The Political and economic debate of the macroeconomic effects of the Marshall Plan

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FEDERAL STATE AUTONOMOUS EDUCATIONAL INSTITUTION

FOR HIGHER PROFESSIONAL EDUCATION

NATIONAL RESEARCH UNIVERSITY HIGHER SCHOOL OF ECONOMICS

Faculty of World Economics and International Affairs

BACHELOR'S THESIS

The Political and economic debate of the macroeconomic effects of the Marshall Plan

Migavchik Artemii Aleksandrovich

Moscow, 2020

Abstract

The research is aimed to both analyze and reevaluate the role of the Marshall Plan of 1948, not only for the recipient - mostly Western European nations, but also its impact on the U.S. economy in the long-run. The discussion, political and economic, would be provided as a way for further in-depth analysis of the macroeconomic effects of the Marshall Plan. The discussion itself would take into account notable events and factors, focusing primarily on the framework within the Cold War and the policy of containment, set by the United States after acknowledging the expansionist attitudes of the post-war Soviet Union. The political debate in the United States and reasoning of the necessity of the Marshall plan to reintegrate Western Europe into the forging new world order would broaden the understanding of the aims and tools of the U.S. foreign policy in the Cold War period. Results of this milestone policy of the United States reflexed in the post-war European vector of development, a story of the tremendous economic success, prosperity, and growing interdependence that has already become one of the most vital features of the modern world. Marshall Plan, despite its political importance, has contributed significantly to the abolishment of the usual economic isolationism, coming hand by hand with the process of globalization. In addition to those as mentioned above, the research would allow evaluating the possibility of the consideration of macroeconomic effects for the United States, answering the question of whether it was a planned move or coincidence.

Table of contents

Introduction

1. Theoretical background and Methodology

1.1 Literature review

1.1.1 Marshall Plan: Draft and Action

1.1.2 Debates to be set: Politics vs Economics

1.2 Theoretical scope of the matter

1.3 Methodology

1.3.1 Qualitative methods

1.3.2 Quantitative methods

2. Marshall Plan: Draft and Action

2.1 The Post-War Global Order: Path to Bipolarity

2.2 From Truman's Doctrine to the Marshall Plan: The U.S. Foreign Assistance Projects

2.3 The Marshall Plan in Action

3. Europe and its “before and after”: Post-war Revival

3.1 The Dollar Gap: a Trap for Europe

3.2 European Unification and Trade Liberalization

3.3 A Brief Outlook at the European Economies: Leaders and Underdogs

3.4 An Inference from the European Experience

4. Politics vs Economics: Debates to Set

4.1 Political Results of the Marshall Plan

4.2 Economic Effects of the Marshall Plan

Conclusion

Bibliography

Appendix

Introduction

«An act to promote world peace and the general welfare, national interest, and foreign policy of the United States through economic, financial, and other measures necessary to the maintenance of conditions abroad in which free institutions may survive and consistent with the maintenance of the strength and stability of the United States.» - Title of the U.S. Foreign Assistance Act of 1948

In 1945, the Allied Forces proclaimed the victory over Nazi Germany in WWII. The outcomes of the Second World War, the most devastating and terrifying war in the history of humanity, have left a massive pile of matters to consider for each side. Consequently, most of the European continent was devastated by the war, marking the upcoming years of extensive post-war recovery. However, another conflict rose drastically. The imminent confrontation within the former allies has become more evident when USSR has patronized the communist movements in liberated areas of Eastern Europe and supported the creation of socialist governments in Poland, Hungary, and Czechoslovakia.

The West, led by the United States of America, one of two superpowers, alongside with USSR, developed the policy of containment towards the USSR after the well-known Kennan's Long Telegram of 1947. The Long Telegram included the description of Kennan's observations, regarding the Soviet further aims and attitudes towards the West, summarising the note by proposing the containment of the Soviets via political, economic, and ideological consolidation within the West Kennan, G. (1946, February 22). The Long Telegram. In Wilson's Centre Digital Archive.. In order to secure and ensure the spread of liberal democratic values in the rest of Europe, the United States launched the European Recovery Plan: named after George Marshall, the U.S. Secretary of State under President Harry Truman, financial aid of 15 billion U.S. Dollars to the European nations as a contribution of the U.S. to rebuild infrastructure, damaged by the war.

Besides its practical orientation, the Marshall Plan proclaimed the necessity to, first of all, create and reforge, aiming at the later ease of the trade within Europe, as well as creating stable trade relations with the U.S. Politically, the Plan itself played a central role in the U.S.'s containment of the Soviet imperialist policy, as the intra-European unity has led to the emergence of NATO and enhancement of the security in Europe. Growing interdependence between Western-allied nations was an additional cause of the political success of the Marshall Plan. Benefiting in a vast number of ways, the United States could make a move that let the nation to enjoy a rapid economic post-war boom that was unstoppable until the 1970s: out of common sense, any vanishing of such a considerable amount of cash from the economy would instantly lower the inflation rate growth. Given that the economy of the United States remained untouchable during the war, it has generated enormous profits, as the numerous domestic companies were actively executing hundreds of thousands of orders from the state, for the needs of the U.S. Army.

According to the macroeconomic theory, in the cases when the money supply began to grow excessively, the inflation rates rise, as well as the general prices on goods and services Mankiw G.N. (2012). Macroeconomics (8th ed., Vol. 1, pp. 90-91). New York, NY: Worth Publishers.. Thus, there was a possibility of a post-war recession, which could have been either intentionally or not evaded by the investment of 13 billion U.S. Dollars in the European states through the European Recovery Program and Truman Doctrine. The main research question of the paper is the following: “Could such a massive geopolitical adventure in the form of the Marshall Plan and its successors be profitable in the long-run?” Was the macroeconomic side effect planned and remained a significant argument for launching the plan, or the political purpose of the decision did not allow to consider the economic issues properly? It is widely known that geopolitics require massive investments that would not be returned or capitalized, and the story of the fall of the USSR clearly reflects that. The question presupposes vast research in the history of the post-war development of Europe and the foreign policy of the United States in the years of the Cold War.

1. Theoretical background and Methodology

1.1 Literature review

1.1.1 Marshall Plan: draft and action

The current paper focuses on the research of the events of the Cold War, an indirect conflict of two superpowers, namely the United States and the Soviet Union that occupied a long period in the XX century, lasting from 1946 to 1991, straight until the dissolution of the Soviet bloc in Eastern Europe and the fall of the Soviet Union. Ideological differences disrupted the relations between former allies mostly due to the sharp ideological differences, dividing the world into two dimensions: the U.S.'s liberal democratic values formed a core for the unity of Western nations, and USSR's allegiance to the ideas of Socialism, alongside with the reputation of the nation-liberator, took a central stage for the admirers and followers of the socialist ideals. The Cold War was primarily characterized by the absence of direct military conflict between two rivals; instead, proxy wars were waged, aiming for setting a loyal government in the distorted territory, meaning that the superpowers were struggling for the spheres of influence all around the globe. The well-known Fulton Speech (1946), provided by Winston Churchill, the prime minister of the United Kingdom, has proclaimed the beginning of the era of superpower confrontation.

In 1948, the European Recovery Program started to rebuild the Western European nations' infrastructure. The Plan itself aimed to reconstruct the damaged infrastructure of Europe's 17 countries plus Turkey and Greece, emphasizing its importance for the survival and flourishing of the democracy within given nations. The focus subject of the topic was the part of the initial stage of the Cold War, thus, structural realism theory of international relations, developed by Kenneth Waltz (1979) in his “Theory of International Politics” workpiece, as it contributes substantially to the understanding of the containment policy. Already mentioned George Kennan's Long Telegram (1947) highlights the ground reasons for the containment policy.

In addition to Kennan's Long Telegram, it is worth to highlight George Kennan's article “The Sources of Soviet Conduct” in Foreign Affairs journal July 1947 issue - he describes the psychology of the Soviet regime, contributing to the analysis of the Soviet behaviour in foreign policy, as well as strengthening thesis that the Soviet Union containment is the strategy the West should follow in order to defend its core values. Remarkable contributions of the notable political scientists and international relations scholars to the issue, such as Charles Kindleberger's article (1968) on the role of the Marshall Plan in the Cold War, in addition, another article by Kindleberger elaborates Kindleberger C.P. (1988, March 1). The One and Only Marshall Plan. The National Interest, 113-115. on the critique of the Marshall Plan by Hogan (1987). Other analytical notes would be useful for comparison of the opinions and developing the paper further.

The debate over political outcomes of the Marshall Plan is possible yet hardly to doubt the success of American diplomacy in this very case. However, the economic discussion should evaluate and overview the role of the Plan for the American economy. In a given context, other theories of international relations, including Hedley Bull's (1977) concept of the English school theory or liberalism could be applied and used in analyzing the factors that led to the acceptance of the Marshall Plan. The approaches mentioned above emphasize the importance of cooperation and global interdependence for the creation of the global order.

John Gillingham's book “The E.U.: an obituary” (2019) presents the historical outlook of the nature of Marshall Plan, the attitudes of the European politicians towards the American initiative and explains its role in the development of the pan-European community. Gillingham J.R. (2019). The EU: An Obituary (Vol. 1, pp. 12-13). New York, NY: Verso. The actions of the United States could also be clarified through the prism of the hegemonic stability theory/democratic peace theory of Kindleberger (1978). The Domino Effect, described by Dwight D. Eisenhower in 1954, should be mentioned as well due to its possible benefit to the study of the American foreign policy in the 1940s-1950s in the context of the paper.

To review the success of the Marshall Plan in the post-war recovery, “The European Economy since 1945: Coordinated Capitalism and Beyond” book by Barry Eichengreen (2007) would be the base for the evaluation of European development.

1.1.2 Debates to be set: politics vs economics

In this part of the research, quantitative data would be presented and analyzed with a connection to the qualitative data correctly in order to study the macroeconomic effect of the Marshall Plan for the U.S. Basic macroeconomic knowledge could be of great use in this paragraph. Most of the macroeconomic theoretical quotations would refer to Mankiw's (2002) “Macroeconomics” study book. International political economy theory, such as economic liberalism, initially developed by Adam Smith in his “The Wealth of Nations” (1776) and further developed throughout the XIX and XX centuries, emphasizing the importance of foreign investment and foreign aid as the tools of economic liberalism for the research. With the use of analytical notes that covered the economic effects of the Marshall Plan, the track of vector of the Western economy development could be traced, and the impact of the Marshall Plan would be depicted.

According to Potts (1947), the Marshall Plan would lead to the trade barriers removal within Europe and rapidly revive post-war economies of Europe Potts C.S. (1947, September). Dollars are not enough: High Tariffs vs. Marshall Plan. Southwest Review, 32(4), 414-420.. It was predicted that the trade between European nations and the United States would create a basis for stable and flourishing trade relations. The articles that review the state of the American economy of the 1940s-1960s would be used primarily as the sources for financial data. Block's 1977 book “The Origins of International Economic Disorder” would reveal the issues that might be brought by the Marshall Plan to the American economy.

1.2 Theoretical scope of the matter

From the perspective of the international relations theory, it is hard to state, which approach would describe the actions of the United States most precisely. Different activities and policies of the U.S. could be characterized by realism, liberalism and English School. The author found that in the conditions of the Cold War, structural realism would fit as an explanatory theory. The inventor of this theory, Kenneth Waltz, outlines the following assumptions of structural realism:

1. Instead of the focus on human nature, structural realism places the anarchical structure of the international system as the reason for wars persistence;

2. States are the victims of the security dilemma, where the efforts of one state to improve its defensive capabilities would be counted as a threat to another country and the latter would mobilize itself as well;

3. Survival remains the main task of the state; thus it has to concentrate enough military, political and economic power to secure itself;

Waltz (1979) outlined the so-called crux of security dilemma: if one state starts to arm itself, it will threaten the neighbouring countries that would react similarly. The process of armament would create the arms race, in which every side accumulates military capabilities as a response to its rivals' actions. The containment policy, discussed earlier, as well as the NATO creation, were the parts of the geopolitical strategy of the United States. It has a clear and consistent purpose of suppressing the enemy in the face of the Soviet Union. Besides, since the beginning of the Cold War, the world started to form a bipolar global structure, where would be a direct division into the spheres of influence. That fits well in the structural realism theory of Waltz.

1.3 Methodology

1.3.1 Qualitative Research Methods

The methodological background of the paper could first and foremost, be characterized by the use of both qualitative and quantitative methods of research. Qualitative methods of research are of crucial importance for the paper, and the most applicable methods for the paper are case study, comparative method, and content analysis. According to Yin (1989), a case study is a method of a close-up and detailed examination of a particular case Yin, R.K. (1989). Case Study Research: Design and Methods (5th ed., pp. 24-39). London, United Kingdom: SAGE Publications Ltd.. For this paper, a case study would be used in order to investigate the specific features of the Marshall Plan, its outcomes, and its heritage. Besides, previous cases of the U.S. foreign aid distribution (e.g. U.S. foreign aid to Belgium during WWI) should be analyzed by using the case study research method and compared to the Marshall Plan in terms of purpose and long-run aims. Referring to Stacks (2013), four types of case studies are being used for research - illustrative case studies, exploratory case studies, cumulative case studies, and critical instance case studies.

Throughout the work, all these types of case studies would be presented and used for further development of the paper's core concept. The comparative study could be used for examining the interdependence between Western European economies and actions of the U.S. before and after implementation of the Marshall Plan in order to use it as a further argument for or against the existing hypothesis. Qualitative research involves work with printed and online sources (books, articles, magazines and journals, databases). The strategy of archival and document-based research, according to Lamont (2015), “is perhaps the most common strategy used by students for research in I.R.” Lamont C. (2015). Research Methods in International Relations (pp. 80-82). London, United Kingdom: SAGE Publications Ltd. and is applicable to this paper as well.

The strategy divides the necessary documents into two subgroups: primary source documents (the original documents, authorized by the officials) and secondary source documents (references or analysis of the primary source documents, e.g. referencing the article that covers Kennan's Long Telegram).

1.3.2 Quantitive Research Methods

Quantitative methods, such as gathering and interpreting statistical data, descriptive and correlational research methods would be used in order to analyze the economic performance of the United States and Europe, a reflection of the Marshall Plan in statistical data of GDP of the European nations before and after launching of the Marshall Plan. Financial data of the United States and its balance sheets would be beneficial for presenting the actual impact of the Plan on the American economy. However, quantitative research methods are not primary for this research, reasoning it mostly by the field of study and the research question, hence would not be intensively used.

2. Marshall Plan: Draft and Action

2.1 The Post-War Global Order: Path to Bipolarity

“From what I have seen of our Russian friends and Allies during the war, I am convinced that there is nothing they admire so much as strength, and there is nothing for which they have less respect than for weakness, especially military weakness. For that reason, the old doctrine of a balance of power is unsound. We cannot afford, if we can help it, to work on narrow margins, offering temptations to a trial of strength. If the Western Democracies stand together in strict adherence to the principles of the United Nations Charter, their influence for furthering those principles will be immense, and no one is likely to molest them. If however they become divided or falter in their duty and if these all-important years are allowed to slip away then indeed catastrophe may overwhelm us all.” - Sir Winston Churchill, Sinews of Peace Speech of March 5 1946

In 1945, the Second World War came to its final. On May 8 1945, the German Reichsprasident Karl Doenitz, alongside the representatives of the Allied Expeditionary Forces, Soviet Red Army officials, and the high command of the French forces, signed the Act of Unconditional Surrender. The U.S. President Franklin Delano Roosevelt had a definitive vision of the post-war global order. In his view, the world would be regulated by international law, with free markets and comprehensive free trade, states themselves would choose the Keynesian model with a close bond of the Government and economy. The planned United Nations organization would serve as the global Government with four “policemen” as its supervisors - WWII nations-winners, UK, USSR, the United States, and China.

The Breton-Woods agreement of 1944 that proclaimed the creation of global financial institutes of International Monetary Fund (IMF) and the World Bank and establishment of a new global monetary system that replaced the gold standard with a U.S. Dollar standard, as the value of one dollar was pegged to 1/35 of a Trojan golden ounce. All elements combined, the United States created the structure of a post-war global order and became its masters with undeniable power and global significance. Being practically untouched by both World Wars and recovered after the Great Depression, having a victorious army, unrivalled standards of living and technological advances, the United States of 1945 was undoubtedly at its peak of power and global recognition that the nation had never achieved before. Despite high hopes of the bright world of tomorrow, led collectively by the Allies, the conflict between former allies began to develop rapidly.

After WWII, two superpowers have emerged: The United States and the Soviet Union. These nations have proved their undisputable military power, economic and technological advantages; however, they appeared on two opposite to each other sides in terms of ideology. The United States represented liberal democratic values, whereas the Soviet Union was a one-party totalitarian socialist state. It is clear, though, that such striking differences would in any way lead to the conflict of interests. Today, this rivalry of two superpowers is commonly known as the Cold War. Though it was not a war in the broadest and Clausewitzian way, participating sides have evolved their military capabilities continuously and struggling for the spheres of influence without any direct conflict against each other. Instead, the competing powers used their capabilities to achieve their aims in distinct areas of the world. Besides, the Cold War was the war not only guided by economic, political, and military terms but also in terms of culture - the cold war for minds Pells R. (1997). Not Like US: How Europeans Have Loved, Hated, and Transformed American Culture since WWII (2nd ed., Vol. 1, pp.39). New York, NY: Basic Books..

For this paper, the initial stage of the Cold War sets the main interest, as the events from that distinct time period are crucial for understanding the reasons for the Marshall Plan implementation. It is commonly accepted to take well-known “Sinews of Peace” speech of 1946, delivered by Sir Winston Churchill, as a starting point of the Cold War. The statement is also known as the Fulton Speech or the Iron Curtain speech, as Churchill expressed his grave concerns, regarding the post-war global order and put a strong emphasis on the possible threat, coming from the East. A significant number of East and Central European nations remained under the Soviet control, and inevitably these territories have become the territory, primarily influenced by the Soviet Union, especially in terms of ideology.

Churchill also underlined the importance of military power accumulation, instead of the previous attempts of maintaining the balance of power Churchill, W. (1946, March 5). The Sinews of Peace Speech. In the National Churchill Museum. Creation of the Soviet satellite states at the newly liberated territories put a strong challenge to the liberal democratic West in the form that a certain coalition is to be formed that would necessarily serve as an opposition to the liberal democracy and undermine the post-war development of Europe by opposing effective mechanisms of the free or liberal market economic system; thus, the United States and its key Western allies had to act in response to the potential threat.

Remarkably, in the year of 1946, another event happened that proclaimed a long-lasting change in the relations between USSR and the West. On February 22 1946, the U.S. Ambassador to the Soviet Union, George F. Kennan sent a telegram to the U.S. Department of State. Its content was briefly described in the introduction of the paper; however, it is worth outlining the main points, as Kennan's Long Telegram has largely influenced the stance of Washington towards the USSR. Kennan's argument on the inevitability of the Soviet threat based on three pillars of post-War Soviet doctrine:

1. an inherently repetitive and constant feeling of insecurity of Russians that caused diffidence and mistrust to others emerged based on the historic role of Russia as the borderland of Europe that suffered numerous dramatic battles with nomadic tribes throughout its history;

2. the perception of capitalism and non-communist left-wing groups as a threat; the class struggle and inevitable eradication of the capitalist bourgeois serve as the driving force of the revolution and Socialist movement;

3. and misinterpretation of the objective reality by the Soviet officials for the purposes of domestic and international propaganda Kennan G.F. (1946, February 22). The Long Telegram. In Wilson's Centre Digital Archive..

In addition to the “pillars” mentioned above, Kennan (1946) pointed out from Stalin's speech to the American workers in 1927 that the Soviets live in “antagonistic capitalist encirclement” and there would be no place for a sustainable and long-lasting peaceful post-War coexistence. The peculiarities of the capitalist society, according to the socialists, generate an endless number of conflicts, what should be exploited by the Soviet Union to reveal the failure of capitalism and provoke revolutions in capitalist societies Kennan G.F. (1946, February 22), ibid.. Most crucially, though, the so-called Long Telegram was the first attempt of the evaluation of the Soviet perception of the world and global affairs. These milestones, as mentioned earlier of the Soviet post-war reality, have created a foundation of the American approach towards the USSR in the early years of the Cold War.

A year later, Kennan published his “The Sources of Soviet Conduct” article in July 1947. Once again, Kennan (1947) emphasizes the importance of how the current Soviet leaders are blinded and misguided by their own “rightness”, which is also fueled by the sense of insecurity. Furthermore, no form of any collective activity outside of the Party would even exist - the Party, according to Kennan, the strict vertical hierarchy was the core of the Soviet Union's existence - as the Party dominated over all forms of social activity of the Soviet society, the Party leadership dominated in the party hierarchy. Characterizing the Soviet rule, Kennan refers to the principle of the infallibility of the Soviet power.

In accordance with this principle, the truth itself should be constructed solely by the Party, as any truth from the outside might contradict the claims of the party and deconstruct initially designed “truth” Kennan G. (1947, July 1). The Sources of Soviet Conduct. Foreign Affairs, 25(4), 566-574.. The tremendous devastating effect on its citizens in the form of ignoring aspirations, needs and wishes of the people, political oppression, forced labour in peacetime that had no precedent in modern history, served as a mobilizing yet terrifying factor that kept any possible opposition under the all-around control of the Party. Moreover, the strict discipline, produced by a vertical hierarchy, and such an ease of manipulations with any imaginable thesis, allowed the Soviet leadership to manipulate with the truth for their tactical purposes, making USSR a far more complicated political opponent for the U.S.

In the issue of a potential Soviet threat, there was a sole point that could be seen as the main reason for the confrontation between USSR and the West, led by the United States: contrarily to the United States, the Soviets remained their presence in Europe and by either adoption of Socialism or by imposing it from the Soviet Union, the Eastern bloc started its formation. According to Knapp (1968), the view of the world as a group of spheres of influence is not traditional to the United States foreign policy, neither it was with regard to the Soviet Union Knapp W. (1968, June 1). The Cold War Revised. International Journal, 23(3), 351..

However, the Soviets, as it has become evident from Kennan's telegram and article, had a straightforward aim of further expansion and consolidation of their power in Europe, implying the strategy of spheres of influence creation. Consequently, the Truman administration started to create a possible framework for further actions in the global arena. It is convenient to outline three main events of the American foreign policy aimed at Soviet containment at the early stages of the Cold War: Greece and Turkey military-economic aid through the Truman Doctrine, Marshall Plan itself, and the creation of NATO in 1949, that would be described in the third chapter of the paper.

The possession of the weapon of mass destruction, namely the atomic bomb, was a short-time advantage of the Americans that was sustained by the Soviets in 1947 already. Simultaneously, the civil war in Greece started to fuel up again. Being erupted by the Second World War, the Civil War in Greece involved battles of the Hellenic army against the Democratic Army of Greece (communist armed rebel group, the military division of the Communist Party of Greece - KKE) and had two parts: in 1944-1945 and 1946-1949. Remarkably, the Communist rebel forces were backed by Tito's Yugoslavia The second stage of the civil war is of particular interest for this paper, as that historic moment served as the one of two casus bello for the United States to enter the battle for spheres of influence against USSR. The restoration of the Greek king after general elections and referendum of 1946 caused an outrage among the Greek communists and their admirers.

Left-wing opposition started its own guerilla warfare against the Hellenic Army, gaining support from Yugoslavia and Albania. Yet, the Soviet Union remained inactive in this conflict, proving no interest to it due to the Stalin-Tito split. The war became acute as the Government used the tactics, introduced by the U.S. advisors: evacuation of the rural population, motivating it by the threat of guerilla raids or attacks. That prevented gaining supplies in villages from locals by communist rebel groups and made DSE combatants (Democratic Army of Greece) switch to the conventional war. It was clear that Great Britain, the industry of which was critically damaged after WWII German Luftwaffe air raids, could not afford to continue the support of official Greece solely.

At the same time, another issue emerged. The attempts of the Soviets to gain power in the Middle East region via Turkey and direct access to the Straits of Bosphorus and Dardanelles - that would open the possibility for manoeuvres of the Soviet Navy in the Mediterranean Sea. It is worth mentioning that previously, the regulation of Bosphorus and Dardanelles straits was described and conducted in accordance with the Montreux convention of 1936. According to the document, Turkey obtained the right to remilitarise straits and had a right to close the channels in wartime. The convention guaranteed absolute freedom of passage of any merchant ship under any flag in peacetime. It was allowed for the Black Sea nations to transfer their navy fleet ships, including capital ships (the most advanced and strongest/largest battleships in the current fleet of a given state), however for other nations, the transfer of warships was full of limitations, e.g. maximum tonnage limits, et cetera. The agreement with the Soviet Union over internationalization of the straits that would replace out-of-date and disputed Montreux convention, allowing unlimited international use of Danube and Rhine rivers water and connecting them via European channels (including Turkish straits) during negotiations, held in Potsdam in 1945, has failed Knight J. (1977, May 1). America's International Guarantees for the Straits: Prelude to the Truman Doctrine. Middle East Studies, 13(2), 241-250..

According to Knight (1977), the United States have always viewed the world with international free trade between the nations as a mechanism that would diffuse the possible interstate aggression and let the U.S. be the global leader by using its potential in the new global order, hence the internationalization of the straits was a point of peculiar American interest. Besides a disagreement over channels, the risks from the Soviet threat for the West were relatively different. In Greece, the threat was internal and backed by Yugoslavia and Albania, whereas Turkey could be threatened by the invasion of the Soviet Union, as two nations shared the borders. Once improving relations between Turkey and USSR after the fall of the Ottoman Empire, were deteriorated by the Straits disputes. A variety of events in bilateral relations, among which the following could be evaluated as vital: the frustration of the Soviets over Turkey's decision to allow passing through its canals to Nazi Germany and Mussolini's Italy ships before and during wartime, alongside with the Soviets' claim to a number of border districts in the Caucasus, intensified tensions.

In that dispute, the Soviets argued that the necessity for granting them the unlimited access to straights lies not only in the vitality of the Mediterranean sea both for trade and military manoeuvres but also in the obvious capability of USSR to defend the straits in case of war and do not repeat the bitter experience of WWII, during which the Kriegsmarine ships freely entered the Black sea and devastated the Soviet coastline with naval bases. USSR was confident in the Straits' importance and weakness of hostile Turkey. As for Turkey, the intentions of its neighbour simply posed a threat to national integrity and sovereignty. Great Britain and France, the nations that backed post-Ottoman Turkey, according to their mutual 1939 agreement, did not prove any considerable action in resolving the issue, which made official Ankara request for the support of the United States Knight, J. (1977, May 1), ibid..

A grim possibility of the domino effect in the region - with Greece and Turkey falling into the hands of the potential enemy, left practically no time for long debates over the necessity of aid to Greece and Turkey. Fortunately, the proposed Truman Doctrine of 400 million U.S. Dollars military and economic aid found significant support in the United States Congress, mostly guided by raising concerns regarding peaceful coexistence with the Soviet Union, and the bill passed. The U.S. President Harry Truman announced the provision of necessary military and financial aid to Greece as a part of the Truman Doctrine in order to help Great Britain and the Greek Government in their fight against communist guerilla forces. Economic and financial aid, provided to Turkey by the United States, was driven by mainly the same reason, as with the aid to Greece - the U.K. could no longer continue its support to Turkey, and the U.S., according to Truman (1947), was the only nation able to provide necessary help to Turkey and Greece.

The Doctrine itself was directly influenced by Kennan's Long Telegram and his proposed steps that would together form the policy of containment. Citing President Truman himself, “It must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures.” Truman H.S. (1947, March 12). President harry s. truman's address before a joint session of congress. In Yale Law School Lillian Goldman Law Library. Retrieved from https://avalon.law.yale.edu/20th_century/trudoc.asp In the case of Greece, the President declared the necessity of financial and economic aid first and foremost due to the devastated infrastructure and urgency for improvement of the Greece economy: the German invasion ended with the destruction of the most part of roads, railroads, seaports, and airfields; exhausting civil war only worsened the situation. It was vital for Greece to rebuild its key infrastructure to sustain the damage that was dealt for a long time.

Turkey, a nation that enjoys a strategic geographic location, has always been a crucial mediator in the Black Sea and Middle East region. Furthermore, the intentions of the Soviet Union to dominate the Black Sea that might pose a threat to the U.S. interests in the Mediterranean Sea finally postponed the question of internationalizing the straits for a long time, making the United States act through the provision of economic aid to Turkey. As a result of the aid transferred, Greece managed to finish the civil war with the victory of the official Government.

Turkey received 100 million U.S. Dollars in military and economic assistance, abolished its policy of neutrality, added up to the U.S. navy ships group sent to the Black Sea for limiting Soviet navy manoeuvres. The Soviet Union failed to change existing agreements, stated in the Montreux convention of 1936, that still remains in operation. The United States put a strong emphasis on the defence and promotion of the democratic values that could be flourishing only by the modernization and development of the national economy and defensive capabilities of both the nations mentioned above. Remarkably, Truman's approach to the foreign affairs of the United States was a milestone that marked the transition to modernity in international relations, as Merrill (2009) stated.

In other words, the Truman doctrine contrasted much with Monroe Doctrine - the post-war United States is the global nation that is guided by development, values of democracy, and freedom. The ideology of progress, empowered by the implementation of the Keynesian theory as the central macroeconomic policy, would allow the United States to prove that capitalism is the only sustainable way of economic relations internationally Merrill D. (2006, March 1). The Truman Doctrine: Containing Communism and Modernity. Presidential Studies Quarterly, 36(1), 27-31.. From the perspective of the superpower competition, the Truman doctrine was the first initiative in the policy of containment, a pragmatic move to counteract the potential existential threat. It marked that the United States has totally transferred from regional to a global power that is capable of taking responsibility for another state and provide the necessary aid. Moreover, given that Europe was in ruins and could not have been seen as an independent international actor Pells R. (1997). Not Like US: How Europeans Have Loved, Hated, and Transformed American Culture since WWII (2nd ed., Vol. 1, pp. 37-39). New York, NY: Basic Books., meaning that it had no physical possibility to operate internationally (e.g., there was no trade as the European industries were destroyed), as stated by Pells (1997), the United States remained the last nation that could help Europe to recover from the ruins. Experience gained by the creation and implementation of the Truman Doctrine was of great use for the next step of the United States massive developmental project, the European Recovery Plan, commonly known as the Marshall Plan.

2.2 From Truman's Doctrine to the Marshall Plan: the U.S. Foreign Assistance Projects

The second part of containment policy was the matter of this paper, the Marshall Plan. A reasonable success of granting the aid to Greece and Turkey that managed to escape the fate of Eastern European nations and did not fall into the Socialist bloc provided a new option for the United States to prevent the spread of Socialism westwards. Initially, there was a plan, drafted by Henry Morgenthau Jr., named after his name, the Morgenthau Plan, or “Suggested Post-Surrender Program for Germany”. In terms of concept, it has practically nothing in common with the final European Recovery Program. Initially, it was designed to demilitarise the remains of the German industrial complex along the Rhine in order to prevent the ability of Germany to remilitarise again. Besides, the plan undermined the post-war separation of Germany into three zones: North Germany, South Germany, and the International zone.

The program was drafted in a new form, as the Joint Chiefs of Staff directive No.1067 (JCS 1067), according to which the U.S. occupational forces were ordered to contain the economic growth of Germany, resulting in a sudden drop of income in already devastated Germany. Moreover, the post-war development of Europe would slow down due to such a restrictive policy. Clearly, the necessity for recovery was a matter of life and death for Europe. Before 1947, the United States has already distributed nearly 14 billion U.S. Dollars in the form of aid to European countries. In the year of 1947, an American industrial magnate Lewis Brown was requested by General Lucius Clay, deputy military governor in Germany, to develop a strategy for the post-war reconstruction of Germany, promoting economic growth. General Clay has chosen Brown out of experience in the war and industrial business of a latter. Brown (1947) underlined that it would be impossible to rebuild Europe without rebuilding and development of Germany, as Germany has always been a critical trade and industrial nation within Europe, and such rule could be applied to the most of the European countries due to their high level of interdependence that has been historically determined.

Brown precisely remarked that every European problem starts either from food or from coal, and for Germany, it was double trouble. Unfortunately, the Cold War predetermined that the so-called Breadbasket - the land on the East of Germany that had fertile soils and was responsible for producing most of the food supply of Germany and managed to supply other nations with food through trade, was in the hands of the potential enemy. Artificial suppression of the German economy by the Allied military command only exaggerated the stress in the remains of German society. West Germany suffered most, as it had accepted nearly twelve million refugees from East prior to 1947, and the risk of mass starvation was another factor that advocated for changes in occupational policy.

Finally, the famine led to the fall of output in coal and coke production, the main trade commodity of Germany, essential for the survival of Germany. Taken everything combined, a “vicious coal circle” emerged: hungry workers are unable to work, and even those who could work and mine coal, faced a problem that it was barely possible to transport the mined coal to the consumer. The harsh bombings of Germany during WWII have destroyed the transport infrastructure Brown L.H. (1947). A report on Germany (Vol. 1, pp. 114-229). New York, NY: Farrar Strauss & Giroux.. Finally, absence of foreign trade due to production and export restrictions only deteriorated the situation. Thus, the thesis of the inevitability of the reintegration of the German economy in the European market proved to be right, once again highlighting the necessity of help to Germany through aid and ease of restrictions imposed by occupational administration with regard to production. Besides, the Rhine navigation allowed to transport goods for initial periods of the post-war recovery, what made the recovery process completed more steadily, and Brown proposed to capitalize on the German revival by improving bilateral trade relations of Germany and the United States through granting access to Germany for export German-produced goods Brown L.H. (1947). A report on Germany (Vol. 1, pp. 92-110). New York, NY: Farrar Strauss & Giroux.. “A report of Germany” by Lewis seemed a considerably favorable option to imply either for the United States and for post-war Germany itself if compared to the aforementioned Morgenthau Plan of 1944. Besides, the points from the report could be used for a recovery program in Western Europe.

Before the Marshall Plan started to operate, and allocate supplies in 1948, lasting for nearly four years, economies of Europe were incapable of carrying on the post-war development. Apart from the damage dealt by the war, there were additional factors that stagnated Europe and kept it under a heavy dependence from the United States. The Bretton-Woods agreement that was slightly mentioned in the second paragraph of a current paper was one of such obstacles for Europe. The conference that took place at Bretton-Woods, U.S., in 1944 and involved all allied powers, was devoted to the post-war international economic order, as it was already clear for the Allies that the Axis powers would be defeated soon.

The conference aimed to settle previous problems that the world faced in the interwar period: the collapse of the global economy (culminating with the Great Depression), the rise of totalitarian states, and, eventually, economic problems that led to another world war. Three financial and economic institutions that would perform control over the global economy were proposed for creation: the International Monetary Fund (IMF) that would manage and supervise the exchange rates of foreign currencies; the General Agreement on Trade and Tariffs (GATT), an institution that would minimize the trade barriers between nations and stimulate global trade; the International Bank for Reconstruction and Development (the World Bank) was designed to distribute the aid, necessary for help in badly damaged regions (first of all, assistance to post-war Europe) and support the developing countries in long-term by loans or credits for development. The sides agreed to set the following long-term goals to achieve: (a) fixed exchange rates; (b) conditions for convertibility of currencies (as the dollar would be convertible to gold, other currencies could be converted to the dollar); (c) trade protection through the non-discriminatory principle of trade set by GATT; (d) reserve fund that could help countries in the case when they face issues with balance payment.

However, at the conference, most nations had other intentions. Severe physical damage dealt with European countries reflected in their economies, incapable of producing any goods for exports, and they required imports to reconstruct economies. This vicious circle unavoidably led to a balance of payments deficit. Without foreign credits, Europe would stagnate for years in its rebuilding process. The Bretton-Woods agreement created problems for Europe firstly because of the possibility of obtaining the loan correlated directly with the amount the country contributed to the reserve fund. Out of apparent reasons, there were virtually no nations that could contribute to the reserve funds with the exception of the United States. European countries desired for an institution that would not limit them from borrowing necessary funds; otherwise, they must deflate the economies through a tight cut on imports and domestic consumption if the credit would not be given. Second, most European countries were because of the enormous dollar gap: there was a high demand for U.S.-produced goods, but importers had nothing to sell back to the United States to get dollars for it.

The Americans insisted on the absence of discrimination against the U.S. Dollar and free access to foreign markets, wishing to maximize the exports. That wish contributed to the broadening of the “dollar gap”, and it made Europeans discriminate against the dollar exports and American goods, importing only the most vital products from the U.S. for balancing the fragile economies. And even when the “dollar gap” would be overcome, the Bretton-Woods system still had a flaw. Given that the European economies would grow swiftly, the imports would increase faster as well, bringing back to the “vicious circle” with the balance of payments deficit. If there were no outside assistance, these states would have to increase taxes and lower government expenditure for creating a deflation. Deflation was not an option, considering that it would destabilize societies and strengthen the support for left-wing politicians or movements. With no alternatives left, loans were the last prospect for Europe, but the Bretton-Woods institutions did not provide immense loans and could not solve the issue. The solution to this was only a massive help to West Europe that was realized in the form of the Marshall Plan.

A necessity for the help was definite at that moment, as the winter of 1946-1947 caused severe famine in Europe. Rising invasionist attitudes of the Soviet Union created political risks for Western Europe of falling under Soviet influence. Besides, domestic political risks appeared in the United States with the possible anti-internationalist attitudes to rise in society. The United States has decided to face the Soviet threat with a responsibility to Western Europe and support vulnerable countries. The danger was evident due to the broad support for socialist and communist parties by masses in many countries.

Trends for inflation and inconvertible currencies ignited the left-wing opposition in post-war countries. According to Block (1978), it was impossible not to raise the wages for workers to prevent rioting; however, it reflected on the prices that rose simultaneously with the salaries and enhanced inflation rate growth. Inflation rates made trade virtually possible, and the countries had to barter goods with each other. Such a situation might have provoked socialist parties, represented in governments, to seize the private property in favour of the state Block F.L. (1978). The Origins of International Economic Disorder (pp. 77-80). Los Angeles, CA: University of California Press.. To reduce the dangers, it was in the interests of the U.S. to help non-Communist nations rise as swiftly as possible: economic wealth would prevent these countries from adopting Socialism. The Americans hoped that through economic development, they could save liberal democratic regimes.