The Uncalculated Risk

January 5, 1948

It has become fashionable to say that while the Marshall Plan does not guarantee European recovery or a peaceful victory over Communism it would be cheap even at $17,000,000,000 if it did bring these results. We are told that we are asked to take no more than a “calculated risk”—a gamble for tremendous stakes in which the odds are heavily in our favor. This argument, however, begs the central question. It takes it for granted that the European Recovery Program, in the form now proposed by the President, could do only good and no harm.

Yet Europe’s economic crisis today is only partly the result of war destruction or of bad weather. It has been brought on mainly by Europe’s own economic policies, which have destroyed the free-market mechanism and its incentives. Nearly everyone seems to assume that if this self-imposed crisis deepens, or if controls intensify shortages, Europe will turn in desperation to still more drastic controls and even to Communism. The Marshall Plan, it is thought, will prevent this by making the situation better.

It never seems to occur to those who hold this view that a deepening of this self-imposed crisis could lead to a demand in Europe, not for Communism but for a return to economic freedom. Yet there are already encouraging signs of this. Italy has restored relative freedom of foreign exchange. France has dropped some important controls. Former Premier Daladier recently declared in debate that inflation cannot be overcome in France as long as a managed economy prevails. In Britain the public faith in the managed economy has been visibly slipping. Is there not a real risk that the funds and goods supplied by the Marshall Plan, by making the situation more tolerable than it otherwise would be, could delay or prevent a return in Europe to free markets and free enterprise? Will the Marshall Plan be in fact so framed and administered as to save socialistic Europe from Communism? Or will it be so framed and administered as to save Europe from capitalism?

At present, certainly, these questions cannot be answered with confidence. In his message to Congress on the Marshall Plan President Truman admitted that our proposed $17,000,000,000 of help to sixteen European nations would constitute only some 5 percent of their total national production. Yet he declared the “two purposes” of our help to Europe to be “to lift the standard of living in Europe closer to a decent level, and at the same time to enlarge European capacity for production.” Would a 5 percent difference in its standard of living decide socialistic Europe to return to capitalism instead of driving on to Communism? “To enlarge European capacity for production” is to supply Europe with capital goods. To the extent that we do this we must necessarily defer our own capital expansion. Are we going to do it while Europe continues to follow the policies that systematically throttle its own capital production and investment—price fixing and profit control which discourage the output of capital goods and plant expansion; drastic income taxes that dry up the sources of capital accumulation; threatened socialization and seizures that discourage or prevent private investment?

Yet in the President’s message there was not one serious word of criticism of the economic policies now being followed by European governments. There was not one hint that these policies have been in any way responsible for the present European crisis. Nothing was said of the effect of overvalued currencies in discouraging exports. European promises for the future were taken as the equivalent of accomplished facts. Mr. Truman warned Americans against the consequences of providing “only halfhearted and halfway help.” He said nothing of the consequences of half-hearted and halfway self-help in Europe. Yet on the President’s own estimate what Europe does to increase its own production will be at least twenty times as important as the American contribution.

It is clear that the risks of the Marshall Plan, in the form in which it has been presented to Congress, have not yet been soberly calculated.