Dangers of Dollar Diplomacy

July 12, 1948

Perhaps the chief danger of the Marshall Plan is that it deflects public attention from the real political and economic problems that confront the world, while providing the illusion that something is being done to meet those problems. The crack within the Communist bloc is immensely encouraging, but the real question remains whether Washington will know how to make use of it. A continuation of our ambiguous postwar foreign policy, constantly wavering between firmness and appeasement, plainly cannot succeed. Whenever and wherever we appease him or give way to him, Stalin assumes—indeed the people behind the Iron Curtain and the people of Western Europe themselves assume—that we must be afraid of him. Every unrebuked insult or successful aggression can only encourage him to further insults and aggressions. His immediate aim has recently been to drive us out of Berlin; but his broader aim is to show the world who is master.

It follows from this that the true American warmongers are the appeasers, the Wallaces who think that they can buy peace by still more dangerous and humiliating concessions than those we have already made. The only possible way to assure peace, on the contrary, is by unyielding firmness before Stalin has been tempted to the ultimate reckless act.

What this means on the political side is clear. Against a great land power like Russia we could not possibly act on the European Continent alone. We could act only as an ally of Western Europe democracies resolved to defend their economic and political freedom. And we can secure such an alliance against Russian aggression only by willingness to give unequivocal military guarantees. We must be willing to guarantee the nations of the Western European union against any invasion of their territory or political integrity that they themselves are prepared to resist. If any one of the European governments is too timid to accept our guarantee or to defend the integrity of its own country, then the sooner we find that out the better. It is folly to pour billions of American dollars into any country that is not clearly determined even to defend itself.

From the political side the central defect of the Marshall Plan is that it is not the implementation of a real foreign policy but an attempted substitute for a foreign policy. It originally appealed to many of its supporters because it looked like an effective measure for halting Communist expansion “short of war.” It was an attempt to buy European friendship with dollars. Such good effects as it had lay chiefly in its announcement. It was a way of saying to Western Europe: “We are with you.” But it was a needlessly expensive way; and in the long run it will prove an ineffective way.

For the Marshall Plan misconceives the economic disease from which Europe is suffering and misconceives the cure, which is not American dollars but internal reform. Except in Holland, and to some extent in Italy, there are few signs in Western Europe that economic reforms along the right lines are taking place. Promises of reform we have received in exchange for ERP are vague and rhetorical; and we appear satisfied with rhetoric rather than performance.

Virtually everything continues—the government planning, the allocations, rationing, price fixing, exchange control, overvalued currencies, and expanding socialism—that tends to make chronic the European shortages and trade deficits we are trying to cure. A French observer, Bertrand de Jouvenel, points out in the British magazine Time and Tide that “the largest drain on the French Treasury” and “the chief remaining source of inflation” is the deficit in the state-owned industries, which has been swelling day by day. It is this socialist deficit that American capitalism has now undertaken to finance. It is not surprising that European recovery does not take place.

Military aid, in return for a dependable united European front, would be a rational American foreign policy. But we are turning over billions of dollars to Europe in return for something so indefinite that no one seems quite to know what it is.