Courtesy Reuters

Devaluation and European Recovery

ON SUNDAY, September 18, 1949, the British Chancellor of the Exchequer, Sir Stafford Cripps, announced over the air, in effect, that the pound was henceforth to be worth $2.80 instead of $4.03, a devaluation of 30.5 percent, in terms of our dollar. Promptly, like tenpins before the ball of a skilled bowler, many of the world's currencies fell in unison. All (except Pakistan) of the countries of the sterling area in Asia, Africa and the islands of the seas, and in Europe the Scandinavian countries and Holland and Greece, also devalued their currencies by 30.5 percent or thereabouts. France, Belgium, Western Germany and Portugal in Europe, and our neighbor Canada devalued their currencies, though to a lesser extent; and the Italian lira though not devalued was permitted to depreciate and to fluctuate. And that is not all. This momentous event, affecting the dollar exchange value of the currencies of some one-third of the human race, indeed almost all of the world except the Communist area and the dollar area, dramatizes the unbalanced state of the world's trade with the United States, and the key position of sterling in spite of its weakness, and the fact that the dollar is the world's monetary standard, the measure by which other currencies are valued.

There is no great mystery about these devaluations. They reflect the famous, or infamous, dollar shortage or dollar gap. The United States produces more goods than it consumes, and many European countries, due chiefly to the two world wars and their consequences, are as yet unable to produce and sell for dollars enough goods and services above their own needs to pay for their necessary dollar imports. Thus European countries are spending more dollars than they earn, living beyond their means. Many of them have been forced to use up their gold and dollar reserves, to seek loans and gifts from us. If a nation lives beyond its means it is spending its substance and impoverishing itself; just as you, gentle reader, or I would do

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