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An analysis of the United States foreign aid program in Europe, 1940-1951

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An analysis of the United States foreign aid program in Europe, 1940-1951

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Content AN ANALYSIS OP THE UNITED STATES FOREIGN AID
,f PROGRAM IN EUROPE: 19^0-19$1
A Thesis
Presented, to
the Faculty of the Department of Economics
University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Arts
hy
Ghulam Hussain Safi
tff
August 1961
UMI Number: EP44785
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This thesis, w ritte n by
.GMMM.HOSSAIN..SAFI .............
under the direction of h Thesis Comm ittee, e f
and approved by a ll its members, has been p re
sented to and accepted by the Dean o f the
G raduate School, in p a rtia l fu lfillm e n t of re
quirements fo r the degree of
MASTER OF ARTS
August 1961 1
D ate..
THESIS COMMITTEE
Chairmai
% n t -i
TABLE OF CONTENTS
CHAPTER PAGE
I. THE PROBLEM AND DEFINITIONS OF TERMS USED* . . 1
The problem................... 2
Statement of the problem................ 2
Importance of the study.................. 2
Definition of terms. ........ I 4.
Foreign aid............. k-
Military assistance...................... I * .
Defense support. ................. 5
Development assistance ... ............ 5
Technical cooperation............. 5
Underdeveloped areas ........ ...... 6
Dollar shortage......................... 7
Offshore purchases . 7
Organization of remainder of the thesis. . . 8
II. SUMMARY HISTORY OF THE UNITED STATES
FOREIGN AID TO EUROPE..................... 9
German reparations................... 12
The Dawes Plan. 13
The Young Plan . 13
Hoover Moratorium. ......................II 4.
Lausanne Agreement ...... .......... 15
Inter-Allied debts . . ......... 16
Debt repayment problems............... 23
il
CHAPTER PAGE
A change in the United States foreign aid
policy ...................... ...... 26
The European belligerents................. 29
III. THE LEND-LEASE PROGRAM................. 35
The nature and implications for lend-lease . 35
Motives for lend-lease .................... 37
Publie opinion and lend-lease. ....... H-0
The scope of lend-lease. .......... i^l
Who received most lend-lease?........... \\Z
Summary................ i j - 9
IV. THE GEOGRAPHICAL CONCENTRATION OP
UNITED STATES AID. ....... .......... $1
Western Europe.......................... 55
World War II destroyed economic patterns . 55
Extraordinary aid instituted ............ 57
Regional organization advance mutual aid . 59
Recovery provides firm basis for
rearmament.......................... 63
Eastern Europe ....................... 65
USSR ranks second among all recipients . . 66
Returns from USSR only minor.......... 68
Poland and Yugoslavia helped through
UNRRA. ........................ 70
Yugoslavia requests emergency relief aid ; 71
ili
4
CHAPTER PAGE
V. THE EUROPEAN RECOVERY PROGRAM............... . . 7^
Th© situation in Europe. . ............ 7I 4-
| The Committee for European Economic
Forms of assistance. ............. 30
Effects of the United States foreign aid under
the Marshall Plan upon the economy of j
i
Western Europe ............................ 80|
Industrial production................... 80
Agricultural production...................... 83
Balance of payments................... 83
Dollar deficits and monetary reserves. ... 85!
Intra-European trad©........................86 |
I
Summary................................... . 88
VI« SUMMARY AMD CONCLUSIONS..........................90
iv
CHAPTER I
THE PROBLEM AMD DEFINITIONS OF TERMS USED
The United S t a t e s a m p i n ©
and political and economle restrietions,l.ha3 eome to
i maturity i& a world that has been awakened to revolt
i
against similar forces* Never, however, have the people
; of the United States had the experiences of disease, hum- !
ger and poverty on such a mass scale as is found in most
of the world today* As with any social and economic
problem the solution is likely to be difficult to deter-
! mine and slow to be applied# The Issues regarding the j
| United States assistance with programs of reconstruction
! '
! in, and attitude toward, the underdeveloped areas of the
world, have become of major concern In its foreign policy*
The foreign assistance rendered by the United
States during and since World War II is unique and un
precedented in the economic and political history of this
country and of the world.
The broad purposes of the American foreign aid
policy during both World Wars and in the postwar period
have been to strengthen countries making common cause
with the United States in resisting aggression; and to
strive for the establishment throughout the world of the
conditions of political stability and economic progress
that are essential to the security and the long-run well
being of the United States*
I. THE PROBLEM
Statement of the problem. It is the purpose of
this study (1) to record the amount of the United States
foreign economic aid to Europe in the eleven-year period
starting with the fall of Bunkirk (19i}-0) to the Korean
( Lf o P P ^
Mar (19f>l) i (2) to state'the overall objectives of the
United States behind its aid to Europe; and (3) to
appraise and evaluate the effects of it upon the recon
struction of Europe.
Importance of the study. It was the United States
foreign aid under the lend-lease program which enabled
Great Britain and the Soviet Union not only to resist
against Nazi aggression but even to strike back. This
was evidenced in the Atlantic in 19lf-3, lend-lease already
being one year old when the British Navy broke the teeth
of the German fleet. And similarly in the same year,
the Russian forces defeated the German forces in the
decisive battle of Stalingrad*
Humanitarian motives as well as political and
economic considerations urged the United States to extend
generous economic and technical aid to a desperate and
devastated Europe to help itself in the reconstruction
of Its obliterated econoray, broken highways, transporta
tion and communication systems and demolished factories
and low agricultural productivity.
Although Europe was reconstructed under the
European Recovery Program and under the Marshall Plan its
miseries were not over. Since the Berlin blockade in
19^8 the United States was alarmed by the Bussian expan-
! sionism and the spread of Communism in Europe, The
Russian access to Eastern European countries such as
Albania, Bulgaria, Czechoslovakia, Hungary and Poland
is attributed to Russia’s skill in diplomatic negotia
tions and a personal credit to Stalin, the Bussian boss
at that time, and Molotov, the Russian foreign Minister,
But the United States realized that further Russian
expansion In Europe would inevitably pose a threat to the
democracies of that continent as well as of its own and
of Great Britain* So together with an economic aid pro
gram a military alliance was established to act as a
deterrent to Russian expansionism in Europe* Today we
know of this military alliance as commonly termed NATO
or the North Atlantic Treaty Organization* We shall not
discuss NATO. However, it will t --J *"'*
how much the United States aid to Europe has contributed/
V
in certain cases to completely stopping, and in other /
cases to at least modifying or intimidating Russian /
/
expansionist policy in parts of Europe*
Last but not least, the importance of the study
arises from the fact that foreign aid to Europe could
have been a measure to insure the security of the United
i •
j
j States, On such grounds what matters is the program*s
i
function in helping to win the cold war between West
and East and in preventing a hot war of nuclear destruc
tion between the forces of democracy and communism,
Finally, the study is important from the stand*
point that in the shifting nature of power politics, the
United States foreign assistance has continually played
( the role of a deterrent against aggression,
II. DEFIMITIGH OF TERMS
p Foreign aid. Assistance by the government of the
' United States to other countries is now generally refer
red to as **foreign aid.** This involves the us© of public
funds to finane© the transfer of goods and services abroad
as a means of obtaining stated objectives of American
foreign policy,
The foreign aid program of the United States may
be classified broadly as military assistance, defense
support assistance, development assistance, technical
cooperation, and.other aid funds, including the Presi
dent* s contingency fund.
Military assistance. Military assistance is for
the purpose of providing military hardware and training,
and also for “infrastructure," that is, construction of
joint military facilities in the North Atlantic Treaty
i Organization (NATO) area,
t
Defense support. Defense support assistance essen
tially helps to provide the supplemental economic re
sources \daich countries receiving United States military
aid require to maintain a healthy rate of economic growth.
A substantial part of this program was financed in 1956
by the local currency proceeds from sales of United
States Surplus Agricultural product, i
i
j
Development assistance. Development assistance is !
aid made available to countries which need help in pro
moting economic growth in order to maintain economic and
political stability.
Technical cooperation. Technical cooperation,
known also as Point Pour, consists largely of teaching,
training, and the exchange of information. It includes
provision of supplies and equipment only to the extent
necessary for effective educational and demonstration
purposes.
The remaining “other programs'1 included, in 1956,
the special fund appropriated to the President for use
raider broad authority to further any of the purposes of
6
the Mutual Security Actj the United States contribution
to the United Nations Children's Fund; aid to be used by
the Intergovernmental Committee for European Migration; ;
assistance to West Berlin for continuing postwar problemsjJ
I
flands for helping free nations t© develop the peaceful J
uses of atomic energy; and other small appropriations i
for administering the mutual security program, providing j
ocean transportation for relief shipments of voluntary |
i
agencies, and the United States refugee program,
Underdeveloped areas, Professors Norman S,
Buchanan and Howard S, Ellis state:
An economically underdeveloped country is one
which on the average affords its inhabitants an : :
end product of consumption and material well-being
appreciably inferior to that provided by the econo- j
mies of the developed countries. Poor is a rela
tive term,!
They continue:
To designate a country as underdeveloped also im
plies that its present economic performance, as
evidenced by the average consumption and material
well-being, could be improved by means which are
known and understood*^
It Is also accepted today to define an under
developed area as a geographic territory which falls short
^Norman S. Buchanan and Howard S. Ellis, Approaches
to Economic Development (New York: The Twentieth Century
Fund, 1955?) # P. 3.
2Ibid., p. i f . .
of certain accepted standards with respect to these cate
gories! life expectancy, food supply, per capita income,
per capita productivity, prevalence of disease, illlter-
I
! aey and poverty,
i
Dollar shortage. For many years, dollars available
to foreigners have been searce in the sense that the
demand for dollars exceeded the supply at the current
price of the dollar in terms of pound sterling, francs,
marks, etc. The scarcity has been reflected in pressure
on the exchanges, with the result that the foreign cur*-
rency depreciated and the dollar appreciated! or in ship- j
i
ment of gold to the United States, the offer of gold, '
which is exchangeable for dollars, reducing the demand
for dollars; or (which was customary) control of the
demand for dollars and their mobilization by foreign
authorities, and replenishment of dollar supplies by
obtaining loans or grants.
Offshore purchases. Under the European Recovery
Program, the United States government was to use part of
the funds appropriated to purchase supplies and services
for the participating countries outside the continental
United States, Such purchases were called offshore pur
chases.
8
III. ORGANIZATION OP REMAINDER OP THE THESIS
This paper is divided inti© seven chapters. Ghapter
i I presents the problem, statement of the problem and its
importance. It also includes the definition of some
| terms. Ghapter II is a summary history of the United
i . - -
States foreign aid to Europe. Ghapter III presents the 1
j Lend-Lease program* Ghapter IV deals with the geographi- !
eal concentration of aid to Europe I9I 4.©-19^2• Ghapter V !
1 .
discusses the changing nature of the United States
foreign aid to Europe from a relief assistance to a large-
| scale recovery program. It reviews the Truman Doctrine
and the general structure of the European Recovery Pro- j
gram and the Marshall Plan. Chapter VI contains an I
appraisal of the aid to Europe 19l|G«195l. Ghapter VII
presents a summary and conclusions.
CHAPTER II
SUMMARY HISTORY OP THE UNITED STATES FOREIGN AID
TO EUROPE
When World War I broke out, the United States was
a debtor nation. Many forms of economic development pro
jects in the United States had been financed by funds pro
vided by European investors for decades before 191%. In
order to carry on the war, the Allied countries had to
expand their purchases in the United States* The Allied
countries financed their purchases in the United States
through selling their American Investments, by transfers i
of gold, and by borrowing in the American capital market.
On April 6, 1917$ the United States entered the war
and the same date was also marked by a critical moment
in the financial position of the Allied nations. They
were unable to finance their purchases in the United
States and their financial position had reached a critical
1
stage.
However, It is interesting to note that at the
beginning of the war in 1911}., Great Britain acted as the
major banker for her allies. Great Britain adopted the
^William Brown and Opie, American Foreign Assist
ance (Washington, D.C•: The Brookings Institute, 1953),
pp. 1-2.
2
loan method of assistance*
In accordance with the policy adopted, in the
United States, the Liberty Act of April, 1917 authorized
I j
the Treasury Department to buy the obligations of foreign
1 governments at war with the enemies of the United States
on the same terms as those governing the sale of Liberty
Bonds to the American public* This was followed by the
Liberty Loan acts, and credits of $7 billion were advanced
to the Allied Powers during the war. The American assist
ance did not cease with the armistice. Instead, the
United States continued to extend loais to European coun-
i ;
tries for relief and reconstruction purposes* These !
loans included the following: #1 billion of unexpected j
wartime credit; f2.li. billion in new credit under the ■
i
Liberty Loan acts; and $700 million under special legis
lation authorizing credits by the American Belief Adminis
tration, the United States Grain Corporation and the War
and Navy Departments in disposing of surplus war supplies.
Consequently, under various legislative powers,
the United States extended $1© billion loans to the
Allied powers, on a government-to-government basis, during
and after the First World War.
While the European Allies borrowed from the United
States, credits continued to be extended by Great
Britain and to a lesser extent by France to the
2Ibid., p. 2
11
Continental Allies, especially Hussia* In fact the
loans by Britain to the Allies approximately equaled
its borrowing from the United. States *3
Si© above financial arrangements among the Allied ,
i !
! and Associated Powers made it possible for them to alio-
i
cat© their resources efficiently and promptly in carrying
on the war and in meeting urgent postwar needs*
However, the liquidation of European investments
in the United States, the borrowings from the American
capital market in the period of neutrality, and the vari
ous intergovernmental loans changed the prewar position
and structure of international debts* !Ehe United States
had become a net creditor nation and was no longer a net 1
i
debtor nation*
It was agreed upon that the loans extended from
one government to another should be regarded as commercial
interest-bearing obligations and, therefore, subject to
repayment* But the repayment of the debts posed a seri
ous problem* Many of the European countries were con
fronted with the problem of finding dollars to meet debt
installments due to the United States.
Consequently, the debtor nations pressed for a
possible cancellation or reduction of their debts to the
3
Ibid,, p. 3.
12
k
United States* The United States took the position*
however, that the debts were legal obligations and had
I
to be honored in full* And the United States rightly ;
insisted on the conclusion of agreements for liquidation
of the debts.
At this point, a more detached analysis of the
financial problems involved is called for,
i
i
I
I. GERMAN REPARATIONS |
I
The reparations problem began on November 11,
1918, when Germany agreed in the Armistice to make re-
i
paration or compensation for the damages suffered by the
victorious nations during the war. In the following |
l
year, under the Treaty of Versallies, Germany formally
agreed to make compensation for all damages and loss
"to which the Allied and Associated Governments and their
nations have been subjected as a consequence of the war
imposed upon them by the aggression of Germany and her
Allies." Since the amount of the damage to be paid by
Germany was not fixed, Germany, in reality, signed a
blank promissory note. In 1921 a Reparations Commission,
appointed under the Versailles Treaty, placed the amount
of reparations at 132 billion gold marks or $31,680,000P00.
k
Ibid.. p. 3
In January, 1923, French, Belgian, and Italian troops
took possession of important industrial eities in the
I !
j Ruhr Valley, due to the fact that Germany was technically
I
j declared in default by the Reparations Commission,
i
j The Dawes Plan, Consideration of the problems
j involved in the autumn of 1923 resulted in the adoption j
| of the Dawes Plan, Too much emphasis cannot be put upon |
I the fact that, although under the Dawes Plan payments !
I were met with complete punctuality by Germany, over the
same period Germany borrowed from other countries, par-
| ticularly the United States, a sum exceeding the amount
• i
of such payments. Although a schedule of regular annual
payments was provided by the Dawes Plan, it did not fix j
the number of years for such payments nor the total
amount.
The Young Plan, Since it was generally agreed that
the Dawes Plan was merely a temporary device, a conference
held in Geneva in 1928 appointed a new committee of
experts, which in 1929 formulated the "Young Plan,"
Under this plan it was agreed that reparation pay
ments should be extended over a period of fifty-eight
and one-half years from 1929 to 1988, During the first
thirty-seven years, Germany was to pay an average annuity
of #i*.73>700,000 but during the remaining twenty-two years
these payments were to be considerably reduced* Payments
l i t .
were divided into two parts postponable annuities, which
amounted to $316*700,000, and non-postponable annuities
| which totaled $1^7,000,000. The latter could not be
j suspended at any time. The liability of Germany for any
i ' ' ‘ !
suspended annuities was not to be terminated but was to
be continued. The plan provided the terms under which
the postponable annuities could be suspended for a maxi
mum of two years.
Hoover Moratorium. After 1929 Germany was unable
to borrow additional funds from us with which to pay her
. i
reparations. By the early summer of 1931* the banking
difficulties in central Europe reached a stage of panic.
Due to Its financial position a veritable "run* on London
occurred in the summer of 1931* It was then that Presi
dent Hoover proposed a general suspension of the payment
of inter-governmental debts for one year, including those
owing to the United States by the Allied countries.
In order that there might not be any misunder
standing concerning the position of the United States in
agreeing to the moratorium for one year, Congress wrote
into the joint resolution passed in December, 1931* the
following provision:
It is hereby expressly declared to be against
the policy of Congress that any of the indebtedness
of foreign countries to the United States should be
in any manner canceled or reduced: and nothing
in this joint resolution shall be construed as Indi
cating a contrary policy or as Implying that favorable
consideration will be given at .any time to a change
in the policy hereby declared.5
Concerning this resolution, Senator Hiram W. John
son stated in the Senate January I 4., 1933s
The moratorium is now the excuse for the situa
tion in which we find ourselves and is utilized
by the very people to whom it was extended as a
means for crawling out of the bargains that they
made years ago, when they agreed to pay but little
“ ■' " bt that they owed to the United States of
Here were notice and warning, not alone to our
own people, but notice and warning to all the
world. There was the declared policy of our Govern
ment, declared by the only body that had the right
or the power to declare a policy. . . . Here, in
this Congress, Congress dealt with the subject, and
made the solemn declaration of the policy of the
United States of America.' 1
Senator Hobinson of Arkansas agreed with this, for ,
he stated at that timet **The provisions written into the '
law to which the Senator from California has referred
should have clarified any doubt on the subject,1 *
Allies agreed with Germany to wipe the World War slate
clean with a single payment of German 5 P©** cent bonds
to be valued at $715* 000,000 ©r 3*000*000,000 gold marks.
£
"Hoy L. Garis, Principles of Money Credit and
Banking (Hew York: The Macmillan Company, 193^-) *
p. 367.
6Ibid.
7Ibid.
Lausanne Agreement. On July 8, 1932* the former
It developed shortly thereafter that there was a more or
less secret agreement included to the effeet that settle
ment will not go into effeet until and unless the eoin-
tries affected secure a satisfactory reduction of their
l
I
indebtedness due the United States. I
II. INTER-ALLIES DEBTS
It had been realized for some time that the nations
owing the United States would seek to secure still further
reduction in the allied war debts amounting to $11,000,000-
000, and the developments at Lausanne, therefore, created
no real surprise. There was, however, a storm of protest '
from all parts of the United States against any eaneella- ;
tion or further reduction. Prior to its adjournment
July 23, 1932, Congress went on reeord against a revision,
and President Hoover made it clear that Europe need hope
for no consideration.
0n August 5>, 1920, Mr. Lloyd George, then Prime
Minister of England, addressed to President Wilson his
famous cancellation letter In which he stated: "The
British Government has informed the French Government
that it will agree to any equitable arrangement for the
reduction or cancellation of inter-Allied indebtedness,
but that such arrangement must be one that applies all
J
round."
8Ibid., p. 368.
17
To President Wilson this raised the questions
Shall the United States pay German Reparations? He r@-
; plied to the British Prime Minister as follows: I
i |
j It is highly improbable that either the Congress j
' or popular opinion in this country will ever permit !
a cancellation of any part of the debt of the British
Government to the United States in order to induce
the British Government to remit, in whole or in part,
i the debt to Great Britain of Prance or any other of »
1 the allied governmentsj or that it would consent to
j a cancellation or reduction in the debts of any of !
| the allied governments as an inducement toward a 1
practical settlement of the reparation claims. • . • j
j The United States Government fails to perceive the
I logic in the suggestion in effect either that the j
! United States shall pay part of Germany*s repara
tion obligation or that it shall make a gratuity to
the allied governments to Induce them to fix such
i obligation at an amount within Germany's capacity
j to pay,9
t
Subsequently, however, Congress authorized the i
* i
i
American Debt Funding Commission, and the United States
agreed to settle the debts to this country in accordance
with the ability of each to pay. Thereupon this country
wiped out or cancelled one-half of the thole European
debt to the United States Treasury. Under these agree
ments Great Britain was to pay 82 per cent of her total
indebtednessj Belgium, 55 per cent; Italy, 27 per cent;
and Prance, I j i j . per cent.
In reaching these agreements the total debt was
considered plus interest to the dates of funding, and then
the principle of capacity to pay was adopted by the
9
Ibid,, p. 369
American authorities who had the problem in hand.
The governments concerned agreed at the time the
loans were made to pay the United States an interest rat© !
!
equivalent to that which the United States Government had ;
to pay on the money secured from the American people and
which was passed on to the European governments. The
agreements called, therefore, for repayment of the prin
cipal and an annual interest rate of approximately
per cent.
The total payments to be received from the debtor
countries under the agreements as set forth— both as
i
interest and on principal--failed to equal the interest j
the United States had to pay on the principal borrowed
from the American people by the hug© sum of
This being true, it followed logically that the debtor
countries were asked to pay over a period of sixty-two
years a total sum less than the interest that the United
States government had to pay to its own creditors. In
reality, therefore, the principal of the inter-allled
debts due to the United States was cancelled.
Senator Johnson stated it thus:
I refer to only three of our principal debtors,
that you may understand just exactly what the table
demonstrates. If you take the entire amount Britain
is to pay under the settlement, and compute how mueh
it means in percentage upon the debt obligation, you
will find that Great Britain pays upon her debt to
this country for sixty-two years 3*7 per eent annually
Keep that in mind: Britain pays under the debt
settlement, and that was supposed, to be the most
onerous of the settlements, 3.7 per cent annually
for sixty^-two years, and at the end of sixty-two
years she will owe not a dime to the United States j
of America, and the principal will have been
eliminated. Just bear that in mind in considering
these settlements.
I f f ext, if Prance pays during the sixty-tw© years
2.1 7 per cent interest annually upon the debt she
owes the United States, and at the end of sixty-two
years, under the refunding agreement, Prance will be
relieved of every penny of the principal of the
Indebtedness•
We have, therefore, the American people paying
four a fraction per cent upon their debts, with the
principal always confronting them, which must be
paid by the American people, and we have Britain
paying 3 .7 per cent upon the face of her obligation
for sixty-two years, and never a dime thereafter,
and Prance paying 2.17 per cent annually, and neither !
in reality paying any part of the principal indebted- 1
ness.
Italy pays 1.13 per cent on her debt each year
of sixty-two years--1.13 per cent. Italy pays upon
her obligation 1 .1 3 per cent for sixty-two years and
then her principal is all paid, ©very penny of it.
These are the settlements that were mad© by the
refunding agreement. Uenerous? Ah, yes; generous
were they, generous to a fault was the United States
of America in making these settlements.^®
In a bitter denunciation of the defaulting nations
before the Senate, January 1 $ . , 1933» the Senator from
California upheld the policy set forth by the Secretary
of the Treasury in several communications during 1926 and
1927* Their importance justifies their incorporation
into this analysis.
10Ibid.,pp. 372-73.
In 1926 Mr* Mellon, Secretary of the Treasury,
wrote:
Let ns see what relation the burden of our debt
settlements bears to our loans after the armistice.
In this way we can determine accurately our real con
tribution in money to the joint cause of the war.
In the case of England postarmistice advances with
interest amounted t© $660, 00 0, 0 0 0, and the present
value of the entire debt settlement is $3,297,000,000•
It must be remembered that England borrowed a large
proportion of its debts to us for purely commer
cial as distinguished from war purposes. . . •
Prance’s after-the-war indebtedness with interest
amounts to $1,655*000,000• The settlement negotiated
by Ambassador Berenger with the American Debt Funding
Commission has a present value of #1,681,000,000.
Belgium* s postarmistice borrowings with Interest
were $258,000,000, and the present value of the
settlement is $192,000,000,
With Italy the situation is similar. Its post
armistice indebtedness with interest is #800, 000,00 0,
and the present value of its debt settlement is
$426,000,000• It is the same as regards Serbia.
Then he added this significant sentence:
If these foreign debts are cancelled, the United
States is not released from its obligations to pay
the very bonds which were sold to our citizens to
make the advances to foreign governments. We must
collect through taxation from our people if our
debtors do hot pay to us what they can.^-2
Hence, there have been two interpretations of the
World War I war debts. One view has been that the agree
ments called for repayments of the principal amounts
that were borrowed but with a substantial reduction in
1:iIbid.. p. 373.
• ^Ibid.. p. 374*
the interest rates to be paid* The other view has been
that the annual payments to be made over a period of
sixty-two years would not have equalled the interest the
| United States Government had to pay to the American
! people who supplied the funds. On the basis of total
payments— principal and interest--thes@ foreign govern
ments would have been free of all payments in sixty-two
years with no payments due to the United States Govern
ment thereafter. But the sums paid would not have been
enough to pay the interest due to the American public
with no reduction in the principal. Stated either way
i
1 the burden of the Inter-Allied debts fell upon the Ameri
can Government and its people— and it, still exists.
Until the onset of the great depression of the
1930s, the underlying difficulties of the debt repayments
were disguised by the heavy movements of funds from the
United States to Europe through private investment chan
nels. Debt payments were made more or less continuously
until the summer of 1931» when the financial crisis in
Austria and Germany imperiled all international payments.
Due to this impending disaster, as stated above, President
Hoover proposed his one-year moratorium on all inter
governmental debt payments. However, as pointed out
above, President Hoover made it clear to Congress and
everyone that such a moratorium did not imply any
approval in any sense of the cancellation of the debts*
22
President Hoover took the position that his pro
posal of a year moratorium was consistent with the exist
ing American foreign policy and he argued that though the
burden of the debt payment was supportable in normal
! times, it could not be borne during the depression; and
that the United States in its own interest must continue
its policy of taking account of the capacity of debtor
nations to pay.
i '
The above proposal represented the humanistic
I
nature of President Hoover personally. However, it was
further argued that the moratorium was an evidence of the
! willingness of the United States, to make a contribution
to the early restoration of world prosperity in which
Americans have a deep interest. A brief analysis of
Hoover's moratorium proposal is made by Brown and Qple
as follows:
%
The Hoover proposal, which was eventually accepted
by all the countries concerned, was intended to be
a temporary measure. It proved, however, to be the
beginning of the end of reparation and War debt pay
ments. The only payments made after the end of the
moratorium were by Great Britain, which made one full
and two token payments, and by Finland, which con
tinued to pay in full the Installments on Its small
debt to the United States.-1 - 3
-%rown and Qpie, op. clt., p. I } . . But the debt
was large for Finland's economy to bear. Although the
United States relieved Finland later of its obligation
to make payments, Finland still continues these payments
into a scholarship fund to send students to the United
States,
Ill* DEBT REPAYMENT PROBLEMS
The debt question nevertheless continued to be
i
active in political controversy during the remainder of
the Interwar period* It was a prominent issue in the
American election campaign of 1932, In which both parties
were pledged to oppose cancellation* The demand for a
resumption of debt payments found its sharpest expression
in the Johnson Act of April 193^1-* which declared that any
debtor government not paying in full should be considered
a defaulter and denied access to the American private
I
capital market. Thereafter even token payments ceased* I
The debtor governments continued to acknowledge their i
I
American war debt liabilities in exchanges of notes until
the entry of the United States into the Second World War,
Ik
when the practice was dropped*
While official policy on war debts remained throu^i-
out against cancellation, It was argued in some informed
circles in the United States, that attempts to bring
about the resumption of the debt payments would retard
world economic recovery and would be detrimental to the
creditor countries themselves* This judgment never re-
i ceived sufficiently strong political backing to affect
i
current action, but it later played an Important role in
influencing the thinking that underlay policy and action
in the present period of large-scale foreign assistance.^
-^Ibld.T""P* 5* ^Ibid.
Pi I
The war debt problem continued to be an irritant
during the 1930s when international, political and eeon-
l
omic relations were rapidly deteriorating. The inter-?
connections between the political and economic processes
1 of disintegration are difficult to unravel, but it is gen
erally agreed that economic friction was a contributory
cause of bad political relations if not of war itself*
The deterioration in the political situation became
increasingly clear with the outbreak of conflicts on both
sides of the world. Open aggression started in the Far
East in 1931, and it soon extended to Europe, thereby
emphasizing disintegration. By the late 1930s, the system
t ■ ;
I of peace treaties concluded after the first World War was !
1
j in process of destruction, and political relations were
characterized by civil war, aggression, and appeasement.
Collective security had ceased to exist even as a practi
cal ideal.
The deterioration in International economic rela
tions was as great as in political relations. Partly on
political grounds, which led to the search for weapons of
economic warfare, and partly on doctrinal grounds,
1
autarchy in national economic policy and bilateralisms
in international commerce became widely attempted.
Government administrative controls increasingly inter
fered with the flow of trade and disrupted international
payments. In these circumstances it was impossible to
‘
I maintain stable rates of foreign exchange* 1
The measures taken by the United States in response
I to these disruptions in the political and economic world !
i
order were a mixture of positive and negative actions. |
; i
On the positive side, steps were taken by the United 1
States to arrest the deterioration in trading relations
through the policies embodied in the Reciprocal Trade
Agreements Act of 193^* Much less determined efforts were
made to restore some semblance of order in international
monetary relations*
Of these, the chief was the tripartite Declaration
i
> by the United States, Great Britain, and Franee in 1936,
I
| on the importance of maintaining monetary stability.
The Export-Import Bank was established in 193^4- to provide
loans for the purpose of encouraging American foreign
trade, and special steps were taken to assist the nations
of the Western Hemisphere.
On the negative side, the Johnson Act, which denied
to the governments of European countries already threaten
ed by aggression access to all American private sources of
credit, was followed by the Neutrality Acts of 193*?, 1936,
and 1937# which placed an embargo on the export of arms
to countries at war, prohibited American ships from carry
ing arms to belligerent ports, and subjected the private
16Ibid., p. 6.
26
export of anas to government regulation. The amendment to
the Neutrality Act in 1936 gave the President the dis-
I cretionary power to determine when a state of war existed,
and thus of bringing the arms embargo into effect. It !
i 1
i
also introduced the principle which denied private sources
of credit to governments subject to the embargo* Only
Latin American countries at war with non-American states
: were exempted, from the limitations imposed by the
Neutrality Act*
Popular support for neutrality legislation was
based on the assumption that the actions prescribed by
it were of the kind that would be likely to embroil the
i
United States in foreign wars* So strong was the force
i
of isolationist tradition in the country as a whole that !
little attention was paid to the view frequently expressed
by President Roosevelt and Secretary Hull, that by tying
its own hands the United States was likely to encourage
rather than to avoid aggression and war and thus to im
peril its own best interests.
IV. A CHANGE IN THE UNITED STATES FOREIGN AID POLICY
The outbreak of the Second World War In September
1939 found the United States caught up in the same contra
dictions of policy that had characterized the preceding
period of developing aggression.
The hands of the American foreign aid were still
tied by the rope of its self-imposed limitations. It was '
not until the beginning of 1914-1# when hard-pressed Britain
and even harder-pressed China alone stood actively in the }
way of an Axis victory, that the Congress of the United
States lifted the existing limitations on American foreign
aid to other countries. The Lend-Lease Act was passed.
Under the Lend-Lease Act, American financial assistance
was offered to any country the existence of which against
Axis powers was deemed to be essential to the defense and
security of the United States. The passage of the Lend-
Lease Act marked the beginning of a period, which lasted
I
more than twelve years of large-scale assistance. '
Before the inauguration of the lend-lease program i
in March, 19lj.lt it Is worthwhile to mention the fact that
Finland and China were not formally declared to be belli
gerents within the meaning of the Neutrality Act. This
fact was of little if any significance In facilitating
American assistance to these countries. This was largely
because the reasoning used by President Roosevelt in argu
ing for the repeal of the arms embargo on the ground that
the distinction between the export of arras and of other
goods was purely artificial was not applied to American
assistance in the form of loans and credits. Consequently
when Finland, while still at peace, applied to the Export-
Import Bank for a loan of $60 million of whieh one-half was
to be spent on arras, the request was refused on the
grounds that no loans would be made for guns as such*
This attitude was maintained, despite the universal
sympathy in the United States for the Finnish cause, after
the attaek by the Soviet Union in November, 1939* As a
token of this sympathy a war debt installment of about
#200,000 was set aside for eventual repayment to Finland*
But of assistance proper, no more than #10 million Export-1
I
Import Bank eredit was available for the purchase of agri-j
j
cultural surpluses and other non-military supplies in the j
United States* This was the first appearance of the
politically acceptable device of linking American assist
ance with the disposal of certain surplus agricultural i
i
I
products* j
When after months of effort the lending power of j
the Export-Import Bank was increased by #10Q million with
a view to making a loan to Finland, a limit of #20 million
was placed on lending to any one country and the purchase
of arms was specially prohibited* Even this limited
amount of assistance came too late, for a few days after
the act was passed early in March 1 9 i | . 0 Finland capitu
lated. Despite the wide support of the Finnish cause,
as evidenced by the active cooperation of the War and Navy
departments with a military mission from Finland, politi
cal obstacles made it impossible to organize effective
assistance*
The record of assistance to Finland during the
neutrality period indicates that it made less difference 1
than might have heen expected that Finland was not de
clared to be belligerent and, therefore, was free from the!
restrictive conditions of the neutrality Act. The measure
of assistance accorded to these countries depended on the
underlying political temper of the United States regarding
action that might result in its being drawn into the war*
Changes in this temper, especially under the influence of
events in Europe, rather than the technical position in
relation to the Neutrality Act, determined the nature and
quantity of assistance that was forthcoming for these com-
i
tries in common with the officially designated belliger- i
ents• ;
V. THE EUROPEAN BELLIGERENTS
The most critical problems of American foreign aid
during the neutrality period arose in the very areas where
the freedom of action of the United States was most severe
ly restricted by the self-imposed legal limitations of the
Neutrality Act of 1939* Notwithstanding these restric
tions, however, the desire of the American people to help
the European democracies in their struggle against the
Axis led to assistance being given in the procurement of
supplies In the United States and to cooperation in the
sharing of technical Information.
Three days after the Neutrality Act of 1939 was
30
passed, a British purchasing mission was established in
the United States, and soon thereafter the supply programs
of Britain and France were combined by joint Anglo-French
j machinery. A beginning was made with extra financial
assistance on December 6, when President Roosevelt appoint^
ed a liaison committee to facilitate the procurement pro
grams of Britain, France, and other friendly nations. In
the first half of 19i*.G, three times as many airplanes were
ordered by Britain and France as in all of 1939, and
orders for airplane engines, machine tools, explosives,
ammunition, ordnance and other supplies were greatly
the fact was not widely appreciated at the time, this pro
curement program was in a true sense one of mutual
assistance. The Presidents Liaison Committee made up-to-
date models of planes and other arms available to the pur
chasing missions; and, part of the general policy of the
free exchange of technical information, British, French,
and American engineers worked together on new airplane
designs that took into account the latest combat experi
ence. The committee also helped to find suitable sup
pliers, not all of whom were willing or able to build
plant facilities to fill future orders for which there
was no certainty that France and Britain would be in a
position to pay. It was, therefore, necessary for France
Although the term had not yet been Invented, and
31,
I and Britain to make investments exceeding #200 million
for the expansion of American production facilities before
; the passage of the Lend-Lease Act* This action by the |
I
democracies, forced by circumstances though it was, gives
i
in retrospect an important additional aspect of mutuality
17
to the assistance policy. It could be argued that up to
May 191+0, the month of disaster for the European allies,
orders placed under cash-and-carry had helped to build the
defense of the United States more than they had helped the
countries fighting aggression.
The disasters that culminated in the fall of Prance
had a profound effect on American public opinion, which
I was now ready to support a policy of simultaneously ex- ;
j l
! tending American material resources to the opponents of
aggression and speeding up American defense production.
Immediately after the evacuation of the British forces
from Dunkirk with the loss of their equipment, Britain
was left almost defenseless, and emergency measures were
adopted to provide naval aircraft, artillery, small arms,
and other weapons from American military stores. To com-
! ply with the legal requirements, these were declared
surplus and sold to private firms for resale to Great
Britain at the purchase price. The cash and carry pro
cedure was thereby retained and formal American assistance
17Ibid.» p. 2 8.
confined to procurement, but the subterfuge was one that !
would not have been tolerated a few months earlier even
in circles friendly to the democracies* j
I
I
In addition to these emergency measures the procure*
i
ment programs of the United States, Great Britain, and
some other countries were greatly expanded and difficult
priority problems began to arise* Kiese included not only
the allocation of materials and end-products among the
various country claimants but also the fundamental ques
tion of allocating resources between the production of
new facilities and Increases in the current output of
finished products* Steps were taken to coordinate Ameri- j -
can and foreign procurement programs through the National j
Defense Advisory Commission, the Presidents Liaison
Committee, and the Priorities Board, which was established
in October 19ij-0* Early in Movember I9J 4.O President Roose
velt announced that American production of war materials
would thereafter be divided approximately equally between
Great Britain and Canada on the one hand, and the United
19
States on the other.
Meanwhile, other steps on the border between pro
curement and financial assistance had been taken to
relieve the financial drain on Britain on financing war
18
Ibid., p. 2 8.
1 9
Ibid.* p. 29.
33
plant facilities. Some British-built plants that were
now needed for American defense were purchased by the
j United States; and the Reconstruction Finance Corporation
| also financed facilities for the production of tank |
■ ' !
engines for sale. The first real departure from procure
ment assistance to relieve Great Britain of the necessity
of making cash payment for current transfers was in the
case of a destroyers-bases deal in September I9I 4.O whereby ;
fifty over-age destroyers were exchanged for ninety-nine
l
year leases on British territory in the Atlantic and the
; Caribbean. The transaction was motivated by a desire to
i
j aid Britain, as well as by the fact that it contributed
1 - ■
to the defense of the United States and of the Western \
Hemisphere as a whole in cooperation with the other Ameri-|
can republics.
The destroyers-bases deal was only one more of the
growing signs that a global policy of resisting aggression
was needed, in which Western Hemisphere defenses would
£0
fall into proper perspective.
But while the United States thus moved from a posi-
! tion of traditional neutrality to one of mobilization for
self-defense that included assistance to victims of ag
gression as a legitimate means of self-defense, the ability
of the United States to render assistance was still
20Ibid., pp. 29-30.
restricted by self-imposed legal limitations. Moreover,
Great Britain, which was hearing almost alone the burden
of resisting the Axis, was nearing the end of its financial,
resources# The American government was thus faced with j
the need of resolving the dilemma posed on the one hand I
by the exhaustion of British financial resources and the
limitations of -the Johnson and Neutrality Acts, and on the
other hand, by the growing American conviction that Brit
ish resistance to the Axis was essential to the defense
of the United States. The way out of this dilemma was
found by the enactment of the lend-lease legislation.
CHAPTER III
THE LEND-LEASE PROGRAM
I. THE NATURE AND IMPLICATIONS FOR LEND-LEASE
After the First World War, the problem of war debts
vitiated the international political atmosphere, disturbed
economic relations between the United States and her former
allies, and obstructed the pursuit of normal and con
structive policies.
In the United States, bitter controversy arose
internally between those who demanded repayment and those
who favored cancellation or drastic reduction of the
debt,^
The foreign debtors of the United States took the
position that the American wartime aid to them should, be
considered as a contribution of the United States to the
common effort of winning the war. The official policy of
the United States government in demanding repayments was
openly criticized in the British press. And international
ly, war debts became both a moral issue and an economic
2
problem,
1
Council on Foreign Relations, The Problem of
Lend-Lease (New York! Council on Foreign Relations,
19kl±), p, 3*
2Ibid.
35
The main difficulties faced by the debtor nations
of Europe in meeting the repayments of the debt and its
interest may be summarized as follows:
1* While the United States was enabled to play
the role of a creditor nation, at the same time she was
enjoying a favorable balance of trade. In this connection,
the reference is made for the decade after World War I.
i
l
2. Many of the European countries were faced with j
i i
‘ i
J the problems of currency adjustments, stabilization, J
i
banking stability, and resumption of productive trade. !
I
3* Debts had been incurred for the unproductive j
purposes of war while the repayments had to be made
i
through productive means (i.e., goods and services).
I } . . The debtor nations1 productive capacity was
handicapped and they owed money to a country whose pro
ductive capacity and production was at its best.
5. The creditors wanted money, but they did not
want additional goods and had raised tariffs to keep
imports out.
6. Consequently, the exchange mechanism was
wrenched and all of the above maladjustments contributed
a great deal toward making the world vulnerable for a
depression to come.
With respect to the United States demand for repay
ments of the debt, Staley states the following:
37
While the American, public looks at the credits
and debts of lend-lease bookkeeping, allied recip
ients of supplies are more likely to put stress on
American statements about pooling of resources and
equality of sacrifice* Somewhere, false expecta
tions are being encouraged. Here is material for
first-class discord, unless steps are taken soon to
clarify the situation. Are we pooling resources
in a common effort for victory or are we selling
supplies?3
II. MOTIVES FOR LEND-LEASE
There were two prominent purposes of .the1 lend-lease .
program* First, the program provided for procure- |
ment of goods and services for export through govern
ment channels, thus affording a better control over ;
the effect of these foreign transactions on the
domestic economy and over their relation to the
domestic military build-up. Second, the program
removed, or deferred, the major part of the problem
with respect to the financing of exports of those
United States goods and,services which were con
sidered necessary in the light of the government*s
international political and military policy, but
for which the foreign countries could not find re
sources to pay.4
A third Important motive of the lend-lease program was
reciprocity* Allied countries were contributing In some
fashion toward a common goal. The United States received
reversed lend-lease to further Its war effort.-^
Before the passage of the Lend-Lease Act on
^Eugene Staley, “The Economic Implications of
Lend-Lease, * * The American Economic Review. 33:36!?,,
March, 19ii-3.
^•United States Office of Business Economics,
Foreign Aid (Washington, D.G.: United States Printing
Office, 19^2), p. 33.
^Edward R. Stettinius, Lend-Lease (New York:
The Macmillan Company, I9I 4I 4.), p. 90.
March 11, 191+1# the purchase of war materials by foreign
governments was limited by their ability to acquire foreign
exchange through the sale of goods and gold, the Income
from foreign investment, or the liquidation of such invest
ment abroad. At the time the Act was passed England*s
trading position was growing rapidly weaker, by reason of
6
the conversion of home industries to war production.
Furthermore, the reparation of American bank balances,
primarily from London, and American liquidation of Canadian
and British securities also served to shrink British dollar
balances, Gold shipments, the ultimate resort, were the
chief means of payment for war material purchased in the
United States, fhe obvious solution of an American loan
i
to remedy this urgent situation was precluded by the pre
vailing political temper of the country. Instead, on
December 17# 191+0, the President advanced a plan to lend
American equipment to Britain, with the provision that
upon conclusion of the war, Britain would replace the
borrowed material in kind or in peacetime goods. An
immediate positive purpose of the policy was the desire
to avoid having the repayment problem poison postwar rela
tions between the two countries,
fhe Lend-Lease Act was enacted by the Congress as a
measure of national defense. Recognizing the threat from
6
Ibid,, p. 93
tiie Axis upon the security of the United States, the
Congress said, that it was essential to the security of
the United States that all possible material assistance be
furnished to those nations then fighting or threatened by
7
the Axis,
C'ongress thought that it was in the interest of the
United States that the flow of weapons and other supplies ;
furnished to promote the defense of the United States '
should not be interrupted by a lack of dollar exchange.
i
It further asserted that since aid was being
furnished in the United States own defense and it was
important to avoid the international debt experience of
the last war, payment might be in kind or property or
other benefits, rather than in dollars.
The name under which the Act has become known is
derived from its wording, which authorizes the President
to sell, transfer title to, exchange, lease, lend, or
otherwise dispose of defense articles.
Under the Aet, the President was authorized by
Congress in the interest of national defense to procure
and provide defense articles and defense information for
the government of any country whose defense he deemed
vital to the defense of the United States. Defense
articles and defense Information are defined to include
7Ibid.i p. 9*?.
k.0
all types of goods and services necessary for the waging ■
of total war.
The process of industrial mobilization in this
country was greatly speeded up by operations under the Act.
Lend-Lease contracts and lend-lease expenditures started
the construction of many new factories and the conversion
of existing facilities to war purposes. They furthered |
the expansion of the United States shipyards and stimu
lated the production of machine tools and munitions of all
kinds. The overall objective behind lend-lease assistance
was to keep the war away from the United States, using it
! !
, as a means.
{
III. PUBLIC OPINION AND LEND-LEASE
In January 19^3# one-quarter of the people Inter
viewed in a Gallup poll did not know what lend-lease was.
Of the remainder, 72 per cent felt that the countries
receiving lend-lease aid should repay the United States
for it (which means that Sk- P®** cent of the total number
of the persons Interviewed gave this answer). However,
only 29 per cent believed the United States really would
be repaid, and £8 per cent thought the United States
O
would not be.repaid.
Q
National ©pinion Research Center, Postwar and Cur
rent Problems (Denver: University of Denver, Report No. 5>
August, 191^.2); and Rocky Mountain Survey with National
Comparisons, April, 1914-2.
IV. THE SCOPE OP LEND-LEASE
The variations in the nature and magnitude of lend-
lease and in terms on which it was granted made it, on the
9
whole, a flexible instrument of policy. The agreements
with the Latin American republics contained an undertaking
to pay in cash for the materials provided. In the case of
the Netherlands, the terms amounted to advance payment in
cash, for lend-lease aid was coupled with an agreement to
sell the United States large quantities of strategic
materials from the Dutch East Indies and Dutch Guiana as
|
an offsetting transaction. Iceland was put on a cash-
reimbursable basis, but in return the United States paid
dollars for Icelandic products for transfer as lend-lease
aid to Britain, an early example of what came to be known
as offshore procurement. The purposes of the lend-lease
aid varied just like its magnitude in accordance with the
1©
role the recipient country played in resisting aggression.
The countries that received aid under the lend-
lease program were Great Britain, the Soviet Union, Fraice,
Ganada, Australia, New Zealand, Union of South Africa,
India, Belgium, Greece, Norway, Poland, the Netherlands,
Ieeland, Yugoslavia, Turkey and all the Latin American
%tettinlus, eg. cit., p. 71*
10Ibid., p. 97.
11
countries ©xeept Argentina and Panama,
From early 1 9 i | . l when the Act was passed until
Japan surrendered In 1913-5# the wartime lend-lease was $ l | . 7
billion, This amount accounted for almost all of the
United States government foreign aid. After the end of
the war this proportion diminished, but in the ten months
from VJ-day to the end of fiseal year 1913-6, the lend-
lease program still provided over ©ne-third of the govern-
12
ment gross foreign aid,
V, WHO RECEIVED MOST LEHD-LEASE?
Two-thirds of the lend-lease aid, or $31 billion,
was provided at the request of the British, Of course,
much of the British aid was not physically provided to the
United Kingdom, but went to the Dominions and colonies as
well as to British troops in Egypt and the Middle East,
13
In France and Italy,
Russia, the other leading recipient of lend-lease
aid, received more than $11 billion, or a quarter of the
total United States aid under the lend-lease program. The
| French received aid originally in the colonial outposts
controlled by the Free French forces, later In liberated
11
William Brown, American Foreign Assistance (Wash'
Ington, D.G.: The BrookingsInstitution, 1953)> p. 37•
12o.s. .Department of Commerce, op, cit,, p. 33*
13Ibid., p. 36.
North Africa, and finally in the Metropole after ©-day, in
all, a total of nearly |>3 billion* Much of the more than
$1*5 billion given China accrued after VJ-day when America*
arms were provided to reassert Chinese sovereignty over
the rich coastal provinces, which for years had been under
Japanese occupation, and to assist the Chinese in demili-
lk
tarizing and repatriating the Japanese in that area* ^
Three principal recipients received 90 per cent of
lend-lease aid during the war period, as follows:
Billions of dollars
Reverse lend-lea3e means that lend-lease had not
been a one-way affair* As the United States delivered
goods including war materials to its allies, as soon as
the allies felt that they did not need those goods anymore,
they returned them back to the United States, If the com
modity was destroyed the recipient country was expected to
to pay for the value of the commodity in cash or other
acceptable commodity*
Total
United Kingdom
U *S*S,R*
France
All other countries
14-7.1
28.6
10.8
VI. REVERSE LEND-LEASE
^Ibid*. p. 36.
toited States Office of Business Economics,
op. cit., p. 2
* j4
Reverse lend-lease also means the reciprocity of
material between the United States and its allies* It
means that the United States gave its allies what they
needed, in return the United States received what she
needed*
The term reverse lend-lease is also Implied in
I reference to the fact that the United States allies did
I
not only supplied the United States with what it needed,
but supplied each other with goods and so forth in the
sense of mutual assistance*
The United Kingdom had lend-leased to the Soviet
| Union thousands of planes and tanks and other military
i i
j supplies. Up to June 30, 19^-3, the United Kingdom had also
provided, under lend-lease, equipment for the forces of
many of the governments-in-exile fighting with the British
armies. These supplies to Russia were valued at 179 million
pounds* Great Britain had also been furnishing pay and
other supplies on a lend-lease basis, as well as munitions,
to Chinese troops operating in Burma and India. United
States aid to Russia and other allies amounted to a billion
dollars by the end of 19^3* Canada in 19J+1*- furnished the
United Kingdom with a billion dollars worth of war produc
tion without payment.*^ The passage of the Mutual Aid Act
l£>
A In relation to population, this would be the equi
valent of,twelve billion dollars worth of supplies from
the United States*
in Hay, 19^3* provided toy the transfer by Canada to the
United Nations, without cash charge, of needed goods to
17
the value of a further billion dollars*
By the end of 1914-3 the estimated value of reciprocal
aid to the United States toy the United Kingdom in supplies
and services amounted to a billion and one-half dollars.1®
Most of the British lend-lease arrangements with
allies other than the United States and the USSR was in
the form of credits. Credits to the allies, other than
the United States and the USSR, up to December 31* 19l|.2, \
i
together with such lend-lease assistance given before that;
TO 1
date, amounted to about 106 million pounds sterling. 7
Furthermore, through reciprocal lend-lease, the
United States allies on the battle fronts have matched the
spirit of the United States lend-lease aid by supplying
the United States armed forces with great quantities of
food, medical supplies, equipment and services on a lend-
lease basis, and without the payment of cash. Kiis aid
saved the United States many hundreds of millions of
dollars in maintenance and transportation costs of this
■^Canada has received no lend-lease from the United
States. She has paid cash for the supplies obtained in
this country; Council on Foreign Relations, o|>. cit.,p.lu
l®This figure covers on the average a period of
about eighteen months, reciprocal aid having become appre
ciable after July, 1942. Nor does it include all aid
furnished during this period.
*TQ
•^Council on Foreign Relations, 033. cit., p. lf>.
country1s armed forces overseas. The United States allies
have also freely contributed from their technical and other
war experience to the United States home defense and tech-
20
niques of war production.
Reciprocal lend-lease is only one of the several
benefits received by the United States in return for the
. supplies and services provided under the Lend-Lease Act.
What the other United Nations did to bring about the defeat
of the Axis was obviously a vital contribution to the
I ,
defense of the United States. This is a benefit whieh can,
not be measured in figures. “There is no standard of
i - •
; values by which the loss of a thousand lussian lives, for '
i
I instance, can be compared with a thousand fighter planes,"
1 OT
as Mr. Stettinius has aptly put it.
The whole idea of lend-lease was not the method by
which a dictator builds an army for aggression. But it
was the method by whieh the people of a freedom-loving
nation united behind their leaders to defend themselves
against dictators and eventually created the overwhelming
22
power necessary to crush them.
Reverse lend-lease consisted of goods, services,
and information provided to the United States by the Allies
20Ibid.
2^Ibid.. p. 16.
22William Diebold, Jr., "Implications of Lend-Lease:
Political Dangers J.n the Settlement," Foreign Affairs f
April, 19i+3, pp. 510-11.
hi
without payment by this country and on the same terms as
this country provided direct lend-lease a s s i s t a n c e . ^ It
had been furnished mainly by the countries of the British
Commonwealth of Nations though the United States was also
receiving reverse lend-lease supplies and services as the
need arose from the French Committee of National Libera
tion, Belgium, the Netherlands, the Soviet Union, and
; China.The United Kingdom, Australia, New Zealand, and \
I
| India estimated that they spent more than #2 billion for j
j supplies and services furnished to the United States armedj
i forces and merchant marine overseas as reverse lend-lease |
i
from June 1, 19l|.2, to December 31* 1914-3* the following
major categories:
Total Reverse Lend-Lease Aid from British Commonwealth
through December 31, 191+3
United Kingdom #1,526,170,000
Australia 362,365*000
New Zealand 91*986,000
India llk.lt51.OO0
WJmTBfztooS- 25
• » p*
p it
•"This includes $1,366,170,000 for aid furnished
the United States forces in the British Isles and for ship
ping services, together with $160,000,000 for reverse lend-
lease supplies transferred to the United States forces by
the United Kingdom In various combat areas outside the
British Isles. On the basis of records, the United Kingdom
government estimated that these transfers totaled between
$160,000,000 and #200,000,000 through December, 1914-3. See
Council on Foreign Relations, op. cit., p. 16.
2^Ibid .; this does not include the value of strate
gic raw materials, commodities, and foodstuffs shipped to
the United States under reverse lend-lease, other than
benzol.
k&
Approximately one-third of all supplies and equip
ment needed in 1 9 i | i | . by the United States forces in the
United Kingdom was furnished by the British as reverse
lend-lease. In addition, virtually all housing and head
quarters accommodations, airdome facilities, transportation
services, civilian labor, and miscellaneous services
needed by the United States forces were supplied as reverse
i
lend-lease.
Hie United Kingdom government*s estimates of its
reverse lend-lease expenditures are shown in the following
! table:
Reverse Lend-Lease Aid by United Kingdom
Through Dec ember 31» 1914-3
(Conversion from Pound Sterling at #lj..03)
Goods and services transferred
in the United Kingdom $ 535*990,000
Shipping services 282,100,000
Airports, barracks, hospitals,
and other construction 5^-8 # 080,000
Goods and services transferred
outside the United Kingdom 160,000.000
#1,528,170,000 26
^Twenty per cent of the food consumed by the United States
forces in the United Kingdom was provided as reverse lend-
lease, in spitte,of the British food shortage*”^7
26
Council on Foreign Relations, ojo. eit., p. 17.
27Ibid.. p. 18.
VII. SUMMARY
In short, tlie American assistance extended to
European countries under the lend-lease program may be
briefly summarized as follows:
1. The primary intention of the program was to
safeguard the United States against the Axis aggression.
2. Furthermore, the lend-lease contracts and
expenditures stimulated American production and induced
the expansion of industrial capacity in the United States.
3. The lend-lease program provided a more favor
able atmosphere for the United States domestic as well as
I
foreign trade. It has been argued that the program enahLed
the United States to capture political and economical
leadership from the United Kingdom, although this seems
to have developed earlier.
I 4.. The program certainly contributed a great deal
toward the final victory of the war as a whole.
5. The United States also received goods and ser
vices from the recipients of lend-lease aid. Many econo
mists have called this process as reverse lend-lease. It
implied a sort of mutual assistance between the United
States and the countries who received the lend-lease aid.
Total assistance in terms of dollars tinder the lend-
lease program amounted to f i j . 7 billion. Total lend-lease
aid to Europe as a whole was $33 billion. Three countries
received 90 per cent of the lend-lease aid. They were as
£o
follows: Great Britain, USSR, and Prance.
The following chapter will review the geographical
distribution of the United States aid to Europe in the
eleven year period, 1914-0-1951*
CHAPTER IV
THE GEOGRAPHICAL G ONGENTRATIOH OF UNITED STATES AID
In the preceding chapter it was mentioned that the
greater part of the aid furnished by the United States for
the European allies went to three countries. The USSR,
France and the United Kingdom received two*»thirds of the
$02 billion total grant and credit aid provided in the
1
eleven-^year period.
The United Kingdom alone was furnished with #36
billion of assistance, about I * ! } . per cent of the total
goods, services, and funds, provided by the United States
t
government to foreign nations. Nearly #29 billion of
this amount was transferred during World War II as a part
of the international process of pooling resources in the
common cause.
As a result of wartime aid, the United States former
ally, the USSR, ranked second with #11 billion, or almost
1 J L | . per cent of the total, France, which received more
help in the postwar period than during the war, ranked
third with #7 billion or 8 per cent. Germany, China,
Italy, Japan, Greece and the Netherlands were likewise
major recipients, each having been furnished with amounts
3-U.S* Department of Commerce, Foreign Aid 19kQ~19£l
(Washington, D.C•: United States Government Printing
Office, 1952), p. 9.
22
ranging from |l billion to over #3 billion.
Some of these nations have also been provided with
other assistance not indicated above. For example, these
and other countries have benefited from significant amounts
of direct United States aid, such as that furnished under
the recent mutual defense assistance program, which for
, security reasons cannot be identified by country. In many
cases, they have been indirectly helped by the United
States Government contributions to the International Chil
dren's Emergency Fund, the International Refugee Organiza
tion, and other such international organizations existing
for the express purpose of furnishing grant aid. They
also have benefited indirectly as a result of our member
ship payments to the international organizations providing
free technical aid. Additional dollar funds have been
; made available to them through credits extended by the
International Bank for Reconstruction and Development and
the International Monetary Fund, although the very size
able payments to these agencies which made such credits
. possible have not been considered in the nature of United
1 States Government foreign aid.
Altogether, the nine countries mentioned above
2
received well over four-fifths of both the gross and net
2
Gross assistance refers to the United States aid
to other countries from which returns to the United States
such as reverse lend-lease, return of lend-lease ships,
assistance furnished directly by the United States Govern
ment, As a corollary, their returns to this government
were likewise heavy, comprising seven-tenths of the total
of reverse or returned grants and repayments on credit#
Although United States aid transactions with these com-
i
paratively few nations were predominant, grants and credits
were actually furnished to many other countries in size
able amounts and some programs encompassed wide geographi
cal areas.
war accounts cash settlements, and principal collected on
credits are not deducted, Met assistance refers to the
United States aid to other nations from which the returns
are deducted, e.g,, the following table shows the American
wartime foreign assistance: (in million of dollars)
Grants utilized:
Lend-lease
Civilian supplies, occupied areas
UMRRA
Refugee assistance
Chinese Stabilization Program
Institute of Inter-American Affairs
Technical Assistance
Reconstruction Finance Corporation
American Red Cross
Total Grants
Credits utilized:
Lend-lease credits
Lend-lease silver
Reconstruction Finance Corporation
Ixport-import bank
Total credits
Total Gross Foreign Assistance
Less Returns:
Reverse lend-lease
Return of lend-lease ships
War accounts cash settlements
Principal collected on credits
Total return
Met foreign assistance
1 4 . 6,728
813
83
3
3§0
1
2
_ 62
I4.8,127
112
237
ml
7,820
a
j Underlying the formation of lend-lease and certain \
! other major aid programs has been the necessity for resist
ing the aggressive movements of dictatorship which have
i sought to extend their sphere of influence. To counter J
such threats to the independence of neighboring democracies
and to establish economic security, the larger aid pro
grams have depended heavily upon the cooperation of coun
tries within threatened areas. In providing help under
such programs certain specific considerations and.qualifi
cations have been applied to these regions as entities,
either to further their economic recovery and military
I security or to strengthen them so that they may contribute
; 3 :
: to the common effort.
j During recent years this has been more apparent,
in the way aid to the Western European countries under
the European-recovery and mutual-defense assistance
programs has been made contingent upon their cooperation
^U.S • Department of Commerce, op. cit., p. 9.
.^Mutual Defense Assistance Program (MDAP) was a mil
itary assistance program launched in 19i|-9. It was launch
ed as a safeguard against the advance of communism In
Europe. The MDAP was launched as a result of a growing
feeling in Congress that the European Recovery Program as
originally conceived was not a sufficient safeguard against
the advance of communism in Europe. Prom the beginning of
the military assistance program, the question of priority
between economic and security considerations was fundamen
tal for the operations of the Economic Cooperation Adminis
tration. It was the final resolution of this question in
favor of subordinating all other considerations to these
security measures that led to the absorbtion of the Euro
pean Recovery Program Into the Mutual Security Program.
5
with each other and with the United States, The fact
that many of the nations in this area have banded together
in the Organization for European Economic Cooperation
(OEEG) and have become members of the North Atlantic
6
Treaty Organization (NATO) lends additional significance I
7
to the study of the region as an entity.
I. WESTERN EUROPE
World War II destroyed economic patterns. During
World War II, the United States filled an important part
£
The Mutual Defense Assistance Program was based
on the assumption that economic and military assistance
could and should be kept separate, although the validity
of this assumption had been questioned as early as the
congressional debates on the repeal of the Neutrality
Act in 1939* For further diseussion of MDAP see William
Brown and G, Opie, American Foreign Assistance (Washington,;
B . G . j The Brookings Institution, 1953), pp. 1^26
^NATO, The necessity of providing military assist
ance to various countries to Insure their internal stabil
ity as a basis for economic recovery first became evident
in Greece late in 19M>, When the international political
pressures underlying these military conflicts and foment
ing other instabilities seemed to be Increasing, the
United;;Statfes in the Spring of 19lj.9 joined with ten Europe
an nations and Canada in the North Atlantic Treaty, The
ratification by France on August 2k-» 19l|.9, brought the
North Atlantic Treaty into force. It Is a military alli
ance, An attack from outside upon any of the signatories
is considered an attack upon all the members* The treaty
called for self-help and mutual aid in the promotion of
stability and well-being in the North Atlantic area. As
part of this mutual aid the United States Government in
19q9 embarked upon a long-range program to provide military
equipment and assistance to other nations* After the out
break of open hostilities in Korea in 195©, military assist
ance rapidly assumed the predominant position in United
States Government foreign aid,
7
'U.S, Department of Commerce, op, cit *, p, 9*
of the military and civilian requirements of the European
countries engaged in the common effort to defeat the Axis,
In all, the government provided nearly $33 billion of aid
to Western European allies. This help was principally In
the form of lend-lease grants, supplies transferred to the
civilian populace by the armed forces, and contributions
through the United Nations Relief and Rehabilitation Ad
ministration (UNRRA), Under the system of mutual aid then
in operation between the United Nations whereby each coun
try helped others according to its capacity, the United
States, In turn, received #6,1 billion in the form of
8
reverse lend-lease from this same area*
Prior to World War II, the QEEG countries carried
on nearly one-half of the world’s international trade and
owned nearly two-thirds of its shipping tonnage. Their
income from foreign investments and other invisible ex
ports was sufficient to pay for nearly one-fourth of their
imports, including the raw materials needed for their
industrial plants and necessary feed and foodstuffs.
Their combined output of coal, steel, and chemicals basic
to their industrial structure was a little over that of
9
the United States,
_
Council on Foreign Relations, The Problem of Lend-
Lease (New York: Council on Foreign Relations, 19W) *
pp, 1 6-1 8,
9
U,S» Department of Commerce, op, cit,, p. 11.
57
'These countries had attained a high level of special
ization in industry and agriculture. However, the disrup
tion of industrial and agricultural production, the dis
location and destruction of the transportation system, and
the sacrifice of shipping, gold reserves, and foreign
investments during the war altered the basis of the
European economy# Occupation policies, population move
ments, and the loss of markets or sources of supply in
other world areas were likewise influential# These fac
tors left Europe with both a reduced capacity to supply
10
its needs and a greater volume of needs.
Extraordinary aid instituted. During the early
postwar period the Western European area continued to
receive the final flow of lend-lease as well as relief
assistance through UNRRA and civilian supply furnished
by the United States armed forces. Additional aid was
made available through Export-Import Bank loans for the
re-equipment of industry, or in the form of surplus-
property credits* Drawing on the special British loan
began in September, 19M>.
nevertheless, the exceptionally hard winter of
19^-6-14-7 and the draught which followed, together with con
tinued shortages of food, coal and other basic commodities,
brought into sharp focus the incompleteness of the
10Ibid.
£6 ,
recovery. The situation was aggravated by impediments to J
trade resulting from communist controls imposed on central
11 I
and eastern Europe. i
i
It became evident that extraordinary measures were !
needed to maintain and accelerate the progress already
achieved, since partial efforts, while of salutary value,
would not suffice. Shoftly before the completion of the
UNRRA program in 19^7$ the Congress of the United States
had approved a program for post-UNRRA relief and a pro
gram to furnish military as well as economic assistance to
Greece and Turkey which were threatened by Communist
encroachment. While these moves were of key importance,
they had limited objectives. ,
i
This was the background against which Secretary of J
State George Marshall delivered the speech at Harvard
University in June, 191i7 that foreshadowed the establish
ment of QEEC and of the European Recovery Program in
12
April, 1948. In the meantime, Congress established an
13
interim-aid program to prevent the deterioration of
^Ibid., p. 11.
12
The Marshall Plan will be discussed in detail
later. While especial attention will be directed to the
basic motives of the Marshall Harvard University speech,
it is worth while to note the background for his Harvard
University speech which led to the creation of the Europem
Recovery Program.
13
“ 'Interim Aid Program, purposes and authorizations,
see Brown and Opie, op. cit., pp. 139-ij.l; termination,
59
economic conditions in Austria, Prance, and Italy prior
to the initiation of the long-range program* By the time
the Marshall Plan began operating, the United States
; Government had extended $9*5 billion of net foreign aid
to Western Europe in the postwar period# [
; Some economists assert that during passing the
Interim Aid legislation, Congress was of the opinion that
the contemplated long-range European recovery program of
Marshall could not be started unless the existing deterio
ration was checked* Thus, looking at the Interim Aid Pro
gram from this angle, one could advocate that it was a
stepping stone to the long-range European Recovery Program
which was soon to follow*
Regional organization advanee mutual aid# Under
: OEEC, certain European nations banded together to consider
what measures could be undertaken individually and collec
tively to solve their major economic problems and to recom
mend to the United States the division of dollar aid under
! the European Recovery Program# Their principal objectives
were to reduce the dollar gap, restore European multi
lateral trade, expand exports to other world areas, and to
, p* 137* It was launched in December, 19^7* An emergency
aid of $552 million was provided for Prance, Italy, and
Austria* The main objective behind the Interim Aid Program
was to deal with the crisis in France and Italy* The Her ter
Committee had reported on the Italian and French crisis#
Widespread strikes in France and Italy reminded the United
States that the Soviet Union was ever ready to take advant
age of deteriorating economic conditions*
60
promote the general recovery of the European economy. This
organization has since maintained a continuous process of
mutual consultation on a wide range of problems, including
postwar inflationary pressures and other factors contribut
ing to internal financial instability* It likewise has
turned its attention to various plans of increasing levels
of investment in Western European countries and their
underdeveloped overseas dependencies, and to a wide range
of projects for promoting agricultural and Industrial pro
duction*1^"
However, by the time G1EC was established the USSR
had built up a zone of buffer states to the west of Its
border by extending its domination to Estonia, Latvia,
and Lithuania (I9I 4.O), Albania (19M4-), Rumania (19d5>),
Bulgaria (19^.6), Poland ( 19I 4. 7), Hungary (19^.7), and
Czechoslovakia (19i}.8) * The eastern zones of Germany and
Austria were likewise under Its control by reason of its
army's occupation*
Because of the Communist threat to the free nations
of Europe, the United Kingdom, Prance, Belgium, the
Motherlands, and Luxembourg signed a fifty-year treaty
at Brussels In March, 19i|.8 for collective military aid
and for economic and social cooperation* At this time
President Truman stated that he was sure that the
Department of Commerce, og* cit*, p, 12*
determination of the free countries of Europe to protect
themselves will be matched by an equal determination on
• i
I the part of the United States to help them do so* The j
1 !
j United States and Canada entered into the consultations of
I the Permanent Military Committee of the Brussels powers as
“non-members1 1 in July, 19l}.8.
i Negotiations for a North Atlantic pact had begun by I
I . ■
i the end of the year and the United States was preparing to'
t i
, associate itself in a collective defense arrangement with r
free Europe. The North Atlantic Treaty was signed in
April, 1914-9 by ten of the nations participating in the
I
! European Recovery Program and by the United States and
Canada. Ratification of the treaty by the United States j
Senate was followed by congressional authorization of the ;
15
Mutual Defense Assistance Program in October, 19l}-9.
Thereafter grants of military supplies and equipment were
furnished in constantly increasing amounts to the North
Atlantic Treaty Organization countries and to other world
areas.
Still another step toward the attainment of closer
integration was in July, 1950 when OEEC established
1£)
the European Payment Union to improve the previous intra-
^Ibid., pp. 12-1 5.
3 6
Por further discussion of European Payment Union,
see Brown and Opie, op. cit., pp. 2 8 1 4.- 8 5.
62
17
European payment system. This move was both accompanied
and preceded by a progressive lifting of quantitative
restrictions on the movement of commodities within the
area. Although by this time a satisfactory degree of
recovery had been attained with the help of the United
States, certain developments were precipitating further
problems within the European economy. Thus, in the year
18
following the inauguration of the payments union, QEEG
and NATO were required to seek solutions to more recent
difficulties engendered by the Korean crisis and by the
obligations accepted by certain of their members under
the North Atlantic pact and its accompanying agreements*
■^The Intra-European Payment System consisted of
two agreements concluded among the European countries once
in October, I9I 4.8 and the second in March, 19^-9. The sys-
tern afforded a greater flexibility and a more multilateral
character to European trade. More specially the payment
agreements provided that any European holder of sterling,
for example, could freely transfer sterling to other coun
tries .in settlement of their debts. It helped to expand
intra-European trade. For further discussion of intra-
European payment system consult Brown and Qpie, op. cit.,
pp. 278*"%*
18
The European Payment Union was inaugurated in
September, 1950* The proposal that created EPU consisted
that there should be a single clearing of intra-European
balances in a system of multilateral settlements, includ
ing balances with the sterling area as a whole and prob
ably with all the countries participating in the British
system of transferable sterling accounts; and that quanti
tative restrictions within Europe should be substantially
reduced. The plan proposed further that Incentives should
be given to coordinate monetary policies, and that to this
end the management of the proposed union should possess
wide powers#
63
Recovery provides firm basis for rearmament. West
ern Europe at the time of the Korean invasion was engaged
in efforts to expand further its output volume in order
to advance mobilization while maintaining the level of
consumption needed to resist internal subversion. This
| endeavor was complicated by a shortage of certain raw
materials and an accompanying sharp rise in import
19
duties. 7 In the second quarter of 1951 the trade gap
of Western Europe with the rest of the world increased to
the largest amount since 19V?# averaging about $650
million a month. However, this deficit did not result in
a drain on hard-curreney reserves. On the contrary, gold
and dollar holdings were still increasing at this time
because of United States aid and expenditures for raw
materials in the overseas dependencies of 0EE0 countries
and in the sterling area.
Although economic progress had varied from one
country to another, it was, on the whole, providing a firm
basis for an expanding volume of output to support the
i rearmament effort. The retrospective report on European
Economic Cooperation released by OEEG in May, 1951#
stated that, in general, member countries1 economies had
been readjusted to a peacetime basis; some of the vital
physical reconstructions had been achieved; working stocks
19 . .
'Brown and Opie, o£. cit.. pp. 2U 4.- 3I 4.*
had been re-established so that industry could operate
more efficiently. The output of key commodities had been
increased and the means of paying for those which had to
be imported, greatly improved by the rise in exports. The
adverse balance of payments of member countries, as a
whole, had been reduced from $8 billion in 19ij-7 to $1
billion in 1950• National output had greatly increased
in every country. Living standards had been restored, on
the average, to about the prewar level, and the fight
against inflation was, at least until mid~1950, more
successful.20
Overall industrial production of the European
recovery area averaged II 4 .3 per cent of prewar levels in
the June quarter of 1951* Agricultural production had
increased to almost the same output on a per capita basis
as that prevailing before the war. The rate of military
production had more than doubled in the two years follow
ing the establishment of the North Atlantic Treaty and was
expected to double again between 1951 and 1952.^
Prom April, 19*1.8, when GEEC was established,
through June 30# 1951# the United States Government
furnished #12.6 billion in net aid to Western Europe, made
up of #9<*7 billion under the European Recovery Program,
U.S. Department of Commerce, oj>, cit., pp. 12-lij.,
2lIbid., p. 1 J L ) . ,
6g
$lvl billion under the Mutual Defense Assistance Program*
22
and $1,8 billion through other aid programs.
Earlier in the postwar period* preceding the estab
lishment of the European Recovery Program, the United
States had placed a greater reliance on the provision of
aid to Western Europe through credits rather than grants,
!
the latter comprising only one-fourth of the $9,5 billion
of net aid extended to the area ($11,1 billion gross) in
that period. However, by the time the Marshall Plan got
underway it had been realized that consideration must be
given to the future capabilities of countries to repay
without prejudicing their recovery. Thus, the net assist
ance to this area in the three and one-fourth years called
the ERP period (April, 1958 through June, 1951) was $12,6
: billion, Net grants aggregated to $11,7 billion as com
pared to net credits of $,9 billion.^3
II. EASTERN EUROPE
Almost nine-tenths of the $12.1}. billion total of
aid given to Eastern Europe^ in the eleven years under
1 review represented lend-lease transfers mainly to the
USSR in the war period. Another 8 per cent represented
^President's Committee on Foreign Aid, European
Recovery and American Aid (Washington, D.C.: Government
Printing Off ice, 1947), p, 13®*
23JkMa., p. 22.
^Eastern Europe includes the following countries
which did not participate in the European Recovery Program:
Albania, Czechoslovakia, Finland, Hungary, Poland, USSR,
and Yugoslavia. Spain did not participate in ERP either.
relief and rehabilitation supplies given primarily through
UNRRA to Czechoslovakia, Poland, the USSR, and Yugoslavia
25
in the early postwar period*
Host of the assistance has been in the form of
gifts or indeterminate aid* However, nearly all of the
countries within the area have received loans or other
credits from the United States Government, the net total
amounting to $14-59 million through June, 1951* ®h© major
ity of them were extended in the postwar period preceding
the establishment of the European Recovery Program in
April, I9I 4- 8* Thereafter only Finland, Poland, and Yugo
slavia continued to receive United States Government grants
and credits,
USSR ranks second among all recipients, Soviet
. . . . 1
Russia is second only to the United Kingdom in the volume >
of aid acquired from the United States since July, I9I 4.O•
The United States furnished over $11 billion of lend-lease
to the USSR to assist in its defense and later to build up
the offensive power of the Soviet forces in the struggle
against Germany, This amount, made available despite
transport and other difficulties, represented nearly two-
fifths of that provided to the United Kingdom, and about
one-fourth of that transferred under the entire program to
25 ■
-'The Economic Cooperation Administration, A Report
on Recovery Progress, and United States Aid (Washington,
U7C7! Government Printing Office, lyl4.97T^p. 5 0.
all of the United States allies* The United States, like-
! wise,furnished the USSR with some f.2 billion of relief
I
through UNRRA and the Red Gross. j
i Lend-lease assistance began to flow to the Soviet i
I !
Union in November, I9I 4.I# about five months after the German
invasion and eight months after the Lend-Lease Act became !
. . . . . . !
law. Shipments by the second year of operations comprised
about three-tenths of exports under the program to all
theaters of the war. Munitions made up approximately one-
half, industrial materials one-third, and petroleum and
; agricultural products nearly one-fifth of the vast eontri-
, bution of United States resources to the Soviet Union. j
; The Persian Gulf approach to the USSR was expanded i
t 1
I and modernized with the use of United States equipment,
and by the end of 191^2 the capacity of this supply route
was triple what it had been at the beginning of the year.
Aircrafts, tanks, trucks, locomotives, freight cars, and
; other transportation equipment contributed to mobility
on the Russian war front. Airplanes, parts, and spare
1 engines represented the largest single group of munitions,
i >
j constituting about one-third of the total. Other munitions
included anti-aircraft and submarine guns, explosives, I
; submarine chasers, and torpedo boats.
Chemicals, armor plate, steel, aluminum, copper,
, zinc, construction machinery, and other materials were j
: sent to the USSR to assist in the expansion of munitions '
: production or the relocation of industries not destroyed j
hy the German Army or by the Russians under their scorched-
earth policies. Machine tools, petroleum refining equip**
ment, electrical furnaces and generators, and other in
dustrial machinery including even entire factories were
shipped to increase Russian war production.
Shipments of supplies to European Russia were almost
completely suspended after VE-day, but continued to the
| Soviet Par East in anticipation of the Russian declaration
of war against Japan which occurred on August 8, 19t|-5*
: just prior to the capitulation of the Japanese. These
i
i
consisted of war materials and food. 1
: \
| Returns from USSR only minor. Lend-lease aid
i
' amounted to #223 million was transferred to the USSR on a
credit basis after VJ-day under the pipeline agreement
of October 15* 1914-5* Principal payments on these credits
were scheduled to begin by 19514-* In addition, the United
States has asked the Soviet Union to pay $800 million for
i the reimbursable portion of wartime lend-lease. Although
| there had been over four years of negotiations, no overall
i settlement of the lend-lease account had been concluded !
: ^ 26 1
by the end of 1951* i
i The United States had asked payment only for
civilian-type articles whieh remained in Soviet custody
i
I
i
1 .................
2 % .S• Department of Commerce, op. cit., p. 22.
i 69 !
(
)
jat the end of the war* Although the estimated value of
'these articles after allowances for depreciation has
| been set at #2*6 billion, the United States initially pro-
! j
! posed the sum of $1*3 billion as representing the fair \
value of these articles to the Soviet peacetime economy.
However, in an effort to speed the settlement, it subse
quently offered to settle for $1 billion and later for
$800 million. In August, 1951* the USSR increased its
prior offer of $2) 4.0 million to $300 million, a sum con
sidered to be Inadequate,
Mo request has been made for civilian-type articles
!
; lost, destroyed, or consumed during the war, or for arms,
I munitions, and implements of war, exclusive of ships re-
| maiming in Soviet hands at the end of the war. However, j
‘ the position of the United States has been that the terms
of settlement would reserve United States right to the
return of the latter military-type articles*
The reverse lend-lease furnished to the United
States by the USSR was only slight, just over #2 million,
j This amount includes the value of repairs and supplies
I
j furnished the United States merchant ships in Russian ports
i
, It also includes food and other supplies and services pro-!
I !
: vided to the United States Air Force at the shuttle-bombing
' ! bases made available by the USSR at the height of the air
attack on Germany. I
70
! The United States has requested the return of all i
lend-lease ships and watercraft. By June 30, 1951* the
j USSR had turned back to the United States merchant and
|
' navy ships valued at $30 million at the time of their
return. These vessels represent only a minor portion of
those originally 1end-1eased. In the case of merchant
ships, the USSR had yet to return over two-thirds of those
originally lend-leased.
Poland and Yugoslavia helped through UHRRA. Poland
and Yugoslavia are the other countries within the Eastern
European area which have been furnished with sizeable '
amounts of United States assistance. Each country re-
!
i ceived over $.1}. billion of net grants and credits through
June, 1951* Most of their aid from the United States
was furnished through UNRRA, although they also benefited
27
through lend-lease and American Red Gross channels.
I Immediately after the war, the foreign trade of
Yugoslavia was oriented toward the USSR and other countries
under Soviet domination. However, after its break with
Oominform in June, 19l|.8, Yugoslavia found it necessary to
.shift its exports gradually from Eastern to Western Europe
and to the United States. Trade between Yugoslavia and
i
the East was at a standstill by the end of 19i^9 and the
« , 27
House Select Committee on Foreign Aid, The East
ern European Economy in Relation to the European Recovery
Program, Preliminary Report 20 (March, 19li8) , p. 62.
many problems created by this change were made more dlffi<~
cult of solution as a result of extreme drought in the
1
slimmer of 1950« j
I
i
i
Yugoslavia requests emergency relief aid. Because [
of the famine, Yugoslavia requested relief assistance from
the United States on October 20, 1950* To relieve critical
!
food shortage, stopgap aid was provided under the provision
t
of the Mutual Defense Assistance Act whereby a limited
amount of assistance can be provided to any European
nation, whose strategic location makes it of direct import
ance to the defense of the North Atlantic area and whose
immediately increased ability to defend itself contributes
to the preservation of the peace and security of the North
Atlantic area, 1
Emergency relief was also furnished through Economic
Gooperation Administration (EGA) channels by shipping flour
directly from Italy and Germany, and a previously nego<-
tiated loan was diverted for the purchase of United States
foodstuffs. Augmenting the aid already under way,
Congress provided for further relief under the Yugoslav
Emergency Relief Assistance Act approved In December,
1950.
Naturally, the drought which gave rise to the need
for famine relief likewise made It impossible for
28lbid.. pp. 3-9, 52
72
Yugoslavia to export the agricultural products with which
It normally acquired the resources to pay for imports of
critically needed raw materials# The United States
Government considered that the shortage of such materials
was so acute as to weaken the ability of Yugoslavia to
P Q
defend Itself against aggression. Thus, additional
j funds were made available in April, 1951 under the mutual** j
I
j ,
j defense assistance program to provide raw materials and j
! other supplies needed to support the requirements of the
i 30
Yugoslavian armed forces. The total net aid to Yugo-
slavia during the first half of 1951 amounted to $60
million.
Both the United Kingdom and Prance In July, 1951
agreed to collaborate with the United States in helping
Yugoslavia meet its foreign-trade deficit at least until
the middle of 1952, Grants furnished by all three coun
tries provided raw materials, consumer goods, and other
essentials which helped offset the decline of the earlier
flow from Eastern Europe.
“The American Anglo-French collaboration to assist
Yugoslavia was alerted by the Lesson of Korea,1 * as Brown
29
“Yugoslav Reply to United States Statement to
Foreign Aid,® Current History. February, 1957# pp. 109-
110.
30
“Foreign Aid and Communist Propaganda.® America,
October 20, 1956, p. 65.
and Dpi© put it, “that military aid is necessary before
open aggression occurs, the United States entered into
discussions with France and Great Britain in the Winter
of 1950 and spring of 1951 oa the subject of assistance
to Yugoslavia*
31
J Brown and Opie, op. cit.. p. Lj.98»
CHAPTER V
THE EUROPEAN RECOVERY PROGRAM
On June 5» 19^7, Secretary of State, George MarshaLl
I
' in his speech at Harvard University, initiated the European
Recovery Program. Even though he did not make any promise
of assistance as such, he did hint that nthe United States
might help if Europe took the initiative in drawing up a
1
program. • B
I. THE SITUATION IN EUROPE
With respect to the European situation, Secretary
Marshall stated that while the visible destruction in
Europe had been correctly estimated this was probably less
serious than the dislocation of the European economy.
The forces of recovery had been undermined by
political factors, and it had become clear that the
rehabilitation of the economic structure of Europe
would require a longer time and greater effort.2
Since European political and economic stability was
essential to world peace and that economic health was an
•^William A. Brown and Redvers Opie, American
Foreign Assistance (Washington, D.C.: The Brookings Insti
tution, 1953)> PP» 12^-26; and A. L. Albjerg and M. H.
Alb. 1 erg, Europe from 191U- to the Present (New York:
McGraw-Hill Book Go., 1951)» P* 795.
2
Brown and Opie, op. cit., p. 126.
i absolute necessity to world political stability, the
United States could have served best by providing economic
I assistance in a systematic manner.
Secretary Marshall explained that the suggested
program of recovery included all European countries that
were willing to cooperate. The sixteen participating
. countries were as follows: Austria, Belgium, Denmark,
Prance, Greece, Iceland, Ireland, Italy, Luxemburg, the
Netherlands, Norway, Portugal, Switzerland, Turkey, and
the United Kingdom.
Most of the above European countries in normal
1 times have enjoyed a standard of living somewhat lower
than the United States and Canada, but much higher than
the rest of the world by and large.
The advance degree of specialization in industry
and agriculture was for the most part responsible for the
higher standard of living of Western Europe. But the
machine of Western Europe’s economy was highly delicate.
It depended for its efficient working upon the smooth
operation of international trade and the uninterrupted
flow of goods and services.
After the international disintegration of the inter
war period, the establishment of the United Nations
in 19ij-5 was hailed as a recognition that the well- -
being of mankind is an international responsibility.-^
3g. M. Meier and R. E. Baldwin, Economic Develop
ment (New York: John Wiley and Sons, Inc., 1957)> p. 267.
76
In addition to her own plans, the United States endorsed
and supported the United Nations, The following objective
of the United Nations is of special interest in this j
study: **. . . to employ international machinery for the !
I
promotion of the economic and social advancement of all
peoples.
The war of 1939-19lj.£ altered the whole basis of
the economy of Europe, The agriculture, trade and in
dustry of European countries had been twisted out of shape
by their own war efforts or by policies Imposed upon them
by occupation armies, j
I
In 19i}-5 Europe was seriously short of resources.
There was a shortage of all basic materials: fertilizers,,
raw material, and labor.
After the shortage of food, the decline in the
production of coal and steel was perhaps the hardest blow
to the economy of Europe. Meanwhile prices had risen and
inflation was a serious economic problem in many countries.
The other major economic problem In many European coun
tries was the dollar shortage.
These were the major difficulties that Western
Europe faced immediately after World War II. But, never
theless, recovery proceeded slowly and gradually. This
^Tbid., p. 267. United Nations Charter, Article 55*
77
| was made possible by the efforts of the European countries
themselves, with generous assistance from the United
States and other countries and from the United Nations
Relief and Rehabilitation Administration.
The process of gradual recovery in Europe came
almost to the point of halt in the winter of I9I 4. 6-I9I 4 .7 •
The 19l|-6-19l4.7 winter was exceptionally severe and it was
followed by drought. This situation prevailed at a time
when the European economy was still in the stage of
recovery and was suffering from prolonged shortage of coal
and food. Consequently, the United States economic
' assistance was a must.
By the summer of 1914-7» the hopes of a gradual
recovery had receded. Agricultural recovery was halted
by frost damage. It became apparent that the prolonged
winter and spring drought would lead to poor harvests.
Although industrial production was maintained at a suffi-
1
cient level, it was at the cost of depletion of financial
reserves. When these were exhausted, the peoples of
Europe were threatened with the possibility of an in
definite prolongation of insecurity and lower standards
of living, unless drastic steps were taken to arrest the
process.
The United States government asked the major
European nations.if they wished to receive assistance
from the United States under a certain program. The
78
United States also demanded the European countries get
together and decide how much the aid should be, for how
long it should continue, and on what it would be spent*
The major European countries showed their interest
in the creation of such a program based on their initia
tive*
The initiative was taken by Britain and Prance* |
Invitations to a general conference were sent on July 3, I
19l{.7, to the European countries, including the Soviet
Union and her satellites. An invitation was not sent to
Spain* The sixteen European countries, already mentioned,
participated in the conference. The Soviet Union and her ;
satellites boycotted the general conference. A positive
|
result of the conference was the creation of a committee
which was called the Committee for European Economic
Cooperation.
II. THE COMMITTEE FOR EUROPEAN ECONOMIC
COOPERATION
The conference established the Committee for
European Economic Cooperation (CEEC) to gather information
on European requirements and the availability of supplies.
The main task of the committee was to organize European
efforts in such a way as to limit the need for assistance
from the United States to what the European countries
could not do for themselves.
The committee report, completed at the end of
August, 19ij-7> contemplated a four-year recovery program*
The report proposed a recovery program based on
four lines of action: (1) a strong production effort,
especially in agriculture, fuel and power, transportation,
and in the modernization of equipment; (2) the establish
ment and maintenance of internal financial stability;
(3) the promotion of economic cooperation among the par
ticipating countries; and (ip) the adoption of measures
for solving the problems of dollar deficits, especially
5
, by increasing exports to the dollar area.
i
One phase, so to speak, of the Marshall Plan was
completed, namely, the part that concerned the European
I
: countries* They got together, they drew a plan, and they
pledged to cooperate with each other. Now it was up to
the United States government to take action with regard
to its commitment. But no action was to take place with-
t
out the consent of Congress.
Congress authorized the administration's proposal
for a four-year program, terminating June 30, 1952, and
an amount of 17 billion dollars and 6.8 billion dollars
for the first fifteen months. Howard Price summarized the
total appropriation by Congress for the four-year program
by writing that the
^H. B. Price, Marshall Plan and Its Meaning (New
York: Cornell University Press, 1955)» P» 37.
total funds mad© available by Congress for the
European Recovery Program during the four-year
period came to about 13.15 billion dollars; J 4.. 9?
billion dollars were appropriated for I9I 4. 8-I9I 4. 9;
3.78 billion for 1914-9-1950, 2.31 billion for 1950-
1951* and 1.02 billion for 1951-1952. In addition,
1 .1 5 billion dollars was made available for assist
ance on credit terms, and in 1951-1952, a transfer
of 1 4 .7 8 million dollars from military to economic
aid was affected.^
III. FORMS OF ASSISTANCE
Assistance was to consist of commodities, services
and technical information to countries in need of aid.
Furthermore assistance was also to be in a form other
than that offered by the government of the United States.
This form of assistance appeared through private invest
ment. And the United States government, in order to
attract non-governmental American resources, declared that
it would guarantee the convertibility of all private
investments in Europe. The government made it clear that
the total of such guarantee must not be more than $300
million, including $15 million for information media.
IV. EFFECTS OF THE UNITED STATES FOREIGN AID UNDER
1HE MARSHALL PLAN UPON THE ECONOMY OF WESTERN EUROPE
Industrial production. The participating countries
had an industrial production of 135 per cent of the 1938
^Ibid., p. 88.
^Brown and Opie, op. cit., p. 150.
MillIona of Dollars
3,176
2,709
Other Countries
(millions of dollars)
1,389
s
o
©
H
ct
P
H
Q
CD
4
S 3
B
* < ?
©
'd
1,079
691*
S3
©
ct
V
©
I
P-
CO
677
556
w
©
H
Q P 09
4 to •
© ct «
© 4 1 H
O H*
© P
271
109
w
©
p
f e !
O
2
p
1 09
O
a
H
P
< 5
H*
P
50
•n
0
t )
ct
32
p
H
251* 221
1 1* 6
< - 3
{ -
t j
S'
f f i
N
t3
► J
H*
©
to
ct
©
H
O
29®
107
H
©
H
P
E
P*
220
Co
©
©
P
o
S'
©
*1
FIGURE 1
AMOUNT OF U.S. AID RECEIVED BY INDIVIDUAL COUNTRIES UNDER THE
MARSHALL PLAN, CUMULATIVE APRIL 3, I9I 4. 8-JUNE 30, 1952
Source: Harry B. Price, The Marshall Plan and Its Meaning (New York: Cornell
University Press, 1955), P* 90.
co
H
82
level by the end of 1951* If we exclude Germany, the pro
duction jumped up to llj.5 per cent of the prewar level*
, The industrial production of Germany, particularly steel
! 8
| production, was damaged by the Allied occupation policy*
; I
Furthermore, according to Brown and Opie:
Three major trends appeared before the main recovery
in Germany occurred: (1) concentration on the devel
opment of heavy industry; (2) dispersal of Industries
among countries; and (3) diversification of the
industrial structure within countries.9
There were several factors which brought about a
substantial increase in the industrial production of
Western Europe from 19ij.7 to 1951* They were: (1) the
i
rehabilitation of the factories demolished by war; (2) the)
I
! full utilization of a plantfs capacity; and (3) moderniza
tion of old factories and building new ones by means of
large-scale investment.^
Industry was not the only beneficiary of direct
investment, but a considerable amount of direct investment
took place in such fields as transportation, housing and
power facilities. All of these were very Important fac
tors towards achieving the production targets in industry
11
and agriculture.
Q
Ibid.. p. 2£0.
9Ibid.
1QIbid.. p. 252.
11Ibid. p . 253.
Agricultural production. The participating coun-
; tries increased their total agricultural production by
nearly 30 per cent in the four-year period*
A greater effort was made on the part of those
; countries that were dependent on agricultural imports to
: I
: diminish this dependence by increasing domestic production,;
I
i ;
j particularly of food stuffs, A good example was Great |
; Britain which successfully raised its total output for j
; 1 O'
I human consumption to 22 per cent above the prewar level, '
j
Nevertheless, agricultural production was not very
satisfactory. But Brown and Opie have explained the situa-
1 tion which is not all disappointing. They wrote:
i
The recovery in European agriculture was relatively
slow, but the achievement should not be underrated.
Production for human consumption increased by 37 per >
cent in the three crop years to 1950-51. The ainual
rate of increase fell from 17 per cent in 19^8-14.9
to 9 per cent and 7 per cent, respectively. By
1950-51 consumption had virtually reached the prewar
level,13
Balance of payments. The level of exports of the
participating countries in I9I 4.8 was not in a position to
meet more than one-half of their import requirements.
Therefore, every country embarked on a program to increase
its exports to as high a level as it would permit to pay
for 83 per cent of imports. This task proved rather
l ?
Ibid.. p, 2$k
13Ibid., p. 255
8 1 * .
difficult, mainly because the European products could
compete successfully with the American products in North
and South American markets.
j
j Furthermore, the participating countries were not
i
I
satisfied with the 50 per cent increase in intra-European '
trade expected to take place during the four years. In
stead, due to increase in population, they regarded the
50 per cent increase not enough. They wanted to reduce
the trade barriers among the participating countries in
order to stimulate a larger volume of trade among each
other. The volume of trade continually increased among
!
the participating countries up to June 1950* They had a
j
stable balance of payment. It was not until 1951* during I
which the European Payment Union started to operate, that
intra-European trade reached a level of 36 per cent above
1938• The exports of the participating countries to the
outside world increased 55 pei* cent above the prewar
15
level.
The participating countries had an unfavorable
balance of payments of #7*6 billion in 19l|.8. It fell to
an annual rate of $5* i } - and #3. 1 4. in the first and second
half respectively, of 1950. In the second half of 1951*
however, it again jumped to f>7»2 billion. The balance of
payments position of the participating countries was
ftEhid., p. 256. „
l5lbid.. pp. 256-57
85
particularly improved by the interchange of services with
the outside world. Most important among these were ship-
! ping, insurance earnings, and the tourist expenditures.
Dollar deficits and monetary reserves. Dollar
t
deficit constituted a large part of the difficulties in
trade recovery of the participating countries. Particu
larly of great importance was that aspect of the dollar
' . . i
deficit which was payable in gold and dollars. This was
important because it was the only criterion on which Ameri
can assistance was to be judged and/or justified. It was
17
a difficult part of the deficit to cover.
The difficulties of the participating countries 1
!
are accurately described by Brown and Opie in the follow- |
i 1
ing paragraph:
After the war, gold and dollars became the ulti-
mater monetary reserves of all countries, and as the
term whardM currency denotes, they were the hardest
means of payment to come by. "While gold and dollars
could always be used to cover deficits in other cur
rencies, surpluses in other countries could not be
used to cover dollar deficits because these so-called
^soft1 ’ currencies were not convertible into gold or
dollars. This meant that the difficulties of the
participating countries in covering their dollar
deficits were only partly caused by their failure to
balance their own international accounts. They were
caused also by the failure of other countries to
balance their accounts. This prevented their cur
rencies from being maintained convertible.^®
16
j
l6Ibld., p. 259.
17Ibid.. p. 260.
• ^Ibid.. pp. 260-61
An increase in the gold and dollar reserves of the
participating countries was made possible by dollars pro
vided by the United States as loans and grants* Mean
while the dollars earned enabled the participating coun- j
19 '
tries to increase their dollar and gold reserves.
For the first time since the war, Europe became
a dollar-earner from the rest of the world outside the
United States* This situation prevailed in the first half
of 19 5 1* If this situation had continued to prevail, it
would have proved the success of the Marshall Plan in con
tributing to the recovery in trade* But, unfortunately,
in the second half of 19 51# due to the impact of the !
Korean War, the participating countries were to obtain
dollars on a large scale in order to settle their accounts
20
with non-European countries, other than the United States.
Intra-European trade. The external accounts of the
participating countries improved in the period from 19l|-8
to 1950. Ho stable trade pattern prevailed equal to that
existing before the war. The debtor and creditor posi
tions of the participating countries, however, changed in
intra-European trade* The unstable pattern of trade
consisted of both intra-European and extra-European trade.
19 ,
Ibid., p. 261,
20
■ Ibid.* p. 2 6 3.
Some important changes took place in the intra-European
trade balances before June, 1950. The most important of
j these changes was the shift of Britain and Italy from a
I debtor to a creditor position. In addition to this, Ger- !
I i
■ many changed from a creditor to a debtor and Prance from
a debtor to creditor position, comparing their prewar
position. I
|
The impact and consequences of these changes upon |
!
| the intra-European trade is accurately explained by Brown
and Opie as they wrote:
This new pattern proved to be extremely unstable,
; and after July, 1950, the intra-European trading
J positions of all the major participating countries j
underwent a series of rapid and disturbing transfdirma-j
tions. The most significant of these revealed a
strong tendency for Britain to revert to its tradi
tional debtor position in its trade with the rest of !
Europe, and for Germany to revert to its traditional
creditor position.21
As far as the long-run solution of European trade
was concerned, this new development was of greatest im
portance. It was also a development of greatest importance
in regard to those affected by the drive for European
integration. The new development showed, as a matter of
course, that there was still a strong tendency for tradi
tional trading patterns in Europe to reassert themselves.
And this, in spite of the dislocations brought about by the
war, by the bilateral trading arrangements that followed
it, and by the pressures under the European Payment Union
21Xhld., p. 268.
88
to reduce the disequilibrium in Intra-European trade.
V. SUMMARY
j During the life of the European Recovery Program,
1 i
American assistance was heavily concentrated on a few
countries. These were Great Britain, Prance, Italy,
Western Germany and the Netherlands.
The American objectives behind the European Recovery
Program were of political, economic and humanitarian con
siderations. The ERP was particularly aimed at reconstruct
ing war-torn Europe, and to curb the spread of Communism.
1 Both of these tasks were accomplished successfully.
In the field of production, the record showed that ,
i European recovery surpassed expectations.
At this point It will not be fair to pass without
looking at the negative side of ERP. The American assist
ance created inflation in almost all the participating
countries, especially In Italy, Prance, Western Germany
and Belgium. This is simple to understand. The United
States poured dollars and goods into the participating
countries. With the increase of imports and its prices
and little production within the country, inflation and
unemployment followed.
On the other hand, Marshall Plan aid saved Western
Europe from industrial collapse, but in most countries its
benefits were received by the owners of industry rather
than the workers.
In West Germany, for Instance, the Marshall aid had
helped to increase employment but had contributed i
little to the improvement of living standards, Ger-
| man manufacturers have been able to improve their
! plants and, presumably, to cut costs, but they had
j not lowered prices, which had, in fact, been rising
| faster than wages. The situation in Prance and
Austria was similar. But in Italy real wages of
industrial workers remained very low, although they
had risen about 20 per cent above pre-war level,22
j The situation in Britain and the Netherlands was
i
j rather promising, "In Britain the planning of the govern-;
i ment insured full employment, Increased productivity, and
23
a higher standard of living, if not higher wages," The
| Marshall Plan aid proved invaluable in solving the prob
lem of financing the essential imports of Britain. |
i
i
In the Netherlands, the government restricted !
excessive profits, thereby increasing purchasing power
and real-income. By and large, it may be said that the
American aid through the Marshall Plan, aside from its
contributions to the reconstruction of Europe, did not
2I l
do much to change the maldistribution of wealth.
The following chapter presents a summary and
conclusions.
"Marshall Aid Saved Western Europe," The Nation,
1731386, November 10, 195>1, “
23Ibid.. p. 386.
^Ibid.
CHAPTER VI
SUMMARY AND CONCLUSIONS
Generally speaking, United States aid to Europe
from 19^0 to 1951 may be distinctly classified into the
t
I following four phases:
i 1, The lend-lease period ( 19I 4O-191+5) •
i
I 2. The period from the termination of lend-lease j
j in 191+5 until 191+8*
3* The period which starts with the passage of
, the Economic Cooperation Act in 191+8.
I I
j l+« The invasion of South Korea by North Korea
j in June, 1950.1 j
In October 1951# the passage of the Mutual Security
Act combined the above phases and types of assistance pro
grams into one scheme which was world-wide in scope and
based primarily on security and defense against communism.
However, to this writer’s point of view the following two
main divisions of United States aid to Europe are more
conclusive:
1. The period which covers United States aid from
191+0 to 191+8 which includes the lend-lease period and the
period from the termination of lend-lease until 191+8. The
^William A. Brown and Redvers Opie, American fforeim
Assistance (Washington, D.C.: Brookings Institution,
1956), p. 51+3* 9Q
objective of this aid program was to help the war-torn
European countries in reconstructing their own countries
and to win the Second World War. While the relief program
J was a country-by-country approach, the lend-lease program
*
was designed to assist the nations that were resisting
aggression.
2* The second main division which includes the
period from 1 9 l | - 8 to 1951 marks the first large-scale
systematic approach to deal with problems of postwar re
construction and communism in Europe. Recovery and recon
struction was the main goal of the aid. And special
I
effort was made to divert the aid from a wartime program
into a peacetime program. Such a transition of the aid’s
goal was a difficult task to cope with. And the internal
instability and unrest in Europe had added to the diffi
culties in the reconstruction program of Europe.
Assistance policy in the third phase has been
summarized by Brown and Opie as follows:
Assistance policy in this phase had three
features: (l) European recovery was to be given
priority on the assumption that recovery there was
a condition precedent to recovery elsewhere; (2) no
substantial shift of resources to defense was thought
to be necessary, and therefore, inadequate provision
was made for military assistance; and (3) the prob
lems of recovery in Europe were to be considered on
a regional rather than on a country-by-country basis.2
2Ibid.. p. 52j , 8.
92
According to the last feature, American assistance was
to supplement not only self-help but mutual help too,
among the European countries. The European countries werej
expected to make a cooperative recovery effort. They were
also collectively responsible for the correct use and
distribution of American assistance. Furthermore, the
participating countries were required to coordinate their ;
national recovery plans, so that they would provide the
3
ground for a joint recovery program, which they did.
But the first year of the European Recovery Program
showed that except in the field of trade, each country
would have to solve its individual problems. It became !
i
clear that except in the field of trade and payments, the i
contributions of mutual assistance in the recovery of E urope
h
were very little.
The United States proposed to the participating
countries to work for some kind of European integration.
They responded to it by reducing trade barriers to multi
lateral payments. These constituted a relaxation in quota
restrictions on imports. The system of payments was
improved by several European payments agreements which
5
consequently created the European Payment Union.
3Ibid., p. 5ip8.
^Ibid.
^Ibid.
| ------ 93
J It was in this third phase of assistance to Europe
'
j that the United States began to realize that it was wrong
i
to hold down the level of industry in the ex-enemy coun
tries* Therefore, American policy was changed in respect
to Germany, and in December 19lj-9, Germany became a member
6 !
' of the OEEC.
In connection with the concentration of American
! assistance in this period, Brown and Opie wrote: ,
j
j The assistance for European recovery in this ;
period was heavily concentrated on a few countries* I
Great Britain received #2*5 billion, Prance $2 :
billion, Italy #1 billion, and Western Germany and (
the Netherlands about #900 million each* Thus these
five countries received nearly 80 per cent of the
total assistance rendered.?
It was hoped that the generous economic assistance
given to Europe, and the addition of military assistance
would be adequate to make the free world secure against
Communist infiltration. And it virtually fulfilled this
8
j hope*
As mentioned before, the fourth phase of assistance j
i
to Europe began with the invasion of South Korea in June I
1950* The most significant characteristic of this phase !
j of assistance to Europe was to begin a large-scale rearma- j
J ment program. With this new decision the priority that !
6Ibid., p. 5U-9. !
! ’ !
| Ibid., p. 552. i
! 8Ibid*. p. 553.
had been given previously to economic recovery over defense
was reversed. The United States subordinated its foreign
assistance operations to considerations of security. The
i
j need for military unity in resisting aggression intensi-
! 9
: fied American pressure for European integration.
Fronr the inception of the United States aid program
in 19i|-0, two decades have elapsed and we are in a better
i
! position to draw the following conclusions with respect to
1 the long run results of the aid program upon the overall
European economic and political conditions:
1. In looking at the record of United States
I
assistance, to Europe during the period 1940 to 1951* i
conclusions are inescapable that impressive results were j
achieved in overcoming the economic and military weaknesses'
of the immediate postwar years.
2. The lend-lease program should be given credit
for enabling European countries to resist against Axis
aggression and consequently, winning the war.
3* The emergency relief programs should be given
credit for literally saving the lives of millions in
1 Europe.
4* One may not be exaggerating by asserting that
Western Europe's prosperity today, its high level of pro
ductivity, and high standard of living is attributable to
9Ibid., pp. 553-54.
95
the generous American assistance, especially under the
European Recovery Program.
5# The main motive behind United States aid to
I Europe during 19ij.7-1950 was United States concern about
the Soviet expansion in Western Europe. In spite of the
fact that the reason for aid since 1 9 i | . 7 was for political
purposes against communist infiltration of Europe, Ameri
can aid, has had favorable economic, social and political
I results for the European countries as well as the United
I
States.
6. Europe got back on her feet. Today, European
production has surpassed her prewar production level. A
strong front has been formed against communism, and the
European economic development rate has been accelerated
I
year after year. For instance, today West Germany’s
economic growth rate of 6 per cent is even faster than
that of the United States (3 to I j . per cent).
7. Furthermore, the reconstruction of European
factories have reduced United States import goods to
Europe, thereby lessening the problem of dollar shortages.
And in those lines of production which Europeans had a
comparative advantage over the United States, the world
market has been dominated by the European producers and
by this competition United States goods have been priced
out of the market by the European producers rather than
the Americans themselves.
96
8* Europeans have been continually increasing
! their contribution toward a mutual defense program under
NATO. For instance,
The military assistance we have furnished in the
form of end-items and training, our contributions
! to jointly financed construction projects, and our
! offshore procurement programs are enabling our
friends and allies to raise and maintain the equiva-
i lent of more than 180 divisions, about 280 air squad-
| rons, and over £50 combat vessels. These forces,
; together with the strategic overseas military bases
| which our allies make available to us, give this
| nation security which it could not otherwise obtain*
| 9* European countries became an important market
for American goods,^ and provide the best tourist attrac-
i ' 12
tion for 800,000 Americans annually.
10* Today the United States concern is mainly
I directed against communistic invasion, aggression and
infiltration of Asia, Africa, and South America. In this
respect, many of the Europeans have joined the United
States as counterparts in struggling against communistic
infiltration in these backward countries of the world*
Especially, England, France, West Germany, and Italy have
contributed a great deal in the way of direct loans,
capital goods, know-how, and moral support to a number of
10
Report to Congress on the Mutual Security Program
for the Six Months Ended June 30, 19f>5> (Washington. D.C.t
Government Printing Office, 1955>)» P* 3*
- ^Report to Congress, p. f?.
^Look Magazine, August 16, I960, p. 11.
97
the underdeveloped countries. All of the above factors
are direct or indirect results of United States aid to
Europe. For the United States aid in Europe has, today,
i
put the European countries in a position whereby they are j
able to help the underdeveloped countries.
BIBLIOGRAPHY
BIBLIOGRAPHY
A. BOOKS
1 Albjerg, Victor L. Europe from 191ii to the Present. ;
1 New York: McGraw-ftill Book Company, Inc., 19^1.
Anderson, E* N. Modern Europe in World Perspective:
191Ii to Present. New York: Rinehart and Go., 1958.
Brown, William A., and Opie, Redvers. American Foreign
Assistance. New York: Harper and Brothers, 1956*
Gleveland, Harold Van B. The United States and Economic
Collaboration Among the Countries of Europe. Washing-
ton, D.C .: Government Printing Office, 19i|-7.
Daniels, W. M, Point Pour Program. New York: H. W.
Wilson Company, 1951*
i Ellis, Howard S. The Economics of Freedom: the Progress I
! and Future of Aid to Europe. New York: Harper and ■
I Brothers, 19^0 • ' i
i i
Harris, S. E. European Recovery Program. Cambridge,
Mass.: Harvard University Press, 19i|-8.
Madden, John T. America’s Experience as a Creditor
Nation. New York: Prentice-Hall, Inc., 193?•
McClenllan, Grant S. United States Foreign Aid. New York:
The H. W. Wilson Company, 1957*
Marjolin, Robert. Europe and the United States in the
World Economy. Durham, North Carolina: Duke Univer
sity Press, 1953*
Organization for European Economic Cooperation. Ten Years
of Economic Cooperation in Europe. Paris: The Organ!-
zatlon, 1959.
Price, H. B. Marshall Plan and Its Meaning. New York:
Cornell University Press, 1955.
Stettinius, Edward R. Lend-Lease. New York: The
Macmillan Company, 19S+.
99
100
Svennilson, Ingvar. Growth and Stagnation In the European
Economy, New York: United Nations Economic Commis
sion for Europe, 1954*
United Nations* United Nations Techniques for Tomorrow:
■ International Cooperation in Technical Assistance,
i ..New" .York': United Nations, 1956.
. Economic Survey of Europe (Annual). Geneva:
United Nations, 19l}-9-1952.
■ World Economic Report (Annual). Geneva:
United Nations, 19) 4. 8-1952*
United States Congress, Senate* Foreign Aid Program.
Washington, D.C.: Government Printing Office, 1957*
United States Department of Commerce, Foreign Aid: 19iiQ"
19^1, Washington, D.C.: Government Printing
Office, 1952. \
United States Presidents Committee on Foreign Aid.
i European Recovery and American Aid. Washington, D.C,:
I Gov ernment Printing Of fie e, . 19^7. v""
; Walch, J. W. Complete Handbook on Foreign Aid. Portland:
J. W. Walch, 1956. ' ““
B. PERIODICAL ARTICLES
"Appraising the United States Aid Program,1 1 Business Week,
September 15, 1956, P* 2 0 1 } . .
"Decade of Foreign Aid," Christian Century, 73*168-69,
February, 1956*
Dulles, J. F. "Mutual Security Program and the National
Security," United States Department of State Bulletin,
3 1 } . : 787-91, May l i j . , 1956. — ~ ~
Elsenhower, D. D. "Presidents Determination Concerning
Aid to Yugoslavia," United States Department of State
Bulletin, 3£:661}.-6£, October 29, 1956.
"Foreign Aid and Communist Propaganda," America, 96:65,
October 20, 1956.
Hoffman, P. G. "Blue Print for Foreign Aid," New York
Times Magazine, February 17, 1957, P* 9.
Lawrence, David. "Buildup Allies or Enemies?** U.S. News
and World Report. I 4. 0:152, January 20, 1956.
Morgenthau, Hans. "Frustrations of Foreign Aid,’ * New
Republic. 13^:13-15, March 26, 1956.
**New Easy Way,” CoiBmonweal, 65‘628, March 22, 1957.
! **New Program for Foreign Aid,” U.S. News and World Report,
I|.2:l58-67, April 19, 1957.
; ”New Program Needed in Foreign Aid,” Christian Century,
j 7ij.:iai, April 3, 1957.
”New Program for Foreign Aid,” Nation, 18^:335, April 20,
i - 1957.
1 "Politics of Risk,” Commonweal, 65:277-78, December l i j . ,
1956.
"President and Foreign Aid,” Life, 1|1:30, July 9, 1956.
"Shall We Help Poland?" America, 96:690, March 23, 1957*
"Spotlight on Aid,” Economist, 182:30-31, January 5, 1957.
Trager, F. N., and Louis Gordon. "Promoting Economic
Development with Aid and Trade,” Antioch Review,
16:223-35, June, 1956.
"Underdeveloped Areas: Is Our Foreign Aid Helping Here?”
Current History, August, 1957*
"U.S. Seeks Ways to Aid Poland.Without Alarming the
Russians," Business Week, December 1, 1956, p. 96.
Warburg, J. P. "Foreign Aid and United States Policy,”
Vital Speeches of the Day, 23:k6-li9, November 1, 1956.
"What Foreign Aid Is, and Is Not,” Life, ij.2:57, April 15,
1957.
"What Foreign Aid Means to U.S. Economy and Defense,"
Business Week, December 1, 1957, pp. I36-I 4.I.
"Why Increase Our Military Aid?” Christian Century, 73*636,
May 23, 1956.
"Yugoslav Reply to United States Statement on Foreign Aid,"
Current History, 32:109-10, February, 1957.
G. MEWSPAPERS
Baldwin, H. W. “Revising Foreign Aid,” Mew York Times,
j Hay 2k, 1957, p. 10.
I -
i Gruson, Sydney, “M.S. Aid Gives Poles Mew Basis for
1 Hope," Mew York Times, May 5* 1957, P* E9.
International Chamber of Commerce, United States Council.
Foreign Economic Aid. Mew York: The Council, 1957.
Lippmann, Walter. “Today and Tomorrow: Foreign Aid,”
Mew York Herald:Tribune» April i j . , 1957, p. 20.
■ Ward, Barbara. “For A Mew Foreign Aid Concept,” Mew York
I Times Magazine. March 11, 1956, p. 12.
White, W. S. “Foreign Aid: Administration Takes a Mew
; Tack,” Mew.York Times, April I k , 1957, p. E3.
D. MISCELLANEOUS
Committee for Economic Development. Economic Development
Assistance. Mew York: The Committee, 1957.
________. Economic Development Abroad and the Role of
American Foreign Investment. Mew York: The Commit-
tee, 1956*
Council on Foreign Relations. Foreign Aid and the Rational
Interest, Mew York: The Council, 1952.
________. The Problem of Lend-Lease. Mew York: The
Council, 191+4. ~ t ^ ~ ~
International Review Service. Aid for the Economic
Development of Underdeveloped Countries. Mew York:
The Service, 1956.
Mid-West Debate Bureau. Debate Handbook, Should the
United States Discontinue Economic aid to Foreign
Countries? Resolved: That the United States Should
Discontinue Direct Economic Aid to Foreign Countries.
Normal, Illinois: The Bureau, 1956.
United States Congress. Senate. Agricultural Surplus
Disposal and Foreign Aid; a Study Prepared at the
Request of the Special Committee to Study the Foreign
Aid Program by the Rational Planning Association.
Washington, D.G.: 85th Congress, 1st Session,
Government Printing Office, 1957* j
! i
I _______. Objective of United States Economic Assistance
Program: A Study Prepared at the Request of the Special]
Committee of the Foreign Aid Program, by the Center
for International Studies, Massachusetts Institute of
Technology. Washington, D.C.: 85th Congress, 1st
Session, Government Printing Office, 1957*
i _______. Role of Foreign Aid in the Development of Other ;
i Countries: A Study Prepared at the Request of the
! Special Committee to Study Foreign Aid Program, by the
Research Center in Economic Development and Cultural
Change, University of Chicago. Washington, B.C.:
85th Congress, 1st Session, Government Printing
Office, 1957.
!
j ________. Staff Papers: Presented to the Committee
on Foreign Economic Policy. Washington, D.C.:
Government Printing Office, February, 1 9 S > i } . • j
United States Department of Commerce. Bulletin. Washing
ton, D.C.: January, 195^•
United States Department of State. Point Four. Washing
ton, D.C . : Government Printing Office, 1914-9•
ttaV E R S lTY o f s o lt : ::n :i c .\L :F m *rA iwto&t

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Asset Metadata

Creator Safi, Ghulam Hossain (author)

Core Title An analysis of the United States foreign aid program in Europe, 1940-1951

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest,political science, international relations

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Grey, Arthur L., Jr. (committee chair), Anderson, William H. (committee member), Garis, Roy L. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-450133

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Rights Safi, Ghulam Hossain

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

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