The Marshall Plan: Dawn of the Cold War

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PRAISE FOR

THE MARSHALL PLAN

Benn Steil’s fascinating book places the transformative design and huge impact of the Marshall Plan in the context of the early Cold War drama. Engaging, detailed, and well-researched, it takes us behind closed doors in both Europe and the United States, illuminating how the plan was created and how it changed the world. The book’s relevance extends well beyond its new historical insights, showing how offshoots of the plan continue to shape modern-day Europe. It also sheds light on how open mind-sets and intelligent economic architecture can help anchor an increasingly fluid and uncertain global economy.

—Mohamed El-Erian, Chief Economic Advisor at Allianz and author of The Only Game in Town

Benn Steil’s carefully researched new book reminds us of the economic uncertainties and political turmoil that surrounded U.S. foreign policy-making in the aftermath of World War II. In the end, the right choices were made, first in developing the Marshall Plan, which provided economic support for economically devastated European allies, and then in building NATO, a strong Western military alliance. Here we are seventy years later in very different circumstances, economic and military. The United States and its allies are strongly challenged to find new approaches to renewing the alliances. May our leaders benefit from the practical wisdom and ideas of seventy years ago.

—Paul Volcker, former Chairman of the Federal Reserve

The Marshall Plan is one of the great success stories of U.S. foreign policy. Benn Steil’s well-researched and insightful account reminds us that this iconic example of strategic foresight and imagination was anything but inevitable. On the contrary, his book shows that the Plan’s creation, refinement, implementation, and eventual success required perseverance, political savvy, and plenty of plain good luck. The moral for our era is clear: successful foreign policies require creative and dedicated public servants and do not emerge without them.

—Stephen Walt, Robert and Renee Belfer Professor of International Affairs, Harvard Kennedy School

"Compelling and authoritative, The Marshall Plan is a first-rate work of history. But it also bears powerfully on the present, reminding us that if soft power is the power to attract, the Marshall Plan is a stunningly successful example of it."

—Fredrik Logevall, Laurence D. Belfer Professor of International Affairs, Harvard University

The Marshall Plan has become a favorite analogy for policy-makers. Yet few know much about it. Finally, Benn Steil provides a readable, authoritative account of what it was, what it did, and what it achieved.

—Graham T. Allison, Douglas Dillon Professor of Government, Harvard Kennedy School

CONTENTS

Foreword

1. PROLOGUE

2. CRISIS

3. RUPTURE

4. PLAN

5. TRAP

6. UNITY

7. PERSUASION

8. SAUSAGE

9. SUBVERSION

10. PASSAGE

11. SHOWDOWN

12. DIVISION

13. SUCCESS?

14. ECHOES

Photographs

Acknowledgments

Cast of Characters

Appendix A: Truman Doctrine Speech

Appendix B: Marshall’s Harvard Speech

Appendix C: Data

Appendix D: Maps

About the Author

References

Notes

Index

Illustration Credits

For my precious

MOM and DAD,

and

GLORIA, ETHAN, and OWEN

FOREWORD

IN 1944, FRANKLIN D. ROOSEVELT set out to Forge a New, Cooperative postwar order. In it, the Soviet Union would, he believed, become a major power with its own peculiar interests. Yet it would be shepherded by a new United Nations and International Monetary Fund into collaboration with an agenda conducive to American security and prosperity—an agenda founded on free trade and respect for the independence of weaker neighbors.

Not long after Roosevelt’s death in April 1945, however, it became clear that Joseph Stalin had an agenda all his own, and that he was not going to play by American rules. Just before New Year’s Day 1946, at the deadline for ratification of the IMF agreement, he pulled out. He had, in fact, never intended to adapt Soviet policies to the requirements of membership. He had simply sought two benefits from cooperation in creating the new body. The first was a return by others to a monetary system that would boost the value of Soviet gold stocks. He got that, with no need to participate. The second was more unconditional U.S. financial aid for his country, as it had received during the war. When it became clear that none was forthcoming, he lost interest. As for the United Nations, the United States granted his priority demand: a veto on the Security Council. With it, he saw Soviet membership as no bar to extending his frontiers—which he set out to do in 1946.

Meanwhile, America’s natural allies in western Europe looked to be teetering on the edge of economic, social, and political collapse. The U.N. and IMF, which had been founded to maintain peace and stability rather than manufacture it, were powerless to reverse this slide. In 1947, therefore, President Harry S. Truman’s State Department, now under the leadership of General George C. Marshall, disowned FDR’s One World vision. Under formidable time constraints, they set out to formulate a new economic and security architecture appropriate to a Europe divided into Two Worlds: a capitalist and a communist one.

This book situates the Marshall Plan more directly at the center of the emerging Cold War than earlier accounts, highlighting the seriousness with which Stalin treated the threat it represented to his new, hard-won buffer zone in central and eastern Europe. The Soviet leader’s blueprint for postwar Europe assumed the Americans would withdraw, leaving behind a weak, pastoralized Germany, ongoing reparations from which would fund Soviet reconstruction and development. The Marshall Plan, however, promised a continuing energetic U.S. presence, underwritten by a reindustrialized capitalist western Germany at the heart of an integrated, capitalist western Europe. Many of the most dramatic episodes of the early Cold War, such as the Prague coup and the Berlin blockade, were driven by Stalin’s determination to undermine the Marshall Plan and American influence in Europe broadly. On the flip side, Washington’s support for a new transatlantic military alliance represented a reluctant acknowledgment that economic security would not take hold in western Europe without physical security.

Institutions that were outgrowths of the Marshall Plan, in particular the European Union and NATO, remain important elements of the postwar liberal international order—even as they are subjected to more critical scrutiny than at any time since their founding. In showing how the Plan evolved, I have brought to bear new material from American, Russian, German, and Czech sources that I hope will make an important story even more resonant. And given the enduring passion for creating new Marshall Plans to solve the world’s problems, the story of the old, original one is, I believe, a story well worth telling.

American, British, and Soviet leaders gather at Potsdam to discuss the future of Germany and postwar Europe, July 17, 1945. Foreground: British Foreign Secretary Anthony Eden (left) and Permanent Undersecretary of State for Foreign Affairs Alexander Cadogan (right). Background: Soviet leader Joseph Stalin (center) and Foreign Minister Vyacheslav Molotov (left).

ONE

PROLOGUE

THE GREATEST ACT OF GEORGE Washington’s presidency was his leaving of it. Having defeated the world’s most powerful nation in war, the celebrated general could have led his country like a European monarch—till his death. Yet determined to set the United States apart from the political order of the mother continent, he refused to serve a third four-year term. In a farewell address on September 19, 1796, he urged his countrymen to steer clear of permanent alliances with any portion of the foreign world, above all Europe. Europe, he said, has a set of primary interests which to us have . . . a very remote relation. Hence she must be engaged in frequent controversies . . . foreign to our concerns. It was therefore unwise . . . to implicate ourselves in the combinations and collisions of her friendships or enmities.1 Generations of American statesmen would recall his warning with reverence and, at times, foreboding.

Yet a century and a half later, in 1945, the reflections of America’s first president seemed idyllic. The United States had just fought two world wars in the space of thirty years, at a cost of 522,000 American lives, both of which had been started four thousand miles from its shores. When Germany surrendered on May 7, 3,077,000 American troops were in Europe.

After the First World War ended in 1918, there took root in the United States a deep-seated popular desire to disengage from Europe—to re-embrace Washington’s injunction. This sentiment has been called, simply, isolationism, but it encompassed many strains. In the 1930s it included pacifists, pro-Communists, and pro-Fascists; it included those sympathetic to Germany and those who believed French and British resistance hopeless. In 1939, less than 3 percent of the American public supported the United States entering the latest European conflagration on the side of France and Britain; 30 percent were against even trading with any warring country.2 A series of Neutrality Acts, enacted to keep the United States from becoming entangled with warring nations on either side, channeled such sentiment. Legislation in 1935 instituted an embargo on trading in arms and other war materials. The following year Congress added a ban on loans or credits to belligerents, reflecting the findings of the so-called Nye Committee, which held that bankers had pushed the nation into the previous European catastrophe.

It took a devastating Japanese attack on the U.S. Pacific Fleet at Pearl Harbor in December 1941 to rupture this powerful inertia. The United States returned to war, both in Asia and in Europe, this time with the conviction in the White House that structures had to be put in place to prevent future conflict. There would be a United Nations with a muscular Security Council to prevent military aggression, and an International Monetary Fund (IMF) and International Trade Organization (ITO) to prevent what Treasury Secretary Henry Morgenthau called economic aggression. Pressure would be placed on the country’s ally of choice, Great Britain, to dismantle its imperial institutions, which were a moral and practical affront to this vision. Awkward accommodations would be made to its new and much stronger ally of necessity, the Soviet Union, to secure its cooperation. In concert with a liberated China, President Franklin D. Roosevelt’s Four Policemen would oversee their respective quadrants of the globe, a stratagem that uncomfortably blended Wilsonian internationalism with Monroevian spheres of influence.

Roosevelt had publicly declared his hopes for a peace loving Soviet Union shattered after its brutal and unprovoked invasion of Finland in November 1939, motivated partly by Stalin’s fear that Germany or Britain might use the country as a base to attack Leningrad. FDR condemned Stalin’s government as a dictatorship as absolute as any other in the world.3 Yet he remained acutely aware that George Washington’s apprehensions on European entanglement had never left his nation’s psyche. Certain that the American public would not tolerate a lengthy European occupation, Roosevelt was determined to withdraw troops from Europe quickly after Germany’s surrender—within two years. This priority drove his steadfast efforts to cooperate with Stalin, despite his harboring none of the romantic illusions about Communist authoritarianism held by some in his administration. But it also explains the constant tension between the White House and the State Department, including diplomatic staff in Moscow, who found the president’s unwillingness to confront the Kremlin an ominous sign for the postwar landscape—one in which Stalin would be free to impose his will on Soviet-occupied territories.

British prime minister Winston Churchill shared these fears, particularly as regards Poland—a country he saw as a barrier to Soviet westward expansion, much as Stalin saw it as a barrier to Western encroachment.4 But FDR never bought into Churchill’s vision of Britain and America marching forward shoulder to shoulder into the postwar era. The President shared a widespread American suspicion of the British Empire as it had once been, noted Foreign Secretary Anthony Eden. And he had no fear that other powers, besides the United States, might fill that role after the war.5 Yet by 1947, such fear would concentrate minds in the State Department and Pentagon.

The Big Three wartime conference at Yalta in February 1945 was Roosevelt’s last face-to-face meeting with Stalin, a final chance to reconcile clashing interests over the shape of postwar Europe before the advancement of Soviet, American, and British troops settled matters on the ground. Washington and Moscow having nothing more in common than a soon-to-be-vanquished Nazi enemy (with whom Stalin connived from 1939 to 1941), the prospect for genuine agreement seemed remote. Conscious that a war-weary American public constrained his military and political leverage, the president had to rely on charms more than arms to persuade Stalin to permit genuine political independence in the East. Yet determined to secure Soviet membership in the new United Nations and entry into the war against Japan, he was willing to trade away much in Europe—not least Polish democracy and war reparations from the Western occupation zones of Germany—to get them. And what wiles he used in his cajoling were largely undermined by the ubiquity of Soviet listening devices in the American residence and directional microphones outside it.6 Given later Soviet behavior in the U.N. and imminent U.S. nuclear arms developments, Roosevelt would overpay for Stalin’s concessions.

Stalin also relied on charm, to evade commitments on territory the Red Army would soon control. Don’t worry, he told his alarmed foreign minister, Vyacheslav Molotov, after reading an American draft of the Declaration of Liberated Europe. We can deal with it in our own way later. The point is the correlation of forces.7 As for relations with the United States, which was bound to interpret the Yalta agreements differently, he was equally unconcerned. The best friendships, he offered, are those founded on misunderstandings.8

Indeed, there was hope, as we left Yalta, State Department Sovietologist Charles (Chip) Bohlen recalled, of genuine cooperation with the Soviet Union on political questions after the war.9 A spirit of Yalta, the press declared, was guiding the wartime allies.10 Yet problems under the surface bubbled up almost immediately. In late March 1945, furious at Moscow’s undermining of Polish independence and treatment of American prisoners of war (which was not terrible by Soviet standards) in territory liberated by the Red Army, Roosevelt banged his wheelchair: We can’t do business with Stalin. He has broken every one of his promises he made at Yalta.11 By 1947, in both the United States and much of Europe, Yalta would become a synonym for betrayal of freedom and the appeasement of world communism.12 There would be consequences.

ROOSEVELT’S SUDDEN DEATH IN APRIL 1945 shocked and distressed Stalin. Instinctively suspicious, he suspected foul play. His intelligence reports told him anti-Soviet hard-liners were gaining ground in Washington.13 Yet the president’s passing brought to power a man unprepared for the job, possessed of no desire or capacity to refashion the postwar foreign and security policy blueprint passed down to him.

Who the hell is Harry Truman? asked FDR’s incredulous chief of staff, Admiral William Leahy, nine months earlier, after learning that the 1944 Democratic convention had chosen him as the president’s running mate.14 Upon ascending to the White House, Truman refused even to discuss Churchill’s pleadings that General George Patton advance on Berlin to create bargaining leverage with Stalin—so committed was he to staying on the cooperative path laid out by Roosevelt.

The diplomatic demeanor of the two presidents, however, was very different. Though FDR had privately been no less critical of Soviet behavior than Truman,15 and Truman no less desirous of good relations with Moscow than FDR, Truman rarely masked his frustrations the way FDR did. In his first meeting with Molotov in Washington on April 23, the new president gave the Russian a tongue-lashing over the creeping Sovietization of Poland. When the latter protested that he had never been talked to that way in [his] life, Truman doubled down: Carry out your agreements, he recalled responding, and you won’t get talked to like that.16

Molotov took Truman’s tone as clear evidence that American policy had taken a hard right turn. Stalin, for his part, had always expected the worst from Truman. As a senator in 1941, Truman had, just after Hitler invaded the Soviet Union, casually told a New York Times reporter that if we see that Germany is winning we ought to help Russia, and if Russia is winning we ought to help Germany, and that way let them kill as many as possible.17 Indeed, for every American who would die in the war thirteen Germans and seventy Russians would perish. And once the war was won, at enormous cost to the Soviet military, civilian population, and infrastructure, Truman as president would infuriate Stalin by terminating Lend-Lease matériel assistance. In talks with Truman’s liaison Harry Hopkins, Stalin condemned the aid cut as a brutal act against an ally. Truman repented of the bungle and resumed supply flows, but Stalin took his behavior as a sure sign of hostile intent.

Yet in early July 1945, still navigating foreign affairs without a compass, Truman was confident he would soon set matters straight with Stalin, face-to-face. The president boarded the USS Augusta, en route to Europe for the third and final of the Big Three wartime conferences, in a decidedly optimistic frame of mind. He was determined to bring Europe ninety years of peace. The Russians have always been our friends, he wrote in his diary on July 7. And I can’t see any reason why they shouldn’t always be.18

Two weeks with Stalin and Molotov, however, changed his perspective. You never saw such pig-headed people as the Russians, he would write to his mother on July 31. I hope I never have to hold another conference with them.19

What had gone wrong?

When the president arrived in Potsdam, Germany, he and his new secretary of state, James (Jimmy) Byrnes, were determined to put disputes over Polish independence behind them20 and to forge agreement with Stalin on more pressing matters. They remained committed to pushing forward with Roosevelt’s priorities at Yalta: early Soviet entry into the war against Japan, and participation in the new United Nations. Yet they could no longer indulge Henry Morgenthau’s vision of a pastoralized postwar Germany—the Morgenthau Plan—the way FDR had. With Germany’s surrender in May, the priority was now to stabilize it—not to uproot its industry and watch it descend into starvation and unrest. Germany needed food. Europe needed coal. Coal needed to be mined and moved. This meant repairing Germany’s industrial apparatus and transport links. Economic castration no longer seemed such a bright idea.

Stalin had little problem giving Truman a commitment to declare war on Japan by mid-August: it would give the Soviet Union a basis for recuperating territorial losses from the disastrous 1904–05 Russo-Japanese War. Pledging that the Soviet Union would join the United Nations (which it did in October), with veto power in the Security Council, also gave him negotiating leverage over unfinished matters in the postwar settlement. But Truman’s German agenda collided head-on with his own.

At Yalta, Stalin had demanded $20 billion in German war reparations, half of which for Russia. Roosevelt had neither blanched nor acceded, preferring not to commit to a figure. Byrnes, however, took a harder line. Determined not to repeat the mistakes of the post–World War I settlement, through which the United States inadvertently ended up giving Germany the funds with which it paid the French and British, he insisted that reparations from current production in the Allied (western-occupied) zones could only be paid to Russia after covering the cost of keeping Germans and their coal industry alive. Stalin, uninterested in how Germans subsisted or mined coal, dismissed Byrnes’ formulation. This stalemate crossed all major issues, infuriating Truman.

Yet on July 31, just after Truman had penned the angry letter to his mother, Byrnes, an accomplished political bargainer, triumphantly sold Stalin on a package deal, take it or leave it.21 However morally abhorrent Truman found the terms, he agreed to let Stalin take German territory for Poland and offered conditional recognition for Soviet-backed regimes in Romania, Hungary, and Bulgaria. In return, Stalin agreed to depart without a guaranteed dollar figure for reparations—with the caveat that the Allied zones would deliver 15 percent of their usable and complete capital equipment to the Soviet zone in return for East German food, coal, and other natural resources.22

Relieved he had managed to preserve the cooperative relationship Roosevelt had established with Stalin, Truman was still unnerved by the price. During the difficult negotiations on Germany, Stalin kept referring to dividing everything according to whether it was to the east or the west of the Soviet-Allied occupation line. Truman suspected he was not just speaking of Germany. Did Stalin mean a line running from the Baltic to the Adriatic? he asked the Soviet leader. Indeed, Stalin confirmed matter-of-factly, adding that Finland and eastern Austria should also be within the Soviet zone.23 Truman had never imagined himself coming to Potsdam to carve Europe into spheres of influence, but faced with the alternative of returning home empty-handed he raised no objections.

The new British prime minister, Clement Attlee, called the Potsdam agreement an important milestone.24 But millstone might have been more accurate. Despite the agreement, Stalin and Truman would continue to appeal to Yalta in claiming the other was failing to meet his commitments. Moscow would insist that the Allied zones of Germany owed far greater reparations, Washington that the economy of the eastern zone was being improperly Sovietized. The institutions set up to draft peace treaties with the former enemy countries and to oversee the German occupation—the Council of Foreign Ministers and the Allied Control Council—would soon begin to collapse under the weight of unresolvable differences over Germany. In 1947 these would spill over onto the rest of the continent, with Truman convinced that the Russians were bent on sabotaging democracy in the West, and Stalin that the Americans were using economic stratagems to undermine pro-Soviet governments in the East.

ROOSEVELT HAD LARGELY BEEN HIS own secretary of State. His relations with the longtime official holder of the position, Cordell Hull, had deteriorated to the point of open hostility by the time the latter resigned in November 1944. To the extent that others had power over foreign policy, it tended be in the economic sphere—about which FDR cared little. Henry Morgenthau, his old Hyde Park neighbor who, with little knowledge of economics or foreign affairs, had run the Treasury since 1934, used his platform and access to great effect. Not having policy ideas of his own so much as instincts, Morgenthau relied on his ambitious, obliquitous deputy, Harry Dexter White, to give them form and substance.

White, one of the most enigmatic American political figures of the twentieth century, boosted Treasury’s global influence through his mastery of the forty-four-nation Bretton Woods Conference, which created the IMF in 1944, and the war-aid terms imposed on the penurious British. Yet like Henry Wallace—who would tap him as a future treasury secretary during his 1948 presidential campaign—White was also a great admirer of the Soviet Union and its economic system. He would, over the course of twelve years in Washington, to a much greater degree than Wallace, use his position to aid Moscow materially and with secret intelligence.25 He would also give substance to the so-called Morgenthau Plan to deindustrialize postwar Germany—effectively to render the country pastoral and infirm. Together with the dismantling of Britain’s empire under Washington’s approving gaze, the Morgenthau Plan became a pillar of Stalin’s expectations that he would be able to control a buffer of central and eastern European nations without interference from an indifferent United States and a weak and divided western Europe.

Yet Truman, who considered Morgenthau a blockhead, and opposed his meddling in German affairs, forced him to resign before leaving for Europe in July. This marginalized White, who would die of a heart attack three years later, right after defending himself against espionage charges (many later substantiated) before the House Un-American Affairs Committee.26 Treasury would become a backwater under Truman, while the State Department would not only regain full authority over traditional foreign affairs but come to arrogate power over foreign economic policy as well. By the time General George C. Marshall became secretary of state in January 1947, men of a very different political and intellectual disposition—such as Dean Acheson, George Kennan, Will Clayton, General Lucius Clay, and Republican senator Arthur Vandenberg—were in position to reshape policy on many fronts, to enormous consequence.

After Potsdam, Truman would continue to reach out to Stalin periodically for political purposes, to show the war-weary American electorate he was dedicated to peace, but the new president was far more inclined than FDR to let his foreign-policy team craft and conduct policy. Direct presidential contact with foreign leaders diminished; the control of cable contact was returned to the State Department.27 And the diplomats and experts were less willing to ignore Russian history and behavior. Never . . . did I consider the Soviet Union a fit ally or associate, Kennan would later reflect.28

Of course, hard political substance, and not just personnel changes, poisoned relations between Moscow and Washington in 1945, and it is far from clear that Roosevelt would have been more able or willing than Truman to assuage Stalin. Not least on the list of matters that troubled the Soviet leader at Potsdam was Truman’s oblique revelation of America’s powerful new weapon. Though Stalin had been well informed about the atom bomb project through his American spy network, the demonstration of its destructive power in Japan two weeks later still staggered him. Whatever the president’s true disposition toward his country, Stalin knew the United States now had the capacity to devastate it in an instant.

Hiroshima has shaken the world, Stalin told his weapons team. The balance has been broken. Build the bomb—it will remove a great danger from us.29

Stalin was convinced the Americans would try to use their atomic monopoly to force us to accept their plans on questions affecting Europe and the world. But that is not going to happen, he told Andrei Gromyko, his ambassador in Washington.30 All future meetings of the Council of Foreign Ministers, through which the Soviet Union, the United States, Britain, and France had pledged to coordinate postwar policy in Europe, would be poisoned by these fears and suspicions. Stalin directed Molotov to reject concessions to the West on the political organization of the new Soviet satellites, as he himself called them, in southeast Europe. Most importantly for the future of the continent, Stalin refused all Western proposals for occupied Germany that involved Soviet troop withdrawals in the east.31 And at the end of 1945, just at the deadline for forty-four nations to ratify the Bretton Woods agreement, the Soviets announced that they were staying out. This struck a major blow to FDR’s One World vision.

In the course of four weeks in early 1946, Stalin, Kennan, and Churchill would issue what would become rallying cries of the Cold War—a term George Orwell had coined in 1945 to describe the dystopian permanent state of hostility emerging between the United States and the Soviet Union.32 On February 9, Stalin gave an address at the Bolshoi Theater condemning world capitalism and its political face, imperialism, as the engines of world war. Two weeks later, Kennan sent his famous Long Telegram from Moscow, arguing that the Soviet Communist government was inherently expansionist, impervious to logic of reason, and responsive only to the logic of force. And two weeks after that, Churchill gave his historic iron curtain speech in Fulton, Missouri, warning of the dangers of communist fifth columns operating in western and southern Europe. All three circulated widely in the capitals of North America and Europe, helping to solidify the growing sense that conflict between East and West was inevitable. The only question was the form it would take.

For Stalin, 1946 was a year of probing. The Soviet empire’s western flank was now strong, with its forces occupying or looming over all of eastern and central Europe. But its southern flank was still vulnerable—as it had been during the Crimean War of 1853–56 and two world wars. Turkey and Iran loomed as potential U.S.-backed adversaries. With Britain headed toward bankruptcy, and imperial retrenchment looking inevitable, this might be a window to secure borders, acquire oil reserves, dominate critical parts of the Mediterranean and Middle East, and transform his empire into a maritime power. What he needed to know was how far the United States would go to stop him.

THE MID-1940S REPRESENTED THE APEX of twentieth-century American economic diplomacy. The 1944 Bretton Woods initiative championed by FDR’s Treasury was grounded in the belief, born of the Depression and World War II, that economic instability led to currency wars, trade wars, and ultimately military wars. Using the tools of the new science of macroeconomics, Treasury believed, governments could end the plague of economic slumps and thereby sustain a cooperative global ban on competitive devaluations—a monetary form of economic aggression. But the scheme took as its starting point political stability, something lacking in the chaotic aftermath of the war.

In response to the rising threat of a new security vacuum in Europe, Truman’s State Department effectively mothballed the newly born IMF, dismissing disdainfully the assumptions Morgenthau and White had made to justify their faith in it—that Soviet cooperation would continue into the postwar period; that Germany’s economic collapse could be safely, and indeed profitably, managed; that the British empire could be peaceably dismantled; and that modest balance-of-payments credit support was sufficient to reestablish global trade. These had been based on misconceptions of the state of the world around us, future secretary of state Dean Acheson reflected, both in anticipating postwar conditions and in recognizing what they actually were when we came face to face with them. . . . Only slowly did it dawn upon us that the whole world structure and order that we had inherited from the nineteenth century was gone and that the struggle to replace it would be directed from two bitterly opposed and ideologically irreconcilable power centers.33

Bohlen concurred. The United States is confronted with a condition in the world which is at direct variance with the assumptions upon which, during and directly after the war, major United States policies were predicated, he wrote for a meeting of top State and War Department officials in August 1947. Instead of unity among the great powers on the major issues of world reconstruction—both political and economic—after the war, there is complete disunity between the Soviet Union and the satellites on one side and the rest of the world on the other. There are, in short, two worlds instead of one.

To be sure, economics as a tool of diplomacy would become more rather than less important under Truman than under Roosevelt. But it was now to focus on the drawing together and consolidation of the non-Soviet world, in Bohlen’s words, and not to rely on the non-existent thesis of one world. It was no longer advisable for this Government to continue to press for long-range objectives, he concluded, however desirable in themselves, which do not immediately and directly bear upon the solution of Western European problems. Further initiatives, Bohlen concluded, should be consciously limited to Western Europe, based on the concept of the economic unity of Europe west of the Stettin-Trieste line marking the border with what was now Soviet Europe.34

Indeed, many of Truman’s top advisers had by 1947 come to see western European unity and recovery as the only viable alternative to a major new American military engagement in Europe. The greatest danger to the security of the United States, warned the new Central Intelligence Agency, is the possibility of economic collapse in western Europe and the consequent accession to power of communist elements.35 Secretary of the Army Kenneth Royall insisted he would need 160,000 additional troops and a $2.25 billion (20 percent) boost to the military budget if Congress voted down a European aid plan.36 Former ambassador to Moscow Joseph Davies worried that the resulting armaments race [with Russia] would probably bankrupt us.37

Importantly, the character of the new economic thinking was radically different from that under FDR. Rather than lending Europe reconstruction funds and wishing it well, a new integrated western European entity would be constructed using American blueprints, cash, and—ultimately, contrary to all early intentions—security guarantees. This effort—the Marshall Plan, as it would come to be known—would entangle the United States in European affairs in precisely the manner George Washington had warned against.

This is the story of how and why it happened, what it achieved, and the legacy effects we continue to live with today.

Communist demonstration in front of the Propylaea building of the University of Athens at the start of the Greek civil war, 1944.!

TWO

CRISIS

BLESSED ARE THE DEAD, READ the graffiti on the walls of the Reichstag, or what was left of it, FOR THEIR HANDS DO NOT FREEZE.

It was February 1947; nineteen thousand Berliners had been treated for frostbite in the past three months. Not that they hadn’t been prepared for winter. They had begun in the autumn of 1946, just before the ground froze, digging thousands of graves for those who would die of cold and starvation before spring.1

Europe in the war’s early aftermath was a rubble heap, a charnel house, Churchill said, a breeding ground of pestilence and hate.2 Canals were blocked, rivers frozen, bridges fallen, roads cratered, rail lines mangled, factories gutted. In Germany, once the workshop of Europe, Russian looters finished the job Allied bombs had not. Farmers grew only what they could eat, assuming they could grow anything at all. In a civilization built on an intricate division of labor across town and country, this meant widespread hunger, malnutrition, and death.

The New York Times called Europe The New Dark Continent—a place which no American can hope to understand. Much of it was still lawless, violent, even savage. The British military governor in Hanover, Germany, described daily scenes of looting, fighting, rape, [and] murder. War reporter Leonard Mosley documented surreal scenes of screaming people pillaging a store for door knobs . . . kick[ing] and scratch[ing] and beat[ing] with iron bars those who had more doorknobs than themselves. And this in a city where half the doors no longer existed.3

The European war had been to an unprecedented degree, in historian Tony Judt’s words, a civilian experience, with over 36 million war-related deaths.4 In many ways, its formal end simply shifted the perpetrator and victim groups. During the war, organized brutality had been directed not merely at enemies from abroad but at Fascists and collaborators at home. Now, in countries such as Yugoslavia, Italy, and Greece, those who had carried out the violence were in charge. Thousands of partisans remained armed, refusing to trust civil authorities that continued to rely on functionaries tied to discredited regimes.

In Italy, as many as twenty thousand suspected collaborators were murdered in the months following the Fascist defeat in April 1945. In Yugoslavia, partisans killed some seventy thousand accused collaborationists, civilians as well as soldiers. In Poland, thirty thousand would die in conflict over the new Communist regime between the end of the war and 1948. In France, some ten thousand were killed in extrajudicial reprisals. An estimated twenty thousand women suspected of collaboration—that is, sleeping with the enemy—were subjected to public degradation and violence. Mass trials, purges, expropriations, expulsions, and executions were used in eastern Europe—typically instigated by the Soviet occupation authorities—to eliminate political elements on the right; in Greece they were used to undermine the left. On a single day, May 19, 1945, the Czechoslovak Extraordinary Peoples’ Courts handed out over twenty thousand sentences (7 percent of which were for life or the death penalty) to traitors, collaborators and fascist elements. By 1948, Romania would imprison nearly a quarter million for political crimes, roughly 2 percent of the population. Up to 200,000 were arrested and deported from Hungary to the Soviet Union. Most wound up in the Gulag.

Ethnic minorities—notably Jews, who as capitalists or communists were held responsible for deprivations befalling communities in central and eastern Europe—were subjected to brutal mass attacks and expulsions. The most infamous postwar pogrom took place at Kielce, in south-central Poland, in July 1946, when false reports of a Jew abducting a Catholic boy triggered a massacre of forty-two Jews in a single day. Over 63,000 Jews flooded into Germany from Poland in the three months that followed; seventy thousand left for Palestine. Ethnic Germans fled the country, under Soviet direction, in the most prodigious numbers: roughly seven million (on top of three million from Czechoslovakia). By the end of 1947 there were virtually no ethnic minorities left in Poland.5 (Perversely, the new Soviet occupation thus made Poland more Polish than before the war.)

In all, some twelve million ethnic Germans left eastern and central Europe for the occupied zones of Germany, which were struggling to sustain the local population. Seven million foreigners had been forced to work in the country during the war, over a fifth of the country’s labor force, and many of these were now also on the march—part of the horrific mass movement of homeless humanity crisscrossing the devastated continent.

After the First World War, borders had moved while people remained largely in place. This time was different, with borders mostly stable while people moved (Poland being the major exception, where border movements led to at least 1.2 million being evicted from their homes). At the end of the Second World War, fifty million Europeans were homeless, half of whom in the western part of the Nazi-ravaged Soviet Union. In Germany, 40 percent of prewar housing was destroyed.6 All told, Stalin and Hitler forcibly displaced some thirty million between 1939 and 1943. Many were now being shunted back home. Non-Soviet Russians and Ukrainian partisans, for example, were herded across the Soviet border by British and American troops, meeting their fate (typically work camps or death) at the hands of waiting NKVD security forces.7

Local economies of sorts continued to function, but often only in their most Hobbesian form. During the war, the right to property had dissolved, with occupiers and resisters taking and distributing, retaking and redistributing, in the cause of war, justice, or opportunity. In the process, trust in authority and one’s fellows had been shattered. Belgians and French and Dutch had been brought up in the war to believe that their patriotic duty was to cheat, to lie, to run a black market, future Belgian prime minister Paul-Henri Spaak reflected decades later. These habits became ingrained after five years.8 Liberation, which, like invasion, had generally been carried out by foreigners, had not meant a return to legitimate local rule. The Nazis, after all, had run France with just 1,500 German functionaries. They had relied mainly on willing French collaborators. Now there was no right to anything, no common sense of justice to appeal to; only brute physical control over property.

It [was] hardly an exaggeration, the head of United Nations relief in western Germany wrote, to say that every man, woman and child in Western Europe is engaged to a greater or lesser degree in illegal trading of one kind or another. . . . [I]t is hardly possible to support existence without doing so. U.S. assistant secretary of war John J. McCloy memoed Truman in April 1945 that Germany was on the verge of complete economic, social, and political collapse—a collapse unparalleled in history unless one goes back to the collapse of the Roman Empire.9

Money had become part of the problem, having in parts of central and eastern Europe lost all meaning. In Hungary, inflation in 1946 rose to a peak of about 160,000 percent per day.10 Buying and selling with money was like setting one’s watch to a crazed clock. As a result, commercial exchange broke down, and production for exchange along with it. The human effect of this breakdown was dire. Average daily calorie consumption in the British occupation zone of Germany plummeted by a third between mid-1946 and early 1947, from 1,500 to 1,050.11 In major urban centers such as Vienna and Budapest it had fallen to as low as 800.12 We are threatened, said French economics minister André Philip, with total economic and financial catastrophe.13

U.S. State Department officials who would rise to public prominence in the coming months had been in Europe late in the war, and in its early aftermath. What they saw and heard disturbed them. In December 1944, fifty-one-year-old assistant secretary of state Dean Acheson wrote from Greece, where a thousand villages had been obliterated,14 of the potential for a continent-wide bloodbath if Europe were not somehow rehabilitated quickly. The peoples of the liberated countries . . . are the most combustible material in the world, he memoed to Roosevelt special assistant Harry Hopkins. They are violent and restless. Failure to put them to productive work would mean agitation and unrest, to be followed by arbitrary and absolutist controls and ultimately the overthrow of governments.15 More than fifty thousand Greeks would die in the renewed civil war that would erupt in 1946, one that would have dramatic and enduring effects much further afield. Acheson’s immediate concern in 1944 was, of course, winning the war with Hitler, but he also returned to Washington convinced that economic stabilization was vital to preventing another calamitous European conflagration.

In September 1945, forty-one-year-old diplomat George Kennan had, since June the previous year, been on his second tour of duty in Moscow, this time as the number two (counselor) to Ambassador W. Averell Harriman. Making his way by train between Moscow and Helsinki, four months after the formal end of the European fighting, he was moved to capture the eerie images in his diary. Vyborg, a modern and vibrant Finnish port city before the war, was at its end empty, rotting Soviet war booty. At the remains of its train station on his way back to Moscow, Kennan noted rays of early morning sunshine [catching] the gutted shells of apartment buildings, flood[ing] them momentarily with a chill, pale gleam. The train pulled away, clacking slowly through a devastated and deserted country . . . houses, doorless and windowless . . . sinking gradually back into the new vegetation around them, which still concealed tens of thousands of live land mines.16

In such a world, people wanted change. Economic change came in different forms, ranging from industrial planning in France to nationalization in Britain to outright seizure of farms and enterprises in Hungary and much of the Soviet-controlled East.17 Many thought that the disasters of authoritarianism in Europe were the products of the laissez-faire brutality, inefficiency, and inequity in the interwar years. Nobody in Europe, wrote British historian A. J. P. Taylor in 1945, any longer believes in the American way of life—that is, private enterprise.18

People also wanted political change. Communist parties throughout Europe were promising a radical alternative to capitalism. History seemed to be on their side. The Soviet Union was victorious in war, and now far and away the most powerful country on the continent. Communists received 19 percent of the vote in Italy, 24 percent in Finland (where Communist Mauno Pekkala became prime minister), and 26 percent in France in 1945–46. And although no national elections in Germany would take place before 1949 (in the west), Communists took up to 14 percent in some regional contests. Together with the Socialists, the total left-wing vote was 39 percent in Italy and 47 percent in France. In Italy, many thought the revolutionary left was destined to take control of the country. The merging of the left parties in the Soviet zone of Germany seemed a template for wider Europe.19

Back in Washington, where belief in the civilizing influences of the market had been far less shaken by the war than in Europe, officials were worried by developments. The State Department view, represented by its decidedly anti-statist under secretary of state for economic affairs, Will Clayton, was that the new postwar European approach was doubly misguided, entrenching failed interventionist doctrines nationally while erecting barriers to cooperation and trade internationally. The sweeping 1946 Monnet Plan for industrial modernization in France, for example, cohered only in a context in which French access to German raw materials and markets could be assured. Europe as a series of national economic silos would, in Clayton’s view, never regain its former vitality. The American aid that was being extended—over $13 billion between 1945 and 1947 ($161 billion in today’s money)—could therefore provide only relief and not recovery. Or in the perspective of New York Democratic congressman Emanuel Celler, it was simply promot[ing] too damned much Socialism.20

Meanwhile, the mood in the American heartland was set against the idea that American troops or treasure had any further useful role to play in Europe. The popular attitude toward foreign policy, Acheson observed, could be summed up as bring the boys home and don’t be a Santa Claus.21 Europe could choose to prosper or perish as it wished. President Truman had himself jumped on the homefront-first bandwagon following the Japanese surrender in August 1945, canceling Lend-Lease aid abroad and proclaiming a sweeping twenty-one-point progressive economic reform program at home.

In Britain, too, there was an urge to turn the page. The country could not quite decide, though, whether to go forward or back. Winston Churchill, who had just led his nation through to victory in war, was unceremoniously booted from office while representing it at the final Big Three wartime conference at Potsdam in July 1945. Clement Attlee’s Labour Party swept to power on a platform of creating full employment, a National Health Service, and a cradle-to-grave welfare state. Let us face the future was the theme of the victorious campaign. Yet the belief remained, even within the Labour leadership, that the country’s strength lay in its past—in (a reformed) empire. I know that if the British Empire fell, Foreign Minister Ernest Bevin told the House of Commons in February 1946, it would be a disaster. I know, further, it would mean that the standard of life of our constituents would fall considerably.22 But what a difference a year would make.

BRITAIN’S NATIONAL DEBT HAVING QUADRUPLED during the war, the strain of policing occupied Europe and restless far-flung colonies had, by 1947, become an intolerable financial burden. We are, I am afraid, Chancellor Hugh Dalton wrote to Attlee on January 20, drifting in a state of semi-animation, towards the rapids.23 Over the course of a dramatic few weeks between January 27 and February 20, one pillar after another of British imperial power came crashing down—Burma, Palestine, Greece, India. The driving force was a desperate lack of dollars and gold, which the war had rendered the only acceptable means of international payment.

The Communist insurgency in Greece had the most immediate ramifications for Britain’s relations with both the United States and Russia. I am very doubtful indeed about this policy of propping up . . . weak states in the Eastern Mediterranean against Russia, Dalton put to Attlee in November 1946, even with American aid. It was time, he concluded by February 1947, to put an end to our endless dribble of British taxpayers’ money to the Greeks.24

To make matters worse, the weather over Britain turned violent in mid-January 1947. Temperatures plummeted and, on the 23rd, snow began to fall incessantly: it did not stop for seven weeks. Blizzards hammered the country. For three weeks in February, temperatures did not rise above freezing; high winds amplified the chill. Travel all but stopped, as roads and rail lines disappeared under feet of snow. Already near-destitute men and women lost their jobs. The Royal Air Force parachuted food and supplies into isolated farms and villages. Fuel and power supplies collapsed; water pipes burst. Homes went unheated. People venturing out risked their lives. Death rates among older Britons soared.25

Now, against the background of a collapsing economy, with over half of British industry at a standstill, the government decided to prioritize conservation of Britain’s inadequate dollar reserves, which were running down at an alarming rate. In 1945, Washington had demanded that the string and glue holding debt-ridden Britain’s empire together—imperial trade preference and an inconvertible pound sterling—had to go as a condition for $3.75 billion in loan assistance. But with convertibility now looming on July 15, 1947, guaranteeing a run on Britain’s meager dollar stash by its eager colonies and dominions, the British government could do little more than hunker down in London. The imperial mind-set had been slow to adapt, but the crisis could no longer be postponed. It fell to Britain’s ambassador in Washington, Lord Inverchapel (Archibald Clark Kerr), to hand off the crumbling edifice of empire to its main creditor.

Inverchapel, his private secretary told Dean Acheson on February 21, 1947, wished to deliver to the new secretary of state a blue piece of paper—diplomatic parlance for a message of great importance. George Marshall having left that morning to speak at a bicentennial celebration at Princeton, the embassy allowed Acheson to breach protocol by reviewing a facsimile of the documents, holding back the ribbon copy to present to the general on Monday. The revelations, Acheson recalled, were shockers.

In six weeks’ time, Inverchapel said, Britain would begin withdrawing its forty thousand troops from Greece. It would further cut off aid to both Greece and Turkey, which was costing half a billion dollars a year ($5.4 billion in today’s money). The United States would need to take over the security and financial burden, immediately.26

The British pullout, Acheson understood, was the final act of the Pax Britannica—the global order that had defined the nineteenth century. Since Greece was the last barrier to Soviet domination of the Aegean and the Adriatic, the responsibility was now on Washington to prop it up.

The following day, Marshall delivered his speech at Princeton. Though he had prepared it before learning of the British decision, it foreshadowed his reaction to it. I think we must agree, he told his young audience, that the negative course of action followed by the United States after the First World War did not achieve order or security, and that it had a direct bearing upon the recent war and its endless tragedies:

There were people in those days who understood the lessons of history, who knew well what should be done in order to minimize the danger of another world disaster, but their combined voice was a feeble one and their proposals were ignored. . . .

You should have an understanding of what course of action has created power and security and of the mistakes which have undermined the power and security of many nations, and above all, a clear understanding of the institutions upon which human liberty and individual freedom have depended. . . .

You should fully understand the special position that the United States now occupies in the world, geographically, financially, militarily, and scientifically, and the implications involved. The development of a sense of responsibility for world order and security, the development of a sense of overwhelming importance of this country’s acts, and failures to act, in relation to world order and security—these, in my opinion, are great musts for your generation.27

STANDING BEFORE A LARGE MAP of the newly expanded Soviet Union Shortly after the German surrender in May 1945, Stalin nodded with approval. The vast buffer in Soviet-occupied eastern Europe would now protect his empire against future Napoleons and Hitlers. He took the pipe from his mouth, waving it under the base of the Caucasus. This time he shook his head and frowned.28

I don’t like our border here. This was where the Soviet republics of Georgia, Armenia, and Azerbaijan met the hostile powers of Turkey and Iran.29

So in June, Molotov summoned the Turkish ambassador. Uncompromisingly, he laid out for the stunned diplomat new Soviet claims to the Kars-Ardahan regions of eastern Turkey, encompassing some 6,500 square miles and 300,000 people. The Soviet republics of Georgia and Armenia would soon press additional claims.30 Pravda published arguments from Soviet strategists asserting their unquestionable legitimacy.31

In an attempt to extend his Caucasus border and force oil concessions from Tehran, Stalin also began organizing an armed separatist movement in northern Iran—using Soviet troops that had occupied the country under the wartime Anglo-Russian-Iranian Treaty of 1942. When the Iranian government sent forces to quell the rebellion, the Soviets barred the way. On March 1, 1946, Moscow announced that it would keep its troops in the country beyond the March 2 deadline for withdrawal specified in the treaty. Privately urged on by Washington, Iran appealed to the new United Nations Security Council, making it the object of the first major superpower confrontation in the body. In April, Truman signaled his intention to defend Iranian sovereignty by transporting the body of Mehmet Münir Ertegün, the deceased former Turkish ambassador to Washington, home on the mightiest battleship in the American fleet—the USS Missouri. Anxious to end the bad publicity, and unwilling to risk an armed confrontation, Stalin retreated. He withdrew the last of his troops from Iran in May.32

In August, however, he probed again, this time demanding that Ankara accept joint control of the strategic Turkish Straits and Dardanelles, including provision for Soviet military bases. The ultimatum was a blatant contravention of Turkey’s sovereign rights in the waterways under the Montreux Convention of 1936.33 At Yalta, Roosevelt and Churchill had agreed, off the record, to Stalin’s demand to review the convention; he now took this assent as license to ignore it.

What would Britain do if Spain or Egypt [could] close the Suez Canal? Stalin had asked Churchill rhetorically in October 1944. Or what would the United States Government say if some South American Republic [could] close the Panama Canal? It was equally impossible for Russia to remain subject to Turkey, who could close the Straits and hamper Russian imports and exports and even her defence.34 These were waterways used by the French and British to lay siege to Sevastopol during the Crimean War. The Germans controlled them during two world wars. A Soviet military presence would provide Stalin’s largely landlocked empire with both security and unrestricted access to a global maritime route.

Back in Washington, Acheson watched Stalin’s actions with alarm. The eastern Mediterranean marked the intersection of his fears of British retrenchment and Soviet advance. The president, he was relieved to see, grasped the threat. Briefing him in the Oval Office, surrounded by top military brass, the under secretary was awed to see Truman take a great big map from his desk drawer and deliver a ten-minute lecture on the strategic importance of the region.

Truman had a passion for maps. Maps adorned his old Senate office, which he had used to follow the war. After moving into the White House, he was a regular visitor to the highly secure Map Room, where movements of ships and armies were constantly updated with colored pins. Using them as props, he impressed many under him, such as Acheson and chief of staff to the commander in chief Admiral William Leahy, with his autodidact’s knowledge of geography and military history.

With no hesitation, Truman told Acheson to inform the Soviet chargé d’affaires (an ambassadorial subordinate) of his full support for Turkish rights in the Straits and his intention to take any act of aggression to the Security Council. He backed it up by ordering a flotilla of military ships to the Mediterranean and, secretly, authorized plans for strategic air force operations in the region. Stalin, after his intelligence agents confirmed that Truman was prepared to fight for Turkey, dropped his demands on Ankara in late October 1946.35 The map meeting would be seminal in the political bonding between Truman and Acheson.

In spite of Britain’s weakening position and Stalin’s provocations in 1946, Washington was caught unprepared by Britain’s retrenchment in 1947. Stuck in a nineteenth-century diplomatic and military posture, the United States had neither a policy nor the immediate capacity for deterring a determined aggressor in a traditional British theater of imperial control. General Walter Bedell Smith, the newly appointed ambassador in Moscow, thought Turkey had little hope of independent survival unless it [were] assured of solid long-term American and British support.36 British retreat, now, was tantamount to open[ing] three continents to Soviet penetration.37

Reinstalled in Washington teaching Grand Strategy at the National War College, Kennan feared the Soviets would underestimate U.S. determination to prevent their further encroachment in the region, believing it raised the odds of war. Acheson, who unlike Kennan held no theory of Soviet conduct, was alarmed by the brute cartography of it. To his mind, the Kremlin’s efforts to establish naval bases in the Turkish Straits presaged domination of an enfeebled Turkey, to be followed by penetration into Greece and the whole Near and Middle East. The region would then be cut off from the Western world, encouraging the Russians to push on into India, from which British lines of passage would be cut. China would follow.

Two years prior, FDR’s State Department had been critical of Britain’s military support for the brutal Greek royalists in their fight against Communist rebels. But the geopolitical landscape had since changed. Greece, American ambassador Lincoln MacVeagh reported, was in complete political, economic, and social disarray; armed Communist bands, he warned, would take over if the government collapsed. Mark Ethridge, the U.S. delegate to a U.N. commission investigating Greek border disputes, reported that the Soviets feel that Greece is [a] ripe plum [waiting] to fall into their hands in a few weeks.38

When London had been urging a coalition against the Soviet threat on the European continent, Washington was uninterested. Now that Washington was warming to the idea, London hadn’t the means to participate. Acheson, who had fought pitched battles with the FDR Treasury over its efforts to unravel the British empire financially, now scrambled to deal with the consequences of its success. It was a crisis, he believed, in some ways more formidable than the one described in the first chapter of Genesis.39

DEAN GOODERHAM ACHESON, SON OF an Episcopal Bishop, had been born for this moment—a moment his political memoir would term the Creation. His abiding admiration for the Pax Britannica had, until this point, been a nostalgic one—one that made him an awkward bystander at times during two tours with the FDR administration. At Treasury in the early 1930s, he could not abide the president’s willful destruction of the gold standard, an inheritance from the last century; at State in the early 1940s, he condemned efforts to encourage Britain’s imperial liquidation. Britain had, until Pearl Harbor, stood alone against Hitler, and its collaboration, he believed, would be needed to restore order after his defeat. Now that the ruinous effects of British insolvency were clear, Acheson became consumed with a sense of mission. As convinced of the need to resist Soviet expansion as he had been of the need to roll back Nazi expansion before it, he set out to initiate a new American order to carry out the resistance. He hoped that this time the United States would not have to resort to arms.

Acheson was no reflexive cold warrior. He sought détente over confrontation. In 1944 he supported extending debt forgiveness and reconstruction aid to Moscow.40 In November 1945 he gave a speech to the Soviet-American Friendship Society, before thousands at Madison Square Garden in New York, proclaiming that "we understand and agree with [the Soviet Union] that to