British government

The Marshall Plan rested squarely on an American belief that European economic recovery was essential to the long term interests of the United States. These interests were interdependent and symbiotic in their benefits of which included economic interests. American leaders envisioned an open international economy founded on the principles of liberal capitalism, such as free trade and equal opportunity. But they also linked these principles with democratic forms of government, associated autarkic economic policies with totalitarian political regimes, and assumed that 'enemies in the market place' could not be 'friends at the council table.

'The political line up followed the economic line up,' as Cordell Hull once put it. 1 American interests dictated an active role in rebuilding Europe, but listing these interests explains neither the full range of American goals or how American policy makers hoped to achieve them. American ambition included economic, political, and strategic interests. The Marshall Planners would replace the old European state system with what they saw as a more practical framework for achieving their policy objectives on the European continent.

They would do so by applying the American principle of federalism and using it to create an integrated European economy similar to the one that existed in the United States. 2 The strategic assumptions behind this policy held that an integrated economic order, particularly one headed by supranational institutions, would help to control German nationalism, reconcile Germany's recovery with France's economic and security concerns, and thus create a balance of power in the West sufficient to contain Soviet power in the East.

The economic assumptions grew fundamentally out of the American experience at home, where a large internal economy integrated by free-market forces and central institutions of coordination and control seemed to have laid the groundwork for a new era of economic growth and social stability. 3 An economic United States of Europe would bring similar benefits, or so the Americans believed, and in the process would realize all of their goals on the continent.

Besides creating a framework for controlling the Germans and containing the Soviets, it would limit Communist inroads, dissolve class tensions through a shared abundance, and set the continental countries on the path to a multilateral system of world trade. 4 In the British government, however, there had been no resolution of the earlier disputes over the merits of an Anglo-Western European customs union.

Bevin remained alive to the political advantages of this idea, and in August Sir Edmund Hall-Patch, an under Secretary in the Foreign Office, suggested that European economic integration along lines 'comparable to the vast industrial integration of the United States' might 'go far to solve our own economic difficulties. '5 But policymakers in the economic ministries still thought this course more likely to worsen current difficulties than to solve them.

Repeating arguments rehearsed the previous January, they saw it leading to transnational economic coordination of a kind that would prevent the Labor government from pursuing an independent course at home. Of particular concern was the government's ability to harbor British labor and industry from the competitive currents of the marketplace. This concern had led British policymakers to reject proposals, coming from the CEEC (Committee for European Economic Cooperation), for the coordination of national production.

The same concern prompted sepulchral predictions of the destructive dislocations that would ensue if national tariffs were lowered and British industries, particularly the steel, chemical, and textile industries, faced ruinous competition from lower cost producers on the continent. 6 Such a course meant scrapping the network of commercial and currency arrangement that tied the Commonwealth into a large multilateral market where British exporters had privileged advantages and where payments were made in sterling rather than in dollars.

It meant slowing down recovery at home, aggravating the Treasury's already serious dollar drain, and increasing Britain's dependence on American aid. These conclusions, coming from the economic ministries and the Colonial Office, were reaffirmed in a report issued in August by the special committee of experts that Bevin had persuaded the Cabinet to establish the previous January. The Foreign Office would seek to reverse these judgments in the weeks ahead. But given the current opposition, neither Bevin nor the British delegation in Paris could do much to support the French proposal.

The British economy deteriorated in the second half of 1947. The world wide scarcity of dollars, the fuel and grain shortages that followed the winter crisis, and the rising cost of imports from the United States combined to slow the pace of British recovery and confront the British Treasury with a major dollar crisis. So did the Treasury's decision in July to abide by the terms of the 1946 Anglo-American loan agreement and make sterling convertible into dollars.

By early August, Britain's dollar reserves were dwindling at the rate of $176 million a week, a clip that would exhaust the balance of the American loan by October and force the Treasury to draw down its final reserves. In these circumstances, the British delegation in Paris became more leery than ever of the Benelux proposal. 8 They were in no mood to multilateralize intra-European trade and payments at a time when their own government was considering new bilateral commercial and exchange-control arrangements in order to reverse Britain's trade deficit and protect its shrinking reserves.