The Marshall Plan: Dawn of the Cold War

Good evening. Uh, my name is Daniel Benjamin, and I am the president of the American Academy in Berlin. And I have the pleasure of welcoming you to our Fritz Stern Lecture with Ben Steele, who will be discussing his book, *The Marshall Plan: Dawn of the Cold War*.

In all candor, this is a, uh, COVID-delayed event, and was, I believe, actually planned before I came to the Academy in 2020, which is a painful reminder of just how long we have dealt with this pandemic. But I can say with confidence that had he not already been invited, one of the first things I would have done when I got here is to invite Ben Steele to speak. And for those of you who may doubt this somewhat boastful claim, I can direct you to the website of my previous employer, the Johnson-Dickey Center at Dartmouth College, where I hosted Ben on May 15, 2013, less than five months after becoming director there. I stand vindicated.

Uh, on that occasion, he was discussing his brilliant and then new work of historical writing, *The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order*. Ben, it is great to see you again and to welcome you to Berlin. It's notable that I seem to always get to host you in the place that seems most appropriate for a talk. Because Bretton Woods, Woods, I hosted you in Hanover, New Hampshire. Now I get to host you in Berlin. So this is great.

It is also fitting that Ben is delivering a lecture named for Fritz Stern, one of the great historians of the last century and a critical figure for the American Academy. A refugee from Nazi Germany, which he fled in 1938, Fritz Stern studied at Columbia University and then taught there for roughly half a century. His research, excuse me, his research on 19th and 20th century Germany helped make the unimaginable, in some ways, more comprehensible, explaining the cultural and political wrong turns in German history that led to the rise of National Socialism. His writings on the historical interchange between Jews and Germans remain classics. Among his books are *The Politics of Cultural Despair: A Study in the Rise of the Germanic Ideology*, *The Failure of Illiberalism: Essays on the Political Culture of Modern Germany*, and of course, the epic *Gold and Iron: Bismarck, Blythe, and the Building of the German Empire*.

Among the many honors showered on Fritz Stern were the Order of Merit of the Federal Republic of Germany, the Peace Prize of the Börsenverein des Deutschen Buchhandels, and the Humboldt Prize. The Academy is particularly fortunate that in 1993 and '94, Fritz Stern served as an advisor to then U.S. Ambassador to Germany, Richard Holbrooke. And in addition to being about the most distinguished personal tutor an ambassador ever had, Stern was a central influence on Holbrooke's thinking as he worked to lay the foundations for what would become the American Academy in Berlin. Stern also served as a trustee of the American Academy before his death in 2016 at the age of 90.

I want to express my gratitude that this lectureship has been generously funded by the late Henry H. Arnold and forlag Ceja Beck. So now, let me turn to tonight's lecture. Ben Steele. Ben is senior fellow and director of international economics at the Council on Foreign Relations in New York, as well as the official historian-in-residence of the Council. And we may want to unpack that later and what your duties in that, in that capacity involve. Ben holds a doctorate in economics from Nuffield College, Oxford, a Bachelor of Science in Economics, which he received summa cum laude from the Wharton School of the University of Pennsylvania.

Ben's work is, in my view, fascinating because it combines the highest level of expertise on topics such as international finance, monetary policy, and the workings of financial markets with a deep interest in, and here's where the connection with Fritz Stern is most evident, with biography and the interplay of human characters. His 2013 book, which I mentioned earlier, *The Battle of Bretton Woods*, won the 2013 Spears Book Award in Financial History. It was top, it was the top book of the year choice in Bloomberg's 2013 poll of global policymakers and CEOs. His latest book is *The Marshall Plan: Dawn of the Cold War*.

Now, the Marshall Plan, one could say, has become the Mount Rushmore of American foreign policy. Its iconic status as the greatest achievement of American engagement in the world, and, and it is the standard against which so many other endeavors abroad are measured, fairly or unfairly. Excuse me, the rescue of Europe from hunger and political disarray, the revival and the readmission of Germany into the community of nations, the creation of new stability and order in the face of the communist threat. All of this has been studied pretty exhaustively. So it was a brave decision of Ben Steele to take on this subject. But it was also a decision that the reviewers applauded. For example, the renowned Yale historian Paul Kennedy wrote in the *Wall Street Journal* that, quote, "The story of the Marshall Plan has been recounted many times before, including by those who were its architect, like Dean Acheson in *Present at the Creation*. But Mr. Styles is by far the best study yet." The book won the New York Historical Society's 2019 Barbara and David Zelaznick Prize for the best work on American history, as well as the American Academy of Diplomacy's 2018 Douglas D. Dillon Prize.

So, Ben, I can't imagine a city where the story of the Marshall Plan could be more relevant. And then, a strange twist, in light of the horrors that are being perpetrated about a day's drive to the east of us, this is also a very timely talk because, as we can see, another new order in Europe is taking shape. So I'm delighted you're here. And just, if you'll bear with me one second before I give you the podium, let me just explain to those who are following us on Zoom: the presentation will last for about 40 minutes. After that, there will be a short discussion and a Q&A. Feel free to start submitting your questions at any time into the Q&A area on the, on the Zoom panel. Please don't use the "raise your hand" feature because that will not be activated. And so, with that, Ben, it is a great, great pleasure to welcome you to the American Academy in Berlin.

[Applause]

Thank you so much, Dan, for the kind introduction and, and, uh, particularly warm thanks to the American Academy for for hosting me. It's truly a great honor to be asked to deliver the Fritz Stern Lecture this year. Um, the Marshall Plan is celebrating its 75th anniversary this year, and perhaps its most enduring legacy has been the endless desire to repeat it. In the early years of the great financial crisis, for example, there were impassioned calls for a new Marshall Plan for, for Greece and Southern Europe. During the Arab Spring, there were calls for a Marshall Plan for the Arab Middle East. Um, during the Syrian Civil War, there were calls for a Marshall Plan for Syria. And of course, now, unfortunately, there are calls for a Marshall Plan for Ukraine. And, uh, believe it or not, but I've even read, uh, and I kid you not, um, about impassioned calls for a Marshall Plan for a post-Putin Russia. So Marshall Plans for, for every, every big, intractable problem on the face of the earth. But the old, original one has never been replicated, and even, even badly imitated. And I think that speaks, um, to the unique historical circumstances in place at the time the Marshall Plan was born. So that's what I'd like to start with.

Um, so at the end of the Second World War, the United States dominated the globe economically and militarily like never before and ever since. It was at the, truly at the apex of its power. The United States accounted for about half of global manufacturing output, and of course, the United States had sole possession of atomic weapons. And I'm going to focus a bit on that later because that actually allowed the United States to experiment with some truly revolutionary diplomacy that it might not have been willing to experiment with had it not had that sort of dominance at the time. Now, it could have used that power, um, had it wished to pursue, say, an America First policy, as many had called for. But with memories of the disasters of isolationism in the 1930s, it chose instead to spend enormous sums of money on foreign aid and to build new multilateral institutions to promote international cooperation.

Now, remarkably, almost all the major institutions that define what we today call the, um, liberal world order were created by the United States in just a few short years after the Second World War. The United Nations, the United Nations, the IMF, the World Bank, NATO, and the predecessor organizations to the European Union and the World Trade Organization were all created, uh, between 1945 and 1949. Now, I am aware that our previous president actually explained to the American public that the EU had bec, had been created to, quote, "screw the United States on trade." But in fact, uh, the integration of Europe, um, economically and militarily, had actually been a central component of the new geostrategy of containment, fathered by the great American diplomat George Kennan. And that's very much, uh, lost today, the fact that European integration was such a central feature of what we today call the Marshall Plan.

Now, to understand why that was, we have to go back to the war years. During the war, of course, the United States and the Soviet Union were allies. But as Soviet dictator Joseph Stalin, um, uh, wryly explained at the Tehran Allied War Leaders Conference in 1943, "quote, unquote, the best friendships are those founded on misunderstandings." And indeed, the misunderstandings between the United States and the Soviet Union during the war were legion. FDR, for his part, believed that after the war, the Soviets would effectively contain themselves. That is, that Stalin would be satisfied within his newly expanded borders. Stalin, for his part, expected that after the war, the Americans would go home, just as they had after World War I. And for better or for worse, this glorious misunderstanding began collapsing almost immediately after the war ended. In 1946, the Soviets aggressively pursued new territorial claims in Turkey and Iran. The Soviets actually refused to withdraw troops from Iran that had been stationed there under treaty during the war, and they only backed down when President Truman sent a large military flotilla to the region.

But truly, the watershed moment comes in February of 1948. The British, at this point, are nearly bankrupt. The British Ambassador in Washington comes to General Marshall, the newly appointed Secretary of State, and delivers what's called a, a "Blue Document." This is a document of, of very great import, announcing that the British are, within six weeks, going to withdraw their 40,000 troops from, from Greece, where they had been defending the government against communist rebels, and they would cease all military aid to Greece and Turkey. This really set off alarm bells within the State Department. And of course, aid, military and economic aid to Greece and Turkey became a central component of President Truman's speech before a joint session of Congress the following month, in March, what we now know as the Truman Doctrine speech.

But by that point, by February of 1947, Stalin had already once again shifted his, uh, sights away from the Aegean and the Mediterranean towards, um, Central Europe, and to one country in particular, and that is this one, um, Germany. Um, Germany, after the Second World War, was of course divided into four zones of occupation: the French, American, and British in the West, the Soviet in the East. And, uh, Berlin, of course, where we are today, was a mirror image of, of this, but embedded within the Eastern Zone. So in March of 1947, George Marshall goes off to Moscow for his most important and perhaps consequential diplomatic mission. He is meeting, um, with the, the man second from the, the right, his Soviet counterpart, Vyacheslav Molotov. Um, he is accompanied by the British Prime Minister on the far left, Ernest Bevin, the French Foreign Minister, Georges Bidault, on the far right. They have, of course, united with George Marshall in, in spirit, but they, in fact, have some disagreements with them. They have their own proprietary security concerns that are going to have to be addressed a few years later by the United States in order for the United States to pursue what we now know today as the Marshall Plan.

It's hard today to imagine a U.S. Secretary of State going off abroad for six weeks of continuous negotiations with the counterpart of one country, but that's how seriously the United States took these talks. And there were two major conflicts dividing the United States and the Soviet Union over Germany. One of them was extremely narrow, and that was reparations. The United States, the Soviet Union was demanding $10 billion in reparations from Western Germany. That's about $120 billion in today's money. The United States refused to discuss this. They said, "After World War I, we got stuck paying Germany's debts. We're not going to do that again. We're not falling for that, for that trick." But there was a much deeper, underlying conflict between the two that could never have been erased, and that is that both the United States and the Soviet Union could not countenance a united Germany being an ally of the, of the other. And so these negotiations failed.

General Marshall came home and decided that the United States would perhaps have to pursue its vital security interests in Western Europe unilaterally. That is, they would no longer pay respect to the so-called Yalta Potsdam framework for going forth cooperatively with the Soviet Union. From this point on, the United States would defend its, uh, interests unilaterally. And this led to the development at a very rapid pace in May of 1947 of what we call the, the Marshall Plan. But it's important to recognize that these ideas have been percolating for some time. Um, if you go to, uh, Truman's famous Truman Doctrine speech in March of 1947, it's usually the, so-called hardline element behind it that's, um, emphasized. Um, uh, President Truman pledges to assist countries facing "quote, unquote, aggressive movements that seek to impose upon them totalitarian regimes." But much less attention is paid to how he proposes to do that. He doesn't actually propose to use military means. He, in fact, emphasizes that "quote, unquote, economic and financial aid is essential to economic stabilization and orderly political processes."

So why is he emphasizing economics? And this is where things begin to get interesting, and you can understand where the ideas behind the Marshall Plan came from. In May of 1945, at the cessation of hostilities in Europe, the United States has over 3 million troops in Europe. Now, President Roosevelt had pub, had pledged publicly in Tehran in 1943 to withdraw all American troops from Europe within two years of the end of fighting. And President Truman, at this point, is very much, he's only been president for a few weeks, he's very much determined to carry out President Roosevelt's pledges, particularly because the American public is demanding it. They won't tolerate a, a long, lengthy, expensive occupation in Europe. And so he begins withdrawing these troops immediately. U.S. military spending collapses from $963 billion in 1945 to a mere $95 billion in 1948. So they cannot politically rely on the U.S. military to secure American interests in Europe. So what are they going to do?

And it's here where the, um, the policy ideas that became the Marshall Plan are developed. Interestingly enough, not by economists. Of course, we all know that the best policy ideas normally come from economists. But in this particular rare case, the ideas that underlay the Marshall Plan, which is arguably the most successful American example of economic statecraft in the country's history, came primarily from military figures. People like Secretary of War Henry Stimson, Army Secretary Kenneth Royal, Navy and later Defense Secretary Jim Forrestal. Jim Forrestal, I should emphasize, as the hawk's hawk, yet he goes to Congress and argues that this Marshall money is "quote, unquote, far less expensive than standing isolated and alone in an unfriendly world." And so the underlying philosophy was that America's economic and physical security depended on having strong, independent allies abroad. That is, not colonies, not tributaries, not transactional counterparts, as our previous, uh, president might have wanted, but strong, independent allies. I would jump forward a little bit by emphasizing that that is even more important today. Again, in 1945, we accounted for more than half the, the world's, uh, manufacturing output. We're totally domina, dominant militarily. Today, we account for less than a quarter of the world's economic output, and many other countries have powerful militaries with atomic weapons. We need those allies even more than we needed them in 1945.

Now, who are the architects of what we now call the Marshall Plan? The people under Marshall who began to flesh out the details. George Kennan, uh, second from the right. The economic aid becomes the centerpiece of his geostrategy for containment. Under Secretary of, uh, Economic Affairs, Will Clayton, on the right, a figure who is sadly rather forgotten today. I think he deserves to be known as one of the fathers of the European Union. Uh, it is Will Clayton who makes European integration into the centerpiece of Marshall's thinking. A U.S. military governor in Germany, General Lucius Clay, on the right. Clay, obviously not part of the State Department, certainly not part of Marshall's team putting together the Marshall Plan, but it is Clay who makes a reversal of American policy in Germany, that is, the Morgenthau Plan to deindustrialize the country, into a centerpiece of the thinking behind the Marshall Plan. This is a complete 180-degree change, and General Clay deserves enormous credit for this. Republican Senator Arthur Vandenberg, Chairman of the Senate Foreign Relations Committee, standing next to General Marshall. We have to remember that President Truman was faced with a Republican Congress that was not anxious for a major foreign aid plan. They wanted their peace dividend, and they certainly didn't want to give President Truman any victories. But with, uh, without Senator Vandenberg's active cooperation and support, the Marshall Plan would have remained just that, a plan. It would never have been legislated. I should also remark that if President Roosevelt had lived, I do believe that he would have become a Cold Warrior like President Truman, but probably a much less effective one. He had terrible relations with Arthur Vandenberg, and I don't believe they could ever have cooperated in the, in-depth, respectful way that Truman and Vandenberg did. And of course, there's General Marshall himself, who is not so much an architect of the details of the plan as a great synthesizer and salesman. Um.

So, in June of 1947, after General Marshall makes his famous speech at Harvard introducing the ideas behind the plan, President Truman's primary political advisor, Clark Clifford, goes to him and says, "You know, I think this, this, this idea has legs. We ought to call it the Truman Plan." And President Truman, being a shrewd political animal, laughs and says, "Don't be ridiculous, Clark. He says, anything bearing my name going before Congress will, quote, 'twitch a few times and die.' He said, but even," and I quote him again, "even the worst Republican could not vote against a plan named for the General." And I believe politically, this was indeed very wise.

So, um, Marshall's speech at, um, Harvard, I should put him back on the screen for this. Marshall's speech at Harvard is actually a very short speech, less than, um, uh, 15 minutes. Um, and it's, it's deliberately vague about what the contents will be. And that's for two reasons. First of all, he was determined that Europe would take ownership for the plan. That is, this could not be something dictated by the United States. Europe would have to get together, um, uh, and the participants within Europe and negotiate it and come to the United States with, um, a proposal, because he didn't want Europe saying this was something that the United States had imposed on them. But second, and this is the, uh, the more Machiavellian aspect of the Marshall Plan, um, he made it open to all of Europe, including Eastern Europe and the Soviet Union, because he wanted the Soviets to reject it. It couldn't be the United States excluding the Soviet Union, but the Soviets had to reject it. And within the bowels of the State Department, they went through many permutations of how they would react if Stalin suddenly became something other than Stalin and embraced it. And George Kennan, in his last iteration, like, "What would we do if Stalin is, God forbid, reasonable?" Said, "Well, look, if Stalin says, 'Yes, we really want in, we can't wait to cooperate,' then we should say, 'This is wonderful, because Europe needs another creditor that is not just the United States. The Soviet Union would finance the rehabilitation of Europe.'" But that was a last resort that, thank goodness, was not actually necessary.

Um, Stalin, when he learned of the plan, and he, he knew about the ideas in advance because of his spies in Washington and London, mainly British spies, he was torn. The USSR desperately needed dollars. And Stalin was, when it came to economic thinking, not so much foreign policy, but economic thinking, was very much an orthodox Marxist. He believed that the United States was entering the final collapse phase of capitalism and was using the Marshall Plan to bail out its, um, industry. And so if the Soviet Union could get billions of dollars of, of loans from the United States, which they could later repudiate with no strings attached, just like Lenin said during the war, why not? But he had three very strong reasons to resist, and these were ultimately compelling. One is, you remember, Stalin believed that after the war, the U.S. was going home. His spies in Washington and London were telling him, "That's not the case. The Americans are not going home. They're here to stay." Um, second, the spies were telling him that Germany is going to be made into the engine of a new, integrated or Western Europe, that the United States might even create its own, um, independent, obviously under American control, it would be a puppet state, West Germany, that was going to be this, in industrial engine. And finally, um, Stalin was very afraid that his newly won satellite states in Eastern Europe would want to join in on the plan, and they very much did. So Poland and Czechoslovakia were extremely enthusiastic about participating, and Stalin quickly smacked them down. In fact, it's important to remember that before Marshall's plan at Harvard, Stalin was still committed to a cooperative relationship with the United States. This doesn't mean cooperation in a friendly sense. It means, let's try to get rid of certain problems in the world that are peripheral so we can concentrate on the real prize, which for Stalin was Germany. He was absolutely determined to take over all of Germany. So, for example, in, in May of 1947, I found in the Russian archives that Stalin had actually directed a Soviet negotiating team to reach agreement with the United States on a unified interim government for Korea. It was only after Marshall's speech that he said, "Forget about that. We're not cooperating with the Americans."

But after Marshall's speech, everything changed. So if you look at this map from a political map of Europe in 1943, Europe is a geographic jumble of political and military alliances. Fast forward to 1949, and we have the familiar Cold War map of Europe with a stark division between the West of Europe, the Marshall states, and the East of Europe, um, the Soviet Union and its, um, satellites. So, um, the, the best way to characterize the change in American psychology is this: a wonderful quote from Chip Bohlen, who was Marshall's Russian translator. In March of '47, when he met with Molotov and Stalin, Bohlen says, in the summer of '47, "quote, unquote, the United States is now confronted with a condition in the world which is a direct variance with the assumptions upon which during and directly after the war, major U.S. policies were predicated. Instead of unity among the great powers on the major issues of world reconstruction, both political and economic, there is complete disunity between the Soviet Union and the satellites on the one side and the rest of the world on the other. There are, in short, two worlds instead of one."

So I mentioned earlier that Stalin was very much an ideologue when it came to economics, but not when it came to foreign policy, and he interfered relatively little with the, the coalition governments in Eastern and Central Europe until Marshall's speech. Then he cracks down on, on all of them and begins breaking up the coalition, pushing out the small-d democrats who were in power in Poland, Hungary, Romania, and most importantly, in Czechoslovakia. Czechoslovakia was a very interesting case. Other than Germany, it was really the only other country that was in play at the beginning of 1948. It could have gone into either camp. Czechoslovakia had legitimate elections in 1946, in which a coalition government was elected. It had a communist prime minister, but two-thirds of the ministers were small-d, um, democrats, and they desperately wanted to participate in the Marshall Plan. Since they wouldn't shut up about it, in February of 1948, Stalin instigated a communist takeover of the government in the country in order to ensure that they would not be participants in the Marshall Plan. This had a galvanizing effect on Republicans in Congress who were wavering on the, on the Marshall Plan at this point. They all began to realize that unless the United States took firm, determined action to revive countries in Western Europe, that Stalin would repeat these tactics further and further west. And I think the, the Czech coup was instrumental in bringing Republicans on board and allowing the Marshall Plan to be legislated in April of, uh, 1948.

Now, after it's legislated, Stalin, uh, moves to the, the next target, which is Germany. He's very concerned about the United States, um, creating an independent Southern Western Germany, which, as I said, would be the new industrial engine behind the Marshall Plan. So he institutes a blockade, of course, in June of 1948. The United States and the Allies respond with a heroic airlift. But forgotten today is that the airlift didn't defeat Stalin's blockade on its own. The United States and the Western Allies instituted a counter-blockade, initially just against Eastern Germany, but eventually against the Soviet Union and all the satellite countries, which had a far more devastating economic effect on the Soviet Union and Eastern Europe than Stalin had understood. Stalin was not very good when it came to economics, not surprisingly.

So, fast forward to May of 1949. Stalin realizes that the game is up. The blockade is not working. It's a diplomatic albatross. At almost the very same moment that he lifts the blockade, the Federal Republic of Germany is created, and in September of 1949, Konrad Adenauer is elected the first Chancellor. I was talking to Felix about this over dinner. One thing that I discovered in the archives that I was fascinated with, that I hadn't read about anyplace before, there had been a very lively debate within Germany and among the Western Allies in the spring of 1949 about whether West Berlin should be legally constituted as part of West Germany. Acheson, Dean Acheson, who's now Secretary of State, is ultimately the man who determines it. He decides that West Berlin should not be part legally of West Germany because it would be unduly provocative to the Soviets. But interestingly enough, Adenauer too, uh, opposed it. And the primary reason was because West Berlin was controlled by the SPD, and he didn't want to give them more votes. Now, what I found utterly fascinating, and I haven't read in any history book, so it'd be fascinating if, fascinating if any of you know about this, but, you know, Adenauer was only elected by two votes in the Bundestag, I believe it was 202 to 200. If West Berlin had incorporate, been incorporated into Western Germany, he might have lost to Kurt Schumacher, and we would have had a very different post-war world. It's a really, really genuinely interesting counterfactual in my view.

So at this point, the geographic boundaries of the Cold War in Europe are frozen for 40 years. So this is a good point for me to, uh, jump off, um, the political history and just speak a little bit about the economics behind the Marshall Plan. So what, what was it economically? How, how, how much money are we talking about? First of all, well, it was $13.2 billion over, um, uh, four years. In current U.S. dollars, that would be about $160 billion. It was equivalent to 2.6% of recipient country output in Europe, or 1.1% of U.S. output. So to put that in a current context, if the United States were to launch a Marshall Plan today of equivalent size as a percentage of its economy, we would be talking about something close to a trillion dollars. This is enormous. And to put it against, um, the economic backdrop of the time, in 1946, the U.S. GDP growth rate was negative 11.5%. That is, you know, the, the U.S. was contracting, um, government spending, um, massively. So the economy is shrinking. It recovered very quickly after then. That was a very, very tense, worrying period within the United States. Would the United States manage this transition, um, well or not?

So what happened in Europe? As we all know, Europe did recover very vigorously. Between 1947 and mid-1950, output in the 16 Marshall countries grew by 60%. Historically unprecedented. All the early eulogistic accounts of the Marshall Plan credited the Marshall dollars for all of this recovery. It was only decades later that skeptical economists started applying their econometrics exercise to see whether this was actually true. That is, they tried to uncover the Keynesian mechanism by which the Marshall aid would have produced this great increase in output. And I'll just give you the basic findings. They were, they were stymied. You know, they looked at the increase in investment, and it was significant, but would only account for a very small portion of the recovery in Europe. Did it allow the Marshall countries to import more than they otherwise would have? Yes, but that would have accounted for an even smaller portion of the increase in output. Did it allow more government spending, non-investment government spending in Europe? No, government spending in Europe as a percentage of GDP actually declined in the Marshall years, which undermined the charge from many Republicans in Congress that the United States was just financing socialism. Although, in the case of Great Britain, they might have been. The United States was very, very concerned about the British socialists and the Labor Party, particularly how they were operating their zone of Germany. The United States did not formally object to British economic policies like nationalizing its mines, but General Clay would not allow the British to to socialize, as it was called, mines in Germany. In other words, you can do that stuff at home, but you're not going to mess around with Germany. Germany is much too important.

So what explains the recovery? Um, and I would emphasize two factors that are very difficult to quantify. One is to go back to the ideas of Kennan and Clayton. They never put any stock in these Keynesian mechanisms. They viewed the aid as just a pump primer to to start recovery in Europe. But it was very important to Kennan that this take place over four years. That is, we weren't going to just write Europe a big check and then say, "Good luck." Kennan was determined that the United States was going to show Europe that we were there for the long haul, we're not going home this time. And that was indeed very important in terms of helping to revive private investment in Europe, which was much more important than the Marshall aid itself. But it was not enough on its own. And I should emphasize that on its own, if we had just come to Europe with a Marshall package, there would have been no major recovery in Europe. And that's because the French and the British both argued that the American integration agenda in Europe was an absolute non-starter. If Europeans were going to become interdependent upon each other, they would no longer be self-sufficient, wouldn't be able to provide for their own security. So unless the United States was willing to provide iron-clad security guarantees, not only against the Soviet Union, but against a revived Germany, they were not playing ball. They didn't, they didn't want to take place, take part in this Marshall integration agenda. And so against, um, uh, Truman's strategy of withdrawing from Europe militarily, in April of 1949, we have the NATO founding act. And the NATO founding act is really a product of French and British pressure. It is not an, uh, American creation.

To put this in a contemporary context, why is this security element so important? Consider Iraq and Afghanistan. The United States has spent about $210 billion on reconstruction aid alone in Iraq and Afghanistan since those wars. That is more than $50 billion than the totality of Marshall aid in current dollars, and we have little or nothing in the case of Afghanistan, perhaps less than nothing, to show for it. Why? Fundamentally, lack of security. The United States could not provide these countries with either internal or external security. Whereas in the case of the Marshall Plan, they were, and I'm going to talk about this a little more momentarily, but how are they able to do it? It was not just Stalin who created an Iron Curtain through Europe. Marshall very carefully defined the borders of Marshall territory. That is, Czechoslovakia, the United States decided to let it go because it wasn't going to be able to defend Czechoslovakia with conventional forces, and it wasn't going to use nuclear force. So the United States was able to provide the Marshall recipients with the security they needed to revive private investment.

The second factor I would integrate is that emphasize is Germany. The complete reversal of U.S. occupation policy, which was from 1944, the Morgenthau Plan to deindustrialize the country. General Marshall, General Clay, absolutely determined, um, to reverse this 180 degrees. So the Morgenthau Plan, which was called JCS 1067, replaced by JCS 1779 right after Marshall's speech, makes the revival of West Germany into the, at the centerpiece of U.S. occupation, um, policy. This was against staunch French objections. How did the United States bring the French along? Well, I want to give you just one example of how brilliant American statecraft was at that time, perhaps to show how clumsy it is today in certain, um, uh, aspects. Marshall aid after the Second World War was all in grants, except for Germany. Legally, all American aid to Germany was in the form of loans. Why? The U.S. had no intention of ever calling in these loans. But the United States said to the French, "Look, you keep pursuing these reparations claims against the Germans. You give them old bills for, you know, pre-war, um, exports that you want, uh, paid. But we are now the senior creditor in Germany, and no one gets paid back a dime until we get paid back. And since you will never get paid back, it's pretty self-defeating to keep demanding reparations." So we give you a choice: keep pursuing reparations, or take the Marshall aid. Which is it? And Dean Acheson made very clear to the French in 1949, after West Germany was created, "You know, we're really going home now unless you take over this integration initiative. Guess what? The Germans will." And the French got the message, and boy, did they learn it well. So reintegration of Germany, absolutely critical to the rapid revival of the European economy.

Fast forward today. What can we learn about U.S.-Russia relations in a contemporary context from the Marshall period? So 40 years after the creation of the Federal Republic, November 1989, um, the Wall falls, Berlin Wall falls. Now, historically, in Europe, political upheaval in Germany has always had enormous political reverberations throughout the European economy. November 1989 is no exception. The man who I think captured this most accurately and presciently in 1947 was Republican Senator Henry Cabot Lodge, who said this to Senator Vandenberg. He said, October 1947, "The recovery of Western Europe is a 25 to 50-year proposition, and the aid which we extend now and in the next three years will, in the long future, result in our having strong friends abroad." And how right he was. The Wall falls, and the U.S. alliances that we created during this period, in particular, of course, NATO and the European Union, are now as attractive as they've ever been. The newly liberated countries of Central and Eastern Europe are clamoring, um, to get in, whereas the Soviet security buffer created after the Wall completely collapses, as the Warsaw Pact disintegrates. Soviet President Mikhail Gorbachev, very concerned about one particular American alliance, of course, NATO, and he begs the United States not to expand it eastward. He said, "It will inflame national impulses throughout his country and undermine his reforms."

Now, at this point, the United States could have coherently gone in two directions. The first was laid out by George Kennan, who's now in his late 80s at the end of the Cold War. And Kennan says, "Don't do it. Don't expand NATO. This is what we fought the Cold War to get to this point, that the Soviets would abandon their confrontational Marxist ideology. Let us see if we can work with them to produce a common understanding of what independence and sovereignty will mean in Central and Eastern Europe." The other coherent approach was what I would call the Dole-Gingrich approach, the Republican approach, reflected in the 1994 Contract with America, which said, basically, "Don't be ridiculous, George Kennan. Russia will always be Russia. It will always be aggressive. We owe it to these newly integrated, uh, newly, uh, liberated countries in Central and Eastern Europe to provide them with NATO protection." Of course, that would have implied that we would have funded a much more robust protective barrier for the newly expanded NATO into Eastern Europe. Bill Clinton, being Bill Clinton, chose a third approach, which was to expand NATO but say, "Don't worry, America, it won't cost you anything because NATO has no enemy." This has nothing to do with Russia. Tell that to the Czechs and the Poles. The Czechs and the Poles are not anxious to join NATO to participate in peacekeeping activities or stopping civil wars, certainly not in bombing Serbia. But guess what? Three days after NATO's first expansion wave in March of 1999, when we brought in the Czechoslovak, Czechoslovakia, Hungary, and Poland, NATO began bombing Serbia. Of course, this was for a very, a noble purpose, in order to protect the Kosovar Kosovars who were being, uh, persecuted and killed by Slobodan Milošević. But from the Russian perspective, this new expanded NATO was not a defensive institution. It was immediately going on the offensive. Of course, the United States has also said, "Look, this, Russian concerns about NATO are completely overstated because NATO has no intention of, um, invading Russia." And the Russian response was, "Well, that's not what we're concerned about. The Russian response was that countries who joined NATO behave differently than they would outside of NATO." And I'll give you an example of that. In 2015, Turkey shot down a Russian fighter plane that had strayed into its airspace from Syria, and immediately the Turkish Foreign Ministry announced that Turkish airspace is "quote, unquote, NATO airspace," meaning that if you retaliate, you're going to war against the United States. Does anyone seriously believe that Turkey would have had the audacity to shoot down a Russian fighter plane if it had not been a member of NATO?

So even Dean Acheson, this is, you know, one of the great architects of the Cold War, understood this Russian sensibility. He said in November of 1945, "We understand and agree with the Soviet Union that to have friendly governments along her borders is essential both for the security of the Soviet Union and the peace of the world. Unfortunately, it's impossible for Russia to have both friendly neighbors and independent neighbors." And that's, of course, the, the basic conflict, um, we have here.

Now, Vladimir Putin becomes president in 2000. His primary geostrategic aim is to restore the old Soviet political and economic space. He considers, um, NATO to be the, um, uh, biggest threat to that space. And I think it's worth looking at, um, the, the Russian view of the world. The Russia, Russian military doctrine makes no sense to distinguish offense from defense because they're part of the same mentality. What I've done here is take a map of Europe and turn it upside down, so north is on the bottom, and you basically have a Moscow eye view of the world. If you look at Russia's western borders, it's thousands of miles of unprotected plains. Of course, Russia has been historically invaded many times from the West. Napoleon went to Moscow from the West. Hitler went to Moscow from the, the West. From the Russian perspective, the West is always a threat. So how do you protect your western border? You expand it. How do you protect the newly expanded border? You protect it further. So offense and defense are completely, uh, indistinguishable.

What does Putin think of NATO? Well, the most telling thing he's ever said about it was in a 2016 discussion with, um, interestingly enough, Shimon Peres, the former Israeli, uh, Prime Minister. They apparently had cordial relations and, and, um, Peres recounted what, what Putin told him, which I think is very telling in a contemporary context. He said to, um, Peres, "What do the Americans need NATO for? The Soviet Union doesn't exist. The Warsaw Pact was dismantled. Why did they need Georgia in NATO? Why did they need Romania in NATO? Do they think I didn't know that Crimea is Russian and that Khrushchev gave it to Ukraine as a gift? I didn't care until they needed the Ukrainians in NATO. And what for? I didn't touch them. They wanted to go to Europe," meaning the European Union. I said, "Great, go to Europe. But why did the Americans need them in NATO?" This goes to Kennan's point, which he made in 1998 in an op-ed at age 97, 93, I believe he was at this point. He said, "We have signed up to protect a whole series of countries even though we have neither the resources nor the intention to do so in any serious way."

So, coming back to the Marshall Plan, the broader historical lesson is, I believe, this: We remember the Marshall Plan today because it was visionary, but it was also hard-headed in a way that NATO expansion was not. And the Marshall Plan was successful because it was hard-headed. If we had defined success in 1947 to include, say, bringing Czechoslovakia and Poland into the Marshall Plan, then we would have failed. We would have failed because we would have had to go to war to achieve these aims. And it was one of the central aims of the Marshall Plan to protect America's vital interests in Europe without going to war. So great acts of statesmanship like the Marshall Plan are grounded not just in idealism, but in realism. And this is, I believe, a nested lesson we need to relearn. Thank you very much for your attention.

So, absolutely terrific talk and a really great book. I can't recommend it highly enough. It's beautifully written, and if you want to understand the present, you need to understand the past. I was pondering the fact that you're one of the very few people I know who has written not one, but two books about successes. Most people are writing books about failures. It's quite an unusual thing. Have you ever pondered that?

Well, I wouldn't call, um, Bretton Woods an outright success. It depends what you use as a touchstone. If you look at the economics behind Bretton Woods, it actually never worked. So the, the, you know, one big idea behind Bretton Woods was that if we provided a framework of monetary stability, which would somehow be based upon the U.S. dollar, the world would would liberalize. The United States, in particular, was very concerned about countries constantly devaluing their currencies. But in fact, Europe, the first nine countries in Europe to meet the IMF's conditionality requirements on convertibility did not meet them until 1961. By that time, the system was already coming under enormous strain, as the U.S. was losing gold reserves because countries like France were losing faith in the ability of the United States to support the dollar with gold. So the system, as such, never really worked. If you take the geo, main geopolitical aim of the Bretton Woods agreement, which, as you know, I argue in the book, was the U.S. supplanting Britain as the dominant economic hegemon, um, in the world, then I would say it was entirely successful.

Well, there's a parallel there with the Marshall Plan in that it wasn't ultimately about pouring all the dollars in. It was about the psychological effects of creating, uh, these systems that encompassed, you know, half the globe and, and created interdependencies or, and certainly at least, um, uh, you know, some alliance that hadn't been there before. And it involved, um, a sea change in America's views about its own military responsibilities in, in Europe. So we didn't actually fulfill the initial, uh, U.S. architecture for the Marshall Plan. It was right. We were going to revive Europe's economy and then go home. Then we were going to retreat into splendid isolation because Europe would be able to take care of itself. That, that didn't work out. It remains to me amazing. We take it for granted, but it remains to me amazing that the political leadership of that time could actually bring the American people on board. And I don't think you can underscore enough how deeply rooted was that desire to pull up stakes and get the hell out of Europe, which was seen as, you know, the sort of the cauldron of all American troubles. And, and...

Bad fortune and everything, and yet they did it. And you know, those sums were staggering. They were staggering. Um, they involved two things, um, in particular. You know, I focused here on the, the outward-looking element of the Marshall Plan. But if you look at what happened at home within the United States, first, there was a massive public relations campaign. And in fact, it was called within the State Department, "A Marshall Plan to Pass the Marshall Plan." General Marshall himself was constantly flying around the United States, speaking to church groups, to labor groups, to industry groups, etc., etc., to convince them that this was absolutely necessary.

Um, second, it required political unity. And in this regard, um, there were some compromises made that Marshall had some real difficulties with. If you look at the massive change in Marshall's rhetoric from June of '47 to October of '47, you see something, something's going on. In June of '47, he's talking about peace in Europe, about the importance of humanitarian aid, reviving the European economies. By October of '47, it's all about drawing a line in Europe where we can protect our interests. That is, everything to the left of the line, it's all about protecting Europe and the United States from the threat of communism, specifically Soviet communism. We were perfectly okay at that point with Yugoslav communism because it was no longer friendly to, to Joseph Stalin.

And why did Marshall do that? Because Arthur Vandenberg convinced him. Now, Arthur Vandenberg was wholly behind Marshall's, uh, vision of the Marshall Plan. But he knew to push this through a Republican Congress, you're going to have to emphasize the anti-communist, um, element behind it. And Marshall was always uncomfortable with it. He said, "Scare the hell out of him." Right? Vandenberg told Truman, um, um, in advance of his, um, Truman Doctrine speech in March of '47, "You want to pull Congress together with you, you literally are going to have to scare the, scare the pants off them." And that's why there's such a tough tone in Truman's speech. Whereas if you actually read the words carefully, um, Truman is trying to introduce Marshall thinking about the importance of economic and financial aid, not, um, uh, military aid.

And then Acheson, in some ways, is playing first violin. It's hard to imagine, uh, actually never playing second violin, but he's also, what, what's the, the famous quote? "You have to be a little, a little more true." Yeah, yeah, yeah. Um, you, uh, he, he said, um, something that you, you, you need, you need to, it needs to be more graphic than the truth, right? Um, uh, in other words, if, um, you want to speak the truth to, to Congress, but you're, you're, you're going to have to, you're going to have to ratchet it up a little bit. You're going to have to embrace some rhetoric you're not entirely comfortable with because the other side is firmly entrenched against us. He was the bishop's son, yes, yeah, constantly uses biblical language to defend his interpretations of everything.

So let's just talk for a minute about the personalities because the, the, uh, they're so powerful, they're so extraordinary, and, uh, so much, um, less pale, shall we say, than some of their successors. Um, you've, you've spent all this time with these people. Where, where do you, how do you feel about Kennan today? Um, Kennan is a much more complex character than, than I realized when I started the project. I had in mind the, the Kennan of Mr. X, you know, the famous *Foreign Affairs* article in '47, and the Kennan of the Long Telegram, which is very firm that there's no basis for cooperation between the United States and the Soviet Union, and so we will have to go on the defensive in a very offensive way. That is, we were going to have to meet every bit of pressure that the Soviets, um, uh, try to impose on us any place in the world.

But his views were not consistent. In 1948 and 1949, he, for example, flip-flopped entirely on Germany. He's no longer in, in favor of creating an independent, um, West Germany, and indeed argues that it's, it's a terrible, parable idea, um, and that, um, Germany will go back to its own, um, uh, terrible ways if we do that. We really need to try to find an accommodation with the, um, uh, Soviet Union. And he also, uh, um, opposes the creation of, of NATO, which is rather remarkable when you think of it, since he, he himself realizes that his ideas of economic containment cannot possibly work without security guarantees. So if you're not willing to provide those security guarantees, then you have to throw out the economic stratagems.

Um, and I spoke to John Lewis Gaddis at Yale about this. John Lewis Gaddis is the famous biographer of Kennan and asked him, you know, "How do I make sense of this?" And he says, "You really can't." He says, um, "You have to understand that Kennan is a quite, actually, emotional character." Um, and that he found studying Kennan that when he was undergoing, um, difficult episodes in his private life, it affected his, um, political thinking very much. So he'd, he would go from being optimistic about a robust American approach to foreign policy to becoming completely pessimistic in '48 and '49. Probably spent more, more of his life saying he was being misinterpreted than any American in the century. Um, Kennan spent so much of his, um, uh, career testing the powers of his rhetoric and then recoiling from the consequences.

Acheson, fascinating, absolutely fascinating, uh, character. In some ways, the ultimate American diplomat, despite being totally Anglophile, utterly upper class, and, uh, in many ways, you know, not an ordinary American in any way. No, I mean, he was a vital deputy to, um, uh, Marshall in 1947. He actually produced, um, a sort of prelude to the Marshall Plan in May of '47 in an obscure Mississippi teacher's college where Truman had been invited to speak and decided, "Oh, it's, it's, it's a bad idea for me. So why don't you do it, Dean?" It was actually an extremely, um, important speech. But then he leaves government. Actually, I believe he needs to make money. He needs to make money to live the lifestyle to which he had become accustomed. So he goes back into private law practice until, um, uh, Marshall, uh, tells Truman after the, uh, uh, his unexpected election win in '48 that he's had enough. So Truman brings Acheson in. Their styles are totally different. Marshall with the Soviets is firm but quite soft-spoken and respectful. Acheson actually enjoys insulting his Soviet, um, counterparts and, you know, kneeling them about gaps in their logic. You know, he's the, the ultimate forensic lawyer, looking for the holes in the argument and just relishes the opportunity to explode them.

When I wrote the Marshall Plan, I, I missed having these, um, critical central characters that I could, um, uh, lean on. Um, that I found the most fun in writing. Bretton Woods. So, um, my latest book, which I hope to finish later this year, is a political biography of Wallace, um, who was FDR's Vice President from 1940 to 1944. He was pushed off the ticket in a fascinating way. In June of 1944, there was an open convention for Vice President in which Truman only beat him out on the second ballot, and therefore Truman became President at FDR's death. But had Wallace remained on the ticket, he would have become President. And Wallace was extremely, um, pro-Soviet. And just like with, you know, that my, my Adenauer counterfactual, you look at how history sometimes pivots on these, um, what seem at the time to be very small moments, but people really do matter. It would be a very different world if Kurt Schumacher had been Chancellor and Henry Wallace, um, had been President of the United States. Acquainted with them, Henry Wallace may have been the farthest left of any person to ever serve on a national, on a national ticket as Vice President or President in American history. That's right. I mean, FDR very much liked having Wallace as Vice President, um, from '40 to '44 because FDR was completely focused on the war effort, and he needed somebody to defend his liberal flank. But the leaders of the Democratic National Committee could see Roosevelt physically deteriorating in early 1944 and knew that he was not going to survive another four-year term. So whoever was Vice President was going to become, uh, President. So orchestrating that convention became terribly important.

I have a million more questions, but the one I'm going to ask before I open it up to the audience is, um, less, uh, well, react to this. I, in reading your book, I was struck by how unsentimental the U.S. was in its, um, end of World War II and post-World War II diplomacy. Not feasibility, Russia, but these would be our own allies. We basically brought the British Empire to its knees, or dismantled it. Um, you know, there were, there were plenty of people, including Lucius Clay, who thought the French were a bigger threat than the, uh, than the Soviets. There are still people in America who feel that way. Um, you know, and, and, uh, the wise men, you know, had to deal with all of it, and were not, they were not, you know, throwing softballs. No, they weren't. And the State Department had great tensions with General Clay. I can't remember who it was in the State Department, but who said, you know, "Anytime we have to sign a treaty, first we have to sign a treaty with General Clay." So Clay was absolutely focused. He was, he had what General Marshall used to refer to as "localitis." This was, you, you tell an American general, "This is your theater," and that becomes the whole world to him. And that was for Lucius Clay, Germany was the world. Um, initially, he thought the only way he could revive Germany was through cooperation with the Soviet Union. So he was extremely anti-French and strongly in favor of cooperation with the Soviet Union. But after Marshall came back from Moscow and he realized it wasn't impossible, he changed on, on a dime and became very, very tough with the Soviets. He actually wanted to bust the blockade, um, in 1948. And had he done so, we would have probably been in a, a shooting war with the, um, Soviet Union. So Truman's calm head was extremely important in that crisis. Okay, questions. Lawrence, I should have known.

I think early on, you mentioned that America's nuclear monopoly at the time was responsible for some of the more aggressive or hard-boiled actions, and I'm, I might have just missed it, but, uh, could you go into that a little bit more? I mean, particularly with regards to abandoning Poland and Czechoslovakia. It sounds as if there was almost a kind of unwillingness to exploit that nuclear monopoly. It wasn't, it wasn't hard-headed. It was specifically that the, within the War Department, there was a belief that America had a short window of a few years to experiment with unconventional diplomacy because the Soviets didn't have an atomic bomb yet. They did figure that the Soviets would have it by the early 1950s. It was, um, in August of '49 that they, they actually tested their first, um, atomic weapon. So the window was, was smaller than they had imagined. But my argument is that if the Soviets had had an atomic weapon at that time, I don't think that, um, uh, people like [unintelligible] and Stimson and Forrestal would have experimented with something as radical as massive economic aid. They were willing to do it because they said, "Well, if it, if it doesn't work, we can try, try something else." But right now, we don't have the troops in Europe, we can't, we don't have the budget, and we don't have the political support for for putting them back in. Um, and that's why the creation of, of NATO was yet another major public relations challenge in the United States because, as, as I had, um, laid out, military spending had collapsed in the United States. It was one-tenth the level in 1948 that it was in 1914. And you have the French and the British saying, "We're not participating in the Marshall Plan without security, um, guarantees." So there was, there was a, there was a grand vision, there was an architecture, um, but there was constant, um, uh, recalculation. Um, so, you know, these were not people who were wedded to a specific path. They, they were willing to make adjustments mid-course.

Since you mentioned, since you, uh, mentioned again the issue of security when you talked about why the Marshall Plan succeeded and Iraq and Afghanistan didn't, you didn't say anything about either cultural or political traditions, you know, functioning bureaucracies, things like that. Where do you place that? Yeah, I do write about it, um, in the book. I, I, I tried to keep to the essentials in what was supposed to be a 40-year [unintelligible]. But yes, um, conditionality is extremely important, um, in when you're relying on massive, uh, financial aid in order to achieve political aims. But in the case, I, I talk at length in the book about the cases of France and Italy, which are really interesting because although the U.S. said, you remember, General Marshall wanted the, the plan to come from Europe, the U.S. was of course anxious to retain some control over it. And broadly speaking, the, the Americans were fed up with the French because they were focused on their Great Monet Plan for industrial modernization. The Americans wanted them to focus on fiscal and monetary stabilization. And they were fed up with the Italians for the opposite reason. They wanted the Italians to have their own vision for industrial modernization, their own Monet Plan. And the Italians said, "Don't be such idiot Keynesians. Um, we need to focus on economic and, uh, financial stabilization." And basically, in the end, the Italians and French did it their way, um, and they both were covered. And the way I describe it in the book is that, you know, Italy and France, they were a bit of a mess after the war, but they did have democratic traditions. They did have, um, traditions of a, a reasonably competent, independent civil service. So we weren't trying to construct democratic governments from scratch. They already knew how to do it. So the decision of exactly how to spend the Marshall aid, I compared to deciding whether to use concrete or asphalt to pave a road. Well, one might be marginally better than the other, but it, but it really doesn't matter. So the Americans, in the end, and the Italians and French knew that only had one requirement: that the Communists not come back into the coalition governments. That was non-negotiable. In May of '47, just before Marshall's speech, the French and the Italians kicked the Communists out of the coalition, and that's clearly in preparation for getting, um, U.S. aid. But the Italians and the French were able to use that against the Americans. "If you cut off the aid, you know, we're not going to have any choice. There's going to be public pressure, and the Communists may come back in." In the case of, of France, the United States was almost as worried about the Gaullists coming into power. So they were almost as much concerned about the right as they, they were the left. So the conditionality really didn't work very well, but it didn't really matter. In the case of Iraq and Afghanistan, it mattered critically. You were trying to construct, construct independent, competent, non-corrupt, um, civil, um, uh, service structures from scratch. It just wasn't there. Um, and you can't substitute for that, as well as Jim Dobbins has shown in his voluminous study of reconstruction. We didn't devote anything like the resources we needed to.

So, Lori, I saw you back there. Mike is winging its way. Thanks so much. Um, and I love the upside-down map. There's a great upside-down map and for now, Braudel's great, uh, study of the Mediterranean where he shows how important Africa was to Europe's image of itself. And it made me think of that. But what you don't see in that map is China. And in fact, you know, you didn't mention China when you were talking about Putin's interpretation or what we can guess is his interpretation of the stakes in Europe. And so I wonder if we take China into account, whether his remarks to Shimon Peres can we imagine being different, or do you see him just doubling down on, uh, the same strategy in effect, as a kind of proxy of China by becoming so embroiled in Europe? Or what, what is your view of when China comes into the picture in an important way in European politics? He certainly doesn't, China and Xi Jinping don't figure into Putin's, um, rhetoric until relatively recently. Back in 2016, when he was talking to Shimon Peres, I don't think an alliance with China was seriously on his radar. Um, that's relatively recent. And with hindsight now, and given, um, that, you know, he's invaded Ukraine, we can see that for months he had been building up this alliance to make sure that China had his back. I, I wrote a piece in *Foreign Affairs* a few weeks ago about the financial sanctions on Russia, and what I found was this: in early December, just as the Biden administration was releasing its first military intelligence suggesting that Russia was going to invade Ukraine, I found a huge spike in Belgium's holdings of U.S. Treasury securities of about $45 billion. This wasn't the state of Belgium. This was security holdings at Euroclear, which is a large international custodial bank. So where did that money come from? So then I went to the books of the Russian Central Bank and found a massive spike of almost the exact same size in Russian holdings of deposits of hard currency at other central banks, not identified. What central banks? I mean, what central bank would be large enough to accommodate such a deposit, which would also be friendly to Russia? So I went to the PBOC, the Chinese Central Bank's books, and I found a large spike in the Central Bank's deposits with state-chartered financial institutions. So this money was apparently given to state-owned banks, which we can then presume, um, uh, use the money to buy U.S. Treasuries and park them at Euroclear. This is ultimately untraceable to Russia because if you ask Euroclear, "Who is your client?" Well, their, their Chinese state [unintelligible] began to take a tangible form late last year as President Putin was beginning to prepare for his invasion of Ukraine. I don't believe anything like that was on his radar in 2016. I should emphasize that if you look at Putin's history, invasion, annexation is not, um, top of his strategic list. He prefers to use more subtle means like frozen conflicts in in Georgia and Moldova, and what he had in the Donbass. If he could achieve his aims, and one of his aims was to keep these countries from joining NATO, and in the case of Georgia and Moldova, just producing a frozen conflict was enough. But he came to the conclusion, I believe reluctantly, that it wasn't enough in the case of Ukraine because the government was clearly pro-Western and actively hostile to Russia. And we're going to have to save our conversation, um, for later on whether or not there could ever be, as you pointed out, that, you know, the Russians want a cordon sanitaire, they want a boundary, they want buffer states, um, but they need to control them, and they can't be, uh, Western inclined. And, you know, the current international system didn't really allow them to control it that much. I want to go to the viewers because I don't want them to be left out.

What about Abel Hauser's argument that the funds were mostly used to pay American companies for the goods, such as cotton, that were exported to Europe as part of the Marshall Plan? In other words, this was self-serving on our part. Yeah, the answer was it wasn't. Um, if you look at Harriman's speeches during the period, Harriman was, um, basically responsible for the Marshall Plan in Europe. He was based in, in Paris. He made clear it was absolutely unacceptable for, um, American companies to use Marshall funds as a source of large S, and they should not lobby for, um, uh, Marshall money. I won't, in the interest of time, I won't go over into go into the detailed mechanism by which Marshall aid was, was, um, dedicated. It was a complicated system called counterpart funds, which could, in principle, be used to subsidize U.S. companies. But it was an absolutely fundamental geostrategic aim of the United States to reduce the so-called dollar gap in Europe. That is, Europe was at the time, at the end of World War II, completely dependent on imports from the United States, particularly for capital goods. That was totally unsustainable. So this is one of the reasons why German reindustrialization becomes so important. The United States was determined to restore Germany to its old position as the main capital goods supplier for Europe in order to massively reduce European dependence on American capital goods. And you could say, "Well, why would the United States be so beneficent? What, you know, why would they do that?" It wasn't purely beneficence. We didn't have the capacity at that time to supply both our, um, uh, domestic market. Remember, we had all these troops coming, coming home. We had our own domestic economies to support. We couldn't support a massive reindustrialization of Europe on top of this. So it became absolutely critical to revive Germany as fast as possible. Now, the French were strongly against this. The French were tearing up factories in Germany and bringing them, um, uh, back to France. Initially, we supported this. This was consistent with Morgenthau thinking. But when it, um, became apparent to American, um, uh, planners that this would massively slow down the revival of Western Europe, it was stopped, um, uh, entirely. So this was not a scheme to push U.S. exports. And in fact, you, you see a lot of the American industrial associations at the time arguing with their own members, "Don't be selfish, because if these trading counterparts of ours don't actually have the, the dollars to buy our goods, um, then it's going to be self-defeating. We need to rebuild a balanced global economy in our own, um, interest." So it was really a quite remarkable period in American history where you do get, not just in the public sector, but in the private sector, a long-term. Yeah.

Well, absolutely fascinating story, and we could go on a lot longer, but, uh, we are at the end of our time. I want to thank you all for joining us today, and especially you, Ben, for coming to the Academy and, and speaking with us. Uh, I want to just, um, close by saying that our next event is on this coming Thursday, April 21st, when, uh, Martin Indyk, actually a colleague of, uh, Ben's, will be here. He will present the Stephen Kellen Lecture entitled "Master of the Game: Henry Kissinger and the Art of Middle East Diplomacy." That's based on his new and very well-reviewed and highly regarded book. I hope to see many of you there, and, uh, thank you again from the American Academy. It's been a pleasure. [Applause]