Marshall Plan Commemorative Section: In the Halls of the Capitol: A Memoir

Charles P. Kindleberger

From Foreign Affairs, May/ June 1997

Summary:  A look back at perhaps the most important foreign policy success of the postwar period. Edited by Peter Grose, with contributions by historians Diane B. Kunz and David Reynolds, a memoir by Charles P. Kindleberger, a profile of Marshall and Acheson by James Chace and one of Will Clayton by Gregory Fossedal and Bill Mikhail. And reflections from Roy Jenkins, Walt Rostow, and Helmut Schmidt.

Charles P. Kindleberger joined the Department of Economics at MIT upon leaving government service in 1948 and is Professor Emeritus there. He is a former President of the American Economic Association.

Once the Europeans had begun to respond to the Marshall initiative, Congress and the executive branch sprang into action. On June 19, 1947, just two weeks after George Marshall spoke at Harvard, the State Department's Policy Planning Staff under George Kennan proposed the establishment of several economic and political committees to flesh out the speech's vague proposal. President Truman and the congressional leadership agreed on this course of action on June 22. Three days later, they found me on the lower floors of the State Department laboring over what remained of the German economy and named me executive secretary of the department's working committee on the Marshall Plan. Our first charge was to estimate the assistance needs of the 16 participating European countries -- after the Soviet Union and its satellites had dropped out -- for the next four and one-quarter years, from April 1948 to June 1952.

Under Secretary for Economic Affairs Will Clayton was dispatched to Europe to explain America's intentions. Throughout his meetings with statesmen in London and Paris, he emphasized that any program designed in Europe and approved by the president still had to meet with congressional approval, and this last step of the process would require political subtlety and patience. Clayton advised his European colleagues first to prepare a detailed plan; American officials would then render "friendly assistance," which would not imply endorsement, in revising the proposal for submission to Congress. The Foreign Relations and Foreign Affairs Committees in the two houses would then consider the aid bill and recommend its passage to Congress, followed by approval of a congressional authorization bill for the program. And, finally, the Finance and Appropriations Committees would appropriate the funds.

By early September, the European working group, the Committee of European Economic Cooperation (CEEC), had drawn up a program that called for almost $30 billion of American assistance over four years -- $19.9 billion for the European debt to the United States and $8.3 billion for net imports from the rest of the American continent. Clayton had to make clear in a friendly fashion that this figure was simply too high; he himself had suggested $6 billion or $7 billion a year for three years. James Reston of The New York Times claims that when he reported the Clayton figures, Senator Arthur Vandenberg (R-Mich.) called him to say that he must have been misinformed, since Congress would never appropriate that amount of money to save anybody.

IRONING OUT THE DETAILS

The first item eliminated was money to buy goods outside the United States -- so-called "offshore purchases." Next to go was the extension of American aid to Europe's colonies. Over the summer of 1947 American policymakers discussed numerous issues associated with the program. Should it consist of commodities and services, cash, or both? What conditions, if any, should be placed on the use of "counterpart funds," which the assisted governments acquired by selling commodity aid in national markets for local currencies? How hard should the United States push on balanced budgets, tight monetary policies, and cooperation and integration among the participating countries? One requirement that Congress deemed of paramount importance was that the European countries be self-supporting at the end of the four-year program.

As early as July 1945 the U.S. government had become concerned about the state of Europe's coal production and the distribution of its energy resources. The harsh winter of 1946-47 intensified the pressure on Europe's strained economies and generated American support for a commodity approach. In London on June 25, Clayton spoke of sending Europe fuel, food, and fiber -- the three "f's," as the economists called them -- and a fourth, fertilizer. Thinking in terms of a preliminary American grant to Britain to enable it and the United States to rebuild continental Europe, Foreign Secretary Ernest Bevin suggested that the British Commonwealth could contribute rubber and wool. Other early European lists mentioned timber, dairy products, dried fruit, steel, transport machinery, even consumer goods. Our interdepartmental working committees produced a program, collected in what became known as the "Brown Books," that listed 26 commodities and commodity groups, provided by the United States and exchanged among participating countries.

The commodity approach had considerable technical deficiencies. First, provision of commodities was supposed to correct balance-of-payments deficits, independently determined. But those deficits, without the aid, would have been too big for any independent management. Second, American policymakers committed the fallacy of misplaced concreteness when they insisted that surveillance of the commodities they provided was necessary to insure their efficient use. Not just U.S.-provided steel should be used efficiently, for example, but all steel -- U.S.-provided, home-produced, and steel imported from other countries. Third, any attempt to forecast the balance of payments far in advance is almost certain to be wide of the mark. When the miserable harvest of 1947 was followed by an excellent harvest in 1948, the agricultural imports projected for 1948 turned out to be excessive.

However deficient in terms of economic analysis, the Brown Books required a tremendous effort on the part of many economists and secretaries who worked weekends, late into the night, and often all night. And the Brown Books impressed Congress. In November, Vandenberg wrote, "The preparations the State Department has made for this next showdown are amazing. Indeed they overwhelmed us with documentation. It is a magnificent piece of work. But it is three inches thick."

Over the summer of 1947, it became clear that the CEEC would not finish its task in time for Congress to act on the proposal before the end of the year. Meanwhile, the United States continued to support the revival of Europe through the U.N. Relief and Rehabilitation Agency. The United States provided more than 80 percent of UNRRA aid but had only one vote in 17; the Soviet Union, the United Kingdom, and Canada held out for their own agendas. In a critical memorandum on Marshall aid, Clayton wrote, in italics, "We must avoid getting into another UNRRA. The United States must run this show."

Awaiting a workable Europe-wide plan, the U.S. government sought supplementary aid for Austria, Italy, Hungary, Greece, and Poland, though help for the last country did not survive a determination by Department of Agriculture officials that the Poles were not really hungry. These funds -- $350 million -- had been authorized in September 1946. In December the British declared that they could no longer feed their heavily populated zone of occupation in Germany and wanted a bi-zonal agreement in which relief costs would be split evenly between Britain and the United States, requiring an increase in American appropriations. Things got no better in 1947.