The Dilemma of the Marshall Plan

November 3, 1947

The proponents of the Marshall Plan are right in believing that Europe is in the grip of an economic crisis. They are right in believing that our own economic and political future will be deeply affected by the fate of Europe. They are right in urging that we should do anything we can that promises to increase Europe’s welfare without imperiling our own.

But the proponents of the Marshall Plan mistakenly assume that the crisis in which Europe finds itself today is primarily the result of the destruction and dislocations of the war. They have yet to recognize that, on the contrary, this crisis is for the most part self-imposed. It is primarily the result of the economic policies that have been followed since V-E Day by the governments of Europe.

Europe is caught today in a strangling network of governmental controls. These controls include the pegging of foreign-exchange rates far above their real values. This encourages imports and discourages exports, causes a chronic deficit in Europe’s trade balance, and brings about a so-called “dollar shortage” which is a misnomer for Europe’s effort to buy more than it sells and to consume more than it produces. These governmental controls also include price ceilings which discourage, distort, and reduce production; priorities, allocations, and prohibitions which paralyze initiative; nationalization which brings inefficiency and increases budget deficits; and confiscatory taxes and further threats of socialization which remove whatever vestiges of incentive may be left.

Europe, in brief, has destroyed the price mechanism. It does not permit free enterprise to function. Such a condition, as long as it continues, must nullify any further help that we can pour in. As Wilhelm Röpke has pointed out in the English magazine Time and Tide: “Without a drastic internal reform of the national economy, to put an end to inflation and socialist controls, foreign credits can have no lasting effects, just as a man cannot be kept alive indefinitely by perpetual blood transfusions if the cause of his hemorrhage is not removed.” This is precisely what happened to our loan to England. Though we weakened ourselves by “giving blood,” England is in a graver crisis than before the transfusion was made.

Some supporters of the Marshall Plan assume that this problem can be met simply by imposing “tough conditions” with our loans. But the remedy would perhaps prove worse than the disease. Any European governments that felt forced to accept such conditions to get the loans would resent their imposition. They would regard the conditions as an obstacle to recovery, as unworkable, as imposed primarily for the benefit of “American capitalists” rather than for the benefit of Europe. They would consider any conditions whatever as humiliating, an infringement of their sovereignty and independence. The Communists in every country have already seized upon this issue and are eagerly exploiting it. This is plain in the recent Communist manifesto and in the speeches of Zhdanoff and Vyshinsky.

And not the Communists alone. Even the usually staid London Economist, denouncing the conditions of the American loan as “crippling” and “intolerable,” recently wrote: “Not many people in this country believe the Communist thesis that it is the deliberate and conscious aim of American policy to ruin Britain and everything that Britain stands for in the world. But the evidence can certainly be read that way.”

Our foreign-aid policy, then, is on the horns of this dilemma. If we make loans to European governments without imposing conditions, our funds will be dissipated without bringing the recovery we seek. If we impose the conditions necessary for that recovery, we give color to the Communist contention that this is “a plan for enslaving Europe.” Can we afford to hand the Communists so powerful an issue?

This dilemma is not accidental but inherent. It lies in the attempt of one government to bribe another into following economic policies which that other government does not believe in enough to follow without the bribe.