Future of the Marshall Plan

February 27, 1950

Congress has unwisely committed itself to two more years of the Marshall plan. Because of this, I suggested in this column of Jan. 16 that the simplest way to taper off the plan would be to cut the amount by one-third next year and by a second third for the following year. The simplest way to do this, in turn, would be to abolish the ECA bureaucracy, to divide the sums among individual governments in the same ratios as in the current year, to present the money as a gift, attach no conditions to it, authorize now the appropriations for both years, but put these governments on notice that our aid will definitely terminate at the end of this two-year period.

This plan is the simplest we could adopt. It is least likely to be misunderstood. Politically it would give no ground whatever for the criticism that we were trying to interfere in the “internal” affairs of the governments concerned. Let us call it Plan A.

But Congress may quite properly want to insist on economic and financial reforms in Europe in exchange for our aid. In that case the best plan would still be to abolish the ECA bureaucracy and to turn our aid program over to the Export-Import Bank. The bank should be authorized to make loans guaranteed by European governments that conformed to half a dozen simple but mandatory requirements of eligibility unequivocally laid down by Congress. For example:

1—No loan should be made directly to any government, but only to some specific productive enterprise, private or governmental. Each loan must be fully guaranteed, however, by the government of the borrowing country.

2—If the loan is to a going enterprise, private or governmental, that enterprise must be currently operating at a profit.

3—If the loan is made to start any new enterprise, that enterprise must be private. Native investors must supply equity capital equal to not less than a third of the total capital.

4—The guaranteeing government must itself be operating on a balanced or overbalanced budget.

5—The borrowing country’s volume of money and bank credit must at least not be growing faster than its physical volume of production.

6—The borrowing country must at all times maintain free convertibility of its currency, if not by going on a gold or dollar basis, then at least by permitting free exchange rates.

Let us call this Plan B. It may be objected that few European governments would be willing to make the reforms necessary to qualify for such loans. But as long as governments do not make these reforms, our aid to them is misdirected and wasted anyway. If at the end of six months any governments had not availed themselves of the loanable funds allotted to them, these funds could be made available instead, in the already established ratios, to governments that did conform with the eligibility requirements.

Plan A and Plan B could not of course be in effect simultaneously. But Congress could if it wished put Plan A into effect for, say, six months or a year to give European governments plenty of time to adopt the reforms necessary to make themselves eligible as guarantors for loans from the United States under Plan B.

Finally I should like to suggest Plan C. This is not a third alternative; it could be combined with either A or B. Under Plan C we would offer to forgive our entire loan of $3,750,000,000 to the British Government in lieu of further advances to that government under ERP. As these advances do not promise to be more than about $1,250,000,000, in the next two years in any case, the British Government should be greatly tempted to avail itself of such a choice. It would be relieved of $3,750,000,000 in indebtedness, and it would improve its net position by some $2,250,000,000. From our standpoint, it would save us about $1,250,000,000 in further cash advances. And it would remove what will be otherwise a source of resentment and recriminations between Britain and America for many years. This is precisely the opposite of the original purpose of the loan.