The Economic Response

“It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace. Our policy is directed not against any country or doctrine but against hunger, poverty, desperation and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.”

— George C. Marshall, speech at Harvard University, June 1947

Here are three economic responses to the devastation caused by World War II. As you read, consider their approaches and intended outcomes.

Bretton Woods Conference, 1944
If the Western powers were to rebuild Europe and Japan, it would take a great deal of money. The European allies were massively in debt as the war progressed. As a result, policy makers in the U.S. decided that it would be beneficial to take on leadership of the reconstruction effort. At the international economic conference at Bretton Woods, the U.S. dollar replaced the British pound as the lead international currency. The conference also resulted in the creation of the World Bank and the International Monetary Fund, under American leadership, which would provide loans and grants for the rebuilding effort, promote free trade, and help reestablish and strengthen global capitalism. Loan negotiations sometimes involved specific terms, such as requiring economic austerity or blocking loans to nations where communists were active in the government.

Marshall Plan, 1948
The United States instituted the Marshall Plan, named for Secretary of State George Marshall, in April 1948. Officially called the “European Recovery Program,” it offered economic and technical aid to European nations to restore and modernize their economic infrastructure and industry. Over the next four years, the U.S. sent $13 billion to European governments. The largest recipients were the United Kingdom, France, and Western Germany; none of the Soviet-occupied nations joined the program. By encouraging free trade and European unity, the Marshall Plan was meant to demonstrate to the world that capitalism was superior to communism. At the same time, it provided markets for American goods and established stable trading partners for the U.S. By 1957, European factories exceeded prewar production, and Western Europe was back on the road to prosperity.

Molotov Plan, 1947
When the Marshall Plan was announced to European nations, the Soviet Union, which had suffered the greatest losses among the WWII Allies, had already begun to institute its program, and it blocked Marshall Plan participation by Soviet-occupied nations in Eastern Europe. Named for Soviet foreign minister Vyacheslav Molotov, the Soviet plan included a system of trade agreements to create an alliance of socialist countries—the U.S.S.R., Poland, Czechoslovakia, East Germany, Hungary, Bulgaria, and Romania. These states would conduct their trade with the U.S.S.R. instead of trading with the United States or other capitalist nations, and receive aid in return. Countries that had been members of the Axis powers would be required to pay reparations to the U.S.S.R. in the form of raw materials, labor, and over $10 billion in currency.

Take Notes

What kind of postwar economy did each response envision?