Original accounts of the Marshall Plan, or the European Recovery Program as it was known officially, hailed this celebrated enterprise as evidence of America's assumption of world leadership after the Second World War. Together with the North Atlantic Treaty and other instruments of Cold War diplomacy, the Marshall Plan supposedly marked the end of the isolationist era and the beginning of what Henry Luce called the “American Century.” This interpretation paralleled that found in older works on domestic history. These works viewed the New Deal as a second American revolution, the domestic equivalent of the revolution in American diplomacy engineered by Cold War policymakers in the 1940s. More recent works, to be sure, have begun to overturn the older interpretation. Those on domestic history have portrayed twentieth-century developments as part of a larger historical process by which Americans adjusted their economic and political institutions to the profound transformations brought on by industrialization. In these works, the liberal critique embedded in older scholarship, which separated the New Deal of the 1930s from the New Era of the 1920s, has given way to interpretations that consider both eras related parts of the modern American search for a new economic and political order.

Scholars of American diplomacy have been slow to pursue this theme. Recent works in this field have failed to connect the trends in domestic history to those in the history of foreign relations or to note how institutional adaptations at home influenced the direction of policy abroad.

The marshall plan rested squarely on an American conviction that European economic recovery was essential to the long-term interests of the United States. These interests were interdependent and mutually reinforcing, so much so that public officials saw little need to rank them in the order that subsequent historians have tried to establish. They included economic interests. Policymakers in the Truman administration were convinced that a “dynamic economy” at home required American trade and investment abroad, which in turn required the reconstruction of major trading partners in Europe and their reintegration into a multilateral system of world trade. These requirements summed up a world view rooted in political conviction as well as in economic interests. American leaders envisioned an open international economy founded on the principles of liberal capitalism, such as free trade and equal opportunity. But they also equated these principles with democratic forms of government, associated autarkic economic policies with totalitarian political regimes, and assumed that “enemies in the market place” could not be “friends at the council table.” “The political line up followed the economic line up,” as Cordell Hull once put it.

Strategic interests paralleled those of an economic and political nature. American policymakers viewed European markets, sources of supply, manpower resources, and industrial capacity as strategic assets that must not be controlled by a hostile power or coalition. The recent war had demonstrated the threat to American security inherent in such a development and the concomitant need to preserve American access to Europe's resources while denying them to potential rivals.

In the second half of 1949, the specter of the dollar gap hung over the Marshall Plan like Banquo's ghost over the feast. Unless corrected, the dollar gap would foreclose the American plan for a multilateral world based on nondiscrimination and full convertibility. The termination of Marshall aid in 1952 would drive participating countries deeper into the arms of an economic autarky. Gains in production and financial stability would be reversed, living standards would decline, and redistributive battles would resume. Once again the door would be thrown open to Communist parties in France and Italy. It would be more difficult to solve the German problem and forge a balance of power in the West sufficient to contain the Soviet bloc in the East. Progress in these directions had already been complicated by the resurgence of German nationalism and the successful Soviet test of an atomic device. Nor were these the only complications. The collapse of the Nationalist government in China and the spread of Communist insurgencies in Southeast Asia added a global dimension to the dollar famine. They pointed up the need for remedies that would bring economic progress and political stability not only to Europe but also to the sterling area and the overseas territories of other participating countries.

As in the past, American and British leaders disagreed regarding the best remedies to be applied. The Americans continued to prescribe the realignment of currencies, the elimination of trade barriers, and the coordination of national policies.

I began this book shortly after finishing a volume on Anglo–American economic diplomacy of the 1920s. That volume, which dealt in part with the diplomacy of European reconstruction following the First World War, stimulated my interest in the Marshall Plan to rebuild Western Europe after the Second World War. A history of the Marshall Plan seemed appropriate for other reasons as well. Although the plan was widely regarded as one of the most important international initiatives of the recent period, no thoroughgoing account of it existed at that point, only studies that treated its origins in 1947 and 1948. Then too, documents pertaining to the plan were just becoming available in the United States and in Great Britain. The availability of British documents was particularly important, in part because of my continuing interest in Anglo–American relations, in part because the British played a role second only to the Americans in the operation of the plan. These documents, notably the Bevin and Attlee papers, the Cabinet records, and the multiple files of the British Treasury and Foreign Office, have made it possible to write with some assurance about Whitehall's policy toward Western Europe, thereby filling a gap in the postwar history of British diplomacy. Much the same can be said of the memoirs, diaries, and published accounts by participants in the continental countries as well as in Great Britain. Together, they enriched my understanding of the political, economic, and security imperatives that influenced America's partners in Western Europe.

In the second half of 1948, the European scene was almost as foreboding as it had been when Marshall announced the recovery program a year earlier. The Berlin crisis, the Communist disruptions and labor unrest, the German economic revival, and the morass of nonconvertible currencies, trade restrictions, and low productivity were serious problems that required concerted action if Western Europe was going to look forward to a new day of peace and prosperity. Amid all of these difficulties, many turned again to the idea of unification as a way to control the Germans, contain the Soviets, and revive the European economies. Some looked to military unification through the Brussels Pact and a North Atlantic defense community. Others pointed to the OEEC as a hopeful sign of economic integration. Still others wanted to bring the new forms of economic and military collaboration under the aegis of a European political federation. Whatever their differences, all shared a vision of redemption through unification. Through greater unity, they saw Western Europe emerging from the rubble and the ruin of war, arising, like Lazarus from the grave, with new life and vitality.

American leaders did what they could to encourage this hope. The Republican Party platform of 1948 urged “sturdy progress toward unity in western Europe.” Republican luminaries like Dulles and Dewey called again for “European unity.” The Democrats issued a similar proclamation and the State Department announced its strong support for “the progressively closer integration of western Europe.”

The decade of the 1940s was a decisive moment in modern American history, as important for developments at home as for changes in U.S. relations with the rest of the world. The Second World War pulled the economy out of its worst depression, and in subsequent years the federal government for the first time in the nation's history took explicit responsibility for controlling the aggregate level of economic activity in the United States. A new style of foreign policy also emerged during and after the war. A nation that had in the 1930s turned its back on the European powers and belligerently proclaimed its neutrality, now became the leading power in the Allies' wartime coalition and in the postwar phalanx of Western, non-communist nations. These remarkable developments have received a great deal of attention from scholars – and deservedly so. But few historians have stressed the causal links between foreign and domestic events during these decisive years; of those who have, none has done so as convincingly as Michael Hogan.

Hogan's The Marshall Plan: America, Britain, and the reconstruction of Western Europe, 1947–1952, places this important policy innovation in a framework that he traces back to the 1920s, when Americans began to develop their particular brand of “associative state.” This new style of commonwealth brought organized interests into the state. Competition was qualified by new patterns of cooperation designed to shape the state as well as the capitalist system.

The Truman administration had asked Congress in January 1950 to renew the ERP for another year, the third of four years that had been planned from the start. Conservative opponents mounted the usual arguments. Pointing to an anticipated budget deficit of several billion dollars, they were now more convinced than ever that the ERP and other programs were paving the way to economic ruin and a regime of government controls. Senator Taft said the recovery of production and the restoration of financial stability in Western Europe made it possible to reduce the amount of American assistance by 16 percent. Others said that cuts in Marshall aid would encourage the Europeans to end “costly experiments with socialist devices” and to devote a greater share of their resources to productive investment. Complaints that American aid subsidized socialism in England mixed with charges that neither European nor American recovery planners had done enough to rebuild West Germany, where the new government was committed to private-enterprise capitalism and where the revival of production would do much to reduce the need for American dollars. As in 1948 and 1949, the conservatives also linked the Marshall Plan to the Reciprocal Trade Agreements Act, the International Trade Organization (ITO), and other measures that aimed to lower tariffs and organize a multilateral system of world trade. They identified these measures with the alliance of “internationalists” that had taken shape under the New Deal and went on to warn that “free trade” would destroy noncompetitive firms in the United States, throw workers off the job, and subject government policy to control by the ITO and other “super-states.”

At the time of the three-power conference in Paris, the State Department had not devised a concrete plan for stabilizing Europe. Instead of a plan, there had emerged an emphasis on European initiative in drafting a recovery program, a determination to provide the Europeans with limited “friendly aid” in the drafting process, and a set of principles to guide European and American action. In addition to maximum self-help, mutual aid, and resource sharing, American leaders were talking about the importance of liberalizing intra-European trade, making currencies convertible, and using central institutions to coordinate national policies. A comprehensive recovery plan founded on such concepts, or so the Americans assumed, would erase the traditional territorial constraints on European enterprise, abolish old habits of bilateralism and restrictionism, and eliminate archaic concerns with national self-sufficiency and autonomy. These attributes were seen as barriers to maximum productivity, and they were to give way now to a large, functionally ordered, and organically integrated economy similar to the one that existed in the United States. This was the American way to stable abundance and social peace in Western Europe and to a fully multilateral system of world trade.

Together with supranational institutions of coordination and control, economic integration would also help to build a viable balance of power among the states of Western Europe and a workable correlation of forces on the Continent. It would create a unit coherent enough to harness Germany's industrial strength without restoring its prewar dominance and strong enough to countervail the Soviet bloc in Eastern Europe.

The first half of 1949 saw unmistakable signs of progress toward the strategic and economic goals on the American agenda for Western Europe. Policymakers began to coordinate their economic and military policies and negotiate agreements looking toward the formation of a West German government. They also extended the transnational pattern of public–private power sharing, further strengthened the OEEC, and helped to revise the intra-European payments plan. In addition, industrial output in the OEEC countries climbed 18 percent above 1938 figures, agricultural production went up, Western Europe's overall volume of trade recovered to prewar levels, and many participating countries made progress in curbing inflation and balancing budgets. These gains came in part because member states were investing approximately one-fifth of their gross national income in new capital goods. Compared to this kind of self-help, as Paul Hoffman admitted to Congress, American assistance was playing a “marginal” role in Western Europe's revitalization. Still, the United States had extended $5 billion in Marshall aid to participating countries and this aid, according to Hoffman, had provided the critical margin on which all other investment depended. It enabled participating countries to cover their deficits in trade with the Western Hemisphere and thus to import the essential commodities that made self-help possible.

Hoffman's remarks came in the midst of a stormy congressional debate over a bill to extend the Economic Cooperation Act for another year. As in 1948, the debate revolved around the cost of the Marshall Plan, the plan's impact on the American economy, and the general objectives being pursued.

In the spring of 1948, American officials began framing the Foreign Assistance Act and working with their European partners to implement the cooperative commitments outlined in the preliminary report of the CEEC. Although the forum now widened to encompass congressional and private leaders, including critics on the Left and the Right, most of those involved were able to maintain the earlier consensus on fundamental points. Much of the discussion involved the traders' and planners' approaches, with policymakers still viewing a combination of these as the key to an integrated European order that dovetailed with the strategic and economic goals of the United States. In theory, integration would create a framework large enough to reconcile Franco–German differences in the West, contain Soviet power in the East, and achieve bipolar equilibrium. It would also enhance productivity in Western Europe, as it had done in the United States, without the arbitrary government controls that threatened private enterprise. The commitment to greater productivity was another component of the New Deal synthesis – a neo-capitalist formulation that also included Keynesian economic strategies and new patterns of public–private cooperation and power sharing.

This formulation, as well as balance-of-power considerations, inspired the defense of the Marshall Plan in Congress and guided American policy in Europe. But because it cut across national interests and more conventional categories of economic thought, it also became the subject of considerable controversy on both sides of the Atlantic.

“The Americans want an integrated Europe looking like the United States of America – ‘God's own country.’” This assessment, offered by Robert Hall of the British Treasury, sums up the central theme of the preceding chapters. Of course, the “Americans” to whom Hall referred did not include Henry Wallace, Henry Hazlitt, and other critics who accused the Truman administration of leading the nation down the garden path to economic ruin and world war. The Marshall Plan, as these critics understood, was the brainchild of a particular political coalition, the so-called New Deal coalition, which was strong enough to prevail against opponents on the Left and the Right. The outgrowth of underlying changes in the industrial structure and the concomitant political realignment of the 1930s, the New Deal coalition included at its core a bloc of capital-intensive firms and their allies among labor, farm, financial, and professional groups. Its leadership combined the technocorporative formulations of the 1920s with the ideological adaptations of the 1930s in a policy synthesis that envisioned a neo-capitalist reorganization of the American and world systems. It was this synthesis, what I have called the New Deal synthesis, that inspired the Marshall Plan to remake Western Europe in the image of “‘God's own country.’”

At the center of the New Deal synthesis was the vision of an integrated Western European economy much like the large internal market that had taken shape in the United States under the Constitution of 1787.

Because 1950 was a watershed in the history of the Marshall Plan, a year that marked the plan's greatest triumph in the European Payments Union and its denouement in the wake of the Korean War, it is important to begin this chapter covering the first half of the new year with an introduction that also reviews the major themes of the narrative so far. As we have seen, much of American recovery policy was dominated by a corporative view that compressed the lessons supposedly learned from both ends of American history. American Marshall Planners aimed to bring to pass in Western Europe “the miracle wrought by the Founding Fathers” and the New Dealers in their own country. They wanted to replace the old European system of separate sovereignties and redistributive politics with a unified and productive order similar to the one that had evolved in the United States under the Constitution of 1787 and the corporative neo-capitalism of the twentieth century. They were committed by political philosophy and economic doctrine to a policy that combined the principle of federalism with the New Deal synthesis. The first entailed at least some merger of economic sovereignties. The second blended an older faith in the rationalizing power of the market with a modern belief in economic planning and bureaucratic management.

So far as European recovery was concerned, American ideals translated into practical plans for liberalizing trade and payments, building central institutions of coordination and control, and devising public–private partnerships for greater growth and efficiency.

The end of the Marshall Plan began in November 1950, when Chinese armies intervened in the Korean War. Even more than the outbreak of hostilities in June, the Chinese intervention had the most far-reaching impact on the economic and political climate in the United States and on the foreign and domestic policies of the Truman administration. Earlier hopes that the war would end quickly gave way to plans for a long and costly struggle and to fears of Communist aggression in other parts of the world. American policymakers became more conscious of Western Europe's military vulnerability. As the White House laid plans to expand defense expenditures and mobilize the American economy behind the war effort, the Pentagon and the State Department intensified the pressure on European governments to strengthen NATO and bring West Germany into the common defense. Rearmament now had absolute priority in American policy, leading first to the transformation of Marshall aid into defense support and then to the demise of the Marshall Plan altogether.

These developments destabilized both the North Atlantic alliance and the political situation in participating countries. As the pace of rearmament outstripped the rate of economic growth in Western Europe, the price index shot up, the dollar gap widened, and the drain on reserves grew worse. The Europeans became more dependent on American economic assistance, just as priorities in Washington were shifting from Marshall aid to military support.