they might “so deteriorate economically, socially, [and] politically” that U.S. “objectives in Western Europe and elsewhere may become unattainable.”58

  Britain, having made its currency convertible on July 15 in accordance with the 1945 American loan agreement, was losing roughly $100 million a week, and would run out of dollars and gold within months. An imminent devaluation of the pound seemed certain, obliging Britain to slash imports and abandon yet more of its imperial commitments. The country’s position, Kennan said, was dire. It was still over a year away from achieving a level balance of payments, and it had no means of financing the gap. This meant “serious vacuums” in global security, some of which “we might have to fill” before Stalin did. This “could cost far more” than boosting aid to Britain now.59

  And so policies that the United States considered fundamental just a few years prior were abandoned that summer. German pastoralization was out; industrial resurrection was in. Denazification was slotted for “early termination,” even if it meant “further amnesties.” Allied control would be simplified, “with more responsibility [handed to] the German people.” The IMF, designed by FDR’s Treasury to provide tough love to foreign debtors, while protecting America against their devaluation habits, would be prodded to bail out Britain with a quick $320 million ($3.46 billion in today’s money). Even Clayton’s cherished currency convertibility and nondiscrimination in trade were up for grabs, at least temporarily. He and his colleagues agreed to ignore British commitments to both enshrined in the 1945 loan agreement.60 Preventing the country’s collapse now took priority.

  BY MID-AUGUST, IT WAS BECOMING clear that the CEEC was, from the State Department’s perspective, failing. Instead of producing a plan for an integrated western European economy that would be self-sustaining by 1952, it was preparing to add up the dollar deficit estimates of sixteen countries, based on the standard of living each “expected” after 1951, and to submit the cumulative bill to Washington for payment. Without even mentioning a dollar value, Franks acknowledged to Clayton and Caffery that the anticipated requirements “exceeded any possible availability” and would have to be scaled down “on a global basis.” The committee lacked the power to order cuts to specific country estimates.61

  Franks’ defeatism set off alarms in Washington. The cracks in State Department unity over the essentials of a recovery program now widened into deep fissures. On August 22, a “Meeting on Marshall ‘Plan’ ” was convened, attended by Kennan, Bohlen, Kindleberger, and others, to agree on how to brief Lovett. The group singled out Clayton for fault. Whereas the headstrong Texan was “generally aware of departmental thinking with regard to the ‘Plan,’ ” the group agreed, he held “fu
ndamental divergent views on some aspects.” These included his “aversion to continuing European machinery to implement” it, which Clayton saw as statist, and his insistence on “a Customs Union for Europe,” which his home-front colleagues saw as an indulgent personal obsession bogging down the talks. It was also a distraction from State Department priorities: a rapid recovery in European output, and a program that could mobilize Congress. The meeting decided that if Clayton could not be brought “in line with the clarified position” by cable, Kennan should be sent to Paris to set him straight.

  Though it was true that little progress was being made on the customs union, it was scapegoating Clayton to suggest this was at fault for lack of progress elsewhere. The group, not incidentally, also decided that more assertive “friendly aid” would be necessary to compel the Europeans to cooperate more and demand less, which was a position that Clayton had been pressing for some time. This meant intrusive American “screening” of the CEEC committee reports, which would in turn necessitate an “appreciable” extension of the September 1 target date for the final report’s submission.62

  Parallel criticisms were also hurled at Clayton from elsewhere in the department over his handling of the ITO negotiations, where he was seen as being overly purist and insufficiently sensitive to the administration’s larger foreign policy aims. In Clayton’s view, the Marshall Plan made the ITO talks “more important than ever because without [a] sound permanent program of reciprocal multilateral trade, no temporary emergency program could possibly have any permanent worthwhile results.”63 Clayton, trade official Winthrop Brown reflected critically years later, “wanted to get total elimination of all [trade] preferences,” particularly those operated by Britain among its colonies and dominions. “We civil servants knew it wouldn’t be possible [but] he was very hard to convince.”64

  On August 24, Lovett sent a memo to Marshall headed “Paris talks on unified economic plan,” concluding that there was none. With a week to go before it was due, the conference had thus far, Lovett explained, produced only sixteen separate “shopping lists”—and expensive ones at that.65 At a price tag now estimated to be over $29 billion—or nearly 12 percent of that year’s U.S. GDP, and 84 percent of that year’s federal spending—the combined prospective request amounted to more than twice the total aid disbursed everywhere, in grants and loans, by the United States since the end of the war. It was also nearly twice the $16 billion that Clayton saw as the maximum feasible.

  The Paris delegates were consciously, in Kennan’s view, taking a Molotov approach, refusing concessions on economic sovereignty.66 And just as a family living apart leads a costlier existence than one living under a common roof, each of the sixteen nations was inflating its recovery bill by assuming a need for self-sufficiency, wastefully duplicating production capacity. In this regard, France and Britain, the driving forces behind the conference, were also turning out to be its biggest headaches.

  Though the name of Jean Monnet is indelibly attached to the idea of European federation, at this stage he was well behind Clayton.67 France stood committed to Monnet’s namesake plan for national recovery and development, which had as its centerpiece the replacement of German industrial and export dominance in Europe with its own. Britain, for its part, was wedded to an imperial, rather than European, trade and payments policy. Neither was buying into the Marshall vision of a unified west European economy—one that aimed at maximizing collective rather than national output, and which did so in the shortest time possible.

  Washington was no mere wounded bystander in this collision of national agendas. Far from being developed in a domestic political vacuum, the Monnet Plan was a response to rational French distrust of American postwar planning. French commitments to multilateralism at Bretton Woods notwithstanding, driven as they were more by a desire for American dollars than a predilection for American trade theories, French officials feared that prewar trading patterns would be reestablished, to the enduring disadvantage of French industry, if they did not support homegrown champions.

  Replacing German manufactures with French manufactures did double duty as a security policy. “The surest guarantee for the maintenance of peace,” Alphand wrote earlier that year, “will always consist in the limitation of German steel potential.” But the American rejection at Potsdam of the Soviet proposal for international control of the Ruhr had convinced Alphand, rightly, that the Americans would place a much higher priority on European economic revival than on French reconstruction and defense needs. Thus was it made the fulcrum of French policy that revived German raw material production be directed to French rather than German industrial needs.

  De Gaulle’s choice of the technocratic Monnet to lead the Commissariat Général au Plan obscured the political nature of its work, but its detailed production targets for coal, electricity, steel, cement, agriculture, and railways were, even for him, fig leaves. “The individual figures in the plan,” Monnet said, “were all inaccurate and meant nothing.”68 Still, it was left to Bidault to sell to Clayton the idea that France, supplied with coal and coke extracted from an Allied-administered Germany, could meet all of western Europe’s steel requirements.

  As for Britain, Attlee’s government had been watching its dollar reserves plummet at a rate of $176 million a week since July 15, the day on which the country committed monetary suicide in accordance with the terms of the 1945 American loan agreement. The world had been queuing up for the occasion for some time, ready to convert piles of excess sterling into dollars at a bargain price. In such circumstances, multilateralizing European trade and payments was, understandably, the last item on London’s agenda. Introducing new import restrictions and exchange controls, in stark contrast, had climbed to the top.69 Bitterness toward America’s global economic agenda was palpable. It was not surprising that the conference shunted off Clayton priorities, such as currency convertibility and customs unions, to “special committees” that would report back only after the conference had been adjourned.

  “The British have turned out to be our problem children now,” Truman wrote to his sister in August. “They’ve decided to go bankrupt and if they do that, it will end our prosperity and probably the world’s too. Then Uncle Joe Stalin can have his way.”70 The contrast to FDR’s attitude two years earlier could not have been more stark. “I had no idea that England was broke,” he remarked to Morgenthau after a briefing on British finances in August 1944. “I will go over there and make a couple of talks and take over the British Empire.”71 Truman was not quite taking over the empire, but the United States was reaping the consequences of its liquidation.

  Over in Geneva, relations between Cripps and Clayton went from bad to worse. The former now declared it “politically impossible” for his government to take substantial action on eliminating its preferential trade arrangements, in spite of the latter conceding belatedly that sterling could remain inconvertible indefinitely. In a memo to Lovett, an angry Clayton recommended that the administration conclude a multilateral agreement without Britain if Cripps’ “callous disregard” of British commitments persisted.72 “What we must have,” Clayton ally Clair Wilcox insisted, “is a front-page headline that says ‘Empire Preference System Broken in Geneva.’ ” Marshall aid and tariff cuts, he argued, were “bargaining weapons that we may never possess again.”73

  Truman, with Marshall’s and Lovett’s support, rejected this approach, fearing that a public rift between London and Washington would be exploited by Labour left-wingers and the Kremlin, resulting in new security problems in Greece and Italy while undermining congressional aid support.74 “An open breach with the U.K.,” the U.S. economic affairs counselor in London, Harry Hawkins, cabled Clayton, “will hurt the Marshall plan more than [Britain’s] failure . . . to give substantial elimination of preferences.”75 Thus what was seen by the Clayton camp in Geneva as a “weapon” to extract trade concessions from the British—Marshall aid—was seen back in Washington as precious leverage to be preserved for fac
ing down the Soviets.

  ON AUGUST 24, LOVETT SENT another cable, to Caffery and Clayton, stating that the European program, in its current form, failed to meet the department’s requirement that its economy be made self-sufficient in the shortest possible period of time. This needed to be accomplished, first and foremost, through mutual aid and cooperation. He directed that the “friendly aid” approach be upgraded, in essence, to one of determined parental guidance.76 Clayton left Geneva to join Caffery and Douglas in Paris; Kennan and Lovett special assistant Lieutenant Colonel Charles Bonesteel flew in from Washington.

  Meeting officially with the conference Executive Committee for the very first time, on August 31, Clayton declared the results to date “disappointing,” and warned that if its present program were submitted to Washington it might “prejudice the success of the entire Marshall program.” From the American perspective, he explained, the program’s highest objective was “the speediest possible reactivation of the European economic machine” and “its restoration to a self-supporting basis.” In the interim, the “essential consumption requirements of the people” would be met by the United States.

  This formulation would, in spite of the mind-numbing details that would come to define the Marshall program, be the deal in a nutshell—that the United States would underwrite a basic standard of living in the participating countries to afford them the space to liberalize and integrate their economies. In essence, the State Department was tendering the largest foreign aid program in history as a social shock absorber for the largest structural adjustment program in history.

  Clayton told the committee that the $29.2 billion request it was contemplating was far too large. It had no prospect of finding political backing in Washington. Given that the aim of the Marshall program was a self-supporting western Europe, the fact that the conference anticipated a continued need for assistance at the end of the period that was as great as its present need reflected, Clayton said, “the unsatisfactory nature of the methods by which [the gap] was calculated and the assumptions on which it was based.”