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Exporting Roosevelt’s New Deal through Aid, Investment, and Threat of War

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The Marshall Plan is more than a historical event — it has become a modern myth. As such, it may be mostly true or mostly false, but it exercises a powerful hold over reality. And the perceived success of the Marshall Plan has influenced American policy since the late 1940s.

— Tyler Cowen

The European Recovery Program, known as the Marshall Plan was an American post–World War II program by which approximately $13 billion was used to rebuild the economies of nations in Western Europe. ($13 billion is about $130 billion in 2016 dollars. Some historians, such as Joseph Stromberg, place the figure as high as $17 billion.) The Marshall Plan set a precedent.

Western European nations were offered loans with which they purchased American goods. The U.S. government was now officially encouraging “private” investment abroad. For example, “political risk insurance” was issued by the government to protect American businesses abroad against adverse political situations, such as a civil war, which could cause financial losses. One provision of the Marshall Plan granted long-term guarantees for qualified investors to convert foreign funds into U.S. dollars even during periods of so-called dollar shortages. Qualified investors tended to be state-crony corporations or state-favored individuals.

Since the late 1940s, foreign investment and the resulting corporate profits have been a driving force in establishing U.S. military bases around the globe. The state-protected investments are falsely touted as expressions of the free market and foreign trade rather than cronyism and economic imperialism.

The Marshall Plan and ensuing U.S. policy

In 1942, shortly after America’s entry into World War II, the Committee for Economic Development (CED) was founded by Paul G. Hoffman in association with other businessmen, most of whom held positions in big corporations or government. The CED’s stated goal was to assist the U.S. in shifting from a wartime economy to a peacetime one. The goal quickly changed to promoting the Marshall Plan. In his essay “The Marshall Plan Myth,” free-market analyst Jeffrey A. Tucker explained that CED members included “heads of the top steel, automotive, and electric industries who had benefited from the New Deal’s corporatist statism.” In other words, the CED used the Marshall Plan to export New Deal economics to foreign nations in order to benefit crony corporations. State-favored corporations had profited richly from the war but all that was about to end. They wanted a way to continue their huge profits in a time of peace.

Fortunately for the CED, its interests and those of President Harry Truman aligned. The presidency was in trouble. By 1945, America was weary of war and wanted to loosen the reins of government which had tightened during World War II; Truman’s popularity and power declined. In the 1946 election, the Republicans seized control of both houses of Congress on a platform of rolling back government. In the 1948 presidential election, many were so certain that the Republican candidate, Thomas Dewey, would win that the Chicago Tribune prematurely printed newspapers with the front-page head-line “Dewey Defeats Truman.” He didn’t. But the vote totals were only about 4 percent apart.

Truman needed a popular cause around which the public and his party would rally. He found it in the bombastic campaign against communism both domestically and abroad. The Truman Doctrine of 1947 was a declaration of Cold War on a global scale and it had been well received. The doctrine offered U.S. military and economic support to nations that were threatened by communist troops or insurrections.

Truman found another popular cause in the Marshall Plan. First proposed by Secretary of State George C. Marshall, it was seen and sold as a moral campaign as well as a security matter; while showing compassion, it would diminish the influence of communism in Western Europe.

To the U.S. corporate state, a marriage of the Truman Doctrine and the Marshall Plan must have seemed ideal. It was said to create employment in America; tax dollars in the form of loans bought products from corporations; corporate investment overseas was protected by state privileges and a U.S. military presence.

At least two things were wrong with the package, however. It didn’t work. And it damaged the true interests of America, including the free market and noninterventionism.

The Marshall Plan didn’t work.

In his path-breaking essay, “Myths of the Marshall Plan,” economist Tyler Cowen exploded five myths surrounding the Marshall Plan.

Myth #1: It significantly contributed to Western Europe’s economic recovery.

The main economic problem was the poor policies imposed by Nazis across Europe during the war. Real growth occurred only when those policies were lifted, and it occurred regardless of the timing or extent of American aid the nation received. “In fact, those countries receiving relatively large amounts of aid per capita, such as Greece and Austria, did not recover economically until U.S. assistance was winding down. Meanwhile, Germany, France, and Italy began their recovery before receiving Marshall Plan funds.”

Myth #2: The Plan encouraged free enterprise and sound economic policy.

“[Those] directing postwar U.S. foreign economic policy had strong interventionist sympathies; when faced with any problem, their instinct was to seek a governmental solution…. Furthermore, the very structure of the Marshall Plan encouraged state planning.” In most cases, state regulation increased. The “West German miracle,” for which the Marshall Plan is often credited, occurred only after the economic director, Ludwig Erhard, acted unilaterally and against American wishes to abolish most of the Allied economic controls.

Myth #3: The Plan boosted the American economy.

The assertion is based on the theory of underconsumption, which claims that recessions, depressions, and stagnation result from low consumer demand relative to the amount of goods produced. Creating demand in Europe filled the alleged gap in America. The theory is often associated with Keynesianism. But “the ‘under-consumption’ theory of depression is now held in low repute and is being displaced by theories emphasizing monetary and fiscal disruptions as the cause of business downturns.”

Myth #4: It was not strongly influenced by U.S. special interests.

[The] Chief of Food Procurement for the U.S. Army Civilian Supply Program in Germany explained how American special interest took priority over European needs. He requested lard. America had a bumper peanut crop, however, and peanuts were sent instead. Or consider oil. The use of coal and “the building of independent oil refineries in Western Europe” were discouraged. Instead, oil was imported from the Middle East and American companies were encouraged to expand in that region. The Mideast oil was priced much higher than that shipped to America despite the longer transportation. Nations that bought cheaper oil elsewhere risked losing their aid.

Myth #5: The policy was one of free trade and “open door.”

Only 55 percent of the goods imported were duty-free. “On manufactured items, the tariff ranged as high as 30 to 40 percent, and on knives with folding blades, hit 184%.” Moreover, “U.S. trade policy was dominated by restrictive, bilateral trading agreements, not ‘open door’ multilateralism.”

The Marshall Plan was the opposite of what it purported to be. It was not an act of generosity but one of economic imperialism that hindered the recovery of the nations it claimed to assist. It was state-sponsored profiteering at the expense of the American taxpayer. The Marshall Plan was the antithesis of free trade and a free market.

Taft dissents.

The free-market champion Sen. Robert A. Taft (R-Ohio) clearly saw the disadvantages and dangers of the Marshall Plan. He particularly opposed the Marshall Plan’s requirement that recipient nations abide by restrictions and mandates on how they were to conduct their affairs. That gave America a great degree of political power over the development of those nations and it was the reason the Soviet Union and Eastern-Bloc nations refused to participate in the plan. The attempt to control other nations, Taft predicted, could easily make them more sympathetic to communism and assist its spread. It could also have an unfortunate domestic impact. The Marshall Plan might lead Americans to “slip into an attitude of imperialism and to entertain the idea that we know what is good for other people better than they know themselves. From there it is an easy step to the point where war becomes an instrument of public policy rather than the last resort to maintain our own liberty.”

In the end, however, Taft voted for the Marshall Plan. Why?

A few weeks before the vote took place, Czechoslovakia underwent a communist coup. As the Berlin blockade continued and concern increased over expected Soviet aggression, America would almost certainly heighten its military presence in Western Europe and forge deeper alliances. The fight against communist ideology must have seemed inevitable to Taft. He viewed that fight as a choice between “guns and butter”; he preferred the latter. Taft’s amendment to the bill, which would have significantly cut aid for the first year, was defeated.

Conclusion

The Marshall Plan was a watershed moment in both foreign and domestic policy. In his article Tucker explained, “The actual legacy of the Marshall Plan was a vast expansion of government at home, the beginnings of the Cold War rhetoric that would sustain the welfare-warfare state for 40 years, a permanent global troop presence, and an entire business class on the take from Washington. It also created a belief on the part of the ruling elite in D.C. that it could trick the public into backing anything, including the idea that government and its connected interest groups should run the world at taxpayer expense.”

In the end, of course, America opted for both guns and butter, both the Truman Doctrine and the Marshall Plan.

This article was originally published in the January 2018 edition of Future of Freedom.

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    Wendy McElroy is an author for The Future of Freedom Foundation, a fellow of the Independent Institute, and the author of The Reasonable Woman: A Guide to Intellectual Survival (Prometheus Books, 1998).