The Day After Russia Attacks
What War in Ukraine Would Look Like—and How America Should Respond
WHATEVER may be the ultimate fate of the plans themselves, the publication last year of American, British and Canadian proposals regarding postwar currency arrangements has precipitated an interesting public debate which has thrown a great deal of light on some of the basic issues involved. In view of the dense cloud of mystery and suspicion which frequently surrounds international finance, it is essential that any covenants reached in this field should be open and openly arrived at. The unusual procedure of Treasury officials in different countries inviting the world to witness them in the process of thinking out loud (and thinking their own private thoughts rather than the thoughts of their governments) has been justified by the results. After a year of vigorous discussion, a wide area of agreement on essential points has now been reached among the officials of a large number of countries. This agreement has been embodied in a "Joint Statement by Experts on the Establishment of an International Monetary Fund," published simultaneously in April 1944 in several capitals, including London, Moscow, Washington and Ottawa.
The Fund proposal is one contribution to the task of reconstructing a functioning international economic system; and its potential usefulness is clearly conditional upon parallel action on cognate problems such as commercial policy and international long-term investment. In turn, tolerable international economic arrangements will not endure, and competitive currency depreciation, excessive trade restrictions, barter trade deals, rigid and stultifying exchange controls will not be avoided, unless the great industrial nations are successful in maintaining a high and reasonably stable level of domestic economic activity. No international arrangements, monetary or other, will survive if the large countries so mismanage their affairs that they are half the time in the doldrums and the other half in a cyclone of activity.
The details of the Fund proposal have been fully discussed and an impressive body of literature has already been produced. In Canada we have followed the discussion in the United States with attention. I do not propose to reëxamine the details, but rather to discuss some of the objections that have been raised to the general principles underlying the proposals. The principal objections seem to be based on the following three theses: (a) that international economic coöperation is a method of getting the United States to "share the wealth" with less favored countries; (b) that the proper solution of the world monetary problem is a universal return to the gold standard; and (c) that bilateral arrangements for the extension of credit would be preferable to, or more practical than, broadly based international arrangements.
I am afraid that there is a fairly wide suspicion in the United States that international economic coöperation in any form means a "hand out." Thus the currency plans have been represented as a nefarious plot to rob the United States of its gold reserves; as an attempt to make Uncle Sam the milch cow for the rest of the world; as a subtle scheme to restore world financial supremacy to the United Kingdom. As a rule, of course, such views are not held in responsible circles. On the contrary, determined and effective efforts have been made in high official quarters as well as by private writers to present the facts of the American international economic position to the American people in their true perspective. But the task of education, though well started, is incomplete. The only excuse a foreigner can have for commenting on the "hand-out" thesis is the hope that his reaction may throw further light on the problems involved.
The views to which I have referred have been sufficiently widely held for a sufficiently long period to have impinged deeply on the consciousness of foreign countries. I believe that far from desiring to obtain from the United States anything which by the remotest stretch of the imagination could possibly be construed as a "hand-out," there is almost no length to which self-respecting foreign countries would not go in order to avoid this. It is helpful to look at this matter from the point of view of a country which is contemplating getting special assistance, say a loan, from the United States. The experience of European and Latin American countries which have got into excessive debt to the United States during the past quarter century has been so bad -- both from the viewpoint of their own domestic stability when the loans ceased to be available and the spurious economic structure they supported collapsed, and from the viewpoint of the international friction and the national humiliation which resulted when the inevitable defaults occurred -- that the one thing most of them want above all to avoid is a repetition of this experience. The real danger, so far as the more responsible foreign countries are concerned, is not that they will wish to raid the American pantry but that they will be so anxious to avoid any suspicion of such an intention that they will be hesitant to count on the permanence of that degree of American coöperation which is willingly offered. From self-interest, and not necessarily on any high moral grounds, responsible countries will ponder very deeply before contracting financial obligations to the United States which they will be unable to discharge in full even under adverse circumstances. I am aware that there are more responsible and less responsible countries; and there may be some which would cheerfully borrow and default. But it would be a mistake, I think, to allow such countries to constitute the norm for determining general attitudes and policies.
The fear that the International Monetary Fund is a method of getting the United States to give a "hand out" to the world arises from the credit provisions of the plan, i.e. the provisions which will enable countries to purchase foreign exchange for their own currencies. In many respects these credit provisions are, indeed, the central feature of the proposals, and it is important that they should be properly understood. If the creditor countries are unable to agree that their participation is desirable, from the point of view of their own national self-interest, then it would be better for all concerned that they should not participate.
Why is it necessary to provide foreign exchange credit facilities? Why not operate on a cash basis in international transactions? In trying to answer these questions it is helpful -- indeed it is essential -- to keep in mind that the realities with which we are concerned are goods and not money. Any country's ability to finance imports from abroad out of its own resources is limited to the volume of exports it can sell, plus the volume of its holdings of internationally acceptable reserves it can liquidate -- gold or foreign exchange or negotiable securities. The lend-lease and mutual aid programs of the United States and Canada are simple recognitions of this fact. Apart from all questions of fairness in the distribution of war costs, we must remember that our allies were unable to pay cash for the goods they needed from Canada and the United States to fight the war in which we are all engaged. The monetary appropriations of the lend-lease act in the United States and the mutual aid act in Canada were not used to provide them with money but to provide them with goods.
Failure to be equally realistic about postwar credit arrangements can lead only to confusion of thought. What are the realities of the postwar situation in this respect? Certain countries will have import requirements greatly in excess of their immediate capacity to supply goods abroad. It can be taken for granted, I think, that the unregulated movement of short-term capital which exerted so disturbing an effect between the two great wars will no longer be tolerated; the needs of various countries for foreign exchange will arise because they need goods. I use the term "goods" in a broad sense to include all current account requirements including the invisible as well as the visible items. On the other hand, there will be certain countries (such as Canada and the United States) whose capacity to supply goods abroad -- and thus to maintain the incomes and purchasing power of their primary producers or manufacturers and their employees dependent on export markets -- will exceed their immediate requirements of goods from abroad.
What is to happen in this situation? So far as relief goods are concerned the gap will be met to a certain extent through UNRRA. Some writers maintain that nothing further need be done and that countries should then get back on a cash basis in their international transactions. For reasons which I shall go into in greater detail later, I do not think that the proposal that nothing further should be done to meet the postwar need for credits is realistic, or that it stands the slightest chance of being adopted. If it were adopted, trade between countries would soon be reduced to a state of barter, with miserable consequences for all.
But first let us look at the matter from the point of view of deficit countries -- that is, those whose import requirements are in excess of their immediate capacity to supply exports in exchange. How are they to balance their international accounts if no arrangements are made under which credits are available?
There are two broad courses of action open to them. They can either attempt to increase the level of their exports to the level of their imports, or to reduce their imports to the amounts that they can pay for currently through exports or through the liquidation of such internationally acceptable assets as they may hold. How can they go about the former? Theoretically they could attempt to increase their exports by cheapening them through cost reductions at home, in an effort to undersell foreign competitors. This is the method of internal deflation. But does anyone believe that any country will deliberately pursue a policy of internal deflation and accept the consequences in the form of unemployment and reduced incomes on the scale that would be required? The deflation would be severe since its purpose would be to make possible a great volume of cheap goods for export, to balance the unusually heavy import requirements of the reconstruction period. This question answers itself. Another possibility is that these countries would try to cheapen their exports by the method of deliberate currency depreciation or export subsidies. But how would foreign countries react to such practices? Would they not feel that their interests had been adversely affected, and is it not certain that they would retaliate? In other words, would not this start a general wave of competitive currency depreciation, anti-dumping duties or rigid import restrictions from which all would suffer?
Or suppose that these deficit countries, realizing the perils of competitive retaliation, determine to avoid such measures as exchange depreciation and export subsidies, and take the second course suggested above, that of limiting their foreign exchange expenditures to their foreign exchange income. They would be able to do this only by imposing stringent controls over their imports. If they did so we should all begin the postwar period with a fresh set of quantitative trade restrictions, and once embarked on this course there would be no turning back. Capital would be invested in the domestic industries. Their products would increasingly replace imports. Labor would find employment in these industries. And once the emergency had passed, the difficulties of adjustment would, if experience is any guide, always appear too formidable for governments to face. Countries which were major importers (and these include some which will not be on the receiving end of relief shipments) would no doubt seek in many cases to exploit their power as consumers by entering into bilateral trade bargains with their suppliers. They would offer to make large bulk purchases on condition that the proceeds be left on deposit or used to buy goods in the purchasing country. What matter if the goods it has to offer in exchange are not needed by the selling country or if their prices are high? This is the old road to autarchy and international chaos.
Let us now look at the question of credits from the point of view of the surplus countries, which I think will include Canada as well as the United States. On a strictly cash basis, the ability of these countries to export would be limited, broadly speaking, by the amount of imports they were willing to take from their trade partners. Is it for a moment conceivable that such countries would accept the consequences of this situation, entailing as it would the disorganization of their export markets? Rather than face these consequences, would not the surplus countries be willing to give the deficit countries time for payment in some form or other? In other words, is it not a fact that credit will be extended? This credit will not be extended primarily for the good of the deficit countries, nor even because the surplus countries are sufficiently intelligent to realize that all nations will benefit by the reëstablishment of a functioning international economic system. Credits will be extended because in real terms -- in terms of disorganization of export markets and consequent unemployment and loss of income in export industries -- the cost to the surplus countries of withholding them is far greater.
If my argument is correct, then, Fund or no Fund, credit will be extended after the war by countries in the position of the United States and Canada. So far as the short-term credits of the type contemplated by the Fund are concerned, the problem resolves itself into the question whether such credits should be extended from day to day and as a result of deals between individual countries, or whether they should be extended through a central pool on the basis of principles laid down in advance. I shall give my reasons later for preferring the latter course. If one accepts the view that credit will in fact be extended, then the important question from the point of view of the creditor countries is whether the existence of an International Monetary Fund increases or reduces the risk of not obtaining repayment of credits when they desire it.
I think that the creditor has greater freedom of action in obtaining repayment under a genuinely international monetary system than he has under a monetary system bolstered by bilateral credit deals. For the latter will tend, I believe, to lead to bilateral trade deals. In such circumstances the creditor can obtain repayment only by increasing his imports from the country to which he has extended credit; in a truly international system, such as contemplated by the Fund proposals, he can obtain repayment by increasing his imports from any part of the world.
It is important for creditors to realize that international indebtedness can, over any extended period, be liquidated only by the international transfer of goods and services. If such countries get tired of being capital exporters and wish the return of sums previously advanced, they must facilitate the return by increasing their imports from abroad or by limiting their sales abroad. Goods and services offer the practical form of return. I do not argue that the adjustment must be made exclusively by the creditor. The debtor has an equal responsibility to limit his borrowings to the amount he can honestly hope to repay and then make an honest effort to transfer in goods the amounts needed to effect repayment. But if the creditors, in these circumstances, refuse to facilitate such transfers in the ways I have indicated, they are simply closing their eyes to the facts of life in international transactions and have no right to complain at the consequences of their own irrational behavior.
The view that no concerted international action to improve the world monetary organization need be taken beyond measures to provide immediate postwar relief usually expresses itself as a demand for the return to the international gold standard.
It is not unfair to ask the advocates of a return to the gold standard which gold standard they have in mind. Presumably they do not mean the monetary arrangements prevailing before the outbreak of the present war, for these can only be characterized as uncertainty tempered by bilateralism. In the United States and the creditor countries of the European gold bloc the value of the national currency in terms of gold was legally defined. (In some cases the national executive had limited authority to change the definition.) But elsewhere exchanges were either free to fluctuate, with a greater or lesser degree of market intervention by governmental or semi-governmental agencies, or were rigidly controlled through official exchange regulations, supplemented by bilateral trade deals and clearing agreements. Surely no one wants to return to this.
Or do the advocates of a return to the international gold standard have in mind a return to the situation of the 1920's? Do they wish a series of uncoördinated redefinitions of the values of currencies in terms of gold by various countries? This, it seems to me, is simply proposing a repetition of the process by which the pound was overvalued, the franc undervalued, and a topsyturvy structure maintained for a while through massive exports of capital from the United States.
Or is it possible that they are thinking of the really successful operation of the gold standard before 1914? And, if so, who is to provide the management and the credits which London, through her position as a large and willing importer and as the world's leading financial power, was then able to provide?
The only meaning that can be read into the exhortations for a return to the gold standard is that the United States should itself base its currency firmly on gold and that other countries should base their currencies on the American dollar or on gold. There are a good many reasons why most countries will be unable or unwilling to do this. In the first place, the international financial position of many countries will be so precarious that they will be quite unable to base their monetary systems on gold for some time to come. Countries such as the United Kingdom which have lost a large proportion of their foreign assets and have accumulated huge short-term foreign liabilities would find it impossible to reëstablish immediately the gold convertibility of their currency. The obverse of this is, of course, the concentration of most of the world's monetary gold reserves in the United States. Many countries will be unwilling or unable to adopt policies which will enable them to "earn" the gold on which to base their monetary systems; their demand for imports of goods will be so great that they will not be able to afford the luxury of importing gold. Nor will most countries be willing to accept thereafter the discipline which adherence to an unregulated international gold standard would impose upon their domestic policies.
If one thing is clear about postwar economic policy, it is that the primary objective of all governments will be to maintain employment at high levels. This aim will take precedence over exchange stability; and if exchange stability is desired, some technique must be developed to make the two aims compatible. Few countries will adhere to an international gold standard or to an international monetary standard of any sort if the consequence is deprivation of all liberty of action with respect to domestic economic and social policies. The United States stands virtually alone among the great economic powers in a position of assured international liquidity, due to her enormous gold reserves; she, almost alone, need not fear that a situation may arise which inhibits her from carrying out desirable domestic policies because of their possible effects on her balance of international payments.
I am aware that a volume of monetary gold which in the aggregate is substantial is held by countries outside the United States, and that certain foreign countries' dollar balances have also been swollen temporarily as a result of abnormal war conditions, such as American military expenditures abroad and the difficulty of obtaining normal imports from the United States. It would be seriously misleading, however, to think in terms of aggregates in this connection or to contend that there has been a major redistribution of world gold reserves because United States holdings fell from $22.7 billion to $21.9 billion in the course of 1943.[i] In the first place, a large part of world gold reserves outside the United States is held in a few European creditor countries, several of which have announced their determination to pay cash for their relief requirements. Moreover, even the figure of liquid international assets for any particular country is misleading as an indication of the deficit it will be prepared to run in its international accounts. Only in war are countries willing to see their international cash fall to zero; in ordinary times protective action of one form or another will be taken long before this position is reached.
For many countries, the international margin of reserves is narrow; and if they commit themselves to adhere to an "automatic" international gold standard they commit themselves to the unknown. Those who think that all that is needed is a return to the international gold standard evidently believe that countries will be willing to base their monetary policies on changes in their international reserves, influenced as these will be by the varying fortunes of the gold-mining industry and by the domestic and international economic policies of the financially strongest countries, notably the United States.
The linking of national monetary and economic policies with those of the United States, without any margin in the way of assured credits, and without any arrangement for continuous consultation such as that provided in the proposed International Monetary Fund, would present very grave difficulties for many countries. True, the United States is such a colossus in the world economic system that, linked or unlinked, foreign countries cannot help being greatly influenced, for better or for worse, by the trend of affairs there. But it is one thing for a country to accept this predominant American influence when that country is in a position to express some views on the course of events or is free to cope with it with such ingenuity as it can muster, if things do not go well; it is quite another thing for one country to tie its fortunes inexorably to policies pursued by another, no matter how farsighted and well-chosen those policies might be.
What the advocates of a return to an "automatic" gold standard fail to grasp is the central position which the idea of maintenance of a high level of employment has taken in current economic thought. For emphasis I repeat: government policies will have this as their main objective after the war. There will be no universal return to the gold or dollar standard, and if world monetary stability is desired, we will have to set about creating it. Its creation will involve agreement on a code of behavior and general acceptance of restraints on the use of exchange depreciation as an instrument of economic policy. It will also involve the assurance that temporary balance of payments difficulties (due, for example, to an industrial recession in an important foreign market or to a crop failure at home) will not force countries into deflationary policies destructive of prosperity. The credit provisions of the Fund proposal give this assurance.
I am aware that this conclusion will not satisfy those who favor "all or nothing" solutions, contending that a choice must be made once and for all between exchange stability and national economic policies. I do not think that a clear-cut choice of this sort will, in fact, be made. The Fund proposal seeks to establish an international monetary standard to which all countries can adhere, but one which has a reasonable flexibility and which will not restrain countries from pursuing the goal of economic stability at a high level of activity. Divergences between national policies will develop even so; there will be stresses and strains. This will be true under any conceivable arrangement: but I have faith that generally acceptable solutions are more likely to be found through the machinery of consultation, warning and advice provided by an international agency such as the Fund than as a result of the uncoördinated unilateral action of individual countries.
The necessity of some credit arrangements to enable countries to get on their feet economically after the war, and to stay there even if their neighbors start staggering a bit, is, I think, recognized by most students of this subject. The important division of opinion as regards permanent international monetary arrangements lies between those who feel that these credit facilities should be on a pooled basis and those who think that they should be bilateral credits extended from one country to another. The most persuasive arguments in favor of the latter course have been put forward by Dr. John H. Williams in two recent articles in FOREIGN AFFAIRS in which he argues for what he calls the "key currency" approach to this question. The important contributions which Dr. Williams has made to monetary thought and the obvious goodwill which permeates his approach clearly require that most careful thought be given his proposals.
It would appear that the keystone of the arch in the structure proposed by Dr. Williams is an agreement between the United States and the United Kingdom regarding the sterling-dollar rate, supplemented by an undertaking to support this rate by coöperative action in purchasing offerings of each other's currencies and accumulating balances up to agreed amounts. The other currencies would be left to cluster around either sterling or the United States dollar.
I have several misgivings about this approach. In the first place it is difficult to see where the smaller countries fit in. I have an uneasy feeling that the "key currency" approach is the monetary counterpart of the Great Power doctrine of international organization generally. This approach seems to accept, if not to encourage, the splitting up of the world into economic blocs. It implies a sterling area with a group of satellite countries revolving around the United Kingdom and a dollar area with a group of satellites revolving around the United States. The creation of blocs of this sort has in the past involved discrimination in trade as well as in currency matters. Surely the main objective of international monetary organization should be to dismantle and not to perpetuate such arrangements.
Under them, certain countries would fall automatically into one grouping or the other; but there are many others which would not. The "key currency" approach seems, for example, to neglect the importance of gaining the adherence of European countries to the new international monetary code. Europe is an important factor in world trade, both as an importer from many of the countries which might be covered by the sterling-dollar arrangements and as a competitor with them. It would seem unwise to leave these countries, whose financial position will be precarious, to fend for themselves in the hope that they will soon link onto one or other of the major currencies. Without assistance of the kind that could be provided under international auspices -- and in this connection, the disinterested expert advice they could expect would be just as important as the access to short-term credits -- it appears likely that they will go in for rigid exchange controls of a pervasive and discriminatory type. This seems particularly probable in view of the postwar budgetary situation that will prevail in the countries of Europe now occupied by the enemy.
Moreover, the "key currency" approach raises delicate problems regarding the internal relationships of the members of the two major groups. Is it expected, for example, that the United Kingdom will act for the group of satellite countries constituting the sterling area in their relations with the dollar area? That is to say, will the United Kingdom use part of the dollar credits available to her to cover the dollar requirements of the satellite countries, and take over any dollar surpluses the satellite countries may acquire? Or is it contemplated that each of the satellite countries in both the sterling area and the dollar area will make independent currency-holding arrangements with the United States and the United Kingdom respectively?
There are many more inescapable questions. What about the position of the smaller countries which are economic satellites of neither the United States nor the United Kingdom, or which are satellites of both? What about the position of a country like Canada which normally has a surplus of sterling and a deficiency of United States dollars on its current account transactions? Is it expected that Canada will obtain her American dollar requirements from the United Kingdom, explaining what the dollars are needed for (an explanation to which the British would be entitled, since they would be ultimately responsible for the repayment of the dollars)? Or is it expected that Canada would finance the British deficiency of Canadian dollars by accumulating sterling, while the Federal Reserve System or the American Treasury finances the Canadian deficiency of United States dollars by accumulating Canadian dollars? Canada would not be able to offset the one against the other. Or if such offset is in fact contemplated, and if the number of "key" currencies is larger than appears at first sight, then we are back at an international plan.
What, moreover, about the exchange rates of the smaller countries? The underlying thought in the "key currency" approach appears to be that the dollar-sterling rate is the only one that matters: because some countries are small their exchange rates are of minor significance. But must not the importance of an exchange rate be measured by reference to particular commodities? For example, no one would claim that the Canadian dollar is a "key currency" in any general sense. But so far as the American wheat states are concerned, the Canadian dollar is in fact a "key" currency, and so is the Argentine peso and so is the Australian pound. If postwar monetary organization were limited to a stabilization of the dollar-sterling rate and Canada or Australia obtained a competitive advantage over American wheat producers by currency depreciation, is it at all likely that the latter would be satisfied with the explanation that these were not "key" currencies? Examples could be repeated at will: so far as bacon producers are concerned the New Zealand pound and the Danish crown are "key" currencies; so far as newsprint producers are concerned the Canadian dollar and the Swedish crown are "key" currencies. What, in the light of this, are the real prospects of monetary stabilization arrangements which are confined to the Great Powers?
The "key currency" approach has been supported in certain banking circles in the United States on the ground that it enables the creditor to choose his debtor and impose pressure on him if he is misusing his credit. I have already stated my reasons for thinking that assured access to credits of specified amounts, on specified conditions, will be needed to make it possible for most countries to adhere to an international monetary system. So far as the pressure is concerned, it is important to bear in mind that the need for temporary credits through the Fund will arise to a considerable extent because some countries are more successful than others in maintaining a high level of employment at home. No one government (and much less a central bank) can with impunity tell another government how far it should push a policy aimed at high employment for its people. True, domestic policies may be so prodigal that comments must be made on them and restrictions placed on further access to credit. In my opinion, this can be done with the least danger and the greatest prospect of success through a group of governments as represented by the Fund.
In the literature on the currency plans, several writers have insisted on the necessity of making a sharp distinction between the balance of payments problems of the transitional period and those of the longer run. For example, Dr. Jacob Viner, in an important and constructive article published last autumn in the Yale Review, argues that "the monetary agency to be established should be looked upon as an agency with predominantly routine peacetime functions to perform for a stable and orderly world. . . . The emergency salvage and rehabilitation tasks should be left to other agencies specially designed for such purposes. The intermediate and long-term capital needs of non-relief countries should be provided for on non-political, non-usurious and otherwise generous terms, but once more by agencies appropriate for such functions."
The Joint Statement is quite categorical in stating that "the Fund is not intended to provide facilities for relief or reconstruction or to deal with international indebtedness arising out of the war." It says nothing -- nor has very much been said elsewhere -- about how these transitional problems are to be dealt with. Until some other means have been found of dealing with it, it is obvious that the countries mainly concerned -- in particular the United Kingdom -- will not be able to afford, out of their own resources, the burden of making their currencies fully convertible on a multilateral basis. The Joint Statement specifically authorizes such countries to maintain exchange regulations of the character which have been in operation during the war, while working toward the multilateral objective.
This escape clause is clearly the least satisfactory feature of the Joint Statement, particularly for a country like Canada whose balance of international payments has the peculiar structure I have referred to. For Canada, multilateral clearing is the chief merit of any form of international monetary organization, and hope for this is now deferred. Nevertheless, I still think it worthwhile to proceed with the creation of the Fund, for two main reasons. First, if we are ever to achieve international monetary coöperation we must reach agreement while the atmosphere is relatively favorable. Countries have become used to working together closely during the war. It will require less psychological adjustment to extend these close wartime relationships for peacetime purposes now than would be required five or ten years after the war has ended.
Secondly, I feel that even the degree to which the Joint Statement pledges various countries to work as rapidly as their circumstances permit toward the goal of multilateral clearing makes it a commitment worth having. In the United Kingdom, which is obviously the most important country that may have to use the "escape provisions" of the transitional period, there are important sections of opinion which are prepared to write off, for the time being, the possibilities of reconstructing a genuine world trading and monetary system and which favor a form of sterling area isolationism. This appears to me the essence of the view recently expressed in a series of articles, "The Principles of Trade," in the influential London Economist. It is interesting to note, however, that the authors were so impressed with the magic of words that they characterized their proposals as "multilateral," and invented a new word "omnilateral" to describe the type of trading and currency arrangements that are ordinarily thought of as multilateral.
The virtue of going ahead with the international monetary plan at once is that every country's flag would thereby be nailed firmly to the mast of genuine multilateralism and that the responsibility for creating conditions which permit all to accept the plan's objectives would be pooled. Unless commitments are given now, and unless joint procedures for meeting the problems of the transition period are worked out at once, it seems almost inevitable that bilateral or "plurilateral" techniques adopted in the immediate postwar period to meet transitional balance of payments difficulties will turn out to be of very long duration. And it seems all too likely that they will engender the frictions that soon spread from the economic to the political plane. One would feel more com fortable if constructive plans for dealing with the balance of payments problems of the transition period were as far advanced as the international monetary proposals.
If the monetary plan is to work, it will have to be paralleled by agreement on commercial policy, international long-term investment and other aspects of international economic policy. Perfect harmony will not be reached; but it would, I think, be a mistake to put the monetary proposals into operation in an international economic setting so adverse that the prospects of successful operation were remote. An early breakdown would discredit the whole idea of international collaboration. The monetary plan should be regarded as only one part of an integrated program. For many reasons, it is a convenient starting place, and great encouragement can be derived from the wide measure of agreement which has been reached. This agreement is limited to experts and as yet involves no government commitment, but it provides a firm basis for discussion of relevant problems. One can only hope that the approach to the other problems, such as commercial policy, international investment and the specific difficulties of the transition period, will be as constructive and realistic as the proposals for an International Monetary Fund.
[i] This matter of the distribution of monetary gold reserves provides an interesting example of how easy it is to regard the recent past as "normal." A reduction in American holdings from, say, 75 to 70 percent of world reserves is hailed by some as great redistribution of the metal: but 70 percent still looks comfortably large when compared with the United States' share in world trade, which before the war was less than 10 percent.