Europe’s Four-Year Plan

October 13, 1947

The report of sixteen European nations in response to the Marshall Plan is a skillful presentation of the case for heavy and immediate financial aid from America. But the more the report is examined the less assurance does it give that these nations are even yet prepared to abandon the economic restrictions that have been chiefly responsible for bringing on the present crisis.

Throughout the report there is constant emphasis on production “targets.” We are told precisely how much bread grains, potatoes, sugar, meat and milk these countries intend to produce in each of the next four years; precisely how many tons of coal and steel, and how many kilowatt hours of electricity; precisely how much they intend to expand oil-refining capacity, inland transport and merchant fleets. We are proudly told that “these production programs, taken as a whole, represent an expansion of output similar in general scale to that achieved by the United States in the mobilization years 1940–44.” There seems to be an implication here that to set a target is almost as good as to reach it. Surely the fate of the British targets adopted so confidently nine months ago ought to have sufficiently underlined the difference between ardent hopes and cold realities.

The whole concept of government “production targets” is in origin totalitarian. It is part of the modern mania for imitating Russian Five-Year plans—an imitation that is the sincerest flattery to Communism. Why should the Russian Communists doubt the superiority of their system when they see nearly all of Europe aping one of its basic features? For only under a collectivist concept is it considered the function of government officials to say just how much shall be produced of each major commodity. It is of minor importance that the guesses of the bureaucrats are almost bound to go wrong. Far more serious is the fact that the mere setting of government production targets is in effect a way of setting aside the free market, setting aside a free economy. It is a way of telling the consumers that the things that are produced, and the relative proportions they are produced in, are not to be determined by their own demands but by what government bureaucrats decide in advance is good for them.

The supreme irony is that the only country in the world today that is really producing anything—and for whose goods the rest of the world is therefore clamoring—is almost the only country that does not have government production “targets,” but merely turns out goods in the volumes and proportions determined by supply and demand, free prices and free profits. But just as the rooster Chanticleer was convinced that the sun could not rise until he crowed, so European bureaucrats are still convinced that there can be no production unless they first of all set production targets.

Implicit in production “targets” is the whole system of price control, rationing, allocations, government licenses, prohibitions, and decrees. There is no indication in the sixteen-nation report that this dictated economic system is to be abandoned, certainly not in the near future. Only once in the report is it admitted that the system of price control “is likely to jeopardize production.” But this delicate hint is not elaborated, nor is any conclusion deduced from it. Under present circumstances, the report assumes, “stability cannot exist unless it is constantly reinforced by controls and rationing.”

In short, European bureaucracy still believes what our OPA believed, that price control cannot be abandoned “until supply catches up with demand.” What this overlooks is that artificially low price ceilings increase demand and reduce production and supply, so perpetuating the shortage they were designed to counter. In the European system almost the whole mechanism of economic self-adjustment has been destroyed. Neither prices nor wages nor exchange rates are free to move to the points where they can tell the truth about ever-changing relations of supply and demand and restore equilibrium between them. The result is a chronic shortage of goods and a trade deficit.