The Failure of the Marshall Plan

S&S Quarterly, Inc.

Guilford Press

The Failure of the Marshall PlanAuthor(s): J. J. JosephSource: Science & Society, Vol. 14, No. 1 (Winter, 1949/1950), pp. 29-57Published by: Guilford PressStable URL: http://www.jstor.org/stable/40399984 .Accessed: 23/02/2011 01:43

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THE FAILURE OF THE MARSHALL PLAN

J. J. JOSEPH

HIS letter transmitting the White Paper on China to the President, the Secretary of State wrote:

The unfortunate but inescapable fact is that the ominous result of the Civil War in China was beyond the control of the government of the United States. Nothing that this country did or could have done within the reasonable limits of its capabilities could have changed the result; nothing that was left undone by this country has contributed to it. It was the product of internal Chinese forces, forces which this country tried to influence but could not.1

The attempt to "influence" consisted in the expenditure in four years of several billions of dollars in armaments and economic aid, military training by United States officers, intervention in the civil war, and technical assistance- in short, a major ecpnomic, political and strategic effort. During 1947 and 1948, the Truman doctrine as applied to China had been repeatedly hailed as a successful appli- cation of American foreign policy. In 1949, this core of our Far Eastern policy, involving the largest nation in the world, became a demonstrated failure, and it is now recognized officially as a mistake.

It is now appropriate and timely, therefore, to go behind the official statements of our European policy, which again, and still, describe it as a successful operation. That policy involves the expenditure of even more billions of dollars and consists too of armaments aid, Military Assistance Program (M.A.P.), joint military staff work (under the North Atlantic Pact), economic aid and technical assistance, Economic Cooperation Administration (E.C.A.). The present article examines particularly the consequences of our European i "United States Relations with China" with special reference to the period 1944-49,

Department of State Publication 3573 (August, 1949), p. xvi.

29

30 SCIENCE ANO SOCIETY

economic program.2 It attempts to answer the following questions: Is the European Recovery Program (E.R.P.) actually "promoting

industrial and agricultural production in the participating countries," as the Act stipulates? Is E.R.P. "facilitating the growth of international trade, including reduction of trade barriers which may hamper trade," as the Act stipulates? Is E.R.P. assisting "the achievement by the countries of Europe of a healthy economy independent of extraordinary outside assistance," as the Act stipulates? Is E.R.P. "furthering the restoration or maintenance of the soundness of European currencies, budgets and finances?" Finally, can it be said that the E.C.A. program does not "seriously impair the economic stability of the United States," as provided in the Act?

Answers to these questions necessarily involve statistics of actual developments in the various participating countries. To arrive at a qualitative judgment of progress in the E.C.A., however, the figures may no longer be restricted to economic indices of the sixteen nations comprising the Organization for European Economic Coopera- tion (O.E.E.C.). For the Marshall Plan experiment now has, un- wittingly, a "control group," namely the European countries outside the plan.

Five years after the second World War, at the middle of the twentieth century, roughly two-thirds of the world's population lives under capitalist states or their colonies, and one-third lives in economies which are socialist or bound for socialism. In the years immediately ahead, therefore, it can fairly be anticipated that techniques and indices of comparison will develop into an important methodological speciality of its own.3 For the time being, due to

2 Two earlier articles in this journal have dealt with European recovery and the Marshall Plan. "European Recovery and United States Aid," xii, no. 3 (Summer, 1948), pp. 293-383, presented a general report on economic recovery in Europe through the third quarter of 1947, together with an analysis of the types of post-war external assistance to the various countries of Europe and a detailed study of the Economic Cooperation Act. "Trends in the Marshall Plan," xm, no. 1 (Winter, 1949), pp. 1-21, briefly described developments during the first six months of operation of the E.C.A.

3 It will be some years, of course, before nadonal statistics are available for China and other countries. International conferences among technicians have already taken

place under the auspices of various United Nations bodies, with the purpose of

agreeing for example on similar definitions, time periods and statistical methods to arrive at population, national income, employment and unemployment figures.

FAILURE ÒF THÈ MARSHALL PLAN 31

limited and often incommensurable or faulty statistics, the data are incomplete though already significant. The data which follow, therefore, not only describe developments in the E.C.A. countries, but also throw light on how the capitalist and socialist worlds are faring. The statistics used are derived mainly from United Nations and United States government publications, and bring the story through 1948 and in some cases through the first half or the third quarter of 1949.

Production Trends

To place the national production figures in a global setting, it may first be pointed out that between 1937 and 1947 the population of the world increased about eight percent.4 While world food production (excluding the Soviet Union) declined during this period by three percent, mining and manufacturing increased by 21 percent. By the fourth quarter of 1948, world-wide manufacturing and mining was 41 percent higher than in 1937.5 This mark was the peak of post-war recovery. By the second quarter of 1949, the world manufacturing and mining index declined to 38 percent over the 1937 level. According to the United Nations,

Economic conditions improved considerably in many parts of the world from 1947 to 1948 but economic activity has been showing a tendency to level off and, in a few countries, to decline since the middle of 1948 and the early months of 1949. . . . The second half of 1948 and the beginning of 1949 appear to represent a turning point in post-war economic developments. For the first time since the end of the war, there was a reversal of the upward trend of prices, a check to the expansion of production and some increase in unemployment in a number of countries. . . . For the first time since the end of the war, there was, according to preliminary estimates a slight decline in the index of world industrial production during the first quarter of 1949. . . . The decline was attribut- able primarily to the drop in United States production, which occurred

4 United Nations Department of Economic Affairs, "World Economic Report 1948," June, 1949, p. 220.

5 United Nations, "Recent Developments in the World Economic Situation," Document A/C.2/168, October 3, 1949 (mimeographed), Tables 1 and 3. The pre-war base for the agricultural index is 1934-38.

32 SCIENCE AND SOCIETY

as a result in the fall of effective demand caused by the weakening of some of the special post-war factors previously sustaining high levels of activity and employment.6

For Europe as a whole industrial production had already reached the pre-war level by the end of 1947, i.e., before the Marshall Plan had begun operations. The 1948 national indices of post-war recovery, as reported in the United Nations World Economic Report, showed that the three European countries which led in the rate of mining and manufacturing production were Bulgaria, the Soviet Union and Poland. With 1937 as a base of 100, the 1948 index for

Bulgaria was 179, for the U.S.S.R. 171 and for Poland 141. Except for the non-belligerents Sweden and Ireland, Finland was next with 137, followed by Denmark, 129 and Norway, 125. The United King- dom and the Netherlands were each producing at 110 percent of the 1937 rate, and France just equalled it. The index for Czechoslovakia showed 98 percent, Belgium 93, Italy 89, Austria 78, Greece 70 and Western Germany 5 1.7

In this world array, the United States stood third (after Bulgaria and the Soviet Union) with an industrial production rate of 170

percent of 1937. By and large as of 1948, the E.C.A. nations had not done as well

in industrial recovery as the non-participating nations, despite the fact that the latter had suffered incomparably greater war losses in

population8 and material damage. When a comparison is made over the time period covered by the

E.R.P. operations, the difference is accentuated. The E.C.A. reported that between the first quarter of 1948 and the second quarter of 1949, the principal participating nations expanded their industrial output by 18 percent. The increase during the same 18 months in Bulgaria

6 "World Economic Report 1948," op. cit., p. 3. 7 Ibid., Table «. 8 In 1938, Belgium, Denmark, Finland, France, Greece, Luxemburg, Netherlands,

Norway and the United Kingdom had a combined population of 124,507,000. Their war deaths (military and civilian) totalled 1,547,000, or 1.2 percent of the 1938 population. Bulgaria, Czechoslovakia, Hungary, Poland, Rumania, and Yugoslavia had a combined population in 1938 of 100,920,000. Their war deaths totalled 7,265,000, or 7.2 percent of the 1938 population. Calculated from United Nations Economic Commission for Europe, Economic Bulletin for Europe, First Quarter, 1949» i» i (July» *949)» Table *» p- ** f-

FAILURE OF THE MARSHALL PLAN 33

was 77 percent, U.S.S.R. 25 percent, Poland 21 percent and Czecho- slovakia 18 percent.9

It is important to examine the national breakdown in the overall E.C.A. figure of 18 percent. Whereas the United Kingdom increase was only nine percent, and Belgium seven percent and Denmark six percent, the Bizone of Germany increased its industrial production by no less than 78 percent.10 During the same period, industrial production in the United States declined 10 percent.11

Agricultural production in Europe showed substantial improvement in 1948-49 over 1947-48. The overall increase was 12 percent (excluding the U.S.S.R.). Among the belligerent nations, however, only Denmark and the United Kingdom had equalled or surpassed pre-war output. Although the Eastern European countries had attained only about three-quarters to four-fifths of the pre-war level, their rate of improvement was generally greater than among the E.C.A. nations. For example, compared to the overall increase in Europe of 12 percent last year, Poland's agricultural production rose 19 percent, Hungary's 27 percent and Czechoslovakia's 29 percent.12

In the Soviet Union, the Economic Commission for Europe reported:

Agricultural production improved greatly in 1947 by comparison with 1946, which was a year of severe drought, and yields of grain per hectare returned to their pre-war level. In 1948, the area under grain was further expanded and appears to have been only slightly below pre-war. There was, moreover, a further improvement in yield per hectare, which was reported to be higher than pre-war in spite of adverse weather conditions in most of the Volga region. . . . With the further improvement in the supply of tractors and draught animals, there was a further increase in the acreage sown with winter wheat for 1949.13

9 "Recent Developments in the World Economic Situation/' op. cit., Table 2; United Nations Monthly Bulletin of Statistics (October, 1949), hi, 10, Table 8; and Free Bulgaria, rv, 16 (August 15, 1949), p. 1.

10 Fifth Report to Congress of the Economic Cooperation Administration, November 15» *949» P- 18.

11 Department of Commerce, Survey of Current Business, passim. 12 The 1947/48 level was 76 percent of the pre-war years 1934-38. By 1948/49 the

index rose to 85. United Nations Economic Commission for Europe, "Economic Survey of Europe in 1948" (1949)» Table 14.

1$ Ibid., p. 18.


The 1949 Soviet harvest was highly successful.

Let us examine how E.C.A. shipments have affected the recovery in Western European industry and agriculture.

If the E.C.A. were seriously to carry out the provision of the Act which looks toward the achievement of "healthy economies independent of extraordinary outside assistance," it would encourage rather than discourage capital investment, and Western Europe would be receiving a preponderance of industrial and agricultural machinery from the dollar area and its raw materials from the soft currency countries. For its agriculture, Western Europe would be receiving tractors, farm implements and fertilizers. Instead, the E.C.A. is the channeling point for the disposal of many United States goods in surplus. In the words of a Congressional Committee, "E.C.A. had been approached by producers or distributors of 109 different commodities with the request that special action be taken by E.C.A. to arrange for the inclusion of a substantial amount of these commodities in the program. . . . The Committee noted with approval the efforts already made by the Administrator to have included in the program such items as frozen eggs, dried and citrus fruits and tobacco."14

It is interesting to compare this admission with some of the figures. Up to June 30, 1949, the authorization for procurement of eggs and fruits alone totalled $38 million, that is, slightly more than the authorizations for fertilizers, which Western Europe really needs. Authorizations for tobacco procurement to June 30, 1949 totalled $141.6 million. This figure should be compared with the total for agricultural machinery- $50.9 million- and for agricultural tractors -$43.1 million.15 In fact, out of the total of $5,426,500,000 in pro-

14 "Extension of the European Recovery Program," Report of the Committee on

Foreign Relations on S. 1209, 81st Congress, ist Session, Report No. 100, March 8, 1949, p. 16 f.

15 The original request for the first year only (not year and a quarter) from Western

Europe for agricultural tractors and machinery was $360,000,000. See C.E.E.C., General Report, 1 (1947), p. 45. In an article on "Italian Agriculture and ERP," the conservative magazine of the Bank of Rome stated: "Here we have indeed the

painful side of the matter. Nobody ignores how urgently Italian agriculture needs

large quantities of fertilizers . . . tractors . . . and farming machines. . . . For this first year at least, very few farming machines, tractors and fertilizers will be included in ECA's importation plan for Italy. It is not easy to accept this decision without


curement authorizations (exclusive of ocean freight) during the first year and a quarter of the E.C.A. program, only about 10 percent ($553,400,000) was allocated for machinery of all kinds: industrial, mining, construction, electrical and agricultural.16 An additional $212.1 million was allocated for vehicles, aircraft and other transportation equipment. As of September 30, however, less than six percent of goods actually shipped were machinery and vehicles. During recent months there have been large-scale postponements of scheduled machinery deliveries.

Aside from these handicaps to an indigenous increase in West- ern European production, it must be borne in mind that as a condition of receiving aid, E.C.A. must give prior approval to major internal economic policies of the participating nations. Under the Act these include any "projects for increased production of coal, steel, transportation, facilities, and food," if these projects are under- taken "in substantial part with assistance furnished" by E.C.A.17 In

operation, these controls have discouraged if not thwarted further nationalization in Great Britain, land reform in Italy, capital investment in housing generally and any basic changes in economic institutions which interfere with private property rights. One need only compare the Italian program for agriculture with the thorough-going agrarian reforms in Eastern Europe to judge which approach contributes to economic expansion, not to mention stability.18

It is not justifiable to attribute any improvement in Western

European production levels since 1948 to E.C.A. The fact that non-

participating nations have shown a better rate of increase despite

criticism since the expediency of a thorough technical reorganization would appear to be sacrificed to temporary consideration of a social nature. . . . The problem has

on the whole to be solved in a manner that is against the immediate interests of farmers but in keeping with important economic and social considerations." Banco di Roma, Review of the Economic Conditions in Italy, n, 5 (September, 1948), p. 316-

16 Fifth Report to Congress of the Economic Cooperation Administration, op. ctt., Table B-3, p. 110 f; and Sixteenth Report for the Public Advisory Board of the

E.C.A., October 19, 1949, p. 44. 17 "European Recovery and United States Aid," op. cit., p. 362-70. 18 See an account of Italian land policy, the broken campaign pledges of Premier de

Gasperi and the resulting peasant seizures of fallow land of absentee owners in the New York Times, November 20, 1949. Agrarian reforms in Eastern Europe are described in "European Recovery and United States Aid," op. cit., pp. 301-07.


greater handicaps, would alone challenge this contention. The composition of E.C.A. exports, however, together with the controls over capital investment in the participating countries, point to the further conclusion that E.C.A. is actually impeding indigenous production in Western Europe. Only in Western Germany has E.C.A., together with United States military government, made substantial progress in advancing production-and here the purpose cannot be described as solely recovery. The priorities given to Western Germany stem

jointly from strategic motivations and the interests of United States

capital in the Ruhr.

Living Conditions of the People

Improvement in Western European output did not produce a similar effect on living conditions. This is demonstrated in part by the movements in the cost of living index during the first year of the E.C.A. program.

Assuming 1947 as a base of 100, the cost of living index in France climbed between the first quarter of 1948 and the first quarter of 1949 from 149 to 180; in Austria, from 146 to 174; in Greece

(Athens), from 137 to 163; in the United Kingdom from 103 to 107

(following the September 1949 devaluation it rose to 112); in the German Bizone from 101 to 114; in the Netherlands from 102 to 109. In Denmark, Iceland, Italy, Luxemburg and Portugal, the index rose three percent; in Belgium and Sweden two percent; in Switzer- land, Ireland and Norway it was unchanged. In no O.E.E.C. country did the cost of living index fall during this period.

On the other hand, in Poland (Warsaw) the cost of living index

dropped one percent and in Czechoslovakia it was unchanged between the first quarters of 1948 and 1949.19 By the third quarter of

1949, the cost of living in both countries fell sharply with price reductions. In Hungary (Budapest), the cost of living during this

period fell 13 percent.20 In its latest study of inflationary and deflationary tendencies,21

19 "Recent Developments in the World Economic Situation," op. cit., Table 17. 20 United Nations Monthly Bulletin of Statistics October, 1949, laoie 50. si United Nations Department of Economic Affairs, "Intlationary ana juenauonary

Tendencies 1946-1948," June, 1949 (52 pp.)-


the United Nations Department of Economic Affairs drew some sharp contrasts among various national policies as they affect the living conditions of the people. In France, for example, hourly real wage rates in 1947 were about 35 to 40 percent below pre-war. Be- tween the first half of 1947 and the second half of 1948 the cost of living in Paris went up 104 percent while French wage rates rose only 85 percent. In the first half of 1949 there was a slight tapering off in prices, but with the devaluation in September, the situation again grew worse. As the United Nations report put it, "the low level of real labour income was at the root of the post-war inflationary spiral of prices and wages."22

In Italy the inflationary situation was fairly similar. The cost of living index in the first half of 1947 was about 50 percent above the level of the first half of 1946. It continued to rise, though less slowly through the first quarter of 1949.23 Neither France nor Italy had an effective price control or rationing system.

War devastation in Poland was extremely severe, and as a conse-

quence real consumption per capita in 1946 was about one-third below 1938. By means of unique but effective price control and other measures, however, Poland was able to improve its living standards.24 Between June, 1946 and June, 1948 the cost of living increased 34

percent; meanwhile, however, average monthly earnings increased 73 percent- the opposite of the French pattern. Thus real labor income increased with the improvement in supplies. The Economic Commission for Europe estimated that the rise in real income between 1947 and 1948 was 25 percent.25 By the beginning of 1949 Poland was able to eliminate rationing.

In Czechoslovakia, despite a very unfavorable harvest in 1947, inflation was kept largely in check. By 1947 consumption per capita

22 Ibid., p. 17 f. 28 Ibid., p. 19. 24 "In the second half of 1947 the supply position improved in spite of an adverse

harvest. The improvement was due to increased Koine production of meats and

dairy products, larger food imports financed by increased exports (especially of

coal), a grain loan obtained from the USSR, and an increased production of industrial consumption goods. In 1948 the supply position in both food and industrial

consumption goods continued to improve." Ibid., p. 23. 25 "Economic Survey of Europe in 1948," op. cit., p. 31. The comparable figure for

Hungary is 20 percent.


was above pre-war. In 1948 a system of dual prices was established, and with the improved harvest of that year food rations were sub- stantially increased.26 In early 1949 the prices for unrationed supplies were reduced, while in October bread went off the ration entirely and prices of basic commodities were reduced 10 to 30 percent. Real wages of the working population went up, compared to 1948.

In the post-war period the Soviet Union has led the world in the rate of improvement of living standards. This progress must be viewed in the light of Soviet war damage and war casualties. Simul- taneously with the monetary reform in December 1947, rationing was abolished, wages maintained and the average price level sub- stantially reduced. The United Nations reported that:

... as a result of this cut in prices and of the preceding fall in prices in the course of 1947 the average price level of consumption goods in the first quarter of 1948 was 30 percent below that of the corresponding period of 1947. . . . There were further reductions in official prices in the course of 1948. These were followed by a major cut in prices at the beginning of March 1949, which was not much smaller than that of the first reduction under the monetary reform.27

Pointing out that tfye abolition of rationing together with the reforms had increased the real income of the rural population and of the urban population even more, the Economic Commission for

Europe observed that the combination of measures "had a considerable effect on incentives and labor productivity, and was undoubtedly an important factor in the remarkable increase in production achieved in 1948."28

Two conclusions emerge from these findings. There is a pro- nounced improvement in workers' living conditions in Eastern Eu-

rope. Secondly, living conditions in the E.R.P. countries showed few

signs of progress and in some cases deteriorated. There is small wonder that the living conditions of the people

in Western Europe did not improve, since official statements of both the O.E.E.C. and E.C.A. frankly state that they did not aim for a rise in consumption standards. The O.E.E.C. admitted that the con-

sumption of bread grains in 1948-49 would remain 10 percent below

26 "Inflationary and Deflationary Tendencies 1946-1948," op. cit., p. 33. 27 Ibid., p. 47 f. 28 "Economic Survey of Europe in 1948," op. cit., p. 28.


the 1935-38 level, and that of fats and oils 20 percent below the pre- war level.29

In the Hearings before the House Appropriation Committee on the 1950 grants to E.C.A., Representative Wigglesworth inquired what the yardstick would be for living standards with reference to the 1950 fiscal year. Mr. Hoffman replied: "We can be very specific on food. There we take 1938 as a ceiling and that is that." Mr. Bissell, Assistant Deputy Administrator of E.C.A. added:

In the field of housing we expect them to come all the way through to the very end of the E.R.P. period with that component of the standard of living well below pre-war; in other words, with a larger population housed in smaller and on the average much older quarters. ... I would say broadly that the general standard we have tried to apply is that in none of these countries should the standard of living reach the pre-war level across the board until we were in the position to terminate E.C.A. aid.30

One of the main factors which depresses living standards and impedes economic development generally in Western European countries is their large outlay for military expenditures. In most cases one-fifth to one-third of the entire government budget is allocated to defense. The soundness of government budgets is one of E.CA.'s responsibilities. This non-productive expenditure not only consumes a substantial share of the national output but also removes from productive labor a large section of the labor force.

Calculations by the United Nations Economic Commission for Europe permit a comparison of defense expenditures as a proportion of the net national income for some of the E.C.A. nations and the

planned economies of Eastern Europe. In the United Kingdom, 11.3

percent of the net national income (not government budget) in 1947 went for defense; in 1948-49 the budgeted figure was 6.6 percent. In France the 1947 proportion was 7.9 percent; the 1948 budgeted figure was 6.7 percent. The Netherlands budgeted 5.9 percent in 1948 and 5.8 percent in 1949 for defense. In Italy the actual proportion in 1947-48 was 4.7 percent and the budgeted proportion in 1948-49 was 4.5 percent. 20 O.E.E.C., "Report to the ECA on the First Annual Programme," p. n.

50 "Foreign Aid Appropriation Bill for 1950," Hearings before the House Appropria- tion Committee, 81st Congress, ist Session, p. 58-59. See also table, page 1056.


Among the socialist countries, defense expenditures as a proportion of net national income were far lower. In Czechoslovakia, the budgeted figure for 1947 was 4.9 percent and for 1948 3.0 percent. In Hungary in 1947-48 the budgeted proportion was 0.6 percent. In Poland the actual figure in 1947 was LO percent and the budgeted 1948 figure was 1.3 percent.81 Under capitalism, armaments expenditures are regarded as a form of economic pump-priming. To socialist countries they represent no economic gain. From this point of view, certain short-run advantages accrue in the former countries, explain- ing in part their reluctance for disarmament.

During 1948 and 1949 the United States provided an indirect military subsidy through E.C.A. to the participating nations who

spent on the whole more for military purposes than they received in Marshall Plan aid. In 1950 through the Military Assistance Program there will be an additional direct subsidy. Besides, the nations of the North Atlantic Defense Pact are expected to increase their own outlay for military purposes.

Unemployment Trends

Paradoxically, the rise in production in Western Europe during the period of E.C.A. operations was accompanied by an even steeper increase in unemployment. Though real wages declined and profits increased, output per worker increased.

In Belgium, in the quarter before E.C.A. operations began, January-March 1948, there were 112,000 unemployed. By the second

quarter of 1949 the number almost doubled, becoming 216,000. In France during this period the registered applications for work almost doubled while the number of unemployed on relief rose about four- fold, in the United States and British Zones of Germany, unemployment spiraled from 468,000 to 1,216,000; and in the French Zone from 9,000 to 42,000. In Austria unemployment almost doubled,

rising from 48,000 to 93,000. In the Netherlands there was only a

slight increase. Italy had perhaps the most serious unemployment problem, reporting 1,670,000 in the second quarter of 1949, a small rise over the 1948 figure. Most observors think that 2,000,000 would

31 "Economic Survey of Europe in 1948," op. cit., Table 29.


be a more realistic minimum. Only four of the Marshall Plan nations reported any decline in unemployment.82

In the planned economies of Eastern Europe, the unemployment problem has a different character. In place of industrial urban unemployment, there is an absolute shortage of labor. Their new con- stitutions without exception guarantee the right to work. On the other hand, the absorption of the long-standing agricultural labor surplus through industrialization and urbanization will probably take a number of years. Bulgaria reported 18,000 unemployed in December, 1947; Hungary 74,000 in August, 1948; and Poland 90,000 in December, 1948. There has been no unemployment in the Soviet Union since 1929.

In the United States, according to the Bureau of the Census, the number of wholly unemployed in October, 1949 was 3,576,000, an increase of more than 100 percent over October, 1948 when there were 1,642,000 unemployed. In addition there were in October, 1949 more than ten million persons employed only part-time: 7,660,000 between 15 and 34 hours a week and 2,392,000 between one and 14 hours a week. About 30 percent of those working part- time were doing so "involuntarily because of various economic factors." The number of employed persons declined from 60,134,000 in October, 1948 to 59,001,000 in October, 1949. Among the "em-

ployed," as defined by the Census Bureau, however, there were 757,000 workers "with a job but not at work," because of temporary layoffs or other involuntary reasons. Of the wholly unemployed 9.8

percent had been out of work more than 26 weeks; 23 percent more than 15 weeks; and 43.6 percent more than seven weeks.88

Although the unemployment in Western Europe and the United States has basic causes familiar to all students of economics, the E.R.P. has been most certainly a contributor to its high dimensions. On the European side, the dumping of American surplus products, the restrictions on capital investment and an expanded production of consumer durables, like housing, together with the hampering prohibition of trade with Eastern Europe undoubtedly account for

32 United Nations Monthly Bulletin of Statistics, October, 1949, Table 8; and Interna- tional Labour Review, March and September, 1949, Table 1.

33 Department of Commerce, Bureau of the Census, "Monthly Report on the Labor Force: October 1949," November 4, 1949; and "Full-Time and Part-Time Workers: May 1949/' October «8, 1949.


a substantial share of the unemployment. In the United States, the embargo on trade with the Soviet Union and Eastern Europe plus the policy of using E.C.A. dollars for raw materials in surplus have created more than average unemployment in large sections of manufacturing and in many industrial areas.

Trade and the Balance of Payments

To arrive at an understanding of post-war trade patterns and the dollar shortage problem, it is convenient to consider separately the following movements: European trade with the United States and other overseas countries; intra-European trade (which in turn breaks down into three forms: trade among the O.E.E.C. countries, trade among the countries of Eastern Europe, and trade between East and West in Europe); and finally the resulting balance of payments.

On the whole, by 1948, the total trade of Europe had still not reached the level of 1938 in volume. Imports were 86 percent and

exports 82 percent of those in the pre-war year. (At current prices, it should be noted, the comparable figures are 242 and 230 percent.) Trade with non-European countries had by 1948, however, exceeded the level of 1938, imports reaching 107 percent and exports 105 percent. Intra-European trade was at only 69 percent of the 1938 volume.8*

In 1947 Europe's exports to the United States and Canada reached 70 percent of 1938 volume, and in 1948 rose to 91 percent. On the other hand, United States and Canadian exports to Europe reached their high post-war peak in 1947, with 192 percent of the 1938 volume. In 1948, United States and Canadian exports to

Europe were down to 137 percent of pre-war. During the first three

post-war years, however, the United States moved into former overseas markets of the European nations. Thus in 1947, United States and Canadian exports to non-European countries reached 288 percent of 1938, while Europe's exports to these countries had not yet attained the pre-war level, 84 percent. In 1948 this situation im-

proved slightly for Europe, its exports to overseas countries other

34 "Economic Survey of Europe in 1948," op. cit., Table 41.


than the United States and Canada rising to 108 percent of 1938 while United States and Canadian exports to the same countries fell from 288 to 237 percent.

Since United States and Canadian exports to Western Europe were well above the pre-war level while their imports were still below the pre-war level, the European balance of payments has come to be a serious problem. In 1938 the European trade deficit of $1.8 billion had been offset by a surplus on invisible account (income from investment, shipping, services, etc.) of exactly the same amount. But in 1947 Europe had a deficit of $7.6 billion (in current prices) of which $5.7 billion was with the United States alone. For 1948, through an increase in exports and the restoration of about one- third of pre-war earnings from invisibles, the balance of payments deficit was lowered to 5.6 billion dollars of which 3.6 billion was with the United States.35

It is important to note that the entire European dollar deficit in 1948 was held by the countries participating in the Marshall Plan. The non-participating countries broke even in 1948.36

In 1949 the trade and balance of payments position of Western

Europe took a turn for the worse. At the end of 1948, according to the E.C.A., its quarterly trade deficit with the rest of the world stood at $1.2 billion. At the end of March, 1949, it rose to $1.4 billion and

by the end of June, 1949 had climbed to $1.6 billion. In the last

quarter of 1948 exports of the E.R.P. countries to the United States totalled $280 million; in the first quarter of 1949, $250 million; in the second quarter, $190 million.37

In the balance of trade for individual European countries, Czechoslovak imports covered 107 percent of exports in 1948, and Polish, 103 percent. These were the only two countries with a favorable trade balance. Sweden's exports covered 90 percent of her

imports; Belgium-Luxemburg's, 93; the United Kingdom's, 87;

35 Ibid., Table 71. «6 Ibid., Table 73. 37 Fifth Report to the Congress of the Economic Cooperation Administration, p. 3-6.

The report speaks of "the inability of the Western European countries to improve their dollar position. . . . Towards the end of 1948 ... exports to the hard-currency areas particularly to the United States - declined and the dollar deficit increased

appreciably. . . . The progress made by the ERP nations during 1948 toward

balancing their international accounts received a setback in the first half of 1949."


Italy's, 84; France's, 65; the Netherlands', 59. The total for Europe (including Czechoslovakia and Poland) was 77 percent;38

To turn to post-war developments in intra-European trade, we find first that trade among Western European countries in 1947 was only 59 percent of the 1938 volume; in 1948, it reached 72 percent. The intra-European payments plan, sponsored and underwrit- ten by E.C.A., was designed to improve this situation, but results were not entirely satisfactory. There followed the E.C.A. pressure for "economic integration," but again the stubborn facts of capitalist competition stood in the way of the so-called "free market of 270,000,000 people."

On the other hand, trade among the Eastern European countries by 1947 had already reached 154 percent of the 1938 volume and continued to expland rapidly, reaching 288 percent of the pre-war level in 1948. Moreover, trade in Eastern Europe, which before the war had been dominated by Germany, took on a new and salutary character because of Soviet policy. The United Nations put it this

way:

The commodity composition of the post-war trade of the smaller Eastern European countries with the USSR is markedly different from that of their pre-war trade with Germany. Whereas Germany was formerly one of the chief importers of the foodstuffs and raw materials produced in the region, and a large scale supplier of manufactures, the trade of the USSR with other European countries has included both manufactured goods and primary products in exports as well as imports. Thus the Soviet Union has not only supplied capital equipment such as tractors and machinery, but also raw materials such as cotton, iron ore, manganese and chemicals, and, particularly to Czechoslovakia, grain. On the other hand, imports into the USSR have consisted to a considerable extent of manufactures, though these have varied according to the stage of the industrial development of the country of origin. For instance, manufactured goods have been exported by Hungary and Poland to the USSR. Under the agreement of October 1948 with Czechoslovakia, 72 percent of Czech exports to the USSR are to consist of light manufactures, mainly con- sumers' goods, 2$ percent of heavy industrial equipment and 5 percent of agricultural products. Another important element in trade between the USSR and some of the other Eastern European countries has been

38 "Economic Survey of Europe in 1948," op. du, Table 72.


the exchange of textile raw materials from the USSR against finished textiles manufactured from these raw materials in the other countries.89

Thus the trade of the planned economies with the U.S.S.R. and with each other accelerates industrialization.

The greatest lag in intra-European trade was between East and West. Total East- West trade in 1947 was only 32 percent of the 1938 level, and in 1948 only 42 percent.40

Between 1947 and 1948 exports from Western Europe to the U.S.S.R. dropped 11 percent; from Western Europe to the other Eastern European countries exports increased only 12 percent- an overall increase in exports from West to East of eight percent. On the other hand, exports from the U.S.S.R. to Western Europe more than doubled between 1947 and 1948; from the other Eastern countries the increase in exports was 35 percent- an overall increase in exports from East to West of 52 percent.41 In 1948 Eastern Europe had a surplus of $350,000,000 in its trade with Western Europe.42 These figures need to be considered in relation to the claim that Eastern Europe is sabotaging Western European recovery.

The factors underlying Western Europe's current trade and balance of payments problem are quite plain. Before World War II, Western Europe secured raw materials from its colonies and Eastern Europe, and purchased primary manufactures and food from the United States. It exported manufactured goods to Eastern

Europe, its own colonies, the semi-developed countries and to a lesser extent to North America. The colonies and the semi-developed countries in turn shipped raw materials to the United States. This

roughly triangular pattern of trade, together with the income from invisible earnings, permitted Western Europe, particularly Great Britain, to finance its imports.

Developments during and since the second World War have

violently dislocated this arrangement. Independence movements and revolutions in India, Burma,

French Indo-China, Indonesia, Palestine and elsewhere have not

only reduced a lucrative source of income from colonies, but

39 Ibid., p. 145 f. 40 Ibid., Table 82. 41 Ibid., Table 85. 49 Ibid., p. 151.


have led to an increase in military expenditures by imperialist nations to suppress these movements. The old colonial and semi- colonial forms of imperialism, though not liquidated, required ex-

pensive readjustments by the "mother" countries. Great Britain and other Western European countries lost most

of their overseas investments and suffered great reduction in their merchant marines. Thus invisible income no longer contributes so

large a surplus to their foreign trade balance.

Germany was knocked out of the competition for foreign markets and from its leading position as exporter of finished manu- facturers to Eastern Europe.

The industrial capacity of Western Europe, and particularly its

productivity, were affected during the war when capital equipment could not be maintained or replaced at its most efficient peak.

The U.S.S.R. made such rapid strides in four post-war years that it became the second most productive economy in the world, with an export potential not only in grain, timber, mineral ores and furs, but also in manufactures.

The socialist-bound countries of Eastern Europe adopted and

placed in operation economic plans with primary emphasis on industrialization and foreign economic policies rejecting the pre-wai! subject role of supplier of raw materials and importer of manufactures.

The United States, emerging from the war with a vastly increased industrial and agricultural capacity, was the only nation in an immediate position to export food, industrial equipment and coal to

satisfy the universal pent-up demand for goods. It utilized the years 1946-49, therefore, to capture markets all over the world, not only its traditional pre-war markets but those former markets of Western

Europe as well. Beginning in 1948, the United States not only placed export

restrictions on potential war goods (which includes practically everything) to the U.S.S.R. and Eastern Europe, but also practically forbade Western Europe under the E.C.A. to export these goods to Eastern Europe. Western Europe was compelled to purchase from the United States raw materials which before the war she had obtained from Eastern Europe in exchange for finished products.

As a result of this complex of developments, Western Europe be-


came indebted to the United States to an extent which has created the so-called dollar shortage.

As though these contradictions were not difficult enough of solution, the United States in pursuit of the cold war has compound them many fold. On the one hand it urges Western Europe to solve its dollar problem by increasing exports to the dollar area, through (as Mr. Hoffman puts it) reduced costs (read lower standard of living for the working class), increased productivity (read speed-up) and better salesmanship. This was the superficial reason why United States capital encouraged the devaluation of the pound. Through devaluation, European exports were supposed to compete at better odds in the dollar market. On the other hand, United States tariff barriers stand essentially firm against European imports.

The underlying difficulty, however, is the fact that in a general sense Western Europe and the United States have essentially the same commodities to export. The United States needs very little that Western Europe has to offer, with the exception of luxury items and some specialized manufactures. In addition to tariff walls and its own self-sufficiency, the American market for domestic production has been contracting since the autumn of 1948, not to mention the market for imports. It is fruitless then to urge higher exports from Western Europe as a fundamental solution.

From a global point of view only multilateral trade not restricted by the ideology of the trader points a way out of the vicious circle. This does not mean a return to the pre-war pattern, but a new system based on the exchange of national specialties of production- industrial, agricultural and mineral.43 While the cold war goes on, however, a global point of view remains but a literary expression. The fact is that the United States has practically forbidden trade with the vast one-third of the world's population organized on a

43 This is particularly important because of the small size of most European national economies. The Economic Commission for Europe concluded, however, that "in current economic planning there are few indications of the development of such international specialization. Indeed, the indications are that the current tendencies are in the opposite direction and may lead to a further disintegration of the Euro-

pean economy. Working within a rigid trading framework, which is of necessity highly protective, and concentrating on the objective of improving their balances of

foreign payments, most European countries tend to increase the range of commodities produced at home and thus to reduce their economic dependence on their neighbours." Op, cit., p. 228.

+8 SCIENCE AND SOCIETY

socialist basis. The principal consumption markets for what both Western Europe and the United States have to sell is precisely this third of the world. And this third of the world has commodities for

export and potential export which would not in any essential way compete with United States and Western European production. At the present stage of industrial development, they have basically com-

plementary, not competitive, economies. Unless Point 4 (assistance to underdeveloped areas) includes this third of the world without the strings attached to the Marshall Plan, it can be meant only as another device for exploiting colonies.

Economic Planning Results

In an earlier article, a contrast was drawn between the approach to economic planning in the countries of Eastern Europe and that

among the O.E.E.C. nations. The first Eastern European plans were seen to be individual and national in character, comprehensive in

scope, based on nationalization and agrarian reform measures, rely- ing principally on each country's own resources and aimed primarily at industrialization and an increase in the standard of living. Bilateral trade agreements by the planned economies both among themselves and with the West were concluded to complement and supplement their national plans. On the other hand, the analysis of the first O.E.E.C. plans (in 1947) showed them to be piecemeal, to involve no fundamental changes in economic institutions, to employ only indirect controls at most towards their implementation, to aim for a level of consumption even below pre-war and to devote major attention to the balance of payments problem. Actually they were not

plans so much as they were budget justifications, for submission,

through the E.C.A., to the Congress of the United States, for Mar- shall aid. Without the foreign aid, the plans meant little, and even with it, the figures represented scarcely more than an intention. On the whole it was concluded that the genuine plans of the Eastern countries had a better prospect of success without foreign capital than the paper plans of the Western countries had with foreign aid/*

44 "European Recovery and United States Aid," op. cit., p. $58-60.


In most essentials this forecast has been borne out by events. Thus, despite fulfillment of trade and investment targets in Western European countries, their difficulty with balance of payments remains unsolved. Moreover, according to the United Nations analysis, "their plans for the production of basic commodities [in 1948] were not completely fulfilled." Characterizing results in Eastern Europe, the report said: "The countries of Eastern Europe show a satisfactory record in their production plans and a higher degree of fulfillment in their trade plans than in the previous year. Their investment plans were not, however, completely fulfilled. In the Union of Soviet Socialist Republics, the record of plan fulfillment in 1948, both overall and in its individual branches, was more favorable than in the two previous years."40 In 1946, actual production in the Soviet Union was 96 percent of plan; in 1947, 104 percent; and in 1948, 106 percent.4*

The second report of the O.E.E.C. (in 1948) again included estimates of production, consumption, investment, imports, exports and balance of payments for the participating countries. Once more the orientation of each country's budget was not so much toward

planning as toward arriving at the total amount to be requested in aid under the Marshall Plan, and the division among the members. Plans were made to reduce the dollar deficit, mainly through cur- tailment of imports from the dollar area. Even so, a deficit of $3 billion is envisioned for 1952-53, the last year projected for E.C.A.

The plans of Eastern European countries are not to be found

incorporated in a single volume but instead in the legislative enact- ments of the various countries. With the exception of Yugoslavia, which began a five-year plan in 1947, the first plans of the Eastern

European countries were transitional: designed to make up the war

damage and to lay the groundwork for longer term plans. Thus Poland's three-year plan to the end of 1949 is being followed by a six-year plan. Czechoslovakia's five-year plan began in 1949, follow-

ing a two-year plan. After Hungary's three-year plan, a new five-year plan begins in 1950. Bulgaria's new five-year plan began in 1949,

following a two-year plan. Rumania had a one-year plan in 1949, to be followed by a longer one.

45 "Economic Survey of Europe in 1948/' op. cit., p. 167. 46 Ibid., Table 97.


With the experience of their first plans, when fulfillments far outstripped shortcomings, Eastern Europe is showing a marked advance in production, living standards and trade. As the United Nations report comments, with a higher proportion of resources to be devoted to capital formation in the new plans, "the pace of de-

velopment should therefore be accelerated in successive years/'*7 It is now possible to summarize economic trends in Eastern and

Western Europe. From an economic base that included very little industry (except in Czechoslovakia) and even less modern tech-

nology, the Eastern European countries have achieved a rate of industrial expansion that surpasses the West. Having received until 1947 only one-eighth of the total post-war foreign aid from the United States, and since then none at all (while Western Europe received more than $10 billion), their economic recovery rate still exceeds that of the Marshall Plan nations.

Despite a pre-war agricultural system that was largely feudal and certainly backward in technique and yield per acre, the Eastern economies, through land reforms, mechanization, cooperatives and state farms, are moving to a genuine solution of the land and peasant problems. At the same time in Italy, Greece, Portugal and other countries, the peasant problem grows even more acute.

From a far weaker pre-war position in international trade, from a role of supplying raw material and importing finished goods, the socialist-bound countries have evolved and entered into trade relations among themselves, with the U.S.S.R. and with the West, thereby aiding their efforts towards industrialization and increasing their

independence. Without dollar resources to begin with, they have succeeded through their national plans and trade agreements in

remaining free of the dollar shortage which plagues Western Europe. Moreover, the Eastern European countries have largely freed themselves from the effects of price fluctuations and depressions felt in the capitalist sector of the world.

Cost of living and real wage trends in the socialist countries have

improved living conditions of the people during a period when cuts in social services have been taking place in the West and the gap between wages and prices is spreading.

Unemployment has been largely checked in the Eastern countries

47 Ibid., p. aio.


during the very period when unemployment was almost doubled in the West.

This crisis in the Western countries has been quite effectively concealed from the public, but is by no means unknown to their governments. As a close observor of the State Department wrote in the New York Times in October of 1949: "What is worrying the major officials of the three Western Governments is not so much developments in the Communist world as the developments in the West/148

Domestic Developments In the hearings before the Marshall Plan was adopted in the

spring of 1948, it was confidently assumed that the expenditures for foreign aid would help maintain high levels of domestic production, employment and exports.

Without going into an exhaustive analysis beyond the scope of this article, it is clear that since the autumn of 1948, the United States economy has been on a decline. In the cautious words of the last Midyear Economic Report of the President (July 11, 1949), "a moderate downward trend characterized most phases of economic activity in the first half of 1949."49 The industrial production index, according to the Federal Reserve Board, fell from 195 in October, 1948 to 162 in July. By September only one-quarter of this loss had been regained. The decline in employment and the doubling of unemployment have already been noted. Industrial and commercial business failures rose sharply.50

What is not generally appreciated is that even exports have been on the decline, in spite of the Marshall Plan gifts. In 1947, exports totalled $15.3 billion; in 1948, they declined to $12.7 billion; the annual rate for the first ten months of 1949 was even lower.

Countless additional data could be cited to refute the notion that the Marshall Plan is a means of maintaining a high level of economic activity in the United States. Even the combination of armaments

expenditure, the defense establishment and E.R.P.- some $20 billion annually- is not achieving this goal. Whatever other ends they may

48 "Domestic Woes Beset West as Crisis With Soviet Nears," James Reston, New York

Times, October 6, 1949. 49 P. 3- 50 Department of Commerce, Survey of Current Business, October, 1949.


serve, such devices do not meet the basic problem of the economy: the gap between purchasing power and productive capacity.

According to the Federal Reserve Board and surveys by the Congressional Joint Committee on the Economic Report, in 1948, at the top of the post-war inflationary boom, 8,110,000 American families and individuals living alone had an income of less than $1,000; 15,520,000 families and individuals earned less than $2,000; 24,710,000 earned less than $3,000. The last figure represents more than half of the nation. The Bureau of Labor Statistics family budget requires a yearly income of $3,000 for a healthful standard of living. The more adequate Heller Committee budget calls for $4,000.

The maldistribution of income can be seen from the following figures drawn from the same report. In 1948 the bottom 20 percent of American families received only four percent of the total money income. The top 20 percent received 47 percent of the total.51

It is not enough to say that the Marshall Plan does not contribute to mass purchasing power. The fact is that restrictions of industrial

exports to Western Europe and of virtually all commodities to the Soviet Union, Eastern Europe and the new China, as part of the cold war, are impairing the economic stability of the United States. The very industries whose products are restricted for export have suffered the sharpest declines. United States-Soviet trade is at an all- time low. During the first nine months of 1949, the two most power- ful nations in the world, with a combined population of about 350,000,000, exchanged goods to the negligible value of $39 million -less than 10 cents per capita. United States exports to the Soviet Union were valued at $6 million (about the same as those to Iceland and less than those to Trieste), and imports from the Soviet Union at $33 million.82 In circumstances of a declining production, employment and purchasing power, the Marshall Plan has aggravated domestic economic difficulties. In this vicious circle, the economy has

begun to trace the pattern of the last Great Depression.

Further Consequences An earlier article analyzed in detail the provisions of the Eco-

nomic Cooperation Act of 1948 and the agreements signed by the

51 "Low-Income Families and Economic Stability," Joint Committee on the Economic

Report, 81st Congress, ist Session, 1949, p. 9 and 138.

52 Department of Commerce, united States Foreign Trade, September, 1949.


participating countries which give to the United States control over their production, trade, currency, economic policy and standard of living.58 The experience since then has been a succession of flagrant interventions by the E.C.A. in the internal affairs of Western Euro- pean countries.

It will be recalled that the procurement of strategic raw materials was one of the objectives of the Economic Cooperation Act. During its first year, however, according to a Congressional report, its program had "produced no appreciable additions to the United States stockpile."54 Thereupon a suggestion was made to have a new cor- poration take over from E.C.A. the stockpiling function. A number of criticisms were offered. The Committee objected that such a trans- fer would forfeit the influence of E.C.A. "No longer would the bar- gaining and purchasing agent be also the agent disbursing large appropriations by way of grant."55

The program of guaranteed investments for United States cor-

porations, which in the original act provided $300,000,000 for convertibility to dollars of investments for a 14-year period, was also a failure. The report of E.C.A. to Congress said that the total volume of guarantees for the first year "was far below anticipations . . . only $3,587,814 were negotiated during the year."66 The E.C.A. brought the guarantee of dollar convertibility to the attention of the Ameri- can Metals Company, American Smelting and Refining, Anaconda, Kennicott, National Lead and other corporations. This inquiry of

private business indicated that "the inducement is not adequate. The guarantee is linked to the amount of the original investment, not profits."57 Nor was there a guarantee against nationalization. In the 1949 amendments to the Act,58 this situation was partially cor- rected. Under the revised legislation, the Administration accordingly announced that United States firms

making new industrial and commercial investments in participating coun-

53 "European Recovery and United States Aid," op. cit., p. 360-73. 54 "ECA and Strategic Materials," Joint Committee on Jboreign economic coopération,

81st Congress, ist Session, Senate Report No. 140, March 22, 1949» P- 2.

55 '¿Mv p. 39- . 56 Fourth Report to Congress of the Economic Cooperation Administration, August 25,

1949» P- 56- 57 Senate Report No. 140, op. cit., p. 30. 58 Public Law No. 47, April 19, 1949.


tries may now convert receipts into dollars during the life of the guarantee up to an aggregate of 175 percent of the sum invested. Investors are limited in individual contracts as to the amount of receipts they can convert in the first five years. Beginning in the sixth year, however, investors in industrial and commercial enterprises may convert at any time up to 175 percent of the principal sum invested.69

Thus E.R.P. strives to become part of the drive for super-profits abroad that is characteristic of United States foreign economic policy in general. At the beginning of 1949, American foreign investments totalled $15,283,000,000 and were rising at a billion-a-year rate, according to the Department of Commerce. About three-quarters of the total investment, $11,400,000,000, was in the form of industries abroad owned directly by American firms. The rate of profit of these operations was better than 15 percent: $1,552,000,000 in 1948 on direct investment valued approximately at $10,000,000,000 at the end of 1947. On petroleum investment the rate of return was 25.6 percent. The billion-a-year rise in private American investment between 1946 and 1948 was an all-time high. The previous high mark was $602,000,000 in 1929. The overwhelming proportion, or 90 percent, of post-war foreign investment was in direct investment. Only 10 percent was in foreign bonds, which have a much smaller yield. In the 1920's the corresponding proportions were 60 and 40.

The concentration of foreign investment in the hands of a very few large corporations was acknowledged in the Department of Commerce study. There were approximately 2,500 American com-

panies with foreign branches and subsidiaries in 1947. Ten of these accounted for more than 75 percent of direct American investments abroad.60

These facts of American foreign investment provide a significant background to the recent devaluation of the pound, a so-called restoration of the soundness of currencies in the Marshall Plan nations.

Actually, this was a climax of failure for Great Britain, because

although formally independent, the devaluation was organically connected with the whole E.R.P. operation. After a year or more of rumor with repeated denials by the Chancellor of the Exchequer,

59 Fifth Report to the Congress of the Economic Cooperation Administration, op. cit.,

P- 37- 60 "Private United States Direct Investments Abroad/ Survey of current business,

November, 1949, p, 18-23.


and following directly on an Anglo-American financial conference, Great Britain devalued the pound on September 18 from $4.03 to $2.80. The claimed purpose was to improve Britain's competitive position in the world and particularly in the dollar market through a reduction in the price of British exports of about 30 percent.

Three categories of effects were almost immediately discernible. First, so far as Great Britain is concerned, the accession to the wishes of United States capital was made at the direct expense of the living standards of the British working class. The announcement of devaluation was accompanied by an immediate rise of 30 percent in the price of bread (because Britain's purchases of United States grain cost her that much more). Within a month, the Labour Government cut social services, including the new health measure, and education and housing, and it again raised prices of other foods by removing price supports. Together with the wage freeze, the devaluation is thus seen to have resulted in a decline in real wages for British workers. The devaluation was not even an effective stop-gap measure. While British exports went down 30 percent in price (except that scotch whiskey, non-fetrous and other products went up in price to offset the devaluation), her imports cost 30 percent more. To make

good on these higher costs, Great Britain will have approximately to double her exports to the dollar area. Assuming an increasing market in America for consumption or a willingness in the United States to reduce tariffs, this prospect might be hopeful, but neither condition prevails or gives sign of prevailing.

Secondly, the British devaluation had tremendous international

repercussions in the capitalist world. It resulted in currency devaluation in more than thirty nations. The myth of "unity" in the O.E.E.C. was roughly disturbed by French and other recriminations that Britain had acted without even advance warning. Still, members of the Commonwealth, practically all West European nations and

many Latin American countries devalued in the range of 25-35 percent. In relation to these countries Britain's competitive advantage did not last long. The harsh and inevitable competition among "co-

operating" nations in the O.E.E.C. exposed still another contradiction ofE.R.P.

Finally, examining the devaluation from the point of view of

large American investors, we find the root cause of the whole move. As a prologue to Point 4, United States capital is interested in reduc-


ing the costs of foreign investment, the prices of share capital, of strategic raw materials and of mining, oil and industrial installations both in the Marshall Plan countries and in their colonies. It was in this context that British devaluation acceded.

Conclusions

Having examined the salient facts of economic development in the post-war period and particularly since E.C.A. operations began, the main questions posed at the beginning of this article may be restated. Have we found that E.R.P. is "promoting industrial and agricultural production," "furthering the restoration or maintenance of the soundness of European currencies, budgets and finances," and "facilitating the growth of international trade," as the Act provides? Is it true that the assistance program does not "seriously impair the economic stability of the United States?"

Propaganda for the Marshall Plan has been so conducted that name-calling is frequently substituted for a serious effort to answer these questions.61 Many people both here and in the E.R.P. countries have honest doubts about the consequences of the program.*2 Stu- dents of world affairs and United States foreign policy will not be content with less than a factual analysis.

The facts show that during the period of the Marshall Plan

operations, unemployment in Western Europe has indeed increased. The facts demonstrate that E.C.A. is dumping America surpluses. The facts prove that the United States is preventing a normal re-

sumption of East- West trade in Europe. The facts show that real

wages are lower in many Marshall Plan countries. As to an American

depression, the current trends leave open only the questions: when and how deep? For the millions of unemployed and millions more

61 Fifth Report to the Congress of the Economic Cooperation Administration, op. cit^

p. 66. 62 A recent survey showed that in the E.R.P. countries one out of four people believed

the Marshall Plan is a "scheme to promote American domination of European industry"; one out of three believed it is "solely a political weapon against Russia";

only six out of to thought the Marshall Plan is "likely to succeed in aiding Euro-

pean recovery'*; one out of five believes it is a "scheme to force American products on Europe, resulting in a loss of jobs for Europeans," etc. See "European Beliefs

Regarding the United Sutes," Common Council for American Unity, 1949 (135 pp.).


earning less than $2,000 a year, the depression is already here, official optimism to the contrary notwithstanding.

The E.C.A., of course, draws its main satisfactions (and prospects of further appropriations) from what it describes as the political consequences of the "flow of United States dollars- restoring the 'Vitality'* and reviving the "faith" of Western Europe, preserving "democratic institutions" and putting the Communists on "the de- fensive."63 It is not within the scope of this article to contest this political evaluation or even to translate the language. It must be pointed out, however, that ideologies aside, and regardless of the passing political composition of Western European governments, the economic problem remains: land for the peasant, and higher real wages for the worker. These questions cannot be separated from politics; they are politics.64

Essentially the Marshall Plan is one of the means of buying time for capitalism. It is utterly inadequate to meet its declared economic purposes. It does not approach the real problems of Western Europe. Instead it seeks to prevent a genuine solution to these problems. Because the problems are not solely of post-war crisis but are old and deep, the solution, different in form and timing for each country, can come only from genuine economic planning, based on nationalization and agrarian reforms.

For the United States, the Marshall Plan is worse than a waste of money for the taxpayers. As part of the cold war policy, it is preventing constructive measures for increasing production, exports, employment and purchasing power. Failing abroad and failing at home, a reversal of our foreign economic policy is in order. New York City

63 Fifth Report to Congress of the Economic Cooperation Administration, op. cit., p. 3. 64 For example, the political consequences of the devaluation of the franc in Septem-

ber, 1949 included united action by Communist and Catholic unions, followed by a cabinet crisis. After 24 days a new French government was finally formed with a narrow majority. The absurdity of wishfully separating politics from the basic problem is illustrated by the following comment in an American newspaper: "Europeans in Washington look upon the French cabinet crisis as a hopeful sign. Heretofore most continental upheavals were tense ideological struggles . . . with revolution

lurking around the corner. The recent upset in Paris was based on the normal issues of low wages and high prices. (Long Island Star Journal, October 26, 1949-)" These normal issues are the undoing of the Marshall Plan.

Documents

The Failure of the Marshall Plan