Foreign Aid Fiasco
MAY 01, 1956 by CHARLES WOLFE
Filed Under : Inflation, Communism
Mr. Wolfe is a member of the staff of the Foundation for Economic Education.
$115 billion worth of foreign aid has produced neither friends nor a genuine European prosperity—while it has placed American weapons in hands which may someday aim them at us.
Last March 19, President Eisenhower formally asked Congress for $4,860,000,000 for the Mutual Security Program. This is a big figure, right on the face of it; but it looms even larger when you consider that this recommended foreign aid appropriation—virtually $5 billion—is almost twice the $2.7 billion for the current fiscal year.
If the President’s request is approved, it will bring the total of American foreign aid since World War II to the fantastic sum of almost $55 billion. But even this mountain of dollars is dwarfed by the total we have doled out to other nations since 1940—approximately $115 billion, averaging more than $2,000 per taxpaying family in the U. S.—money which these families otherwise might have used for better food, shelter, clothing, health, education, religion, savings, or anything else of their own free choice.
Nevertheless, this $115 billion sacrifice—or even two, three, or four times that much—might have been totally justified, had it been made voluntarily in the form of private gifts and investments and especially if the money spent had been successful in guaranteeing American security in a conflict-torn world.
Pleas for More Aid
Since our foreign aid program has been going full blast for almost ten years now, it is quite possible to analyze not only its motives and methods but also its objectives, and—very important—to what extent they have been achieved.
Taking first things first, what has been the motive of Uncle Sam’s giant give-away program? It is often portrayed as a Christian compassion for the “downtrodden” or “unfortunate” nations of the world—especially for our noble World War II allies. Such a portrayal appeals strongly to millions of kind-hearted Americans and has been voiced by many proponents of foreign aid, including Secretary Marshall. On May 13, 1947, he declared in an overseas broadcast: “There has been much of misunderstanding regarding our program of aid to Greece. There has been much of distortion and misrepresentation of our purpose. We are answering the call of a valiant ally who has suffered much . . . It is as simple as that.”
But only two months before, on March 12, President Truman, in urging the Greek loan, had rested his appeal frankly on the argument that “the very existence of the Greek state” was being “threatened by the terrorist activities of several thousand armed men, led by communists.”
Thus, according to President Truman, the real objective was to “buy” allies in our struggle against Soviet communism. Explaining the purpose of our foreign aid in 1951, Assistant Secretary of State George C. McGhee frankly asserted his opinion that: “The United States cannot afford to allow the forces of neutralism and anti-Western sentiment to gain any further ground, nor to allow these forces to be captured and exploited by internal communism.” And the objective in 1951 is precisely the objective in 1956, as countless recent official acts and statements testify.
It should be plain by now that the primary motive is by no means a compassionate concern for other nations. It should likewise be clear that the ultimate objective is not the economic recovery of war-ravished Europe nor the industrialization of impoverished Asia—as is often alleged—but one thing only: the gaining of anticommunist allies.
A Test of U. S. Motives
Anyone who entertains a lingering doubt about this should ask himself: Why were U.S. officials so perturbed when Russia offered to pay for the monster dam at Aswan on the Upper Nile? Would not this have greatly helped the Egyptians, and saved millions of American dollars for other worthy foreign aid projects?
Or, why were State Department spokesmen so agitated this past winter when Khrushchev and Bulganin toured Asia with big promises of Russian aid? Surely, if concern for vitalizing the stagnant Asian economy had been uppermost, then our government should have said: “Wonderful! Now the Soviets are joining us in the great task of lifting the Asians out of poverty!” But no, Washington was frightened, and considered this Russian overture as reason number one for hiking our 1956 foreign aid appropriation to the staggering total of $5 billion dollars.
Having observed this technique for gaining allies, we must ask: Do we think it in keeping with the principles on which this country was founded to stoop to the crude stratagem of “buying” friends? Is there anything in all Judeo-Christian tradition which would even remotely sanction the attempt to gain friendship by crossing a palm with silver?
Bribery and Blackmail
The only principled way to win a friend—whether person or nation—is to take a sincere interest in his well-being, apart from any immediate gain for oneself. Attempting to “buy” national friends is, by definition, sheer bribery—a gift bestowed with the purpose of influencing action in favor of the donor. And it leads, almost inevitably, to blackmail. The bribed nation is tempted to say: “Give me more, or I’ll switch to the other side.” And whether or not a recipient country attempts blackmail, it is apt to feel a deep-seated suspicion and resentment.
Senator Mike Mansfield, back from an extensive trip in Southeast Asia, declared last February in the Senate:
The argument which is often made to the effect that we must outbid the Russians in offers of aid to Southeast Asia reflects very little credit on us or on the nations of that area . . . The decent, the self-respecting, the independent in Southeast Asia will resent the implication that they can be bought.
That this is no mere platitude is abundantly verified by current history—and it applies to Europe as well as Asia. Recent events point to the harsh and stunning fact that foreign aid simply has not worked! Again and again, the record indicates that American dollars have been singularly ineffective in winning friends for the competitive market system and for the people of the United States. Consider some instances:
France. Since the end of World War II, we have given approximately $12 billion in aid, economic and military, to France—more than to any other nation except England. But French resentment of the U.S. is unmistakable. So is the growing French response to communism—displayed in the recent National Elections when over five million Frenchmen voted communist, seating 150 communists in the French assembly.
This winter, when an American reporter asked 25 French citizens what they thought of the giveaway program, nearly all said it made no difference to them; they didn’t get any of it. Some remarked, “It made billionaires out of French millionaires.”
Greece. Henry Gemmill, reporting from Athens in the Wall Street Journal of January 26, 1956, wrote: “Today the sentiment of the populace toward the U.S. government ranges from mild exasperation to violent opposition . . . Politicians such as Progressive Party leader Spyridon Markenzinis are making speeches depicting the Greek government as a toy in the hands of ‘our great friends.’ University students have marched through the streets shouting, ‘Out with the Americans . . . . ‘”
This anti-American attitude revealed its intensity last February, when one out of every two Greek voters cast his ballot for the communist-backed “popular front.” That’s how much friendship the U. S. got for the $2.8 billion it had poured into Greece.
Italy. Even stanch advocates of foreign aid concede that communism remains a potent force in Italy. And this, despite American billions, teamed up with an utterly earnest, all-out fight for survival waged by the Catholic church in its home territory—a struggle in which priests delivered anti-communist talks from soap boxes, and even derobed and turned cloak-and-dagger men, joining Italian communist cells in order to undermine them.
Still the Red lure persists, and repeated reports—as for example, from southern Italy where huge sums have been spent for development—have shown more persons becoming communists than anticommunists.
Yugoslavia. Looking back a few years, we can remind ourselves that the Yugoslavian government exuded no noticeable gratitude in return for the millions of dollars of supplies poured into that country by UNRRA. More recently, since 1950, Yugoslavia has received from us some $500,000,000 in economic aid, and about the same in military aid. And yet Yugoslav officials openly declare they have no intention that our aid should help curtail their admittedly communistic regime.
Egypt. Since the start of our program in 1951, the United States has spent some $60,000,000 in economic and technical aid to the land of the Pharaohs. Yet relatively few Egyptians are aware of the American dollars circulating in their land. Meanwhile, Egypt has turned to the Soviet bloc to make cotton-for-arms barter deals, and Premier Nasser has fiercely opposed any Arab state’s joining a Western defense alliance.
England. Here is where we have doled out more billions than anywhere else. Yet from the start of our aid-to-Britain campaign, many there have viewed us as a scheming Shylock overeager for his pound of flesh. Typical was this observation from the dignified London Economist, after the special postwar British loan of $3,750,000,000: “If the purpose of the American Congress which decides American policy is, as it often seems to be, deliberately to wound and afflict the British people, it has certainly succeeded. It is aggravating to find that our reward for losing a quarter of our national wealth in the common cause is to pay tribute for half a century to those who have been enriched by the war.”
More examples could be cited. These should suffice. The record is abundant with proof: Dollars simply do not buy friends.
“But,” a proponent of foreign aid may argue, “our aid has brought European economic recovery, and now it will help build up the backward countries of Asia and the Middle East; and this is the surest way to stave off communism.”
While there is some question as to just how much Europe has recovered, and how much is due to dollar aid, this argument remains the big weapon in the arsenal of those favoring more foreign spending.
If the primary goal in Western Europe had been speeding her economic recovery, rather than wooing her with dollars, the first step might have been to analyze just why her postwar recuperation had been so slow. Henry Hazlitt makes such an analysis in Will Dollars Save the World? With clear reasoning and detailed documentation he shows that what Europe needed most was not capital but capitalism—more freedom from both internal and external interference with the market operation.
Why was it, at the start of the Marshall Plan, that European countries appeared to need U. S. dollars so urgently? Because, ordinarily, heavy sums were being spent on armaments, on subsidies to nationalized industries running a deficit, on food subsidies, and on increasing pensions, family allowances, and other forms of social security.
Rather than cut back on some of these government expenditures, which fiscal soundness would have required, they issued more currency; and the volume of money in circulation rose enormously. At the same time, these governments tended to hold down interest rates, so they could borrow cheaper and encourage business borrowing
a policy which further increased pressure for higher prices. ‘ Yet, though these governments themselves had created the inflation, they refused to take the blame for the accompanying price rises, but instead charged it to “speculators” and “hoarders” and to the rapacity of producers and sellers.
Rather than check the inflation itself, they determined to hold prices under control by fixing ceiling prices on almost everything. This, in turn, threw their economies out of kilter. As is ordinarily the practice in price regulation, they put the severest controls on necessities—and cut the profit margin on such items down to the bone. Since manufacturers could make so little profit making necessities, more and more turned to production of luxuries, which were uncontrolled.
In turn, more and more workers were drawn from the necessity to the luxury industries. The result? An apparent labor shortage, and even worse, a scarcity of necessities—food, shelter, clothing. Without going any further, it is plain that such a situation spells Trouble.
Under such a circumstance, we could have done far more for these European countries by showing them the errors of their regulated economies, and instructing them in the merits of the free market, than by shoving American dollars into their pockets.
During the first few years after the war, West German recovery was comparatively protracted. In 1947 millions of Germans were starving. As the late Dr. Walter Eucken, professor of economics at Freiburg University and heir to the German liberal tradition, observed in 1947:
Germany today is suffering acutely from an overdose of planning. The Nazis laid the basis for German economic planning—for armaments and warfare. To our surprise the Allies left things largely as they were . . . .
But Germany had come to the end of the socialist trail, and increasing numbers began to feel that at least a slight return toward capitalist incentives might increase production. Then the
Marxian-oriented Social Democratic Party was routed by a new political combine under Konrad Adenauer, which opposed the Fair Deal controls enforced by the American, British, and French military governments. Germany started to edge a little toward a free economy, gradually taking controls off more and more commodities. The result was startling. German productivity lunged forward.
Upsurge in Production
Even a small dose of Markwirtschaft (the market economy) had a pronounced effect. By 1953 West Germany’s industrial production, on a per capita basis, was above the level of 1938, when the economy was operating under a full head of steam in preparation for war.
Meanwhile, East Germany, by comparison, remains in pathetic poverty. What has caused the difference? It is true that West Germany did receive generous aid in U. S. dollars. But more than one competent observer has concluded that West Germany’s heartening resurgence has been due not so much to an influx of free U. S. commodities as to the Germans’ own hard work and a sounder policy—a noticeable movement toward Markwirtschaft. A more complete adoption of the free market would have produced even more abundance, and could have generated far more prosperity than the shot-in-the-arm dollar aid.
But, even though Germany still clings to a considerable measure of socialism, it enjoys more market freedom—and hence more productivity—than most other European nations.
What about Military Aid?
Still, foreign aid advocates may say, “You talk as if all our aid were economic, while much of it is military—arms shipped to our allies as a deterrent to Soviet aggression.”
True, much of our help has been military. And it is probable that substantial amounts designated for economic use actually have served to buttress foreign military establishments. Even if we did not ship a single gun or plane, but only money or food—and even if we specified that these gifts be used only for nonmilitary purposes—every American dollar spent for economic recovery simply frees the equivalent in local currency for some “marginal use,” such as building a military organization.
But inasmuch as our total economic-military aid program has been so ineffective in winning allies, what assurance have we that these guns won’t someday be pointed at us? The weapons themselves are neutral. If we have failed ideologically, failed to win friendship—and there are indications we have—then these weapons may eventually explode right in our own faces.
So, in evaluating almost ten years of U. S. aid to Europe, we find:
(1) It has not produced any noticeable goodwill or loyalty for America.
(2) European recovery is highly uneven, and is most marked in West Germany where a move toward a freer economy caused an outstanding upsurge in production.
(3) There is no guarantee that U. S. military aid will not be used against,-rather than for us.
Considering this record of dubious achievement, it is hard to understand the unrestrained enthusiasm some apparently well-informed Americans entertain for our foreign aid program—an enthusiasm which prompts them to say, in the spring of 1956: “U. S. dollars have done such a good job in Europe, now let’s really pour them into Asia!”
Aid for India
But I say, the vast U. S. tax-away-and-give-away program has flopped in Europe, and what reason have we to believe it will click in Asia and the Mid-East? After all, we are not newcomers in India, and what has our record been there? Since 1950 we have dumped some $500 million in India’s copious lap, only to see her sympathies turn more and more toward the Kremlin, while her newspapers either take American gifts for granted or ignore them altogether. Meanwhile, this past winter and spring Russia finally has come to India’s aid, offering actual business dealsloans not gifts—and in the process is winning friends.
Some Indians are perceptive enough to urge their government not to accept any more U. S. dollars. This past winter, J. J. Singh, president of the India League of America, asked India to refuse further aid from the United States. He said: “This creates expectancies in the U. S. which India is rightly not willing to meet. That, in its turn, creates disappointment and bitterness in America, thus worsening relations.”
Before we brashly promise the Asians that our dollars will bring a vital productivity to lands steeped in centuries-old traditions which fight individual initiative and free enterprise, we should consider carefully the reasons for Asian poverty.
India seems destined to receive many American billions in coming years. Presumably proponents of dollar aid to India believe it needs American capital, and that this capital must be bestowed through the instrument of the U. S. government. But, according to Dr. Ludwig von Mises:
India lacks capital because it never adopted the pro-capitalist philosophy of the West and therefore did not remove the traditional institutional obstacles to free enterprise and big-scale capital accumulation. Capitalism came to India as an alien imported ideology that never took root in the minds of the people. Foreign, mostly British, capital built railroads and factories. The natives looked askance not only upon the activities of their alien capitalists but no less upon those of their countrymen who cooperated in the capitalist ventures.
Today the situation is this: Thanks to new methods of therapeutics, developed by the capitalist nations and imported to India by the British, the average length of life has been prolonged and the population is rapidly increasing. As the foreign capitalists have either already been virtually expropriated or have to face expropriation in the near future, there can no longer be any question of new investment of foreign capital. On the other hand the accumulation of domestic capital is prevented by the manifest hostility of the government apparatus and the ruling party.
This was true in 1952 when Dr. Mises wrote it, and even more so in 1956. Throughout these four years India has turned increasingly socialist—nationalizing industries, controlling private companies with an intricate maze of regulations, allowing the State to confiscate private property, and enacting labor laws which make it extremely difficult to fire anyone, no matter how incompetent.
All these restrictions discourage both native and foreign industry and investment, and create the very poverty which India seeks to eradicate. As long as India continues her ill-advised march toward socialism, no amount of American billions can bring her prosperity. Our dollars will only serve temporarily to camouflage her mistake, and delay the hour when India must awaken to the free market ideas which alone can eliminate her vast army of unemployed and greatly increase the productivity of individual Hindu and Moslem.
Why Not Try Voluntarism?
Why, then, extend further foreign aid? Additional billions will fail to accomplish their purpose. More than that, the whole concept the idea that one nation must tax its citizenry and pour the booty into the coffers of less prosperous countries—is statist and socialist, utterly contrary to the ideals of a free society.
No government—the United States or any other—should be allowed to take the property of individuals by force, and hand out such savings to the governments or the peoples of other nations. Such an action is dictatorial and authoritarian.
The individual alone should decide whether he wants to give or lend his property to other individuals in other countries. This voluntary system of international exchange proved potent when tried—it helped to build America and other great nations as well. At this day and hour, a return to the practice of voluntary individual giving, lending, and trading would not be retrogression, but dynamic and urgently-needed progress. 
Turning the Tables
Not long ago, Congressman Ralph W. Gwinn of New York appeared on a television round table program with M. Foure, the French Foreign Minister, and Congressman James G. Donovan of New York.
As one explanation of his opposition to foreign aid, Gwinn cited how the United States, over the past few years, had given billions to England for the express purpose of helping the British Conservative Party stay in power. Then he asked his listeners to use their imagination and conceive what their own reaction would be if the tables had been turned—if, for example, instead of the United States sending billions to Britain as a means of influencing the English political scene, Britain had been exporting equivalent sums in order to shape our own political destiny. Congressman Gwinn said:
“Imagine how mad we nearly all would be if Great Britain had for years sent $3 billion or $4 billion to help entrench Harry Truman and the New Deal Party in power, and keep the Republicans out. The Republicans would have been hopping mad and, while the New Deal Party would no doubt have taken the money and said nice things about Great Britain for foreign consumption, it would have been furious that Great Britain would presume to be able to buy New Deal friendship.”