The Main Lin~~

Marshall Plan In a talk on "World Economic Prospects" at the annual meeting of the Caltech Alumni Association in June, 1949, Horace Gilbert, Prof~ssor of Business Economics, pointed out what he considered to be the short­ comings of the Marshall Plan. In the fall of 1949 Prof. Gilbert took a year's leave of absence from the Institute to serve on the staff of the U. S. High Commissioner of Ger­ many, in the Office of Economic Affairs, supervising imports, exports and monetary payments made by the Republic of Germany. In the following excerpts from a letter written to Dr. DuB ridge, Prof· Gilbert takes another look at the Marshall Plan-a year later. With apologies to Washington roomettes, bedrooms, or palatial bed, Irving, the picture above might well rooms en suite (the most spacious of be captioned, "The Legend of Sleepy all Pullman accommodations). All Dear Lee: Hollow." At any rate, the comfort­ sleeping accommodations for two or Little did I think when I spoke to able-looking lady is ensconced in a more have their own private, fully the Caltech alumni about a year ago "sleepy-hollow" chair. enclosed washroom. (Bedrooms en suite have two.) Each bedroom has that during the year to follow I In this case, however, the "sleepy­ would be in the middle of the Mar­ hollow" is not a legend. It's real. And a clothes closet with lights that come on automatically when the doors are shall Plan program over here. On it doesn't have to apologize to W ash­ the whole it has been a good year ington Irving or anybody else. opened. (We aren't sure, but we sus­ pect that Frigidaire must have sub­ and I have had a remarkable oppor­ News Photo contracted for this part of the job.) tunity to study and participate in the high drama of the economic recon­ Actually, this is virtually a news Pressure's Off photo. It's hot out of the camera of struction of a great industrial nation. a photographer the Budd Company This probably won't mean much to In this letter I propose to bring up engaged to give us an advance peek you as a traveler, but new car deliv­ to date the thinking I presented at at one of the chair cars for our new eries for the City of San Francisco the alumni meeting. First, some sim­ Sunset Limited. have now reached the point where ple reporting. we have one "extra" set of equip­ To be perfectly honest, though, 1. The direct beneficial effects of ment. What it means to us is that ECA aid are even more impressive one of the reasons the lady looks so we don't have to work quite so fran­ comfortable is that she was hired to than I expected. I have visited tically to get the train "turned France, Britain, Ireland, Holland, look that way. The car is real enough around" and ready to go out again. but the people aren't. Because the Belgium, Italy, Greece, Switzerland, Now, even if we're unlucky enough and I have seen a great deal of all train won't be completed and in to have the City come in late, the service until August, we had to get parts of Western Germany. The flood next departure for Chicago will still of food, tobacco, petroleum products, some models to "round out" appear­ be on time. Admittedly not a world­ ances. Nevertheless, that picture is and industrial raw materials, espe­ shaking event-but we thought you cially cotton (these are called soft a pretty accurate indication of how might like to know. things will be in the chair cars aboard goods), has produced a condition of the new Sunset Limited. New Stuff well-being that certainly would not But don't take my word for it. We're getting lots of other new cars, otherwise have been possible. I fear Come August, ride it and see for too. The Golden State is a 100% that in Italy, Greece, and perhaps yourself. Of course, the train is only streamliner now between Los Angeles France, the level may be higher than part chair car. For the folks who want and Chicago. Right on the heels of any possibility of maintenance when privacy, or who want to crawl into the new Sunset, the Cascade between aid is ended. bed and sleep, the new Sunset will San Francisco and Portland, and the 2. It has been the supply of soft rise to still greater heights. Overland between San Francisco and goods, not capital equipment for re­ Chicago will be fully streamlined, too. construction and advanced technol­ All Rooms Even if there isn't any such word, ogy, that has raised the level of Sleeping car accommodations will be by the end of the year we'll be the physical well being so high in so all rooms. You'll have a choice of streamlinedest railroad you ever saw. short a time. The beneficial effects of the investment program in capital equipment will only be known in years to come. The friendly Southern Pacific CONTINUED ON PAGE 23 2-JUNE 1950 Letters CONTINUED FROM PAGE 2 taken for granted. This reflects soft thinking or undue optimism on the part of some ECA officials in the 3. The amount of Marshall Plan Paul Hoffman has been telling. It is echelons below Paul Hoffman. money that is going into soft goods probably good enough to warrant the 3. Much of the capital investment as compared with capital- equipment, appropriation by Can g res s of of Marshall Plan funds has been in varies widely among countries. In $3,100,000,000 additional to finance France, Italy, Austria, and Belgium, this respect Germany and France the ECA during 1950-51. in industries competitive with Ger­ present a strong contrast: Germany Now I corne to the second part of many, Britain, and even the U.S. In is using less than 5% of its dollar my comments. The real test of this respect the ECA has assisted the aid for the latest machines, etc., from whether the Marshall Plan is suc­ interests favoring economic isola­ the U.S. while France is using about ceeding is still in the future. A year tionism in these countries. If my 30%. France is setting itself up with ago, you may remember, I expressed forecast is right that these projects steel and automobile plants incorpor­ some serious doubts about the pros· will prove high cost, there will he ating the most modern design. pects. J emphasized especially that great pres~ure to protect them from 4·. The important consideration is Europe needed the U.S. market in foreign competition. This is exactly the total amount of investment in which to sell, as much as it needed the reverse of the outcome the ECA capital equipment, including that dollar aid with which to figure out intends. using Marshall Plan funds, that is some other way to earn a living. 4. The Schuman Plan for the in· taking place. In this respect Germany Here are my latest ideas: tegratIon of the French and _German and France are more nearly on a par. steel and coal industries is a fresh Germany has the industrial sophisti­ The Situation Today approach to the goal of Western cation with which to produce her European economic integration. It is own capital equipment, while France 1. Little progress has been made free of the taint of U.S. dollar com­ and the other continental benefi­ toward the attainment of an inte­ pulsion, and it makes use of cartel ciaries of Marshall Plan aid have grated Western European economy. ideas which are so widely accepted not. The United Kingdom is much The explanation is principally the ovel: here. It is not so ideal as the like Germany in this respect. In these same as that for the U.S. protection. straightforward goal Hoffman has two countries, U.S. dollars buy food ism: the political influence of indus· been urging Europe toward, but it and raw materials for the most part, trial, agricultural, and labor groups holds promise of succeeding where he to supply sustenance for the popula­ that cannot, or think they cannot, has failed. It will be an interesting tion and grist for the industrial mill, compete under unprotected condi­ study in the emotional versus rational while an effort is being made to tions. These ideas are strong in all approaches to the solution of a prob­ build up the productive capacities of kinds of countries: Britain, France, lem if the Schuman Plan succeeds. I the two economies to the point where Italy, Germany, Portugal. It is a am hopeful. they can support satisfactory stan­ sorry reflection on democratic proc­ In brief, then, a year ago r was dards of living. Total investment, esses that minorities are able to hold pessimistic principally because of including that paid for with Marshall their positions against the best inter· U.s. protectionism. Now I am pessi­ Plan dollars, is going on at a good ests of the clear majorities. mistic in addition because of the dis­ or excellent rate, in most countries. 2. A great deal of capital in· mal prospects of Western European 5. Up to this point the picture I vestment, including Marshall Plan economic integration. The Schuman have painted reflects a satisfactory dollar aid, has been made in the Plan offers some hope. state of affairs. It - is the story that expectation that integration could be The eventual outcome might be

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JUNE 1950-23 something like this: 1) a little im· war. Incomes are low and prices in the British zone: the carrying out provement in U.S. imports, thereby tend to be high. Business profits of the dismantlement and the reduc­ permitting Europe to pay its way by quite generally are high, but they are tion of the level of industry there that much more; 2) a little improve­ being reinvested in business. The have cowed and embittered the Ger­ ment in intra-European trade, thereby cost of rubble clearance and recon­ mans. The attitude of industrialists is gaining a part of the advantage of struction is being charged to current not what it should be to parallel integration; 3) a U.S. agricultural operations. ECA efforts in the direction of recov­ surplus problem which might be 3. Industry in general is in great ery. relieved by gifts of cotton, wheat, to· need of modernization, both with 6. Mr. McCloy is doing a fine job bacco, and corn products to Europe: respect to technical design and manu­ at his level. The nurturing of a and 4) a lowering of the living facturing methods. Under Hitler German government that really rep­ standard in some countries to a point capital for reinvestment was chan­ resents the people is a most delicate more near to what can be supported. neled into munitions production, matter. Adenauer's administration It is really too bad that better results especially state·owned plants. The does not enjoy wide popular support, are not in prospect; but the critical know-how is here along. design and but it is probably stronger than an­ period of postwar adjustment will manufacturing lines, but capital in other would be. Mr. McCloy has not have been bridged not too badly. general is critically short. had time to build up a strong Office Now, some specific points about 4. Germany's industrial prospects of Economic Affairs, and it is in that Germany. in relation to other Western Euro­ area that the U.S. is doing a poor job. 1. The German productive econ­ pean countries are good. Trade lib­ I hope very much that you will omy is on an operating basis that eralization, however, is desperately ask friends of Caltech who are travel· corresponds reasonably well with needed. In relation to the U.S. the ing in Europe this summer .to drop prewar. It is quite remarkable that prospects are not good. Bridging the in to see us. the huge influx of refugees and ex­ dollar gap by 1952 in a fashion that Our home address is 7 Schoen­ pellees has created no more unem­ will permit Germany to become self· bergerfeld, Kronberg in Taunus, ployment than exists. supporting with respect to food and telephone Kronberg 310. 2. Living standards are low, but some materials is beyond my pres­ Horace N. Gilbert tolerable. Housing is really bad, but ent expectations. the supply of savings is not adequate 5. British and French commercial to maintain full employment in the rivalry with Germany is a real ob­ Office of Economic Affairs construction industry. The number stacle to our ECA program here. Industry Division of automobiles is about 1/3 of pre· About 80% of German industry is Frankfort, Germany.

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