ECONOMIC AND POLITICAL IMPACTS OF
POST-WAR FOREIGN ASSISTANCE ON
AMERICAN AGRECULTURE

Thosis for the 009m of M. S.
MICHIGAN STATE COLLEGE

James A. Rock
1955

This is to certify that the.
thesis entitled
ECONOMIC AND POLITICAL Il'PACTS OF

POST-WAR FOREI ON ASSISTANCE ON
AFV7LRI CAN AG RI 11: LT U917:

presented by
JAICES A. ROCK

has been accepted towards fulfillment
of the requirements for

Mdegree in Agricultural
Economics

Major professor

Datefilfl"; g {I /?J\$’

0-169

ECONOMIC AND POLITICAL IMPACTS OF POST-WAR

FOREIGN ASSISTANCE ON AMERICAN AGRICULTURE

By
James A. Rock

AN ABSTRACT

Submitted to the School of Graduate Studies of Michigan
State College of Agriculture and Applied Science
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural Economics

1955

Approved XML/L, W/Vél

THEST'r

James Anthony Rock

The impacts of the assistance programs for the war-torn countries fol-
lowing the Second World War are important both economically and politically.
The setting of the international situation required the United States to
bring its full economic and political power to bear. The devastation
wrought by the war offered a fertile breeding ground for the advancement of
world Communism. To stem this tide it was found that relief was inadequate
and that an almost complete reconstruction of Europe and some of the Far
Eastern countries was needed. This process can be followed through the
procession of attempts to relieve the situation starting with the attempts
at international cooperation in relief through the security programs of the
present time.

These programs have played a very important role in the United States
economy as well as in the recipient countries. The major questions posed
in this thesis deal with the effects within the United States, specifically
on American agriculture. It is doubtful that the American economy could
have continued in the post-war period at such high levels without the help
of the aid prOgrams or some alternative measure to keep demand high so as
to absorb the product of the enlarged capacity of the war period. This how-
ever, is not the only consideration in evaluating the programs. Through
the post-war period the questions relating to consistency of American do-
mestic and trade policies and their relation to United States objectives
become a major consideration.

To completely evaluate the American position it is necessary to his-
torically examine the roots of American policy prevailing at the inception
of the postdwar relief and reconstruction programs. Not that this brings

out the inconsistencies in policy but it helps in the understanding of the

James Anthony Rock

course of action that was followed. It allows one to study the two ele-
ments in American policy - the liberal and protectionistic - and to under-
stand the reason for the inability to predict accurately exactly which ele-
ment will prevail in any one policy measure.

Finally it must be said that the real problem in any evaluation is
how to statistically organize the relevant data. It will be shown that to
uniertake this task is virtually impossible. Hence even though one can
present a suitable analytical picture, it is really questionable whether it
would be fruitful to actually undertake its ultimate solution. What is done
in this paper is to present such an analytical picture with its background
and possible implications, economically and politically, for the American
agricultural sector. However there are aspects of the approach taken here
that are relevant and vitally important. many factors cannot be statistically
evaluated and must be studied from.another viewpoint. In the fields of foreign
aid and international cooperation the political aspects become a prime factor.
Whether international cooperation can become effective depends upon the goals
and objectives of the nations in question. The operation of foreign aid,
where it pertains to the countries objectives, also become dependent upon
political manipulations. The answers to these problems lie in an historical study
of the trends in world organization and domestic political philosophy. This

is the writer's position in arriving at the conclusions of this study.

ECONOMIC mm POLITICAL IMPACTS OF POST-WAR

FOREIGN ASSISTANCE ON AMERICAN AGRICULTURE

By
James A. Rock

A Thesis

submitted to the School of Graduate Studies of Michigan
State College of Agriculture and Applied Science
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural Economics

1955

ACKN OIILEDGMENT S

In attempting to write what one feels in the way of gratitude, ad-
miration or related emotions, the writer is at a great loss for proper
terms to characterize adequately his feelings. Hence it becomes neces-
sary simply to say thanks in the traditional way and hope it conveys his
true feelings.

The author wishes to express his sincere thanks to Professor Lawrence
Witt, under whose inspiration, and constant supervision this thesis was
undertaken. His great interest in the problem that was chosen resulted in
a considerable addition to my education. His broad knowledge and many in-
sights opened many avenues of knowledge hitherto unknown or overlooked by
the writer. Completing this Thesis while at another school has been possi-
ble only through the closest cooperation of Dr. Witt, to whom this is
dedicated.

The author is also greatly indebted to Professor Wesley R. Fishel for
his guidance and interest in the graduate education of the writer. It is
also appropriate to offer kind thanks to Dean Thomas K. Cowden who made it
possiole for the writer to enter graduate school oy making a graduate
assistantship available.

Others who were responsible for the author's deep interest in continued
learning and offered much inspiration are Professors Glenn L. Johnson, Dale
Hathaway, Ralph Smuckler, L. L. Boger and Reaert Kramer. Thanks are also
due the rest of the faculty and to the graduate students, especially Luther
Pickrel, Al)ert Halter, and Gerald Trant who always found time to discuss

problems with the writer.

Finally, may I express the deepest gratitude to my wife and mother who

always stood by, in times of strain, with their deep understanding.

TABLE OF CONTENTS

ACKNOWLEDGMENTS

CHAPTER
I.

II.

III.

IV.

V.

mTRmUCI‘ION. O O O O O O O O O O O O C
THE INTERIIAR PERIOD ; A BACKGROUND . . .
The InterwarPeriod. . . . . . . . .

The Wartime Period and its Aftermath.

WAR AND EARLY POST-WAR RELIEF PROGRAMS AND WORLD

CONDITIONS IN THE POST-WAR PERIOD. . . . .

Ewope O O O 0 O O O O O O O O O O O O

The Far East. 0 O O O O O O O O O O 0

Programs Instituted to meet world Needs

Civilian Supply Program . . . . . . .

United Nations Relief and Rehabilitation Administration

The Truman Doctrine . . . . . . . . . . .

Interim.Aid and the ECA . . . . . . . . .

MSA and Other Military Assistance . . . .

SW 0 O O O O O O O O O O O O O O O O

FARM ORGANIZATION OPINION AND PRESSURE GROUP ACTIVITIES
IN THE FORMULATION OF FOREIGN ASSISTANCE . . . . . .

The American Farm Bureau.Federation .
The National Grange . . . . . . . . .
The National Farmers Union. . . . . .
The Department of Agriculture . . . .

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THEIR IMPLICATIONS AND EFFECTS.

Pressure to Buy in the United States. . .

PAGE

no
AZ
147
1:9
51
SS
58
62

CHAPTER

Effect upon Agricultural Prices, Production and

Surpluses. . . . . . . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . .

VI. DOMESTIC AND TRADE POLICIES AND THEIR CONFLICTS
Domestic Policy . . . . . . . . . . . . . . .

Trade Policy. . . . . . . . . . . . . . . . .

The Liberal Element of Policy . . . . . . .
Protectionistic Elements . . . . . . . . .

The Conflicts . . . . . . . . . . . . . . . .

The Resulting Measures. . . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . .

VII. SUMIARI AND CONCLUSIONS . . . . . . . . . . . .

BIjLI xRA-EJHY. O O O O O O O O O O O O O O O O 0

PAGE

65
7h
77
78
80
81
83
86
89
90
9b

100

LIST OF TABLES

TABLE PAGE

I. United States Agricultural Production with Exports, in
Quantity and as a Percent of Production, by 5 Year
Averages for the Period 1925. . . . . . . . . . . . . . . 13

II. Estimate of Caloric Value of Daily Food Intake Per-Capita
for Total Population in European Countries, Pre-war,

l9LLS/19Ll68ndl9h6/19LL7................. 22
III. ERP Funds, April l9h8-June 1951 (In Millions of Dollars). . 35

IV. Comparison of Total Import Requirements for Participating
Countries, Excluding Colonies, for Major Food Items from
All Sources As Stated in CEEC Report with United States
Estimates of Availabilities, by Fiscal Years 19u7-19u8
throughl9SO-l951.................... 53

V. Estimated Food and Agricultural Exports from the United
States under European Recovery Program. . . . . . . . . . Sh

VI. Value of United States Agricultural Exports-Commercial and
Aid Programs (Figures in Billions). . . . . . . . . . . . 60

VII. United States Agricultural Exports and Total Cash Farm
Income,l9u6-53ooooooooooooooooooooo 62

LIST OF FIGURES

FIGURE PAGE

I. The Contracting Spiral of World Trade. . . . . . . . . lO

CHAPTER ONE

INTRODUCTION

The question of international trade and its implications for American
agriculture has been and is now much debated. The oovious inconsistencies
in the attempts to reconcile the prevailing domestic policies in agriculture
and the desired goals sought by our foreign trade policies are becoming more
difficult with every passing moment.

Following world War II the United States moved into the position of being
one pole in a bi-polar power struggle. In doing so she found herself in the
position of leader of the "free world." This move also brought to a climax
the interaction of our foreign trade policies with prevailing domestic poli-
cies. Much uncertainly stemmed fronlour actions to "contain" the Soviet
sector of the world and still maintain the American economy at its highest
level. The necessity of a reconciliation of domestic and foreign policies
became more real as the policy of containment moved into high gear with in-
itiation of the Truman.Doctrine and the muropean Recovery Program.

A major area of such conflict was between the domestic price policies
and foreign trade policies in agriculture. Questions concerning agricultural
policies arose following the war; in attempts to rebuild and strengthen the
free world, these questions were sidetracked as the post-war aid programs were
initiated. Because a primary concern in the world following the war was a
shortage of food, these aid programs were concerned to a great extent with

food supplies. Hence, because of their origin in, or strong support

2
from the United States, the agricultural sector of the American economy play-
ed a major role in the rehagilitation following the war.

These post-war aid programs, then, will be the major consideration of
this work. Their effect on the American agricultural system was just as im-
portant as the aid itself in relieving world pressu es. However, contained
in these programs and their effect on American agriculture are the perennial
questions of conflict between policies which are directed at different objectives,
yet overlap in their operations. Many of these present problems have their root
in the inter-war period when the world economy suffered a major depression, es-
pecially during the decade of the 1230's. During this period, with the downward
pressures of the business cycle, countries raised their trade barriers and en-
acted domestic legislation to attempt internal staoilization with little regard
to effects on world trade. This continued the trend toward centralization of
government and control of trade by government policies. The war itself saw
an almost complete control of trade by governments, with the consequence of an
international as well as domestic allocation of resources and products, among
producers and users respectively, 3y various rationing and priority schemes.
The domestic price and production policies used during the pre-war period to sta-
bilize incomes were adapted to encourage greater production to meet wartime
needs by offering an assured price and market for producers goods. The clash
between domestic and foreign policy would not necessarily occur then, because
the price support mechanism was largely sidetracked in determining efficient
uses, the primary purpose being the obtainment of necessary supplies to fight

a war.

3

With the ending of the war and the domestic pressure to shift to peace-
time pursuits, the nation found itself with a set of domestic policies in-
tended for the high production needed to supply a large war machine. In order
to shift it would have been necessary to reorient the domestic policies to be
consistent with post war conditions, international goals and the United Nations
and subsidiary organizations which were in large part nurtured and fed by Amer-
ican funds and desires. However, such was not to be the case. Within the war-
ravaged nations great food shortages prevailed, arising from inabilities of
these countries to produce domestic supplies in sufficient quantities to fill
their demand. Coupled with this was a realization of a change in Soviet poli—
cies toward the non-Soviet world, from one of war-time c00peration to antagon-
ism, leading to the Cold war and "containment."

To meet the situation the United Nations Relief and Rehabilitation Adminis-
tration (UNRRA) tried relief on an international basis. For many reasons (which
will be covered later) the United States desired to shift to a bi-lateral relief
system. Although these aid programs were fbunded and put ferward on a high mor-
a1 plane, the programs became in time a part of the overall containment policy»
The early portion of the aid programs was designed to foster rehabilitation
through the giving of large quantities of.food, tools and technical assistance
in rebuilding industrial capacities. As the programs progressed and the tempo
of security operations and containment increased, the production within the
countries was lifted to prewar levels and the supplies shipped tended to be-
come military items. With the de-emphasis of foodstuffs the problems accrue
ing from inconsistencies began to appear. With foreign production increasing,

disposal of farm products through these aid channels was curtailed.

Restating a previous statement, one sees that these aid programs then,
in their effect on American agriculture, were just as important as the relief
they gave to world food pressures and war-torn industries. The aid programs
will be approached specifically from the agricultural viewpoint. Because many
basic policy questions have their root in the inter-war period it will first be
necessary to survey this period in order to determine the position of American
agriculture in the world markets, taking account of any trends, changes or poli-
cies that the aid programs might have accelerated, retarded or held constant in
the postawar period.

A discussion of the aid programs themselves, with the position taken by
the agricultural pressure groups in constructing the framework of the program,
will indicate the desired role of the agricultural economy in foreign aid. In
comparing this desired role with the actual role played by agriculture, one
'will find what the pressure group considers as a problem and.desires to change
it.

Further consideration of Operation and effect of the programs on prices
and production and the interaction of the programs will indicate the conflict-
ing issues. Fbr example, the desire to rebuild war-torn countries was basic
to all aid, yet the United States maintained her maze of trade restrictions
and domestic high prices by government measures. This hindered complete re-
construction on a competitive basis aid'was in opposition to the initial pre-
miss.

To consider the future need for aid, one must consider the type of aid
and the need for aid. This raises problems of uncertainty in planning. Even
in light of this uncertainty, there is a grave necessity for coordination of

policies in the domestic and foreign sector of policy planning, these two in

5

many instances being almost inseparable. The basic question in policy formu-
lation is attempting to follow coordinated lines of thought. This brings into
consideration the policies put forward by political expediency versus those
put forward by insight into the problems 31d evolving necessary actions to meet

those problems.

CHAPTER TWO

THE INTERWAR PERIOD: A BACKGROUND

The interwar period, 1919 through 19h0, can be divided into two dis-
tinct segments. First, the period from 1919 through 1929 was a decade of
relatively stable to gradually rising prices, and might be considered as
an era of prosperity and expanding world economy. An exception, however,
is that agricultural prices were generally weak and low relative to other
sectors.

"Thus in the twenties the major philosophy behind the economic policy
of the leading countries was dominated by the idea of eliminating the
effects of disturbance and interruption caused by t e Great War and to
restore the long era of prewar progress and peace."
By l92h the goal was beginning to be realized and the level of foreign
trade reached 102 percent of 1913, rising steadily to 130 percent in 1929,
with nearly full employment in the United States and Germany.2 This desire
to return to ”normal times" during the twenties led to a deterioration of
the international economy as countries began to restrict trade in attempts
to maintain employment levels. Because of the complexity of the problems,
processes and policies during the decade of the twenties, only a rough indi-
cation of the major ones will be given here.

During the war period (l9lh-l918) American agriculture as well as in-

dustry expanded productive capacity manyfold. The armies and countries

which could not produce because of war devastation offered an insatiable

market for the goods. Following the war, the nationalistic drive of countries

 

1 Brandt, Karl, The Reconstruction of WorkiAgriculture, W. W. Norton &
Company, Inc.,“NewIYOrk, 19h5, P. 50.

 

2 Ibid, P. 51.

7
to foster the growth of their own production plants, in an effort to pro-
duce self-sufficient economies, led to a decline in demand for exports,
with a subsequent fall in price as the war ravaged countries recovered.
This situation of overproduction is aptly illustrated by Henry wallace

when he said:

'...It is a tribute to our great resources and our technical productive
ability that our fields and factories from 191k to 1930 were able to
send to the outside world 25 billion dollars more in goods than we re-
ceived. It is a reflection on our leadership that not until 1933 have
we done any effective thinking as to the steps the United States may
have to take because it is simultaneously a great exporting nation and
a great creditor nation.

we went into the World War owing other nations 200 million dollars
annually on interest account, and came out with other nations owing
us 500 million dollars annually. Moreover, the production of our farms
and factories was enormously stimulated during the war.

Our financial and political leaders tided over the situation, or
glossed it over, by maintaining a false market for our surpluses abroad.
To do so, we loaned an average of more than 500 million dollars a year
to foreign countries. While this false foreign market for American
exports was being maintained Congress, amid general consent, twice
raised tariffs. Schedules were raised in 1922 and again in 1930.

From 1926 on it became increasingly plain that modern technique
applied to agriculture and to production of other raw materials was
heaping up a worlddwide oversupply. WOrld overproduction played an
important part in the ever-descending spiral which began in 1930.“

This overproduction during the prosperity of the twenties led farmers
in all parts of the world to turn to their governments for aid to remedy
the deteriorating situation. With the precipitation of the great crash in
the autumn of 1929, a long chain of events was climaxed, breaking down al-
most entirely the capital structure of the international economy. This
carries us into the second segment of the interwar period.

The early years of the thirties saw a continued decline in the business

cycle as the financial collapses continued and government actions tightened

 

3 wallace, Henry.A., America must Choose, Foreign Policy Association,
New York, 193h, PP-Igeé.

8

restrictions, attempting to keep out the depression or isolate its effects
to as few industries as possible.

To present a picture, however, of each nation trying to clean its own
house is not entirely true. The entire world economy, or events of each
nation were so closely intertwined that whatever one nation did had vital
effect on several or all of the other nations.)4 When the different seg-
ments turned to their governments for assistance the trend toward central-
ization and trade control was pushed forward. With governments in many cases
threatened with political disaster due to continued declines in employment,
some of the prominent remedial actions were along the line of tariffs, exchange
controls and various quantitative restrictions. The action taken by many
countries, including the United States, in going off the gold standard
allowed their currencies to depreciate. This meant stiffer competition for
domestic producers, since the depreciation lessened the effect of the pro-
tective tariffs and led to a tightening of import regulations, which re-

sulted in retafiation in many instances.5

The departure of Great Britain
from her free trade stand in 1932 by placing extensive tariffs on non-Ems
pire imports, had the over-all effect of concentrating trade within the
Empire and further restricting world trade. The introduction of the Hawley-
Smoot tariff into American trade policy gave the distinction to the United

States of being simultaneously the world's primary creditor nation and at

the same time having the highest tariffs.6 The servicing of international

 

h
5

Brandt, 92. 3:33., P. 77.

Enke, Stephen and Salera, Virgil, International Economics, Prentice-
Hall, Inc., New York, 19h7, pp. 61:52.

 

' 6 Ibid., pp. 61-65.

9

investment followed the same sharp decline after 1930, and in 1932 ceased
almost entirely, with widespread default on war and post-war loans in Europe
and Latin America. Stabilization loans had recuperative effect solong as
the conditions elsewhere remained favorable, but the bulk of the loans
were undesirable for in order that borrowing countries avoid default and
make payment would have wrecked the individual economies. The loans which
led to disaster were unilaterally governmental, or the borrower was a
government and the lenders were private investors.7 By middle to late 1932
the depression dipped to its lowest point. Beginning with the year 1933
the planned economy came into its full light with the rise of political
tyranny, barter trade, rearmament, appeasement and economic girding for
war.8 The situation of world trade is well pictured by Figure 1.
Conferences abounded during the years 1929-1933, starting with the
League Conferences to abolish tariffs and other restrictions, through the
WOrld monetary and Economic Conference at London, which marked the end of
the League of Nations as an instrument for international cooperation. A
primary factor during the interwar years was the lack of agreement by the
entities within the world economy on a system of clearing and balancing the
international payments.9 However, despite the obstacles to world trade,
it gradually started upward during 193A with the assistance of the inau-
guration of the Trade Agreements Act and the gradual strenghthening of

internal economies. Although it is impossible to distinguish statistically

 

 

 

7 Salter, Sir Arthur, Essays in International Finance,No. 12 - Foreign
Investment, Princeton University, 195I, pp. 2h-26.

8 Brandt, 22'.Si§°’ p. 89.

9

Condliffe, J. B., The Commerce of Nations, W. W. Norton Company, Inc.,
New York, 1950, p. _h6§.

 

10'

 

 

 

 

Oct. 5, IL «~— — e Apr.
8 to
8p W
\\ ‘
Aug. "T Jun.

FIGURE 1. The Contracting Spiral of World Trade ..
Reading clockwise, this chart indicates how, from
1929 into 1933, the value of world trade in each
month was less than that in the same month of the
year preceding.

SOURCE: Condliffe, J.’ B.‘; The Comerce of Nations; U. W.
Norton and Compaxwm p. 1495.

11
between changes due to the concessions in the Agreements and those changes
resulting from other causes, it may be assumed that the tariff reductions
must have operated to make both imports and exports larger during 1937-38.10
After 1935 it also became increasingly evident that the economic controls
used by the German government were being utilized to increase her mili-

tary strength.11

This led to rearmament programs in other countries and
increased trade as governments stockpiled for war. The entire period from
1932 to 1939 may, in reality, be considered as years of readjustment rather
than expansion, (with economic recovery accomplished in the face of increasing
political tension).12

The question we must consider, then, is the effect of this period on
American agriculture or the situation of the foreign markets with respect
to agricultural commodities. The disintegration of the free market system
of the international economy was expected to bring about violent disrup-
tions in American agriculture because ”in no other country was agriculture
more completely linked to the market economy."13 A large portion of agri-
culture depended, and still does depend, on export markets for outlets of

a very significant fraction of the total production, with wheat, rice,

cotton, tobacco and smaller quantities of other commodities moving into

 

10 Qperation of the Trade Agreements Program: June 193A to April l9h8,

part 1, Summary, United States TariffICOmmission, Washington D. C.
19h8, pp. 51-52. See also Witt, Lawrence W., Agriculture,_Trade and
Reciprocal Trade Agreements, Technical Bulletin 220, Michigan Agri-
cultural Experiment Station, East Lansing, Michigan, 1950, p. 5 ff.

 

 

 

Enke and Salera, gp. 233., p. 66.
12 Brandt, pp. git, p. 108.

13 Ibid., p. 92.

12
these channels.lh The following table (Table I.) lists the commodities
comprising the bulk of the income from agricultural exports. One sees
that with the depression there was a drop in shipments of almost 50 to 60
percent in some commodities (Table I.). In dollars the drop was far greater,
going from almost 5 billion dollars in 1929 to l.h billion dollars in 1932.15
The gross income of agriculture dropped from 10.5 billion dollars in 1929 to
h.3 billion dollars in 1932.16 However, despite this drop in income, agri-
cultural production did not decline significantly (Table 1.); this lowered
prices even further because of the large excesses in supply. With the loss
of the export channels and the great fall in prices, the agricultural sec-
tor as well as the industrial sector turned to the government for help.

The two important outcomes of this move were the Agricultural Adjustment
Act of 1933 (AAA), whose basic ideas were to have lasting effect, and the
National Recovery Act which dealt, to a large extent, with the non-agri-
cultural sector of the economy. The AAA, plus economic forces due to the
great drought, brought domestic markets under control and slowly restored
farm income through the increasing use of public subsidies to offset the
loss of foreign export markets. The program.in itself was based primarily

on attempts to remedy domestic difficulties by internal actions with little

 

lh‘ Witt, Lawrence W., “Our Agricultural and Trade Policies", Journal of
Farm Economics, Vol. XXIII, No. 2, May, 1950, p. 163.

 

 

15 United States Farm Products in Foreign Trade, Statistical Bulletin
No. II2, United States Department of Agriculture, Washington.D. C.,

1953, p. 7.

 

15 Brandt, pp. _c_i_t., p. 90.

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assessed ea .mppooxm some soapoeeopm ampspaeoapma mmpmpm popes:

mmma befiaom on» you mommam>4
new» m he .cowposoonm mo pcooaom a mo one

 

H mqmde

14
regard to international repercussions. As the policy progressed it gradually
moved into a permanent program, giving, innany ways, a planned agricultural
economy as Congress granted to the farmer a guarantee of price parity sub-
ject to certain controls on production and/or marketing.

Revival of the export markets was necessarily slow, impeded as it was
by the primarily domestic nature of the farm policy coupled with the planned
economies of Europe. The weakest part of the adjustment prOgram was found
to be that dealing with these export markets. As greater reliance was
placed on "publicly manipulated and protected domestic markets" farmers
backed the industrialists in maintaining high tariffs which kept out indus-
trial goods that could have been used to pay for American agricultural ex-
ports.

The decade of the thirties was, then, disastrous for agriculture. The
breakdown of the international economy led to the more rapid undertaking of
centralized planning and government controls as the world moved into a new
war. The world saw the growth of a great jungle of trade restrictions ranging
from tariffs to complete government monopolies over trade. The concept of
parity was brought into American agriculture as farmers demanded and received
government support of prices to offset the fluctuations due to adverse mar-
ket conditions. Further, the great interest of agricultural pressure groups
during this period is reflected in the export subsidies gained for wheat and
cotton and at the same time the import quotas and tariff placed on wheat and
cotton entering the United States. The thirties might be considered as a

period of adjustment as countries began to see, and, in many cases, forcibly

 

16 Brandt, gp.'git., p. 95.

15
accept shifts in terms of trade arising out of World War I and its after-
math. By 1939 the domestic programs were again in trouble. The accumu-
lation of stocks, larger than anything experienced previously, caused peOple
to become concerned over the ability of the programs to adjust the agricul-
tural economy. For example, even though the price of corn was controlled
by means of acreage allotments, farmers actually increased production by
recombining resources. The hybrid varieties were now accepted and the
application of fertilizer was increased to maintain and even accelerate
production on the same or fewer less total acres planted. As a consequence,
the number of hogs coming to market could not be controlled and the price
of pork fell, causing surplus problems. Realhtically, only a great up-
surge in the demand for farm products or another world war could save the

administration's programs.

The Wartime Period and Its Aftermath

 

With the invasion of Poland in 1939 by Germany, and subsequent step-
up in rearmament, the slack in demand was taken up as countries stockpiled
food and war materials. The programs were now rationalized on the grounds
that they provided the needed materials for the effective prosecution of
war. Later, inferences were dropped by some officials to the effect that
the situation had been foreseen and supplies accumulated with this in mind.17
As the war progressed and the countries fighting the Axis powers became
more dependent upon the United States for food and war supplies, the United

States moved closer and closer to abandoning the economic isolation built

 

17 This statement is taken from a discussion with Dr. Lawrence Witt
concerning these programs.

16
up during the decade of the thirties.18 As the dollar resources of these
countries became lower and the sentiment toward the Axis changed in the
United States, It became more evident that something must be done to aid
Britain and her Allies. The LendeLease Act of 19hl was enacted to fulfill
this purpose. This program was conceived by the administration as a means
of contributing to the conflict through measures short of war. It consisted
of a sharing of war materials and other goods without any concern of the pos-
sibilities of repayment. The net amount of lend-lease aid amounted to a
little over to billion dollars from March l9hl to August 19h5. Of this
total a little over 6 billion dollars worth of agricultural products were
funneled into lend-lease shipments. The Army Civilian Supply program,
which began in 19h2 for occupied countries, is not available as a separate
group, so is not included in total agricultural exports during the war-
time period. .A further problem.presents itself when one considers the dis-
persal of these goods and money within the foreign countries. Goods and
money to be used by American troops was often times used for emergency
purposes to feed and clothe civilians. These are generally not counted as
exports because of their initial purpose, for use by American troops.

Much food, clothing and equipment was given to the foreign countries after
the war and is only partially reflected in surplus property settlements and
so on. The evaluation of wartime statistics remains a problem.

During the war period, the function of the price support program was
somewhat shifted. Instead of simply supporting agricultural prices at 52-
63 percent of parity to offset adverse market conditions, it was increased

to 90 percent under the Steagal Amendment and used to offer a guaranteed

 

18 Condliffe, pp. g_i_t_., p. 531.

17
market to producers and to encourage capacity production. The govern-
ment then stepped in and bought the heavy supplies for use in the war
effort. Further, the government moved toward greater centralization
since they now functioned to allocate resources as well as products by
various priority and rationing measures. The lend-lease prOgram, coupled
with the support program and government buying, raised agricultural pro-
duction and income to its highest peak.

Including as it did a larger area of the world in the actual war
theater, and involving a consequently greater disruption of trade, World
war II had a more pronounced effect on internationally traded commodities
than did World War I. The war stopped a large part of the international
trading of basic agricultural products. .As a result of the war, many of the
low cost areas that had a comparative advantage in production of certain
commodities were forced to cut output while deficit areas which are fre-
quently high cost areas were attempting to expand their output.19

Since the largest portion of the war was being fought on the continent
of Europe, the food production in Europe was expected to decrease. The
probable situation in the post-war period with respect to the demands for
agricultural commodities can be illustrated by White and Denhardt:

“Practically all commodities will be in great demand in the period

immediately following the cessation of hostilities. This extraordi-

nary demand for food and fibers for purposes of relief and rehabili-
tation will temporarily outweigh and conceal the operation of longer

time supply and demand influences. After a period of time, however,
basic disequilibria between supply and demand will become apparent

 

19 White, Bennett 8., Jr. and Denhardt, Edith T., "Chronic Surpluses of
Agricultural Commodities in the PostAWar Period", Journal of Farm.Eco-
nomics, Vol. XXV, November 19h3, pp. 751-752.

18
for many important agricultural commodities. In some cases bad
situations which prevailed before the war will reappear, perhaps in
an aggravated form, and as a result of the war new maladjustments
will have been produced...It is not to be expected that post-war
surplus problems will automatically solve themselves."

With this background for perspective, it will be possible to move

into the questions concerning the need for aid which arose out of the

devastation created by Wbrld War II.

 

20 lbidu pp. 752-753.

19

CHAPTER THREE

WAR AND EARLY POSTAWAR RELIEF PROGRAHS AND fiORLD

CONDITIONS IN THE POST-WAR PERIOD

EurOBS

The impact of the war in terms of physical destruction of the resources
in all of the sectors of the EurOpean economies was recognized because it was
visible and could be measured. However, the invisible "devastation“ was less
obvious and more difficult to assess. This invisible "devastation" manifested
itself in deterioration, rather than destruction, of capital and man—power,
and in economic dislocations.21 In the industrial and transport sectors, this
deterioration was the result of both obsolescence and the exploitation by the
Axis during the war, without adequate maintenance and replacement.22 Also,
there was deterioration of agricultural capital and soil fertility and the pro-
ductive capacity of the peOple was greatly impaired due to undernourishment
during the war, with a further loss of technical skills.23 This was all ac-
companied by serious economic dislocations such as monetary disorders and
disruption of normal relationships that prevailed between urban and rural p0p-

ulations.

 

21 Economic Rgport: Salient Features of the hbrld Economic Situation, l9h5—
‘h73 United Nations; Department of Economic Affairs; Lake Success, New
‘YErk, 19h8, p. 123.

 

22 Ibid, p. 123

23 LOCO Cite

20

The results of this devastation and destruction were a reduction in the
immediate post-war production potential to levels far below that which one
would assume simply by viewing the physical destruction. In combining this
visible and invisible devastation and destruction, one finds that the Euro-
pean countries had the job of simultaneously rebuilding the destroyed or ob-
solete productive facilities and reintegrating many interrelated and complex
economic dislocations.

In determining the need for aid there must be some factor or group of
factors which.will allow some measurement or indication of the actual impov-
erished conditions of the EurOpean nations. One is the reduction in the
standard of living of the EurOpean population which can be inferred from the
decline in the national incomes between 1938 and 19h6. The Economic Report
of the United Nations for l9h5-h7 indicates that:211

"According to the best available estimates, the real national income

of Poland and Austria in l9h6 was fifty-one percent of the predwar level

...Finland, Greece, Hungary, Italy and Yugoslavia...about sixty percent;

Czechoslovakia about seventyafive percent; France, Netherlands and Bul-

garia between eighty and ninety percent...Scandinavian countries (other

than Finland) and Switzerland were approximately at preawar level or
above, and Belgium and the United Kingdom were somewhat below...Further,
the pattern of consumption has been adversely affected by the shortages
of basic necessities."

'With the major consideration of this work being the effect of the post-

war aid upon American agriculture, the situation with respect to food supplies

in EurOpe becomes a fbcal point. The early postawar period found food supplies

sixty percent, or less, of pre-war levels in most of the EurOpean countries,

 

21‘ Ibid, p. 12h.

21

with certain foodstuffs normally available for import from.outside of EurOpe
also substantially below predwar levels.2 Again, these general shortages
were accompanied by shortages of shipping space and foreign exchange shortages.
As a consequence of the reduced internal supply coupled with the failure of
imports to fill the gap, there was a serious decline in per capita consumption
during 19h5-h6. This drastic decline in food consumption is reflected in Table
II which illustrates daily per capita calorie intake. Although this represents
a part of the story concerning food problems it does not give the whole situa~
tion. The reduction in food supplies was borne largely in reduced consumption
levels in the non-farm population. As supplies became shorter, the agricultural
segment tended to retain greater portions of their production for their own
needs. This, therefore, forced the non-farm population to rely on imported
foodstuffs, and with these also in short supply, there was a wide discrepancy
between the two segments. An idea of this discrepancy may be seen from the
following examples?6

"An average intake of 2,000 calories for the population as a whole, in a

country in which the selfbsuppliers are one-third of the total pOpulation,

represents an intake of 2,600 to 2,800 calories for self-suppliers and

an intake of only about 1,600 to 1,700 calories for non-selfesuppliers.”

The decreased production of food may not, however, have its root cause
in low production in agriculture. The case may arise where industrial pro-

duction is decreased substantially so as to result in a decline in agriculture

production. In the final analysis the supply of food depends upon the ability

 

25 Ibid, p. 153

26 11°C. Cit.

22

TABLE II

Estimate of Calorie Value of Daily'Food Intake Per-Capita
for Total Population in EurOpean Countries,
Pre-war, 1915/1916 and 19h6/19h7.

 

 

 

 

Pre-war 1916/1916at 19h6/19h7
Calories
Group I
Belgium 2,900 2,200 2,h00
France 3,000 2,300 2,600
Netherlands 2,900 2,300 2,600
United Kingdom 3,000 2,800 2,900
Group II
Denmark 3,200 2,900 3,100
Finland 3,000 2,300 2,600
Norway. 3,100 2,500 2,600
Sweden 3,100 2,800 2,800
Group III
Greece 2, 150 2,100 2, 200
Italy' 2,700 1,850 2,000
Group IV
Germany 3,000 1,600 1,800
Group V
Austria 2,900 1,700 2,000
Czechoslovakia 2,700 2,000 2,500
Poland 2,600 2,100 2,100
Roumania 2,800 -- 2,h00
Yugoslavia 2,700 2,300 2,100

 

-- Not available
a. March 19h6, approximately
Source: Economic Report: Salient Features of the world Economic Situation -

19h5’ 7; United Nations Department of Economic Affairs; Lake Suc-
cess, ew York; 19h8; p. 15h.

 

23
of the cities to offer goods in exchange for the food. During a war period,
industries are devoted to war production. Consequently, at the end of the
war When the cities are not producing goods to exchange for food, there is
a breakdown of this farm-city exchange mechanism. This is a principal cause
of "city famine" so characteristic following a war.27

The situation in Europe following the war seems to have been a combina-
tion of both low farm production and a destruction of the industrial sector
of the various economies. The lack of improved seed, fertilizers and equip-
ment coupled with several years of adverse weather conditions left a net result
of drastic declines in postdwar agricultural output. The inability of the in-
dustrial sector to supply these needs, stOpped any rapid increases possible
in production.

With the Soviet Armies occupying Eastern EurOpe, the area which former-
ly had been a surplus producing center and had supplied a large share of
Western Europe's food needs, was now out off. Primarily the Soviet sector
Operated as a whole throughout its sphere. Added to this was the fact that
there was little to trade fbr across this border. With the initiation of
the Iron Curtain the problem was further complicated. With the bulk of the
population living in'Western EurOpe, the non-Soviet sector, the loss of this
Eastern agricultural area added to the situation. The previous relationship
between these two areas was that the Eastern portion offered a ready market
for the western EurOpean manufacturers in exchange for food produced in East-

ern EurOpe.

 

27

 

Boulding Kenneth E; The Economics of Peace; Prentice-Hall, Inc; New

24

The Far East

 

The war in the Far East, as in Europe, wrought great physical devastation
and dislocation of internal and external economic structures. At the begin-
ning of the Second Norld war, Asia.and the lower continent, as a whole, had
not yet reached any high degree of economic advancement. Consequently the
majority of the people were living at a bare subsistence level. Combining
the devastation and destruction wrought by the war with.this low living
standard, and coupling these with the internal unrest directed against exp
isting regimes in the postdwar period, any rapid reconstruction in the region
was greatly hindered. The most serious factor retarding economic revival
throughout the region was the inability of existing agricultural production
to relieve food shortages.28 Further, shortages of foreign exchange, es-
pecially dollars, hindered imports of such essential supplies as productive
equipment and food.

In this region agriculture accounts fer almost three-fourths of the
gainfully employed peOple. The consumption pattern is one of a population

living at a subsistence level. According to the Economic Report of the

 

United Nations for l9h5-h7229

"0f the fbodstuffs consumed, by far the largest share is comprised of
plant foods; hence the diet is mainly vegetarian, lacking fats, proteins
and vitamins... . There is serious shortage of staple fbod grains in
large parts of Asia. Rice is the most important cereal in the diet of
the peOple. Two-thirds of the Asian inhabitants are estimated to be
rice-eating and one-sixth predominantly wheat-eating. ...The population
growth adds to the pressure on the scarce material resources, particu-
larly in those areas that were subjected to the Japanese occupation
during the war.....In certain parts of India, Malaya and China, food
consumption per head has shrunk to less than eighty percent of what it

 

28

Economic Report - United Nations; 0p. cit.; p. 69.

Ibid, pp. 69-70.

25
was before the war; in other parts of China, in Korea, the Philippines,
and Java it varies between eighty and ninety percent of the pre-war
standard. ...Urban rations in India presently allow for only seventy-
five percent of pre-war consumption".

Further, the situation as prevailed in EurOpe, of the lack of draught power,
fertilizers, transportation facilities and disintegration of economic organ-
ization, practically paralyzed production in many instances. The rampant

inflation in certain areas also discouraged production beyond immediate needs

of the farmer.

Programs Instituted to Meet Wbrld Needs

 

Beginning with the North African campaign, the United States undertook
to supply the p0pulations of the liberated areas. These programs are referr-
ed to as the.Army-Civilian Supply or Civilian Supply Programs, and later as
Government and Relief in Occupied Areas (GARIOA). In 19h3 the world saw
attempts to give relief to the war stricken areas by international c00per-
ation through the United Nations Relief and Rehabilitation Administration
(UNRRA). With the failure of UNRRA in the field of relief, the United States
undertook the job of relief on a uni-lateral basis. The programs began with
the initiation of the Truman Doctrine giving aid to Greece and Turkey. As
the situation in Europe worsened, Congress passed the Interim Aid Bill in the
fall of l9h7 to give emergency relief until a broader program.could be worked
out. In the spring of l9h8 Congress passed the Foreign Assistance Act of
19h8 which set up the Economic Cooperation Administration (EBA). This was
to deal primarily with Europe but was later to include missions to China
and Japan. As world tensions mounted the fbreign aid programs were merged

into the mutual Security Administration (MSA) program with increased emphasis

26
on military aid. With this general introduction to the consideration of
the programs undertaken in the field of foreign assistance, each of these

programs will be considered separately.

Civilian Supply Program

 

From the liberation of North Africa to the end of the war in the Far
East, the United States was faced with the problem of supplying the pOpula-
tions of the liberated and occupied territories. The objectives of the Civ-
ilian Supply Programs can be taken from those set fibrth.with the initiation
of the programs in North Africa:30

1.) to prevent unrest which might endanger allied lines of communication;

2.) to maintain local labor fbr supplying the allied armies and keep up

production to minimize the shipment of supplies from the United
States and Great Britain and;

3.) to restore in general the economic life of the peOple.

The initial Civilian Supply Programs were to be administered by the Army
until civilian agencies were prepared fbr the task. This divided relief into
two periods - "one of military administration of relief during which the di-
sease-anddunrest fermula fixed the limits of civilian assistance, another in
which assistance was on the broader basis apprOpriate to longer-range relief
and rehabilitation."31 However, because of jurisdictional controversies be-
tween government agencies and overconfidence in l9hh for an early end to the

war, wiich led to reduction in food procurement, removal of rationing controls

and a shortening of supplies for the Army and liberated countries, the division

 

30 Brown, William Adams and Opie, Redvers; American Foreign Assistance;

The Brookings Institution, washington D. 0.; 1953, p. 72.
31 Ibid, p. 71;.

27
between the two periods became blurred.32 This led to a fbod crisis in 19h5.
However, attempts to review existing food supplies and focus direction in re-
lief feeding did not materialize. Finally the President issued a directive
laying down two basic principles;33

"that the Army should not assume responsibility for civilian supplies

unless required to do so by military necessity; and that the appro-

priate agencies of the government should grant the necessary'prior—

ities to meet the minimum needs of the liberated areas."

Up to the end of the war in Europe the amount of assistance given by
the armed forces in Europe and the Mediterranean Area was about $800 mil-
lion, and $100 million in Philippines.314 During the transition period followa
ing the war, United States assistance continued to move through the Civilian
Supply Program. In l9h6 there was $29h.million requested for relief supplies
to combat disease and unrest, but the magnitude of the problem was not real-
ized and it was soon found that this amount was insufficient. The Congress
responded by apprcpriating $725 million and set up a separate program of
Government and Relief in Occupied Areas (GARIOA) to administer the funds in
fiscal 19h7. This was followed by appropriations of over $1 billion for
fiscal l9h8 to the same program.35 The commodities were shipped abroad for
distribution through the Civilian Supply Programs, which was in large part

food and clothing.

 

32 Ibid, pp. 73-7h.

 

33 Ibid, p. 7h.

 

3h Ibid, pp. 7h-75.

 

35 Ibid, paraphrased from pp. 108-109.

 

28

United Nations Relief and Rehabilitation Administration

The United Nations Relief and Rehabilitation Administration (UNRRA) had
its origin in a speech by Winston Churchill. However, not until NOvember
l9h3 did the four major powers sign the agreement that created UNRRA. The
United States played a major part in organizing UNRRA which included the
prOposed plan for financing the organization by member nations. This meant
that each member (except those that had been occupied by the enemy) contribute
one percent Of its national income fOr the year ending June 30, 19h3, of which
10 percent could be expended outside the contributing country. With the United
States contributing $1,350 million, the largest share, the principles on which
UNRRA Operated became Of great interest to American assistance policy“:36

1.) UNRRA was intended to help peOple help themselves

2.) if foreign exchange was lacking, a government did not have to burden

itself with an exchange problem to get relief, if the exchange were

for the relief;

3.) there was to be no distinction as to race, creed or political be-
lief with respect to the distribution Of relief;

h.) Operations within enemy territories had to be approved by the
Council and have the consent Of the military command in the area;
and

5.) the money received from the sale of UNRRA goods was to go for fur-
ther relief and the individual governments were to have the respon-
sibility of distributing the relief supplies in accord‘flith the
principles Of UNRRA.

This was all arather radical departure from traditional American policy

because it was an approach that had previously been rejected by the United

States - international control of relief on a multilateral approach. However,

 

36 Ibid, p. 77.

29
because the United States contributed the largest share, over 70 percent
of the subscriptions, the shift in American relief sentiment in l9h6, from
multilateral to bi-lateral agreements, sealed the doom of UNRRA. This
changed position was supported by the State Department on the fbllowing
grounds:

1.) that UNRRA's distribution of supplies had been influenced by
political considerations,

2.) that except in a few countries the pressing need for relief had
passed, and

3.) that other international agencies, viz., the International Mone-
tary Fund and the International Bank, could take care of rehabil-
itation needs.

Therefore, all of the UNRRA programs were brought to a close - by'mid-
summer 19h? in Europe and by the. end of 19m in the Far East - with the tot-
al amount Of UNRRA shipped commodities at nearly $3 billion, of vhich:38

1.) over $1.2 billion was fbr fOod,

2.) over $b00 million for textiles and footwear,

3.) nearly $20 million fbr medical and sanitation supplies,

h.) about $700 million fbr industrial rehabilitation, and

5.) about $300 million fbr agricultural rehabilitation.

The Truman Doctrine

 

On March 12, 19A? in a speech before Congress, President Truman urged
the extension Of aid to Greece and Turkey. In Greece the Communist-backed

armed.minorities were causing political chaos and preventing economic recov-

 

37 The United States in'WOrld Affairs; Council on Fbreign Relations, Harper
and Brothers, New 1ork and London, l9h7, p. 337.

38 Brown, Op. cit., p. 111.

 

30
ery and stability. In Turkey, modernization was necessary to "maintain its
national integrity," in the words of the President. This policy was prOposed
as the policy to be followed by the United States because it was "to support
free peOples wio are resisting attempted subjugation by armed minorities or
by outside pressure..."39 The appropriation asked by the President was $h00
million in the period ending June 30, 19h8.

Although the act was criticized heavily as being an intervention into
the internal affairs of other nations as supporting reactionary governments,
the act was signed on May'22, 19h7. The emphasis was placed upon economic
assistance rather than military assistance in the hOpe that by some means
Russia would still cOOperate in maintaining peace. The thoo million re—
quested by the President was authorized, tO be used at the request of Greece
and Turkey. It was to be used for the purchase Of goods and services, to
provide technicians and other trained persons, and military advisers in.1imp
ited numbers. Economic recovery in Greece was small; the area of planting
increased to 85 percent of pre-war but industrial production dropped from
75 percentto 70 percent Of the 1939 level.)"'0 In the nine months, between
the passing Of the bill and the passing Of the Economic COOperation Act in
April Of l9h8 which took over the Operation of the Greek-Turkish bill, that
the program was in Operation, $337 million Of the shoo million was spent.

The program was in Operation at the time of consolidation and funds contin-

 

39 Ibid, p. 12h.

ho Ibid, p. 130.

31
ued under ECA. About 59 percent of the approximately $268 million in Greece
aid and all Of the $69 million in Turkey were used for strengthening military
establishmentsfil Rebuilding the military establishment in these countries
did, however, play an important part in rebuilding the economic structures.

By rebuilding transportation systems, shipping ports and airfields for mili-
tary uses, there was also a joint effect of strengthening the overall economic
structure. As the program progressed, it was recognized that to further econ-
Omic reconstruction, the internal struggles must be resolved; consequently,
the importance Of the military aid portion increased, in the case of Greece,

it was already 100 percent for military items.

Interim Aid and the Economic COOperation Administration

With the re-evaluation and reformulation Of assistance policy, the em-
phasis had shifted to economic reconstruction to put an end to further needs
for relief. The first move in this direction was the Truman Doctrine dis-
cussed above. As the situation in EurOpe worsened, the need for a broad
general program Of reconstruction became more apparent. Secretary Of State
Marshall gave the outlines of this program at his Harvard address on June 5,
19h7. The program was to be a joint one, agreed to by a number, if not all,
of the EurOpean countries, with the role of this country consisting Of friend-
ly aid in drafting suchaiprogram of reconstruction, and support Of it so far
as it is practical to do so.h2 Before a complete study of the situation could

be made and a program drafted to COpe with the broad general needs of EurOpe,

 

 

bl Ibid, p. 130; see also U. S. President, Third Report to Congress on Assis-
tance to Greece and Turkey, for the period ended March 31, l9h8ifor a more
complete discussion.

New York Times; "Marshall's Address", June 6, l9h7, p. 3.

 

he

 

32

the need for emergency aid arose in France, Italy and Austria. In France
the gold and dollar reserves were exhausted. Italy was forced to stOp all
dollar expenditures except for coal, petroleum and cereals in June l9h7,
with France taking similar action two months later. Austria was in a sine
ilar position. The President asked for $597 million fbr emergency short-
time aid for fbod, fuel and fertilizer needs up to March 30, l9bB. The
authorization act for interim aid was signed on December 17, 19h7. Emergency
aid of $522 million was provided for France, Italy and Austria and of $18 mil-
lion for China, with an additional apprOpriation in march.l9h8 of $55 million,
bringing the total to $597 million.h3

With the passage of the Interim.Aid Program to prevent utter collaspe
of the EurOpean economy, Congress went to work to develop an overall program
to assist reconstruction Of the entire European economic structure. In Dec-
ember 19h7 the administration submitted its prOposed bill requesting that
Congress authorize $17 billion for a fbur and one-quarter year program to
begin April 1, 19h8. The administration desired to have a flexible system
so the program.administrators could maintain sufficient U. S. control over
expenditures. It took a realistic VieW'Of loans as being misleading and un-
wise..."when the past and present situation Of a country or its future pros-
pects give little possibility of repayment."hh Through bi-lateral agreements
with the United States, the participating countries were to pledge themselves

to increase production, establish monetary stability, reduce trade barriers

 

A3
Ah

Brown, Op. cit., p. 1&0.

United States in Wbrld Affairs, Council on Foreign Relations, Harper and
"Brothers, London and New York, l9h8, chapter 1h, pp. h83-h86.

33
and agree to help in the accumulation of materials in short supply in the
United States. These latter’materials were raW'materials fbr government
stockpiling and were generally obtained from the colonies of the European
countries, with some coming from the countries themselves.

The final act passed in April l9b8 provided for the four and one-
quarter year program.and set the terminal date as June 30, 1952. Any fin-
ancial commitment for four years was Opposed and apprOpriations were to be
made on a.yearly basis with the stipulation that Congress could terminate
the program.at an earlier date if the purposes were not fulfilled. A total
of $5.3 billion was apprOpriated under the Act for the first 15 months of
the program.

With regard to the countries participating in the program, it was
possible fer most EurOpean anti-Communist countries who wished to partici-
pate, to enter the prOgramt However, invitations were extended to Poland,
Czechoslovakia and even the U.S.S.R. At this point it would be apprOpriate
to enter into a discussion of the Committee of European Economic COOperation
(CEEC), later the Organization for European Economic C00peration (OEEC).
This will hereafter be referred to as the 0330. In July 19h? the represen-
tatives of 1h EurOpean countries, the Territory of Trieste and the Bi-Zone
of Germany met in Paris to ferm the organization and attempt a c00perative
solution to the chronic economic disorders and dislocations. This meeting
took place asaresult of Secretary Marshall's offer and the program that
arose from it was one of broad self-help pledged by the participating couns
tries. This was created as a permanent body two weeks after the establish!

ment of the Economic COOperation Administration (ECA). The structure of the

34

OEEC developed in response to the tasks assigned to it. The OEEC was the fo-
cal point and was expected to bear the major burden of planning and adminis-
tering intra-EurOpean government programs. Its most important actions were
initiating supply programs, facilitating the flow of trade, and devising and
executing recovery measures. The ECA country missions occupied a key posi-
tion since the job of recovery was based upon recovery in each individual
country.

In the use of ECA.funds to procure supplies, the Congress took steps to
safeguard American interests. The Administration was to funne1.procurement
authorizations of commodities in short supply in the United States into off;
shore sources of supply and to encourage the use of surplus commodities. In
the case of surplus agricultural commodities, the procurement'was restricted
to the United States. The Act required that 25 percent of the wheat shipped
must be in the form of flour milled in this country. Also, it required that
50 percent of all commodities shipped had to be carried in American ships.
The Secretary of Agriculture could make payments to any agency which would
help to pay the costs for "getting rid" of these surpluses. Further, the
Secretary could make payments in amount not to exceed 50 percent of the
sale price of these commodities. In the procurement of specific commodities,
such as dried fruits, egg products, dairy products, wheat, cotton and tobac-

15

co, the Secretary of Agriculture was a powerful figure.

 

hS This paragraph was largely paraphrased from Public Law h72; 80th Con-
gress, Chapter 169; Second Session; S. 2202; Title I; Sec. 112.

35

Table III shows the ERP funds from April 19h8 through June 1951.

TABLE III: ERP Funds, April 19h8-June 1951
(In Millions of Dollars)

 

 

 

 

 

Period Administration Authorizations Amounts made
Requests Available
April l9h8-June 19h9 6,800 6,h50 6,220
July 19u9-June 1950 h,280 h,280 h,060
July 1950-June 1951 3,100 2,700 2,2Sh
Total (39 months) 1h,180 13,h30 12,53h

 

Source: Prown,‘William Adams and Opie, Redvers; American Foreign Assistance,
Brookings Institution; washington D. C., 1953, p. 175.

 

The ERP was actually in operation only until June 30, 1951 when American sec-
urity interests demanded the creation of a single coordinated program. This
single program was enacted in June 1951 under the title of the Kutual Security
Act of 1951. Uith its enactment, the ERP and other aid programs were merged
into it and emphasis was shifted to the military aspects of aid in order to
strengthen the non-Soviet world and further the security interests of the

United States.

Mutual Security Administration and

 

Other Military Assistance

 

The military aid of the United States following the war, and up until l9h9,
‘was not coordinated under a single program. Following the initiation of the
EurOpean Recovery Program, the United States took the lead in forming a North
Atlantic defense arrangement. Besides acknowledging the inadequacy of the

United Nations to meet the existing situation, this action added strain to

(n

(O

 

 

36

world resources which led to competition, between rearmament and economic
‘recovery, for use Of resources. Although the initial emphasis was on econ-
omic recovery, the rapidly changing course Of world events brought military
security to a high level Of importance, forcing a reassessment Of military
and economic policy. To ensure military security for the EurOpean countries
being strengthened by American economic aid, the United States based its ap-
proach to the problem "on the mutualality Of the defense efforts of all free
nations."h6 Out Of efforts to coordinate military support and mutual defense
arose the NOrth Atlantic Treaty Organization and the mutual Defense Assis-
tance Act of l9h9. As the threat Of Communist agression increased, the newa
ly repaired economic structure Of EurOpe was found to be inadequate for bear-
ing the new burdens Of military expansion. Therefore, "whether the economic
underpinning Of rearmament was to be provided by ‘econOmic aid' Of 'defense
support' was merely a question Of terminology."h7 This meant that material
assistance from the United States was essential if the bulwarks against Comp
munism were to be built with the speed required by American security inter-
ests. The Hutual Defense Assistance Program, Technical Assistance Program
and the Economic Cooperation Administration were finally all resolved to

be mutually supporting aspects Of a single effort to strengthen the none

Soviet world against Communist agression. Therefore, coordinating all of

these programs into a single foreign assistance effort became the central

 

Brown, Op. cit., p. h39.

’47 Ibid, p. 5050

37

aim of Congress and the Administration for the fiscal year Of 1952. Become
mendations received from studies in the field Of foreign assistance, ad-
vised a continuation Of economic aid with extensive shipments of military
supplies. The economic aid would be on a scale adequate enough to facilitate
expansion Of EurOpean defense production. 'With mutual security considered
a neW'purpose, it was also believed a new program should be developed. Howe
ever, the unfinished work of the European Recovery Program in certain counp
tries, it was felt, should be completed. In the main, EurOpean rearmament
was to be achieved by European production following the initial push from
the United States. It was also felt that the security of the United States
required assistance be given tO the Near East, Africa and the Far East to
prevent further Communist advances. The existing administrative structure
was considered to be adequate for carrying out this new programJ”8
For the fiscal year 1952 there was $5,006 million apprOpriated for
foreign aid. Of this total amount $1,915 million, or 38 percent, went for
military assistance and $3,091 million, or 62 percent, went for economic
and technical assistance. Since about nine tenths of all foreign aid being
furnished in the autumn Of 1952 was provided under the mutual Security Pro-

gram, it seemed probable that military assistance would rise in the fiscal

year Of 1953 to over 60 percent Of the total.h9

 

148 Ibid, p0 5070

’49 £32, I). 5350

Summary

This paper is essentially considering the foreign aid of the United States
from.mid-l9h5 to the present time. Gross foreign assistance for the transi-
tion period, mid-1915 to April l9h8, exclusive of Interim Aid and the Greek-
Turkish Program, which.really belong to the reconstruction period, amounted
to $1h.5 billion. with the reevaluation of American assistance policy, and
the recognition that relief was not enough, a reconstruction of the entire
EurOpean economic structure was the only solution. 'With the initiation of
the Truman Doctrine and aid to Greece and Turkey, emphasis was shifted from
relief to the objectives Of reconstruction and recovery. The problem of
EurOpean recovery was nO longer treated as being dependent primarily upon
recovery in Great Britain. This led to the develOpment of a four year pro-
gram, the EurOpean Recovery Program. Because the major emphasis of the pro-
gram dealt with EurOpe does not mean that other areas of the world were ex-
cluded, as missions to China and Japan were added. Taking fiscal years 19h8
to 1950, net foreign assistance totaled $15.6 billion. As the world situa-
tion changed and security interests of America became of primary importance,
the foreign assistance programs shifted emphasis from economic recovery to
considerations of security'and rearmament.

This phase of foreign assistance began with the Mutual Security Act Of
1951. With its enactment, all foreign assistance efforts were merged under
its lead in order to coordinate security measures. Military assistance had
begun to increase in importance from 1950 onward, but it was not until the
Mutual Security Act Of 1952 was passed, and authorized over $h.2 billion for
military assistance and about $1.8 billion for economic and technical assis-

tance, that military aid became predominant. Even though military aspects in-

creased in importance, the reality of the fact that defense was dependent

upon sound economic strength did not change.

39

hO

CHAPTER FOUR

FARm ORGANIZATION OPINION AND PRESSURE GROUP
ACTIVITIES IN TAE FORM .TION

OF FOREIGN ASSISTANCE

The critical food situation in the post-war period made agriculture
a powerful force in solving the disorders wrought by the war. As indicated
earlier, the food supplies sent as relief did not solve the problem of the
breakdown of the farm-city exchange mechanism. These supplies simply Offer-
ed a partial solution in relieving the "city famines". The solution was
found to lie in a program that would help to reouild the entire European
economic structure. Just how importalt American agriculture was in the
determination of foreign assistance policy and the effect of the final pro-
grams upon agriculture in the United States, can only be found in an exam-
ination Of the role agriculture played. Before moving into the actual opera-
tion and effect of the post-war aid programs in American agriculture, it will
facilitate the understanding of agriculture's role by studying the operation
of the agricultural pressure groups.

The expressed attitudes of the various pressure groups are given in the
form of broad general resolutions. These express the general stand to be
taken with respect to any broad field such as foreign aid, mutual security,
taxation, etc. The testimony of the group leaders before Congressional
Committees would then give the specific applications of the general resolu-
tions. From this testimony arises the stand taken by each group on a speci-

fic policy, the general resolutions becoming the backdrop against which this

#1
testimony'falls. Generally these specific applications are congruent with
respect to the more general statements or the specific stand can be ration-
alized to fall within its framework. Each of these groups have individual
conferences with congressmen, the President and other levels of administration.
Statements of policy and arguments about what is possible or desirable take
on specific forms and evolve into subsequent published testimony and laws.
Much of the influences of a pressure group occurs in this process, yet the
reverse also happens, namely that the political leaders may be able to modify
or change some of the attitudes of the pressure group leaders. It is not poss-
ible to delve into these in detail in this paper.

For purposes of this paper each of the major farm pressure groups will
be considered individually as they operated in the field Of post-war foreign
aid. The groups to be considered are the American Farm Bureau Federation,
The National Grange, The National Farmers Union and the Department of Agri-
culture. Except for small changes, dealing with individual commodities, the
attitude Of each group remained basically the same for each postdwar aid
measure.

In comparison to the magnitude of the European Recovery Program, the
programs instituted prior to the ERP were much smaller and had less impact
on the American economy. Also the previous programs were merged into the
ERP in order to focus direction in aid and reconstruction. Therefore the
main consideration will be given to the ERP. HOwever, where changes did oc-
cur they will be noted. It can be said that, generally the American Farm
Bureau and The National Grange supported the aid policy of the United States

following the war. The Farmers Union, however, supported the aid policy so

{1

#2

long as financial and other aid were placed under the direction of the United
Nations agencies for distribution. In other words, they did not support any

aid on a unilateral basis from the United States.

The American Farm Bureau Federation

 

The Farm Eureau is important in its effect on policy measures because Of
its large organization wlich represents over a million and a quarter farm fame
ilies in the United States and Puerto Rico. The Farm Bureau has generally
favored and supported international OOOperation ald active participation of the
United States in the International Trade Organization 81d the Reciprocal Trade
Agreements. However, as has been the case with all individual segments of the
economy, it has also favored retention of escape clauses when individual com-
modities become adversely effected.

The Farm Bureau has in general supported the Administration's postdwar
foreign aid policy. Therefore as emphasis shifted from international attempts
at relief to unilateral relief from the United States, to recovery and recon-
struction and finally to mutual security'and military assistance; so did the
policy stands of the Farm Bureau shift. It should be emphasized that Admin-
istration policy shifted first with interest group support following.

The resolution adOpted by the Farm Bureau in December 19h? offers the
framework within which the Farm Bureau was to support EurOpean Recovery. The

50

resolution is in part, as follows:

 

50 Resolutions AdOpted at 29th Annual Convention of the American Farm.Bur-
eau FederatIOn; December“18,ll9h7; pp. 2L3.

 

43

"We favor cooperation, within our productive and financial ability, in
the EurOpean Recovery Program. Foreign aid programs should be based
upon the principle of helping the people of the various nations help
themselves. NO program of help is good unless it will lessen the need
for aid in the future... .

"Expenditures for relief should be considered as part of the cost of
war and handled as such. The expenditures for capital goods, however,
should be considered as loans and means provided for repayment. 'we
favor a policy which will encourage the making of private loans and
investments abroad... .

"we favor the establishment of a bipartisan commission appointed by
the President and confirmed by the Senate, to administer the long-time
aid program, which will be closely coordinated with the Department of
State, the Department of Agriculture, and other interested government
agencies. In the formation of the commission, agriculture should be
given adequate representation.

"We should make certain that the aid is used for the purpose intended.
The individual recipients of any aid should be informed that this aid
came from the United States ald was produced by free peOple working
under a system of private enterprise."

‘Within this framework Allan B. Kline, President of the Farm Bureau,

gave his testimony before the Senate and House Committees on foreign policy.

The testimony may be considered as a reiteration of this resolution but also,

as an eXpansion of it, with respect to specific applications to the measures

in question.

The fbllowing paragraphs are paraphrased and condensed from ur.

Kline's testimony befOre the Foreign Affairs Committee of the House of Rep-

resentatives:

52

 

51
52

Mr. Kline's testimony was the same before both Committees.

United States Foreign Policy for a Post4war Recovery Program; Hearings
before the Committee on ForEIgn Affairs; The Hbuse Of Representatives,

 

80th COngress, Second Session, Part 1, pp. 9h0-960.

44

"It is recognized that the program will cause some temporary hardships
upon this Nation, but is also realized that food shipments alone cannot
solve the problem. The problem can be solved only by shipment of machp
inery to produce needed goods and services and stabalized currencies
which.wi11 re-establish the deteriorated productioneexchange mechanism."

"It is recognized that the Department Of State is responsible for our
foreign relations. However, it must be realized that the impactsof this
aid program on the domestic economy are not necessarily within the juris-
diction Of the Department of State. This fact then gives rise to the
need of a commission to be established to administer the program. Be—

cause food is one of the major items in the program, it is felt that a
person familiar with agriculture should be on the commission."

"It is apparent that American agriculture will need foreign markets.
BefOre the war,'Western Europe produced only about two-thirds Of their
food needs and the United Kingdom.less than one-third. Adjusting our
expanded wartime productive volume to peacetime demands will be easier
if we have foreign markets. The strain on our economy'can be lessened
if products in excess supply are utilized, thus lessening pressures on
other commodities."
"The program must, however, be EurOpean, Our job is to initiate the
program and allow it to be a selfehelp program. we cannot begin to
feed EurOpe."
During the question—and-ansma'session, Hr. Kline supported and expanded his
statement. In general, he supported his contention that such a program would
not mean a controlled economy in the United States. Also, such a program was
necessary because of the breakdown of the exchange of food for manufacturers
between Eastern and Western Europe.
It is not necessary to further express the feeling of the Farm Bureau
as to the importance of American agriculture in rehabilitating Europe or
the importance of a rehabilitated Europe to American agriculture. The sup-
port Of the Administration's program is manifest throughout the testimony,
within however, adequate safeguards for the domestic economy of the United

States. 'With each succeeding year Of the program this support was contin-

ued. In l9h8, greater cooperation with the FAQ (Food ald Agricultural Or-

45

ganization of the United Nations) to establish effective extension services
was advised. The use of surpluses was advised to the extent that they could
be utilized, but the program should not be used for dumping. In l9h9, it
was urged that counterpart funds be established and used to promote recovery
projects. The use of surpluses was again advised, to the extent they could
be used.

'With the increased tempo of the Cold War and the shifting emphasis to
military aid, the policy stand Of the Farm Bureau began tO shift. Military
security was found to be necessary for further progression Of the economy
and Of recovery. Therefore, mutual security became congruent with economic
recovery. By 1950 it was felt that for a suitable environment to prevail
the combined military strength of the free nations must be adequate. The
Farm Bureau urged the establishment of a single independent agency to admin-
ister all United States aid programs. This general framework offered the
support of the Farm Bureau to the establishment of the mutual Security
Agency. In 1951 as the Korean Ear progressed further support was given to
MSA and resolutions were established to advise greater use of recipient coun-
tries' resources rather than relying upon American resources.

The desired use Of counterpart funds was shifted to include not only
recovery projects but also to cover the commensurate cost of goods received,
cover necessary local expenses Of American personnel, for stockpiling stra-
tegic materials for the United States, and to cover United States commit-
ments to other friendly nations from their existing productive capacity, if

adequate. If not adequate, then the money was to be used to make loans with-

46

in that country to create such capacity. Production of defense needs was
encouraged in order to save dollars and minimize demands upon American re-
sources. The United States was also to formulate a set of prerequisites
for further aid, these being to attack those things which breed discontent,
to promote agricultural and industrial production, stabilize currencies and
balance budgets, reduce trade barriers and increase trade and prohibit re-
export Of American aid materials to unfriendly nations. Disagreement with
the division Of funds between military'and economic ends crept into the picture.
The Farm bureau felt that a greater emphasis should be given to economic
ends as Opposed to military ends than was given in the Mutual Security Act of
1951. In 1952 support was continued but it was felt that the prime effort of
Mutual Security should be to develOp a free world economy by emphasizing trade
and not aid. No United States produced military items should be sent to those
who could produce them themselves. In 1953 the Farm Bureau began.to shift
their stand once again. It was felt that funds for mutual security should be
divided into three distinct groups for military aid, economic assistance and
technical assistance. This way it would be possible to expand or contract
any one of these without disrupting the others. They believed that with the
change in political control and the drive to cut expenditures 81d balance the
budget, this was feasible. Unnecessary funds could be cut out without cutting
funds of either of the other two groups. Military aid was to be directed to
help the Allies build their own defenses. Economic aid should be replaced by
trade and greater emphasis given to develOping "underdeveIOped areas". Techp

nical assistance should offer a better program for training native personnel.

47
SO the policy shifted as national sentiment shifted and political power
changed hands. Other than minor disagreements on small issues, the policy

of general non-partisan support continued.

The National Grange

 

The general trends in policy positions Of the Grange are very close to
those just described for the Farm Bureau with respect to foreign aid policy.

The support of the Marshall Plan was given in the resolution adOpted at their

National Meeting in 19h7. It reads in part as follows:53

"we endorse the principles of the Marshall plan upon the following con-
ditions:

1. That aid to a needy country be given only when the recipient
shows willingness to help himself.

2. That standards of performance in terms of production be set
up and that the price of aid be the reasonable attainment of
these goals.

3. That a loan and.relief administration be set up to administer
the direct relief under strict supervision to insure maximum
benefits.

h. That the limitations of our resources and our own needs be
considered in granting aid.“

These four general statements offer the framework for support of the ERP.

The above conditions also offer support to the administration fOr their shift

in policy from an international relief program to unilateral relief programs.
The statement Of Mr. J. T. Sanders of the Gralge before the House For-

eign Affairs Committee was an expansion and explanation of this stand with!

__

53

Elearings before the Committee on Foreign Affairs of the House of Rep-
resentatives; o . cit.; Part 2, pp. l,379-1,380.

48

in the framework of the above resolution. The testimony of Mr. Sanders is
very similar in context, as were the resolutions, to that of Mr. Kline of the
Farm Bureau. However, there is also one large divergency between them. where-
as Mr. Kline only indicated briefly the rebuilding of trade between Eastern
and Eastern EurOpe; Mr. Sanders went quite deeply into this line of reason-
ing as an alternative for a rehabilitated Europe. It was felt that if this
trade were increased the communist hold over Eastern EurOpean countries
would be weakened rather than the reverse. If this were not possible then
the increased production of manufacturers in'western EurOpe could be used to
trade for the agricultural products to be Obtained elsewhere in the world.
The testimony presented did not stress as heavily the expansion Of the world
economy through a general increase in mutually beneficial trade and lowering
of trade barriers as did that of the Farm.Bureau. This appears to be rather
indicative of the traditionally tighter trade policy of the Grange with.res-
pect to American Imports.5h

In making a general summary statement of the Orange's position with res-
pect to ERP, it can be said that they supported the administration's policy.
They saw the program as primarily EurOpean and the success of such an under—
taking resting in the OOOperative effort of the sixteen EurOpean nations
making up the OEEC. The part to be taken by the United States in such a pro-
gram, the administration Of the program, and the importance of the program to
the United States are very similar to those described above under the Farm

Bureau. The only divergence comes on the question Of trade, with the Grange

 

5h For a more complete picture of the actual testimony of ur. Sanders, see
the Hearings, op. cit., pp. l,379-1,39l.

49

remaining more vague and isolationist on the subject.

The National Farmers Union

 

In turning to the other major farm organization, the Farmers Union,
we encounter an almOSt completely Opposing viewpoint on the subject of for—
eign aid. there the Farm bureau and the Grange shifted support from inter-
nation relief to unilateral relief and reconstruction, the Farmers Union re-
mained internationalist. That is to say, they continued to insist that such
undertakings should be fostered and fed through the United Nations agencies.
They supported the idea that relief was not enough 31d that some program of
reconstruction was needed and must be undertaken, but it should be done through
the United Nations. The Farmers Union people considered the failure of UNRRA
to cope with the problem, and the small amount Of work done by other agencies
as FAO and ITO, as a result of the lack Of support on the part Of the United
States and other member nations.

Throughout the post-war period the Farmers Union has supported the COD?
tention that the United Nations is, in present times, the best way to keep
peace. The only way in which the agencies of the United Nations could work
effectively is through the acceptance of United Nations principles by large
and small nations alike. The United Nations cannot function to its fullest
benefit if dominated by'a minority of the Great Powers.

Opposition to the shift in American fOreign aid policy occurred in 19h?

when the Greek-Turkish aid program was prOposed by President Truman. The

50

SS

Farmers Union Opposed this program on three grounds:
”... That the kind of assistance proposed by the President simply will
not work, that American funds should not be used to support military
power of any foreign government, and that the bypassing of the United
Nations by its most powerful member inevitably delivers a damaging blow
to the United Nations."

This was followed in September 19h? by a similar statement advocating that

financial and other aid be placed under the direction Of the United Nations,

and that the HOrld Bank and the Monetary Fund be converted to agencies for

the general welfare rather than profit making organizations. EurOpean rehab-

ilitation is for the general welfare and not a profitable Operation in the

dollar sense.56 This stand was supported by all of the State Farmers Unions.

They considered the abandonment of UNRRA as reckless 31d the unilateral aid

proposals as piecemeal and condemned such action. However, if the Marshall

Plan were put forward on a self-help basis and the program were to be executed

through United Nations agencies the program would be supported. This, however,

wasnot to be the case.

As work progressed, with the compilation of data needed to formulate the
plan, and the OEEC prepared itself to work unilaterally with the United States;
the Interim Aid Bill for France, Italy and Austria was passed. The Farmers
Union, however, did not relent in its Opposition to aid on a unilateral basis.

The Farmers Union gave strong backing to H.R. ASAO which came nearest to their

beliefs. It was to work in close conjunction with the United Nations. The

 

55 European Recovery Program: Hearings before the Committee on Foreign Re-
lations; United’States Senate; 80th Congress, Second Session; Part 2;

1579277

 

56 Ibid, p. 927.

51

two main bills, H.R. h579 and S. 2202 were Opposed, even though both were come
bined into S. 2202 which finally became the Foreign Assistance Act of l9h8
and established the ECA. The drawbacks were many including the lack of enough
agricultural help in the measures, the inadequacy of the $6.8 billion request
for the first 15 months and the slowness with which aid should be provided.

However, some support for this type of aid did come forth. They did
support the idea of information services to identify aid from the United
States. The Objectives of reconstruction rather than relief were supported
as was the phiIOSOphy of assisting suffering peOple wherever and whenever

they could be helped.

The Department of Agriculture

 

Although the Department of Agriculture is a part of the Executive branch
of the Government it may be considered a pressure group for the furtherance
Of agriculture. It may also be considered as an interested group serving some
functions of a pressure group representing the agricultural point of view.
The role of agriculture in such a program as EurOpean Recovery w>uld hinge
heavily on the Department Of Agricultures' efforts along such lines. we have
seen in the preceding discussions that farm.organizations consider agricul-
ture an integral part of any recovery effOrt both in the United States and in
EurOpe.

It will be remembered that the crucial problem to be attacked was that

of food. In his testimony before the Senate Foreign Relations Committee,

52
57

Secretary of Agriculture Clinton P. Anderson said:
"One of the chief focal points Of any EurOpean recovery program must,
unquestionably, be food...'Western EurOpe at best is dependent upon
the outside world for much of its food. Before the war - specifically,
in the years 193h through 1938 - the area as a wlole produced only two—
thirds of its total food. The rest was imported... Another factor afh
fecting the world food situation and EurOpe's sources of supply is the
decline in food production in the Far East. Before the war, the Far
East was annually a net exporter Of six and one-half millions Of tons...
This food shortage in Western Europe and other parts of the world has
thrown a terrific burden on the United States. From 193h to 1938 we ex-
ported only h.6 percent of all grain moving in world trade. Last year,
with almost exactly the same amount Of grain, we exported 52.h percent."
This gives a broad view of the importance of American agriculture, with respect
to food production in the post-war period. Table IV Offers an indication of
food requirements necessary to carry out the program. It presents both CEEC
estimates and the United States estimates. One can see that the estimates of
the CEBC, according to American reasoning, were too large in relation to the
amounts that could be supplied from world supplies in food grains, livestock
feed, and fats and oils. Turning to Table V one can find the expected posi-
tion of the United States with respect to supplying these needs. The two
tables are largely self explanatory with no lengthy discussion needed.
These exports were destined to play an important part in relieving, for
a short time, conflicts between domestic price policies and foreign and tariff

8
policies. As the Secretary testified:5

"Our farmers are now producing a third more food and fiber than they
were before the war. They have revolutionized farm production and the

S7 Hearings; United States Senate; Op. cit.; part 1; pp. 30h and 307.

58 Ibid, p. 315

53

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55

revolution is here to stay. Our farmers are not going to give up their
neW'machines or their high yielding varieties, their improved insecti-
cides or their methods of cultivation. ‘we are going to have an abun-
dance of agricultural production, and we shall continue to need outlets
for some of our most important farm commodities... there has been gen-
eral agreement that for many years to come we will need sizable export
markets... for cotton, wheat, tobacco, lard, rice, and certain fruits
and vegetables." '

The program was to serve other purposes also. As Table V indicates, the
amounts of the various commodities exported to EurOpe would gradually be de-
creased as the production of Burcpe was revived and emphasis shifted to fill-
ing out other portions of the capital structure. The program.would undoubted-
ly maintain a strain on our grain areas, but it would allow also for farmers
to shift gradually to another production pattern as food was de-emphasized.
This idea in support of the program was also presented by the Secretary who
said:59
"The program is also feasible from the standpoint of our own agriculture.
Not only can agriculture do its part but in the long-run it should bene-
fit from doing so... . It will delay our return to more desirable land-
use practices and make a more intensive conservation program."
"But after the first year or two, as this program puts less and less
emphasis on cereals, it will fit in with our needed production shifts.

And as I have just pointed out, in this country, this program would aid
either directly or indirectly, our farmers."

Summary
Although the majority of American agricultural representatives favored

the unilateral form of aid, those who dissented did favor the basic philos-

 

59 Ibid, p. 315.

56
ophy of reconstruction as opposed to relief. This discussion has been an
attempt to congeal the ideas of the farm organizations put forward on the
problem of post-war relief and reconstruction. The discussion concerning
the three major farm groups and the Department of Agriculture have presented
these views of such relief and reconstruction measures, with the theme tend-
ing toward its importance to the American farmer. The major basis of sup-
port was fOund to be in that a rehabilitated EurOpe was necessary if the
United States was to Continue its high production level. Although much self-
interest concerning individual commodities was present, there was the ever-
presence of the interweaving of humanitarian ideals.

With this background we shall now move on to a consideration of the
Operation and effect of these programs upon American agriculture. However,
in summarizing this section it would do well to give some conception of the
situation prevailing at the time, indicating the reason for such-a policy
stand.

With the close of the war, the feeling toward an international attempt
to maintain the future peace and relieve the present suffering, was very high.
Unfortunately, the lack of trained personnel led to an inadequate relief dis-
tribution mechanism. Coupling this with the refusal of many countries to al-
low UNRRA observers to check relief distribution, the United States, who was
the largest single supplier of UNRRA, changed her policy to one of unilateral
aid.

The re—evaluation of fimerican policy leading to this policy shift evolved
the idea that reconstruction of the wartorn countries was necessary, that re-

lief was not enough to meet the needs. From this one can deduce that in order

57

for the United States to retain its high production it was necessary to re-
build her largest single market, EurOpe. The Farmers Union felt it could

1w
H

be done through the United Nations. The farm Bureau and the Grange con—
tinued support of the Administration. As the Cold war increased in tempo
this unilateral basis of aid became, not only a humanitarian undertaking to
relieve suffering, but also one of political expediency. Not only did we
rebuild nations friendly toward America but we also postponed necessary
revisions in domestic farm price policy. As the emphasis shifted from econ-
omic aid to military aid the two farm groups continued support because it
became necessary, in the eyes of the Administration and Congress, to protect
these revived economies with military strength. To have refused support of
these programs could have forced domestic price policy revisions as Commodity

Credit stocks increased to the point that they became over-burdening due to

the loss of foreign outlets during the war.

58

CHAPTER FIVE

ECA - MSA; THEIR IMPLICATIONS AND EFFECTS

Before entering into the main body of the discussion it should be
pointed out that the greatest emphasis will be placed upon the ECA - MBA
programs. As previously indicated, the funds moving into the Civilian
Supply Programs are difficult to determine and data often times totally
impossible to obtain. Because the ECA, and later MSA, drew together under
one agency nearly all of the aid programs, the primary implications and
effects of post-war foreign assistance will start with ECA at its initia-
tion in April l9h8 and then treat previous programs in the body of the
text.

The position that American agriculture was to assume in the program
of reconstruction in Europe can be found in the final writing of the Foreign
Assistance Act of l9h8, and amendments. The funds that subsequently were

channeled into procurement of food and agricultural commodities is also

60

indicative of agriculture's share in foreign aid. The Act provided that:

"...in order to conserve by-product feeds for maintenance of American
agriculture, not less than 25 percent of the aggregate wheat and wheat
in the form of flour being sent to Europe was to be processed in this
country. Further it provided that when the Secretary of Agriculture
declared a commodity to be in excess of domestic requirements, the Ad-
ministrator shall authorize the procurement of any such surplus agri-
cultural commodity only within the United States. Also, the Secretary
could make payments, to any agency, which would help pay costs of dis-
posing of these:nnpluses. The Secretary could make payments in amounts
not to exceed 50 percent of the sale price of the commodity. Due
respect was, however, to be given to the availability of these commo-
dities in the respective recipient countries, and the amount of the
excess available for shipment.”

 

60 This has been paraphrased from - Public Law A72, 80th Congress, Chapter
169, 2nd Session, S. 2202, Title I, See. 112, Subsec. d.

 

69
Legally the Secretary of Agriculture possessed a great deal of power
with respect to the authorization of commodity procurements. It was
within the Secretary's power to relieve any pressures upon the 000 with-
out touching domestic supports. This will be taken up at a later stage
with the consideration of inconsistencies between domestic and trade poli-
cies. Although the Act itself gave great potential power to agriculture,
it did not provide the actual funds that were to be used in procurement
of agricultural commodities.

From the initiation of the ERP on April 3, 19% until May 31, 1953
the total amount of the procurement authorizations was $lh,985.5 million
for Europe and the Far East. The total commodity authorization was
$12,888.h million. Of this amount $5,996.S million was channeled into
the procurement of food and agricultural commodities. This was h6.5 per-
cent of the total commodity authorizations. For this same period the
American economy received a total of 88,99S.3 million in commodity author-
izations or 60 percent of the total authorizations and 62 percent of the
total commodity authorizations.61 Funds used to purchase American agri-
cultural commodities totaled $h,816.5 million, which is 80.3 percent of
the total authorization for food and agricultural commodities or 53.5
percent of all commodity funds entering the United States.

To consider the period prior to, during and after the enactment of

the EurOpean Recovery Program, Table VI has been constructed. During this

 

61 This difference between the total and the commodity authorizations
represents funds used for technical services; ocean freight of which
well over 50 percent went to American shipping as provided in the
Act, and other lesser items.

60

period a variety of programs were in operation; such as GARIOA, the British
Loan, Greek-Turkish Aid, Philippine Rehabilitation, and other lesser pro-
grams. Each in itself was not adequate to remedy the war-torn disorders;
however, the total aid did amount tO about $15 billion. With about $3.8
billion devoted tO the purchase Of farm.products, this meant about 27 per-
cent of the funds going to American farmers. For the three years l9hS-h7
inclusive, these aid program funds represented a yearly average Of 39 per-
cent Of the value of all agricultural exports on a commercial basis. The
actual figures can be seen in Table VI.

TABLE VI: Value of United States Agricultural Exports -

Commercial and Aid Programs.
(Figures in Billions)

 

 

IEAR AGRICULTURAL AMOUNTS MAJOR PERCENTAGE UNDER
EXPORTS KINDS AID PROGRAMS

Lend—Lease

19h5-h6 $2.8 $1.h UNRRA so

19u6-h7 3.6 .8 UNRRA,GARIOA 22
Interim.Aid

19u7-h8 3.5 1.6 GARIOA A6

19h8-h9 3.8 2.3 ECA,GARIQA 63

19h9-50 3.2 2.0 ECA 62

1990-51 3.h 1.2 ECA 35

1951-52 h.o .7 ECA, USA 17

1952-53 2.9 .h MBA 12

 

Source: Witt, Lawrence W}, "Considerations in Evaluating the Effects of
Foreign Aid Programs on Trade in Farm Products", Journal Of Farm
Farm.Economics, December 195h. .

 

 

During this interim period, l9hS-h8, agricultural products, in the aggregate,

61

became more important than under Lend-Lease, However, the complexities Of
the administrative structure of aid in this period makes a quantitative esti-
mate difficult.62 In programs such as UNRRA and Interim.Aid, to percent or
more Of the expenditures were for food, plus some cotton and tobacco, fuel
and fertilizers.63 During the period of European recovery the initial imp
portance of agricultural products diminished as depleted European stocks were
replenished and emphasis shifted to industrial and military end-use commodities.
During the first year Of the program over 50 percent of the expenditures were
for food and agricultural products. The food, feed and fertilizer shipments
declined to about 20 percent during the fiscal year 1950-51 with increases

in cotton and tobacco making up only part Of the decline in other farm.pro-
ducts.6h .As emphasis shifted more to military aid and the form of aid was
divided into Military, Economic and Technical Assistance, the expenditures
for food represented only about 10 percent of the combination Of all three
forms of aid.

To Obtain a more conclusive idea Of the importance Of the programs to
American agriculture we can draw a comparison between Table VI and Table VII.
With exports averaging about 11 percent of cash farm receipts,and with 38
percent of this coming from the aid programs, it can be seen that the aid
programs were of as great an importance to American agriculture as the com-

modities were tO those who needed them.

 

62
63

Witt, Journal of Farm Economics, December l95h.lgp. cit.

 

Ibid.

 

6h Ibid.

62

TABLE VII: United States Agricultural Exports and
Total Cash Farm Income, l9h6-S3

 

PERIOD EXPORTS AS A PERCENTAGE
OF CASH FARM RECEIPTS

 

19u6 12.9
19h? 13.1
19h8 11.5
19h9 12.8
1950 10.0
1951 12.2
1952 10.5
1953 9.1

 

Source: Taken in part from Johnson, D. Gale, Agricultural Price Policy and
International Trade, Essays in International Finance, NO. 19,
Princeton University, June 195ho Po 2.

 

Pressures to Buy in the United States

During the war the pressure to favor certain exports held little con-
sideration due to a ready market for almost all commodities both through
lend-lease and the American Army needs. The situation following the war,
discussed previously, also placed heavy demands upon American agriculture.
However, the feed, fertilizer and exchange of current technical information
speeded the recovery in foreign agriculture so that by 19h9 European Agri-
cultural production was at pro-war levels and by 1953 was 20 percent above

predwar or about equal on a per-capita basis.65 When the ERP was undertaken

 

65 Ibid.

 

63

in April of l9h8, supplies of many goods and services were quite short in
the United States. Domestic production and emplyment were high. The
fear of pushing the inflationary pressures, through the Operation Of the
aid programs, was a major concern. This attitude was reflected during
the first year of the program in the policy Of ECA, which encouraged pur-
chases from sources outside Of the United States in meeting requests for
many commodities.

In late 19h9 there was a mild recession in some sectors of the economy;
industrial production had declined 16 percent and non-agricultural employ-
ment was down by two million. There was no longer the same necessity
to safeguard the United States supplies. Rather, the emphasis was placed
upon the use of surplus commodity stocks, wherever needed or even if not
strongly needed to meet foreign aid requirements. Against this background
the ERP in contributing to the financing of exports, incidentally had a
stabilizing effect on the American economy.66

Coupling this situation in the United States with the recovery in
Europe, pressure began to mount for increasing export outlets-imports to
the United States-—through the aid programs. When countries did not have
goods to export to the United States there was little pressure. However
when products were made available and other countries tried to earn dollars
the pressure increased. When the Foreign Assistance Act was passed, cre-
Iating ECA, some protectionistic devices were added by unilateral decision
such as the 25 percent milling requirement, forcing the administrator to

use declared surpluses and that 50 percent of all shipments were to be

 

66 This has been paraphrased from: Seventh Report to Congress of the ECA;
For the Quarter Ended December 31, 19h93 may 18, 1950; washington,’D.C.;
Chapter IV; p. 58.

64
made in American ships. The real pressure did not come until the second and
third years of the program. Provisions concerning increases in agricultural
products were almost enacted when $1.5 billion was to be set aside during
the second years' appropriations exclusively for procurement Of these pro-
ducts. This was eliminated on the floor of the Senate at the plea Of the
Administrator for a flexible budget and a desire to maintain the basic
humanitarian goals of the program. When this was supported by other groups
.the effort to require that 15 percent of the corn must be Shipped as grits
and flour was defeated, while the 25 percent milling requirement was cut in
half in the second authorization and eliminated in the third.67 The his-
tory Of ECA legislation allows the conclusion to be drawn that by and large
the direct efforts to increase exports via the programs were defeated.

When the program was divided under the three titles - Mutual Security,
Technica1.Assistance, and Economic Assistance - the Opportunity for farm
product exports declined. Great efforts are now being made to increase
exports of farm products under Section 550 Of MSA, Wheat for Pakistan and
the Agricultural Trade Development and Assistance Acts Of 1951;.68 Also
the use Of Section 32 funds permit the CCC to dispose Of accumulated sur-
pluses. In considering the "Buy American" conception, which is becoming
more evident, we may cite the following:69

”The 'Buy.American' principle is strongly in evidence along with
security conceptions which prefer to maintain production in this

 

67 Witt, Op. cit., Journal Of Farm Economics, December 195h. See also

Brown 35d 051e, 32?.2EE‘3 pp. 167-170.

 

‘58 Ibid.

69 Ibid.

65

country. In effect this means that we are Operating as if we had
a comparative advantage in the production of military items relative
to farm products and other commodities. Greater Offshore procure-
ment of military items would provide foreign purchasers with more
freedom of action in buying the American products they considered
more advantageous. The evidence is that contracts are placed in the
United States even at 30 to 50 percent higher costs."
The result of all of this has been an increasing belief in a two price
system and a retention of domestic policy out of line with necessary
foreign policy.
we now turn to a consideration of the effect Of these programs upon

American agricultural prices, production and surpluses.

Effect Upon Agricultural Prices, Production and Surpluses

 

Undeniably these aid programs had effects which were both desirable
and undesirable, depending Of course upon the philosophy Of the person
considering these effects. However, it is not the author's intention
to argue these effects with relation to the underlying politico-economic
philosophies. The approach is general and will lack any statistical com-
putations of elasticities and the effects of the assistance funds upon these
elasticities. Although there has been very little real analysis of these
programs in terms Of statistical evaluations, such an evaluation would re-
quire very complex calculations tO numerically evaluate the intricate inter—
relationships involved as these programs developed and Operated.

During the war period, l9hl-l9h5, the demands upon American agricul-
tural production, by the Allied armies and many of the countries themselves,
caused a great expansion in productive capacity both in terms of acres
planted and total output. This expansion occurred in almost every commodity

as well as in the export Of the commodities. This fact of the Observed

66

expansion during the war period, in fact, the first several years of the
period, leads one to investigate the relevant supply elasticities in deter-
mining the effects Of increased returns to farmers. This must then be
coupled with the demand effects arising from increased spending as well
as the effects of increased supplies of farm products. The demand con—
siderations will be discussed at a later point. During most of the war
period, prices were bouyant and ready markets were available for absorbing
the increased supplies of farm products. However, with the termination
of lend-lease the relevant demand schedule also changed. As a result Of
the large production, prices were again being forced down and stocks were
beginning to accumulate under the support programs. Although there was
a realization of the need for food in foreign eConomies, the acutedollar
shortage limited the purchases Of American food supplies. With the fail-
ure at international cooperation in relief, coupled with the shift in
Soviet policy, the Cold War swung into high gear. It now became apparent
that there had to be a reorientation of American foreign piicy. The policy
reorientation led to the enactment of the system of bi-lateral and uni-
lateral assistance programs in the attempt to "contain" the Soviet advance-
ment into the non-communist world.

Combining this policy reorientation with the increased tempo of the
Cold War, prices became bouyant once again, as internal demands increased
and production remained at a high level the assistance programs again opened
the foreign markets. Production remained at a high level. The favorable
effect upon the expectations of producers encouraged further expansion of
output and further improvements in technology, although this latter point

cannot be attributed solely to the aid programs. In the light of bouyant

67

prices and higher expectations it is appropriate to look at the production
or supply side Of the question.

The Supply Side

 

The question to be asked is this; what will happen on the supply side
as a result of this increased expenditure on farm.products? This is essen-
tially the same question that arises in considering the effects Of a support
program where it is asked; who or what factors gain from the increase in
returns due to the increase in price, and what are the effects Of these
gains? Considering this question, look at the individual factor supplies
to the producer. At a first glance one might say that the increased return
would be attributed to the land with the result of an increase in land
values. However, this is not the case unless all other factors have an
infinite supply elasticity. If there is any elasticity at all to the supply
functions, the above will not be the case (If the elasticity is less than
infinity'but greater than one). In this case the increased return will be
dissipated by an increased use of these factors with the resultant increase
in output, if there are no limitations on output. In the case where the
supply elasticity Of the factor is zero the increased return will become
a rent. Although it will not be a Ricardian pure rent but a Marshallian
quasi-rent. It will be pure rent where the factor is completely fixed to
the industry and cannot be changed over time. It will be quasi-rent where
the factor, fixed for the short period, can be changed over time to dissi-
pate the above normal return. FUrther, if along with these aid programs
there are limitations on output then these increases also become a quasi-
rent to the factors concerned. This is true because it is not now possi-

ble to increase production, due to limitations on output, and the amount

68

Of the quasi-rent will be dictated by the elasticity of the supply function.
In other words, the amount of the rent will be the difference between the
amount of the factor used before the increase in income and the amount Of
the factor that would be used after the increase in income. The amount
that would go to hiring more of the factor is then the amount of the rent
where there are limitations imposed on the output.

However, the latter does not seem to be the case because there were
no limitations on the output of any commodities with the exception of to-
bacco. Hence, if we were to consider the assistance funds as a form Of
export subsidy the above analysis could be carried through. Therefore, it
can be reasonably predicted that as a result Of the aid programs production
was kept at a high level and in some cases increased through the increased
use of factors arising from the increased returns due to the assistance
funds.

The reservation on technology should now be brought into the discussion.
The increased use of new technology must also be attributed to the greater
availability of it following the war, as a result Of the shift of industries
to peacetime production of technological innovations. Because Of the limited
domestic use of certain types of new technology during the war period,(in-
volving machinery, rubber, metal and chemical goods) much Of the increased
incomes went toward debt retirement. Following the war, the current income
could then be used to purchase new technology. However, the optimistic
expectations arising from government aid policy also allowed further invest-
ment in new technology. The effect Of the two must be considered together.

Still on the supply side, turn to the question of surpluses. Although

there are also many demand considerations here, it will be considered under

69
the supply side. This may also be considered as a transition to the consid-
eration of demand factors. In the case of surpluses, it can be stated
definitely that the aid programs either stopped surplus accumulation or
decreased its magnitude considerably, depending of course upon the commo-
dity. The effect of the aid prOgrams then depends upon the magnitude Of
the assistance funds directed toward the purchase of a commodity. If funds
used to purchase a commodity were enough tO absorb the current flow sur-
pluses, plus decreasing the existing stock in storage, then one could say
that there was an appreciable effect on surpluses. 0n the other hand, where
procurement funds were only sufficient to absorb current flow surpluses, the
programs would be considered to have much less effect. Surpluses in the
sense used here are considered to occur when the output of a commodity is
over and above the total effective demand for a commodity, exclusive Of the
amounts going into the aid channels. These statements as to "effect" are
made in light Of losses that would accrue to the government upon future
disposal of surplus stocks. In the first case, the loss would be diminished
as existing stock surpluses in storage were disposed Of at market prices
above the support purchase price. In the second case, existing storage
stock surpluses would still exist, although they did not increase, and when
they were disposed Of in some_future period they would most likely be sold
below the support price or given away. This would hold unless new demand
channels could be Opened to absorb the existing production plus the storage
stocks. However, this does not seem to be the case as can be illustrated
by the potato incident in l9h8-1950 and commodities "given away" under var-
ious titles. To what extent either of these propositions are true would

require an investigation of commodities that are entering the aid channels

70
and are at the same time under support in the United States. The commo-
dities referred throughout this analysis of the "supply side” are wheat,
cotton, corn, dairy and egg products, tobacco, rice and several lesser
groups. This analysis can be carried through for each commodity separately.

The Demand Side

 

TO complete this analytical picture consider an examination of the
demand side. WOrking7O has made calculations dealing with the demand for
food during the period of the rearmament, that is the period following
the war until 1950. However, when one considers the entire period Of the
aid programs the problem is much more complex than he has indicated. It
would be applicable to summarize at this point the conslusions that Working71
arrived at concerning the demand for agricultural output during this period.
Agricultural exports and government purchases have been largely dependent
upon actions Of the American government. Hence, because of the inelastic
demand for food these government actions have been important agents in
affecting food prices. Since the beginning Of World War II total demand
for food has increased. This increase has come both from an increased
population and from increased consumption per capita which has resulted
from increases in real income. Further, he holds no prospect for any great
increases in demand as occurred during WOrliwar II. Furthermore, any
changes in food prices will depend upon the supplies available for domestic

use and upon government monetary and fiscal policy.

 

70 WOrking, E. J.; "Appraising the Demand for American Agricultural Out-

put During Rearmament"; Journal 2f Farm Economics; Volume XXXIV;
Number 2; May 1952; pp. 20 ~22 .

 

71 Ibid.; p. 22h; Paraphrased and summarized.

71

These conclusions are essentially the basis for the previous state-
ment that Working's calculations are not representative of the entire per-
iod over which the aid programs operated. To consider the effect of these
programs one must not only consider the effect within this country but also
the effects on the recipient countries' dollar earnings. These in turn
would lead to added secondary effects within the United States. The most
Obvious place to begin such an analysis is to start with the effect of the
foreign assistance funds upon the cash budget Of the government.

Because of the nature of the situation facing the government during the
inception Of the prOgrams, it is rather evident that policy inconsistencies
were bringing about great pressures. Although demand did increase during
the war period, and domestic demand continued high following the war, the
immediate post-war economy could not absorb the agricultural production
forthcoming. Therefore, these pressures, among other things, led to foreign
assistance. The big question is could the government have kept the economy
on such a high level with a decrease in personal income taxes which would
have increased the consumers' disposable income. Hence, any appraisal of
the effect of foreign assistance must be in the light of some alternative.
This is implied above because it is rather Obvious that the American economy
could not have continued at such high levels unless the European markets
were Opened and restored to normal. Or alternatively, the income of con-
sumers would have to have been substantially increased to increase domestic
consumption. The question is, of course, which will absorb the most out-

‘put. Would the EurOpean economies absorb more current food production or
would the increase in consumers disposal income absorb more? It is simply

a question of income elasticities Of demand for the current food supply.

72
The writer believes the nature of the analysis needed to really determine

the true effects of the foreign assistance funds is aptly described by

Don Kaldor:72

"Perhaps the most fruitful place to begin such an analysis is with
the effects of foreign assistance upon the government's cash budget.
One might reasonably assume that, in the absence of foreign aid, per-
sonal income taxes would have been reduced by an equivalent amount.
An alternative assumption, somewhat less realistic, is that there
would have been an equivalent reduction in bank debt. While the
direction of the effects upon the demand for farm products would

be much the same in each case, magnitudes would be significantly
different.

"Next, one would need to consider the effects of the increase in
disposable income, as a result of lower taxes, upon the level of
domestic demand for farm products. Some consideration would need to

be given to the impact of the tax reduction on the distribution of income.
It also would be necessary to trace the effects of the increase in dis-
posable income on the expenditure for the non-farm component of cur-
rent consumption. Here one would need to recognize the differences in
the spending propensities of the government and the public. Since
private investment expenditure may respond to a change in consumption
spending, the relationship between consumption and changes in the

level of private investment need to be examined. An analysis Of these
factors would provide a basis for appraising the effects of foreign
aid upon the level Of income in the United States. After such an
appraisal, one would have to relate any changes in the level of income
to the domestic demand forfarm.products.

"In addition, it would be necessary to investigate the effects of
foreign aid upon the dollar earnings of countries importing American
farm products. These countries have spent substantial amounts for

farm products over and above purchases made under the foreign aid
programs. Any change in the level of United States income associated
with foreign aid would tend to induce a change in the value of American
imports. This means a change in foreign dollar receipts on current
account. It then would be necessary to relate the change in foreign
dollar earnings to the level Of export demand for American farm products.

"If the effects of foreign assistance on foreign dollar earnings turned
out to be fairly substantial, consideration would have to be given to
the secondary effects Of this on the level Of domestic demand. Such

 

72 Kaldor, Don: "U. S. Foreign Economic Assistance - Discussion"; Journal
of Farm Economics; Volume XIXIV, Number 5; December 1952; p. 672.

 

73

secondary effects could be produced by a change in the level Of

domestic income induced by the change in American exports, associ-

ated with the initial change in foreign dollar earnings.

"It is apparent from this brief account that an analysis of the

effects of foreign assistance upon the demand for American farm

products would constitute a research problem of major proportions... .".
From this above analysis one obtains the nature of the scale of analysis
needed. However, this would simply indicate the relevant demand condi-
tions. It would further be necessary to bring the supply conditions in
to determine the effect upon the agricultural industry as a whole. Fin-
ally, and probably most important, it would be necessary to consider the
possible changes that would have occurred with a smaller or different type
of foreign assistance program. A crucial question here is the case of
France and Italy. Would these countries have gone into the communist
fold under the above alternatives? If so, what further effects would this
have had on armaments, domestic demand, and perhaps a new type of foreign
assistance? Not only are these questions important for consideration of
the prOgrams that were enacted but also for consideration of the alterna-
tives that could have been followed. The desired ends of American policy are
an important determinant in the consideration Of alternatives and hence
will rule out many alternatives. Alternatives can only be considered in
terms of maximization of a goal.

An alternative approach to the problem would be to assume that the
assistance programs had only an appreciable effect upon certain major come
modity groups such as cereals, dairy and egg products, cotton and tobacco.
Taking this approach initially rules out any primary effects upon the over-
all demand for food. The only effect would be in these few commodities

which further limits the applicability of the Working data. In tracing

74

through this argument one must eventually consider the secondary effects
as a result of the initial shipments that would have resulted in partial
rehabilitation. This would lead eventually to changes in foreign dollar

earnings and changes in American exports and imports.

Summary

Undeniably the foreign assistance programs had many direct as well
as indirect effects upon the American agricultural scene. Although no
statistical analysis has been carried through, for reasons indicated pre-
viously, these effects were noticable and pronounced. Coupled with other
factors the programs pushed technological progress forward. The increase
in technological change pushed productive capacity forward also with the
increases in factors, used to increase production, being dictated by the
relevant supply functions for the factors. 0n the demand side the com-
plicated interrelationships needed to appraise the relevant demand effects
has indicated a rather lengthy process. Although Working indicates an
increase in demand for farm.products, this cannot be considered as a rele-
vant characterization if the entire span of the program is considered. The
fact that the demand was increased is not questioned, but the magnitude and
the implications drawn from this magnitude are questioned. Admittedly
the aid programs did increase the consumption of farm products but because
of the refusal to shift support policies, as the food emphasis shifted to
military end goods, the final effect is again bringing pressures to bear
to reconcile policies.

In the end, then, the programs do not simply rest on their effects

upon the demand for American farm products. Because of this method of

75

relieving the pressures the ultimate time Of reconciliation was only post-
poned. As the programs pushed productive capacity upward, the ability to
change support programs became even more difficult. The maze of trade
restrictions associated with these support programs also seems to have
become even more solidly entrenched. The rehabilitation that occurred

as a result of the assistance programs was then partially nullified.

This fact may not be intuitively obvious. It is, however, the end conclu-
sion arrived at if the reason for the assistance programs is considered

as being not only to help starving peoples but to solidify the non-commun-
ist world. This nullification was further enhanced with theeflift to mili-
tary end-use items which were procured in the United States. In this case
import restrictions allowed very little exchange of foreign exports for
these items. Had these military items followed the most logical pattern
of procurement, in this case heavier offshore procurement, the larger
dollar earnings would have allowed greater purchases of food supplies
from.America. The European manufactures could have been used to purchase
military items elsewhere. This would have relieved the pressures to a
great extent as the emphasis on food shifted, as it was still necessary
for Europe to import a great deal of their food.

It is appropriate now to shift to a discussion of the programs and
trade barriers that led to the ultimate results in American policy incon-
sistencies. In terms of domestic programs only the course Of events may
be considered as the most logical path to have been following. This how-
ever is based upon the assumption that the basic premises (the domestic
programs) are logically correct in terms of the desired ends of American

trade policy. Further, one must accept the philosophy Of a two price

76

system if he accepts both the American trade policy and Domestic policy.
However, in the final analysis you must come up with some means to retain
world leadership and still maintain a tight internal economy along present
lines if you accept both policies as sound. In terms of current situations,
both domestically and internationally, this is not a mean task; it is vir-

tually impossible.

77
CHAPTER SIX
DOMESTIC AND TRADE POLICIES AND THEIR CONFLICTS

The impact of the aid programs goes much deeper than simply the effect
upon the commodities concerned. The impact carries to the very core of
American domestic as well as foreign policy. SO long as the demands upon
the economy of the United States were heavy and markets for large supplies
of American goods and services were available, there were few conflicts
between domestic and trade policy. About the only conflict was in the minds
of those who supported the aid program approach but saw what would happen
in the future as the heavy demands slackened. Following the war, the lack
of exports from other nations, i.e., or imports to the United States,
forestalled any great pressures for the United States to import. As the
world passed through relief and interim periods, and reconstruction and
recovery progressed, the need for the rehabilitated countries to export
increased the need for them to find foreign markets. With this progression
of time, the tempo of the Cold War also increased. Because the United
States was the Opposing pole to the Soviet Union and thus, represented
the majority Of the non-Soviet market, the conflicts between domestic price
policies and espoused foreign policies and ends arose when American trade
barriers prevented imports. This restricted ability to earn dollars, which
in turn restricted American exports, thereby increasing pressure for re-
conciliation Of domestic and trade policies both from our Allies and from
internal groups. The friendly nations who were attempting to reach Ameri-

can markets and the internal American groups arguing for a liberal trade

policy were attempting to expand exports and foreign markets and limit

78
imports. This led to an increasing belief in the idea of a two price sy-
stem - a domestic and a foreign price. In pointing out inconsistencies
in policies, both domestic and foreign elements are Often times difficult
to separate into specific categories. However, an attempt will be made
to discuss each under its own heading and draw the two together in a summary

statement.

Domestic Policy

 

The loss of foreign markets during the 1930's contributed to the decline
in agricultural prices. The severe drop in agricultural income was a power-
ful motivation for the enactment of domestic farm programs to strengthen do-
mestic prices. The prOgrams of interest here are those which have been de-
signed tO influence prices. In supporting prices by means of loans,
production controls, or surplus disposal and export dumping, these programs
must reduce greatly or eliminate outside supplies and competition. Thus
such prOgrams drive a wedge between domestic and trade policy.

There are five major agricultural programs that have been a part of the
American farm price policy. These programs required trade restrictive devices
which allowed them to Operate. The five programs are commodity loans and
storage, production controls, marketing agreements, government purchase
programs, and consumer supplementation and nutrition programs.73

1. Commodity loans and storage have been the central theme Of agri-
cultural policy since 1929. They were used to attempt to offset the depres-

sioncycle, and again in l93h and 1936 to eliminate yield fluctuation effects.

 

73 Johnson, D. Gale; Trade and Agriculture - A Study of Inconsistent

 

Policies; John Wiley and Sons;'Inc.; New'YOrk;II9SO; ppi_30:36.

 

79

This also has formed the basis for the Ever Normal Granary concept in the
AAA of 1938. However, as the loan and storage idea persisted and storage
stocks increased, disparity between internal and external prices of wheat
and cotton widened.

If the loans and storage provided an added demand factor to raise the
average price over time, stocks accumulate and price disparities appear.
The results of this most likely lead to uni-lateral action with respect to
foreign trade.

2. Production control programs cannot exist over any period of time
unless farmers actually anticipated higher prices. The real or tangible
effects of such a program are less important than a general state of ex-
pectations. If the control is achieved a differential will appear between
foreign and domestic prices. If this does not appear it will be achieved
through commodity loans. Therefore, if production is not actually limited,
trade controls will accompany production controls.

3. Marketing agreements find their authority under the Agricultural
Marketing Agreements Act of 1937; Marketing agreements have two important
features:

(1) control over the amount marketed and

(2) establishment of multiple type pricing systems.

If these agreements are effective they must invariably rely upon measures
that will interfere with trade if the commodity is traded.

h. The government may undertake the purchase of a commodity when it
cannot be readily stored by farmers and a surplus has driven the price below
the minimum level. Disposition with respect to the commodity may vary.

The government may store the product, distribute it to public institutions,

80

sell for export, transform it into a different product, or actually destroy
it. In any instance where the product is traded or near traded, import restric-
tions are needed. The program may also result in the use of export subsidies
to dispose Of the commodity.

5. When consumer income supplementation and nutrition programs have
as their objective the raising Of the nutritional level of low income fami-
lies, no inconsistencies arise. However, where the major Objectives are
to increase the level of farm incomes, and nutritional levels are secondary
or a byhproduct, then inconsistencies will result. Farm products that are
imported will have a larger domestic consumption, larger imports and little
increase in prices. Only strictly domestic products will gain for a short
time. Therefore, to raise farm incomes, trade restrictive devices will have
to be used.
Each of these prOgrams has been more or less a part of our domestic price
policy in the endeavor to increase farm prices with the hope of strengthening
farm incomes. However, as has been indicated, these programs cannot work

without devices to obstruct trade.

Trade Policy

 

Although in the aggregate the cash receipts from exports represent
only five to ten percent of the total income going to agriculture, they
are very important to many specific commodities. Traditionally the United
States has been a leading exporter of such commodities as wheat, cotton,
lard, dried fruits, tobacco, rice and other agricultural as well as indus-
trial products. Prior to WOrld war II the United States led the world in
many Of these exports. At times these exports have represented as much as
hO to 50 or 60 percent of the crop. With respect to the whole question of

exports in all sectors of the economy, there are two divergent schools Of

81

thought present that play dominant roles in policy decisions at various
times. These may be termed the liberal element and the non-liberal ele-
ment or protectionistic element.

The liberal element of policy in the foreign trade sector has made its

 

appearance in many fashions but has always driven toward the goal of freer
trade. Prior to World War I this policy position was termed Laisser-Faire.
This position, although a breakdown was evidenced prior to l9lh, disappeared
almost completely following 1919. As the 1920's passed and the United States
moved into the 1930's, it became evident that internal measures could not
relieve the depressed situation. In order to relieve the depression economy
in the United States the most positive effort on trade put forth was the
Reciprocal Trade Agreements Plan in 1935, which has been continued to the
present day and from latest reports will be extended for another three
years. These Agreements, with the "most favored nation" clauses,giving a

50 percent tariff reduction to such nations, may be considered the basic
strength of the liberal element Of American trade policy. In spite of the
presence of loopholes, escape clauses, etc., these agreements reflect the
effort on the part of the United States to increase world trade and break
down the almost insurmountable wall of trade barriers.

The liberal element had its culmination in the General Agreements on
Tariffs and Trade (GATT) signed in Geneva in l9h7, and in the significant
strides which this nation has made in arriving at cooperative solutions
to important international economic questions.”4

The International Bank and the International monetary Fund along with

the Havana Charter for an International Trade Organization of the United

 

7h Ibid, p. l.

82

Nations are indicative of what has been accomplished in the field of
international cooperation. Although these are a part Of American Trade
policy, let us look at those programs which are mainly American in nature,
in order to get a more complete picture of the liberal sector of the policy.
The Foreign Assistance Act Of l9h8 provides a fundamental expression
of American foreign economic policy. This Act indicates very explicitly
' the willingness of the United States to help other nations, and reflects
also the continued espousal, on the American side, of the principle of
multilateral trade and a reduction of trade barriers. It reveals also
a preference for a non-discriminatory conduct of international trade.
Although provisions granted broad discretionary powers to the Administrator
and the Secretary of Agriculture, which, in essence, allowed export dumping
of surpluses; one can seriously consider that the powers were not actually
used. In fact, the later actions in the prOgram indicate otherwise. The
attempts to tighten the restrictions on procurements Of the Administrator
were in fact defeated on the floor Of the Senate. The milling requirements
on wheat were decreased and in later years they were abolished altogether.
Attempts to place a milling requirement on corn exports under the program
were also defeated on the Senate floor. The only really major injury came
from the large shipments of dried fruits which seriously affected the Greek
dried fruit industry. However, these were Army rather than ECA shipments.
In line with the GATT agreements there was another indication of liberal
victory. The Wool Bill of 19h? for increases in the wool tariffs and quotas
was vetoed by the President which allowed the State Department to use the
bargaining point of a 25 percent reduction in the wool tariff at Geneva.

Further, the present proposal to extend the Trade Agreements for three years

83
and give added reductions in tariffs to Agreement countries is before the
Senate after passing the House. The indication is strong that the bill
will go through without seriously crippling amendments. The presence of
other elements in the political process hinder further liberalization of
trade policies.

Protectionistic elements continue to have considerable political

 

strength. During these tense periods, it is desirable to have economic soli-
darity amongst the non-Communist nations which can only be achieved through
mutual interaction and trade. However, the complete acheivement of solid-
arity is not achieved because of the significant role of the non-liberal
protectionistic element in the determination of the trade policy of the
United States. The element makes itself felt by the insertion of the so
called escape clauses and peril points, allowing the withdrawal of the United
States from trade agreements if injury appears eminent for an American
commodity under a trade agreement. In the case Of the United States, this
element came to the fore in the early years of the twentieth century when
high tariffs became evident. The largest victory for this segment came
to a climax with the Hawley-Smoot Tariff Bill. Although there were pre-
vious tariff bills with an overall average tariff rate much higher, the
main barriers were in the form of other restrictions to the actual amount
of commodities that could be imported.

During the thirties there was substantial development of devices
used to restrict trade in agricultural products. These give evidence of
measures reflecting the protectionistic attitude as well as measures that
arose out of thecbmestic farm programs. As indicated earlier the farm

price programs could not function and be effective without interfering

84

with trade. Prior to 1929 there was no specific prOgram for agriculture
as such, although the McNaryeHaugen Bill proposed a two price system.
There were many agricultural commodities that were protected by tariffs.
These were the only significant restrictive device in use, but had very
little economic effect, being mainly a political concession to gain support
for tariffs on products of the industrial sector. However, with the ini-
tiation of the farm.price programs Of the 1930's, protection was extended
to export commodities via the use of export subsidies. These were first
introduced in Section 12 of the Agricultural Adjustment Act of 1933. Power
here was given to the Secretary of Agriculture to spend money for the
"expansion of markets and removal of surplus agricultural products." The
present source of funds for export subsidization is Section 32 of Public
Law 370, 75th Congress. For this Section, Congress also set aside thirty
percent of the receipts from all import duties for domestic surplus dis-
posal. The only limiting factor in the authorization are the funds avail-
able. The significant impact Of our export subsidies represent a particular
invidious type of unfair competition.75
The most restrictive device in use is the import quota. The author-
ization for the use of the import quota is Section 22 of the Agricuhnral
Adjustment Act of 1933. With the amendments to Section 22 in the l9h8 Act
there is no real restriction upon commodities that can be placed under an
import quota. Previously, they could be placed only on commodities
that were under a production adjustment program, a marketing agreement
or a program operating under Section 32. At the present, because Sec-

tion 22 covers any commodity under any program undertaken by the Depart-

 

75 Ibid, po. 16-17.

85
ment of Agriculture, import quotas can be placed on almost any agricultural
product. Also, protective excise taxes are authorized under Section 22.
These are generally levied upon commodities not produced in large quantities
in this country and are therefore not required for Operation of the farm pro-
grams.

These devices and their implications for the future of the farm price
programs were not expanded during the war years although wheat and cotton
quotas were continued. However, they became important once again in the
post-war period and the results can be readily observed. The implementa-
tion of the assistance programs also reflect operations Of the protection-
istic element. They also have been reflected in the international OOOper-
ation measures and in GATT. The ERP has been discussed more fully else-
where but the measures may be indicated here. The milling requirements
on wheat, although later dropped, were significant during their operation.
The power given the Secretary to force commodity procurement simply by
designation of surpluses being present in a commodity are indicative. Also,
the measure forcing 50 percent of the shipments to be carried in American
Ships reflects the protectionistic view. In the case of GATT and the other
cooperation programs such as the ITO, the traditional escape clauses and
peril point measures are still present. In the case of ITO, these are so
strong as to render the entire program useless even if it were to be rati-
fied by the government. In the later years of the ERP when these countries
regained a sounder economic footing and began to rely less and less upon
aid shipments, the pressure of surpluses in the United States brought in-
tense pressure to bear upon the Administration to help exporters find for-

eign markets.

86

Although the ERP revealed on the one hand a liberal policy aiming
at the expansion of world trade and international specialization, on the
other hand it mirrors an isolationist and restrictionistic policy denying
the merits of non-discrimination limitations on trade barriers and multi-
lateralism. The same can besaid of the Reciprocal Trade Agreements for
it is, of course, recognized that the Agreements represent also an attempt
to expand the markets for American political desires. This is based on the
idea of granting the "most favored nation" clauses whereby the nation ob-
tains the tariff reduction.

In spite of efforts to broaden their viewpoints, many people continue
to view exports as separate from imports and the basic interrelationship of
the two is not understood. Hence, a basic difficulty found in the conduct
of American foreign economic affairs is the unpredictability concerning which
faction will emerge victorious - the liberal or restrictionistic element.

The conflicts between these two segments become important in under-

 

standing this basic difficulty. when the United States was still a
"debtor" nation, these conflicts were not of the utmost importance. How-
ever, following wOrld war I the United States found itself in the position
of the world's leading creditor nation. This transition from debtor to
creditor was very rapid in the sense that the country did not grow into the
position gradually allowing the diplomacy, statesmanship, and political
leadership to mature and keep pace with the growth in industrial and agri-
cultural progress. In other words, even though the economy took the role
of a mature industrial nation, the prevailing attitude of the leadership
remained essentially constant. This lack of willingness to accept the

newly attained position led to the later growth of a large group of domestic

87
farm programs requiring trade restrictive devices to protect their func-
tioning so they might attain their objective of increasing farm prices.

This period is the origin of the conflict between liberal and protectionistic
elements. As the farm programs grew in extent during the 1930's, the United
States attempted to expand world trade, including her own, through the Trade
Agreements. However, when domestic prices are raised above the world prices,
the exported commodities must frequently be subsidized to sell at the lower
world price in foreign markets. It frequently occurs that imports must be
restricted to render the subsidies upon the exports effective. The main
element of conflict is the tendency of most of the important farm programs
to place and maintain a wedge between domestic and world prices. The de-
vice used to maintain this position is the conflicting issue with the liber-
al trade approach. For one nation to attempt to raise the price of a com-
modity traded on a world market, as the United States has done with agri-
cultural commodities, has led to increased production elsewhere and surplus
accumulation of her own products as markets diminished. The period prior
to the war might be characterized as one in which "the isolationist and
restrictionistic aspects of foreign policy since l93h have been directly
related to agricultural policy, for in practically every instance the need
for interference with trade has grown out of particular needs for a specific
agricultural program."76

These conflicts were pushed aside during World War II and in the imme-
diate post-war period. As countries began to attain pre-war production
levels and their exports sought the high priced American markets, the pres-

sure of their exports pushed the policy conflicts to the fore again. The

 

76 Ibid, p. 3.

88

nature of the political scene makes these confliects of even greater impor-
tance. To identify these conflicts explicitly several examples may be briefly
cited. In 19h? when negotiations were underway in GATT agreements at Geneva,
it is apparent that the executive branch obtained clearance to negotiate by
announcing that the agreements would contain escape clauses to protect the
domestic industries against excessive imports. The Wool Bill of 19h? which
was previously indicated may also be cited. As the negotiations were in
progress the Congress passed this bill which raised the tariff and quotas on
wool. Had it not been for the President's veto the 25 percent tariff re-
duction that was a bargaining point in the Agreements would have been lost
and the entire program impaired. Another example is the continued use of
export subsidies by the 000 for cotton. The subsidies were in continued

use during the entire period that the State Department was negotiating for
restriction in the use of subsidies by nations adhering to the ITO. Fur-
ther, when the United States was undertaking the ERP, there was continual
pressure to lower the trade barriers inside Europe to generate recovery at

a more rapid rate. The basic idea was to model Europe supposedly after

the United States, as the analogy went, which has not internal trade barriers.
Although this in itself may have been a sound idea, the fallacy of such an
analogy iscfiwious. The important relationship should have been between the
EurOpean nations and the United States as a whole. There was little done

to lower the trade barriers of the United States; hence, the increase of

the conflicts. The implications of these conflicts will be discussed
shortly. By and large the position of the liberal element has strengthened
and has prevailed in the determination of post-war assistance policy and

trade policy. However, they have not been able to open the American markets

89
to any great extent to receive commodities which have been the result of
the reconstructed economies that the assistance fostered. These conflicts
are mirrored by the increasing acceptance of a two price system and a greater
readiness to approve legislation favoring farm exports, which has resulted
in a number of present programs attempting to expand exports of farm pro-
ducts and still maintain domestic farm prOgrams.

The resulting measures consist of three major types of aid-Economic

 

Aid, Military Aid, and Technical Assistance. These are essentially come
binations of programs starting with the Military Assistance Program of l9h9
and the Act for International Development in May 1950. When the former

Act was revised into the Mutual Security Act of 1951 there was a turning
away from the export of farm.products. The 1953 amendment under Section
550 of the Mutual Security Act provides that between $100 and $250 million
worth of surplus agricultural commodities may be purchased for sale to
friendly nations for foreign currencies, if they are sold in addition to

77

usual foreign purchases. Also, the Agricultural Trade and Development

Act appropriated $700 million for surplus sales for foreign currencies and
$300 million for gifts and famine relief. It is obvious that these are a
shift from the previous legislation which attempted to restrict exports of
farm.products that were considered in short supply. Further was the separate
legislation which sent 70,000 tons of surplus wheat to Pakistan under the
title of wheat for Pakistan. The International Wheat Agreement, and the

continued use of Section 32 funds to dispose of surpluses, are:flnther evi-

dence of the growing conflict. Under the wheat Agreement export subsidies

 

77

Witt, 22. git., JOurnal of Farm Economics, December l95h.

 

90
or losses now amount to approximately $500 million. The use of export
subsidies from Section 32 funds is most prevalent in the case of cotton
where the conflict (indicated previously) arose during the negotiations
of the ITO agreements. Except for the wheat Agreements, all of these
programs are completely bilateral. Continued efforts to seriously follow
any multilateral trade programs are almost entirely lacking.

'With the shift to security and military lines, the importance of farm
products declined, as countries strove to become self-sufficient in food
and reserved dollars for military items. Following 1951 the declining value,
volume and percent of products moving into foreign trade channels became
more evident. The upward surge in exports during the foreign aid programs

and rehabilitation had disappeared.

Summary
Looking back one could say that World war II did, in essence, "bail

out" the domestic prOgrams that had acquired large surpluses with no ready
market for their disposal. While the United States has attempted to ex-
pand its trade and maintain a closed economy it has continued to look with
disfavor upon others who use the same methods. During the war years the
conflicts were pushed aside. This also occurred in the post-war period
when the aid programs eased the pressures. Basically it should be empha-
sized that this disappearence of the great post-war demands added to the
reluctance to open American markets. Although large markets still existed,
the greatest pressure was to retain domestic markets for domestic producers.
The failure Of the American public to conceive of the delicate mechanism

that threads between exports and imports has resulted in the following

91
situation. On the one hand there are broad liberal humanitarian policies
that have as their objective an expanded world trade leading to a sound
world economy. On the other hand the desire to retain high prices and
incomes for agriculture and other groups has resulted in the retention of
domestic policies that view exports as something with little relation to
imports, plus the belief that trade would lower the standard of living.
From this domestic stand has followed the ever increasing use of protec-
tionistic devices to expand exports while attempting to keep imports at
a minimum. This may be considered too strong a statement when considering
the trends in policy coming out of the ERP era. However, this appears to
be the preference of the aggregate of the domestic producers who produce
imported commodities domestically. Through aggregating the individual
producers demands for protection, what is actually happening is that the
economy as a whole is trying to keep imports at a minimum. On the other
hand, a milder approach may be taken. That is to say that the legislators
are simply trying to restrain those imports which appear to threaten do-
mestic industry's status, or to adjust imports to alleviate what are con-
sidered costly changes in the economy. To carry this through one necessarily
arrives at the same conclusion. If policy is influenced by pressure groups,
and it certainly is to a great extent, than it seems only reasonable that
if producers desire to keep competing commodities at a minimum, imports
are under domestic pressure to be reduced. Taking these individual demands
in total, the aggregate effect to keep imports at a minimum. Even though
it is the consumer who determines what commodity he desires it is the pro-
ducer who maintains the policy pressure group. This is not merely a pro-

blem of semantics. There are few commodities in the consumers markets that

92
are solely produced on foreign shores. The list of commodities carrying
import restrictions are ample testimony to the above conclusion. This
may not be representative of the entire controlling body. It is of course
evident that even in the face of domestic pressure it has been highly ex-
pedient to lower prevailing restrictions. This is however to be distin-
guished from producers demands.

The relationship of the above reasoning to the consideration of con—
flicts seems rather obvious. It can be shown that the reason for interfer-
ence with trade has arisen out of specific needs to allow the domestic pro-
grams to function. Hence, the importance of the post-war programs becomes
plain. Had it not been for these programs the inconsistencies and conflicts
would have become evident much earlier. That these programs allowed the
disposal of surplus products cannot be denied. As the channels were re-
plenished to pre-war levels the demands upon American producers declined
and pressures between exports and imports arose. with the shift to mili-
tary aid there was very limited opportunity for agricultural exports. Hence,
the pressure for greater import restrictions and pressure to expand exports
through means other than the assistance programs.

There is, of course, no assurance that others will follow the lead of
the United States in lowering trade barriers and merging domestic and trade
policies into a consistent pattern. However, it is certain that increasing
the use of trade barriers will lead to their increased use on the part of
others in the world markets. This is seen in the case of nations who have
increased the use of import tariffs and export taxes. Where the United
States keeps the price of a commodity above the world price, and the product

is a majority of this market, other countries use import taxes to keep the

93

subsidized product out. On the other hand, they also use export taxes to
keep their domestic producers from expanding production in the face of this
favorable price. In other words, the United States maintains an "umbrella"
over these commodities such as cotton, wheat, tobacco and others.

The memories of the depression are not easy to dislodge. Although this
may be political justification for the retention of a wedge between domestic
and trade policy, the fact remains that the conflicts are present and are
becoming increasingly more difficult to remedy. If one is isolationist in
his viewpoint then this assumes the role of unimportance at least in short
spans of time and in a peaceful world setting. But the clear results of
such a viewpoint must be reCOgnized. Account must be taken to adjust condi-
tions, as are needed internally, under such an approach to policy. It is
necessary to reduce production of such surplus commodities as wheat and
cotton. This indicates that such an approach is not a one-way street. Iso-
lationism in this sense means not only restrictions on imports but forces
decreased exports. Hence, to retain the friendly nations these surpluses
cannot be pushed to foreign shores. In other words, the pursuance of two
inconsistent policies is not feasible regardless of what view toward policy
obtains. Therefore, if the United States is to maintain its leadership
politically and economically and be compatible with the emphasis upon free-

dom and private enterprise, the wedge between policies becomes important.78

 

78

Johnson, 22. 213., p. 3.

CHAPTHR SEVnN 94

SUTNARY'AND CONCLUSIONS

Following the Second World war the United States moved into the posi-
tion of being one pole in a bi-polar power struggle. This was, in essence,
the position of leader of the non—Communist portion of the world. The
weakened condition of‘many economies throughout the world required immed-
iate attention on the part of the United States if she was to maintain and
build a sufficient deterring force against Soviet advancement. This situ-
ation brought to a climax the interaction of American domestic and fbreign
trade policies. A major sector of this conflict is concerned with domestic
farm price policies and foreign trade policies in agriculture. Because a
primary concern fbllowing the war was a shortage of food the aid programs
enacted were, to a large extent, concerned with the shipment of food sup-
plies. Hence, the American agricultural sector played a major role in post-
war rehabilitation.

The role played by agriculture in the postawar period was heavily in-
fluenced by agricultural sentiment toward various policy approaches. Hence,
in order to find answensto many basic policy questions, it is necessary to
'investigate the interdwar period, l9l9-l9h0, where specific agricultural
policies took root. This period can be divided into two rather distinct
segments. The period from 1919 through 1929 was a decade of relatively
stable to gradually rising prices, or an era of prosperity and expanding
world trade. The period from 1929 to the Second horld Ear pictured an al-
‘most complete breakdown of the international capital structure and an era
of rising trade restrictions as countries attempted to isolate the effects

of the depression to a few isolated industries. As the various segments of

95
the economies turned to their governments for help the trend toward central—
ization and trade control was pushed forward and unilateral domestic programs
were instituted. In the United States the currency was depreciated and agri-
cultural price programs were enacted to relieve the situation. It was event-
ually realized that this was not sufficient and the Reciprocal Trade Agree-
ments were enacted to increase trade to lend further help. However, the
breach between domestic and trade policies had been widened and was being
maintained through a host of trade restrictive devices. International ten-
sions were again mounting in EurOpe and the Far East as the world started
to prepare fer another war.

With the advent of the war, the United States entered into the lend-
lease agreements with the countries fighting the Axis powers and the Ameri-
can productive capacity was pushed to all time high levels. The pressures
for coordination of domestic and trade policies slackened and demands of the
Allies expanded. As countries were liberated, the devastation wrought by
the war required that the liberaters feed the starving pOpulations. This
burden fell mainly upon the United States. This feeding was done under the
Army Civilian Supply title Which merged over time into the subsequent relief
and aid programs.

With the ending of the war, the attempt was made to approach the inter—
national rehabilitation needs through c00peration among the nations of the
United Nations. However, it was not yet time for close international co-
operations to be feasible. Hence, the UNRRA program.was laid aside with
the shift in Soviet policy and the approach became bilateral in order that

the direction of aid funds might be controlled to exclude the "Iron Curtain

I.

96
Countries". Gross foreign assistance for the transition period, mid-l9h5
to April l9h8 exclusive of Interim Aid and the Greek-Turkish Program amount-
ed to $1h.5 billion. With the re-evaluation of American assistance policy
it was believed that the real need was an entire recontruction of the Eur-
Opean economic structure. Thus, with the initiation of the Truman Doctrine
the world entered the new phase of post-war rehabilitation. The problem of
EurOpean recovery was no longer treated as being dependent upon England.
This led to the develOpment of the fbur year program titled the EurOpean
Recovery Program. Although the main emphasis was in Europe missions to
China 81d Japan were added. Taking fiscal years l9h8 to 1950, net fOreign
assistance totaled p15.6 billion. As the world situation shifted and sec-
urity interests became primary the aid shifted to goods for rearmament.
This phase began with the Mutual Security Act of 1951. All fbreign assis-
tance programs were merged under its head and the major allocations became
military. However, the reality of the fact that defense required sound econ-
omic footing was not lost.

The majority of American agricultural representatives from the farm
organizations favored the unilateral form of aid. In fact the resolutions
of the farm organizations shifted to coincide with the changing policy of
the administration. This is true fbr all except the Farmers Union which
continued to argue for the necessity to use the United Nations for such
actions. The major basis of support was the argument that a rehabilitated
Europe was necessary fbr continued high production levels in the United States.

To have refused to support these programs could have forced revisions of the

97

domestic farm price policies as the 000 stocks became overburdening with the
loss of markets because of the war.

As was to be expected, the largest portion of the funds allocated under
the ECA/MSA programs were funneled into the American economy. Although the
Acts illustrated a major victory for the liberal element of trade policy
there were several clauses inserted as protectionary measures. It can be
said, however, that attempts to increase surplus disposal via the aid pro-
grams was practically nullified. The effect of the aid programs upon Amer-
ican agricultural production, prices, and surpluses was very important. Any
consideration of these effects would require a very elaborate and difficult
statistical evaluation. Even if such an undertaking were attempted, the true
effects, in the writer's estimation, would be virtually impossible to spe-
cify with accuracy, because of the necessary assumptions about the political
viability of Europe.

An important factor that did come to the surface once again were the
policy inconsistencies between domestic and trade policy. This arose with
the decreased emphasis on food as recovery progressed to pre-war levels and
then exceeded it. The effect of this has been the increasing growth of sur-
plus commodities under the 000 programs in the domestic sphere. The result
of this has been the increasing use of political pressure to expand exports
of farm.products through measures other than.aid. These are primarily under
the titles of'Wheat for Pakistan, The International wheat Agreement, and the

Agricultural Trade and Deve10pment Act.

98

In conclusion, the writer arrives at the following prOpositions:

l. The effect of the post-war assistance programs has had pronounced
effect upon American agriculture. Although this is virutally impossible to
specify it did continue to expand the productive capacity of the economy.

2. The post-war attempts at international c00peration and their sub-
sequent failure is indicative of the international feeling toward present
international solidarity. It is true that the various instruments such as
the Bank and the Fund are steps in the direction of international c00peration.
However, the failure of the ITO and the weakened position of the United Nations
as a result of the unilateral action of the United States signifies that the
time has not yet arrived for full international COOperation.

3. The assistance programs postponed the reconciliation of domestic
and trade policies with the result that they have become further entrenched
in the minds of the American public. Hence, the action has been to increase
exports through measures other than aid and other than measures to bring dom-
estic and trade policies into balance.

h. The result of the United States maintaining a two price system in
such commodities as Wieat and cotton has been to hold the entire world mar-
ket under a support program. This can be illustrated by the rise in the use
of export taxes and import subsidies in other countries. The taxes used to
hold down their domestic commitments to these commodities because of the fear
of an "unloading" by the United States with a large resulting price drOp;
and the subsidies to prevent large imports of the cheaper American goods.

These are in use in Mexico, Haiti, and other countries.

99
5. International coo;eration will not be possible unless the United
States gives full and complete backing. Until such a time arrives, the
United Nations will remain a relatively weak organ and can only be used as
a sounding-board for international sentiment. This will all depend upon

the relations between the Soviet Union, Communist China and the United States.

lOO

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