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The Clayton Theorem (continued)

In May, Clayton made his seminal tour of Europe, seeing for himself the breakdown of civil order: looting, hoarding, and ‘[m]illions of people ... slowly starving’. His colleague Paul Nitze recalls of this tour: ‘Will was genuinely alarmed that Europe was on the brink of disaster’. Back in Washington, Clayton writes his now-famous memo, which almost point by point anticipates Marshall’s June 2 speech at Harvard. The principal difference is the secretary’s reference to the US economy. Where Clayton fears ‘markets ... gone, unemployment, depression’, Marshall contents himself with remarking that ‘the consequences to the economy of the United States should be apparent to all’.[13]

            As it happens, Clayton’s influence appeared to be diminishing in the summer of 1947. When State Department officials (including Kennan, Bohlen, and Kindleberger, but not Clayton) met to discuss the Marshall Plan on August 22, ‘It was the consensus that Mr. Clayton, while generally aware of departmental thinking with regard to the “Plan”, holds fundamental divergent views on some aspects.... It seems essential ... that every effort be made to bring Mr. Clayton’s thoughts in line with the clarified position’.[14]

            It would of course be too much to expect that the Clayton Theorem was unique to its author. His colleague Ernest Gross writes of this time: ‘It was clear that so long as Europe remained as it was, the U.S. economy would suffer’.[15] Truman himself—announcing the formation of that advisory committee on foreign aid—declares on June 22 that European recovery ‘is essential also to a world trade in which our businessmen, farmers and workers may benefit from substantial exports’.[16] The left-wing Nation writes its issue of June 28: ‘Our own economy will slump, our prosperity will disappear overnight, if the huge output of American factories ... cannot find overflow markets outside the United States’.[17]

            And of course the Clayton Theorem got considerable traction in Europe, helped along by Soviet propaganda. The TASS news agency explains that the US has merely seized an opportunity ‘for expanding its markets, especially in view of the approaching [domestic] crisis’.[18] The same argument is advanced by the Communist Information Bureau in an apparently successful effort to discredit the ERP. ‘Europeans’, reports the newsweekly Time in October, ‘... seemed to believe that the Marshall Plan, with its program of exports, was something devised to save the U.S. from economic collapse’.[19]

            But thoughtful opinion in the US has already turned against the Clayton Theorem. Also in October, in Foreign Affairs, Harvard economist John Williams discusses at length the theory that only foreign aid will enable the US to maintain full employment. ‘Mr. [Ernest] Bevin has been reported to this effect’, Williams notes, ‘and the Russians from the start have pictured the Marshall Plan as a capitalistic dodge to keep our own economy off the rocks.... [T]his emphasis on our need to export to support employment is mistaken’. Rather, he argues, the US is exporting too much, not too little. ‘[O]ur present danger is one of over-utilization rather than under-utilization of American resources’.[20]

The US Senate hearings

            The White House submitted draft legislation for the ERP in December, and congressional deliberations began in January. What’s most remarkable about the testimony is how completely the Clayton Theorem has dropped from view—this, in a congress held by Republicans, the party of big business, hence presumably more amenable to the self-interest argument. Congressional hearings are often as much to educate the public as to inform the congressmen, but in this case it appears that the public was out in front of Congress: by January, ‘advocates of the Marshall Plan far outnumbered and outshone its opponents’.[21]

            The Senate Foreign Relations Committee hears 95 witnesses over the course of 24 days, questions most of them, and accepts 74 statements into the record. Throughout, the emphasis is on the sacrifices that the ERP would require, not on the benefits it might bring. ‘This program will cost our country billions of dollars’, George Marshall warns in his opening remarks. ‘It will impose a burden on the American taxpayer. It will require sacrifices today in order that we may enjoy peace and security tomorrow.... I do not even assume that there will be much gratitude [in Europe].... You always get into trouble when you give. I think that is a well-known fact of life.... We are not buying an advantage here for ourselves.’[22]

            Again and again, the fear expressed is not depression but its opposite, an overheated economy. ‘I am greatly concerned ... as to what this program ... will do to the American economy’, frets one senator; ‘whether it will contribute materially to inflation by withdrawing necessary goods from this country’. Indeed, some invoke inflation as an argument for foreign aid: an isolated America will face a gigantic defense budget. John Foster Dulles, elder brother of Allen, warns that if the ERP fails to pass, there’s ‘a considerable chance’ of a Soviet dictatorship ‘from Normandy to Dakar’. In that event, ‘the Congress is going to be pressed with demands for increased military establishment which will make this plan look like a bag of peanuts’.[23]

            To be sure, the senators hear their share of special pleading. Turpentine farmers worry about ‘the progressively declining market for gum naval stores’; orchardists urge that fresh fruits be sent to Europe; and tobacco growers testify that the weed is ‘in surplus supply in the United States and its shipment ... will therefore have no inflationary effect’.[24] More successfully, the seamen’s union wants to keep Europe-bound freighters under US registry, to protect the jobs of American merchant mariners.[25] (The sailors will get half their wish: in floor amendments, the bill will be amended to require that half the US goods going to Europe travel in American vessels.[26])

            Altogether, in 1,466 pages of testimony, the Clayton Theorem comes up just twice. One is a reference by William Harriman, secretary of commerce and chairman of the committee on which Allen Dulles served: ‘We clearly have ... an interest in the restoration of Europe as a paying market for United States goods’. The impending dollar shortage, Harriman says, foreshadows ‘an inevitable steep decline in our exports.... It is to our interest, therefore, that this world network of trade be restored and sustained on a paying basis’.[27] Harriman is the exception; indeed, as we have seen, the committee that bore his name repudiated his Senate testimony.

(I will save the second Clayton reference for last, since the witness seems to address directly our textbook authors.)

continued in part 3



[13] Fossedal 1993, p. 227-9

[14] USDS 1972, p. 370

[15] Wexler 1983, p. 14 (the reference is to Gross’s papers at Columbia University, so the date of his statement is unclear)

[16] USDS 1973, p.265

[17] Gimbel 1993, p. 270

[18] Dulles 1993, pp. 24-5

[19] Time 1947

[20] Williams 1947

[21] Wexler 1983, p. 40

[22] US Senate 1948, pp. 1, 35, 41

[23] US Senate 1948, pp. 57, 606

[24] US Senate 1948, pp. 1219, 1434, 1444

[25] US Senate 1948, pp. 1283, 1316

[26] Wexler 1987, p. 45

[27] US Senate 1948, pp. 246-9