A: I guess prior to that time we'd written NSC 68, and NSC 68 was a, a basic review of US policy and strategy, starting from ground zero and many things had happened during the preceding year which really had fundamentally changed the correlation of forces. One was that the Soviets had tested a nuclear (b/g cough) device and it was clear that they were going to have a nuclear weapon..

(interruption)

A: In the winter of '69 -

A: '49, I was very much worried and so were some of my fellow workers by the fact that in the preceding year a number of adverse things had happened. One (cough) was the fact that the Russians had tested a nuclear device and therefore it was only a matter of time before our nuclear monopoly, on which we had been and were depending for our security, was going to be not a monopoly but a duopoly and maybe more, over time. And beyond that the scientists said that they had figured out a way in which you could make a thermonuclear weapon, and that was going to be at least a thousand times as powerful as the then known nuclear weapons and that the Russians were working on. We knew the Russians were working on that kind of thing, and were probably ahead of us in their work on a thermonuclear device, and it turned out later that they were ahead of us: they tested a thermonuclear device before we did. And then the situation in the Far East had deteriorated. The Chinese Communists had defeated the Chinese Nationalists and Chiang Kai-shek had retreated to Formosa. And what with the other disasters, there were a whole series of disasters, but that's enough for, to make the world seem different.

A: Well I had done some calculations as to what I thought would be necessary in the way of actions to support the policy outlined in NSC 68, and had come to a rough estimate that those actions would cost us $40 billion per annum in addition to what we were then spending on defense. And I talked to Dean Acheson about it, and told him that my estimate that this was going to require actions that would cost us 40 billion dollars a year. And he said, "Well, Paul for goodness sakes forget about that. No deal with that forty million. I've heard you and I may find it convenient sometime to let the President know about that, but nobody else should know about that. It'll discourage everybody too much. Get the policy settled first, and then one can look into what the action requirements are and what those will cost." He said, "I have it in mind, I will see to it that the President understands it, but you forget about it, don't tell anybody else what your estimate is." So I didn't.

A: Well the real hero of the Marshall Plan (cough) was William Clayton, who was the Under Secretary of State for Economic Affairs, and Will Clayton went off the Europe to see whether the situation in Europe was as serious as some of us had been saying it was, and really did require immediate action. And he came back thoroughly persuaded that serious action was required. He thought that the first thing we ought to do was to see to it that Europeans did their part, and that they should agree to a customs union and remove all trade barriers amongst the various European countries, and have an economic bloc and co-operate with each other, rather than just competing with each other. And secondly he thought that the plan shouldn't be simply an aid program, but one ought see to it that this assistance was paid for, all the, you know, all the gasoline or wheat or whatever, when it was paid for by those who used it and consumed it and that all the proceeds from those sales should go into a, a special account called the ....

A: ... be a special, be in a special account which could only be used on projects which it was clear would be, not only pay for themselves but would add significantly to the productivity of the European area. Counterpart Funds they were called. it was really the ideas of Will Clayton that ended up by being the heart of the Marshall Plan and the, and the secret to its success, 'cos it was a very complex instrument really. But it was so designed that it guarded against what otherwise might have been the risks - and real risk was that everybody would have spent the money and it all would have gone into foreign bank accounts and people would have siphoned it off and there wouldn't have been any lasting benefit to Europe. But to have all the Counterpart Funds put into a special pot, which couldn't be used except under extraordinary conditions, this was the key to why it really turned out, to why it turned out to be a great success. In connection with the work on in those days, I'd tried to do some mathematical computations of what the requirements would be out over a five year period of time and with the first Hollerith machines, which later became IBM computers, were then available, and I requisitioned those Hollerith machines to help me with the arithmetic involved, and did a computation as to how much money could be usefully absorbed by the European nations over the next five years. And lo and behold, it was enormous! Because the way the thing was programmed the one criterion: what could Europe usefully absorb? And so having done that computation it's perfectly clear you had to add another parameter to this problem, and that was to say it has to, the program has to end up with decreasing requirements for funds; and then if you arbitrarily say that over each year it's going to, less if going to be available than the first year, and it goes down till zero is required in the fifth year, then that's the way it'll turn out. And that's what we did, and that's the way it turned out. We designed the outcome, and then worked out the program to produce the outcome that we wanted.

A: Well I saw it primarily as being a, a set of measures designed to restore economic health to Europe, and that that was a very important thing for Europe. It was, it was going to go down the drain internally, at least it was my view. The Communists were strong in Italy, and strong in France and strong in Germany. I thought it was going to down, politically go down the drain unless we could get into position some effective economic measures which would restore the, improve the economic health of that part of the world.

A: We decided that there should, our offer should be genuine and we should mean it. we it highly unlikely that Stalin would permit any part of Eastern Europe to become members. They toyed with the idea. I thought for a while that maybe Poland and Czechoslovakia would in fact break away from Stalin and accept membership amongst the recipients of Marshall Plan aid, but they didn't.

A: We would have been delighted.

A: Yes.

A: Because he would have been caught in our web. It was our plan, and if he'd been a member of the, that group, we were running the program, this would have reduced him to his legitimate role which was to be naughty nasty unattractive leader of a smaller part of the world.

A: It had to do with the currency problems. We had a dreadful man whose name I can't remember who gave the plates from which you could print Berlin currency to the East Germans, and they've printed billions and billions and billions of German marks which were convertible into US dollars. And so you had this sudden hole into the US Treasury and that had to be stopped.

A: And therefore we had to bring in a new currency and it was a very difficult thing to do, 'cos here all these plates, all these marks were in existence and were convertible into the equivalent of US goods, and you couldn't cancel them, they'd already been issued and, and services rendered for them, and to introduce a new currency somehow or other was a very tricky operation. And we finally worked it out together with the British and the French had a lot of difficulty with the French of course, but we finally got that done. But I was very proud of the effort we put into that.

A: I think there was that possibility, yes.. 'Cos those were difficult days. Now the situation was politically difficult in Europe, the Communists were strong in all those countries in Europe and the sentiment was more to the left than it was to the right. And so they weren't all Communists but they were, they had been voting Communist particularly in Italy without understanding what it was they were voting for, and to get that turned around politically was a, a very tricky enterprise.

A: My recollection is that I was.

A: Not about the airlift. I don't remember that.

A: I had a friend in Lehman Brothers, who was the man who carried to the President the letter urging the President to pay attention to Einstein when he first came to the United States - can't remember his name, but I had a very high regard for his knowledge of Russia and that part of the world, and his general good sense. And he told me that he thought that the Russians were bound to undertake some kind of an initiative soon, that during the preceding year, you know, a) they'd tested a nuclear weapon, b) Chiang Kai-shek had collapse and c) something else had happened and, they would have - they must interpret all these things as being changes in the correlation of forces favorable to their side. And that their doctrine called for them to take the correlation of forces and changes therein seriously, and that when the correlation of forces had turned adversely from what it had been then the thing to do was to throw dust up into the air, trying to throw it to the enemies eyes and confuse them. But when the correlation of forces had turned more favorable, then one was duty bound to exploit that favorable change quickly before the opportunity evaporate, because the longer one delayed the more the other side would realize that something needed to be done, would do something about it. And that clearly the changes during the preceding year had been all favorable to them, and they would so interpret it, and they would therefore feel obligated to take action. And where would they take action? And there were a number of places that he thought they might take action, they were trying to limit the risk and maximize the possibility of gain, and he thought one of the most likely places was in fact Korea and that we ought to do everything we could to put the South Koreans in better position to resist a potential attack from North Korea. And I took this feller seriously, and thought what he was saying was consistent with what I'd thought about Communist doctrine and their patterns of behavior. And as I remember Muccio was our Ambassador to South Korea at the time, and he happened to be in Washington, so I called up Muccio and told him that my friend had taken a dim view of the situation out there, and thought it was possible that North Korea might attack into South Korea, and what would he recommend that one give the highest priority to in putting South Korea in a better position to deal with this potential threat. And he said, "I, I think that the greatest danger is that they will infiltrate the South through motor boats at sea." And that seemed to me to be an odd idea but he was convinced that this was right, and I believed in Muccio, I thought he was a very solid fellow. So we went to the people who dealt with aid and said that there, we think there's a real possibility of attack by North Korea into South Korea and one ought to give them some assistance so they will be better prepared for that, and we think they had very little money available, and we said we need some, some speed boats of one kind or another. And they gave them to us, and the speedboats turned out to be very useful, but that was, what, hell it wasn't going to turn back an invasion, but it did do some good.