What Was the Marshall Plan?

The Marshall Plan was a U.S.-sponsored program that was implemented following the end of World War II. It was intended to aid European countries that had been destroyed as a result of the war, and it was laid out by U.S. Secretary of State George Marshall during an address at Harvard University in 1947. The plan was authorized by Congress as the European Recovery Program (ERP).

Understanding the Marshall Plan

The Marshall Plan gave more than $13 billion in aid to European nations—including its World War II enemies, Germany and Italy—and was crucial in revitalizing their post-war economies. By the time U.S. funding ended, in 1951, the economies of all the European recipients had surpassed prewar levels. For this reason, the Marshall Plan was considered a success.

Marshall believed that the stability of European governments depended on the economic stability of the people. Europe needed to rebuild transportation hubs, roads, agriculture, factories, and cities that suffered major losses during the long war. The United States was the only major power that had not suffered damage during the war. It made sense that America was the country that should help these other countries rebuild. 

History of the Marshall Plan

Marshall saw communism as a threat to European stability. The Soviet Union’s sphere of influence increased during World War II, and tensions between Eastern and Western Europe intensified. The Soviet Union believed that the Marshall Plan was a way to meddle in the internal affairs of European countries. That belief prevented Soviet satellite countries, such as Poland and Czechoslovakia, from accepting assistance from the United States. It also caused, at least in part, the Soviet Union’s economy to be significantly outpaced by those of Western Europe and the U.S.

The $13 billion plan started with shipments of food and staples to European ports in the Netherlands and France. Tractors, turbines, lathes, and other industrial equipment, plus the fuel to power the machines, arrived soon afterward. Between 1948 and 1951, the billions committed in aid to European countries effectively amounted to 5% of U.S. gross domestic product (GDP) at the time.

The Marshall Plan was more than an economic plan. The Secretary of State thought that the cooperation of all European nations would lead to greater unity. The foundation of the plan led to the creation of The North Atlantic Treaty Organization (NATO) as a defensive alliance against any future aggressors. NATO is an intergovernmental military alliance between 31 European and North American countries. The treaty was signed on April 4, 1949.

Marshall earned the Nobel Peace Prize in 1953 for his efforts, but the lasting effects of the plan went well into the future. The reliance on American aid opened up trading avenues between Europe and the United States. The call for unity among European nations formed the basic idea behind the European Union. Without American intervention, Europe’s vast network of railroads, highways, and airports would not exist in contemporary society. As President Harry Truman said, the United States was the “first great nation to feed and support the conquered.” The Marshall Plan is widely considered one of America's more successful foreign policy initiatives and its most effective foreign aid programs. 

Examples of the Marshall Plan

The Marshall Plan had set out several objectives in order to accomplish its goal of preventing the spread of communism and encouraging the development of a healthy and stable world economy. These objectives included the expansion of European agricultural and industrial production, restoring a system of sound currencies, budgets, and finances in individual European countries, and encouraging international trade among European countries and between Europe and the rest of the world. Two agencies were in charge of implementing the Marshall Plan: the U.S.-managed Economic Cooperation Administration (ECA) and the European-run Organization for European Economic Cooperation. The ECA provided outright grants to countries that were intended to pay for the cost and freight of commodities and services, primarily from the United States. Countries were required to match these U.S. grants with their own currency: for every dollar of grant aid that they received from the U.S., a dollar's worth of the country's own currency was placed in a counterpart fund that could be used for infrastructure projects that would benefit the country, such as roads, power plants, housing projects, and airports. Counterfund projects had to first be approved by the ECA.

In Great Britain, $2 billion of these counterpart funds was used for debt reduction. An additional $4.8 billion was invested in infrastructure projects: 39% went towards utilities, transportation, and communication facilities, including electric power projects and railroads; 14% was invested in agriculture; 16% was invested in manufacturing; 10% was invested in coal mining and other extractive industries, and 12% was invested in low-cost housing facilities.

A small percentage of the counterpart funds could also be used to purchase raw materials needed by the United States—or to develop sources of supply for such materials. This led to various enterprises being set up, including the development of nickel in New Caledonia, chromite in Turkey, and bauxite in Jamaica.

Another program of the Marshall Project provided Europeans with technical training in U.S. production methods. By the end of 1951, over 6,000 Europeans had traveled to the U.S. to study methods for increasing production and stability.

Marshall Plan FAQs

How Did the Marshall Plan Generate Economic Growth?

The Marshall Plan generated economic growth by providing the necessary funds for many European countries and Japan to rebuild themselves. Much of Western Europe was impoverished at the end of World War II. There were acute food and fuel shortages across Europe, and many countries lacked the funds to purchase imported goods from the U.S. The Marshal Plan was intended to bolster production and encourage international trade among European countries and between Europe and the rest of the world. Between 1948 and 1952, the U.S. provided more than $13 billion in aid to 16 nations.

Was the Marshall Plan Successful?

The aid programs included in the Marshall Plan were considered both unprecedented and successful. Under the first three years of the Marshall Plan, Gross National Product (GNP) in Austria, West Germany, and Italy grew 33.5%. (In prior years, during World War II, Europe's standard of living had rapidly declined.) Furthermore, over the next three decades, the standard of living in the participating countries grew almost 150%. Once on the brink of an economic collapse, the participants in the Marshall Plan embarked on a golden age of economic growth in the decades that followed.

How Did the Marshall Plan Impact the World Bank?

The Bretton Woods Agreement created the International Monetary Fund and the World Bank near the end of World War II. Under the Bretton Woods System, gold was the basis for the U.S. dollar, and other currencies were pegged to the U.S. dollar’s value. While the Bretton Woods System was dissolved in the 1970s, both the IMF and World Bank have remained strong pillars for the exchange of international currencies.

The World Bank was originally created in order to provide aid to European countries in the postwar reconstruction period. However, the role of the bank was quickly replaced after the establishment of the Marshall Plan because Marshall Plan institutions drove postwar international monetary relations.

What Was the Molotov Plan?

The Soviet Foreign Minister V. M. Molotov walked out of negotiations with the British and French governments and, ultimately, ended up rejecting the extension of aid to the Soviet Union that was offered through the Marshall Plan. The Soviet objections to the Marshall Plan were many, but above other things, they were adamant that Germany not receive any aid through the plan. The British and French representatives did not share the same objections. The Soviet Union then pressured its Eastern European allies to reject all Marshall Plan assistance. In the end, they were successful because none of the Soviet satellites participated in the Marshall Plan. 

In 1947, the Soviet Union introduced a plan to provide aid to its allies in Eastern Europe. They called this plan the Molotov Plan. As part of the Molotov Plan, the Council of Mutual Economic Assistance (COMECON) was created, a system of bilateral trade agreements and an economic alliance between socialist countries in the Eastern Bloc.

What Did the Truman Doctrine and the Marshall Plan Have in Common?

The Truman Doctrine was a precursor to the Marshall Plan. In March 1947, President Harry Truman announced his intentions to authorize $400 million in emergency assistance to countries that could fall victim to the influence of communism if they were not provided with support in the form of foreign aid. These countries included Greece and Turkey. Then, in June 1947, Secretary of State George Marshall proposed the extension of massive economic assistance to the whole of Europe. Marshall's plan, which was called the European Recovery Project (better known as the Marshall Plan) was the one that was implemented after authorization by the U.S. Congress.