President Harry Truman signed the Marshall Plan

The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative to aid Western Europe, in which the United States gave over $12 billion (approximately $120 billion in current dollar value as of June 2016) in economic support to help rebuild Western European economies after the end of World War II. The plan was in operation for four years beginning April 8, 1948. The goals of the United States were to rebuild war-devastated regions, remove trade barriers, modernize industry, make Europe prosperous once more, and prevent the spread of communism. The Marshall Plan required a lessening of interstate barriers, a dropping of many regulations, and encouraged an increase in productivity, labour union membership, as well as the adoption of modern business procedures.

The Marshall Plan aid was divided amongst the participant states roughly on a per capita basis. A larger amount was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for general European revival. Somewhat more aid per capita was also directed towards the Allied nations, with less for those that had been part of the Axis or remained neutral. The largest recipient of Marshall Plan money was the United Kingdom (receiving about 26% of the total), followed by France (18%) and West Germany (11%). Some 18 European countries received Plan benefits. Although offered participation, the Soviet Union refused Plan benefits, and also blocked benefits to Eastern Bloc countries, such as East Germany and Poland. The United States provided similar aid programs in Asia, but they were not called "Marshall Plan".

The initiative is named after Secretary of State George Marshall, who also served as the United States Army Chief of staff during WWII. The plan had bipartisan support in Washington, where the Republicans controlled Congress and the Democrats controlled the White House with Harry S. Truman as president. The Plan was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan, with help from the Brookings Institution, as requested by Senator Arthur H. Vandenberg, chairman of the Senate Foreign Relations Committee.[5]Marshall spoke of an urgent need to help the European recovery in his address at Harvard University in June 1947. The purpose of the Marshall Plan was to aid in the economic recovery of nations after WWII as well as to antagonize the Soviet Union. In order to combat the effects of the Marshall Plan, the USSR developed its own economic plan, known as the Molotov Plan. It was not as effective as the Marshall Plan, and in some ways contradictory to eastern block countries that served alongside the axis powers in WWII.

The phrase "equivalent of the Marshall Plan" is often used to describe a proposed large-scale economic rescue program.

Development and deployment

The reconstruction plan, developed at a meeting of the participating European states, was drafted on June 5, 1947. It offered the same aid to the Soviet Union and its allies, but they refused to accept it, as doing so would allow a degree of US control over the communist economies. In fact, the Soviet Union prevented its satellite states (i.e., East Germany, Poland, etc.) from accepting. Secretary Marshall became convinced Stalin had no interest in helping restore economic health in Western Europe.

European Recovery Program expenditures by country

President Harry Truman signed the Marshall Plan on April 3, 1948, granting $5 billion in aid to 16 European nations. During the four years the plan was in effect, the United States donated $13 billion (equivalent to $189.39 billion in 2016) in economic and technical assistance to help the recovery of the European countries that joined the Organisation for European Economic Co-operation. The $13 billion was in the context of a US GDP of $258 billion in 1948, and on top of $13 billion in American aid to Europe between the end of the war and the start of the Plan that is counted separately from the Marshall Plan. The Marshall Plan was replaced by the Mutual Security Plan at the end of 1951; that new plan gave away about $7 billion annually until 1961 when it was replaced by another program.

The ERP addressed each of the obstacles to postwar recovery. The plan looked to the future, and did not focus on the destruction caused by the war. Much more important were efforts to modernize European industrial and business practices using high-efficiency American models, reducing artificial trade barriers, and instilling a sense of hope and self-reliance.

By 1952, as the funding ended, the economy of every participant state had surpassed pre-war levels; for all Marshall Plan recipients, output in 1951 was at least 35% higher than in 1938. Over the next two decades, Western Europe enjoyed unprecedented growth and prosperity, but economists are not sure what proportion was due directly to the ERP, what proportion indirectly, and how much would have happened without it. A common American interpretation of the program's role in European recovery was expressed by Paul Hoffman, head of the Economic Cooperation Administration, in 1949, when he told Congress Marshall aid had provided the "critical margin" on which other investment needed for European recovery depended. The Marshall Plan was one of the first elements of European integration, as it erased trade barriers and set up institutions to coordinate the economy on a continental level—that is, it stimulated the total political reconstruction of western Europe.

Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a "great success":

It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade.

Wartime destruction

Bombed and burned-out buildings in Nuremberg, 1945

By the end of World War II, much of Europe was devastated. Sustained aerial bombardment during the war had badly damaged most major cities, and industrial facilities were especially hard-hit. The region's trade flows had been thoroughly disrupted; millions were in refugee camps living on aid from United Nations Relief and Rehabilitation Administration and other agencies. Food shortages were severe, especially in the harsh winter of 1946–47. From July 1945 through June 1946, the United States shipped 16.5 million tons of food, primarily wheat, to Europe and Japan. It amounted to one-sixth of the American food supply, and provided 35 trillion calories, enough to provide 400 calories a day for one year to 300 million people.

Especially damaged was transportation infrastructure, as railways, bridges, and docks had been specifically targeted by airstrikes, while much merchant shipping had been sunk. Although most small towns and villages had not suffered as much damage, the destruction of transportation left them economically isolated. None of these problems could be easily remedied, as most nations engaged in the war had exhausted their treasuries in the process.

The only major powers whose infrastructure had not been significantly harmed in World War II were the United States and Canada. They were much more prosperous than before the war but exports were a small factor in their economy. Much of the Marshall Plan aid would be used by the Europeans to buy manufactured goods and raw materials from the United States and Canada.

Initial post-war events

Slow recovery

Europe's economies were recovering slowly, as unemployment and food shortages led to strikes and unrest in several nations. In 1947 the European economies were still well below their pre-war levels and were showing few signs of growth. Agricultural production was 83% of 1938 levels, industrial production was 88%, and exports only 59%. In Britain the situation was not as severe.

In Germany in 1945–46 housing and food conditions were bad, as the disruption of transport, markets and finances slowed a return to normality. In the West, bombing had destroyed 5,000,000 houses and apartments, and 12,000,000 refugees from the east had crowded in. Food production was only two-thirds of the pre-war level in 1946–48, while normal grain and meat shipments no longer arrived from the East. The drop in food production can be attributed to a drought that killed a major portion of the wheat crop while a severe winter destroyed the majority of the wheat crop the following year. This caused most Europeans to rely on a 1,500 calorie per day diet. Furthermore, the large shipments of food stolen from occupied nations during the war no longer reached Germany. Industrial production fell more than half and reached pre-war levels only at the end of 1949.

While Germany struggled to recover from the destruction of the War, the recovery effort began in June 1948, moving on from emergency relief. The currency reform in 1948 was headed by the military government and helped Germany to restore stability by encouraging production. The reform revalued old currency and deposits and introduced new currency. Taxes were also reduced and Germany prepared to remove economic barriers.

During the first three years of occupation of Germany, the UK and US vigorously pursued a military disarmament program in Germany, partly by removal of equipment but mainly through an import embargo on raw materials, part of the Morgenthau Plan approved by President Franklin D. Roosevelt.

Nicholas Balabkins concludes that "as long as German industrial capacity was kept idle the economic recovery of Europe was delayed." By July 1947 Washington realized that economic recovery in Europe could not go forward without the reconstruction of the German industrial base, deciding that an "orderly, prosperous Europe requires the economic contributions of a stable and productive Germany." In addition, the strength of Moscow-controlled communist parties in France and Italy worried Washington.

In the view of the State Department under President Harry S Truman, the United States needed to adopt a definite position on the world scene or fear losing credibility. The emerging doctrine of containment (as opposed to rollback) argued that the United States needed to substantially aid non-communist countries to stop the spread of Soviet influence. There was also some hope that the Eastern Bloc nations would join the plan, and thus be pulled out of the emerging Soviet bloc, but that did not happen.

The hunger-winter of 1947, thousands protest in West Germany against the disastrous food situation (March 31, 1947). The sign says: We want coal, we want bread

In January 1947, Truman appointed retired General George Marshall as Secretary of State. In July 1947 Marshall scrapped Joint Chiefs of Staff Directive 1067 implemented as part of the Morgenthau Plan under the personal supervision of Roosevelt's treasury secretary Henry Morgenthau, Jr., which had decreed "take no steps looking toward the economic rehabilitation of Germany [or] designed to maintain or strengthen the German economy." Thereafter, JCS 1067 was supplanted by JCS 1779, stating that "an orderly and prosperous Europe requires the economic contributions of a stable and productive Germany." The restrictions placed on German heavy industry production were partly ameliorated; permitted steel production levels were raised from 25% of pre-war capacity to a new limit placed at 50% of pre-war capacity.

With a communist insurgency threatening Greece, and Britain financially unable to continue its aid, the President announced his Truman Doctrine on 12 March 1947, "to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures", with an aid request for consideration and decision, concerning Greece and Turkey. Also in March 1947, former US President Herbert Hoover, in one of his reports from Germany, argued for a change in US occupation policy, amongst other things stating:

There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state' (Morgenthau's vision). It cannot be done unless we exterminate or move 25,000,000 people out of it.

Hoover further noted that, "The whole economy of Europe is interlinked with German economy through the exchange of raw materials and manufactured goods. The productivity of Europe cannot be restored without the restoration of Germany as a contributor to that productivity." Hoover's report led to a realization in Washington that a new policy was needed; "almost any action would be an improvement on current policy." In Washington, the Joint Chiefs declared that the "complete revival of German industry, particularly coal mining" was now of "primary importance" to American security.

The United States was already spending a great deal to help Europe recover. Over $14 billion was spent or loaned during the postwar period through the end of 1947, and is not counted as part of the Marshall Plan. Much of this aid was designed to restore infrastructure and help refugees. Britain, for example, received an emergency loan of $3.75 billion.

The United Nations also launched a series of humanitarian and relief efforts almost wholly funded by the United States. These efforts had important effects, but they lacked any central organization and planning, and failed to meet many of Europe's more fundamental needs. Already in 1943, the United Nations Relief and Rehabilitation Administration (UNRRA) was founded to provide relief to areas liberated from Germany. UNRRA provided billions of dollars of rehabilitation aid, and helped about 8 million refugees. It ceased operation of displaced persons camps in Europe in 1947; many of its functions were transferred to several UN agencies.

Soviet negotiations

After Marshall's appointment in January 1947, administration officials met with Soviet Foreign Minister Vyacheslav Molotov and others to press for an economically self-sufficient Germany, including a detailed accounting of the industrial plants, goods and infrastructure already removed by the Soviets in their occupied zone. Molotov refrained from supplying accounts of Soviet assets. The Soviets took a punitive approach, pressing for a delay rather than an acceleration in economic rehabilitation, demanding unconditional fulfillment of all prior reparation claims, and pressing for progress toward nationwide socioeconomic transformation.

After six weeks of negotiations, Molotov rejected all of the American and British proposals. Molotov also rejected the counter-offer to scrap the British-American "Bizonia" and to include the Soviet zone within the newly constructed Germany. Marshall was particularly discouraged after personally meeting with Stalin to explain that the United States could not possibly abandon its position on Germany, while Stalin expressed little interest in a solution to German economic problems.

Marshall's speech

After the adjournment of the Moscow conference following six weeks of failed discussions with the Soviets regarding a potential German reconstruction, the United States concluded that a solution could not wait any longer.

To clarify the US's position, a major address by Secretary of State George Marshall was planned. Marshall gave the address to the graduating class of Harvard University on June 5, 1947. Standing on the steps of Memorial Church in Harvard Yard, he offered American aid to promote European recovery and reconstruction. The speech described the dysfunction of the European economy and presented a rationale for US aid.

The modern system of the division of labor upon which the exchange of products is based is in danger of breaking down. ... Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the USA. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.

Marshall was convinced that economic stability would provide political stability in Europe. He offered aid, but the European countries had to organize the program themselves.

The speech, written by Charles Bohlen, contained virtually no details and no numbers. More a proposal than a plan, it was a challenge to European leaders to cooperate and coordinate. It asked Europeans to create their own plan for rebuilding Europe, indicating the United States would then fund this plan. The administration felt that the plan would likely be unpopular among many Americans, and the speech was mainly directed at a European audience. In an attempt to keep the speech out of American papers, journalists were not contacted, and on the same day, Truman called a press conference to take away headlines. In contrast, Dean Acheson, an Under Secretary of State, was dispatched to contact the European media, especially the British media, and the speech was read in its entirety on the BBC.

Rejection by the Soviets

British Foreign Secretary Ernest Bevin heard Marshall's radio broadcast speech and immediately contacted French Foreign Minister Georges Bidault to begin preparing a quick European response to (and acceptance of) the offer, which led to the creation of the Committee of European Economic Co-operation. The two agreed that it would be necessary to invite the Soviets as the other major allied power. Marshall's speech had explicitly included an invitation to the Soviets, feeling that excluding them would have been a sign of distrust. State Department officials, however, knew that Stalin would almost certainly not participate, and that any plan that would send large amounts of aid to the Soviets was unlikely to be approved by Congress.

Initial reactions

While the Soviet ambassador in Washington suspected that the Marshall Plan could lead to the creation of an anti-Soviet bloc, Stalin was open to the offer. He directed that—in negotiations to be held in Paris regarding the aid—countries in the Eastern Bloc should not reject economic conditions being placed upon them. Stalin only changed his outlook when he learned that (a) credit would only be extended under conditions of economic cooperation and, (b) aid would also be extended to Germany in total, an eventuality which Stalin thought would hamper the Soviets' ability to exercise influence in western Germany.

Initially, Stalin maneuvered to kill the Plan, or at least hamper it by means of destructive participation in the Paris talks regarding conditions. He quickly realized, however, that this would be impossible after Molotov reported—following his arrival in Paris in July 1947—that conditions for the credit were non-negotiable. Looming as just as large a concern was the Czechoslovak eagerness to accept the aid, as well as indications of a similar Polish attitude.

Stalin suspected a possibility that these Eastern Bloc countries might defy Soviet directives not to accept the aid, potentially causing a loss of control of the Eastern Bloc. In addition, the most important condition was that every country choosing to take advantage of the plan would need to have its economic situation independently assessed—a level of scrutiny to which the Soviets could not agree. Bevin and Bidault also insisted that any aid be accompanied by the creation of a unified European economy, something incompatible with the strict Soviet command economy.

Compulsory Eastern Bloc rejection

Soviet Foreign Minister Vyacheslav Molotov left Paris, rejecting the plan. Thereafter, statements were made suggesting a future confrontation with the West, calling the United States both a "fascizing" power and the "center of worldwide reaction and anti-Soviet activity," with all U.S.-aligned countries branded as enemies. The Soviets also then blamed the United States for communist losses in elections in Belgium, France and Italy months earlier, in the spring of 1947. It claimed that "marshallization" must be resisted and prevented by any means, and that French and Italian communist parties were to take maximum efforts to sabotage the implementation of the Plan. In addition, Western embassies in Moscow were isolated, with their personnel being denied contact with Soviet officials.

On July 12, a larger meeting was convened in Paris. Every country of Europe was invited, with the exceptions of Spain (a World War II neutral that had sympathized with Axis powers) and the small states of Andorra, San Marino, Monaco, and Liechtenstein. The Soviet Union was invited with the understanding that it would likely refuse. The states of the future Eastern Bloc were also approached, and Czechoslovakia and Poland agreed to attend. In one of the clearest signs and reflections of tight Soviet control and domination over the region, Jan Masaryk, the foreign minister of Czechoslovakia, was summoned to Moscow and berated by Stalin for considering Czechoslovakia's possible involvement with and joining of the Marshall Plan. The prime minister of Poland, Józef Cyrankiewicz, was rewarded by Stalin for his country's rejection of the Plan, which came in the form of the Soviet Union's offer of a lucrative trade agreement lasting for a period of five years, a grant amounting to the approximate equivalent of $450 million (in 1948; the sum would have been $4.4 billion in 2014) in the form of long-term credit and loans and the provision of 200,000 tonnes of grain, heavy and manufacturing machinery and factories and heavy industries to Poland.

The Marshall Plan participants were not surprised when the Czechoslovakian and Polish delegations were prevented from attending the Paris meeting. The other Eastern Bloc states immediately rejected the offer. Finland also declined in order to avoid antagonizing the Soviets (see also Finlandization). The Soviet Union's "alternative" to the Marshall plan, which was purported to involve Soviet subsidies and trade with western Europe, became known as the Molotov Plan, and later, the Comecon. In a 1947 speech to the United Nations, Soviet deputy foreign minister Andrei Vyshinsky said that the Marshall Plan violated the principles of the United Nations. He accused the United States of attempting to impose its will on other independent states, while at the same time using economic resources distributed as relief to needy nations as an instrument of political pressure.

Yugoslavia

Although all other Communist European Countries had deferred to Stalin and rejected the aid, the Yugoslavs, led by Josip Broz (Tito), at first went along and rejected the Marshall Plan. However, in 1948 Tito broke decisively with Stalin on other issues, making Yugoslavia an independent communist state. Yugoslavia requested American aid. American leaders were internally divided, but finally agreed and began sending money on a small scale in 1949, and on a much larger scale in 1950-53. The American aid was not part of the Marshall Plan.

Szklarska Poręba meeting

In late September, the Soviet Union called a meeting of nine European Communist parties in southwest Poland. 

A Communist Party of the Soviet Union (CPSU) report was read at the outset to set the heavily anti-Western tone, stating now that "international politics is dominated by the ruling clique of the American imperialists" which have embarked upon the "enslavement of the weakened capitalist countries of Europe". Communist parties were to struggle against the US presence in Europe by any means necessary, including sabotage. The report further claimed that "reactionary imperialist elements throughout the world, particularly in the U.S.A., in Britain and France, had put particular hope on Germany and Japan, primarily on Hitlerite Germany—first as a force most capable of striking a blow at the Soviet Union".

Referring to the Eastern Bloc, the report stated that "the Red Army's liberating role was complemented by an upsurge of the freedom-loving peoples' liberation struggle against the fascist predators and their hirelings." It argued that "the bosses of Wall Street" were "tak[ing] the place of Germany, Japan and Italy". The Marshall Plan was described as "the American plan for the enslavement of Europe". It described the world now breaking down "into basically two camps—the imperialist and antidemocratic camp on the one hand, and the antiimperialist and democratic camp on the other".

Although the Eastern Bloc countries except Czechoslovakia had immediately rejected Marshall Plan aid, Eastern Bloc communist parties were blamed for permitting even minor influence by non-communists in their respective countries during the run up to the Marshall Plan. The meeting's chair, Andrei Zhdanov, who was in permanent radio contact with the Kremlin from whom he received instructions, also castigated communist parties in France and Italy for collaboration with those countries' domestic agendas. Zhdanov warned that if they continued to fail to maintain international contact with Moscow to consult on all matters, "extremely harmful consequences for the development of the brother parties' work" would result.

Italian and French communist leaders were prevented by party rules from pointing out that it was actually Stalin who had directed them not to take opposition stances in 1944. The French communist party, as others, was then to redirect its mission to "destroy capitalist economy" and that the Soviet Communist Information Bureau would take control of the French Communist Party's activities to oppose the Marshall Plan. When they asked Zhdanov if they should prepare for armed revolt when they returned home, he did not answer. In a follow-up conversation with Stalin, he explained that an armed struggle would be impossible and that the struggle against the Marshall Plan was to be waged under the slogan of national independence.

Passage in Congress

Congress, under the control of conservative Republicans, agreed to the program for multiple reasons. The 20-member conservative isolationist Senate wing of the party, based in the rural Midwest and led by Senator Kenneth S. Wherry (R-Nebraska), was outmaneuvered by the emerging internationalist wing, led by Senator Arthur H. Vandenberg (R-Michigan). The opposition argued that it would be "a wasteful 'operation rat-hole'"; that it made no sense to oppose communism by supporting the socialist governments in Western Europe; and that American goods would reach Russia and increase its war potential. Vandenberg, assisted by Senator Henry Cabot Lodge, Jr. (R-Massachusetts) admitted there was no certainty that the plan would succeed, but said it would halt economic chaos, sustain Western civilization, and stop further Soviet expansion. Senator Robert A. Taft (R-Ohio), the most prominent conservative, hedged on the issue. He said it was without economic justification; however, it was "absolutely necessary" in "the world battle against communism." In the end, only 17 senators voted against it on 13 March 1948.  A bill granting an initial $5 billion passed Congress with strong bipartisan support. Congress would eventually allocate $12.4 billion in aid over the four years of the plan.

Congress reflected public opinion, which resonated with the ideological argument that communism flourishes in poverty. Truman's own prestige and power had been greatly enhanced by his stunning victory in the 1948 election. Across America, multiple interest groups, including business, labor, farming, philanthropy, ethnic groups, and religious groups, saw the Marshall Plan as an inexpensive solution to a massive problem, noting it would also help American exports and stimulate the American economy as well. Major newspapers were highly supportive, including such conservative outlets as Time Magazine. Vandenberg made sure of bipartisan support on the Senate Foreign Relations Committee. Regional attitudes played little part; the Solid Democratic South was highly supportive, the upper Midwest was dubious, but heavily outnumbered. The plan was opposed by conservatives in the rural Midwest, who opposed any major government spending program and were highly suspicious of Europeans. The plan also had some opponents on the left, led by Henry A. Wallace, the former Vice President. He said the Plan was hostile to the Soviet Union, a subsidy for American exporters, and sure to polarize the world between East and West. However, opposition against the Marshall Plan was greatly reduced by the shock of the Communist coup in Czechoslovakia in February 1948. The appointment of the prominent businessman Paul G. Hoffman as director reassured conservative businessmen that the gigantic sums of money would be handled efficiently.

Negotiations

Turning the plan into reality required negotiations among the participating nations. Sixteen nations met in Paris to determine what form the American aid would take, and how it would be divided. The negotiations were long and complex, with each nation having its own interests. France's major concern was that Germany not be rebuilt to its previous threatening power. The Benelux countries (Belgium, Netherlands and Luxemburg), despite also suffering under the Nazis, had long been closely linked to the German economy and felt their prosperity depended on its revival. The Scandinavian nations, especially Sweden, insisted that their long-standing trading relationships with the Eastern Bloc nations not be disrupted and that their neutrality not be infringed.

The United Kingdom insisted on special status as a longstanding belligerent during the war, concerned that if it were treated equally with the devastated continental powers it would receive virtually no aid. The Americans were pushing the importance of free trade and European unity to form a bulwark against communism. The Truman administration, represented by William L. Clayton, promised the Europeans that they would be free to structure the plan themselves, but the administration also reminded the Europeans that implementation depended on the plan's passage through Congress. A majority of Congress members were committed to free trade and European integration, and were hesitant to spend too much of the money on Germany. However, before the Marshall Plan was in effect, France, Austria, and Italy needed immediate aid. On December 17, 1947, the United States agreed to give $40 million to France, Austria, China, and Italy.

Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington, which was formulated and agreed upon by the Committee of European Economic Co-operation in 1947. In the document the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress. On March 17, 1948, Truman addressed European security and condemned the Soviet Union before a hastily convened Joint Session of Congress. Attempting to contain spreading Soviet influence in Eastern Bloc, Truman asked Congress to restore a peacetime military draft and to swiftly pass the Economic Cooperation Act, the name given to the Marshall Plan. Of the Soviet Union Truman said, "The situation in the world today is not primarily the result of the natural difficulties which follow a great war. It is chiefly due to the fact that one nation has not only refused to cooperate in the establishment of a just and honorable peace but—even worse—has actively sought to prevent it."

Members of the Republican-controlled 80th Congress (1947–1949) were skeptical. "In effect, he told the Nation that we have lost the peace, that our whole war effort was in vain.", noted Representative Frederick Smith of Ohio. Others thought he had not been forceful enough to contain the USSR. "What [Truman] said fell short of being tough", noted Representative Eugene Cox, a Democrat from Georgia, "there is no prospect of ever winning Russian cooperation." Despite its reservations, the 80th Congress implemented Truman's requests, further escalating the Cold War with the USSR.

Truman signed the Economic Cooperation Act into law on April 3, 1948; the Act established the Economic Cooperation Administration (ECA) to administer the program. ECA was headed by economic cooperation administrator Paul G. Hoffman. In the same year, the participating countries (Austria, Belgium, Denmark, France, West Germany, the United Kingdom, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, Turkey, and the United States) signed an accord establishing a master financial-aid-coordinating agency, the Organization for European Economic Cooperation (later called the Organization for Economic Cooperation and Development or OECD), which was headed by Frenchman Robert Marjolin.

Implementation

The first substantial aid went to Greece and Turkey in January 1947, which were seen as the front line of the battle against communist expansion, and were already receiving aid under the Truman Doctrine. Initially, Britain had supported the anti-communist factions in those countries, but due to its dire economic condition it decided to pull out and in February 1947 requested the US to continue its efforts. The ECA formally began operation in July 1948.

The ECA's official mission statement was to give a boost to the European economy: to promote European production, to bolster European currency, and to facilitate international trade, especially with the United States, whose economic interest required Europe to become wealthy enough to import US goods. Another unofficial goal of ECA (and of the Marshall Plan) was the containment of growing Soviet influence in Europe, evident especially in the growing strength of communist parties in Czechoslovakia, France, and Italy.

The Marshall Plan money was transferred to the governments of the European nations. The funds were jointly administered by the local governments and the ECA. Each European capital had an ECA envoy, generally a prominent American businessman, who would advise on the process. The cooperative allocation of funds was encouraged, and panels of government, business, and labor leaders were convened to examine the economy and see where aid was needed.

The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad. At the start of the plan, these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War, an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Of the some $13 billion allotted by mid-1951, $3.4 billion had been spent on imports of raw materials and semi-manufactured products; $3.2 billion on food, feed, and fertilizer; $1.9 billion on machines, vehicles, and equipment; and $1.6 billion on fuel.

Also established were counterpart funds, which used Marshall Plan aid to establish funds in the local currency. According to ECA rules 60% of these funds had to be invested in industry. This was prominent in Germany, where these government-administered funds played a crucial role in lending money to private enterprises which would spend the money rebuilding. These funds played a central role in the reindustrialization of Germany. In 1949–50, for instance, 40% of the investment in the German coal industry was by these funds.

The companies were obligated to repay the loans to the government, and the money would then be lent out to another group of businesses. This process has continued to this day in the guise of the state owned KfW bank, (Kreditanstalt für Wiederaufbau, meaning Reconstruction Credit Institute). The Special Fund, then supervised by the Federal Economics Ministry, was worth over DM 10 billion in 1971. In 1997 it was worth DM 23 billion. Through the revolving loan system, the Fund had by the end of 1995 made low-interest loans to German citizens amounting to around DM 140 billion. The other 40% of the counterpart funds were used to pay down the debt, stabilize the currency, or invest in non-industrial projects. France made the most extensive use of counterpart funds, using them to reduce the budget deficit. In France, and most other countries, the counterpart fund money was absorbed into general government revenues, and not recycled as in Germany.

The Netherlands received US aid for economic recovery in the Netherlands Indies. However, in January 1949, the American government suspended this aid in response to the Dutch efforts to restore colonial rule in Indonesia during the Indonesian National Revolution, and it implicitly threatened to suspend Marshall aid to the Netherlands if the Dutch government continued to oppose the independence of Indonesia.

Technical Assistance Program

Construction in West Berlin with the help of the Marshall Plan after 1948. On the plaque read: "Emergency Program Berlin - with the help of the Marshall Plan" 

The US Bureau of Labor Statistics (BLS) contributed heavily to the success of the Technical Assistance Program. The United States Congress passed a law on June 7, 1940 that allowed the BLS to "make continuing studies of labor productivity" and appropriated funds for the creation of a Productivity and Technological Development Division. The BLS could then use its expertise in the field of productive efficiency to implement a productivity drive in each Western European country receiving Marshall Plan aid.

By implementing technological literature surveys and organized plant visits, American economists, statisticians, and engineers were able to educate European manufacturers in statistical measurement. The goal of the statistical and technical assistance from the Americans was to increase productive efficiency of European manufacturers in all industries.

In order to perform this analysis, the BLS performed two types of productivity calculations. First, they used existing data to calculate how much a worker produces per hour of work—the average output rate. Second, they compared the existing output rates in a particular country to output rates in other nations. By performing these calculations across all industries, the BLS was able to identify the strengths and weaknesses of each country's manufacturing and industrial production. From that, the BLS could recommend technologies (especially statistical) that each individual nation could implement. Often, these technologies came from the United States; by the time the Technical Assistance Program began, the United States used statistical technologies "more than a generation ahead of what [the Europeans] were using".

The BLS used these statistical technologies to create Factory Performance Reports for Western European nations. The American government sent hundreds of technical advisors to Europe in order to observe workers in the field; this on-site analysis made the Factory Performance Reports especially helpful to the manufacturers. In addition, the Technical Assistance Program funded 24,000 European engineers, leaders, and industrialists to visit America and tour America's factories, mines, and manufacturing plants. This way, the European visitors would be able to return to their home countries and implement the technologies used in the United States. The analyses in the Factory Performance Reports and the "hands-on" experience had by the European productivity teams effectively identified productivity deficiencies in European industries; from there, it became clearer how to make European production more effective.

Before the Technical Assistance Program even went into effect, Maurice Tobin (the United States Secretary of Labor) expressed his confidence in American productivity and technology to both American and European economic leaders. He urged that the United States play a large role in improving European productive efficiency by providing four recommendations for the program's administrators:

1. That BLS productivity personnel should serve on American-European councils for productivity;
2. that productivity targets (based on American productivity standards) can and should be implemented to increase productivity;
3. that there should be a general exchange and publication of information; and
4. that the "technical abstract" service should be the central source of information.

The effects of the Technical Assistance Program were not limited to improvements in productive efficiency. While the thousands of European leaders took their work/study trips to the United States, they were able to observe a number of aspects of Americ