The 'October Revolution' in Guatemala was the first crack in traditional Central American government rule. By the 1940's the middle class had become discontent with the repressive and backward looking Ubico dictatorship. In October 1944 a coalition of students, academics, businesspeople, and disaffected soldiers, all mainly from the middle class, overthrew Ubico and subsequently elected Juan Jose Arevalo as president in 1945. Arevalo, terming himself a 'spiritual socialist', tended to focus more on the spiritual than the socialist. The goals of the new government were economic and political reform in the style of western development.
The reforms instituted by Arevalo were many, and were often likened to Roosevelt's 'New Deal'. He adopted a new constitution and established political democracy. Universal suffrage was enacted (apart from illiterate women), freedom of speech was guaranteed, political power was decentralized, and one third of all state expenditures was devoted to an ambitious welfare program. New political parties were able to be established, apart from those affiliated with communist or foreign interests. Labor laws were introduced which assisted workers, rather than exploiting them. Unions were encouraged to organize, although still subject to state control. The semifeudal systems of peonage and forced labor were eliminated, and workers rights were now upheld judicially. 
Urban workers gained from the new laws, unlike rural workers where conditions did not initially improve. This may have been due in part to the revolution having an emphasis on middle class needs. Economic diversification (moving away from an export crop economy) was encouraged through investment promotion, but by 1950 the three large monopolies in Guatemala had not been seriously challenged. Agrarian reform had begun but had not yet affected any major holdings. This would prove to be the challenge before new President Arbenz, and ultimately his undoing.
Initially the US government had been receptive to the reforms of the Arevalo government with US assistance and investment increasing steadily between 1943 and 1950. Towards the end of his tenure Arevalo began to upset foreign interests. New wage laws upset UFCO, a contract with the US educational mission was cancelled, and several US oil trusts were pushed out by the 1949 petroleum law. Despite pressure from the US ambassador, Arevalo would not dismiss 'communists' from his cabinet or government posts. Upon taking office Arbenz began to build on previous reforms and take a more nationalistic line than Arevalo.
Arbenz was tainted in his election to the presidency by the murder of opposition candidate Arana. The US voiced concern over the evolution of his government and the US press became more strident in its criticisms. Peasant leagues became stronger under Arbenz as he began to alienate many of the middle-class that had supported the revolution.  A port, new roads and a hydroelectric plant were built to compete with the foreign monopolies. Finally in 1952 the land reform bill began to alienate the lands of the oligarchs and UFCO. Landless peasants started forcibly taking land without waiting for legislation or titles. 
The US feared Guatemala was sliding into anarchy and communism. In conjunction with the CIA and the US ambassador, plots began to emerge for the overthrow of Arbenz which were finally to succeed in 1954. There are two points of view why the US intervened. One was that it was exerting its hegemony and protecting its economic interests. The other was that it was obviously concerned about the spread of communism (as they considered the rule of Arbenz), particularly in its own backyard.
The true answer is probably a combination of both. There were some high ranking US officials with financial connections in Guatemala, notably the Dulles brothers. This was also the McCarthyist era where the US was keen to be seen 'rolling back' perceived communist influences, just as it had done in Greece (and was to attempt again many times). Afterwards the US poured in $100 million of aid in an attempt to make Guatemala a 'showcase of capitalism'. Unfortunately the experiment failed miserably.
There were many weaknesses that made Guatemala susceptible to intervention. Foreign interests, the oligarchy, sections of the military and the middle class (many of whom had initially supported the revolution) had become alienated. The oligarchies power had not been limited and the bourgeosie had become apathetic. The peasant movement had grown too strong, almost to the point of anarchy, with the military reticent to defend something they no longer totally believed in. Neither would they allow the peasantry to be armed.
The legacies of 1944-1954 have been enormous for Guatemala. Although the economy grew in the 1960's it was without any kind of reform and hindered further growth. Reverting to a crop-export economy led to a drop in locally grown foodstuffs and pushed prices up. There have been divisions within the military, as exemplified by the 1960 coup attempt. Much of the money spent on the military has been used for repression and the gaining of land and power. By legitimizing intervention the US has tied itself into a policy of supporting regimes of terror in Central America and made new reforms almost impossible. One has to feel that, despite its faults, the US government would have done far better to help modify the shape of the revolution rather than throw it out all together.
 Trudeau and Schoultz p.25  Ibid p.37
 Jonas pp.23,25  Ibid p. 27
 Trudeau and Schoultz p.25  Ibid p.31
 Jonas p.25  Ibid pp. 35-37
 Ibid p.28
S.Jonas 'The Battle for Guatemala' Westview 1991
R.Trudeau and L.Schoultz 'Guatemala' in M.J.Blachman, et al (Ed.) 'Confronting Revolution' Pantheon:NY 1986
© 1993-2008, Nicholas Klar, PO Box 280, Brighton SA 5048, AUSTRALIA
May be reproduced for personal use only. Any reproduction in print or in any fixed or for-profit medium is not allowed without written permission. If any of these pages are copied, downloaded or printed the copyright statement must remain attached.
Any use of this or other works for academic and/or other research must be duly acknowledged by bibliography or reference.
REF: Nicholas Klar, 1992, "U.S. Foreign Policy: Guatemala" - http://klarbooks.com/academic/guatl2.html + date accessed