10 - From Reconstruction Aid to Capital Interlocking: Direct and Portfolio Investments

Summary

long-term capital exports as an element of international economic integration

World War II left Germany and the rest of Europe in ruins, uprooted millions of people, and destroyed most of the continent's national economies. The war wrecked a substantial portion of private and state-owned production capacity. Private savings were rendered all but worthless and gold and foreign currency reserves exhausted. The initial impetus for the reconstruction and reintegration of the European and international economies could only come from the United States: through governmental transfers of capital (“reconstruction aid”) and the opening of the high-income American market to exports from Europe and the rest of the world.

Providing aid for the reconstruction of Europe was in the economic and political interests of the United States. The creation of export markets for American companies and the containment of communism presupposed a flourishing Western European economy that was organized according to free-enterprise principles. With the Marshall Plan, the United States not only made (public) start-up capital available to Europeans for reconstruction, it also helped to relieve the acute shortage of foreign currency, inaugurated the revival of international trade that had been sluggish since the Great Depression, and created the basis for a gradual, multilateral liberalization of trade.