The Marshall Plan Jude Wanniski June 2, 1997

Memo To: Pat Buchanan
From: Jude Wanniski
Re: The Marshall Plan

In the weekend celebrations of the 50th anniversary of the Marshall Plan, I was happy to see you take the position that the MP was a good thing, but mostly because of its psychological effects. No matter how much tax-and-spend liberals of the current day insist that this was a pure example of the success of government giveaways, the facts demonstrate otherwise. The MP really did not amount to much more than a hill of beans, at most amounting to $13 billion in grants and loans for the four-year period, 1948-51. We’re talking $3 billion per year, mind you, and 75% of that was in interest-bearing loans, not grants. I do believe we should celebrate the Marshall Plan for its signal to Moscow that we were prepared to back up our commitment to democratic capitalism in Europe with hard cash (no matter how small the actual amount turned out to be). But we should not equate the expansion of the European economy that followed with this relative dribble of resources into Western Europe. To get the amount of money in perspective, recall that the United States public debt in 1945 was roughly $400 billion, almost all of which had accumulated during the war years.

The reason it is important to get this straight is that our dewey-eyed Leftist historians are ever eager to take credit for welfare handouts as the motive forces of Europe’s postwar economic prosperity. In fact, most of the direct Marshall Plan aid to Europe went to England, which from 1948 to 1979 remained an economic basket case, strangled by income-tax rates that remained at 96% at the top, until Maggie Thatcher came along. Belgium, which in 1946 was the first European country to restore free-market entrepreneurial principles, was expanding so rapidly in 1948 that she was ineligible for the MP handouts. If the Marshall Plan were really the reason for the economic expansion in Europe, as our liberal historians and journalists insist to this day, it would be so easy to inject resources into any country in the world and expect similar results. In fact, this is the rationale for the foreign-aid programs that characterized our postwar foreign policy in Asia, Africa and Latin America. It also became one of the rationales for our domestic welfare state. If a Marshall Plan can save Europe, why not have government tax serious resources away from producers and hand them out to non-producers, and the non-producers will somehow become productive!

In his 1958 book, A Humane Economy, Austrian economist Wilhelm Ropke dismissed the Marshall Plan as a scheme suited only to bolster socialist economies.

The really decisive victory in the critical European economic situation was won by Germany in the summer of 1948. Again it was a professor who switched from theory to practice. Ludwig Erhard and his group, stepping into a situation of so-called repressed inflation which was nothing less than the stark and complete bankruptcy of inflationary collectivism, countered with a resolute return to the market economy and monetary discipline. What is more, Erhard was unsporting enough to succeed beyond all expectations. This was the beginning of an impressive chapter in economic history when in the span of a few years we witnessed a nation’s precipitous fall and its rebirth and the almost total collapse and subsequent swift recovery of its economy. The world was treated to a unique and instructive example of the paralysis and anarchy which can afflict an economy when utterly mistaken economic policies destroy the foundations of economic order and of how quickly and thoroughly it can recover from its fall and start on a steep, upward climb if only economic policy recognizes its error and reverses its course

Ropke and the other Austrians correctly discounted the Marshall Plan as a drop in the bucket leading to the recovery of Europe. The fact that the greatest chunk went into England, which had the slowest postwar recovery, was evidence that they were right. Their only shortcoming was in giving Erhard credit only for monetary reform. In the course of researching my book in 1977, The Way the World Works, I realized that Erhard had concurrently pulled off a monumental tax reform. That is, in moving from Reichsmark to Deutschemark in his 1948 reform, Erhard left percentage income-tax thresholds constant. With the conversion rate being 10-to-1, this meant that the 90% income-tax rate would be encountered at the DM equivalent of $6000, not $600. The expansion of the German economy of course began almost overnight, before any resources began arriving from America under Marshall Plan auspices. Please note that in all the huzzahs given the Marshall Plan in the past week, there has been not a word about Erhard. Your friend George Will does handstands in his weekend column in applause of General Marshall’s handouts. George only serves to keep alive the idea that massive welfare programs benefit the recipients, when in fact they almost entirely benefit the private companies that send goods abroad financed by American taxpayers.

You are, though, probably right in saying the Marshall Plan had positive psychological effects on the rebuilding of Europe, giving Europeans a sense that Uncle Sam was not letting them down, and giving the USSR a sense that the United States was maintaining a rooting interest in Western Europe, which we had not signaled after WWI.