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  • Writer's pictureSharon Chau

Self-Interest Behind The Marshall Plan

If you were to listen to modern politicians in the United States talk about the Marshall Plan, a familiar situation would invariably be described: amidst a post-Second-World-War Europe, where factories and farms were utterly decimated by aerial bombardment, where refugees scampered across borders without a dime, and where European politicians wrung their hands out in despair at an empty treasury, the Marshall Plan was the saviour that rejuvenated Europe and paved its path to recovery. The truth of this rose-tinted narration has been fiercely disputed. The reconstruction of Europe was ostensibly the United States’ main motivation to establish the Marshall Plan - but underneath this lay more sinister and self-interested objects.

The Marshall Plan was about more than the reconstruction of Europe. It was also about the United States’ self-interested political and economic motives. Political motives included containing the spread of Communism in Europe and increasing the United States’ sphere of influence. Economic motives included restoring the macroeconomic stability of the United States and helping large local industries, especially the energy sector.

Undeniably, the Marshall Plan was about the reconstruction of Europe. Europe was in a state of turmoil after the disastrous Second World War (1939-45), where aerial bombardment resulted in widespread destruction. Decimated industries and transportation infrastructure, obsolete capital equipment and an exhausted labour force contributed to exports and agricultural production in 1945 being merely 59% and 83% of 1938 levels respectively. Food shortage and destruction of housing combined to create a massive refugee crisis. In West Germany, for example, bombing had destroyed 5m houses and apartments, and 12m refugees from East Germany had desperately crowded in. Despite $9bn of financial aid from the U.S. in 1945-47, the economy of Europe still had not recovered prior to the Marshall Aid.

Amidst this dire situation, the United States was desperately drafting a plan to help Europe recover. To Washington, Europe appeared to be on the brink of collapsing and hence required immediate economic assistance. Of particular concern to the U.S. was the war-ravaged Germany, which was especially incapacitated by the war. In July 1947, Washington realized that economic recovery in Europe could not happen without the reconstruction of the German industrial base, deciding that an “orderly, prosperous Europe requires [required] the economic contributions of a stable and productive Germany”. Six weeks of failed discussions with the Soviets regarding a potential German reconstruction increased the urgency for a solution. After much negotiation, the Marshall Plan was born. On April 3, 1948, Truman signed the Economic Cooperation Act into law, officially kick-starting the Marshall Plan. The signed Act established the Economic Cooperation Administration (ECA) for administering the program, which was headed by economic cooperation administrator Paul G. Hoffman. A tentative $17bn was allotted to the Marshall Plan. A larger amount of money was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for general European revival - the United Kingdom, France and Germany received 26%, 18% and 11% of the aid respectively. Marshall Aid was transferred to the governments of the European nations, where the funds were jointly administered by the local administration and the ECA. Each European capital had an ECA envoy who would advise on the process. Cooperative allocation of funds was also encouraged, and panels of government, business, and labour leaders convened to examine the economy and see where aid was needed. Countries had to fulfil certain conditions to be eligible for the aid: to decrease the number of interstate barriers and regulations, and to adopt modern business procedures.

Much of the Marshall Aid was spent on necessities. Of the $13bn allotted by mid-1951, $3.4bn had been spent on imports of raw materials and semi-manufactured products; $3.2bn on food, feed, and fertilizer; $1.9bn on machines, vehicles, and equipment; and $1.6bn on fuel. Apart from allowing spending on much-needed goods, which directly alleviated the dire situation of European citizens, the aid also established counterpart funds for long-term investment. 60% of these funds were to be invested in industry, and 40% into paying down the debt, stabilising the currency, or investing in non-industrial projects. The counterpart funds were especially crucial for the reindustrialization of Germany - 40% of the investment in the German coal industry in 1949-50 was through the funds. From this, we can see how the Marshall Aid was well-spent, aiding immediate shortfalls in necessities such as food and fuel while benefiting the long-term economic development of European countries.

The effects of the Marshall Plan demonstrate the considerable success it had towards European economic recovery. 1948-1952 became the fastest period of growth in European history up until that point, and the Gross National Product (GNP), the total sum of Western Europe's production of goods and services in 1951, had risen 25% in less than four years and was 15% above pre-war. Productive capacities vastly improved, shown by how industrial production increased by 35%, and agricultural production substantially surpassed pre-war levels. Steel production had doubled since 1947, giving a total production in 1951-52 of 60m tons compared to 35m tons produced by Russia and her satellite states. This demonstrated how the continent had a startlingly rapid post-war recovery. On a more micro level, individual countries in Europe also saw encouraging results. In Germany, the peak of inflation was passed in 1949, curbed by the expansion of production which enabled the adoption of restorative fiscal and monetary policies. France, which had previously had a deficit with almost every other country, did not have to use any of her drawing rights (foreign-exchange reserve assets) against Belgium or the United Kingdom in 1950. Belgium, whose intra-European surpluses had been about twice her dollar deficit, had a much-reduced surplus, if not a deficit. These effects were just the tip of the iceberg of immediate substantial economic recovery experienced throughout Europe.

Benefits of the Marshall Plan were not limited to the few years when it was in effect. Modernised business practices, structural adjustment programs and reduced trade barriers led to European income levels rising by nearly 20% by the mid-1970s. The Marshall Plan also led to European integration, which was necessary to secure the peace and prosperity of the continent. Although the Organisation for European Economic Co-operation established by the Plan was only an agent of economic cooperation, it served as a testing and training ground for structures later used by the European Economic Community, which would subsequently transform into the European Union. Hence, this demonstrates how the Marshall Plan successfully reconstructed Europe by enabling short-term production and long term productivity.

However, the picture is not as rosy as it appears. European reconstruction was far from perfect, and many historians have argued that statistics failed to take account of the counterfactual - where general European recovery was already on its way. The Marshall Plan is argued to be merely a precipitator for the growth seen in post-war years, and some even suggest that the aid was wholly ineffective. Aid accounted for less than 3% of the combined national income of the recipient countries between 1948 and 1951, which translated into a GNP growth of only 0.3%. It has also been pointed out that there was no significant correlation between the amount of aid received and the speed of recovery - both France and the United Kingdom received more aid, but West Germany recovered significantly faster. This argument for ineffectiveness is further substantiated by how the rate of industrial recovery was generally higher among the non-participating nations than among the participating nations. The index of industrial production (measuring production levels compared to a base year) for Belgium, the United Kingdom and France declined, while that of Austria, the Netherlands, Eastern Europe and the USSR increased substantially. Coal production in 1952 was still behind the pre-war output and about 20% short of the goal set for 1951, and of the $1bn in economic aid to Europe in 1950-51, about two-thirds represented payments for imports of American coal. The statistics demonstrate disappointing results for industrial output, which is a key performance indicator for the health of an economy. This shows the lack of correlation between aid and speed of economic recovery. It also shows that the reconstruction of Europe might not have been all there was to the Marshall Plan.

One comparatively obvious aim of the Marshall Plan was to prevent the spread of Communism. Moscow-controlled parties in Europe were on the rise, and Communist membership reached 2m after the war. Communist parties were gaining momentum in France, while economic problems were undermining Britain's position. The U.S. felt threatened by this fundamental ideological challenge to the prevailing principle of capitalism in the West, and strove to do anything in their power to prevent its spread. As the Truman Doctrine stated, “The seeds of totalitarian regimes are nurtured by misery and want. They spread and grow in the evil soil of poverty and strife. They reach their full growth when the hope of a people for a better life has died. We must keep that hope alive”. Communism was a large threat as it represented a fundamental ideological challenge to the prevailing principle of capitalism in the West. U.S. policymakers feared that without massive dollar aid, the European economy would deteriorate so much that most of continental Europe would fall into the hands of the Communists. By pumping in large amounts of aid, the Marshall Plan allowed the nations of Western Europe to relax austerity measures and rationing, which were effective in reducing discontent and bringing political stability. Even though there was a certain apprehension of American economic domination and possible interference in the internal economic matters of their countries, many governments were more than willing to accept interference directed against nationalisation or other “socialist experiments”. Despite this, the U.S. has been shown to be willing to forgo European recovery for the equally important aim of limiting Communism. Many point to how the ECA forbade the trade with European nations as it would further “the war potential of the Soviet bloc”. The U.S. impeded genuine European recovery through forbidding the exchange of Romanian oil for Italian machinery, or Austrian ball bearings for Polish grain. This demonstrates how much the U.S. cared about limiting Communism. The impact of the Marshall Plan was that Communist influence in Western Europe was greatly reduced. Communist parties faded significantly in popularity in the years after the Marshall Plan. This justified why there was general satisfaction on the assumption that the Marshall Plan had been an effective holding operation against “Communist efforts to sabotage recovery”.

Maintaining geopolitical stability in the dual forms of war prevention and rearmament were also implicit aims of the Marshall Plan. The U.S. attempted to establish a solid economic foundation of mutual collaboration and interdependence that would preclude the recurrence of armed conflict such as had engulfed Europe and involved the United States twice in a single generation. They recognised the hard truth that the conditions necessary to a stable Europe were necessary to their interests, as a major European war was certain to involve them as well. The main method of deterring war was forced European rearmament. Pressure from the U.S. Congress, combined with the outbreak of the Korean War, led to vast sums of money being spent on rebuilding the militaries of Western Europe. The Marshall Plan essentially provided an indirect economic subsidy to nations which were devoting a large percentage of their national budgets to military expenditures. This motive was crystallised in a revealing statement made in October 1948 by Senator Ralph Flanders on his return from Europe: “The United States has lost a major and perhaps decisive battle in the ‘cold war’ with the Soviet Union because the Marshall Plan is becoming diverted from its original purpose of European recovery into a means of rearming Europe. This change in the purpose of the Marshall Plan interferes with European recovery, threatens our own prosperity, and is a victory for Russia.” From here, it is demonstrated how the U.S. hoped to rearm Europe in deterring the Soviet Union from any war.

Another aim of the Marshall Plan was to restore macroeconomic stability to the United States. Many believed that the stability of the United States’ economy was endangered less by the magnitude of the money commitments than by the declining exports to Europe. By early 1947, the financing of U.S. exports was becoming more difficult as foreign reserves neared depletion and UN relief efforts came to an end. The State-War-Navy Coordinating Committee (SWNCC) warned in early 1947 that the “world will not be able to continue to buy U.S. exports at the 1946-1947 rate beyond another 12-18 months”. Without new means of financing, a sharp decline in U.S. exports was inevitable, which in turn could have a serious impact on the U.S. domestic economy. In light of this, the Marshall Plan enabled Europe to purchase additional goods from the United States. Much of the Marshall Plan aid would be used by the Europeans to buy manufactured goods and raw materials from the United States and Canada. The number of estimated exports with the Marshall Plan amounted to $19bn, constituting 8.3% of the United States’ GNP; without the Marshall Plan, it would be $15bn, or 6.5% of GDP. Hence a large reason for giving aid to European countries was to encourage a sustained pattern of spending on U.S. exports, maintaining its economic stability. The attempt to restore economic stability was also crystal-clear in the words of the highest authorities. The President of the United States, the Secretary of State, and the Economic Cooperation Administrator all stated that “maintenance of the American way of life” was the controlling factor. In other words, the Marshall Plan was part of a “worldwide struggle on behalf of the status quo for America”. This demonstrates how protecting the macroeconomic stability of the U.S. was a major factor in the Marshall Plan.

Closely tied to the aim to restore economic stability was the partial protection of U.S. industries and businesses, especially oil companies. This was illustrated by the pre-conditions for receiving Marshall Aid. Here, the United States was transparently self-interested. The ECA had control over domestic economic decisions, including the rate of capital investment and nationalisation of industries. They were also given the power to ship commodities related to the U.S.’s domestic surpluses and market interests abroad, instead of what the European countries needed and could afford. The pre-condition of austerity in participating nations was imposed with the simultaneous dumping of U.S. luxury goods. Blatant favouritism was also on display when treating businesses within and outside the U.S. U.S. shippers would be “paid higher rates for carrying ERP cargo in recognition of the higher operating costs of United States”. Protection, which essentially translated into a subsidy of big businesses, was also rampant within the United States. The energy industry was the main beneficiary of protectionism, including the coal and oil industries: the coal production in Europe by 1951, was still behind the prewar output and about 20% short of the goal set for that year. One statistic demonstrates how the U.S. might have had perverse incentives in encouraging this: of the $1bn for economic aid to Europe in the fiscal year 1950-51, about two-thirds represented payments for imports of American coal. This demonstrates how the coal industries in Europe might have been hampered by the American aim to export coal. Oil was another key commodity in the European Recovery Program (ERP), which suspiciously coincided with how the U.S. was a significant oil-producing nation. More than 10% of the total aid under ERP was spent on oil, more than for any other single commodity; between April 1948 and December 1951, 56% of the oil supplied to the Marshall Plan countries by U.S. companies was financed by the aid. Not only did the aid help provide Europe with the energy it needed for recovery, but it also served to maintain markets for U.S. oil companies at a time when their potential customers would otherwise have been unable to obtain the necessary dollars. As the head of ECA Paul Hoffman explicitly explained in early 1950, the Marshall Plan countries had “remained good customers of the [U. S.] petroleum industry because of dollars furnished by ECA”. This demonstrated how the Marshall Aid became a direct income stream for the U.S. oil companies. Another demonstration of this aim was the denial of funds to Europe for protection of the U.S. oil industry. One of the goals of the Marshall Plan was for Europe to use oil in place of coal, but the Europeans wanted to buy crude oil and use the Marshall Plan funds to build refineries instead. However, when independent American oil companies complained, the ECA denied funds for European refinery construction. This demonstrates the willingness of the U.S. to forgo European autonomy and economic wellbeing for protection of their own businesses.

Another reason the United States initiated the Marshall Plan was due to the ambition of increasing political influence in Western Europe. Many argue the Plan was a form of American economic imperialism and an attempt to gain control over Western Europe, to rival how the Soviets controlled the Eastern Bloc. The U.S.’ main method of doing this to exert influence over the economic decisions of Western Europe. This was perfectly demonstrated in a New York Times report in April 1948, titled “Draft ERP Pacts Limit Sovereignty”. A later report stated, “It is understood that the sixteen countries unanimously will request modification of the draft agreements prepared by the ECA, which they consider too exacting and stringent”. This demonstrates the attempt at limiting the sovereignty of Western European countries, and the fear they had towards the ostensibly benevolent but insidious funds from the United States. In particular, Belgium felt threatened by their decreasing economic autonomy. A dispatch from Brussels in 1948 expressed the fear that, under pressure from Washington for administrative and accounting simplicity, the ECA would push the Belgians toward a great deal more economic planning than they wanted to indulge in. Through this, the exertion of control by the U.S. is clearly demonstrated. It would have been in the U.S.’s interest to increase their sphere of influence. If they were allowed to manipulate the local economy in, for example, setting aside a larger budget in manufacturing sorely-needed goods for the U.S., or in spending more money on defence to the benefit of the whole continent, the U.S. could gain massive benefits. Hence, there is evidence to show that one large motive for the U.S. to grant Marshall Aid was to increase economic control over Western Europe. Political control was another aim of the Marshall Plan. This was illustrated in January 1949, where the American government suspended aid to the Netherlands in response to the Dutch efforts to restore colonial rule in Indonesia during the Indonesian National Revolution. The U.S. also implicitly threatened to suspend Marshall aid to the Netherlands if the Dutch government continued to oppose the independence of Indonesia. This demonstrates the large amount of influence Marshall Aid exerted on European nations. Their governments were essentially beholden to the U.S., as they were receiving massive amounts of aid on which their long-term economic viability depended. In terms of long-term political influence, the trade relations fostered by the Marshall Plan also contributed to the formation of the North Atlantic alliance that would persist throughout the Cold War in the form of NATO, bringing collective security and trade benefits to the U.S.. Chomsky further argues that the Marshall Plan “set the stage for large amounts of private U.S. investment in Europe, establishing the basis for modern transnational corporations”. This shows the importance of the Marshall Plan in setting the stage for long-term economic cooperation and transatlantic trade. Another demonstration of the economic control the U.S. exerted was the long-term loan obligations with which the Marshall Aid burdened European countries. Of the $17bn in the Marshall Aid, $1.2bn was loan aid to be repaid. In particular, Ireland received $146.2m USD through the Marshall Plan, with the vast majority of $128.2m as loans, and the remaining $18m as grants. By 1969, the Irish Marshall Plan debt, which was still being repaid, amounted to £31m, out of a total Irish foreign debt of £50m. The final German loan repayment was made in 1971. The U.S. essentially wished to make European countries beholden to them and to continue paying their debt until decades later. All this evidence demonstrates how the U.S. hoped to exert economic and political influence at that time and in the far future.

The wish to increase political influence was also crystallised in other parts of the Marshall Plan apart from aid and funds. The Technical Assistance Program established under the Plan, cooperating with the US Bureau of Labour Statistics, was a subtle method of bringing countries into their capitalist sphere of influence. There were mass organised plant visits to the U.S., where American economists, statisticians, and engineers were able to educate European manufacturers in statistical measurement. The goal of the statistical and technical assistance from the Americans was to increase productive efficiency of European manufacturers in all industries. This plan was welcomed by many European nations facing a decline in productivity and a need to improve their technological ability - France, for example, sent 500 missions with 4700 businessmen and experts to tour American factories, farms, stores, and offices. They were greatly impressed with the prosperity of American workers, and their ability to purchase an inexpensive new automobile for nine months work, compared to 30 months in France. The observation of a number of aspects of American society such as how local, state, and federal governments worked together with citizens in a pluralist society; how open universities and civic societies coexisted with a liberal, democratic tradition; and how the Americans made use of much more advanced factories and manufacturing plants, allowed Europeans to bring home many American ideas. The coordinated projects subtly "Americanized" European countries, especially Austria, through new exposure to American popular culture. Not only did this translate into more support for and cooperation with the U.S. government and businesses, but it also made the governments more adamant in sticking to a capitalist, free-market ideology.

In conclusion, the Marshall Plan was in part about the reconstruction of Europe. It contributed to how 1948-1952 became the fastest period of growth in European history up till that point, and to the rapid economic recovery of Western Europe. However, there were many other self-interested motives which not only hampered, but were occasionally actively detrimental to European recovery. The wish to prevent the spread of Communism led to the ban on trade with Eastern European countries, which could have provided cheap imports and been a dumping ground for Western European production surpluses. The aims of maintaining geopolitical stability and deterring a future war contributed to the vast rearmament of Western Europe, which was money that could have been spent on the development of infrastructure. The wish to maintain macroeconomic stability and the status quo of exports from the U.S. meant that much of the Marshall Aid was used up to buy American goods, and further meant that European countries had to buy oil and coal at a premium, harming their recovery. To increase political influence, the Marshall Plan increased the dependency of Western Europe on the U.S., through long-term debt obligations and the “Americanisation” of European countries. Overall, the Marshall Plan was about much more than the reconstruction of Europe - it was also transparently for the United States’ self-interest.

[Winner of the Vellacott History Prize by Vellacott College, Cambridge]


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