The Free Market 15, no. 9 (September 1997)
The 50th anniversary of the Marshall Plan provided another occasion for the media to celebrate the government’s good works. The U.S.’s headlong plunge into global welfarism (nearly $100 billion in current dollars), they said, saved European economies after the Second World War. One reporter, Garrick Utley of NBC, even theorized that Marshall aid explains why East Germany was poor and West Germany rich.
As economist Tyler Cowen has noted, the countries that received the most Marshall Plan money (allies Britain, Sweden, and Greece) grew the slowest between 1947 and 1955, while those that received the least money (axis powers Germany, Austria, and Italy) grew the most. In terms of post-war prosperity, then, it eventually paid to be a political enemy of the U.S. instead of a “beneficiary” of international charity.
But this truth is only news if you think that the Marshall Plan was genuinely intended to help foreign countries. But as with all government programs, it pays returns to look beneath the surface. So what exactly was the point of the Marshall Plan, named for General George Marshall? It’s been well-described in the works of historians William Appleman Williams, Gabriel Kolko, Stephen Ambrose, and Alan Milward.
Marshall himself played the role of a patsy, delivering prepackaged speeches written by the players behind the plan. His original pitch, given at Harvard, was for money to end “hunger, poverty, desperation, and chaos.” But the real upshot of the Marshall Plan was a political maneuver to loot American taxpayers to keep influential American corporations on the government dole. The Plan’s legacy was the egregious and perpetual use of foreign aid for domestic political and economic purposes.
After the war ended, Harry Truman’s popularity in the polls began to plummet, as did the prestige of government generally. The American people had made huge sacrifices to fight the war and now wanted curbs in government, which had been administering a centrally planned economy. Most of all, they wanted the foreign policy recommended by George Washington and Thomas Jefferson: trade with all, entanglements with none.
In the mainstream of thinking was Republican Senator Robert Taft, a hero of all free-market activists at the time. He demanded tax cuts, spending cuts, and an end to “constantly increasing interference with family life and with business by autocratic government bureaus and autocratic labor leaders.” The Republican party swept midterm elections in 1946, taking back the Congress on a hard-core, anti-big government platform.
Truman had to do something big and he knew it. As Charles Mee reports, he needed “some large program that would let him recapture the initiative, something big enough to enable him to gather in all the traditional factions of the Democratic Party and also some middle-of-the-road Republicans, and at the same time, something that would hamper the Republican phalanx,” and establish him as a world leader.
The issue was right before him: foreign aid, funneled through the corporate establishment and cloaked in the rhetoric of opposition to foreign (but not domestic) communism. Cynically, he would make good use of Russia, which only the day before had been our gallant ally in the war, and transform it into a monster that had to be destroyed. By stealing the Republican’s anti-socialist rhetoric, Truman hoped to frazzle his opponents and make himself a hero on the world stage.
Truman had plenty of co-conspirators, men who have gone down in history as the architects of the original New World Order. Fabled establishmentarians Averell Harriman and Charles Kindleberger were central figures. But it was Dean Acheson, undersecretary of state and the most menacing statist of the immediate post-war era, who concocted the plan to make the wartime empire permanent. Acheson persuaded Navy secretary James Forrestal and domestic fixer Clark Clifford to show Truman how he could elevate a political scam like foreign aid into a mighty ideological struggle on the global stage.
A little-known business group, founded in 1942 and called the Committee for Economic Development, was elevated into a think tank for a new international order—the economic counterpart to the Council on Foreign Relations. The Committee’s founders were the heads of the top steel, automotive, and electric industries who had benefited from the New Deal’s corporatist statism. Its membership overlapped with the farther left National Planning Association, which was unabashedly national socialist in ideological orientation.
These groups understood that they owed their profit margins to government subsidies provided by the New Deal and wartime production subsidies. Faced with post-war peace, they feared a future in which they would be forced to compete on a free-market basis. Their personal and institutional security was at stake, so they got busy dreaming up strategies to sustain a profitable statism in a peacetime economy.
Corporate economic interests, then, overlapped with Truman’s political interests, and an unholy alliance between business and government was born. They would use Europe’s miseries to line their own pockets in the name of “rebuilding” and providing “security” against trumped-up threats to American security.
The test case came in 1947 with aid to Greece, where a communist party was making electoral advances. Truman saw the main chance, and demanded $400 million in foreign aid, which Congress approved as a swipe against Russia. Just as the money was being channeled to special-interest groups, however, members of Congress learned that the “Russian connection” to the Greek communist party had been phonied up. As it turned out, Greece, like every European country, just wanted the cash.
Even so, the political success of the Truman doctrine of global giveaways had been demonstrated, and the script for billions in future giveaways had been written. Over the next five years, “Marshall money” would corrupt nearly every Christian democratic party in Europe, turning them into carbon copies of the U.S. Democratic party. Those political parties in turn worked to create monstrous welfare states and regulatory controls that continue to hinder European economic growth today.
On the heels of the success in Greece, Dean Acheson formed an ad hoc committee to find “situations elsewhere in the world” that “may require analogous, technical, and military aid on our part.” With no effort, the ad hoc committee was able to classify most of Europe as in need of economic aid. The committee found shortages of just about everything, and, in particular, dollars to buy goods from corporate America. A mythical “dollar shortage” (as if trade is only possible with a world awash in paper) was the crisis of the moment.
But beneath the surface, the true objective was the internationalization of the New Deal, a bureaucrat’s dream. As Julius Krug, secretary of the interior, said in his memoirs, the Marshall Plan, “essential to our own continued productivity and prosperity,” was a Tennessee Valley Authority on a world scale. “It is as if we were building a TVA every Tuesday.”
Yet even after the Greece vote, polls showed tremendous public opposition to any foreign giveaways. In one meeting, the Republican House Majority Leader Charles Halleck told Truman flat out: “You must realize there is a growing resistance to these programs. I have been out on the hustings, and I know. The people don’t like it.”
The Truman gang had already thought of that. Months before the vote, he brought together the heads of major corporations to enlist them in the cause. Members of this organizing committee, drawn from the Committee for Economic Development, included, most prominently, Hiland Vatcheller, president of the Allegheny-Ludlum Steel Corporation; W. Randolph Burgess, vice-chairman of National City Bank of New York; Paul G. Hoffmann, president of Studebaker Corp. (and later administrator of Marshall funds), as well as the secretary treasurers of the AFL and the CIO.
Leading the corporate charge for secure profits was Will Clayton, the Texas cotton impresario whose business was about to experience a remarkable tax-subsidized boom. The last world war had already made his company the second largest cotton-trading company in the world. Unlike his competitors during the New Deal, while working with FDR to wreck the American economy, he was smart enough to move his operations to Brazil, Mexico, Paraguay, and Egypt. By the Second World War, he was selling 15 percent of the world cotton crop.
As the war ended, he reenlisted in the campaign for the home front. As undersecretary of state for economic affairs in 1947, Clayton too saw the main chance. “Let us admit right off,” he said in defense of the idea of foreign aid: “We need markets—big markets—in which to buy and sell.” Here is the core truth of all such aid. The intent is not to help foreign countries; it is to reward home-based multinationals who actually get the cash as the government purchases political influence abroad.
Nothing was left to chance. Acheson worked with the established corporate elites and the State Department to create a supposed grass-roots organization called “Citizens’ Committee for the Marshall Plan.” As many as one thousand speakers representing the group toured the country to whip up support. It also ghost-wrote Congressional testimony from other organizations on behalf of the aid package. As Averell Harriman told several European ambassadors during a visit to the British embassy, they haven’t seen anything compared with the “flood of organized propaganda which the Administration is about to unloose.”
It was left to Will Clayton to make the economic case. Perversely, he touted the Marshall Plan as the triumph of “free enterprise.” Moreover, he said, if communism comes to Europe, “I think the situation which we would face in this country would be a very grave one.” We would “have to reorder and readjust our whole economy in this country if we lost the European market.”
In the days before the vote, the claims became more extreme and, with the media-corporate-banking- government elite on board, the propaganda became ever more hysterical. We were told that a depression would come. The U.S. would be bombed. We’d be in another war if the aid package failed. The situation is as bleak as it was for France in 1938. American life as we know it would end forthwith.
When the plan passed, as it easily did (with even Taft’s vote), the ink was hardly dry on the legislation when the ships full of goods hit the high seas. At any given moment over the next few months, 150 boats were carrying wheat, flour, cotton, tires, borax, drilling equipment, tractors, tobacco, aircraft parts, and anything else big domestic manufacturers could get their hands on.
As with most goods shipped under the Marshall Plan, American producers had the advantage: 50 percent had to be sent on American vessels. Oil exports to Europe exploded even as imports from Europe were cut by one-third. In aid distribution, there was bias in favor of finished goods, to prevent European businesses from competing with American producers on down the production line.
Taking a leaf from the Roosevelt playbook, Truman bypassed the usual bureaucracy and established a new bureau—the Economic Cooperative Administration—to distribute the aid. It too was staffed by the heads of major industrial-corporate interests who stood to benefit at public expense. Paul Hoffman headed the group and passed out billions to well-heeled corporate powers. As historian Anthony Carew summarizes, the Marshall Plan “was in all major respects a business organization run by businessmen.” (Hoffman later became head of the far-left Ford Foundation.)
Most of all, the aid was used for purchases at distorted prices by American tax dollars in the hands of European governments. The mad scramble for tax dollars was a disgrace to behold, creating a low point in U.S. business history. Time and again, Congress intervened to grant corporate America what it really wanted: restrictions that forced Marshall aid to go to purchases of American oil, aluminum, wood, textiles, and machines.
The aid was also used to directly subsidize particular firms in recipient countries, whether or not there were viable markets for their products. Instead, the firms received money because their continued existence would artificially support “full employment” policies. And since American labor union groups were intimately involved in choosing who got the money, the lion’s share went to companies with closed union shops, paradoxically restricting the ability of labor markets to readjust to new economic realities.
From an economic perspective, the Marshall Plan was modeled on a static view of investment. Countries were asked what their present needs were and the U.S. responded. Not a thought was given to the possibility that economic growth alone would provide. It eventually did, but only after the Marshall Plan welfare was cut off and domestic manufacturers were able to find markets for their products.
The result was the largest peacetime transfer of wealth from the taxpayers to corporations until that point in U.S. history. And it wasn’t only dollars that were exported. Through a massive and tax-funded “technical expertise program,” European businesses came to the U.S. to take lessons in management practices, visiting mostly unionized automobile companies, electric utility plants, and huge farm operations—the most socialistic of U.S. sectors.
All told, the Marshall Plan dumped $13 billion, or nearly $100 billion in today’s dollars. It was enough to firmly entrench American companies in European markets, especially in Britain, France, and Germany. American-controlled companies dominated industries such as shoes, milk, cereals, machines, cars, canned goods, petroleum refinement, locks and keys, printing, tires, soaps, clocks, farm machinery, and much more.
These were mere bubbles of prosperity, forced investment created through insider deals of the worst sort. Indeed, Hoffman worked under the constant fear that the racketeering would come to the surface. He feared some enterprising journalist might expose the entire thing, hearings would follow, and the plan would be discredited. That never happened.
A year after the Marshall Plan began sucking private capital out of the economy, the U.S. fell into recession, precisely the opposite of what its proponents predicted. Meanwhile, the aid did not help Europe. What reconstructed Europe was the post-Marshall freeing up of controlled prices, keeping inflation in check, and curbing union power—that is, the free market. As even Hoffman admitted in his memoir, the aid did not in fact help the economies of Europe. The primary benefit was “psychological.” Expensive therapy, indeed.
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.
Jeffrey Tucker edits the The Free Market.
