EUGEN VARGA

ADVISING ON GERMAN REPARATION PAYMENTS AND THE MARSHALL

PLAN
(1941-1947)

ANDRÉ MOMMEN

CEPS
MAARSSEN
APRIL 2010
During and just after the Second World War Eugen Varga would become a close adviser to
the Ministry of Foreign Affairs on German reparation payments and the Marshall Plan.
Meanwhile, the Comintern had ceased to exist and its institutes integrated into those of the
Central Committee of the CPSU. As a member of the Academy of Soviet Science Varga
since 1939 and a well-respected economist being in touch with Stalin Varga belonged to the
higher echelons of the Soviet regime. However, growing anti-Semitism and Russian
nationalism were constantly threatening his position and survival.

The First War Years

Until the Hitler-Stalin Pact, the official strategy of the Comintern was centered on three main
issues: 1) full support for the Soviet Union’s foreign policy; 2) fighting fascism; 3) support
for the military measures taken by the French and British governments. The Pact of Stalin
with Hitler was believed to have stopped Hitler and to have prepared the ground for a general
peace agreement.1 However, the Pact had a negative impact on the position of the communist
parties in several countries. The media identified the Communists easily as Moscow
defeatists backing Hitler’s aggressive behavior vis-à-vis his neighbors placing them ‘in dire
straits’.2 Under Stalin’s pressure, the Comintern adopted an ambiguous pose of neutrality that
resembled Lenin’s “revolutionary defeatism” and that practically renounced the line of the
Seventh Congress. Over the period from September 1939 to June 1941, the word “Fascism”
as applied to Nazi Germany disappeared from Comintern publications. The war was defined
as an imperialist one between two imperialist blocs. Meanwhile, the Comintern started
discoursing about imperialism ‘in general’.3
After the Seventh Congress the existence of the Comintern was reduced to a mere formality
because of the insistence on the defense of democratic liberties, as well as the search for
electoral alliances. Meanwhile, Stalin wanted to get rid of this organization which history
read like the story of successive failure. Conceived by Lenin in military terms to fight by all
means, including armed struggle, for the overthrow of international bourgeois rule, the
Comintern had suffered heavy defeats in Europe, China and Latin America.4 The Molotov-
Ribbentrop Agreement or Hitler-Stalin Pact of August 1939 and the outbreak of the Second
World War II in September 1939 had a devastating effect on the Communist Parties
operating legally in the European democratic countries. The PCF split on this issue. Party
leaders had to go underground. The anti-fascist strategy defined at the Seventh Congress of
the Comintern in 1935 had to be revised. The war between the Germany on the one hand and
France and Great Britain on the other hand was redefined in a Leninist sense as a clash
between two rivalizing imperialist blocs for world domination in a false analogy to the First
World War.5 On 9 September 1939, the thesis of the Comintern was tha the war had an
unjustified character and that the bourgeoisie of the countries involved in the war had to be

1
Dimitar Sirkov, ‘On the policy of the Communist International on the eve and at the beginning of World War
II’, in Jahrbuch für Historische Kommunismusforschung, 1995, pp. 55-56.
2
Already on 26 August 1939, the French government banned L’Humanité.
3
Fridrikh Firsov, ‘Stalin and the Comintern’, in New Times, No. 18, 1989, p. 41.
4
Manuel Caballero, Latin America and the Comintern 1919-1943, Cambridge: Cambridge University Press,
1986, pp. 147-155.
5
Klaus Kinner, Der deutsche Kommunismus. Selbstverständnis und Realität, Band 3, Im Krieg (1939 bis 1945),
Berlin: Karl Dietz Verlag, 2009, pp. 15-51.
blamed. As a consequence none of these countries should be supported. Could one a country
like Great Britain be considered on her way to fascism? In autumn 1939, Jürgen Kuczynski
discussing the declining purchasing power of British wages, gave a partial answer to that
question. ‘It would be wrong to say that Fascism is reigning today in Britain, he argued, but
the British economic system is showing more and more signs characteristic of Fascism. The
tendency towards a dictatorship of the trusts and monopolies is becoming more and more
visible and finds more and more expression, especially in the policy towards the working
people.’6
Meanwhile, any activities organized by the Comintern abroad had to be stopped or
reorganized. Publication of the Comintern journal Rundschau in Basel (Switzerland) was
halted and replaced by Die Kommunistische Internationale7 published in Paris and later in
Stockholm (Sweden). Two new weeklies Die Welt8 printed in Stockholm and Le Monde9
published in Brussels (later in Paris) popularized Moscow’s view on world events. On this
period Varga commented in World News and Views (London), Die Welt and Die
Kommunistische Internationale on intra-imperialist rivalries and war aims.10 In the beginning
of 1940 he even pointed to growing contradictions between British and US imperialisms 11
and he predicted food shortages12 in continental Europe. In addition, he analyzed Lenin’s
theory of imperialism13 in connection to the outbreak of the Second World War.14
However, disarray and confusion increased after Poland’s defeat and French-British
attentism. After the Polish defeat, Stalin dispatched military missions to Berlin. Russia was to
supply Germany with grain and raw materials and to receive German machinery and machine
tools. The Russo-Finnish war broke out on 30 November 1939 and on 14 December 1939,
Russia was expelled from the League of Nations. Stalin had become de facto an ally of
Hitler.
In June 1940, Stalin must have been stupefied by Hitler’s overwhelming victory over France.
Subsequently, he dropped all further pretence of respect for the sovereignty of the Baltic
States in the last fortnight of June 1940. The Soviet-Rumanian conflict over Bessarabia was
settled. However, doubts remained about Germany’s total victory in the West. Molotov’s
Supreme Soviet speech of August 1, 1940, commented on all the spectacular and tragic
events of the last few months, but meanwhile ‘Great Britain does not wish to give up her
colonies and wants to go on fighting for world domination’ 15, he predicted. The chief
ideological journal Bolshevik of July 15, 1940, concluded its survey by saying that Britain
was ‘far from finished’.16 A similar line had already been taken by Varga in Mirovoye
6
John Knight, ‘Wages, prices and unemployment’, in Labour Monthly, Vol. 21, No. 12, 1939, p. 725.
7
A Russian edition was published in Moscow: Kommunisticheskiy internatsional.
8
Die Welt. Zeitschrift für Politik, Wirtschaft und Arbeiterbewegung. Its first issue dated on 18 September 1939.
Almost all articles were unsigned. Helmut Müssener, Exil in Schweden. Politische und kulturelle Emigration
nach 1933, Munich: Carl Hanser Verlag, 1974, pp. 161-162.
9
Publication started on 15 September 1939. Responsible publisher was Alphonse Bonenfant, ut Gyula Alpári
was in charge of the weekly’s daily management. Later on, Alpári moved with Le Monde to Paris. Die Welt and
Le Monde were destined to a general readers public.
10
Some of his contributions in the Soviet press were also printed in The Daily Worker (New York) or in Labour
Monthly (London).
11
Varga, ‘Englisch-amerikanische Gegensätze im zweiten imperialistischen Krieg’, in Die Kommunistische
Internationale, 1940, No. 9, pp. 606-613; also in Die Welt, 1940, No. 7, pp. 160.
12
Varga, ‘Der Hunger in Europa’, in Die Kommunistische Internationale, 1940, No. 9, pp. 606-613.
13
Varga, ‘Der Kampf der Imperialisten um die neuaufteilung der Welt’, in Die Kommunistische Internationale,
1940, No. 6, pp. 377-388.
14
Varga, ‘Uchenye Lenina ob imperalizmu i vtoraja imperialisticheskogo mira v 1939 godu, Mirovoye koziaisvo
i mirovaia politika, 1940, No. 3, pp. 53-83.
15
Alexander Werth, Russia at War 1941-1945, London: Pan Books, 1965, p. 107.
16
Werth, 1965, p. 107.
Khoziaistvo i Mirovaya Politika early in June 1940, when the collapse of France was already
imminent.17 But Varga readjusted that perception of the changing international situation at
the end of the summer of 1940. ‘Never has human history been so rich in events, nor the
succession of social formations so rapid as in the last century’, 18 he lyrically exclaimed after
Hitler’s Wehrmacht had crushed France. Varga was, nonetheless, shocked by the recent
military events and the recent redivision of the world. Starting from figures on the colonial
possessions of the great powers, he drew the conclusion that Great Britain’s superiority in the
colonial world had become even greater since the First World War.
According to Varga, the importance of colonies to monopoly capital had increased because
during the general crisis of capitalism ‘the contradiction between the tendency of capital to
extend production, on the one hand, and the relative restriction of the markets, on the other,
has grown more acute.’19 Increased trade with the colonial territories was achieved by the
abandonment of the principle of most favored nation and the introduction of custom walls.
Social democracy in the “rich” countries was represented in the bourgeois coalition
governments and ‘continues to be the main social buttress of the bourgeoisie’. 20 Fortunately,
growing resistance of the working class because of the activities of the Communists could be
signalized. In the “poor” countries, the bourgeoisie had driven the weak social-democratic
parties underground.21 Varga situated the origins of the world war in the struggle of
monopoly capital to bring foreign countries under its political sway. But there was also a
second reason:
‘The high super-profits accumulate in the hands of the monopolistic combines in the form of
money. This newly accumulated capital cannot find a fruitful field of investment in one or
another branch of production in the home country, for if it did the production and supply of
goods would exceed the capacity of the market (in view of the high prices imposed by the
monopolies), which would lead to a fall in prices. Hence the tendency to export capital to
countries capitalistically still undeveloped, “which are usually high, for capital is scarce, the
price of land is relatively low, wages are low, raw materials are cheap”’ 22. In the mean time,
Great Britain had been industrially surpassed by Germany and the United States in the
important “new” branches. Varga argued that that ‘this war was similarly paved by all the
imperialist countries. The financial oligarchies of all the imperialist countries bear an equal
responsibility for it.’23 Meanwhile, the inherent laws of capitalism were driving the
imperialist powers to launch a struggle for a redivision of the world. Fortunately, the Soviet
Union and the strength of the Red Army combined with Stalin’s ‘wise peace policy’ had
frustrated the ‘Munich policy of a united front of imperialist powers against the Soviet
Union. The antagonisms among the imperialist powers over the division of the world have
temporarily proved to be stronger than the fundamental antagonism between capitalism and
socialism.’24 Varga noted that the war was weakening the ‘entire capitalist system’25 and that
the conditions for a successful proletarian revolution and anti-colonial upheavals were
ripening in a number of countries.

17
Eugen Varga, ‘Mezhdunarodnoe polozhenie (na konets yunya’, in Mirovoye Khoziaistvo i Mirovaya Politika,
1940, Vol. 21, No. 6, pp. 11-18.
18
Eugen Varga, ‘The imperialist struggle for a new redivision of the world’, in Labour Monthly, 1940, Vol. 22,
No. 11, p. 578.
19
Ibidem, p. 585.
20
Ibidem, p. 587.
21
Varga did not refer to the past experience with the Popular Front and joint-resistance to fascism.
22
Ibidem, p. 580. Varga quoted Lenin’s Imperialism, chapter 6.
23
Ibidem, p.588.
24
Ibidem, p. 588.
25
Ibidem, p. 588.
The analysis of wartime social democracy was left to József Révai26 who tried to dissect the
behavior and ideas of the ‘reactionary leaders’ of the Second International who considered it
necessary to produce new ideas about the possibility of creating a condition of general
welfare and permanent peace. Révai explained the military collapse of France by referring to
the ‘national betrayal of the French bourgeoisie’.27 Révai criticized the Social-Democratic
leaders that were changing from the support of British and French imperialism to support
German imperialism. Plans for a European federation by G. D. H. Cole in England could
form the “nucleus” for a new order in Europe under German leadership. But Révai also noted
that individual leaders like De Man had chosen for that new order. ‘One may reproach De
Man, the President of the Belgian Labour Party, who, in a manifesto which will for ever
remain a monument of the cowardly and contemptible desertion and capitulation of a certain
sort of Social-Democratic leaders, had appealed to his party to become the mainstay of the
monarchist “unity party” of the Belgian bourgeoisie in formation – one may reproach this De
Man with having betrayed his country, sold his people, left the nation in the lurch, but he
cannot be reproached with having betrayed the Social-Democratic idea of “the organization
of peace in Europe.” On the contrary, he gives as his reason for joining the victors, the need
for the “organization of Europe.”’28 The plans for a “continental economy” directed by the
monopolies would ‘inevitably lead, precisely because of the enormous strengthening of
monopoly domination, to “autarky”, to economic warfare with the other powers, and to
increased stagnation.’29 Meanwhile, the rise and strengthening of the Soviet Union and the
liberation movement of the proletariat and the oppressed peoples had given rise to the idea of
a union of all reactionary forces under the leadership of the most powerful imperialism.
Révai stressed that ‘struggle and struggle alone’ could defeat the plan of an imperialist new
Europe. Révai’s core idea was the defense of national self-determination of peoples, which
was ‘by no means antiquated’ and the idea that only Socialism’ could build ‘a world of
universal prosperity, progress and peace based on the fraternal collaboration of peoples and
nations.’30
However, Stalin was aware of the fact that the war could drag on for a longer span of time.
Great Britain was now backed by the United States, which meant that British imperialism
under Churchill had chosen for resistance to Hitler’s ambition to dominate continental
Europe. In December 1940, Roosevelt called upon the American people to make the US the
great arsenal for democracy, after which the Congress proceeded to endorse the President’s
Lend-Lease Plan. Stalin immediately called Varga for advice.31
On 22 June 1941, the German attack confronted Stalin with a new international situation.
Stalin himself assumed the supreme command. On 3 July 1941, Stalin at last broke silence in
26
Révai (1898-1959) had risen to importance in the Hungarian Communist Party and in the Comintern. His
origins are similar to Varga’s. Born into a lower middle-class family in Budapest, Révai went from commercial
secondary school to university in Vienna and Berlin. He was a member of the Galilei Circle. At the first congress
of the Hungarian Communist Party, held in 1925 in Vienna, Révai was elected head of the Secretariat and took
part in drafting the congress resolutions. He set up the illegal paper Kommunista in Budapest in 1928. His
friendship with György Lukács deteriorated in 1929, when he criticized the Blum Theses. Révai was arrested in
Hungary on December 31, 1930 and sentenced in 1931 to three-and-a-half years' imprisonment. On his release in
January 1934, he left for Prague and then for Moscow. There he became a member of the Comintern Executive
and taught at the Lenin School. In early 1937, he began to take part in the work of the Hungarian Communist
Party Central Committee in Czechoslovakia, but had to flee from the German occupation through Poland and
Sweden to the Soviet Union. During the war, he ran the Hungarian-language Radio Kossuth in Moscow and
edited the paper Igaz Szó (True Word).
27
József Révai, ‘A “New Order” in Europe?’, in Labour Monthly, 1940, Vol. 32, No. 12, p. 626
28
Ibidem, p. 630.
29
Ibidem, p. 634.
30
Ibidem, pp. 633-634.
31
Piotr Cherbakov, IMEMO. Portret na fone epoki, Moscow: Izd. Ves Mir, 2004, p. 33.
a broadcast address to the nation predicting that the enemy would be ‘cruel and implacable.
He is out to seize our lands.’32 In the autumn, when German troops were approaching
Moscow, Stalin envisaged the possibility that the Red Army would have to withdraw from
the whole territory west of the Volga. More than 1,300 plants and factories were moved from
western Russia and the Ukraine to the Volga, the Urals, and Siberia, an evacuation involving
the resettlement of millions of workers and their families. Things looked so hopeless that
Stalin decided to evacuate his government and his archives to Kuibyshev, six hundred miles
away. However, Stalin had not left the Kremlin. On 7 November 1941 Stalin stood with his
Politburo at the top of the Lenin Mausoleum to take the military parade of troops marching
straight from the Red Square to the front.
In October 1941, Varga and his family had been evacuated via Kazan by rail to Kuibyshev.
His son András, at that time a postgraduate at the Dmitry Mendeleev Institute of Chemical
Technology33, had joined the Red Army at the age of 28, but was soon reported having
disappeared during the battle of Smolensk. Already in January 1942 Varga returned for the
first time34 to Moscow, where he occupied a room35 at Hotel Lux.36 There, he would write his
pamphlet Victory will be ours.37 In this pamphlet he repeated38 that, Germany stood on the
verge of economic and financial collapse, a thesis that would cause him some problems with
people like Andrey Vyshinsky39 and Alexander Shcherbakov.40 Given the terrible damages
suffered by the Wehrmacht in 1941 and the absence of manpower reserves, nobody expected
Hitler to win the war with a single blow. In Germany, food rationing had been reintroduced.
Until 1943 he symptoms of inflationary pressure were relatively under control. Tax increases,
war loans, and the growing contributions from the occupied territories permitted to finance
the war effort. From the summer of 1943 onwards this fragile system progressively
collapsed. Cash circulation ballooned as the government tried to finance war expenditures by
printing money.

32
Isaac Deutscher, Stalin. A Political Biography. London, New York and Toronto: Oxford University Press,
1949, p. 463.
33
Varga’s son had been working there at a new explosive. Moscow News, No. 15, 1985.
34
His daughter Mária, however, attested that her father had returned in March 1942 and that he occupied a room
at the fourth floor of Hotel Lux. Interviews on 30 and 31 October 2002. This is confirmed by a NKVD document
(propusk) No. 3395 rubberstamped in Kuybichev on 5 March 1942 permitting Varga’s move to Moscow where
he had to occupy a director’s function at the Academy. Party Archives, Budapest, Varga Files. 783.f.16.ő.e,
document 12.
35
He went back to Hotel Lux, Gorki Street, 10, where he occupied room 155/I until at least the end of 1942.
Party Archives, Budapest, Varga files, 783.f.16.ő.e, lap 10. According to a letter sent by the Moscow oblast
which was dated on 1 December 1942, Varga’s address in Moscow was Hotel Lux, Ulitsa Gorkogo, 10, room
154/I. Party Archives, Budapest, Varga Files. 783.f.16.ő. e. document 13.
36
Maybe that he had traveled in January 1941 to Moscow. A form (“propusk”) rubberstamped on 12 February
1941 by the NKVD Kuibyshev testifies that he was allowed to travel to Moscow before 5 March 1942. Party
Archives, Budapest, Varga files, 783.f.16.ő.e, lap 12.
37
Varga, Victory will be ours, Sydney 1942 [issued by Legal Rights (For Victory) Committee].
38
Varga would repeat his thesis of Germany’s impoverishment in many articles. In Pravda of 15 May 1942 he
argued that Germany was running out of its raw materials’ stock. In Pravda of 22 September 1942, he foresaw a
sever crisis in Germany’s heavy industry and in Pravda of 24 October 1942 he described the breakdown of the
German railroad system. In addition, he mentioned the exhaustion of Germany’s human resources in Pravda of
24 April 1942. He paid attention to Germany’s inflation and hunger in Pravda of 24 January 1941. Obviously,
Varga was hoping for the same scenario as in the First World War when he discussed how the German war
economy had collapsed after four years of total war in his Pravda article of 29 July 1942.
39
The positions he held included those of vice-premier (1939-1944), deputy Commissar for Foreign Affairs
(1940-1949), Minister for Foreign Affairs (1949-1953), Academician of the Soviet Academy of Sciences from
1939.
40
Shcherbakov, who thought that too many Jews were not fighting but hiding in offices, was the political chief
of the Red Army.
In Russia, similar problems had arisen. Food rationing had been reintroduced. In addition,
consumers had to resort to the private market where food was offered at much higher prices.
The farmers were free to sell their produce to any buyer in the city. In several cities so-called
“commercial” stores were set up by the Government where food was sold without putting
any restrictions on sales to individual consumers and charging prices many times higher than
those fixed for food distributed on ration cards. The intention was to put a break on inflation
by draining the market of “surplus” money. Only a few wage and salary earners could afford
to buy in the private market, but public eating-places had been installed in the city. Varga,
now lodged at Hotel Lux, room 155, at Gorki Street, enjoyed better living conditions. He was
monthly paid 1,000 rubles, which was not an extraordinary salary, but additional earnings
ranging from 100 to 500 rubles a month made of him a “privileged” man given the fact that
an average annual wage of 5,000 rubles was “normal” for a worker.41
After having defeated the Sixth German army corps at Stalingrad in January 1943, Moscow
prepared with the help of Walter Ulbricht and the German Communists for the post-war era.
Varga was invited to talk to German prisoners of war, especially higher-ranking conservative
officers, wanting to collaborate with the Communists. In July 1943, National Committee
Freies Deutschland (NKFD)42 was founded at Krasnogorsk as a “provisional government”
for a liberated and democratic Germany. In addition, a friendly society of German officers 43
was formed recruiting imprisoned generals captured at Stalingrad.44 The NKFD invited
Varga to lecture in the prisoners’ camp on Germany’s future. There, Varga should have
established friendly relations with general Otto Korfes.45

Reparation Payments

The issue of reparation payments was subject of Allied discussions during the Second World
War. In August 1943, Varga’s role in the reparation payments debate became more
prominent after Ambassador Ivan Maisky’s return from London to chair the Reparations
Commission as Deputy People’s Commissar for Foreign Affairs. He invited Varga to take
part in it. Hence, he frequently met with Varga in ‘his crowded little flat in the former Lux
Hotel’, discussing with him the question of the size of the reparations. 46 Varga would become
one of the leading Soviet experts in this matter. 47 The problem, however, was that reparation
payments to be demanded from Germany were, however, clearly in contradiction with
Varga’s “impoverishment thesis”. A poor and exhausted Germany could not meet the Allied
demands sufficiently within a relatively short span of time. Reparation payments in cash or in
kind would have as effect a considerable decrease in Germany’s wealth and an
41
That was the pay he received from the Academy of Science. Receipts dated on 15 May 1945; 13 July 1942; 7
October 1942; 13 March 1943. Varga Files, Party Archives Budapest, 783.f.16.ő.e, lap 2, 4, 6, 8, 9.
42
In July 1943, Radio Moscow announced the founding of Freies Deutschland. Bergmann, 1974, p. 23.
43
Four German generals established on 11 and 12 September 1943 the Bund Deutscher Offiziere. General Otto
Korfes (1889-1964) became a member of NKFD. Sigrid Wegner-Korfes, Weimar-Stalingrad-Berlin. Das Leben
des deutschen Generals Otto Korfes, Biographie, [Berlin]: Verlag der Nation, 1994, pp. 123-127.
44
Bodo Scheurig, (ed.), Verrat hinter Stacheldraht? Das Nationalkomitee “Freies Deutschland” und der Bund
Deutscher Offiziere in der Sowjetunion 1943-1945, Munich: Deutscher Taschenbuch Verlag, 1965, pp. 94-100.
45
His daughter Sigrid Korfes reported that Varga had shown up at Lunovo for a lecture on German-Russian trade
relations. According to Sigrid Korfes, Varga had spoken in ‘perfect German with a very good sounding and
pretty Austrian accent’. (‘…in einem einwandfreien Deutsch, dazu in dem ungemein wohlklingenden wie
ansprechenden östterreischen Akzent.’) Wegner-Korfes, o. c., 1994, p. 123.
46
Ivan Maisky, Memoirs of a Soviet Ambassador. The War 1939-43, London: Hutchinson, 1967, p. 380.
47
Klaus Schroeder, Der SED-Staat. Partei, Staat und Gesellschaft 1949-1990, Munich: Carl Hanser Verlag,
1998, p. 48.
impoverishment of its population. On 31 August 1943, Varga held a speech in Moscow on
the problem of reparations payments after Germany’s defeat. Its text was widely diffused in
the Soviet press. It marked also a turning point in thinking about Moscow’s war aims. It was
now convened that the defeated fascist countries would pay for all war costs and
destructions.48 The western Allies paid attention to Varga’s speech49 that had given the
impression that Varga had spoken in Stalin’s name. In Britain, “Keynesians” like Hungarian-
born Nicholas Káldor50 and M. F. W. Joseph were also working out reconstruction scenarios51
as planning of Germany’s economic decay was not England’s preferred war aim. Therefore,
Lord Keynes thought that Varga’s idea could have dangerous consequences.52
In a newsletter53 for the information of Social Democratic refugees from Germany in
England, rumors about Varga’s proposals caused some troubles. In Germany, the Nazi
propaganda machine tried to intimidate the population with the consequences of a military
defeat in order to strengthen German popular resistance. Based on a wide collection of
statements and speculations from the Allied side about what to do with Germany, it presented
Germans with the claim that they would be wiped out anyway if they lost the war, so they
might as well go down fighting. In an essay Germany Must Perish54 (1941), Theodore
“Nathan” Kaufman55 had indeed argued that Germans should be sterilized and their land
apportioned to neighboring states. Later, in the Nazi pamflet in Niemals! (1944)56, Heinrich
Goitsch mentioned Varga as Stalin’s executioner of a plan for the enslavement of German
workers. ‘The oft-mentioned figure of five to six million Germans to be transported to the
Soviet paradise of misery for slave labor surfaces regularly in official Soviet statements as
well. The previously mentioned Moscow Professor Eugen Varga, one of Stalin's leading
scientific colleagues and something of a Kremlin spokesman, has said that after the war five
million German men should be sent to the Soviet Union. Later Varga increased the figure. He
made the following statement to the USA magazine Newsweek: ‘The Soviet Union will
demand that ten million skilled workers perform forced labor in Russia for ten years.’ So
exiling five to six million Germans is only a beginning! That at least is what a Soviet major
captured in Lithuania said. He was well informed, and said: ‘We Bolshevists are no spoiled
48
Varga’s article was published in Agitator, Propagandist Krasnay Armii, 1943, No. 13, pp. 16-22, No. 20, pp.
29-34, No. 21, pp. 19-26; in Voyna i Rabochiy Klass, 1943, No. 4, pp. 14-22.
49
The text of his speech of 31 August 1943 in Moscow published in Agitator 1943, No. 21, pp. 19-26, Trud 24
July 1943, Voyni... No. 10, pp. 4-10.
50
The British experience would become for the Hungarian Social Democrats in the immediate post-war period a
source of inspiration. Káldor, who had joined the British Labour Party, would travel back to Hungary in 1946
and set up a planning commission in order to counterbalance Communist planning proposals. In Közgazdáság of
29 September 1948 Káldor gave an interview in which he dealt with war economic planning and the Beveridge
reforms.
51
N. Kaldor and M. F. W. Joseph, Economic Reconstruction After the War, London: English University Press,
1943.
52
Keynes to Ronald, 2 December 1943. Foreign Office Records, FO 371-35309.
53
Sozialistische Mitteilungen (News for German Socialists in England), 1943, December, No. 57, was reported
that an official commission was installed in Moscow in order to make an inventory of war destructions in Russia.
It was reported that ‘ideological considerations’ formerly based on a rejection of the Versailles Treaty, were
disappearing. The Newsletter : ‘Jetzt schreibt Varga, daß Deutschland seine finanziellen Verpflichtungen nach
dem vorigen Kriege habe leicht tragen können, und daß die “Last der Reparationen” ein Märchen gewesen sei.
Varga hat die Reparationsfrage nicht nur für Russland, sondern für alle von den Deutschen okkupierten Nationen
zur Erörterung gestellt.’ Isaac Deutscher would after the war remember Varga’s changing attitude in his Stalin
biography. ‘Les opinions de Staline étaient assez proches de ces conceptions et, en septembre 1943, son
conseiller économique, le professeur Varga, qui, dans les années 20, avait critiqué si sévèrement les clauses du
Traité de Versailles, se prononça publiquement pour des réparations lourde sà infliger à l’Allemagne.’
54
Theodore N. Kaufman, Germany Must Perish, Newark : Argyle Press, 1941.
55
Kaufman was a Manhatten-born Jew. Nazi propaganda denounced the book as an "orgy of Jewish hatred"
against Germany.
56
Heinrich Goitsch, Niemals!, Munich: Zentralverlag der NSDAP, 1944.
parrots. If blood is necessary, blood there will be. He who believes that the world revolution
can be carried out peacefully does not know the history of Bolshevism.’57
Free French politician Pierre Cot staying for four months (March-July 1944) in the Soviet
Union, reported on Varga’s plan as well.58 Negotiations on reparation payments carried out
would lead to annual payments in kind (industrial equipment) worth between US1 and US2
billion. In addition, the Soviet Union could expect obtaining between four and five million
German workers.59
As Stalin’s adviser in matters of reparation payments, Varga’s international prestige had
increased considerably. Unfortunately, his predicted breakdown of the Nazi economy had not
yet come out.60 Instead, the Nazi war economy could prosper because of Hitler’s policy of
plundering and looting of the occupied countries. Without any doubt, Varga had based his
‘breakdown theory’ on observations made during the First World War and its aftermath and
had been influenced by his believe in the in the “revolutionary attitude” of the German
proletariat. However, notwithstanding heavy military losses, massive bombings and
shortages, the German war economy could easily reorganize its production lines. Until the
bitter end, the German war industry kept on investing and producing. Destructions caused by
massive bombing operations were much less deep than expected. 'May 1945 was not
Armageddon.’61
Later, J.-P. Nettl would argue that the German war economy had been planned for an
offensive and a victorious struggle, not for a defensive war of attrition. Hence, plans and facts
diverged more and more as the war changed its character for the Reich. Nettl: ‘A last-minute
change-over from one type of war economy to another is impossible at short notice,
especially when the initiative of strategy is in the hands of the enemy. As German conquest
increased, she depended more and more on the support of the enchained economies of the
occupied countries for the support of her own overburdened war economy. The reverse
process did not take place; the retreat of German arms was not accompanied by a contraction
and concentration of her widely expanded economy.’62
In Moscow, three post-war politics commissions were created in late 1943 and headed by
Voroshilov, Maisky, and Litvinov.63 The Voroshilov Commission, comprising mainly
military experts presented the most cooperative approach. Litvinov’s counterpart seemed to
favor a traditional balance-of-powers approach to international relations, i.e. “territorial
security” for one’s own country and “organization of rivalries” in the outside world. Maisky,
hoped to use England as a counterweight to the USA, envisioning something like a revival of
the 19th century multi-polar power game. Stalin wanted, however, to keep all options open.
57
Quoted from www.calvin.edu/academic/cas/gpa/niemals.htm
58
He probably had visited Varga at Hotel Lux in Moscow.
59
Cot: ‘Étant donné les négociations en cours, on peut estimer que l‘Union Soviétique recevra entre un et deux
milliards de dollards de marchandies diverses (équipement industriel notamment) par an. Quant aux réparations
que les Alliés pourront prélever sur l’économie allemande en partie détruite par les bombardements et quant à la
partie qui sera attribuée à l’Union Soviétique, c’est un élément beaucoup plus incertain; il est possible que
l‘U.R.S.S. obtienne surtout quatre ou cinq millions de travailleurs, plus l’outillage qui pourra être pris dans les
usines allemandes et envoyé vers l’Est, plus des réparations en marchandises assez maigres si on les compare
aux destructions.’ Pierre Cot, ‘Compte rendu de mission en URSS (mars-juillet 1944)’, in Cahiers d’Histoire de
l’Institut Maurice Thorez, 1974, Vol. 8, No. 6, p. 260.
60
At the 18th Party Congress, Stalin had used Varga’s impoverishment concept in order to predict an imminent
break down of the fascist war economies.
61
J. P. Nettl, The Eastern Zone and Soviet Policy in Germany 1945-50, New York: Octagon Books, 1977, p. 34.
62
Nettl, o. c., 1977, p. 33.
63
Aleksey Filitov, ‘Soviet security concepts in historical retrospective’, in Kurt R. Spillmann and Andreas
Wegner (eds) with the assistance of Derek Müller and Jeronim Perovic, Russia’s Place in Europe: A Security
Debate, Bern: Peter Lang, 1999.
The idea that 19th century standards of Western-type liberal democracy might not have been
reasonably applied in the situation of post-war social and emotional upheavals, found wide
circulation.
Violent disagreement over the extent to which Germany should be weakened and punished 64
still existed. As a result of the Moscow Conference of Foreign Ministers in October 1943, the
Tripartite European Advisory Commission was set up in London. Its purpose was to
recommend terms of surrender and the means of enforcing Allied policy in Germany to the
governments of the U.S., Great Britain, and Russia. Hence, allied policy was outside its
scope, it was to study and recommend methods of execution. The terms of reference were
contained in a memorandum presented by Hull to Eden and Molotov at the conference, and
this was based on the assumption of joint responsibility for policy in Germany and joint
occupation. This principle, which at bottom presupposes the continuance of a single united
Germany, was thus almost casually accepted for the future, without critical examination or
conscious realization of the fact that only very close allied accord could make it work. The
area of the future Soviet zone of occupation was suggested by the British representative on
15 January 1944 and accepted by the Russians on 18 February 1944. At the same time the
joint occupation of Berlin was accepted, with the principle of free and independent access to
their sectors for the two Western powers. Zones of occupation had been agreed upon on
September 12, 1944, at the European Advisory Commission, meeting in London. It was then
decided to give France an area that would be carved out of the American zone. Stalin, who
never had evinced a very high opinion of the French, did not think they had any right to a
zone, but said he would go along, provided the previously agreed-upon Soviet zone would
not be affected.65 At the Moscow Conference of Foreign Ministers in November 1943 it had
been decided that Germany should be completely disarmed and should pay reparations for
the physical damage she had inflicted on the Soviet Union and other Allied countries. Then,
at Teheran, the question of partitioning Germany had been debated without any conclusions
being reached, but it had been assumed that in any case the three powers would occupy the
country, and by November 1944 they had agreed upon the actual zones of occupation and
upon their joint responsibility for Berlin. The Soviet view was that there should be only three
occupying powers and that Germany should be deprived of eighty percent of her heavy
industry and should pay reparations in kind to the value of twenty billion dollars, half of
which should go to the Soviet Union.
At Yalta the ‘Big Three’ confirmed their determination to demand the unconditional
surrender of Germany. On the question of post-war Germany, however, there was no such
unanimity. At Yalta, with Stalin at the round table were Commissar for Foreign Affairs
Molotov and his Deputy Commissar for Foreign Affairs Andrei Y. Vyshinski, Ivan M.
Maisky, who acted as interpreter, A. A. Gromyko, Russian Ambassador to the United States,
and the Soviet Chiefs of Staff.66 At Yalta it became clear that, while the Western powers
appeared to have advanced further than the Russians had formulated a more precise policy
with regard to reparation demands than either Great Britain or the U.S., whereas Stalin
appears mostly to have contributed the Russian point of view himself at the meetings of the

64
The Morgenthau Plan was first propounded to Roosevelt and Churchill by Secretary of the Treasury, Henry
Morgenthau, Jun., at Quebec in September 1944. It was first accepted by both leaders but rejected after strong
protest by Hull and Stimson on one hand and Eden in the other. E. R. Stettinius, Lend-Lease. Weapon for
Victory, Harmondsworth: Penguin Books, 1944, pp. 45-46.
65
William D. Leahy, I Was There. The Personal Story of the Chief of Staff to Presidents Roosevelt and Truman
Based on his Notes and Diaries Made at the Time, London: Victor Gollancz, 1951, p. 354
66
Admiral Kuznetsov, vice-admiral Kucherov, general Slavin, general Antonov, general Grizlov, air marshall
Khudyakov, air marshall Fallalev, commander Kostrinski, ambassador (London) F.T. Gusev, and Stalin’s
interpreter Pavlov. Leahy, o. c., 1951, p. 351.
three leaders, he called on Maisky to explain the Soviet reparations plan at the meeting on the
second day. The Russian proposal stated:
Based on this plan two kinds of reparations were envisaged: A part of German property was
to be withdrawn (consisting of) territory, factories, machines, railways, and foreign assets.
For the next ten years a certain quantity of goods must be delivered. By withdrawal Maisky
meant to confiscate and carry away physically for reparation payment. 67 It was later proposed
by Maisky that 80 per cent of the German industrial potential was to be handed over, chiefly
from the iron and steel industries, the building industry, and the chemical industry and
removed in a period of two years after the surrender. The production capacity for synthetic
oil and petrol, planes, and all armaments works were to be dismantled and handed over
completely. Russia demanded at least 10 billion dollars out of capital goods and current
production reparations. Reparations from German labor68 were deliberately left out of the
discussion.
The chief objection to the proposed total value of reparations came from Churchill, 69 who
doubted both the German ability to pay and the Allied benefit from reparations, in view of
the experiences of the victor after the First World War. President Truman also counseled
moderation. Maisky then made the very important point that the fiasco of the previous
experience was due, not to quantity, but to the concentration of the victors on financial
reparations. This pitfall would now be avoided, he said.70 However, before the conference
was closed, disagreement between Russia and Britain subsisted with regard to Germany’s
capacity to pay.71
The Soviets were above all interested in the positive gain which reparations would
automatically be taken care of. At the pre-ultimo plenary session, Stalin spoke with great
emotion of the vast and wanton destruction which the Germans had caused in Russia and
pleaded for due compensation. Churchill read a telegram from the British War Cabinet
protesting that reparations to 20 billion dollars were far more than Germany could afford.
Thereupon Roosevelt suggested that the whole problem should be left to the Reparations
Commission in Moscow. Churchill and Stalin agreed. Stalin tackled Churchill that night at a
dinner, saying that he did not like to have to go back to Moscow and tell the Soviet people
that owing to British opposition they would not receive adequate reparations. The effect was
that when the Protocol was signed next morning it contained the statement that the Soviet
and American delegations agreed that the total sum should be 20 billion dollars and that 50
percent if it should go to the USSR. The British view that no figure should be mentioned was
also recorded, but this was of little account.72

67
Quoted in Nettl, o. c., 1975, p. 39. Allied control should be established over German industry, and all German
industry that could be used in the production of war material should be under international control for a long
period.
68
Leahy witnessed that ‘Stalin then brought up the question of reparations in kind and in manpower, but said he
was not ready to discuss the manpower question. The latter, of course, referred to forced labor. Since the
Russians were using many thousands of prisoners in what was reported to be virtual slave camps, they had little
to gain by discussing the matter. Stalin then had Deputy Foreign Commissar Maisky elaborate on the Russian
view of the reparations question.’ Leahy, o. c., 1951, p. 354.
69
Churchill objected to the 10 billion-dollar figure, and he and Roosevelt agreed that a reparations committee
should be appointed to study the issue. Roosevelt made it clear that the United States would not make the
financial mistakes that followed the First World War. He added that America would not want any manpower,
any factories, or any machinery. He might want to seize German property in the United States, which at that time
was estimated not to exceed 200 million dollars. Leahy, o. c., 1951, pp. 354-355.
70
Nettl, o. c., 1975, p. 40.
71
Nettl, o. c., 1975, p. 40.
72
Chester Wilmot, The Struggle for Europe, London: Collins 1953, pp. 643-659.
On January 8, 1945, Molotov had presented to Harriman a request for 6 billion dollars in
postwar credits over thirty years at an interest rate of 2.5 percent. Harriman and Morgenthau
had proposed that, in view of the economic devastation of the Soviet Union, a large long-
term loan on easy terms should be offered by the US Government to the U.S.S.R. This would
cement U.S.-Soviet relations and might also help to take the acrimony out of the Russian
attitude on reparations. For some reasons the loan question was not discussed at Yalta. The
Soviet Union brought the loan request up again in August 1945 at Potsdam. In September
1945 Stalin told a delegation of congressmen that the Soviet Union wanted to borrow 6
billion dollar in order to repair war damages and raise living standards. Nothing happened.73
Since this loan finally came to nothing, Nettle questioned ‘whether the difficulties over
reparations, which later became the chief wedge in American-Soviet relations in Germany,
might have been avoided.’74 Nettl found that ‘except for their reparation demands, the
Russians apparently did not go to a conference with a firm and final program; indeed,
Molotov stated that the United States and Britain seemed to be further advanced in their
studies on the German question. Nor was final Russian policy evident in the first weeks after
the conference.’75 At Yalta the general principles of the reparation payments had nonetheless
been arrested: Germany must pay in kind for the losses caused by her to the Allied Nations in
the course of the war. Also reparations in kind could be exacted from Germany in three
following forms:
Removals within two years from the surrender of Germany or the cessation of organized
resistance from the national wealth of Germany located on the territory of Germany itself ‘as
well as outside her territory (...) these removals to be carried out chiefly for the purpose of
destroying the war potential of Germany.’ Other items were: Annual deliveries of goods from
current production, for a period to be fixed and use of German labor.
For the working out on the above principles of a detailed plan for exaction of reparation from
Germany, an Allied Repartition Commission would be set up in Moscow. With regard to the
fixing of the total sum of the reparation as well as the distribution of it among the countries
which suffered from the German aggression the Soviet and American delegations agreed as
follows: The Moscow Reparation Commission should take in its initial studies as a basis for
discussion the suggestion of the Soviet Government that the total sum of the reparation in
accordance with the points (a) and (b) of the paragraph (2) should be 20 billion dollars and
that 50 per cent of it should go tot the Union of Soviet Socialist Republics. The British
delegation was of the opinion that pending consideration of the reparation question by the
Moscow Reparation commission no figures of reparation should be mentioned. The above
Soviet-American proposal has been passed to the Moscow Reparation Commission as one of
the proposals to be considered by the Commission.76 Later, Nettl remarked that the US did
not consider itself tied to this figure as a definite target. Soviet claims, that the figure had
been confirmed by the Americans, could not be based on the text of the protocol.

The Potsdam Conference

On 7 May 1945 the German Government surrendered. In his ‘Proclamation to the People’
Stalin specifically repudiated the dismemberment of Germany and its destruction. Had it not
73
Susan Butler (ed.), My Dear Mr. Stalin. The Complete Correspondence Between Franklin and Joseph V.
Stalin, New Haven and London: Yale University Press, 2003, pp. 325-326.
74
Nettl, o. c., 1975, pp. 40-41.
75
Nettl, o. c., 1975, p. 41.
76
Nettl, o. c., 1975, pp. 43-44.
been for the lengthy negotiations on this question, this statement might have been taken as a
meaningless phrase of victorious generosity; as it was, the Russian Government had clearly
come to a decision, and a unilateral one at that, as to what their policy in Germany would be.
Accordingly, the commanders-in-chief’s proclamation made no mention of dismemberment
either.
The Conference of Potsdam convening in July and August 1945 had to decide on the post-
war fate of Germany. The delegations were much larger than at the conferences of Tehran
and Yalta. One of Stalin’s principal demands was to break the deadlock over reparations. At
the Conference of Potsdam the primary assumption was that the level of production in basic
industry of 1936 was almost twice as large as that required by Germany to subsist without
external assistance, and to assure the maintenance in Germany of average living standards
not exceeding the average of the standard of living of European countries, excepting Great
Britain and the USSR.77 The reparations, along with the Polish boundary, took up a lot of
time at the conference. Particularly in the field of reparations the specter of 1918 was ever
present. The discussions on reparations were endless, tortuous, complicated, and confused.
Financial reparations were barred. The Allied leaders now approached the question more
form the point of view ‘What can Germany pay?’78 Instead of this it was decided that no
figure should be announced until the technical experts had declared the maximum; hence the
delay of eight months between the Potsdam Conference and the announcement of the future
level of industry. If direct reparation deliveries of industrial plant were limited and unable by
themselves to repair the damage done to the Soviet Union, then reparations out of current
production, indirect reparations through exports, and invisible reparations through local
exploitation were to be obtained. The latter attitude of the Soviet Union seems to show that it
had already then been decided to obtain the greatest possible amount from Germany. She was
to pay for the damage as far as possible, and not necessarily with de jure reparations only.79
In regard to reparations, Molotov expressed general approval of an exchange of reparations
between zones, but insisted that the details must be worked out. The Soviet Union expected
to receive 50 per cent of all the reparations collected from Germany, which they insisted
should include two billion dollars’ worth taken from the British and American zones of
occupation.80
US Secretary Byrnes presented papers on reparations, Polish frontiers, and satellite states
which he said the US was prepared to accept if the three papers were approved together, each
being dependent upon the others. Byrnes proposed that capital equipment in the Ruhr not
needed for Germany’s peacetime economy be exchanged with the Soviet for material needed
by the Western zones. Stalin wanted 500 million dollars, one-third of the stock of German
foreign assets, and one-third of the gold captured by the Anglo-American armies. This was
disapproved. The final agreement on percentages of reparations to be taken from all western
zones for Russia was 15 per cent. Equipment to be removed was to be determined within six
77
Nettl, o. c., 1975, p. 48.
78
Charles Bohlen reported that ‘the Soviets, while understandably demanding payment for the havoc wrought by
the Nazi army, had not proved their claims that $20 billion in reparations could be extracted from Germany. This
was the sum that Roosevelt and Stalin-but not Churchill- had agreed at Yalta would be the basis for “discussion”.
After thirty-seven meetings with the British and Soviet representatives in Moscow, the American government
had concluded that there was no basis for the Soviet claim. The Americans and British were determined not to
get trapped, as in World War I, in paying for Germany’s reparations to other countries. While the conferees were
debating general principles, evidence was accumulating that the Soviets had already started stripping German
industry of machines and equipment in their zone. (…) The material was not military booty; it was industrial
equipment’. Charles E. Bohlen, Witness to History 1929-1969, New York: W. W. Norton & Company, 1973, p.
232
79
Nettl, o. c., 1975, p. 51.
80
Leahy, o. c., 1951, p. 492.
months. The Big Three approved of France having a representative on the Reparations
Commission.81
At Potsdam in July and August 1945, Maisky and Saburov were in charge of reparation talks.
Maisky argued on 24 July 1945 that Varga had estimated that in the Soviet Zone of Germany
about 30 percent of total German capital was located. On July 25, 1945, Stalin, Churchill and
Truman discussed reparations and movement of populations. According to Truman,
Churchill argued that Maisky had so ‘defined war booty as to include the German fleet and
Merchant Marine’82. Though Varga was present at the Potsdam Conference, he did not
appear in public.83 There, in bombed-out Berlin, he had enough time to visit t Hitler’s
Chancellery.84
After the Potsdam Conference, Soviet policies took a more ominous look. During the
Potsdam Conference Churchill had used for the first time the imagery “iron curtain” when
depicting on the 24th of July the situation in the Soviet occupied countries. That was well
before his famous Fulton speech of 5 March 1946.85 Did the Cold War start at Potsdam? At
that moment Stalin already knew about the atom bomb the Americans had tested on 16 July
1945.86 On September 16, 1945, during the London session of the Council of Foreign
Ministers, US Secretary of State James Byrnes met Molotov to discuss privately the situation
in Romania and Bulgaria.87 The idea of Soviet-British collaboration against American
“dynamic imperialism”, as suggested by Litvinov, turned out to be a chimera. The
organization of rivalries could be nothing but an empty phrase for a situation in which the US
military and economic preponderance was unchallenged.
The Potsdam agreement made no mention of reparations in their literal sense as a primary
reason for occupation, but significantly the declaration of the Soviet Foreign Minister on 9
July 1946 gave the three Soviet reasons why Allied and Soviet troops were present in
Germany: (1) To ensure and conclude the military and economic disarmament of Germany;
(2) To ensure that the regime in Germany will become democratic; (3) To ensure reparation
deliveries.88 After Potsdam, the Control Council debated on reparations with no more
felicitous results. In the mean time, the Soviet Union had started with industrial dismantling
in its own occupation zone. In Potsdam was set up the Council of Foreign Ministers to draw
up peace treaties for Italy, Rumania, Bulgaria, Hungary, and Finland. Later, the Council
should also prepare a treaty for Germany.
Stalin’s foreign policy contained nonetheless several contradictions. In his famous ‘election
speech’ of February 1946 Stalin declared believing in capitalism’s instability and inter-
imperialist rivalries, but in the man time he was impressed by America’s role in the
rehabilitation of post-war capitalism and geopolitical stabilization. In addition, his
representatives took part in informal talks on post-war currency plans laid in Washington and

81
Leahy, o. c., 1951, p. 493.
82
Robert H. Ferrell (ed.), Off the Record. The Private Papers of Harry S. Truman, Harmondsworth: Penguin
Books, 1982, p. 56.
83
Georg Göncöl, ‘Lebensweg und Lebenswerk von Eugen Varga (1878-1964)’, in E. Varga. Wirtschaft und
Wirtsschaftspolitik. Vierteljahresberichte 1922-1939, Herausgegeben von Jörg Goldberg, Vol. 1, Berlin: Das
europäische Buch, 1976, p. 6.
84
Jürgen Kuczynski, Dialog mit meinem Urenkel. Neunzehn Briefe und ein Tagebuch, Berlin and Weimar:
Aufbau-Verlag, 1987, p. 114.
85
Rainer Karlsch, ‘Stalin, der Bluff und die Bombe. Verwirrspiel um den ersten sowjetischen Atomtest’, in
Osteuropa, 2007, Vol. 57, No. 12, p. 117.
86
Karlsch, o. c., 2007, p. 119.
87
Foreign Policy Archives of the Russian Federation, Ministry of Foreign Affairs (AFR RF) 06/7/43/678, II, 54-
58. Quoted in Firsov, o. c., 1999.
88
Nettl, o. c., 1975, p. 51.
London. They dutifully attended the July 1945 conference at Bretton Woods that established
the World Bank and the International Monetary Fund and that set the principles of price
stability through fixed exchange rates, reductions of trade barriers and market integration.
However, until December 1945, Soviet trade and foreign ministers were recommending
ratification on the grounds that this might yield reconstruction credits.89
Varga commented on these plans in the periodical War and the Working Class in which he
declared being impressed by the plans of an international bank or stabilization fund proposed
by Lord Keynes and Harry Dexter White.90 However, Varga preferred a return to the gold
standard. In this he followed a commentary published in The Economist in which was argued
that the ruble had ‘at no time maintained a close relation to its internal purchasing power.
The problem of maintaining equilibrium with international cost and price structures hardly
arises in a wholly planned an socialized economy, where the State undertakes the whole of
foreign trade.’91 In that commentary The Economist pointed out that the Keynes plan would
be suspected by Moscow because it envisaged the possibility of changing the unites price of
gold, and thus endangering the world-price on which Russia depends for her output of the
metal, while the White plan, ‘with its stress on freedom from exchange controls’.92
Varga’s commentary was also inspired by past Soviet attitudes to the role of the gold
standard. The Soviet Union was not really interested to back the project of a post-war
currency plan drafted in Washington and London as the country’s gold reserves fed by Soviet
gold mines were built up to maintain a fund out of which temporary disequilibria in the
balance of external payments could be met. However, other considerations were guiding
Moscow’s interest in the new international financial system under US leadership. Harry
Dexter White desiring to make Bretton Woods work in a truly global sense, had proposed in
early 1944 a large credit to the USSR in exchange for needed strategic materials as a sound
basis for continued collaboration between the two governments in the post-war period. From
the perspective of the Soviet Union, the continuation of the Lend-Lease93 was, however,
more important than these projects concocted at Washington. Thus, already at the end of
1945 Stalin had lost any interest in the IMF project.94

The Browder Affair

Communist Parties in the west had to adopt their strategies to Stalin’s foreign policy. The
CPUSA had backed the Roosevelt Administration in his war effort. By 1944 party leader
Earl Browder decided to dissolute the party. As long as the war was dragging on, Stalin
refrained from a direct intervention in this sensitive affair now that CPUSA militants had
conquered positions of responsibility in several unions and had attracted sympathy in

89
John Lewis Gaddis, We Now Know. Rethinking Cold War History, Oxford: Clarendon Press, 1997, pp. 187-
220.
90
Robert Skidelsky, John Maynard Keynes. Fighting for Britain 1937-1946, London, Basingstoke and Oxford:
Macmillan, 2000, pp. 300-336; D. E. Moggridge, Maynard Keynes. An Economist’s Biography, London and
New York: Routledge, 1992, pp. 721-753.
91
‘Business notes’, in The Economist, 1943, Vol. 145, No. 5233, December 11, p. 785.
92
The Economist, 1943, Vol. 145, No. 5233, December, 11, p. 785.
93
The Soviet Union had paid for the first American supplies by the sale of gold and by treasury bonds. But
almost immediately the Soviet Union found it impossible to continue funding the American armaments supplies.
On October 1941 the US Congress voted to include the USSR in the Lend-Lease program.
94
Harold James, International Monetary Cooperation Since Bretton Woods, Washington D.C.: International
Monetary Fund/Oxford OUP, pp. 68-70, 1996, p. 69.
intellectual and artistic circles. French Communist leader Jacques Duclos95 reacted in the
Cahiers du Communism,96 in which he presented a lengthy review of the events having led to
the dissolution of the Party in 1944 and the subsequent organization of the Communist
Political Association. He charged that under Browder’s the American Party had completely
abandoned the Marxist theory of class conflict, substituting the mild reformism of the Social
Democrats.
The effect of the Duclos article initiated a purge in de CPUSA and Browder became the
whipping boy for those who required some evil influence to explain their past conduct. The
Communist Political Association called an emergency convention in late July 1945, that
promptly reconstituted itself as the CPUSA97 and expelled Browder, who had overestimated
the power of American capital and believed that, through planning, America could overcome
for some time its economic problems. ‘Browderism’ had adhered to Hilferding’s theory of
organized capitalism, weakened the communist movement, and betrayed the future of
socialism. The CPUSA returned under William Z. Foster into a new period of loyalty to the
Soviet Union. In an editorial published in Political Affairs in 1946, the author admitted that
at the end of the war it was ‘revealed that, while common interests exist between the Soviet
Union and the peoples of Britain and the United States, as well as the entire world, there
were fundamental differences between the outlook and aims of Anglo-American imperialism
and the Socialist Soviet Union. (…) The end of the war has revealed that Anglo-American
finance capitalism is attempting to return to the old, to wipe out the progress made during the
war in the direction of democracy and national freedom, of the unfettering of the forces of
the people (…) and to rebuild the old place d’armes against the Soviet Union. It is, in short,
taking advantage of its military and economic might to assert its will to world domination.98

Varga on American foreign policy

On March 12, 1947, President Harry Truman solicited in a dramatic speech to a joint session
of Congress support for Greece and Turkey while announcing American readiness to defend
principles of freedom wherever they were menaced by totalitarianism. Without naming the
adversary, he spoke of a conflict between two ways of life, one based on self-chosen
institutions, the other on the exercise of power by minority. The so-called Truman Doctrine
signaled not only the end of America’s intentions to demobilize its armed forces and leave
Europe, but also America’s commitment to confront Communism everywhere.99
Varga reacted immediately in an article published in New Times of May 1947 in which he
criticized ‘the premeditated pessimism of (…) reactionary Anglo-Saxon circles, who are
disposed to talk of success only when they succeeded in dictating their will to their partners
in negotiations.’ He nonetheless called for a ‘more realistic approach’ to the settlement of the
German question in the interests and views of the European countries ‘that are most
concerned in the prevention of fresh German aggression’.100 Varga referred to the recently
published record of the conversation between Stalin and Harold Stassen on 9 April 1947 in
95
The Duclos article was framed in Moscow. Alexander Dallin and F. I. Firsov (eds), Dimitrov and Stalin 1934-
1943. Letters from the Soviet Archives, New Haven and London: Yale University Press, 2000, p. 258.
96
Jacques Duclos, ‘À propos de la dissolution du P.C.A.’, in Cahiers du Communisme, nouvelle série, No. 6
(April 1945), English translation in Daily Worker, New York, May 24, 1945.
97
Record, 1971, pp. 227-231.
98
‘The imperialist threat to world peace’, in Political Affairs, 1946, Vol. 25, No. 4, pp. 294-295.
99
Dan Diner, Cataclysms. A History of the Twentieth Century from Europe’s Edge, Madison: University of
Wisconsin Press, 2007, p. 203.
100
E. Varga, ‘The prospects for international co-operation’, in New Times, 16 May, 1947, p. 1.
which Stalin had expressed his conviction that cooperation between the two economic
systems was possible.101 Why should the two different economic systems not cooperate in
peacetime as in wartime? ‘Sincere international co-operation precludes interference in the
internal affairs of other countries’, Varga declared when referring to America’s ‘assistance’
to Greece and Turkey or the role of American ‘advisers’ on internal affairs in Paris and
Rome.102 ‘World War II demonstrated how strong and invincible is the desire of the nations
for liberty and independence (…). The growth of the forces of democracy all over the world
is a supreme pledge of the ultimate triumph of the principles of sincere international co-
operation over the machinations of its foes’.103 Varga’s peaceful views on international
cooperation were, without any doubt, at that moment conform to Molotov’s diplomatic
strategy vis-à-vis the Anglo-Americans, but also destined to influence his foreign readers.
The Soviet Union had refused to participate in the Geneva trade talks104 on international free
trade issues. On this event Varga published a lengthy article in which he hammered out his
well-known crisis theory. Referring to the Genoa and The Hague Conferences of 1922 and
the international economic conference of 1927 in Geneva or the 1933 London Conference,
Varga warned his readers for excessive optimism. None of the earlier international
conference had led to ‘any practical results’.105 According to Varga, the Geneva talks on tariff
reductions were, making little headway, because America’s monopolists’ strategy consisted
of taking advantage of their monopoly position when penetrating into all capitalist countries.
In addition, American manufacturers were not intending to renounce their system of high
protective tariffs. ‘They are prepared to sell abroad at dumping prices, even at a loss’, Varga
argued.106 As long as Britain did not renounce her system her system of imperial preferences,
the talks on tariff redactions were making little headway, Varga argued. In addition, Varga
still believed in a persisting Anglo-American rivalry. The not taking part of the Soviet Union
at the conference in Geneva had to be explained by ‘its government monopoly of foreign
trade, which is one of the immutable elements of its economic systems’.107
In an article on ‘Anglo-American Rivalry and Partnership’ published in the July 1947 issue
of Foreign Affairs108 Varga, defended the same points of view.109 The readers of Foreign
Affairs were confronted with a rather ‘moderate’ Varga who had omitted writing about the
coming ‘proletarian revolution’. Stalin and Lenin were not quoted. In his contribution, Varga
preferred pointing to high American tariffs impeding the import of British manufactures, the
British system of imperial preferences established at the Ottawa Conference in 1931, higher
British war casualties, the absence of hostilities on US territories, lower British industrial
productivity rates, a lower British living standard, etc. Again, he mentioned the problem that

101
Ibidem, p. 2.
102
Ibidem, pp. 2-3.
103
Ibidem, p. 3.
104
Seventeen of the major capitalist countries had started with trade talks at a conference in Geneva, where
William Clayton (USA), Stafford Cripps (Great Britain) and André Philip (France) had shown up with the
purpose to prepare a UN world trade conference.
105
E. Varga, ‘The Geneva trade talks’, in New Times, 16 May, 1947, No. 20, p. 4.
106
Ibidem, p. 6.
107
Ibidem, p. 8.
108
Varga, ‘Anglo-American Rivalry’, in Foreign Affairs, 1947.
109
This article had been written at the end of March or in the beginning of April 1947. Editor of Foreign Affairs
was Hamilton Fish Armstrong of the Council of Foreign Relations, in New York. The same issue contained the
‘X-Article’, ‘The Sources of Soviet Conduct’, in which George F. Kennan predicted that Soviet policy would
really be dominated by the pursuit of autarchy and be subjected, by virtue of recent territorial expansions, to a
series of additional strains which once proved a severe tax on Tsarism. This article was inspired by the text of his
‘long telegram’ of 22 February 1946 from Moscow. George F. Kennan, Memoirs 1925-1950, Boston and
Toronto: Little, Brown and Company, 1967, pp. 271-297; 354-367.
the European Continent could ‘buy American goods only on credit’110 and that the US wanted
to break up the institutions of the British Empire. Though the British government was
opposing American ambitions during the framing of the Atlantic Charter, Varga insisted on
the fact that the US was now assuming the leading position in the world economy. Varga
concluded that the US was pursuing ‘a world policy of imperialism in the fullest sense of the
term’ and that the US was ‘the land in which militarism is most in vogue. Big business is
bent on using the country’s military power for the economic subjugation of the world.’111
Varga called Roosevelt ‘a great statesman’ who had understood that it was ‘in the interests of
the American bourgeoisie itself to blunt the edge of the class struggle between the
bourgeoisie and the proletariat by timely concessions which did not imperil the existing
system.’ After Roosevelt’s death, ‘the forces of social reaction’ had, however, gained the
upper hand and he saw a growing danger of Fascism. The Republicans won the last Congress
elections, while President Truman ordered the removal of ‘all persons suspected of
Communist sympathies’ from the civil services.112 Varga thought that the British Labour
Government was moving into the opposite direction with its program of nationalizations and
‘peaceful transition to Socialism’, and with the British bourgeoisie displaying ‘flexibility in
avoiding a showdown fight with the working class’.113
Meanwhile, both countries were nonetheless forming a bloc in the sphere of foreign policy.
114
Varga explained this contradiction by referring to their joint fight to maintain ‘the system
of society existing outside the USSR and to counter the influence of the Soviet Union in
world affairs’.115 Hence, the Truman doctrine was nothing more than ‘a turning point in
American foreign policy’ and as ‘a clear departure from Roosevelt’s policies’. Although
Bevin continued Churchill’s foreign policy, Varga looked hopeful to the Labour Party rebels
who were contesting Bevin’s foreign policy, and for the same reason he acclaimed Henry
Wallace opposing Truman’s policy of amassing US troops at the Soviet Union’s frontiers.116

The Marshall Plan

On June 5, 1947, American Secretary of State George Marshall announced at Harvard

University the offer of cheap credits to any European country in order to speed up economic
recovery. Despite increasing tensions with the Soviet Union the offer of aid was not restricted
to any particular set of countries. Marshall welcomed the participation of ‘any country that is
willing to assist in the task of recovery.’ The Marshall Plan was a decisive first step in
establishing a new political and economic balance in Europe. The European Recovery
Programme (ERP), or Marshall Plan as it became known, had been crafted by George F.
Kennan and his Planning Staff to help re-stabilize the European economy, encourage
European postwar integration, and, ultimately, stave off the spread of Communist influence. 117
ERP’s economic dimensions were massive - in four years, the US gave some US$13 billion in
aid - but its political dimensions were even more consequential.

110
E. Varga, ‘Anglo-American rivalry’, in Foreign Affairs, 1947, p. 591.
111
Ibidem, pp. 592-593.
112
Ibidem, pp. 593-594.
113
Ibidem, p. 594.
114
Varga referred to Molotov. Ibidem, p. 594.
115
Ibidem, p. 594.
116
Ibidem, p. 595.
117
Michael Cox and Caroline Kennedy Pipe, ‘The Tragedy of American Diplomacy? Rethinking the Marshall
Plan’, in Journal of Cold War Studies, 2005, Vol. 7, No. 1, pp. 97-134.
The Marshall Plan, however, would alter Stalin’s strategy thoroughgoing.118 In his first
telegram to Moscow on the subject, dated June 9, 1947, Soviet Ambassador to the United
States Nikolai V. Novikov suggested that Marshall’s speech was aimed to formulate a a
Western European bloc directed against the Soviet Union. On 15 June 1947, Pravda
denounced the plan. However, after Bevin and Bidault had met in Paris on 17-18 June 1947
and had invited a day later the Soviet Union to an Anglo-French-Soviet conference that
would discuss the elaboration of a ERP, the Politburo’s attitude changed nonetheless and
endorsed a positive reaction to the American aid program.119
Two aspects of Marshall's declaration interested Molotov. First of all, he underlined several
passages emphasizing the seriousness of the economic crisis in Europe and the implications
for the United States if the European economic decline could not be arrested. Second,
Molotov circled the passage in which Marshall declared American willingness to cooperate
with any country that desired to help in reconstruction, but also promised that ‘governments .
. . which seek to perpetuate human misery in order to profit there from politically or
otherwise will meet the opposition of the United States.’ Molotov undoubtedly recognized
this particular phrase as possibly directed against the Soviet Union. But his marking of
Marshall's concluding passage, which outlined the general conditions of such aid, suggests
that the Soviet foreign minister also saw the possibility that Moscow might be able to gain
some much-needed reconstruction credits from the United States through this program.
As evidenced in Novikov's June 9, 1947, telegram, the Soviet leaders suspected that the
British, French, and Americans were already planning a unified approach to designing the
new aid program, aimed at excluding the Soviet Union. These suspicions were not
baseless.120 After Marshall's speech, British foreign minister Ernest Bevin met with his
French counterpart Georges Bidault in Paris shortly where they agreed on a joint response to
Marshall's initiative and invited Molotov to Paris in the week of June 23, 1947, for a joint
conference to formulate an all-European response to Marshall’s proposal. Both felt that the
need for American assistance was urgent. Endless haggling with Moscow had to be avoided.
At that moment, Stalin and Molotov did not rule out further economic cooperation with the
US in order to preserve the wartime coalition against a resurgent Germany. Against this
background and looking forward to an agreement with the United States on a new system of
international economic cooperation, Molotov asked Varga to assess America’s intentions.121
Immediately, Varga submitted a confidential report to Molotov122 in which he argued that the
primary purpose of the Plan was to forestall, or at least mitigate, the worst effects of the
coming crisis within the American economy by seeking out new markets in Europe—a
classic restatement of the standard Soviet theory of capitalist crises. Economic self-interest,
118
Before the Marshall Plan, cooperation with the West on acceptable terms appeared possible, if difficult to
realize. After the Marshall Plan, Stalin apparently became convinced that even limited cooperation with the West
was impossible. Scott D. Parrish, ‘Soviet reaction to the Marshall Plan: Opportunity or Threat?’ in Problems of
Post-Communism, 1995, Vol. 42, No. 5, September/October.
119
Geoffrey Roberts, ‘Moscow and the Marshall Plan: politics, ideology and the onset of the Cold War’, in
Europe-Asia Studies, 1994, Vol. 46, No. 8, p. 1373.
120
Mikhail Narinski, ‘Le Plan Marshall et l’URSS’, in René Girault et Maurice Lévy-Leboyer (eds) Le Plan
Marshall et le relèvement économique de l’Europe, Paris: Ministère de l’Économie, des Finances et du Budget,
1993, pp. 119-123. Vladislav Zubok and Constantine Pleshakov Inside the Kremlin’s Cold War: From Stalin to
Khrushchev, Cambridge, MA and London: Harvard University Press, 1996, pp. 102–103. For recent disclosures
about Molotov, see Alexander O. Chubaryan and Vladimir O. Pechatnov, ‘Molotov, ‘The Liberal’: Stalin’s 1945
Criticism of His Deputy,’ in Cold War History, 2000, Vol. 1, No. 1 (August), pp. 129–140.
121

122
Report of Academician Varga to Foreign Minister Molotov, 24 June 1947, Arkhiv vneshnei politiki
Rossiiskoi Federatsii (AVP RF), F. 6, Op. 9, D. 213, Ll. 215, cited in Narinski, o. c., 1993, p. 121.
rather than enlightenment, lay at the heart of the Plan, according to Varga. But he also
contended that the Plan had multiple political purposes along with its economic rationale.
The three most significant political aims, in his view, were to demonstrate U.S. hegemony
over Europe, to induce the West Europeans to form an anti-Soviet bloc if the USSR refused
to participate, and to hold the USSR responsible if the Plan did not achieve its specified
objectives. He noted that the Plan also had a fairly obvious subversive purpose—to place
maximum pressure on the East Europeans and thereby draw them away from Moscow back
into the larger capitalist fold. But he claimed there was no reason to be alarmed at this stage.
After all, the United States was unlikely to get everything it wanted. Furthermore, if the Plan
was driven largely by economic necessity, as Varga and others assumed,123 it was possible for
the USSR to exploit this need for its own ends. Varga thus implied that the Plan was an
opportunity as much as a threat, and that the aim of Soviet diplomacy therefore should be to
disconnect the issue of aid from the political conditions the United States would inevitably
seek to attach to it. In this way the Soviet Union could derive maximum advantage. As one
analyst has cogently observed, although Varga’s analysis ‘reelected a strong degree of
caution and suspicion’ one could still infer ‘that with astute bargaining the Soviet Union’
would be able to ‘gain from participation in [the Plan].’124
On 21 June 1947, the Soviet Politburo125 endorsed Molotov’s idea of at least discussing the
aid program with the British and the French. The assembled officials hoped that the Marshall
Plan might offer a useful opportunity to establish a framework for receiving substantial
credits from Washington. Accordingly, Molotov suggested to the British and the French that
they should meet in Paris to discuss the program. The Soviet authorities also transmitted
instructions to the other East European states to ensure their participation in the Plan. 126 At
this stage, Soviet leaders wanted to ensure that the countries that had suffered most from
German aggression would be given priority for the receipt of U.S. credits. This stance,
though self-serving, was in line with Moscow’s long-standing position that any economic aid
should be distributed according to efforts made in defeating Nazi Germany. For the time
being, Soviet leaders remained serious in pursuing the aid initiative. In a cable on 22 June,
the Politburo instructed the Soviet ambassadors in Warsaw, Prague, and Belgrade to tell the
leaders of those countries—Bolesław Bierut, Klement Gottwald and Josip Broz Tito
respectively—to ‘take the initiative in securing their participation in working out the
economic measures in question, and ensure that they lodge their claims.’127 Soviet leaders did
not discount the need for vigilance, as reflected in the 24 June memorandum from Soviet
Ambassador Nikolai Novikov.128 But at this stage in the proceedings, the Soviet leaders still
hoped that under the auspices of the Marshall Plan there would be ample room for a zone of
economic exchange.
Stalin highlighted three key issues in the official instructions he gave to the Soviet officials
traveling to Paris for the meeting. Although the three guidelines were cautious in tone, they
did not preclude Soviet agreement if the West was prepared to enter into serious negotiations
that might lead to a compromise. The first issue was Germany, the resolution of which Stalin
123
Novikov to Molotov, cited in Scott D. Parrish, The Turn Towards Confrontation: The Soviet Reaction to the
Marshall Plan, 1947. Washington DC: Cold War International History Project, Woodrow Wilson International
Center for Scholars, Working Paper No. 9, March, p. 19.
124
Mikhail Narinski, ‘Soviet foreign policy and the origins of the Cold War. A Retrospective’, in Gabriel
Gorodetsky (ed.), Soviet Foreign Policy 1917-1991, London: Routledge, 1994, pp. 105–110.
125
Stalin, Zhdanov, Beria, Mikoyan, Malenkov, and Voznesensky and vice-ministers Vyshinski and Jakov
Malik. Narinski, o. c., 1993, p. 121.
126
‘Molotov to Bodrov, 22 June 1947’, in Galina A. Takhnenko, ‘Anatomiya odnogo politicheskogo resheniya:
K 45-letiyu plana Marshalla’, in Mezdunarodnaya zhizn (Moscow), 1992, No. 5 (May), pp. 113–127.
127
Ibidem.
128
Novikov to Molotov, 24 June 1947, AVP RF, F. 18, Op. 39, D. 250, Ll. 314–320. Quoted in idem.
hoped to keep separate from the issue of economic aid. The Soviet delegation for the Paris
Conference was thus instructed not to discuss the German question during the meeting. The
second issue was economic aid. Stalin instructed the delegates to ensure that this question
was discussed in terms of specific country needs rather than an all-European basis that would
enable U.S. officials to design their own program of reform. The final issue was the status of
Eastern Europe. Once again, the instructions were clear, and the Soviet delegates were left in
no doubt that they should ‘object’—and presumably object strongly—to any ‘aid terms’ that
‘threatened interference in the internal affairs’ of the ‘recipient’ countries. As Stalin
envisaged it, the United States could provide aid, but it would have to be aid without any
conditions, especially conditions that ‘might infringe on the European countries’ sovereignty
or encroach on their economic independence.’129
Molotov traveled with a delegation of more than 100 advisers, including Varga, on June 26,
1947, to Paris. This indicates that Stalin was interested in the Marshall Plan.130 In Paris,
Molotov was confronted with Anglo-French proposals calling for economic modernization
programs under the auspices of a central European organization that would oversee the
distribution of U.S. aid. The French proposed an audit of the resources of participating
members. Molotov attacked both ideas on the grounds that they infringed on the sovereignty
and independence of the European states. As an alternative, he proposed that individual
countries should make their own assessments of national needs and that these analyses would
determine the amount of total credit required from the United States. Bevin and Bidault
insisted, however, that disclosure of resources was a prerequisite for participation in the aid
program. Molotov realized that if these proposals were adopted, the East European
governments would have to alter their internal policies in a way that would make them
dependent on Western Europe, and thus ultimately on the United States. On 2 July, after
having consulted Stalin, Molotov refused to accept the terms of the Marshall Plan. At a
meeting on 3 July, Molotov predicted that Western actions would result not in the unification
or reconstruction of Europe, but in the division of Europe. The same day, Bevin and Bidault
issued a joint communiqué inviting the twenty-two other European countries to send
representatives to Paris to consider the ERP. The ‘Western bloc,’ as Bevin observed, was
about to be born. But Molotov ended negotiations and left for Moscow. The Eastern
European governments were forbidden to start negotiations on the Marshall Plan and
encouraged to trust on their own strength in order to rebuild up their economies.
In a lecture given on 27 August 1947 in Moscow 131 and in an article In New Times, Varga
published his views on this Marshall Plan that was meant to serve the imperial interests of
America. ‘The Marshall plan met its first reverse (…) when the countries of Eastern Europe
refused to be drawn by the dollar bait into the orbit of American influence. The sponsors of
the Marshall Plan thereupon retreated to a second line of battle – the creation of a Western
bloc, this time under the aegis not of Great Britain but under the United States. The backbone
of this bloc is to be Western Germany’. 132 The Marshall Plan, Varga argued, served for the
restoration of Germany’s heavy industry at the expense of the other European countries and
he predicted not only the outbreak of periodical crises of overproduction arising from the
internal laws of capitalism, but also the coming crisis in the United States where an unlimited
demand for war goods had largely determined the country’s economic structure. America’s
129
On fears of what would happen if the USSR opened up to the west, see Anna Di Biagio, Le origini
dell’isolazionismo sovietico. L’Unione Sovietica e l’Europa dal 1918 al 1928, Milan: Feltrinelli, 1990, p. 131.
130
Vojtech Mastny, The Cold War and Soviet Insecurity: The Stalin Years, New York: Oxford University Press,
1996, p. 28.
131
E. Varga, ”Plan Marshalla” i ekonomika Anglii i SSHA, [Stenogram of a lecture given on 27 August 1947]
Moscow: Izd. Pravda, 1947.
132
E. Varga, ‘The Marshall Plan’, in New Times, 1947, No. 39, p. 5.
industrial output during the war had more than doubled. This had been made possible
because the US had not been an arena of military operations. At the end of the war, a very
considerable unsatisfied demand for consumer goods subsisted. However, a large part of the
saving bank deposits and accumulated war profits was in the hands of the middle classes,
while the majority of the workers had been unable to accumulate savings during the war.133
Meanwhile, inflation had hollowed out the workers’ purchasing power, while the pent-up
demand of the war years had not had the expected influence on the market. The crisis would
break out when ‘a sharp price decline’ would set in. This helped explaining why the
monopolies had discovered the Marshall Plan in order to sell ‘American goods on
government credits’.134
In a second article published in New Times Varga explored the consequences of the Marshall
Plan for the British economy. Again, Varga stressed the fact that the economic crisis in
Britain was of a distinct character. ‘It is not a crisis of overproduction’, Varga admitted,
because there was ‘a lack of goods.’135 The British crisis was neither a crisis of
underproduction, as was the case in Germany, Italy, and Japan, but one of national finances.
‘It is mainly and fundamentally a crisis of balance of payments, a reflection of the fact that
Britain is unable to secure from her export trade sufficient funds to purchase abroad the food
and raw materials she needs.’136 A second problem was that British imports were paid out of
invisible exports.137 The war had dealt a serious blow to this system. Overseas expenses were
the major cause of the deficit of the balance of payments. This situation was aggravated by
the fact that the US and South America were importing less goods from Britain. The critical
state of Britain’s balance of payments was a consequence primarily of the fact that the British
‘ruling classes, and the Labour Government that represents their interests, are determined,
notwithstanding the fact that her economic basis has been weakened, to continue the old
imperialist policy, playing the part of junior partner of the American claimants to world
domination.’138 Varga noted that Britain had an armed force of 1,300,000 troops costing
about 11 per cent of Britain’s national income. Meanwhile, the lend-lease agreement had
been stopped, which had condemned the British government to apply for a loan. ‘It was in
this state of affairs that Bevin and his colleagues jumped at the Marshall plan’ 139, Varga
concluded.

Conclusions

Between 1943 and 1945 Varga had been one of the major advisors to the Ministry of Foreign
Affairs in matters of reparation payments. When the Cold War developed Zhdanov and his
followers succeeded in pressing for a policy of vigilance and Marxist-Leninist orthodoxy, a
choice Stalin supported. In the mean time, the “new democracies” in Central Europe broke
with parliamentary forms of government and capitalism and established the dictatorship of
the proletariat.

133
Ibidem, p. 6.
134
Ibidem, p. 7.
135
E. Varga, ‘The Marshall Plan’, in New Times, No. 42, 1947, p. 3.
136
Ibidem, p.3.
137
Ibidem, pp. 3-4.
138
Ibidem, p. 4.
139
Ibidem, p. 5.