Marshall Plan Pro and Con

January 26, 1948

Henry Hazlitt and Ernest K. Lindley

LINDLEY: U. S. DOLLARS NOW OR AMERICAN LIVES LATER

No discussion of the Marshall program should lose sight of the central question: Is Western Europe to survive as a community of free nations?

Western Europe is the world’s second greatest workshop. Its 270,000,000 people have ways of life and ideals similar to ours. Most of them (Germany is the most important temporary exception) live under freely elected governments, all of which are at present non-Communist. Several of these nations are, moreover, the hearts of commonwealth and colonial systems embracing large parts of the earth.

The crumbling of Western Europe would be catastrophic for us. Without our support, Germany, Italy, and Greece almost certainly would go Communist quickly. In some of the other Continental nations, the first turn might be to the right—not to the free enterprise right, but of necessity to more or less totalitarian regimes. These could not stand in the long run, however, without our support, military as well as economic: The British position would be worsened immeasurably, at great added cost to us.

In two-and-one-half years since the war, Western Europe has made substantial recovery. Production in Britain, France, and seven other Marshall-Plan nations is up to or above prewar. Why, then, is further aid from the United States needed?

Before the war, Europe paid for one-fourth of all its imports by income from shipping, foreign investments, and other invisible exports. It got dollars also from the sale of colonial products to the United States. These sources of income have not yet been fully restored; parts of them are gone forever.

Some of Europe’s imports and production since the war have had to be used to repair war damage, a job which is far from complete. The population of Western Europe is 25,000,000 above prewar. There are other factors, but these, plus the lag in Germany, are enough to explain why, in spite of substantial recovery, Western Europe generally has not yet achieved either a tolerable standard of living for its people or the capacity to make its own way.

A critical juncture has now been reached. Without further aid from us, Europe will slide back, instead of going forward, simply because it is not yet able to pay for all the food, fuel, and raw materials it must import to keep its plant going, and for the fertilizer and equipment it must have to restore and enlarge its production.

The Marshall Plan is designed to enable Western Europe to push on to the point where it is once again self-supporting. The American contribution is calculated to provide only the indispensable margin of outside aid. This is not large in relation to the resources either of Europe or the United States. The first year, which should be the most expensive, will cost less than we spent in three weeks of war. It does not impose a new or increased strain on our economy. The rate of export called for is below that of last spring. And it is estimated that, even with the full Marshall program, our total excess of exports over imports will be smaller in 1948 than in 1947.

We will have to do without some food, fertilizer, and other things that we could use, but we will have more left, over all, for ourselves than ever before. The assertion that we can’t stand this relatively small call on our resources is preposterous. The burden is small compared with the war, with the huge outlays for defense that will be imperative if Europe crumbles, not to mention another war.

To get the maximum benefit from this program—indeed to give it a fair chance to succeed—we must give the European partners assurance that we intend to see it through. This can best be done, I think, by authorizing the administrative machinery for at least four years. An adequate initial appropriation is also essential. A niggardly sum would not generate the economic and political forces necessary to full recovery. The European partners must, of course, be required to live up to their pledges to put their internal finances in order, to lower artificial trade barriers, etc.

If we do not extend to Western Europe the relatively small amount of help it must have for the next few years if it is to survive as a community of free peoples, we will pay an infinitely greater price later—a price which almost certainly will have to be reckoned not only in goods and dollars, but in American lives.

HAZLITT’S REBUTTAL:

Whether Western Europe survives as a community of free nations (which Lindley rightly considers the “central question”) will depend chiefly upon two things: first, the economic and political policies followed by the nations of Western Europe; and second, the diplomatic and military policies followed both by them and by our own government in relation to Russia.

In this situation the Marshall Plan becomes secondary and almost an irrelevance. Yet it is being used by the Administration as a substitute for the hard diplomatic decisions that will finally have to be made. We are now challenged by Russia diplomatically and militarily on three chief fronts: China, Greece, and Berlin. If we are to prevent further catastrophes, our diplomatic policy on all three must be firm and unmistakable. It is in fact uncertain and ambiguous. The pleasant illusion that we can buy off the Russian nightmare merely by turning a few billions more of the American taxpayers’ dollars over to socialistic European governments cannot much longer be maintained.

We cannot even buy European recovery with it, any more than we bought British recovery with our $3,750,000,000 loan to Great Britain, because Europe is not following the policies that can bring about such recovery. Our postwar loans and grants so far have largely gone into subsidizing and prolonging price control, exchange control, and socialism that directly hinder European recovery. There is no guarantee that the continuance of our largess under the Marshall Plan will not make this situation worse.

Lindley stresses the loss of Europe’s invisible exports. The total net loss in Britain’s income from foreign investments, shipping, and other invisible items since the war (disregarding its foreign occupation costs) has been about £118,000,000. Those who are impressed by the calculation that the Marshall Plan would cost us less than 3 percent of our own national income, might remind themselves that Britain’s loss in invisible exports as compared with 1938 is only 1½ percent of its 1946 national income. For those who are impressed by percentages this is hardly a substantial lowering of its standard of living.

HAZUTT:WE CANNOT BUY OFF THE RUSSIAN NIGHTMARE

My misgivings about the Marshall Plan are not based on “isolationist” but on international premises. The proponents of the plan are right, as I have previously pointed out in this column, in believing that there is an economic crisis in Europe. They are right in realizing that our own economic and political future will be deeply affected by the fate of Europe. They are right in urging that we should do anything we can that promises to increase Europe’s welfare without imperiling our own.

But the all-or-nothing advocates of the Marshall Plan harbor serious misconceptions both of major economic facts and of major economic principles. They overestimate both the shortages of Europe and the resources of the United States. In his testimony before the Senate Foreign Relations Committee, to cite a single example, Secretary Marshall made the astonishing statement that the war “destroyed livestock herds” in Europe. Yet volume two of the report of the sixteen nations, published by the Department of State, shows that cattle on the hoof in those nations is in excess of 64,000,000, as compared with an average of less than 62,700,000 in the four years before the war.

The all-or-nothing advocates of the Marshall Plan, on the other hand, greatly overestimate American food resources. Before the war this country produced less than 9 percent of the world’s food supply. Even today it produces only 12 percent, or about one-eighth. Most of us have forgotten that before the war we were on net balance a food importing country. We think, for example, of the wheat we sold abroad; we forget that we bought from abroad several times as much sugar. From 1936 to 1940, we exported an average of $294,000,000 of foodstuffs a year: we imported an average of $665,000,000 worth.

Another misconception of the all-or-nothing Marshall Planners arises out of invalid comparisons with the national-income figures. From the President down, they have belittled the huge burden of the Marshall Plan by declaring that “it will cost less than 3 percent of our national income during the life of the program.” Passing over the question of how reliable our national income estimates really are, such a comparison is meaningless. In 1939 the value of our entire wheat and cotton crops added together was less than l½ percent of the then national income. The entire annual coal output of this country, bituminous and anthracite, is valued at less than ½ of 1 percent of the national income. But if this coal output were suddenly to stop, or if it were all shipped to Europe, we would not retain the other 99½ percent of our national income. The greater part of American industry would simply come to a halt.

Our economy is a closely interdependent living organism. If a man loses his right hand or his left lung you do not console him by measuring the loss merely as a percentage of his total weight. Shylock’s little joke was that his single pound of flesh was to be taken “nearest the heart.”

Our exports under the Marshall Plan must be measured, not in terms of abstract percentages, but in terms of where they impinge and on what they will do to our entire economy. We are not shipping out 2 or 3 percent of our wheat crop, but 40 percent. Such shipments have sent wheat prices and food prices skyrocketing, have boosted everyone’s cost of living, and have already put great distortions and strains on our internal economic relationships. It is time we heard the last of this belittling and meaningless 3 percent figure.

I must return, finally, to the general point I have made repeatedly both in previous columns and in my book Will Dollars Save the World? The Marshall Plan is based on the mistaken belief that the present economic troubles of Europe are chiefly the result of war destruction.

But the truth is that Europe’s economic crisis today is chiefly the result of its own postwar collectivist and inflationary policies. So long as its governments continue these policies, no aid that America could grant would be adequate to bring recovery. But if Europe returns to free markets and sound money, a dramatic revival could take place even without any further government financial aid from us, except food till the next crop comes in.

LINDLEY’S REBUTTAL:

The patient is recovering from compound fractures of all limbs, concussion, and double pneumonia, in an under-heated room and on an inadequate diet. Hazlitt’s diagnosis is: boils and incomplete mastication. He rebukes the patient and prescribes: no more food until you have proved that you have learned how to chew it thoroughly. The result of this “cure” can only be death.

There is general agreement about some of the financial and economic steps that should be taken in Western Europe. The most important are pledged or inherent in the Marshall Plan. But even if Hazlitt’s advice were followed to the last tittle, it would be fantasy to suppose that Western Europe could become self-supporting without a further infusion of working capital. I have cited some of the important reasons. There are many others, including Russian control of Eastern Europe and Communist activities within Western Europe.

To support his thesis that we cannot afford ERP, Hazlitt takes as an example food, especially wheat. There is no intention of continuing the wheat exports at this year’s exceptionally high level, occasioned by the worst crop weather Western Europe has had in decades. Wheat exports scheduled under ERP are much smaller—300,000,000 bushels at the highest, as against the 500,000,000 in this crop year.

Overall food exports projected under ERP are lower in recent years. And, literally, they do not include for Europe a single pound of edible flesh, except horse meat.

In this space I can touch on only one more point. Hazlitt appears to feel no basic difference between Communists and Socialists. Even if the latter are wrongheaded in their economics, they are on our side in the critical struggle to save Europe as a community of free peoples. They stand as a bulwark against Soviet Communist ambitions. That is why Cominform assails Attlee, Bevin, Blum, and others so ferociously as enemies of the working class, just as it assails others who support the Marshall Plan but not those who, like Hazlitt, are against it.