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Marshall Plan

Updated June 28, 2019

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1.) In 1945, Western Europe appeared to have destroyed itself, physically, economically, and psychologically.

Carefully distinguish and give appropriate weight to the reasons why it was able, in less than twenty years, to rise like a phoenix from the ashes. First and foremost, a great deal of Europe’s success would not have happened without its initial aid from the United States. After helping destroy so much of the continent, the U.S. pumped billions and billions of dollars back into the European economy through The Marshall Plan.

It was named after Secretary of State George C. Marshall, who said “The world of suffering people looks to us for leadership. Their thoughts, however, are not concentrated alone on this problem. They have more immediate and terribly pressing concerns where the mouthful of food will come from, where they will find shelter tonight, and where they will find warmth. Along with the great problem of maintaining the peace we must solve the problem of the pittance of food, of clothing and coal and homes.

Neither of these problems can be solved alone. (DeLong)” In the first two post-World War II years the U.S. contributed through this plan, about four billion dollars a year to relief and reconstruction. The Marshall Plan continued these flows at comparable rates and was a multi-year commitment.

From 1948 to 1951, the U.S. contributed $13.2 billion to European recovery. $3.2 billion went to the United Kingdom, $2.7 billion to France, $1.5 billion to Italy, and $1.4 billion to the Western-occupied zones of Germany (DeLong). An astounding $15.5 billion had been provided to Europe before the Marshall plan was enacted (Wegs, 66). The availability of Marshall Plan aid gave European countries a pool of resources that could be used to cushion the wealth losses sustained in restructuring. Countries that received large amounts of money from the Marshall Plan invested more.

Countries could buy the amounts of coal, cotton and petroleum needed (all of these were in short supply) when needed because of Marshall Plan aid. Great Britain used the Marshall Plan aid to retire public debt (DeLong). The Marshall Plan did have strings attached however. Countries had to agree to balance government budgets, restore internal financial stability, and stabilize exchange rates at realistic levels.

Marshall plan aid was available only if Europe was committed to the “mixed economy” with the market playing a large part in the mix (DeLong). On their own, some countries were able to rebuild or repair slightly damaged factories and warehouses. Contrary to popular belief, factories and capital goods were not totally or almost totally destroyed in Western Europe. Only one-fifth of factories on the west side of the continent were in ruins (Wegs 65).

And even if factories and machines and capital goods were destroyed, it wasn’t a huge loss. This permitted companies, along with money from United States assistance, to buy newer, more technologically advanced equipment. Without U.S. help, they would not have had the financial capacities to get this new industrial equipment, which proved to be faster, more efficient, and safer (Kindleberger, 113).

All of the building and rebuilding that needed to be done because of the bombing destruction helped sustain long term economic growth. Building trades prospered and grew dramatically as entire cities like Stuttgart had to start from scratch (Wegs, 66). This meant that many jobs would become available, and there were many people available to work. There were several reasons for the mass quantities of laborers eager to get to work. Soldiers had returned home from the war with no job to come home to because of either destruction or replacement workers. Refugees fleeing from the eastern portion of Europe occupied many countries in the west, especially West Germany, bringing about more bodies for work.

Even workers from southern Europe came to work. Europe’s population increased by nearly 60 million thirty years after the start of WWII (Wegs, 67). There was plenty of cheap labor. Because of the cheap labor of the immigrants and refugees, many businesses could keep costs low, turning outstanding profits, and thereby encouraging investment (Wegs, 67). Because of the rapidly growing population in Western Europe and because of war devastation, many new houses were being built.

This meant there was a tremendous demand for home fundamentals like carpet, furniture and appliances, which increased employment in those fields. It trickled right on down. Employment meant money. Money meant spending and buying.

Buying meant purchasing consumer goods and automobiles, which meant more jobs in steel plants, road building crews, and mechanic shops, which meant money being flooded back into the economy (Wegs, 69). It turned into an ever-increasing cycle of growth and output. Economies and industrial output in West Germany and Austria soared. There was also a modernization of transportation systems, most importantly railways, all across Europe. This was especially true in France, where they closed down useless and unneeded railroads and electrified twenty percent of the remaining ones.

This provided France with an edge over Great Britain in shipping goods because their railways were faster, longer and able to carry more for less cost (Wegs, 66). Better methods of transporting and shipping leads to better trade. Trade restrictions that were imposed all over Europe were loosened dramatically. France and Germany started a free trade alliance, eliminating tariffs.

Germany trades their coal for French made steel. The European Payments Union helped ease the exchange rate problem. The European Agricultural Agreement enabled the exchange of agricultural products amongst European countries, eliminating tariffs. All of this foreign trade after 1949 stimulated individual income and foreign sales thereby causing economic growth (Wegs, 67).

Free trade was the best thing that Europe could have possible done for itself. One of the reasons Great Britain took so long to recover after the war was because they didn’t join in the free trade agreements. They were already involved in trading the Soviet Union, and once the USSR collapsed, Great Britain traded with their colonies and the Commonwealth (Wegs, 77). Improvements in technology and new money also enabled farmers and those in the agricultural world to have feast instead of famine. New machinery, new fertilizers and pesticides and new hybrids of seed enabled many European farmers to expand from small subsistence farms to larger farms that targeted a larger market.

By the 1970s, even with the tremendous demand throughout the continent, there was a surplus, created by the afore mentioned changes (Wegs, 72). Another of the many reasons for Great Britain’s slower economic recovery than most other European countries was because they had difficulty joining the European Economic Community because the average farms in Great Britain were five times larger than those located on the continent. They were on a larger scale and therefore more productive. However, based on the minute area of total acreage in Great Britain, they had to import a vast amount of agricultural products.

Upon promising to cease from buying cheap goods from the Commonwealth, the EEC allowed Great Britain to join their ranks (Wegs, 73). Governments began regulating their economies, which was a total change from years before. The laissez-faire policy was gone. This was done out of fear of an economic bust shortly after the boom, resulting in massive and devastating unemployment. John Maynard Keynes, a British economist and theorist, helped push the new economic tendencies of Europe.

Keynes fully believed that if everyone was employed with good wages, then more products would be consumed, thus production of these goods and products would increase. Various countries, wanting to attain the highest point of economic growth possible, implemented long term economic plans. These plans funded sectors of the economy that would promote growth. Great Britain was the exception. They firmly believed in the laissez-faire economy, and it wasn’t until 1961 that they adopted a long-term plan (Wegs, 69-70). France was one of those countries adopting the long-term plan, and they wasted no time re-establishing themselves.

In an effort to rebuild their own economy, as well as to prohibit Germany from creating useful goods for warring purposes, took all industrial plants and material and raw materials from the zone in Germany that they occupied (Wegs 12). France experienced some internal conflict as they sought to expand industrially. Half of the country was rooted in the age-old traditions of small business, low wages and low taxes. Yet the other half of France yearned to break free from the ways of old.

They wanted economic modernization. This was the part of France that in the 1970s leapt to the front of the airborne transportation pack with the inceptions of the Caravelle and Concorde jet passenger planes (Wegs, 73-74). West Germany is slightly different from their French neighbors. West Germany did not engage in long term planning, rather they chose short term planning. Heavy regulation and intervention and close ties with German banks is how the government helped West Germany flourish in the 1950s.

The Deutsche, Dresdner, and Commerz Banks controlled nearly 60 percent of the industrial shares in West Germany. The banks worked with the industries to repel bad competition and regulate output, preventing overproduction. West Germany’s production of the Volkswagen, Mercedes and BMW enabled them to have a strong hold on the European automobile market. In the 1960s, one third of Europe’s largest corporations belonged to West Germany, truly solidifying their resurgence (Wegs, 75-76).

Italy, though it started slow, had an astounding economic resurgence in the 1950s and early 1960s. It was second only to West Germany’s economic recovery (Wegs, 78). Italy’s north half and southern half however were as different as night and day. The growth was restricted to just the north for quite some time. Southern Italy remained an underdeveloped place. A major problem with this was that the peasant farmers from the south migrated north to get industrial jobs, leaving agricultural production to suffer.

Italy had to import more food than it produced (Wegs, 73). Even in the 1970s, the EEC was still pumping money in to southern Italy. It’s interesting to note though that this vast difference of wealth and mass concentration of industry and banking was what propelled Italy to such great industrial surge. Italy became a major producer of home appliances (refrigerators) and cars (Fiat) in the 1960s (Wegs, 78). In Great Britain, there was little celebration of the war victory. Britain was devastated physically, not to the extent of Germany however (Wegs, 45).

Great Britain was one of the leading creditors in the world before WWII. After the war, they were the number one country in debt (Wegs, 3). The Labour Party came into power in 1945 via the people wanting change from depression before the war. Though the Labour Party’s policies were revolutionary, those policies did not do what was intended, which was to bring about redistribution of wealth.

The welfare state enacted by the Labour Party was an effort to eliminate social classes and get ALL citizens back on their feet by having a minimum standard of living that EVERYONE would meet (Wegs, 46-47). However, this did not rapidly boost economic recovery. Slowly but surely, Great Britain recovered and turned around, but they still rationed food until the 1950s. Part of the reason for such slow growth was their poor industrial management.

Investments were cut in an effort to boost exports, but that backfired. Factories weren’t modernized as factories in other countries were. Some firms in Great Britain did rather well. However, they were controlled by Americans.

The British also were slow to get into the automobile production game. They refused to merge with other companies, instead vying to produce many kinds of automobiles, none of which got a great deal of market share. None until the Mini came along, breaking from old traditional large British cars, creating a new craze (Wegs, 77-78). Not all was utopian forever in Europe though. All good things generally come to an end, and in the 1970s, the economy began to flounder. But for nearly twenty years, the western portion of Europe rebounded from nothingness, surged in no time, flourished for many years, became a major player in the economic world once again, and truly rose like a phoenix from the ashes of war.

Works Cited DeLong, J. Bradford, The Economic History of the Twentieth Century: Slouching Towards Utopia? (University of California at Berkely and NBER: , 1997) . Kindleberger, Charles P., “The One and Only Marshall Plan,” National Interest, Vol. 11, 113-115. Wegs, J. Robert and Ladrech, Robert, Europe Since 1945: A Concise History, 4th ed.

(Boston: St. Martin’s Press, Inc., 1996) 3, 12, 45-47, 65-79.

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