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

A possibility of any military alignment between Europe and the Soviet Union would threaten the sole existence of the United States, thus should never be achieved. The NATO military bases that served as the United States military bases as well, spread across the Western and Southern Europe and served as the bulwark against the Soviet threat. It served as the instrument that maintained the balance of power in Europe. Later, the Mutual Security Act of 1951 expanded the Marshall Plan in terms of provision of foreign aid to the countries that were threatened by the Socialist uprisings. The act also established the Mutual Security Agency that assisted the friendly nations of the United States.

4.2 Economic Effects of the Marshall Plan

The United States emerged as an unmatched economic power after 1945. The reasons for that were mentioned in the second chapter. The institutions that were created by the United States allowed them to make a US Dollar the strongest currency in the world. However, that led to the mentioned dollar gap. European countries had to devaluate their inconvertible currencies and restrict imports due to a difference in the prices of currencies. The gap was filled both by the aid and overseas investment, recovering the disparity in the early 1950s. Economic outcomes of the Marshall Plan differ significantly; they both profited and weakened the US economy. Firstly, the losses could be seen in the overwhelming levels of government expenditure and credits.

The United States had a budget deficit of approximately $5 Billion in 1951-1952. However, it was not a considerable sum to be concerned about for the U.S., as it was the leading exporter to the European markets, as stated by Steinberg et al. (1997). Moreover, the recipients of the Marshall Plan aid spent it, buying goods from the United States, partly returning the funds allocated. Cutting government expenditure on assistance would simply destroy all achievements in the promotion of liberal order in Western Europe. Liberalization of trade between European countries changed the patterns of trade between the U.S. and Europe and let Europeans enter the American market. During the Marshall Plan years of operation, there was little or no competitors to the American exports in Western Europe. Already by the year of 1952, the situation changed.

West Europe produced a large variety of products and competed with the American producers. Still, in the 1950s, the United States had a trade surplus, but in the 1960s, an American economy started to experience the problems. In 1958, private capital outflows from the US comprised 13 per cent of U.S. total exports Lees, F. A. (1965, June 4). The U. S. Balance of Payments in the Postwar Period. Financial Analysts Journal, 21(3), 31-38.. The increase of American overseas investments led to the capital deficit at home. The technological superiority of Japanese and German goods that were enforced by a cheaper labour force overlapped the American industry. Low-cost imports from these countries rose faster than the American exports. The American currency started to lose to yen and the German mark due to trade deficit, what inevitably led to the use of gold reserves to sustain the shortfall. The fixed exchange rate, set by the Bretton-Woods, forced the United States to adjust its currency; otherwise, the state would lose its reserves. The crisis led to the fall of the Bretton-Woods system in 1971.

marshall plan economy political

Conclusion

The conclusion of a current paper would outline whether the hypothesis was proved or not. In a sentence, the Marshall Plan brought substantial political advantages for the United States; however, the U.S.-led development of European states via the Marshall Plan led to an economic disaster for the US in long-term. Notably, the United States of America managed to prevent the Socialist expansion westwards. The United States showed itself as a responsible superpower that would not refuse to aid those in need. Its actions influenced the creation of a peaceful Europe that had faced no wars similar to the Second World War. An interdependence that was necessary for the first post-war years has become the strength of Western Europe that made it prosperous and highly developed region that follows and secures values of freedom. That interdependence was pushed by the Americans even before the war and materialized in the supranational European Union in 2009. Besides, a collective security alliance of NATO was created. It defended Europe and the United States from the Soviet Union and kept the balance of power.

Unfortunately, the macroeconomic effect of the Marshall Plan proved to be beneficial in a short-term, when the budget deficit was relatively small, and the USA stood as the first exporter in the world. In the early post-war period, the economic growth of the United States was guaranteed by exports to Europe. Fostering Europe, a region that has an incredibly skilful labour force and rich in natural resources, in long-term made the U.S. a nation that ended up with deficits in the late 1960s. The exports to Europe went down after the European recovery, but the investments from the United States to Europe only increased substantially. It means that the positive effect of profiting from exports was neutralized by the flow of capital from the US to Europe. Elimination of the trade barriers between the members of the European Economic Community that included the wealthiest economies of Europe made American goods far less competitive. The American economy could not resist cheap imports from Germany and Japan and found itself trapped in the debts.

In result, the Marshall Plan turned to be more politically beneficial rather than economically. The geopolitical venture was in all means successful politically. Economically, it turned profits to the American enterprises, stimulated the demand for American goods abroad, however it was not sufficient for the giant, as the United States.

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