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. 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.

  • $\begingroup$ 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. $\endgroup$ – callculus Sep 17 '15 at 8:09

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=

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.

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    $\begingroup$ 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 $\endgroup$ – EnergyNumbers Sep 18 '15 at 5:03

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