The Political Economics of International Money

Miss Prism, instructing Cecily Cardew to read her Political Economy, added a warning to omit the chapter on the Fall of the Rupee: "It is somewhat too sensational Even these metallic problems have their melodramatic side," And so they do; but my story will not do it justice. I believe that the story of international money, and of our own balance of payments, allows no place for villains and little, even, for fools. To be specific: my contention is that the difficulties which we have faced in international finance have not been the result of American wickedness or irresponsibility or foolishness, or, indeed, of the wickedness of mythical short men in Zurich or mystical tall men in Paris.

The standard view, I recognize, is otherwise. It holds that the leading cause of the trouble has been the deficit in our balance of payments: the flow of unwanted deficit dollars into the hands of foreign central banks. There is a school solution: the United States must move promptly to eliminate its deficit. This version makes the U.S. Government if not the villain, at least the heavy.

One suspects that those who hold this view-that we should have done whatever was necessary to eliminate our deficit-are following the example of the man, who, when judging a contest between two singers, thought it necessary to listen only to the first competitor before awarding the prize to the second. The truth is that the international monetary arrangements in force until very recently-before the agreement on Special Drawing Rights (SDR) and before the institution on March 17 of the two-tier system for gold-were almost certain to land the world in hot water irrespective of the behavior of the U.S. payments deficit. Moreover, it is very likely that surgical action by the United States on a scale sufficient to eliminate the deficit would have compounded the trouble. Given the choices open to us during the past few years, the right policy has been, in my judgment, to avoid any such surgery, to live with the deficit, and in the meanwhile work hard to reform what I will call the rules of the game...