«Winchester, UK Washington, USA First published by Zero Books, 2012 Zero Books is an imprint of John Hunt Publishing Ltd., Laurel House, Station ...»
The one sure source of food will be the United Nations Relief Organization. The one instrument of political security will be the authority of the victorious Powers.1 The Labour Party journal, the Tribune, read Hogg’s proposals to mean that the ruling classes want ‘the cooperation of British labour in the murder of the infant European revolution’.2 That proved to be right. As we have seen the Allied Military Governments in Europe, and in the Far East were committed first to disarming the militant partisan movements that had challenged the Axis occupation forces. But the exercise of military government alone was impossible. Very quickly AMGOT found it had to build up local civilian authorities to restore order.
The economic reconstruction of Europe
For the US, the Second World War was an economic spur to recovery, and afterwards conversion of war industries into peacetime laid the basis for the post-war boom. Around $17 billion of government paid-for plant and machinery was sold at distress prices, two thirds of it ended up in the hands of just eighty-seven companies.3 General Motors, Pan American and Coca Cola were all businesses that transformed American capitalism through war, and into the peace.
Such was the destruction of European industry that its share of the world’s manufacturing output was lower than at any time since the early nineteenth century, and even by 1953 it was just 26 per cent of the whole, as against America’s 45 per cent.4 At the war’s end, US factories were supplying the world, while Europe was in a state of near collapse. Disorder was a real threat to US hegemony. The challenge of the militant left, its reputation enhanced by participation in the resistance movements, and in mass labour movements, with a call on the geopolitical power of the Soviet Union underlined just how fragile the capitalist order was at the end of the war. To secure the survival of the market system was no easy task. Indeed America’s post-war leaders effectively wrote off most of Eastern Europe as a lost cause, when they gave tacit approval to the consolidation of the Soviet Union’s ‘sphere of influence’ in the wreckage of Germany’s failed eastern Empire. As George Kennan explained, the idea was to divide ‘Europe frankly into spheres of influence – keep ourselves out of the Russian sphere and the Russians out of ours’. 5 At the end of the First World War, America had retreated from its foray into Europe.
Could it do so again? No. US industry was geared up to supply the engines of war. The military Keynesianism of war time was the condition for America’s emergence from recession. The great levels of US industrial output depended upon demand from abroad. To keep US output up American policy makers had to redirect their wartime ‘Lend Lease’ assistance into postwar reconstruction. The means to do that was the European Recovery Program, known as Marshall Aid, (after Army Chief of Staff and then Secretary of State, George Marshall, who announced it in 1947) under which aid and technical assistance was given to Western Europe between 1948 and 1952. These credits helped secure demand for US goods as war industries were converted to civilian goods in what has been called ‘Atlantic Fordism’.
It was, according to historian John Gimbel an economic programme to promote Europe’s financial, fiscal and political stability;
to stimulate world trade; to expand American markets; to forestall an American depression; to maintain the open-door policy; to create a multilateral trade world which could be dominated by American capitalists.
What is more, it was ‘a programme to stop communism, to frustrate socialists and leftists, to attract the Soviet Union’s satellites and to contain or roll back the Russians’. 6 Senator Cabot Lodge, thought that ‘this Marshall Plan is going to be the biggest damned interference in international affairs that there has ever been in history’. ‘It doesn’t do any good to say we are not going to interfere’, he warned the faint hearts on the Foreign Relations Committee, adding ‘I don’t think we need to be so sensitive about interfering in the internal affairs of these countries’.7 Historian D.S. Painter explains that US assistance allowed moderate governments to devote massive resources to reconstruction and to expand their countries’ exports without imposing politically unacceptable and socially divisive austerity programs that would have been necessary without US aid. US assistance also helped counteract what US leaders saw as a dangerous drift away from free enterprise and toward collectivism. By favoring some policies and opposing others the United States not only influenced how European and Japanese elites defined their own interests but also altered the internal balance of power among the decision-making groups. Thus US aid policies facilitated the ascendancy of centrist parties, such as the Christian Democrats in West Germany and Italy and the more conservative Liberal Democratic Party in Japan.8 For the European Recovery Programme to work, America had to reverse the punitive policy of disassembling German industry. Herbert Hoover, as leader of the President’s economic mission to Germany and Austria had drafted a report on 18 March 1947, usefully titled ‘The Necessary Steps for Promotion of German Exports so as to Relieve American Taxpayers of the Burdens of Relief and for the Economic Recovery of Europe’. Hoover highlighted the fact that Germany was a part of a European division of labour that would not recover without her. After ‘demontage’ came reconstruction. Major-General Alex Bishop recalled that German technicians would ‘set down the new piece of plant on the same seating and screw it on the same bolts that were still sticking up from the ground’.
‘Perversely’, wrote Patricia Meehan, ‘punitive allied policy had given German industry a head start on the road to modernization’.9 German recovery was indeed central to Western Europe’s recovery. Altogether the US paid out $13,365 million to 16 countries under the European Recovery Plan. Between 1947 and 1950 US aid paid for one quarter of Western Europe’s imports, and seventy per cent of these came from the US.10 The destruction of capital stock through war led to persistent problems of currency devaluation. In Germany the Nazis had financed the war effort by printing money and issuing bonds, increasing the money supply by 800 per cent and Reich Debt by 3000 per cent.
Inflation however was kept in check by coercive price and wage controls. At the same time as the money stock increased, output in the Western Occupied Zone had fallen by 60 per cent between 1944 and 1946. In Italy, too, by 1945 industrial output collapsed, to one quarter of what it had been in 1938, while the money supply increased by 50 per cent a year. Both countries suffered violent inflation at the war’s end, leading to a complete collapse in confidence in the German Mark, such that nearly a third of all industrial output had to be bartered.11 Marshall Aid funded the stabilisation of the Mark. Initially, the occupiers kept the Nazi price and wage controls in place. But in 1948 they introduced a new currency, the Deutsch Mark, issuing DM60 to each person in exchange for RM60. The net effect was a reduction of the money stock by 93.5 per cent as all savings over RM60 were wiped out. They also created an independent Bundesbank, as free from political control as the Federal Reserve, tasked only with defending the currency - an institution that stood in the way of inflationary public spending in Germany, later serving as a model for all Europe. In Italy, too, Finance Minister Einaudi’s medicine was harsh. The same problem would dog the sterling area, as production contracted across the Empire, but without the kind of sudden collapse there was in Italy and Germany, there was no decisive currency reform.
Marshall Aid ‘primed the pump’ of European recovery, with West Germany at its heart.
But it did so by consolidating the division between the developed northwest Europe, which would be re-built, and the impoverished eastern and southern Europe, which suffered a corresponding process of disinvestment. To nurture growth in west Europe, capital had to retrench, to concentrate its resources on reconstruction. This new form of uneven development amplified the traditional advantage northwest Europe enjoyed over the east and south, but this time it was the counter-crisis strategy of reconstruction that raised up the divisions. For the reconstruction funds to be effective, they could not be spread to thinly. Dean Acheson wrote that ‘it was easier to offer credits than to find the funds, with lend-lease ending, demobilisation in full swing, Congress cutting appropriations and the domestic economy calling for goods of every sort.’ 12 One measure that reflected the east-west division was the European Customs Union, allowed under ‘special circumstances, including the need for economic development or reconstruction’. The need for a customs union arose because the growth engendered by the Marshall Aid would tend to raise prices. But if these buoyant markets were undercut by cheaper goods outside the European Recovery Program area the positive effects would be dissipated. As Jacob Viner explained in 1950, for the United States ‘the political and strategic interest in a stable and prosperous and strengthened Western Europe’ was more important than ‘the market which Western Europe offers for American exports’.13
Marshall Aid and the German currency reform were focus points for the emerging EastWest conflict. As America and her allies put in place reforms that were aimed at stabilising the market society in Western Europe, they were bound to clash with the Soviet administration in East Germany, as well as the Soviet-backed governments in Eastern Europe. Here, the West’s economic policy joined up with its geopolitical policy towards Germany, and its emerging policy towards the Soviet Union.
At Teheran Roosevelt and Churchill argued for a divided Germany. Roosevelt wanted the country carved up into five separate states. Churchill balked at five parts, but agreed that the main thing was ‘to keep Germany divided’.14 That was power politics, and at that time married with a policy of wrecking German industry. With the post-war reversal of the antiindustrial strategy and the commitment to build up German industry, however, there was no reversal of the policy of keeping Germany divided. On the contrary, the Western Allies’ new policy cemented the division as it diverged from Soviet goals.
When the administration in the American, British and French zones used Marshall Aid to underwrite the new Deutsche Mark, the Soviet administration in the eastern zone wanted to use the new US-backed Mark as currency for the whole of Germany. On 10 March 1948 the State Department told Lucius Clay, Military Governor of the US Zone that ‘the policy of this government is no longer to reach an agreement on currency and financial reform’. As
The question arises whether this is desirable from the US standpoint, since quadripartite [i.e. across the four zones] currency reform might enable the Soviets to frustrate further the economic recovery of western Germany.
The important thing was to keep the money in the three western zones, run by the US,
Britain and France respectively:
a quadripartite currency, as opposed to a bizonal or trizonal currency, would deprive us of a very important monetary instrument for achieving effective economic administration of the western zones.15 Withholding the new currency from the Soviet zone, Clay had at a stroke effected the division of Germany. At the same time the US faced down Soviet-inspired attempts to promote a political movement for the reunification of Germany, the Volkscongress. There were also attempts to unite the trade unions across Germany which were strongly resisted
by the Americans. US Ambassador Walter Bedell Smith said:
The difficulty under which we labour is that in spite of our announced position, we really do not want or intend to accept German reunification under any terms that the Russians might agree to, even though they seemed to meet most of our requirements.16 The official US position was that it was the Soviet Union who was to blame for the division of Germany seemed obviously true when the Soviets built the Berlin Wall dividing the two sectors in 1961. But in 1948 it was the US that enforced the administrative division of Germany, the better to promote the restoration of capitalist stability. ‘We soon came to believe that our chief concern should be the future of Europe, and that the reunification of Germany should be subordinate to that’, explained Dean Acheson.17
Marshall Aid gave the enfeebled and compromised west European elites a breathing space. As John Iatridies and Linda Wrigley argue ‘American influence over governmental activity in Western Europe was also instrumental in discouraging revolutionary initiatives and truly radical social reforms.’ 18 In Italy elections set for 1948 put the US State Department into a state of high anxiety. ‘If the Communists should win’ they announced, there would be no further question of assistance from the United States’. The newly founded Central Intelligence Agency secretly gave $1 million to the centre parties. One month before the election the House Appropriations Committee voted $18.7 million in interim aid, while President Truman sent 29 merchant ships to the Italian government as a ‘gesture of friendship and confidence in a democratic Italy’. Then the US gave Italy a further $4.3 million as the first payment on wages due to 60,000 former Italian prisoners of war. On the eve of the election two large shipments of food arrived, one for $8 million worth of grains. On the day the fledgling Christian Democratic Party beat the communists.19 The aid filled West German shop windows in 1948, while at the same time the newly unified Western Zone put in place restrictions on left wingers and blocked the all-German trade unions. When the the Hesse Land voted overwhelmingly to nationalise industries it was overruled by Military Governor Lucius Clay.20 NATO and the Cold War In America, there were a rash of labour disputes in 1946 – steel workers and those at General Motors came out, as did the miners on 23rd May.
Truman in a speech written but not delivered vented: