by Benn Steil
Secretary of State George Marshall testifies on the European Recovery Program before the Senate Foreign Relations Committee, January 9, 1948.
* * *
EIGHT
* * *
SAUSAGE
“LAWS,” OBSERVED NINETEENTH-CENTURY POET JOHN godfrey saxe, “like sausages, cease to inspire respect in proportion as we know how they are made.” As 1947 drew to a close, legislating Marshall aid looked to be a case in point.
With less than a year to go before he would have to face the voters, the president’s political advisers were hard at work trying to leverage Europe’s crisis to his benefit. There was, White House Counsel Clark Clifford said, “political advantage” in Truman’s tough approach to Russia. He was largely “invulnerable to attack” from the right, not least “because of his brilliant appointment of General Marshall,” who was seen as “non-partisan and above politics.” But Republicans will insist that “everything that is good about American foreign policy is Marshall” and “everything that is bad is Truman.” And if “the American people identify Secretary Marshall, and not the President, as our spokesman, [it] is bad politics for 1948.” Truman needed to seize control of the narrative.
The real challenge to the president, however, might not come from the right but the left—a third-party run by Henry Wallace that could tip the election to Dewey. The president needed to get “prominent liberals and progressives” on board by pointing out “that the core of the Wallace backing is made up of Communists and the fellow-travelers.”1 At the same time, Clifford assistant George Elsey said, “the non-military side of the Truman Doctrine should be accented.”2 This is where the European Recovery Program came in.
Truman, a veteran of rough political battles, was not averse, in Lippmann’s words, to throwing a “partisan monkey wrench” into the ERP campaign.3 At Clifford’s advice, he picked a fight with the Republicans by linking the ERP to domestic policy, hoping to tar them for rising prices.4 On November 17, 1947, Truman devoted three quarters of his “Special Message to the Congress” on the ERP to economic challenges on the home front.5 Meeting the country’s global obligations, Truman argued, meant getting its own house in order.
Treasury Secretary John Snyder had demanded that the ERP be fully funded. The administration would insist on balanced budgets in every year of the program.6 But discipline also needed to be applied on prices, which rose 14.4 percent in 1947. High inflation owed partially to overvalued European currencies, which were fueling demand for American goods.7 Truman did not make this point. Yet in his longer address on the ERP a month later, on December 19, he would argue that price increases in the United States were exacerbating Europe’s plight by raising the cost of vital imports.8
The president called for sweeping measures to roll back inflation, including price controls, wage ceilings, rationing, export restrictions, credit restriction, and a commodity speculation crackdown. These he had, only a few weeks earlier, referred to as “police state” methods.9 But Clifford had convinced him to propose something “absolutely unpalatable to the Republican majority” so as to pass the fault for high prices on to them.10
Today, a foreign “dollar shortage” and domestic inflation would be considered matters for monetary policy—central banks abroad allowing the exchange value of their currencies to adjust downward, and the Federal Reserve pushing interest rates upward at home. They would not be subjects of presidential speeches calling for dramatic fiscal and regulatory intervention. Inappropriate monetary policies in both the United States and Europe were, in fact, making the problems necessitating European aid, as well as the problems of financing it, worse.
Truman would, in his December speech, defend the Marshall Plan as a means of reducing Europe’s trade deficits with the United States, “particularly by increasing European exports.” That the administration was, at this point, still wedded to exchange rate “stabilization,” however, suggested that the monetary dimensions of the Plan suffered from an unwillingness to confront domestic interests anxious to sustain a competitive—that is, undervalued—dollar. Snyder would in February 1948 call for some, unnamed, countries among the Marshall aid participants to devalue, subject to IMF approval, but he rejected calls from Congress to convene a special international monetary conference for the purpose of coordinating such devaluation.11 The administration had no appetite for a new “Bretton Woods.”
Lippmann chided Truman for tossing rationing and price controls into his November address, accusing him of using an international crisis to bait the Republicans into taking responsibility for the high cost of living. Instead, he said, “powers need to be given to the Federal Reserve System to check the creation of excess bank credit,” as Fed chairman Marriner Eccles wanted. This was the only effective way to restrain inflation, as well as the only responsible way politically. It would allow Congress to deal with the Marshall Plan “wisely and dispassionately,” rather than as part of a political package designed to help the administration shed blame for the economy.12
Truman’s tactics infuriated Vandenberg,13 but, as Clifford had anticipated, most of the senator’s colleagues recoiled before his warnings not to allow Communist “wrecking crews” to destroy Europe’s recovery. The Senate interim aid bill breezed through by a vote of 83 to 6 on December 1, 1947.14 The House version passed by voice vote on the 11th.15 In the resolution process to meld the two bills, a provision was added permitting aid to China, and House language directing the president to cut off aid if a country came to be dominated by the Communist Party or the Soviet Union was made more general and less prescriptive.16 On December 15, the final bill—authorizing $522 million ($5.65 billion in today’s money) in assistance for France, Italy, and Austria, $75 million less than the administration had requested—passed by voice vote in the Senate17 and 313 to 82 in the House.
Of the eighty-two voting against, seventy were Republicans. Nearly half the no votes (forty) were from just five states: Illinois, Ohio, Michigan, Indiana, and Truman’s home state of Missouri.18 The administration still had work to do convincing the heartland of the wisdom of the much larger Marshall aid package. On December 19, the president submitted his ERP legislation to Congress, urging ratification by April 1, 1948, when the stopgap funding would be exhausted.19
Simultaneous with the aid votes, Truman got what he wanted on domestic policy: trivial legislation, side by side with the interim-aid vote, authorizing only three of his ten “anti-inflation” measures (export controls, transportation controls, and conservation encouragement). These victories allowed him to pose as a hawk on inflation, an issue he cared little about, while painting the GOP Congress as do-nothings. But it came at a cost. Angry Republicans would press hard in the new year for their own domestic agenda, particularly large tax cuts, which would compete with the ERP for scarce resources.20
TIME NAMED GEORGE MARSHALL ITS 1947 “man of the year.” but the magazine still expected the congressional debate over his namesake plan to be “long, serious and, at times, vitriolic.”21 For his part, Vandenberg took little comfort from the victory on interim aid, given the sums involved in the main bill to come. “Marshall is certainly going to have a helluva time down here on the Hill when he gets around to his long-range plan,” the senator wrote to his wife. And to Lovett: “We’re headed for the storm cellar on the Marshall Plan.”22 Even if some bill might eventually satisfy Republicans, it could, Vandenberg knew, be for a much smaller, and very different, plan than the one Marshall was proposing.
With this risk in mind, Vandenberg had begun to look for sweeteners back in the fall—things that Europe might provide to the United States in return for aid. There was precedent for such requests. Congress had demanded “consideration” from Britain in return for Lend-Lease aid in 1941, in spite of Roosevelt insisting that such aid was itself in the American national interest. Vandenberg now pressed the administration to insist on consideration from Europe and its colonies as a requirement for participating in the Marshall program. This would
include preferential U.S. access to strategic rare minerals, such as cobalt for aircraft engines and uranium for atomic energy. The Harriman Committee estimated that $253 million ($2.74 billion in today’s money) worth of strategic materials could be made available to the United States each year from the sixteen nations and their dependencies. The State Department pledged to work for such promises from Europe.23
Other congressmen sought military cooperation and assistance. “[W]e ought to start getting something for our money,” insisted Wisconsin Republican senator Alexander Wiley. “I want to know if any effort has been made to obtain strategic bases or materials in return for our generosity.”24 This cut embarrassingly close to Stalin’s charge that establishing such bases was, in fact, the purpose of the Marshall Plan. It was also a repudiation of Roosevelt’s statement at Yalta that U.S. troops would not remain in Europe for more than two years after the war.25 But on Capitol Hill, injecting the principle of consideration into the proposal did much, as it had with Lend-Lease, to blunt the charge that the United States was just giving away its resources with no certain payoff.
And so despite the passion with which the right and the left had bludgeoned the administration’s proposal in the fall, the pendulum had, by January 1948, swung in the direction of passage. Few voices of consequence were still suggesting that there should not be a recovery program of some sort, or that the United States could afford to ignore Europe’s plight at little or no cost to itself. As James Reston summarized the transformation, the United States had “moved away from isolationism [and] moved farther and faster toward world responsibility than any other country in history.” The only question was “whether it [had] moved far enough and fast enough to stay up with events.”26
Helping the administration’s effort was growing support from the leadership of business interest groups, who, often in defiance of their more protectionist rank and file, backed the agenda of expanding trade by shrinking the dollar gap. Acceptance of the need for the United States to import more from Europe represented a sea change in outlook, unimaginable after the First World War. The Chamber of Commerce, which had advocated tariff protection for much of its history, now highlighted “the importance of imports to the United States economy.” Its president, Earl Shreve, insisted that the United States had to act as a responsible creditor, taking measures to balance trade and extending “Marshall Plan dollars . . . as a stopgap measure to tide [Europe] over temporarily.” Such pronouncements reflected a growing belief among business elites that the competitive position of the United States was as secure as it had ever been and that using economic tools to contain Soviet aggression was necessary to sustain it.
Business support, however, was far from universal. The president of the National Industrial Conference Board, Virgil Jordan, denounced the Marshall Plan as “the most insidious and dangerous development of the deliberate Soviet Communist conspiracy to undermine and cripple the economic power of the United States.” The “dollar shortage,” he said, was “merely a semantic trick.” And financial aid “as a means of outbidding Communism [was] an infantile illusion.” Many business leaders saw the aid component of the Plan as inflationary. Cotton and textile interests also expressed concern at potential harm to American business, though generally in more moderate language than Jordan.27
Valid though Reston’s observation was, isolationism had not been abandoned as an aspiration. Congressmen defended support for the Marshall Plan on the grounds that America needed to take responsibility for shaping matters abroad today so that it might be free of the obligation forevermore once the crisis had passed. The flimsy foundation on which such beliefs rested would become manifest as the Cold War progressed from crisis to crisis. Yet they would never pass from the national psyche. They would reemerge in populist tomes over half a century later, with the implosion of communism as a political force.28
TWO PRACTICAL QUESTIONS CAME TO dominate legislative debate over the Marshall Plan: who should run it, and how big it should be.
With respect to the program’s management, conflict erupted early on over the role of the State Department. For Republicans, the notion of Truman’s foreign service bureaucrats remaking European economies was a nonstarter. It meant incompetence, inefficiency, and a reliance on meddling over markets. It would undermine America’s economy as well as Europe’s. In response, the Herter Committee and others came together around the idea of creating a new independent agency, to be run by prominent individuals with business backgrounds, recruited from outside government. The White House split over the scope for compromise. Treasury supported the idea. State, which had always expected to run the program, was alarmed.
Lovett began searching for common ground back in September 1947, when he appointed a special committee under the chairmanship of Lincoln Gordon, a former director of the Civilian Production Administration’s Bureau of Reconversion Priorities, to draft an administrative blueprint for the ERP. Reporting one month later, it called, Solomon-like, for management of the program to be split. An Economic Cooperation Administration (ECA) would be created to handle operational issues, while decisions related to “foreign policy” would remain with the State Department. Kennan feared that “the operation of the ERP administration will make it difficult for this Department itself to conduct any incisive and vigorous policy with relation to Europe,”29 but Marshall embraced the proposal as the best he was likely to get.
While insisting that the strategic direction of the ERP, being a matter of foreign policy, had to remain with State, Marshall advised the president to call for lodging “direct operational responsibility for this hazardous and temporary undertaking” outside the department.30 There was, Clifford argued, “an element of political benefit” to Truman in giving ground to Congress. If Republicans wanted a separate body to implement the program, and problems emerged, the president could blame Congress.31
Republicans pressed to keep the State Department at arm’s length, arguing that its interference would make it impossible to recruit the best brains and managerial talent to run the ECA. Marshall, however, fought to maintain State’s strategic oversight. There cannot, he insisted before the Senate Foreign Relations Committee on January 8, 1948, be “two secretaries of state.” “The whole procedure of this program certainly directly affects the foreign relations of the United States,” he told the House Committee on Foreign Affairs four days later.32 In the end, splitting responsibility between the State Department, which would set policy, and the ECA, which would control operations, would prove the only politically viable solution.33
There remained the matter, however, of who would run the ECA. Truman, determined to avoid any possibility of conflict between State and the ECA, pressed for Acheson or Clayton. Republican majority whip Kenneth Wherry assailed Acheson on the Senate floor for having supported Bretton Woods and the Morgenthau Plan, the latter of which had cost the United States “more than $20 billion.” That was now “out of the window and Mr. Acheson is out of the Government, and I think that is a good thing.”34 Vandenberg insisted on recruiting someone “from the outside business world,” someone with “particularly persuasive economic credentials unrelated to diplomacy.”35 Clayton, of course, had had a successful career in private business, but his time in two Democratic administrations disqualified him politically. “The overriding Congressional desire,” Vandenberg told Marshall, is that the ERP administrator come to the job “not via the State Department.”36 This principle did much to conciliate Taft, who praised the final Senate bill as “infinitely more acceptable” than the White House version. Acheson and Clayton were out. Yet the question of who would run the ECA would not be resolved until after the legislative fight ended.
With regard to funding, the administration pushed for $17 billion over four years—at the upper end of the Harriman Committee estimate of what was needed. “Now it does seem to me that we can afford, over a four-year period, to risk 17 billions for peace,” Truman said at a January 29 press conference. It was $4 billion less
than the 1948 defense budget, but “less than one-fourth of the half-year that was made a rescission under war.”37 It was also $12.2 billion less than what the sixteen European participants had wanted in Paris, and $2.3 billion less than what they ultimately settled on under friendly American guidance.
Vandenberg approved Truman’s headline figure, but thought it too large for Congress to swallow in one bite. He wanted the funds doled out in tranches that would have to be approved each year. The State Department, however, hated the idea of having to return to Congress annually for a new multibillion-dollar appropriation. Marshall scolded Congress to do the job in full “or don’t undertake it at all.”38
The White House ultimately bowed to political reality, narrowing its request to $6.8 billion for the fifteen months from April 1, 1948, to June 30, 1949—the end of the following fiscal year. Hoover, however, the great rallying figure for the anti-ERP forces, called on Vandenberg to cut the initial appropriation to $4 billion.39 Taft also threatened to press for delay until the next fiscal year, starting July 1. By transforming a fifteen-month program into a twelve-month one, this would cut the price tag by 25 percent, to $5.1 billion.
IT WAS ANOTHER BLEAK WINTER in europe. Britain’s reserves had fallen to $2.4 billion ($24 billion in today’s money) in dollars, gold, and assorted “unexhausted credits.” They were expected to run dry by the summer. “After that, it will just be impossible to buy either the food or the raw materials necessary for Britain to eat and work,” said The Economist. “The aspect of starvation and mass unemployment is now alarmingly close.” 40