<p>Barry Eichengreen is one of my favourites for this period. So, I am just going to let him explain it.</p>
<p>From : <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.1592&amp;rep=rep1&amp;type=pdf" rel="noreferrer">http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.1592&amp;rep=rep1&amp;type=pdf</a></p>
<blockquote>
<p>Our central conclusion is that the Marshall Plan did matter. But it
did not matter in the way that the “folk wisdom” of international
relations assumes. Milward (1984) is correct in arguing that Marshall
Plan aid was simply not large enough to significantly stimulate
Western European growth by accelerating the replacement and expansion
of its capital stock. Nor did the Marshall Plan matter by financing
the reconstruction of devastated infrastructure, for as we show below,
reconstruction was largely complete before the program came on
stream.</p>
<p>The Marshall Plan did play a role in alleviating resource
shortages. But this channel was not strong enough to justify the
regard in which the program is held. By 1948 and the beginning of
Marshall Plan aid bottlenecks were scarce, and markets were good at
alleviating their impact. Rather, the Marshall Plan significantly sped
Western European growth by altering the environment in which economic
policy was made. In the immediate aftermath of World War II
politicians who recalled the disasters of the Great Depression were
ill-disposed to “trust the market,” and eager to embrace regulation
and government control. Had European political economy taken a
different turn, post-World War II European</p>
<p>Wartime relief, post-World War II UNRRA aid, and pre-Marshall Plan
“interim aid” may well have significantly speeded up the
reconstruction process. ... recovery might have been hobbled by clumsy
allocative bureaucracies that rationed scarce foreign exchange and
placed ceiling prices on exportables to protect the consumption of
urban working classes. Yet in fact the Marshall Plan era saw a rapid
dismantling of controls over product and factor markets in Western
Europe. It saw the restoration of price and exchange rate stability.
To some degree this came about because underlying political-economic
conditions were favorable (and no one in Europe wanted a repeat of
interwar experience). To some degree it came about because the
governments in power believed that the “mixed economies” they were
building should have a strong pro-market orientation. Marshall Plan
aid gave them room to maneuver in order to carry out their intentions:
without such aid, they would have soon faced a harsh choice between
contraction to balance their international payments and severe
controls on admissible imports.</p>
<p>To some degree it came about because
Marshall Plan administrators it pressured European governments to
decontrol and liberalize even when they wished to do otherwise. In
post-World War II Western Europe the conditions imposed, formally and
informally, for the receipt of U.S. aid encouraged the reductions in
spending needed for financial stability, the relaxation of controls
that prevented markets from allocating resources, and the opening of
economies to trade. Marshall Plan “conditionality” pushed governments
toward versions of the “mixed economy” that had more market
orientation and less directive planning in the mix. While postWorld
War II European welfare states and governments are among the most
extensive in proportion to economic life in history, they are built on
top of, and do not supplant or bypass, the market allocation of goods
5 and factors of production. The Marshall Plan should thus be thought
of as a large and highly successful structural adjustment program.</p>
</blockquote>

CC BY-SA 3.0
2015-09-18T05:03:06.800Z
It's a cute theory, only let down by not representing what actually happened, which was broadened social protection, socialised health care, and various nationalisations
410 gone
CC BY-SA 3.0
2015-09-17T09:02:34.697Z
2015-09-17T09:02:34.697Z
2020-06-17T09:40:54.643Z
Thorst
<p>It is widely accepted, that the Marshall Plan had a major role in the economic recovery of Western Europe after the end of the Second World War.
The reality is that the total economic support was less than 7% of the <a href="http://knoema.com/HSWE/historical-statistics-of-the-world-economy-1-2008-ad?tsId=1000910">1946 GDP (PPP) of the region</a>. How could that have any statistical significance?</p>

<p>In the period between 1943 and 1945, the GDP (PPP) of Western Europe fell by more than 19%. So, was that caused because there was no Martial Plan then? :)</p>

<p>Before the Keynesians jump on the multiplier effect bandwagon, I would point out, that the US quantitative easing after the 2008 economic crisis was 3.5 trillion USD, which is 20% of the 2013 US nominal GDP.</p>

CC BY-SA 3.0
2015-09-17T08:09:48.183Z
I would say the main reason the GDP (PPP) of Western Europe fell by more than 19%  between 1943 and 1945 is, that the WWII continued until 8. May 1945.
callculus42
<macroeconomics>
Did the Marshall Plan cause Western Europe's economic expansion after WWII?
Sogartar
# Did the Marshall Plan cause Western Europe's economic expansion after WWII?

(Asked by: username_0 on 2015-09-16)

It is widely accepted, that the Marshall Plan had a major role in the economic recovery of Western Europe after the end of the Second World War.
The reality is that the total economic support was less than 7% of the [1946 GDP (PPP) of the region](http://knoema.com/HSWE/historical-statistics-of-the-world-economy-1-2008-ad?tsId=1000910). How could that have any statistical significance?

In the period between 1943 and 1945, the GDP (PPP) of Western Europe fell by more than 19%. So, was that caused because there was no Martial Plan then? :)

Before the Keynesians jump on the multiplier effect bandwagon, I would point out, that the US quantitative easing after the 2008 economic crisis was 3.5 trillion USD, which is 20% of the 2013 US nominal GDP.

**Tags:** macroeconomics
> **Comments:**
> **username_1**: I would say the main reason the GDP (PPP) of Western Europe fell by more than 19%  between 1943 and 1945 is, that the WWII continued until 8. May 1945.  

---

## 1 answers

### Answer by username_2 on 2015-09-17. Score: 5 | Accepted answer

Barry Eichengreen is one of my favourites for this period. So, I am just going to let him explain it.

From : <http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.1592&rep=rep1&type=pdf>

> Our central conclusion is that the Marshall Plan did matter. But it
> did not matter in the way that the “folk wisdom” of international
> relations assumes. Milward (1984) is correct in arguing that Marshall
> Plan aid was simply not large enough to significantly stimulate
> Western European growth by accelerating the replacement and expansion
> of its capital stock. Nor did the Marshall Plan matter by financing
> the reconstruction of devastated infrastructure, for as we show below,
> reconstruction was largely complete before the program came on
> stream.
>
> The Marshall Plan did play a role in alleviating resource
> shortages. But this channel was not strong enough to justify the
> regard in which the program is held. By 1948 and the beginning of
> Marshall Plan aid bottlenecks were scarce, and markets were good at
> alleviating their impact. Rather, the Marshall Plan significantly sped
> Western European growth by altering the environment in which economic
> policy was made. In the immediate aftermath of World War II
> politicians who recalled the disasters of the Great Depression were
> ill-disposed to “trust the market,” and eager to embrace regulation
> and government control. Had European political economy taken a
> different turn, post-World War II European
>
> Wartime relief, post-World War II UNRRA aid, and pre-Marshall Plan
> “interim aid” may well have significantly speeded up the
> reconstruction process. ... recovery might have been hobbled by clumsy
> allocative bureaucracies that rationed scarce foreign exchange and
> placed ceiling prices on exportables to protect the consumption of
> urban working classes. Yet in fact the Marshall Plan era saw a rapid
> dismantling of controls over product and factor markets in Western
> Europe. It saw the restoration of price and exchange rate stability.
> To some degree this came about because underlying political-economic
> conditions were favorable (and no one in Europe wanted a repeat of
> interwar experience). To some degree it came about because the
> governments in power believed that the “mixed economies” they were
> building should have a strong pro-market orientation. Marshall Plan
> aid gave them room to maneuver in order to carry out their intentions:
> without such aid, they would have soon faced a harsh choice between
> contraction to balance their international payments and severe
> controls on admissible imports.
>
> To some degree it came about because
> Marshall Plan administrators it pressured European governments to
> decontrol and liberalize even when they wished to do otherwise. In
> post-World War II Western Europe the conditions imposed, formally and
> informally, for the receipt of U.S. aid encouraged the reductions in
> spending needed for financial stability, the relaxation of controls
> that prevented markets from allocating resources, and the opening of
> economies to trade. Marshall Plan “conditionality” pushed governments
> toward versions of the “mixed economy” that had more market
> orientation and less directive planning in the mix. While postWorld
> War II European welfare states and governments are among the most
> extensive in proportion to economic life in history, they are built on
> top of, and do not supplant or bypass, the market allocation of goods
> 5 and factors of production. The Marshall Plan should thus be thought
> of as a large and highly successful structural adjustment program.

> **Comments:**
> **username_3**: It's a cute theory, only let down by not representing what actually happened, which was broadened social protection, socialised health care, and various nationalisations  

---

