OR: Can you talk about the inclusion of West Germany in the plan — and why it was so controversial?
Steil: The policy that the U.S. had in the immediate aftermath of the war toward Germany was the Morgenthau Plan, which was the polar opposite of the Marshall Plan. We weren't going to revive Germany, we were going to do the opposite. We were going to rip up its factories and distribute them to its victims.
We were going to make sure that it would never be an industrial power again. We were effectively going to turn into a giant pastureland. Since Germany had not been an agricultural country for hundreds of years, to fulfill this vision would have created mass starvation in the country.
Not only that, but this notion that you could transplant German industry wholesale — not just manufacturing, but the coal industry, for example — to other parts of Europe was really fantastical. It could never have been done.
So when the State Department realized that they could in fact revive Germany quickly and turn it into the industrial engine of a new, revived Western Europe, this became the centerpiece of the Marshall Plan.
OR: Is there an E.U. at all without the Plan?
Steil: My answer would be no. The French would never have agreed to that sort of economic and political integration with Germany without fundamental security guarantees from the United States.
The United States, I should emphasize, really had to twist the arm of France to get it to participate. France was raising some very cogent objections. They said, “Look, if we participate in your vision and we become part of an integrated European economic federation, this means we're going to be giving up our self-sustainability. That is, we won't be able to take care of ourselves without having to rely on others and this is a danger because we're going to be faced imminently with a hostile Soviet Union that is supporting violent labor strikes all over France, that is funding the Communist Party in France.” And — as we found out from the Soviet archives later — it was also willing to arm that party militarily.
The French pointed out that the Germans, unless someone was going to take responsibility for containing them (mainly the United States), were always going to be a mortal threat to France. So these objections were very cogent.
The Americans insisted to the French that they would provide for their security, but beyond that, the French were going to have to cooperate in the economic confederation aspect of the Marshall Plan. Because if they continued to pursue a strategy of extracting reparations from Germany, the United States was going to block it.
The United States was very clever in the way it handled Marshall aid to Germany, which was enormous. Marshall aid to every other country was in the form of grants, but for Germany it was in the form of loans. And this is not because the United States believed that it would ever be paid back. The United States didn't even want to be paid back, but it wanted to make itself the lead creditor. So it could say to all of Germany's other creditors, “Nobody gets paid back a dime until we get paid back. And since we're never going to get paid back, you're never going to get paid back. If you need economic assistance, you're going to have to take it on our terms.”
The French eventually bought into this.
OR: Can you talk about what the macro-strategic response of the U.S.S.R. was to the unfolding of the Plan?
Steil: Before the Marshall Plan, Eastern Europe wasn't under complete communist control. Stalin had been willing to tolerate coalition governments in Poland, in Hungary, in Romania and Bulgaria and Czechoslovakia. He was not dogmatic about the brand of socialism that each of these countries pursued.
The only thing he demanded was fealty to Moscow on foreign policy. And when the Marshall Plan proposal was put to the Central and Eastern Europeans by the United States, it was very attractive to them.
Czechoslovakia in particular showed, shall we say, excessive interest in participating. Even after Stalin told the Czechs that this would be impermissible, the democrats who dominated the coalition government still refused to stop talking about it.
What you have over the course of 1947 and 1948 is Stalin subverting one coalition government in Central and Eastern Europe after another. The most dramatic of these diversions was in Czechoslovakia, where he effectively instigated a Communist coup in February of 1948.
The Marshall Plan pushed Stalin to crack down in Eastern Europe and in those parts of Central Europe that he controlled to make sure that they could not participate in the plan. So the Iron Curtain truly becomes iron after announcement of the Marshall Plan.
OR: How did the Truman administration think about the economic element of soft power?
Steil: They did see the importance of the economic side of soft power. There has been no other period in history in which the United States was so dominant on the world stage economically.
After World War II, in the immediate aftermath, the U.S. accounted for about half of world manufacturing output. And though the details of the plan were eventually taken over by the Keynesian economists in the State Department, the idea behind using economics as a tool of soft power did not emerge from the economists.
It emerged, in fact, from military men in the administration. People like Henry Stimson, who was FDR's Secretary of War; Kenneth Royall, who was Truman's Army Secretary; James Forrestal, Truman's Navy and Defense Secretary. Forrestal, who was a hawk, described Marshall aid as "far less expensive than standing isolated and alone in an unfriendly world." Royall told Congress very forthrightly that unless Congress passed the Marshall aid legislation, he was going to need to demand an immediately 20 percent increase in the military budget.
It was the military that saw the urgent need for economic intervention. I would point out in a contemporary context that there are still elements of this thinking in the Pentagon that live on even in the Trump administration. Secretary Mattis, in fact, has consistently contradicted Donald Trump's calls to slash the diplomatic budget. He warned a while back, and I'm quoting him, "If you don't fund the State Department fully, then I need to buy more ammunition." These were almost the exact words that Army Secretary Kenneth Royall used before Congress when he demanded a $2.25 billion boost to the military budget if Marshall aid did not go through.