Doug
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MARSHALL PLAN AID AS OFFSETTING FINANCING
Only with the extension of Marshall Plan aid beginning in 1948 was the contradiction between these short-term and long-term goals overcome. The Marshall Plan has traditionally been viewed as having promoted Western Europe's economic recovery. Milward has effectively demonstrated that the principal economic significance of the aid was not that it promoted economic recovery-for recovery was already under way-but that it provided offsetting financing to resolve the European balance-of-payments crisis. Milward has in mind the offsetting of deficits caused by European imports; however, Marshall Plan aid was also crucial in offsetting capital flight from Europe to the United States. Indeed, according to the "able and authoritative" New York Times correspondent Michael Hoffman, the total volume of U.S. aid to Western Europe in the early postwar years was exceeded by the total volume of European capital moving in the other direction.[18] If this assessment is accurate, Marshall Plan aid was not only serving simply to offset such disequilibrating capital movements but was not even adequate to that task. According to this interpretation, the economic significance of Marshall Plan aid was, in effect, simply to compensate for the U.S. failure to institute controls on inflows of hot money from Western Europe.[19]
American policymakers were in fact keenly aware of the link between Marshall Plan aid and European capital flight. In late 1947, particularly vocal demands from the French government for help in locating the concealed assets of its citizens in the United States increased the visibility of this issue in Congress. Many members wondered if the cost of the Marshall Plan to the American taxpayer could be reduced by forcing wealthy Europeans to keep their money at home. They deplored the "small, bloated, selfish class of people [in Europe] whose assets have been spread all over the place" and questioned "whether or not [the United States] should become a sanctuary for refugee money."[20] The view of the American Veterans Committee, for example, was that "the American taxpayer should not be obliged to provide the necessary funds for the program while well-to-do Europeans continue to hold on to their private hidden investments in the United States."[21] Administration officials favoring the more interventionist policies of the New Deal also sympathized with this point of view. Officials of the Commerce Department and the newly created Economic Cooperation Administration (ECA), for example, were supportive of the idea in January 1948[22] Marriner Eccles, President Roosevelt's appointment as chairman of the Federal Reserve Board, also appeared to be sympathetic, as when he stated: "The question was whether this Government was going to protect the private rights of foreign citizens as against the effort of their governments to survive."[23]
The American banking community, however, continued successfully to oppose moves to forcibly repatriate existing concealed assets, arguing that such moves would infringe on the property rights of foreigners and violate the traditional secrecy of the American banking community.[24] The bankers were supported within the administration by the Treasury Department, which after Morgenthau's departure had become a center of more orthodox thinking, first under the cautious Fred Vinson and then under the St. Louis investment banker John Snyder. In his testimony to Congress, Snyder made explicit his worries that efforts to control capital inflows would require exchange controls, which "would do maximum violence to our position as a world financial center and to our policy of keeping the dollar substantially free of restrictions."[25] In the end, the bankers accepted a deal whereby the United States would offer to help West European governments locate funds that had been blocked during wartime. There would, however, be no controls on the much larger flows that had "freely" entered the United States since December 1945 or on those which would enter in the future.[26] Although Congress also insisted on including a clause requiring recipients of aid under the Marshall Plan to attempt to "locate and identify and put into appropriate use" the foreign assets of their citizens, the clause appeared to impose no obligation on the U.S. government to assist such efforts.[27]
Although the failure to force the bankers to agree to joint enforcement of capital controls reflected the pattern of U.S. policymaking since the Bretton Woods discussions, the extension of financing in the form of Marshall Plan aid to offset capital flight represented an important departure from past American policy. In 1946, the United States had insisted that the IMF not be allowed to provide any financing for deficits stemming from capital movements on the grounds, as Joseph Gold explains, that "the resources of the Fund ... might be squandered in financing capital flight from members that maintained overvalued currencies. "[28] Because of the seriousness of the 1947 crisis, however, the United States decided to assume this burden itself through the extension of Marshall Plan aid. Marshall Plan aid was important more broadly in that it established a new mechanism for handling speculative capital flows that was politically more acceptable to the makers of U.S. foreign economic policy than the two mechanisms proposed by Keynes and White at Bretton Woods. Cooperative capital controls had proven unacceptable to the American banking community. Efforts throughout Western Europe to tighten exchange controls as a way to control capital flight had worried U.S. policyrnakers, who favored a more open trading order. A third option for coping with disruptive capital flows-floating exchange rates-was also unacceptable, given the U.S. goal of constructing a stable exchange rate system. The provision of offsetting financing, however, prevented the disruptive impact of capital flight in a way that was compatible with an open trading order, stable exchange rates, and the liberal inclinations of the American financial community. This new mechanism was to prove important as a supplement to efforts to control the speculative flows that continued to disrupt payments within the EPU in the1950s.[29] It also would become central to efforts to handle increasing speculative capital movements in the 1960s, as discussed in the next chapter.
The use of financing to offset disruptive capital flows had in fact been discussed during the Bretton Woods negotiations. Most observers, however, had considered it less practical than exchange controls or cooperative controls, given the large sums of money that would be required. As Nurkse put it in discussing the role of the IMF in his 1944 report for the League of Nations: "if, in addition to trade and other normal transactions, such a fund had to cover all kinds of capital flight, it might have to be endowed with enormous resources. In fact, no fund of any practicable size might be sufficient to offset mass movements of nervous flight capital."[30] Ironically, Nurkse also questioned whether the United States would be willing to provide financing to a fund simply to offset capital flight: "While the United States, for instance, may be quite prepared to hold temporarily at any rate, foreign balances resulting from an increase in exports, it may be questioned whether the United States Treasury would be willing to hold, directly or indirectly, large amounts of, say, Austrian shillings merely to enable Austrian citizens to hold United States dollars."[31] Having rejected Nurkse's alternative solution of cooperative controls, the United States did take on this enormous financial burden of covering such speculative flows, however. The enormity of Marshall Plan aid thus did not so much reflect the resources required to rebuild Europe, as is assumed in conventional histories of the period, but rather the volume of funds that were needed to offset the "mass movements of nervous flight capital" that Nurkse accurately predicted would materialize.
17. There was at least one figure associated with the New York banking community, however: Arthur Bloomfield (who was with the Federal Reserve Bank of New York at that time), who pointed to the need for the countries receiving capital flight to aid the countries sending it, either by imposing exchange controls or, at the least, by sharing information (Bloomfield 11946:705).
18. Michael Hoffman, "Europe Feels Drop in Capital Flight," New York Times, July 2-5, 1953, p. 5. The description of him as "able and authoritative" is from Bloomfield 1954:59n87, who concludes, "It is evident ... that a significant part of the foreign aid of the U.S. government has in effect gone to finance hot money movements from the recipient countries to the United States and elsewhere." See also De Cecco 1979:59
19. in a broader sense, however, Marshall Plan aid was undoubtedly important in reducing capital flight because it restored private-sector confidence in Western Europe's economic and political future.
20. Quotations from U.S. Congress 1948a:399; 1947:1141. See especially the statements of Senator Henry Cabot Lodge, U.S. Congress 1948a:223, 393-99. See also congressional bills H.R. 4576 and H. J. Res. 268, introduced in the House on November 25, 1947, and December 2, 1947, respectively, to support the French request. On French pressure, see NA, RG 5 6, Records of the NAC, NAC Minutes, November 8, 11947, p. 12; November 24, 1947, PP. 7-8; January 6, 1948, pp. 2-3. For more detail on congressional discussions, see Helleiner 1992a, 21. U.S. Congress 1948b:936.
22. See especially the discussion in the NAC in January 1949: NA, RG 5 6, Records of the NAC, NAC Minutes, January 6, 1948, pp. 2-4.
23. NA, RG 56, Records of the NAC, NAC Minutes, January 22, 1948, p. 3.
24. See, for example, U.S. Congress 1948a:1040-42, 1431/ Strong bank opposition can also be noted in U.S. Congress 1948b:805; NA, RG 56, Records of the NAC, NAC Minutes, November 24, 1947, and March 18, 1948, p. 5; and Records of the NAC, document no. 580.
25. U.S. Congress 1948b:806. See also Snyder's testimony on p. 804 and in U.S. Congress 1948a:394.
26. Announced by Snyder on February 2, 1948 (U.S- Congress 1948b:804-6).
27. Quote from Bloomfield 1954:65n98. Although the ECA argued that the wording implied such an obligation, the Treasury and State departments insisted that it did not (NA, RG 56, Records of the NAC, NAC Minutes, May 5, 1948, P. 5). See the more extended discussion in Helleiner iggza.
28. Gold 1977:23. The date of this "unduly restrictive" interpretation (Gold's words) is September 7.6, 1946.
29. The EPU's funds were made available explicitly for the purpose of offsetting speculative capital flows. (Kaplan and Schleiminger 1989:130; Zacchia 1976:584). See Bloomfield (1954:14-2 21, 58-59, 68-69) and Mikesell (1954:191-205) for the continuing difficulties caused by disequilibrating flows in the late 1940s and the 1950s.
30. League of Nations 1944:188. Henderson (1936:168) also discussed the use of financing to offset disruptive capital flows.