FIVE years ago Dr. Hjalmar Schacht contributed to these pages an article on Germany's colonial demands.[i] His purpose was to explain that Germany's lack of "access" to colonial raw materials would inevitably lead to war. Incidentally, Dr. Schacht was less prophetic than would appear at first sight; for he was at pains to explain how different Germany's case was from that of Japan and Italy:

Japan has meanwhile decided to help herself and has acquired Manchuria; while Italy, by the conquest of Abyssinia, has expanded the territory which she requires for her life. As a result, Japan and Italy are no longer amongst the unsatisfied nations. They have left the Have-nots and have joined the ranks of the Haves, those nations which are satisfied. Germany remains the lone unsatisfied large Power. So long, then, as the problem of raw materials is not solved for Germany, so long will she remain a source of unrest despite her love of peace.

How unfortunate for Japan and Italy that the demonstration of their love of peace could not be so conclusive as Germany's! But let us proceed with the analysis of Dr. Schacht's complaints. What are the essential conditions of access to colonial raw materials?

The first, obviously, is that there should be no export prohibitions or discriminatory export taxes by producing countries. But no measures of such a nature had in fact been taken, prior to 1939, in any of the producing countries. On the contrary, foreign purchases of colonial raw materials were generally welcome, especially in depression years. True, cartels of producers attempted to regulate and at times to restrict output. But far from being intended to hamper sales, such measures were taken exclusively in order to adapt supply to a deficient demand -- in order to prevent the commodities in question from becoming a drug on the market. They were eagerly lifted as soon as demand picked up.

A second condition is indicated by the question: What is the use of having the right to buy unless you have the means? Dr. Schacht points out that countries having their own colonies enjoy the advantage of being able to purchase colonial raw materials with their own currency and so do not require foreign exchange. This is an interesting problem, the future aspects of which I shall try to deal with later on in this article. But from 1923 to 1930, it so happens, Germany was particularly favored as regards foreign exchange requirements. American, British and Dutch bankers vied with each other for the privilege of extending foreign credits to the German Government, to German communities and to German industries. Germany accepted huge loans, albeit condescendingly; and she thus was enabled to effect, in the British, Dutch, Belgian and French colonies, the considerable purchases of raw materials necessary for her rearmament.

Dr. Schacht also complains of the trade barriers which prevented Germany from exporting the finished goods manufactured from the raw materials so purchased. This, he says, made it impossible for her to refund her loans. There he may be right. It is an open question whether Germany, had she chosen to use imported raw materials for peaceful instead of warlike aims, would have been able to repay. There is no doubt, however, that beginning in 1939 Germany found a means of making repayment, at least in kind. Her airplanes overcame all trade barriers and returned to Great Britain, the Netherlands, Belgium and France, in the form of finished products, a part of the raw materials which she had received from their colonies.

But the problems of trade regulations and of financing are only a part of the general problem of raw materials which this article will try to outline.


In the nineteenth century Europe dominated the world. Its economic machinery drew in raw materials from the other continents and, like a pump, sent them back in a stream of finished products. International movements of goods were relatively free under a gold standard which was, in fact, a sterling standard. Prices of raw materials and finished goods moved generally in harmony. Through booms and depressions, there was, on the whole, an increase in prosperity. In the non-economic realm, democratic rights and practices were steadily increasing and spreading. But under the surface there already were evidences of European decay. The same machinery which Europe sent to faraway countries was used in those new countries to build up competitive industries; while in Europe the armament race was diverting the Continent's industrial effort from wealth-producing to wealth-destroying goods in anticipation of the war which finally came in 1914.

Less tragic but more ominous than the results of the war itself was the growing disgust of the people with a system which had solved the problem of efficient production but not that of efficient distribution. Also, there was a gradual diminution in the economic machinery's adaptability to changing conditions, a kind of sclerosis due to several causes -- the concentration of industries into ever larger units, elaborate government regulations, and increased taxation in industrial countries. Naturally I am not contending that all these developments were in themselves evil. Industrial concentration, for example, was an unavoidable consequence of improved efficiency through mass production. But the fact remains that the economic structure of industrial countries became more rigid, and that the economic structure of countries producing chiefly raw materials in comparison remained much more supple. The effects of this divergence have had a much deeper influence during the two last decades than is generally recognized. Let us attempt to show how the violence of the 1929-1932 depression, which shook the capitalistic system to its foundations, was one of its direct consequences.

The reader will recollect that sometime before the stock exchange crash of October 1929 the prices of raw materials had already begun to sag. Wheat and rubber, for instance, started their decline in 1926. Later all raw materials followed suit, reaching their bottoms mostly in 1932. The intensity of the decline was staggering. Rubber fell from a high point of 79 to a low under 3; silk from 7 to 1; tin from 70 to 19; copper from 21 to 5; cotton from 22 to 5; sugar from 3.5 to 0.6. Economists may disagree on the initial cause of the decline; some ascribe it in part to a monetary cause, the increase in the purchasing power of gold, others to purely economic factors. But whatever the cause, the violence of the decline is a fact which in itself had disastrous world-wide effects. The economic rigidity of industrial countries did not enable them to follow suit. Prices of finished goods, maintained by fixed factors such as rents, taxes and rigid wages, declined only fractionally and with a considerable lag. As a result, countries producing raw materials lost their purchasing power towards industrial countries. Also, inside each country the producers of raw materials lost their purchasing power towards producers of finished goods. The consequent lack of demand for finished goods resulted in industrial unemployment. This unemployment, in turn, by reducing the consumption of employees and laborers, decreased the outlet of various industries, thus creating further unemployment -- the spiral of depression. Laborers on sugar plantations in Cuba would have liked to wear American shoes; discharged workers of American shoe factories would have liked more sugar for their children; but lack of economic adaptability prevented the exchange of shoes against sugar. Producers of raw materials and producers of industrial goods stood with folded arms beside the huge heaps of their unsold wares.

With industrial rigidity what it is, each time that the price of raw materials changes drastically, for any reason, economic disruption is bound to follow. Obviously, then, the international problem of raw materials cannot be considered merely a territorial or a financial problem; it is part of the basic structure of world economics. Before we can solve fragments of the question we must first examine the fundamental problem -- the relationship between raw materials and finished goods.

The first step is to recognize frankly that under political and economic conditions as they existed before the present war, as they are during the war, and as they will be -- whatever the intervening changes -- after the war, there is practically no hope of reversing the powerful trend towards greater and greater rigidity of industrial production costs. The various factors which caused this trend -- concentration of industries in larger units, increased government regulation, increased taxation -- will most probably be strengthened, not weakened by the war. But if we abandon expectation of reversing this trend there remains only one way in which we can hope to create greater harmony between raw materials and finished goods, namely to devise ways of preventing excessive fluctuations in raw materials prices, so as to keep them in line with the more stable prices of finished products.

Now we are forced to admit that previous efforts to stabilize prices of raw materials have not been outstandingly successful. Producer cartels generally have acted halfheartedly to prevent price rises and usually have broken down when they were most needed, on occasions of severe declines. Government action, in instances such as the American and Canadian wheat pools, has been taken under political pressure rather than on economic grounds. It has supported an artificial price, and so has further upset the balance of an already unbalanced situation.

Let us, however, analyze the price structure of raw materials more closely. A few of them, such as nickel and sulphur, have not been subject to the wide fluctuations in price of the great majority. Why? Because the market for nickel and sulphur has been occupied by a few powerful producing concerns. These have not used their de facto monopoly in order to push prices to the limit in times of prosperity, but instead have preferred to increase sales; nor have they let prices drop abruptly in times of depression, but instead have preferred to curtail output. On the other hand, commodities such as rubber and copper, produced by a great number of concerns scattered in various countries, were subject to wide price fluctuations.

In a world where retail prices are set so largely by fixed elements and by custom and tradition -- where a man who takes a cup of coffee in a drugstore does not really drink coffee so much as taxes, rents, wages and general expenses -- the only prices of goods which before the war were governed by the law of supply and demand were those quoted on the commodity exchanges in London, Chicago, etc. The very existence of these markets, especially for forward transactions, has sometimes been blamed as a cause of wild price fluctuations. The answer is, of course, that you cannot cure a fever by breaking the thermometer. In fact, commodity markets were essential under the prewar economic setup; also forward transactions, even of a speculative nature, had a definite usefulness. While in exceptional instances speculation may have widened price fluctuations, its general effect has been to increase liquidity and to flatten rather than to sharpen the price curves; for speculators, foreseeing a movement, initiate it in advance and counteract it later when reversing their position. The real origins of movements in rubber prices were the Malayan plantations or the Akron factories, not the London Commodity Exchange. Had there been no forward transactions, the market would have been narrower; price movements, while the same in direction, might have been still greater.

Thus, if it is essential to promote greater stability in raw material prices we cannot escape the necessity of going to the root of the evil; it is not found in intermediate market factors, but in disorganized conditions both among producers and consumers. The example of nickel and sulphur show conclusively that when the concerted action of producers is strong enough and wise enough to adapt output to demand as well as to discipline their clients, greater stability of prices can be obtained. These are, however, exceptional circumstances, and it would be placing too much reliance on human nature to expect similar wisdom and discipline from the generality of producers. But I shall attempt to show that a method can be devised -- in fact, has already unconsciously been adopted in its initial stage -- whereby the problem might be solved from the consumer's end without the psychological and other hindrances which would prevent success from the producer's end.

The reason for the failure of the American and Canadian wheat pools already referred to is that they were economically unsound. Very different is the position of the Metal Reserve Corporation and the Rubber Reserve Corporation. In forming them the United States Government acted not as a producer but as a consumer. The wheat pool had been formed under pressure of the farmers for the purpose of enabling them to continue to produce goods for which there was no consuming outlet. The Metal Reserve Corporation and the Rubber Reserve Corporation were formed -- belatedly, under pressure of events -- for the purpose of acquiring and storing vital imported raw materials which the United States does not produce and which it requires as a consumer. The motive was mainly military and as such was sound; but had it been exclusively economic, for peace purposes, it would have been equally sound. The United States has in storage more than 20 billion dollars in gold, part of which may be considered as due to foreign depositors, but part of which is held by the Government as a kind of reserve of buying power in the outside world. To have purchased the total existing stores of certain raw materials not produced in the United States, such as rubber and tin, would have taken only a small portion of this gold reserve. What better use could the United States have made of its treasure than to acquire a stock of essential raw materials which have to be imported from other countries and which might soon run short?

Other countries, less wealthy than the United States, but which have endeavored to build up a gold and foreign exchange reserve, would also be well advised to divide their risks and use part of that reserve, even in times of peace, for acquiring and storing essential raw materials which they do not produce themselves and which must be imported from abroad. A gold and foreign exchange reserve exists mainly in order that it may be converted at will into commodities vital to the life of the nation, particularly raw materials that must be imported; the lesser of two risks would therefore be to constitute a part of this vital reserve in advance. Such commodity stocks, being regarded as a permanent reserve, would not burden the market as do stocks of raw materials produced within the country and held for the purpose of assisting the producer until foreign purchasers appear. The perishable nature of certain raw materials might present some problems, but it would not be hard to renew the stock constantly by using the stored commodities gradually and replacing them by new purchases.

Each country should thus form a government owned or a government controlled "National Corporation for Imported Commodities." Far from being a step towards autarchy and against private initiative, as might appear at first glance, this actually ought to favor international coöperation and help revive the spirit of private initiative. But the first step has to be taken within the national framework, because for a period of time nations will probably insist that not only their gold but also their essential raw materials shall be entrusted to national bodies.

One purpose of these National Corporations would be, as explained, to constitute a reserve of raw materials for war or peace. Another purpose, perhaps as vital, would be to contribute to the stability of prices of raw materials. They thus should endeavor to increase their purchases when the prices of the raw materials which they import decline more than the general price index; conversely they should be authorized to sell a part of their accumulated stocks when the prices of imported raw materials rise more than the general price index. The National Corporation of each country should remain in constant touch with the National Corporations of other countries and also with cartels of producers of those raw materials in which it is interested.

Is it wise for the same National Corporation to be trusted to acquire and store raw materials as well as to try to stabilize their prices? There is an illustrious precedent for such a dual rôle. Under the international gold standard, as it worked before the First World War, gold was used as a reserve and at the same time as a means of stabilizing foreign exchange. Some will protest that there is a vast difference between the automatic traditional gold standard and the managed action which I have described. The answer is that, widely held opinion to the contrary, the traditional gold standard did not work automatically, but was managed. Central Banks endeavored to correct gold movements by a managed discount rate and kept in touch with each other for that purpose; to a certain extent they even coördinated their policies in regard to the expansion and restriction of credit. One of the reasons the international gold standard broke down, following attempts to restore it at the end of the First World War, was that the increased industrial rigidity, analyzed above, compelled a discontinuance of this particular form of management. Whatever the causes -- political, economic or social -- no industrial nation any longer dares to permit great fluctuations of interest rates solely in order to correct international movements of capital; and that was the essence of the system. National economies no longer are supple enough to be influenced by the delicate clockwork mechanism of the traditional gold standard. The regulation of the machine demands additional forms of coördinated action.

There is also another interesting precedent. When Great Britain went off gold, France, for a while, attempted to practice the international gold standard alone. So did the United States after 1934. But in 1936 the United States, Great Britain and France signed the tripartite monetary agreement, and the Netherlands, Belgium and Switzerland gave it their adherence. This was analogous to the international gold standard: the Exchange Equalization Funds were provided with a gold reserve in order to stabilize foreign exchange.

Thus we might hope that the various National Corporations would attempt to concert their action in the same way that Central Banks and Exchange Equalization Funds have tried to do. As a matter of fact, the whole setup would be much more efficient if the authorities in charge of a nation's reserves of gold and foreign exchange also were put in charge of the National Corporation controlling the reserve of imported raw materials; for thus they would be in a better position to decide the proper allotments between reserves in gold, foreign exchange and imported raw materials. Together these might be termed the national reserve of foreign purchasing power.

It is a question whether there should be an international clearing corporation which would render the National Corporations for imported commodities the same kind of service that the Bank of International Settlements was supposed to render the Central Banks. In any case, however, the forms of coöperation between National Corporations could be similar to that of Central Banks and Exchange Equalization Funds. For instance, to save shipping expenses and risks, raw materials could be earmarked by one National Corporation for another, as gold is earmarked. In short, instead of being confined as formerly to the supply and demand of means to purchase foreign commodities, the concerted stabilizing action of monetary authorities might in future be advantageously extended to the supply and demand of foreign commodities themselves.

To avoid misunderstanding, let me emphasize that this should not be construed as a plan for a state monopoly of foreign trade. I conceive of the action of the National Corporations on the raw materials markets exactly in the same light as the Exchange Equalization Funds act on the foreign exchange markets. Far from suppressing the foreign exchange markets, the Exchange Equalization Funds utilized and stabilized them. Similarly, the action of the National Corporations should utilize and stabilize the raw materials markets.

But (some may object) might not the gradual building up of permanent reserves of imported raw materials in all nations lead to a dangerous price inflation? On the contrary, if that development took place during the period of postwar readjustment it might have the highly useful effect of correcting a dangerous postwar deflation such as occurred in 1921. Later, when the reserves had been built up, stabilizing price action should take place.

If National Corporations for imported commodities had been in existence in 1932, the world depression might have been far less severe. At that time, France and other countries, fearing a depreciation of the dollar, withdrew large amounts of dollars and converted them into gold. Had National Corporations been in existence and functioning, France and other countries which wanted to get rid of their dollars would probably have seized the opportunity to buy cotton and copper at the lowest prices in several decades. This would have been welcome in the United States. For while the conversion of dollars into gold had a strong deflationary effect in the United States, just at the worst time of the world depression, their conversion into cotton and copper would, on the contrary, have been highly beneficial.

Further, if National Corporations for dealing in imported commodities had been in existence in the United States, Great Britain and France since, say, 1934, the whole course of the war might have been different. When the officials in charge of them saw the war looming on the horizon, they would naturally have decided to increase their purchases of strategic raw materials. In the absence of such National Corporations there was no authority in any of the three countries which felt a particular responsibility to take the necessary steps.

At this point one of my own experiences may be of interest. In 1938 a high French official and I submitted to our Government a plan for organizing a "war chest" which in addition to gold and foreign exchange would include several vital imported raw materials. We pointed out that in major wars the prices of raw materials always rise; that it is better to have stocks of vital raw materials on hand rather than to wait till the stringency occurs and then set about importing them at increased freight costs and at the risk of their being sunk by enemy action; and that in any case it would be wise to divide risks and not to have a "war chest" made up exclusively of gold and foreign exchange. The Prime Minister gave the plan hearty support, but notwithstanding this various permanent high officials of the Government succeeded in blocking any action on it. Like the members of the French General Staff who opposed General de Gaulle's plan for mechanized divisions, they preferred to lose a war according to established rules rather than to win it by breaking them.


The way is now open for us to approach the problem of "equal access" to raw materials. I said at the outset that "access" would be worthless if it meant merely the right to purchase raw materials free from export prohibitions or discriminatory export taxes. It must also include the means of making the purchases.

The present stage of the war is characterized by a scramble for raw materials; various economic steps may also be military steps, dictated by dire necessity, whether or not they form part of any carefully thought out comprehensive plan. However, several of these wartime agreements can help us in planning and building up a better international economic order. Technical details of the most recent agreements have not yet been made public; but the Franco-British financial and economic agreement of December 4, 1939, may now be analyzed. It was one of the most far-reaching agreements ever entered into between two nations, for its aim was nothing less than to pool all the raw material resources of the two empires and to establish monetary stability between the two currencies. Its immediate purpose, of course, was primarily a war purpose. But in the minds of its originators it meant much more than that; they thought of it as the first concrete step towards establishing a European economic federative system, and they intended to offer European neutrals at least partial benefits of it. The turn taken by the war decided otherwise, but not for ever.

It is worth making a short analysis of this agreement because it contains several clauses which offer valuable precedents for future economic coöperation. The most original and constructive of these has already been mentioned -- that for pooling all the raw material resources of the two empires. Before December 4, 1939, the British and French Governments, although allied, each claimed a prior right to the resources of its own empire. For instance, France could not buy Rhodesian copper, because the British Government wished to keep all British Empire copper for its own needs; in consequence, France had to call upon her foreign exchange resources or use her gold for purchasing copper in the Belgian Congo, Chile or the United States. A new policy was established to take the place of this tug-of-war. Copper will serve as an illustration.

A Franco-British "executive committee" was to establish the respective copper requirements of Britain and France. Suppose, for instance, the British requirements were found to amount to 70 percent and the French to 30 percent of the total requirements. The new agreement stipulated that in this case the British Empire would have to put 70 percent of its total resources at the disposal of the British Government and 30 percent at the disposal of the French. Further, in accordance with the clause of unlimited financial assistance, the British Government would have to advance to France the total amount of sterling needed for purchasing that 30 percent allotment. The agreement went even a step further, and provided that if for any reason the British were unable to deliver the allotted copper to France they would have to remit to her either gold or United States dollars to the amount of the difference between the value of the 30 percent agreed upon and the value of the copper actually delivered. Needless to say, the principle of complete reciprocity was established: the British Government could dispose of the raw materials of the French Empire on exactly similar terms.

The most remarkable feature of this remarkable agreement is that it actually worked. During the half year between its signature and the French armistice, the raw materials of the two empires were in fact allotted and delivered as stipulated. This achievement was due partly to the outstanding ability of the French Financial Attaché in London, who was one of the originators of the scheme and who followed it through in action. The important point to establish, however, is that an agreement of this sort could be established and that it could operate practically.

The clause of unlimited mutual financial assistance also constitutes an interesting precedent. The British and French Treasuries agreed to put at the disposal of each other any sum required for any expenditure, either by the British Government in the French Empire ("franc area") or by the French Government in the British Empire ("sterling area"). The technical method adopted was to instruct the Exchange Equalization Fund of each country to purchase without limit any quantity of the other country's currency. Obviously such a method of financing amounts in practice to considering the two currencies as one and the same currency; it could be conceived of only between two allies who considered their fate bound irretrievably together and each of whom had total confidence in the stability of the other's currency. As I shall attempt to show, however, the method might be developed, with certain important modifications, into a useful instrument of international financial coöperation.[ii]

The general task is to find a way of solving the problem of access to raw materials by international coöperation. For present purposes, while the war is still going on, let us think of a community of allied and friendly nations.[iii] For the future, let us visualize a postwar world of peaceful nations. In that world, let us visualize a kind of club initiated by the principal nations, membership in it to be open to all friendly nations under certain conditions. The club would be formed for the purpose of granting each member nation financial facilities for purchasing raw materials from other member nations. Each member nation would use its "National Corporation," on the lines already indicated, as the instrument for acquiring, storing and distributing domestically its imported raw materials, as well as for obtaining the required external credits.

Financial facilities could take the most varied forms. During the war, probably, they would (apart from lease-lend) be limited to short-term facilities; later they might be extended to cover medium and long-term financing. In this connection it may be interesting to note that the breakdown of international longterm financing after 1930 was due to four principal causes: (a) losses sustained by investors owing to the failure of Central European and Latin American states, due in part to the steep decline in prices of raw materials; (b) monetary depreciations and foreign exchange uncertainties; (c) political insecurity and the gradual growth of the menace of war; (d) a pervasive feeling of distrust about the future, including fear of social upheavals and revolutionary changes in the world's economic structure. If general confidence is ever restored, long-term international financing could take the more constructive form of equity financing through investment trusts. Even this rough analysis will have shown what far-reaching measures of international reorganization must be undertaken after the war in order to restore the possibility of international long-term financing. On this possibility may depend the future of world development in the durable goods industries and therefore, perhaps, world prosperity itself.

Now let us analyze the methods of short-term financing more closely, for at the moment they are the measures of the greatest practical interest. Usually they take the form of credits expressed in the currency of the creditor country. Under the Franco-British financial agreement, however, they took the form of the purchase of one nation's currency by the other nation's Exchange Equalization Fund. We shall attempt to show that this particular form, with certain modifications, has interesting possibilities for our present discussion; because it approaches most nearly the operation by which a country pays for raw materials in its own colonies with its own currency.

To make this point quite clear, it may be useful to recall that, before Great Britain went off gold in 1931, a Central Bank customarily held large amounts of the currencies of other countries. Under this system, usually designated as the "gold exchange standard," the Bank of France and the Netherlands Central Bank had accumulated large sterling balances. When the sterling was devalued they suffered large losses. From then on, in order to avoid the repetition of such losses, Central Banks and Exchange Equalization Funds adhered to the practice of requesting conversion into gold of the foreign exchange balances which they acquired. This system was usually called the "gold bullion standard." It was confirmed by the tripartite monetary agreement, whereby each adhering party promised to redeem in gold, within 24 hours, the amounts of its own currency acquired by the Exchange Equalization Fund of another adhering party.

As a matter of fact, both the "gold exchange standard" and the "gold bullion standard" are unsatisfactory methods. The first, in addition to its inflationary dangers, entails unnecessary risks; it is unreasonable to expect one country to hold, without a guarantee of some kind, another country's currency. But the gold bullion standard tends to operate the other way; it also is unreasonable to consider the currency of a friendly country as potentially entirely worthless and to demand instantaneous and total redemption for it. For it should be kept constantly in mind that, when one country holds the currency of another friendly country, it holds purchasing power in the latter country; and that is worth something.

Is it possible to devise a system which does not, like the gold exchange standard, imply one hundred percent confidence in another country's currency, nor, like the gold bullion standard, imply one hundred percent lack of confidence? A plan has been worked out with the same French financial official whom I already have mentioned as urging, before the outbreak of war, the formation of a raw materials reserve. Under this plan, if the proposed club of friendly nations was to be formed for the purpose of financing "access" to raw materials, the Exchange Equalization Fund of each country would undertake to accept the other country's currency, at least in partial payment. In order to protect the selling country against loss on that currency, the purchasing country not only would undertake to make compensation for any depreciation of its own currency, but would deposit as collateral a certain percentage of gold or other approved security offering a reasonable margin of safety. The amount so deposited would vary according to circumstances. As in the case of private secured loans, the margin might vary from, say, 10 to 30 percent under ordinary circumstances. If an exchange depreciation should occur, additional collateral might be requested.[iv] Not only might the collateral consist of the currency of another country -- for example, United States dollars -- but it also might include raw materials deposited with the National Corporation of the creditor country or with that of an agreed third country. The system could be made extremely flexible, with very useful results, especially if some kind of clearing organization could be devised for these National Corporations.

Here is the point for our present discussion. If some such method of financing could be adopted, countries without colonies would, as regards "access" to raw materials, be in practically the same position as countries with colonies. This would be the more true in that the advantage which a country supposedly enjoys when it effects purchases in its own colonies with its own currency, is not, in a peaceful world, as real as appears at first sight.

What is the real significance of being able to buy goods in one's own colonies with one's own currency? Does it mean that one can obtain those goods by a kind of inflationary process and without shipping goods in exchange? Certainly not, unless the goal is mere plunder, on the lines of what the Nazis do in conquered countries, something wholly inconsistent with the colony's ultimate welfare. What it does mean is that the colony will ship its goods to the mother country and accept from this country other goods in exchange. The exchange of goods, instead of being bilateral, might even be multilateral: thus Indo-China shipped rubber to France, received francs in return, sold part of those francs on the foreign exchange market against yens, and purchased Japanese goods. In time of peace, in the absence of discriminatory measures, and with suitable financial facilities available, the advantage which a country seemingly enjoys in being able to purchase raw materials with its own currency decreases to the vanishing point.

However, both for countries with colonies and for those without colonies, there is one essential condition if the financial facilities permitting the purchase of raw materials are to be sound. This condition was not fulfilled during the intermediate period between the two World Wars. I refer to a reasonable freedom of international exchange, not only of raw materials, but also of finished goods. A country cannot be sure of being able to repay the outside world for loans incurred in the purchase of raw materials unless it is able to resell to the outside world the finished goods produced with these raw materials.

The problem of the freer exchange of finished goods is outside of the scope of this article. I wish to state most emphatically, however, that neither the problem of access to raw materials, nor any other world economic problem, can be solved unless it is realized that, for countries as well as for individuals, specialization is the key to improved living standards, and that this cannot be attained without a broad exchange of goods and services. Nations have been acting like families in primitives societies who try each one to bake its own bread and weave its own clothes. The great challenge to statesmen in each country after this war will be this -- Will they have the courage and the strength to override the powerful pressure of vested interests, both capital and labor, and to cease favoring the production of goods which can be produced elsewhere more efficiently? Will the United States, above all, be able, as a creditor nation with giant industries, to discontinue its former policy of a debtor nation with infant industries? Will it take the leadership of the movement for a return to world trade? The solution of the problem of raw materials, like that of all other economic problems, rests finally on this momentous decision.

In the present great upheaval in which so much is engulfed, but out of which also so much may spring, we see the outlines being drawn of a new world economy. This new economy will neither be laissez-faire nor compulsion. Methods of production have reached a point where the only unsolved problem which stands between the nations and world prosperity is a problem in the technics of distribution. Mankind, which during the last century succeeded in mastering so many natural forces, failed in these last decades to solve a problem which involves only a question of human organization. The modest purpose of this article has been to outline, as a partial step forward, a solution of the problem of access to raw materials, not on the basis of territorial claims -- which can only lead to war -- but on the basis of a system of distribution which might help to build a lasting peace.

[i] "Germany's Colonial Demands," by Dr. Hjalmar Schacht, FOREIGN AFFAIRS, January 1937.

[ii] The British and French experts also examined the case where the amount of currency of one country held by the other might rise to such a figure that it would prove a serious embarrassment to both. It was decided that when the debit balance rose above a certain figure it could, at the option of either party, be converted into debentures expressed in the currency of the creditor country and yielding interest at 3 percent per annum. Actually, down to the time of the French armistice the balance remained constantly in France's favor; but at no time did it reach the figure where debentures might have been issued.

[iii] This community should include the Latin American Republics; also, I hope, the French possessions fighting on the Allied side.

[iv] This method, similar to that used in the case of private loans, is justified by the fact, already mentioned, that a country's currency represents purchasing power. There is nothing out of the way in requesting a commitment against loss from depreciation, backed with a deposit of collateral intended to cover a reasonable margin of depreciation.

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  • ANDRÉ ISTEL, French banker, former technical adviser to the French Ministry of Finance
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