The Marshall Plan

by Benn Steil

  Yet in early July 1945, still navigating foreign affairs without a compass, Truman was confident he would soon set matters straight with Stalin, face-to-face. The president boarded the USS Augusta, en route to Europe for the third and final of the Big Three wartime conferences, in a decidedly optimistic frame of mind. He was determined to bring Europe “ninety years of peace.” The Russians have “always been our friends,” he wrote in his diary on July 7. “And I can’t see any reason why they shouldn’t always be.”18

  Two weeks with Stalin and Molotov, however, changed his perspective. “You never saw such pig-headed people as the Russians,” he would write to his mother on July 31. “I hope I never have to hold another conference with them.”19

  What had gone wrong?

  When the president arrived in Potsdam, Germany, he and his new secretary of state, James (Jimmy) Byrnes, were determined to put disputes over Polish independence behind them20 and to forge agreement with Stalin on more pressing matters. They remained committed to pushing forward with Roosevelt’s priorities at Yalta: early Soviet entry into the war against Japan, and participation in the new United Nations. Yet they could no longer indulge Henry Morgenthau’s vision of a pastoralized postwar Germany—the “Morgenthau Plan”—the way FDR had. With Germany’s surrender in May, the priority was now to stabilize it—not to uproot its industry and watch it descend into starvation and unrest. Germany needed food. Europe needed coal. Coal needed to be mined and moved. This meant repairing Germany’s industrial apparatus and transport links. Economic castration no longer seemed such a bright idea.

  Stalin had little problem giving Truman a commitment to declare war on Japan by mid-August: it would give the Soviet Union a basis for recuperating territorial losses from the disastrous 1904–05 Russo-Japanese War. Pledging that the Soviet Union would join the United Nations (which it did in October), with veto power in the Security Council, also gave him negotiating leverage over unfinished matters in the postwar settlement. But Truman’s German agenda collided head-on with his own.

  At Yalta, Stalin had demanded $20 billion in German war reparations, half of which for Russia. Roosevelt had neither blanched nor acceded, preferring not to commit to a figure. Byrnes, however, took a harder line. Determined not to repeat the mistakes of the post–World War I settlement, through which the United States inadvertently ended up giving Germany the funds with which it paid the French and British, he insisted that reparations from current production in the Allied (western-occupied) zones could only be paid to Russia after covering the cost of keeping Germans and their coal industry alive. Stalin, uninterested in how Germans subsisted or mined coal, dismissed Byrnes’ formulation. This stalemate crossed all major issues, infuriating Truman.

  Yet on July 31, just after Truman had penned the angry letter to his mother, Byrnes, an accomplished political bargainer, triumphantly sold Stalin on a “package deal, take it or leave it.”21 However morally abhorrent Truman found the terms, he agreed to let Stalin take German territory for Poland and offered conditional recognition for Soviet-backed regimes in Romania, Hungary, and Bulgaria. In return, Stalin agreed to depart without a guaranteed dollar figure for reparations—with the caveat that the Allied zones would deliver 15 percent of their “usable and complete” capital equipment to the Soviet zone in return for East German food, coal, and other natural resources.22

  Relieved he had managed to preserve the cooperative relationship Roosevelt had established with Stalin, Truman was still unnerved by the price. During the difficult negotiations on Germany, Stalin kept referring to dividing “everything” according to whether it was to the east or the west of the Soviet-Allied occupation line. Truman suspected he was not just speaking of Germany. Did Stalin mean “a line running from the Baltic to the Adriatic?” he asked the Soviet leader. Indeed, Stalin confirmed matter-of-factly, adding that Finland and eastern Austria should also be within the Soviet zone.23 Truman had never imagined himself coming to Potsdam to carve Europe into spheres of influence, but faced with the alternative of returning home empty-handed he raised no objections.

  The new British prime minister, Clement Attlee, called the Potsdam agreement “an important milestone.”24 But millstone might have been more accurate. Despite the agreement, Stalin and Truman would continue to appeal to Yalta in claiming the other was failing to meet his commitments. Moscow would insist that the Allied zones of Germany owed far greater reparations, Washington that the economy of the eastern zone was being improperly Sovietized. The institutions set up to draft peace treaties with the former enemy countries and to oversee the German occupation—the Council of Foreign Ministers and the Allied Control Council—would soon begin to collapse under the weight of unresolvable differences over Germany. In 1947 these would spill over onto the rest of the continent, with Truman convinced that the Russians were bent on sabotaging democracy in the West, and Stalin that the Americans were using economic stratagems to undermine pro-Soviet governments in the East.

  ROOSEVELT HAD LARGELY BEEN HIS own secretary of State. His relations with the longtime official holder of the position, Cordell Hull, had deteriorated to the point of open hostility by the time the latter resigned in November 1944. To the extent that others had power over foreign policy, it tended be in the economic sphere—about which FDR cared little. Henry Morgenthau, his old Hyde Park neighbor who, with little knowledge of economics or foreign affairs, had run the Treasury since 1934, used his platform and access to great effect. Not having policy ideas of his own so much as instincts, Morgenthau relied on his ambitious, obliquitous deputy, Harry Dexter White, to give them form and substance.

  White, one of the most enigmatic American political figures of the twentieth century, boosted Treasury’s global influence through his mastery of the forty-four-nation Bretton Woods Conference, which created the IMF in 1944, and the war-aid terms imposed on the penurious British. Yet like Henry Wallace—who who would tap him as a future treasury secretary during his 1948 presidential campaign—White was also a great admirer of the Soviet Union and its economic system. He would, over the course of twelve years in Washington, to a much greater degree than Wallace, use his position to aid Moscow materially and with secret intelligence.25 He would also give substance to the so-called Morgenthau Plan to deindustrialize postwar Germany—effectively to render the country pastoral and infirm. Together with the dismantling of Britain’s empire under Washington’s approving gaze, the Morgenthau Plan became a pillar of Stalin’s expectations that he would be able to control a buffer of central and eastern European nations without interference from an indifferent United States and a weak and divided western Europe.

  Yet Truman, who considered Morgenthau a “blockhead,” and opposed his meddling in German affairs, forced him to resign before leaving for Europe in July. This marginalized White, who would die of a heart attack three years later, right after defending himself against espionage charges (many later substantiated) before the House Un-American Affairs Committee.26 Treasury would become a backwater under Truman, while the State Department would not only regain full authority over traditional foreign affairs but come to arrogate power over foreign economic policy as well. By the time General George C. Marshall became secretary of state in January 1947, men of a very different political and intellectual disposition—such as Dean Acheson, George Kennan, Will Clayton, General Lucius Clay, and Republican senator Arthur Vandenberg—were in position to reshape policy on many fronts, to enormous consequence.

  After Potsdam, Truman would continue to reach out to Stalin periodically for political purposes, to show the war-weary American electorate he was dedicated to peace, but the new president was far more inclined than FDR to let his foreign-policy team craft and conduct policy. Direct presidential contact with foreign leaders diminished; the control of cable contact was returned to the State Department.27 And the diplomats and experts were less willing to ignore Russian history and behavior. “Never . . . did I consider the Soviet Union a fit ally or associate,” Kennan woul
d later reflect.28

  Of course, hard political substance, and not just personnel changes, poisoned relations between Moscow and Washington in 1945, and it is far from clear that Roosevelt would have been more able or willing than Truman to assuage Stalin. Not least on the list of matters that troubled the Soviet leader at Potsdam was Truman’s oblique revelation of America’s powerful new weapon. Though Stalin had been well informed about the atom bomb project through his American spy network, the demonstration of its destructive power in Japan two weeks later still staggered him. Whatever the president’s true disposition toward his country, Stalin knew the United States now had the capacity to devastate it in an instant.

  “Hiroshima has shaken the world,” Stalin told his weapons team. “The balance has been broken. Build the bomb—it will remove a great danger from us.”29

  Stalin was convinced the Americans would try to use their atomic monopoly “to force us to accept their plans on questions affecting Europe and the world.” But “that is not going to happen,” he told Andrei Gromyko, his ambassador in Washington.30 All future meetings of the Council of Foreign Ministers, through which the Soviet Union, the United States, Britain, and France had pledged to coordinate postwar policy in Europe, would be poisoned by these fears and suspicions. Stalin directed Molotov to reject concessions to the West on the political organization of the new Soviet “satellites,” as he himself called them, in southeast Europe. Most importantly for the future of the continent, Stalin refused all Western proposals for occupied Germany that involved Soviet troop withdrawals in the east.31 And at the end of 1945, just at the deadline for forty-four nations to ratify the Bretton Woods agreement, the Soviets announced that they were staying out. This struck a major blow to FDR’s “One World” vision.

  In the course of four weeks in early 1946, Stalin, Kennan, and Churchill would issue what would become rallying cries of the “Cold War”—a term George Orwell had coined in 1945 to describe the dystopian “permanent state” of hostility emerging between the United States and the Soviet Union.32 On February 9, Stalin gave an address at the Bolshoi Theater condemning world capitalism and its political face, imperialism, as the engines of world war. Two weeks later, Kennan sent his famous “Long Telegram” from Moscow, arguing that the Soviet Communist government was inherently expansionist, “impervious to logic of reason,” and responsive only to “the logic of force.” And two weeks after that, Churchill gave his historic “iron curtain” speech in Fulton, Missouri, warning of the dangers of “communist fifth columns” operating in western and southern Europe. All three circulated widely in the capitals of North America and Europe, helping to solidify the growing sense that conflict between East and West was inevitable. The only question was the form it would take.

  For Stalin, 1946 was a year of probing. The Soviet empire’s western flank was now strong, with its forces occupying or looming over all of eastern and central Europe. But its southern flank was still vulnerable—as it had been during the Crimean War of 1853–56 and two world wars. Turkey and Iran loomed as potential U.S.-backed adversaries. With Britain headed toward bankruptcy, and imperial retrenchment looking inevitable, this might be a window to secure borders, acquire oil reserves, dominate critical parts of the Mediterranean and Middle East, and transform his empire into a maritime power. What he needed to know was how far the United States would go to stop him.

  THE MID-1940S REPRESENTED THE APEX of twentieth-century American economic diplomacy. The 1944 Bretton Woods initiative championed by FDR’s Treasury was grounded in the belief, born of the Depression and World War II, that economic instability led to currency wars, trade wars, and ultimately military wars. Using the tools of the new science of macroeconomics, Treasury believed, governments could end the plague of economic slumps and thereby sustain a cooperative global ban on competitive devaluations—a monetary form of “economic aggression.” But the scheme took as its starting point political stability, something lacking in the chaotic aftermath of the war.

  In response to the rising threat of a new security vacuum in Europe, Truman’s State Department effectively mothballed the newly born IMF, dismissing disdainfully the assumptions Morgenthau and White had made to justify their faith in it—that Soviet cooperation would continue into the postwar period; that Germany’s economic collapse could be safely, and indeed profitably, managed; that the British empire could be peaceably dismantled; and that modest balance-of-payments credit support was sufficient to reestablish global trade. These had been based on “misconceptions of the state of the world around us,” future secretary of state Dean Acheson reflected, “both in anticipating postwar conditions and in recognizing what they actually were when we came face to face with them. . . . Only slowly did it dawn upon us that the whole world structure and order that we had inherited from the nineteenth century was gone and that the struggle to replace it would be directed from two bitterly opposed and ideologically irreconcilable power centers.”33

  Bohlen concurred. “The United States is confronted with a condition in the world which is at direct variance with the assumptions upon which, during and directly after the war, major United States policies were predicated,” he wrote for a meeting of top State and War Department officials in August 1947. “Instead of unity among the great powers on the major issues of world reconstruction—both political and economic—after the war, there is complete disunity between the Soviet Union and the satellites on one side and the rest of the world on the other. There are, in short, two worlds instead of one.”

  To be sure, economics as a tool of diplomacy would become more rather than less important under Truman than under Roosevelt. But it was now to focus on “the drawing together and consolidation of the non-Soviet world,” in Bohlen’s words, and not to rely “on the non-existent thesis of one world.” It was no longer “advisable for this Government to continue to press for long-range objectives,” he concluded, “however desirable in themselves, which do not immediately and directly bear upon the solution of Western European problems.” Further initiatives, Bohlen concluded, “should be consciously limited to Western Europe, based on the concept of the economic unity of Europe west of the Stettin-Trieste line” marking the border with what was now Soviet Europe.34

  Indeed, many of Truman’s top advisers had by 1947 come to see western European unity and recovery as the only viable alternative to a major new American military engagement in Europe. “The greatest danger to the security of the United States,” warned the new Central Intelligence Agency, “is the possibility of economic collapse in western Europe and the consequent accession to power of communist elements.”35 Secretary of the Army Kenneth Royall insisted he would need 160,000 additional troops and a $2.25 billion (20 percent) boost to the military budget if Congress voted down a European aid plan.36 Former ambassador to Moscow Joseph Davies worried that the resulting “armaments race [with Russia] would probably bankrupt us.”37

  Importantly, the character of the new economic thinking was radically different from that under FDR. Rather than lending Europe reconstruction funds and wishing it well, a new integrated western European entity would be constructed using American blueprints, cash, and—ultimately, contrary to all early intentions—security guarantees. This effort—the Marshall Plan, as it would come to be known—would entangle the United States in European affairs in precisely the manner George Washington had warned against.

  This is the story of how and why it happened, what it achieved, and the legacy effects we continue to live with today.

  Communist demonstration in front of the Propylaea building of the University of Athens at the start of the Greek civil war, 1944.!

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  TWO

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  CRISIS

  “BLESSED ARE THE DEAD,” READ the graffiti on the walls of the Reichstag, or what was left of it, “FOR THEIR HANDS DO NOT FREEZE.”

  It was February 1947; nineteen thousand Berliners had been treated for frostbite in the past three months. Not th
at they hadn’t been prepared for winter. They had begun in the autumn of 1946, just before the ground froze, digging thousands of graves for those who would die of cold and starvation before spring.1

  Europe in the war’s early aftermath was “a rubble heap, a charnel house,” Churchill said, “a breeding ground of pestilence and hate.”2 Canals were blocked, rivers frozen, bridges fallen, roads cratered, rail lines mangled, factories gutted. In Germany, once the workshop of Europe, Russian looters finished the job Allied bombs had not. Farmers grew only what they could eat, assuming they could grow anything at all. In a civilization built on an intricate division of labor across town and country, this meant widespread hunger, malnutrition, and death.

  The New York Times called Europe “The New Dark Continent”—a place “which no American can hope to understand.” Much of it was still lawless, violent, even savage. The British military governor in Hanover, Germany, described daily scenes of “looting, fighting, rape, [and] murder.” War reporter Leonard Mosley documented surreal scenes of “screaming people” pillaging “a store for door knobs . . . kick[ing] and scratch[ing] and beat[ing] with iron bars those who had more doorknobs than themselves.” And this “in a city where half the doors no longer existed.”3

  The European war had been to an unprecedented degree, in historian Tony Judt’s words, “a civilian experience,” with over 36 million war-related deaths.4 In many ways, its formal end simply shifted the perpetrator and victim groups. During the war, organized brutality had been directed not merely at enemies from abroad but at Fascists and collaborators at home. Now, in countries such as Yugoslavia, Italy, and Greece, those who had carried out the violence were in charge. Thousands of partisans remained armed, refusing to trust civil authorities that continued to rely on functionaries tied to discredited regimes.