What Was the Marshall Plan?

The Marshall Plan envisioned the reconstruction of Europe after World War II. President Harry Truman’s administration launched the initiative, which provided $13 billion for economic and technical assistance. It boosted European morale and promoted political and economic stability, which lowered the influence of domestic communist parties and strengthened the American position. The plan was implemented after negotiations between the United States and 16 participating European countries in July 1947. The Soviet Union and its eastern European satellites, however, did not participate. Joseph Stalin saw the plan as a threat to communism and a manifestation of American imperialism. After the completion of the Marshall Plan, all participating countries’ economies, except Germany, surpassed their pre-war levels. The subsequent two decades saw unprecedented economic growth in Western Europe.

World War II caused the deaths of 60 million military and civilians. It marked the first international conflict in which civilian casualties outnumbered military casualties, and the world saw the tragedy of one of the first organized genocides in modern history, the Holocaust. Additionally, heavy artillery and aerial bombing across Europe brutally destroyed cities, towns, and villages, including the industrial and cultural centers. The horrors of World War II and its aftermath caused the displacement of at least 40 million people from their home countries, with about 11 million coming from Allied-occupied Germany.

The United States, being less damaged by the war than other Allied forces–Great Britain, the Soviet Union, and France–supplied aid to millions of people living in refugee camps through the United Nations Relief and Rehabilitation Administration as well as other organizations. However, it was not enough.

World War II disrupted the supply and production of food and other agricultural products in Europe. In addition, airstrikes and artillery attacks severely damaged the region’s transportation infrastructure, including railroads, power plants, port infrastructure, roadways, bridges, and airports. The naval forces and shipping fleets of key European countries had been destroyed. All of these contributed to the disruption of the region’s trade flows and economic isolation from the rest of the world.

The economies of most European states were recovering slowly. Industrial production was 88% of 1938 levels, exports 59%, and agricultural production 83%. The only exceptions were the United Kingdom, the Netherlands, and France. In these countries, production had already been brought back to pre-war levels by 1947. In 1948, Belgium and Italy also reached the pre-war production level. From 1946 to 1948, food production was two-thirds of what it had been before the war. A drought and a harsh winter destroyed most of the wheat crop. Severe socio-economic conditions were only contributing to the rising popularity of communist parties. The economic issues could not be fixed promptly, as most countries at war had drained their resources. The Truman administration saw the need to adopt a definite position on the world scene or fear losing credibility.

To avoid the economic deterioration of post-war Europe, the expansion of communism, and the stagnation of world trade, the Marshall Plan sought to stimulate European production, promote the adoption of policies leading to stable economies, and take measures to increase trade among European countries and the rest of the world. The government of the United States was concerned that the hardships, unemployment, and instability of the post-World War II era would increase the attractiveness of communist parties to voters in western Europe and further contribute to the Soviet Union’s expansionist policies.

The idea of providing economic assistance to Europe as part of the United States’ early strategies in the Cold War was first introduced on May 8, 1947, by Under Secretary of State Dean Acheson. In Cleveland, Mississippi, he gave a speech at the annual meeting of the Delta Council, where different social, economic, and financial issues had been discussed since 1935.

During his speech, Acheson outlined the urgent need to provide international aid to post-war European countries. For Acheson, the plan was not just about rebuilding Europe but also for:

“building world political and economic stability, promoting human freedom and democratic institutions, fostering liberal trading policies, and strengthening the authority of the United States.”

With this speech, he hoped to attain wider public support, including that of the local farmers and businesses of the Mississippi Delta, as the growing dollar deficit in Europe was negatively affecting the American economy: unable to pay for the imported goods, European states would be eventually prohibited from trading with the United States, creating financial difficulties for farmers and businesses locally.

In his historic speech at Harvard’s graduation ceremony, the idea of a European self-help initiative that the United States would finance was advanced by Secretary of State George C. Marshall on June 5, 1947. In his speech, Marshall outlined the need for an economic aid strategy to assist the devastated European countries in recovering from the effects of World War II. The Secretary of State outlined that,

“It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.”

Events unfolding in Greece and Turkey proved the necessity of such a program. Greece was suffering from a civil war between the communist-backed National Liberation Front and the British-supported Greek monarchy, and Britain was losing its position. Supporting anti-communist forces while trying to rebuild after the war seemed challenging. The same scenario prevailed in Turkey, where the Soviet Union pressured the Turkish government to grant the Union special privileges for using the Turkish Straits. If accomplished, it would strengthen the Soviet Union’s influence in Europe and threaten American economic and political interests on the already polarized European continent.

As a result, the Truman Administration and Congress formulated the European Recovery Program, otherwise known as the Marshall Plan. It comprised of providing roughly $13.3 billion (worth $174 billion in 2023) of assistance to 16 European countries: Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, the United Kingdom, and Western Germany. The assistance equaled 5 % of the United States’ gross domestic product at the time.

Representatives from 16 European countries gathered in Paris on July 12, 1947, to discuss the economic issues they were facing as well as potential remedies. This discussion was mandatory under the proposed Plan to receive aid. Before the Plan’s approval, participating European countries committed to taking steps toward solving their economic problems rather than simply receiving financial aid for recovery. The Committee of European Economic Cooperation (CEEC), a cooperative organization, was formed and consisted of participating members. Marshall did not restrict any state, including the Soviet Union, from joining the meeting. However, the USSR and its satellites refused to participate, as the General Secretary of the Communist Party, Joseph Stalin, believed that it would restrict their economic sovereignty and increase American influence.

As a result of these discussions, the design of the Marshall Plan was finally crafted. It would last for four fiscal years and provide aid to the recipients per capita, with larger amounts given to major industrial powers such as West Germany, France, and Great Britain. This was done under the assumption believed by Marshall and his advisors that the revival of these key countries was essential to Europe’s recovery.

According to the Marshall Plan, it would assist European countries in:

• Replacing, expanding, and rebuilding both private and governmental infrastructure;
• Eliminating production bottlenecks;
• Reintroducing consumption to a politically acceptable level;
• Creating the European Payments Union and providing funding for it to support;
• Endorsing international commerce rather than bilateral trade;
• Ending the global dollar shortage.

However, the Marshall Plan had “conditionality” — recipient states had to consent to the following:

• Expand commerce on a multilateral basis throughout Europe;

• Make progress toward currency conversion;
• Work to abolish discrimination against American imports;
• Promote public spending cuts;
• Relax government controls such as rationing;
• Boost exports to the United States.

In April 1948, two agencies were created to implement the Marshall Plan: from the side of the United States, the Economic Cooperation Administration (ECA), and on Europe’s side, the Organization for European Economic Cooperation (OEEC). The latter assisted in ensuring that members met their shared obligations to adopt trade- and production-enhancing measures. The ECA helped Europe buy goods like food, fuel, and machinery with monetary assistance and leveraged money for specialized projects, particularly those that developed and repaired infrastructure. Additionally, it authorized the use of local currency matching funds, granted guarantees to stimulate private investment in the United States, and provided technical support to boost productivity.

The $13 billion project began with the delivery of food and supplies to French and Dutch ports throughout Europe. Soon after, tractors, turbines, lathes, and other industrial machinery were provided, along with the fuel needed to run them.

Money from the Marshall Plan was distributed to local governments and jointly managed by ECA. In each participating country, a special ECA envoy, usually a well-known American businessman, was appointed to provide guidance and expertise during implementation. To assess the economy in each participating state and determine where assistance was required, panels of government, corporate, and labor leaders were assembled to gather and analyze the economic developments.

As a result of these developments, the fastest phase of growth in European history occurred between 1948 and 1952. The level of industrial production in Western Europe had increased by 40% by the time the Marshall Plan was completed in 1951. Moreover, trade and exports significantly outpaced what they were before World War II. Increased production created more working places, and thus the living standards of Europeans improved.

Perhaps even more significant than the economic implications of the Marshall Plan were the political ones. Aid from the Marshall Plan enabled Western European countries to ease rationing and spending restrictions, which decreased dissatisfaction within Western European populations and brought political stability. Communist parties lost political influence. Economic self-sufficiency in all participating European countries had been achieved, and as Secretary of State George C. Marshall thought, the cooperation of all European nations led to greater unity. Communism in Western Europe was successfully contained. Aside from Czechoslovakia’s fall to communism on February 25, 1948, no other Western European nation shared the same fate.

A sort of “United States of Europe” was what the Truman administration envisioned for the future of the European continent. Indeed, the promotion of economic and political cooperation among European countries through the Marshall Plan influenced the idea of forming the European Union.

It promoted economic integration, which led six countries — Belgium, France, Germany, Italy, Luxembourg, and the Netherlands — to establish the European Coal and Steel Community in 1950. Eight years later, the same six created a more cohesive European Economic Community, eventually transforming into the European Union in 1993. The frameworks that were implemented by the European Economic Community were tested and developed in the OEEC as part of the Marshall Plan.

Additionally, the Brussels Treaty on Mutual Defense, ratified in 1948 by the 16 participating European countries, served as the precursor for the creation of the collective security organization, the North Atlantic Treaty Organization (NATO), in 1949.

Scholars often suggest that the Marshall Plan only further intensified tensions between the United States and the Soviet Union and contributed to the intensification of the Cold War. It signaled a new era of global responsibility for the United States. Turning away from its traditional policy of isolationism, the Marshall Plan helped the United States to position itself as a new leader in a new emerging post-war order, threatening the dominance of the Soviet Union.

The Marshall Plan is regarded as one of America’s most efficient foreign aid initiatives and one of its more successful foreign assistance programs. As economic historians J. Bradford De Long and Barry Eichengreen outlined, the Marshall Plan can be regarded as “history’s most successful structural adjustment program.”

Marshall received the Nobel Peace Prize in 1953 “for proposing and supervising the plan for the economic recovery of Europe.” British Prime Minister Winston Churchill rightfully called Marshall’s decision to rebuild Europe “the highest level of statesmanship.”