WHEN fighting stops in Europe, steps will have to be taken at once to prevent starvation and to provide tools, machines, buildings, seeds and even breeding animals so that production may be quickly restored. This will require that goods move promptly and in large quantities. The long-run economic interest of most countries also requires that conditions be favorable to international trade. Many countries base one-third or more of their economy on sending goods abroad and getting other goods in return. These countries can obtain a high standard of living only through a large volume of foreign trade. Furthermore, an economy in which new sources of goods readily come into competition with old sources, whether domestic or foreign, will be more dynamic and progressive than one in which old sources of supply are sheltered from the new.

The problem which will confront the world after the war, however, will not primarily be that of reopening old channels of trade and reëstablishing old trade relationships. Nations which were creditors before the war (Britain, for example) will be debtors after it ends; nations which were debtors (India and some South American countries) will be creditors. The distribution of industry will be changed and technological discoveries made during the war promise still further redistribution of industry. Both the needs of nations for foreign exchange and their ability to earn it will be greatly altered. The economies of the world, therefore, will be confronted with the problem of adjusting themselves as smoothly as possible to radically changed conditions. These adjustments will take the form partly of setting new restrictions on trade, either to protect new industries or to conserve supplies of foreign exchange, and partly of encouraging the expansion of trade.

A variety of questions involving the responsibilities and the interests of the United States arise in connection with these adjustments. Is it important to us that adjustments be made by encouraging expansion rather than by imposing new restrictions? To what extent will the form of the adjustments depend upon our own exercise of initiative -- upon our willingness to accept imports on more favorable terms than in the past or upon our willingness to make available a large surplus of exports on long credits or by direct investment abroad? Will the United States need an excess of imports to check postwar inflation? Or will it need an excess of exports in order to maintain full employment? Are the conditions which are favorable to the expansion of international trade unfavorable to the achievement of internal stability?

These questions must be examined in the light of the several phases of economic development which may be expected to follow the war, even though the pattern of the economic aftermath cannot be predicted with assurance. Three principal periods should be distinguished: (1) the period of shift from war to civilian production, a time when there will be considerable "conversion" unemployment combined possibly with a rapid rise in prices; (2) a "catching-up" period of high employment, lasting roughly five to ten years, based upon deferred purchases, liquidation of surplus savings, and the adjustment of stocks of goods to new high levels of income; (3) a difficult transition from this "catching-up" economy to a self-sustaining economy.


Every major war creates enormous shortages, and this one will create far greater shortages than any war of the last century. In some countries, the destruction or removal of large quantities of tools, equipment and livestock is greatly reducing the capacity to produce. In other countries, such as the United States, India and the countries of South America, the capacity to produce is being raised by the war. Even in these countries, however, the shortages will be enormous. The war also is producing a great accumulation of liquid assets. There have been large new currency issues in France and Germany and an enormous accumulation of liquid assets in Britain and the United States. In this country, savings held by individuals in liquid form (that is, in cash, demand deposits, savings deposits, war savings bonds, and reduction of indebtedness) have increased $30 billion since Pearl Harbor, and the rise is continuing rapidly.

The shortages and the accumulations of purchasing power will present problems of international economic policy. The shortages will be far more acute in some countries than in others. The United States will have the greatest ability to supply goods; but it will also have the greatest accumulation of purchasing power -- enough to sustain a high level of output for several years at least. How far will the United States and other countries similarly situated be willing to postpone satisfying their accumulated needs in order that countries with more desperate needs may obtain goods? To what extent can the United States help the rest of the world without postponing meeting its own needs? Would help from this country in relieving world shortages materially aggravate the problem of preventing a postwar boom in this country? Would large exports from the United States materially assist us in smoothing the transition from war production to civilian production?

After the first World War the United States greatly helped the rest of the world make up accumulated shortages. Our exports rose from $6.1 billion in 1918 to $7.9 billion in 1919 and $8.2 billion in 1920. In physical volume, exports reached a peak in 1919, when they were roughly one-fifth more than in 1918.[i] The increase in export of agricultural products was particularly great. In physical volume agricultural exports mounted by nearly one-third between 1918 and 1919, reaching a total nearly 54 percent above the prewar figure. The rest of the world helped the United States replenish its stocks of raw materials. As might be expected, the postwar bulge in our imports was smaller and developed more slowly than the bulge in our exports. The physical volume of imports reached a peak in 1920, when it was about 33 percent above 1918 and the same percentage above 1913.[ii] The net contribution of the United States to the goods of the world in the three years 1919, 1920, 1921, was $8.9 billion. This includes about $2.3 billion of relief given through the American Relief Administration.

In view of the much greater needs that will follow the second World War, can the United States be counted upon to help on a larger scale -- say, to supply a net amount of $15 billion or $20 billion in two or three years? Could we do this without greatly increasing the danger of an uncontrolled price rise similar to the one which followed the first World War, when wholesale prices rose 23 percent between the Armistice and May 1920? At that time the large excess of exports over imports undoubtedly accentuated the speculation in commodities.

The prevention of a disorderly rise in prices will be more difficult after the present war than after the first World War, unless there is a considerable interval between the end of the fighting in Europe and in the Far East. The need for goods will be greater because the encroachment upon the output of civilian goods is greater.[iii] This war promises to be longer than the first World War. The demand for goods will be more impatient when it is over. The increase in liquid assets is far greater. Between 1914 and the middle of 1919 the accumulation of cash, demand deposits and government securities by individuals and non-financial corporations was about $37.6 billion, a total equivalent to 59 percent of the national product in 1919.[iv] At full employment (eliminating overtime) and at present prices, the national income would be approximately $125 billion. By the end of 1943, the increase in the liquid assets of individuals will be about $65 billion above prewar, and by the end of 1944, over $100 billion. The accumulation of cash, demand deposits and government securities by non-financial corporations (other than insurance companies) in 1942 was about $10 billion.[v] By the end of 1944, the liquid assets of individuals and non-financial corporations are likely to be more than $130 billion above prewar. If prices are held at present levels, this increase will be roughly equal to the net national product for one year.[vi]

Plainly it may be difficult to prevent the conversion of such a huge quantity of liquid assets into goods from producing a spectacular rise in prices.[vii] For six or twelve months, while the shift from war to civilian production is being made, while there is considerable unemployment, and while millions of people are uncertain about their employment prospects, the conversion of this great quantity of liquid assets into goods will occur at only a moderate rate. As people become reëstablished in peacetime jobs, however, they will be eager to spend their wartime savings. At this time, it will be extremely difficult to prevent a disorderly price rise similar to the rise after the first World War. If, to the large and insistent domestic demand, there is added a large demand for export, the problem of controlling prices will be enormously complicated. And yet if other countries are to get goods which they desperately need, the people of the United States must postpone consumption.

This will be particularly true of food. It is true that the supplies of many important food products in the United States after the war promise to be large by prewar standards. Stocks of wheat, for example, are now very high. The carry-over of the four chief exporters (Argentina, Australia, Canada and the United States) in mid-1942 was 1,432 million bushels, more than twice the carry-over in 1939 and seven times the carry-over in 1937.[viii] The amount of livestock in the United States is substantially above prewar, and a sizeable increase in hogs is forecast for 1943. The large increase in livestock, however, creates doubts concerning the grain supply that will be on hand at the end of the war, despite the fact that for 1943 restrictions on corn acreage and spring wheat acreage have been removed. Wheat is already being fed in considerable volume to dairy cattle in the East. But even if livestock and dairy products after the war are large by prewar standards, they are likely to be scarce in relation to the huge demand produced by the enormous accumulation of liquid assets during the war and the high level of postwar incomes. Hence the people of the United States must squarely face the fact that they cannot give the help urgently needed in many parts of the world without limiting their consumption of food substantially below their desires. This may not seem like a hardship, particularly in view of the fact that even large net exports of commodities would be compatible with a substantial rise in domestic living standards above the war levels. Nevertheless, for possibly two years after the war the effective control of prices will require that many goods be rationed between domestic and foreign demand. And the more we help the rest of the world, the more necessary it will be that rationing of domestic supplies be continued for some time after the war.

Suppose, however, that fighting ceases in Europe two or three years before it ceases in the Far East. This course of events would greatly reduce the danger of a disorderly rise in prices during or shortly after the conversion of industry to civilian production. The end of fighting in Europe would increase the availability of many supplies of goods by releasing ships and by increasing the efficiency of shipping and would free a limited amount of American productive capacity. Thus, there would be an opportunity to make up the deficiency of goods in Europe while the rationing and price controls still received public support as a war necessity.

Although imports into the United States increased rapidly in the first two years after the first World War, they were only about half of exports. One can scarcely hope that the imports of the United States immediately after the fighting ceases in Europe will equal exports. Nevertheless, the larger the imports, the smaller the danger of an uncontrolled rise in prices. If plans are made well in advance, large quantities of goods (coffee, rubber, hemp, vegetable oils, cocoa, sugar, hides and skins) could be moved into the United States soon after Germany collapses.[ix] These goods will be needed to make up for deficiencies accumulated during the war. Even the war-torn countries have greater capacity to export goods than is generally supposed. The fact that a large part of a country's population barely gets enough to eat does not mean that the country is not able to make and export nonessentials. Hence, Europe, despite the disorganization of the war, should be able to supply the United States with substantial quantities of watches, cameras, worsteds, wines, cutlery, gloves, china and porcelain within a few months after the end of German resistance. In fact, since European countries (with some help from the United States and South America) will be able to restore civilian production while this country is fighting Japan, the United States may be confronted with a surplus of imports from Europe at the very time that the end of the war with Japan produces severe "conversion" unemployment here.

Many people think that large exports from the United States immediately after the war would help keep down the amount of "conversion" unemployment. To a limited extent they probably would. The export of agricultural products would have little effect in maintaining employment except in so far as it helped employment on the railroads; but the export of ships and machine tools would retard the drop of employment in those industries. It is easy, however, to exaggerate the influence of foreign orders upon "conversion" unemployment. The greatest need for goods in Europe will come while this country is still fighting Japan, and "conversion" unemployment will be most severe in the United States after the end of the war against Japan. Furthermore, most orders for manufactured goods could not be filled until conversion had occurred. At that time they would compete with the backlog of domestic demand.


If the reopening of trade is permitted to create a scramble between countries for goods, there will be extreme depreciation of the currencies of those countries where the need for goods is greatest and where the governments are least stable. This depreciation of currencies will further weaken those governments and will retard the restoration of productive capacity.[x] It would be an inexcusable scandal for the United Nations to permit a repetition of the superinflation and political upheavals which plagued Europe for years after the first World War. In order to prevent these troubles, provisional governments must be set up in liberated or enemy territory as soon as military developments permit. Their establishment must not await the final determination of boundary lines or the transfer of populations. The provisional governments must have sufficient outside military support to prevent civil war and to suppress guerilla gangs. With such support they will be able to protect producers, to enforce rationing of goods, to impose taxes in accordance with the limited capacity of the countries, to negotiate foreign loans which will be commitments to permanent successor governments, and to create a reasonable expectation abroad that the area will soon increase its exporting capacity -- all necessary steps in providing trustworthy currencies.

"Stabilization" of exchanges, in the first years after the war in particular, should not mean rigid relationships between currencies. In contrast with the uncontrolled fall of certain currencies after the first World War, especially those of revolution-ridden countries, there should be a controlled and orderly rise of weak currencies against the dollar, the pound, and other stronger currencies. This means that provisional governments should undervalue their currencies from the standpoint of the long-run capacity of their countries to earn exchange. Provisional governments must have the external support necessary to make them good credit risks; and there must be an agency from which they may obtain loans and to which they may make commitments. Hence, there must be established a strong and well-financed international bank far in advance of the cessation of hostilities, ready to make advances and handle exchange problems (including perhaps, temporarily, the rationing of exchange within liberated territory) as rapidly as they arise. This bank should be ready to do business by the end of 1943. Failure to create it promptly will augur ill for the orderly handling of the postwar exchange problem.


After the shift from war production to civilian production has been made, and after the most urgent deferred demands have been met, will the problem of the United States be to avert collapse or control a boom? The answer depends in the main (1) upon the outlook for foreign relations; (2) upon the relations of business with labor; (3) upon the success with which prices are controlled during the war and immediately after it; and (4) upon the policies of the government toward business.

The outlook for foreign relations is unpredictable. If the war does not seem to have been followed by a lasting peace (if our relations with Russia, for example, are bad), consumers, after satisfying their most urgent needs, will be cautious about converting their cash and bonds into goods, and savers will hesitate to invest. The last ten years have seen an enormous growth in the size and strength of organized labor. Business and organized labor are still in the process of working out mutually satisfactory relationships. Much progress has been made, but the acceptance of new responsibilities by both unions and management, necessary as a foundation for business confidence, has not yet been accomplished. Furthermore, industrial strife may be rampant for two or three years after the war, partly because the policy of no-strikes and no-lockouts has caused many unsettled issues to accumulate and partly because the postwar adjustments will create new issues.

The effectiveness with which prices are controlled will affect the level of business after the war because it will determine the purchasing power of the huge accumulations of liquid assets which are being made during the war. If individuals hold $90 billion of liquid assets when the war is over and if these are converted into goods after the first year or two at the rate of $10 billion to $15 billion a year, business will have a powerful sustaining influence for five to ten years.

A particularly difficult adjustment will be created by the heavy budget needs of the federal government which will be two or three times greater than prewar government expenditures and six to eight times its expenditures in 1929. In the twenties the annual budget of the federal government was less than half of corporate profits in a good year. After the war the budget will be three or four times as large as corporate profits in a good year. It will not be easy for the government to meet such huge needs without taking a substantial part of the gains of successful concerns and thus discouraging enterprise.

On the whole, the chances appear to favor a high level of business, at least for a few years, unless the international situation is very bad. The quantity of liquid assets to be converted into goods will be so enormous and the needs will be so great that even serious domestic deterrents to high employment will be overcome for a limited period of time. If the level of business is high, additional conditions making for still larger output will become operative. The quantities of durable goods which the country chooses to maintain are related to the size of incomes. If the level of employment after the war is approximately 55 million out of a postwar working force of 57 or 58 million, the incomes of individuals (at 1942 prices) will be about $125 billion. At this level of income, the country would wish to maintain a stock of approximately 35 million automobiles -- 6 million more than we had in 1941. By the middle of 1945, our stock of cars will have dropped to about 23 million. If one allows for retirement of 2.3 million cars a year, an output of 5 million cars a year for four years or of 4 million for six years would be required to enable us to adjust our supply of cars to the demands of a national income of $125 billion.

The situation with respect to housing and industrial plant is similar. With incomes roughly 50 percent above prewar, there would be a deficit for 1940 of 4 or 5 million dwelling units renting well above the average and representing a construction cost of $15 billion to $20 billion. The normal increase in families produces a demand for $2 billion of housing a year. Consequently, at least four or five years of residential construction at the rate of $6 billion a year would be required to adjust the supply of houses to the number and quality demanded at a national income of $125 billion.

Plant and equipment in most branches of industry would be inadequate. It is difficult for some people to realize this, because their thinking has been adjusted to the subnormal level of expenditures which prevailed during the thirties. With incomes of individuals at $125 billion, the demand for most kinds of consumer goods would be 30 percent to 50 percent above the level of 1940. It is true that the country today is producing 60 percent more than in 1940, but this is being accomplished only by widespread use of overtime and second and third shifts and by employing much high-cost and poorly located capacity.


What should be the international economic policy of the United States during the "catching-up" period? Do our interests coincide or clash with the interests of the many relatively undeveloped countries in South America or Asia which need more capital, or with the interests of Britain and other countries which have a balance-of-payment problem? These questions need to be analyzed in the light of three additional questions:

1.~ Does the United States need to export capital on balance in order to offset a deficiency of internal investment opportunities?

2.~ Is an excess of exports from the United States needed in order to help the rest of the world develop its resources?

3.~ Should the United States admit goods on far more favorable terms than it did before the war in order to prevent the development of bilateral trading and discriminatory arrangements and also in order to furnish a solid foundation for the export of capital from this country?

1. One constantly encounters statements that full employment in the United States after the war requires an excess of exports over imports. If the foregoing analysis of the probable balance of favorable and unfavorable conditions is correct, an excess of exports during the "catching-up" period will not be needed. On the contrary, the conversion of surplus savings into goods will cause consumption to be abnormally high in relation to incomes and will cause domestic investment opportunities to be large in relation to the supply of investment-seeking funds. Under these circumstances an excess of exports would aggravate the problem of controlling prices. Especially will this be true in case the shift from war to civilian production has been made without a large rise in prices.[xi] Furthermore, an excess of exports over imports during the "catching-up" economy would make more difficult than ever the later and extremely difficult transition from a "catching-up" economy to a self-sustaining economy.

2. An excess of exports from the United States is not necessary to help China, Mexico, South America, or other countries equip themselves with modern tools, machines, and prime movers. All that is necessary is large exports of these articles from the United States. These exports will be large if it is easy for the rest of the world to earn dollar exchange -- that is, if the United States is willing to reduce its duties or to do the equivalent. In other words, we can help the world equip itself with American machines, tools, radios, and automobiles by raising our standard of living, by making it easier for Cuba and the West Indies to sell us winter vegetables, pineapples and other fruits, for Australia, the Near East and South Africa to sell us wool, for France and Italy to sell us wines, for Britain to sell us worsteds and china, and so on. For more than 20 years most countries have found it difficult to earn enough dollars to meet their demand for our goods. Recent technological developments (substitutes for silk and wool, synthetic rubber) will make it even more difficult for the rest of the world to earn dollars and will increase the need for reductions in our duties. Hence it is more necessary than ever that the United States reduce artificial barriers on imports.

3. Would it be in the interest of the United States to have an excess of imports during most of the decade following the war? Certainly such an excess would help avert a speculative rise in prices during the "catching-up" economy.[xii] An excess of imports, however, may not be easily built up, at least so long as the need for goods in various countries is urgent. Countries with great shortages and also countries with ambitious schemes of internal development (and there will be many of these) will be eager to convert their dollar exchange into goods rather than into repayments of debts to us or into investments in the United States. Hence if during the "catching-up" economy this country is threatened with an uncontrolled price rise, stability here (and eventually abroad) will require that we insist on some repayment of debts.

Pressure by the United States for the repayment of debts must not be permitted to encourage the growth of bilateral (or multilateral) discriminatory arrangements in international trade. The temptation for hard-pressed nations to establish these arrangements in the early years after the war will be great. The principal objection to them is not the economic one that in the long run they limit the productivity of industry, important as that is. Rather it is the political one that they provide a fertile soil for international misunderstandings.

The most effective step which the United States can take against discriminatory bilateralism is the acceptance of imports on more favorable terms. Of course, even this step is far from a guarantee against discriminatory agreements. Russia might decide that such agreements are the best way to drive favorable bargains with the rest of the world, just as Germany did during the thirties. Even Britain, confronted with the difficult problem of paying for food and other raw materials, might adopt a policy of discriminatory bilateralism. She has already done so to a limited extent.[xiii] But although a liberal policy by the United States toward imports is not a guarantee against bilateralism, a restrictive policy by the United States would unquestionably force the development of a network of discriminatory agreements. If we desire international trade to be open to all nations on equal terms, we must spread hope and opportunity throughout the world by accepting imports more freely than in the past.

The policy of encouraging imports into the United States may be accomplished partly by extension of the Hull program of reciprocal tariff concessions, but in the main through the establishment of low prices of foreign currencies in terms of dollars.[xiv] Since currencies adjust themselves to each other more readily through a rise in prices in countries with undervalued currencies than through a fall in prices in countries with overvalued currencies, the proper relationship between the dollar and other currencies would gradually be established by a rise in prices in foreign countries. Thus the balance of trade between the United States and the rest of the world would be changed in relation to prewar levels in favor of the rest of the world. The volume of trade between the United States and the rest of the world would be raised far above the prewar levels. The willingness of the United States to pursue this policy would depend upon the state of our domestic economy -- upon whether expansion here is vigorous. Thus the success of this country in promoting nondiscriminatory international trade will depend upon our success in encouraging enterprise at home.


The shift from a "catching-up" to a self-sustaining economy will be more difficult than the shift from a war economy to a peacetime economy. By that time business will have lost the extra support which comes from consumers' expenditures that are abnormally high in relation to incomes. The repercussions of a severe collapse within the United States would be world-wide. Hence all countries have an interest that the shift be made smoothly.

The main contribution that international economic policies can make to an orderly shift from a "catching-up" economy to a self-sustaining one is to prolong the "catching-up" economy and to make the shift more gradual. If the return on investments sinks very slowly, savers will accept smaller and smaller returns without deferring investment. If returns on investments change abruptly, savers will hold back in order to appraise the situation. This will precipitate a downward spiral. If economic and political conditions in the United States are on the whole favorable to business, a variety of controls and incentives will be needed to restrain the rate at which savings are converted into goods. The effectiveness of these controls will break down if people expect prices to rise at a rapid rate. The availability of large supplies of goods from abroad will help keep prices down. This seems to be the greatest contribution which foreign trade can make to the shift from a "catching-up" economy to a self-sustaining one.


What are the long-run interests of the United States toward foreign trade? What special policies should this country pursue after consumption and income have returned to a normal relationship and the price level and the volume of production have become adjusted to the great increase in demand deposits brought about by the war?

After the United States has shifted to a self-sustaining economy, will it need large exports of capital in order to make possible a high level of employment? This might possibly be the case. As was indicated above, exports of capital will not necessarily require an excess of commodity exports over commodity imports.[xv] Nevertheless, one cannot regard exports of capital as a particularly satisfactory way of dealing with the problem of investment opportunities. The volume of investment opportunities is determined by a multitude of circumstances, some of them within the control of public policy and others beyond it. Likewise the proportion of incomes which are saved depends upon a multitude of conditions. Many of these, but not all of them, can be controlled. An inadequate supply of investment opportunities is a signal that the country needs to explore the possibilities of altering public policies for the purpose of either increasing the propensity to invest, diminishing the propensity to consume, or increasing its exports of capital. Decisions should be based upon a weighing of these alternatives. Certainly schemes for exporting capital on a doubtful commercial basis should not be permitted to cause neglect of desirable internal adjustments.

The United States, in common with most other countries, has an interest in arrangements for the orderly adjustment of foreign exchange rates to the changing competitive position of different nations. During the nineteenth century, changes in the competitive power of nations expressed themselves through upward and downward movements in their price levels. This made it possible to maintain fairly stable exchange rates, at least for moderate periods of time. Movements of prices, at any rate downward movements, have lost much of their availability as regulators of the competitive position of nations. Consequently, it is necessary to rely upon movements of exchange rates. It is important, however, that adjustments in exchange rates be made by an orderly process. Nations with persistently weak currencies should not be permitted to depress them arbitrarily or by unilateral action. Furthermore, nations which persistently incur credit balances should recognize their responsibilities toward the rest of the world and should be required to consider the advisability of admitting imports on more favorable terms.

This is not the place to discuss the mechanism by which these objectives might be achieved. Warning should be given that shifts in exchange rates can only to a limited degree correct the competitive position of nations. Currency depreciation, for example, cannot be an adequate remedy for extreme conditions which make investment funds shun a certain area -- conditions such as persistent internal disorder, unwise tax policies, attempts to impose more social security on a nation than its economy can stand, a labor movement which appropriates too completely and too promptly the gains of enterprise. Conditions such as these can be met only by direct reforms.

Among the nations of the world, few can have more interest in freedom of trade than the United States. If we could look at international trade as citizens of the world (say as members of the United States of the World), most of us would be opposed to restrictions by individual nations, just as most of us are opposed to the imposition of restrictions on interstate commerce by the several states. This opposition (which is by no means universal) springs from the fact that most of us have been conditioned to look at trade between the states from the national point of view.

No nation, of course, is capable of taking a world view of interests. Consequently, different nations, depending upon their economic circumstances and upon the nature of their political and military ambitions, prefer varying mixtures of restriction and freedom. Some nations prefer a certain amount of diversity in their industries, and are willing to accept a lower standard of living in order to obtain it. The United States is so large and contains so many varieties of resources and of climate that it is not compelled to practise a policy of restriction in order to get industrial diversity. In this respect we are one of the most fortunate nations of the world. The policy which we pursue, however, affects the interests of other nations. If we pursue a policy of freedom, we make the policy of freedom more attractive to other countries because we make it easier for them to profit from their peculiar superiorities of skills, resources, and climate. Thus our decision is of great importance in determining the mixture of restriction and freedom which characterizes the trade policies of the world.

It is fair to assume that the United States wishes a world in which hope for the future tempers the disappointments and hardships of the present, and in which the spirit of political rivalry is checked by new economic opportunities. It is an essential characteristic of a world of hope and opportunity that the New (new products, new enterprises, new occupations, new sources of supply) be in a favorable position to compete with the Old. All restrictions on trade are in the last analysis impediments to the New. If the United States wishes to build a world of opportunity and hope, it should strive to make international economic policy a mixture in which the element of freedom greatly predominates over the element of restriction.

[i] In 1920 the physical volume of exports was about 3 percent below 1919.

[ii] The dollar volume of imports rose rapidly from $3.0 billion in 1918 to $3.9 billion in 1919, and $5.3 billion in 1920. In 1921, it dropped to $2.5 billion. In physical volume, however, imports in 1921 were only 16 percent below 1920. See Survey of Current Business, 1938, Supplement, p. 79.

[iii] About one-fourth of the national product went into the war in 1918. About half of the national product will go into the war in 1943.

[iv] This increase was made up of an increase of about $1.4 billion in money in circulation, $14.5 billion in deposits of all banks, and $21.7 billion in government securities. The net national product in 1919 was $64.2 billion.

[v]Survey of Current Business, April 1943, p. 18. It is estimated that the acquisition of government securities, currency and bank deposits by enterprises (other than commercial banks) in 1942 was $14.1 billion. Insurance companies and mutual savings banks increased their government securities by about $4.1 billion. In addition, enterprises reduced their indebtedness by $2.8 billion.

[vi] The increase in liquid assets by individuals and non-financial corporations during the first World War includes the increase in holdings of government securities by insurance companies and savings banks. The security holdings of the insurance companies and savings banks do not constitute an inflationary threat because they are not likely to be sold for the purpose of buying goods, but unfortunately figures on the increase in the holdings of government securities by insurance companies and savings banks are not available. Hence the above figure of an increase of $37.6 billion in the liquid assets of individuals and enterprises other than banks during the first World War slightly exaggerates the inflationary threat.

[vii] For this reason much is to be said in favor of a controlled rise in prices (and wages) during the war for the purpose of diminishing the purchasing power of the holdings of liquid assets and thus of making easier the problem of price control after the war.

[viii] League of Nations, World Economic Survey, 1941-42, p. 63. About 44.2 percent (633 million bushels) are in the United States and in 1942 the crop here was more than 200 million bushels above "normal" home requirements.

[ix] A reduction of submarine sinkings substantially below production of ships is likely to be a prerequisite to military victories in Europe. With such an enormous shipbuilding program in operation, the number of vessels can be rapidly increased within six months after the cessation of hostilities. Attention was called above to the importance of greater efficiency in ocean transportation as soon as convoys become unnecessary.

[x] For example, it will discourage the sale of goods on credit to the countries where the need is greatest.

[xi] An excess of $2 billion or $3 billion a year in exports would be only a small fraction of the national output. Furthermore, it would be far greater than the excess of exports in the twenties. In the eight years, 1922 to 1929, inclusive, the total excess of exports over imports was only $4.7 billion -- less than in 1942 alone when it was $5.1 billion. In only one year between 1922 and 1929 (1928) was the excess of exports over imports more than one billion. Despite the fact that an excess very small in relation to domestic production might do much good to certain countries it should not be permitted if business prosperity in the United States is threatening to produce shortages of goods and speculative buying.

[xii] If the shift from war production to civilian production is made without a large rise in prices and a subsequent collapse, the United States may find it wise to plan on a moderate rise in prices during the "catching-up" economy -- say, a rise of about 30 percent in ten years. This might be a convenient way to enhance business profits and help enterprises bear the heavy postwar taxes, and it would also be equivalent to cancelling a substantial part of the national debt.

[xiii] Point IV of the Atlantic Charter is carefully worded to permit this.

[xiv] Special adjustments of some debts owed us in dollars may be necessary.

[xv] The United States might be investing $3 billion abroad each year by the exportation of capital goods and it might be receiving $3 billion in consumers' goods from abroad in payment of interest and dividends. Of the $3 billion received from foreign investments, perhaps $1 billion would be saved and the other $2 billion spent for consumer goods. Thus old foreign investments would be adding $3 billion a year to our supply of consumers' goods, $2 billion a year to our demand for consumers' goods, and $1 billion a year to our saving, and yet new foreign investments would be providing outlets for $3 billion of savings a year.

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  • SUMNER H. SLICHTER, Professor of Business Economics at Harvard University; former President of the American Economic Association; author of several works on economic and industrial problems
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