THE United States is passing through a great psychological crisis. It is having to think out afresh its whole fundamental conception of its place in the world and its relationship with other countries. In the nineteenth century European immigrants by the millions quit the Old World in search of opportunities for a better life in the New. The vast stretches of the American west -- its forests and fertile plains, its mineral wealth and latent resources of power -- conjured up a restless spirit of enterprise. There was a will to do among Americans of that period, whether old settlers or fresh arrivals, a will to grow, to build a new society in the New World free from the restrictions upon individual opportunity which had been characteristic of the Old. Average Americans in that age felt little direct concern for the affairs of Europe. They wished merely to live their own lives. To be sure, many Americans still have the habit of thinking in those same terms. But even they are beginning to feel uneasy about it. A second World War after only two decades has come as a rude shock to the conception that we can handle our own affairs without regard to the reactions of other nations, even ones that are far distant according to former terms of measurement. We begin to see that the problems of Europe, and of Asia as well, have become our problems also.

The task of the nineteenth century was one of engineering -- to build up productive capacity, to develop physical resources, to construct capital plant and equipment and to train human skills. The task of the twentieth is to create more secure and mutually profitable relations between the peoples of the world. This task calls for equal inventiveness, equal daring and equally bold leadership. And it requires large outlays of the world's resources.

Prior to this war the United States spent no less than a billion dollars a year to attain physical security. When this war is over we shall need to spend several billion dollars a year as the American contribution towards laying the foundations of international security. Much more will be involved in this than merely maintaining an adequate military force. Alongside the program for international military security must be set a comprehensive program of international economic development, the promotion of full employment and the raising of standards both of production and consumption throughout the world.

During the First World War the planning which was done for the postwar period was mainly political. The feeling was that if a better political world could be constructed the economic problems would adjust themselves as a result of the play of "natural" forces. In actual practice, these operated with a substantial degree of success until 1929. But with the collapse of the world's economic organization in that and succeeding years, the political arrangements planned during World War I and hammered out at Versailles and in Geneva gave way.

The foregoing brief outline admittedly is over-simplified. But it emphasizes how necessary it will be for us to combine economic with political planning after this war. A spate of books, pamphlets and articles on the economic problems that will then confront us testifies that the necessity is widely recognized. It was also given recognition by the inclusion of "freedom from want" among the "Four Freedoms" enunciated by President Roosevelt. The Atlantic Charter signed by him and by Prime Minister Churchill, and subscribed to by the United Nations, recognizes it both in Point IV (access on equal terms to the trade and raw materials of the world) and in Point V (international collaboration for improved labor standards, economic adjustment and social security).

This is the imaginative and dynamic approach. There are still a good many people deeply concerned with problems of international security who think exclusively in terms of political arrangements and economic mechanisms such as tariffs and currencies. We would call that the passive approach. The arrangements and mechanisms which they favor are important, and appropriate means must be found to give them effect. But many economists are coming to think that action along these traditional lines would by itself be wholly inadequate. It is increasingly understood that the essential foundation upon which the international security of the future must be built is an economic order so managed and controlled that it will be capable of sustaining full employment and developing a rising standard of living as rapidly as technical progress and world productivity will permit. The very survival of our present institutions, including political democracy and private enterprise, depends upon our taking a bolder attitude toward public developmental projects in terms both of human and physical resources, and both in our own country and throughout the world.

Many questions at once arise. What will be the rôle of government in postwar economic life? Will business enterprise outside of government be organized predominantly along cartel lines, with increasing restraints on competition? Will international trade be based on principles of non-discrimination or will each country make the best bargains it can obtain on a bilateral and separate basis with each of its trading partners? Will the world break up into autarchic countries, pairs of countries, or regions, including empires, continents and hemispheres? Or will each country tend to specialize in the production of those particular commodities which it can produce most efficiently and trade on the widest possible basis?

These questions are practical ones, and like most practical questions it is impossible to answer them categorically either as a forecast of the future or as a guide to desirable policy under the unforseeable conditions of the future. It can merely be said that in time of war governments must and do assume more direction of economic life; that after this war they will probably be given increased responsibility for trying to get rid of unemployment in their respective nations and to establish higher minimum standards for the low-income groups; and that while the degree of control exercised in the postwar period will be less than that exercised during the war, it nevertheless will be greater than it used to be before the war. No final answers can be given, however, to questions as to the extent to which a government should intervene or will intervene in the economic life of its citizens. The same is true of attempts to determine now the rôle in the postwar world of such things as cartels, competition, non-discriminatory trade, foreign-exchange control and long-term commodity purchase contracts. We can merely make up our minds what their rôle would be within the framework of a wide range of different conditions. It is important to study such questions during the war in order that we may be cognizant of the new institutional forces at work and plan to adapt them to desirable social and economic ends. In this article, however, we shall consider more fundamental tasks of postwar economic policy, particularly in terms of international collaboration.

Let us start with the aims given expression in the President's "Four Freedoms" speech and the "Atlantic Charter." Those statements are open to criticism on the score that they are at the same time too broad and too narrow. Parts of the latter document, in particular, are Delphic; while the point dealing with equal access to raw materials is a broad pronouncement on the economic organization of the postwar world which calls for applied exegesis if it is to be given definite content. The ideals of freedom from want, improved labor standards, and social security still await a specific program of international collaboration for the elimination of unemployment and the increase of productivity in backward acreas.

In view of the foregoing, the larger aims of economic policy in the postwar world seem likely to be the following: 1, a positive expansionist program designed to achieve and to maintain full employment; 2, a program of development designed to raise productivity throughout the world; and 3, the establishment of higher minimum standards of nutrition, health, education and housing everywhere. We venture to assert that international collaboration to achieve each of these three ends will constitute the primary economic task of the postwar period.

II

The elimination of large-scale unemployment must be undertaken through international collaboration rather than by the separate action of individual countries. Primary responsibility evidently rests on each country to find employment for its own labor; but there is an important secondary responsibility which must be added. A country should not, for the sake of creating domestic employment, force exports into areas where that action would displace equally or more efficient labor engaged in making the same products. Similarly, no country should cut off imports from an efficient source of supply for the purpose of shifting the associated employment from foreign to domestic labor.

International responsibility for collaboration in the elimination of unemployment must, however, go much further than this. A country's level of national income is affected -- among other influences -- by the balance of payments by and to foreigners. When receipts received into the income stream from abroad exceed payments, the national income tends to rise; but in other countries where payments exceed receipts, the income tends to fall.

Because of these cumulative influences of foreign transactions on national income, it is difficult for a single country to restore employment by its own independent action without cutting itself off from world trade. As incomes rise, increasing amounts are spent for imports, i.e. are paid to foreigners who may spend them in their own countries or in third countries. The effects of a purely national anti-depression policy thus spill over into other countries and wither away. But if all countries were to coördinate their anti-depression measures, then no one of them which pursued an expansionist policy would see its efforts dissipated abroad. And no country would find it necessary, as happened so often in the thirties, to cut itself off from world influences in order more effectively to restore employment at home.

The great democratic countries, notably the British Empire and the United States, which command an overwhelming proportion of the world's resources, failed most miserably to achieve the full and efficient use of those resources in the two decades between the two world wars. They made inadequate use of their resources because they permitted vast unemployment to persist over long periods and failed to stop the devastating effect of deflation and depression upon the whole world economy. This failure, and the sense of economic frustration ensuing therefrom, clearly were among the basic causes of the chaos and conflict in which the world is engulfed today. It should not be forgotten that between the two wars we witnessed the destruction of free enterprise and free political institutions in approximately half of the western world. If democratic political institutions are to be preserved from a similar fate again we must learn how to make better use of our economic resources than we have done in the past.

If we do not deliberately adopt a wholly new attitude towards the problem of employment, economic frustration will again lead to chaos and war. International security will not be achieved merely by the defeat of the Axis Powers, and it will not be maintained solely by the establishment and maintenance of an international police force. A well-rounded plan for international security needs also to contain a coördinated program of internal economic expansion in the major industrial countries for the purpose of promoting and maintaining full employment.

Under modern conditions, the most important single factor affecting general world prosperity is the level of income in the great industrial countries. In particular, if the United States continues to be subject to violent industrial fluctuations the world can have little hope of achieving stability. Recent decades have revealed how predominantly American prosperity influences world prosperity. For example, we have seen how responsive American imports are to increases in the American national income. As output in our great mass-production industries rises and our national income approaches the level corresponding to full employment, we increase our imports of raw materials, especially from Canada, the Far East and Latin America, but also from other parts of the world. Moreover, at that income level, in spite of our high tariff, we purchase large quantities of specialty and luxury products from the more advanced industrial countries. There is a further factor. After the last World War our high national income induced us to increase our tourist expenditures abroad to an unprecedented volume. It may be expected that in the future the great development of travel by air will increase this item in our invisible imports even beyond what was known in the twenties. The point is that domestic prosperity in the United States spreads purchasing power throughout the world and tends to increase the volume of world trade in goods and services.

Collaboration among countries for the purpose of eliminating unemployment must also be considered in terms of "economic adjustment." Britain's export problem, and hence her unemployment problem, will not be solved automatically by the mere creation of a prosperous world with large buying power and a high volume of international trade. The hard core of unemployment in England in the period between the wars was in textiles and coal, both of them exporting industries. It was found necessary to shift labor in considerable measure from the north and west of England to the south -- into residential building and into consumers' goods industries producing for the home market. In the future, British ingenuity will have to be applied more than ever to finding ways of adapting British productive skills to the requirements of the world market. Intelligent planning of steps for the rehabilitation of blighted areas, with their heritage of unemployment, low productivity and low consumption, is vitally necessary.

We do not claim that the gains from the coördination of anti-depression policies will be revolutionary. In the process of adjustment from war to peace, which will continue long after the armistice and far beyond the period of relief and immediate reconstruction, each of the larger industrial countries must in the main make its way to fairly full employment by itself. But the process of gaining and maintaining full employment will be eased for the larger countries as a group, and for the galaxies of smaller countries which are dependent upon them, if the expansionist policies adopted rule out mercantilistic practices which aim to promote employment by forcing uneconomic exports (through subsidies and otherwise), and which gain for one country at the expense of others; and if expansion in one country is not defeated by contraction in another.

The experience of the thirties showed that deflation tends to spread throughout the world in a cumulative process. Deflation in one country feeds upon deflation in another. The way to halt the cumulative process of deflation at the outset is to adopt coördinated policies which promote employment through measures for internal expansion rather than to rely on unilateral policies which are designed to expand a single nation's exports and which in turn tend to depress employment abroad. In this program the United States has, and must recognize that it has, a vital interest.

III

There is a further task in which the United States must engage in the postwar period in collaboration with other nations. This is the task of increasing world productivity. We have made a start in that direction by such methods as the provision of cheap power, the control of floods, the checking of soil erosion and education in efficient agricultural methods. But much remains to be accomplished. And outside the United States there are even wider differences between actual and potential productivity.

Education as to the need for increasing production has already progressed so far that in practically every nation the government is now fairly well aware of the jobs which have to be done both within its own borders and in conjunction with neighboring nations. Nevertheless a comprehensive world resources survey needs to be made jointly by the industrially advanced nations and those which are relatively undeveloped. A dozen great development projects will have to be undertaken in the postwar period -- the reconstruction of Danubian agriculture on the basis of farm machinery instead of peasant labor, the development of the Amazon Valley, the control of the flood of the Yellow River, and others of similar magnitude. Before World War II, the Soviet Union obtained private technical assistance from abroad to aid in the construction of its hydro-electric plants and steel undertakings. But it borrowed capital in foreign countries only with the greatest difficulty, with the result that the Russian people were obliged to tighten their belts -- in some years to the point of starvation -- in order to provide the capital outlays required. After the war, other nations which awaken to the opportunities for development and feel the need for capital will be tempted to follow the same unfortunate methods unless foreign capital is forthcoming.

It should be. Capital and technical skill should both be made available under international governmental auspices. The lending governments should of course assure themselves that the projects to be undertaken are reasonably capable of achieving the desired results and that the countries in question are themselves providing as much capital and technical skill as possible and are assuming the maximum responsibility possible for making the undertakings a success. In exchange for these assurances, they should be willing to lend capital. In the first instance it would be money, but actually as time went on this would be transformed into turbines, steel, cement mixers and steam shovels. The rates of interest, if any, should be low and payments should be asked for over extended periods of time. Repayment would become possible in the long run as the productivity of the region in question was increased; and the exchange aspect of repayment would not be unmanageable if world prosperity and full employment were maintained.

Former methods of foreign lending and investment are no longer suitable from the standpoint of either the lending countries or the borrowing countries. New machinery must be devised. The relatively new device of the Government Corporation or the Government Authority might very well be assigned a major rôle. A sort of International R. F. C. might prove a suitable device for stimulating foreign investment. On the one side, there will be need for an international public development corporation to promote large-scale projects in industrially backward countries and areas; on the other side for an international authority under which private corporations seeking foreign investment outlets could obtain minimum guarantees based on the principle of insurance, and under which their operations and conduct could be regularized.

What is the interest of the United States in such a program? It will appeal to some because of the stimulation of exports of capital equipment which would result. To others, the utilization of formerly arid lands or the construction of railroads and highways will offer an occasion for private enterprise to develop new plantations or hitherto inaccessible mines. Still others will hope that the increase in productivity of the improved region will bring increased sales of United States goods -- either exported directly or fabricated in branch plants in the countries concerned. Of course, the direct outlays on the sort of development projects which we have in mind will not always bring back 100 cents on the dollar. Nevertheless, it can be said in general that the indirect effects of an international program of expansion will reinforce and sustain our internal program of expansion. Moreover, such a program constitutes an investment on behalf of international security. The cost should be considered in the same category as the cost of educating our youth, maintaining police and firefighting forces and supporting the army and navy. The benefits of these expenditures are real even though they cannot be measured in terms of money or bookkeeping. Increases in the productivity of the Balkan peasant, of the Hindu and Moslem in India, of the Chinese may seem of remote interest to many Americans; but they will contribute in the long run to both the economic and the political security of the United States.

IV

With increasing productivity will go increased consumption and better conditions for millions of people who formerly lived under, or very close to, subsistence standards. Thus it is appropriate that when the time comes for the world to tackle the problem of increased productivity it also shall make a start at increasing the scale and efficiency of consumption. This, like the effort to reduce or eradicate unemployment and the development of unproductive areas, is partly a domestic task, partly an international one.

To the extent that consumption is inefficient and wasteful through lack of knowledge there is a task of education to be performed. This must be undertaken mainly by national governments. Similarly, the improvement of housing standards for lower income groups is a job for domestic authorities. At the same time, an international contribution can be made through the exchange of research information and technological developments. The methods are familiar to us all from the work of the Economic and Intelligence Service of the League of Nations and that of the International Labor Office.

In the special field of nutrition there is a great opportunity for work on an international and collaborative basis. In many countries of the world the masses have entirely inadequate standards of nutrition both as regards quantity and especially as regards quality. They can by degrees be given the proper diet -- the right balance of proteins and vitamins, particularly in the so-called "protective foods" such as dairy products, eggs, citrus fruit and leafy vegetables -- only through a concerted international effort to improve the methods by which the proper foods are produced and to cheapen them for the ultimate consumer. This involves persuading nations to give up expensive methods of producing staple foods in the interest of national self-sufficiency, turning instead to the production of more dairy products and fresh vegetables, and to undertake the development of diversified production in monoculture areas. An adequate diet for the population of the United States (which is an exporter of agricultural products) would call for us to increase the output of milk in this country by 35 percent over the 1941 figure; of eggs by 25 percent; and of vegetables by 90 percent. Unless agricultural technological progress makes further rapid strides, this procedure would engage a part of our land and farm labor which is now producing food for export. The gradual adoption of a similar standard of diet by other peoples which have been less well fed than Americans have been, and which already are importers of food or else barely are self-sufficient, would require those peoples to increase their food imports on a large scale as well as to undertake an enormous expansion of the acreage now devoted to the production of protective foods.

The need for international collaboration here is plain. Adjustments in the use of land now engaged in agricultural production will have to be planned. The advantages of efficient techniques and machinery will have to be spread from progressive to backward agricultural areas. Means will have to be devised for bringing an adequate diet within the purchasing power of the masses of the population. Public health officials, government agricultural authorities and farm economists have declared that these tasks can be accomplished through international collaboration. Many countries have grown increasingly aware of the problem in the course of the present war as a result of the destruction of crops and the elimination of accustomed channels of international trade. When the war is over, public opinion will doubtless demand that governments undertake broad programs for improving nutrition, health and housing. These domestic programs can be carried out more effiectively through international collaboration.

V

These, then, are the basic economic tasks which will confront the world after the war -- the elimination, or at any rate the vast reduction, of unemployment; the improvement of wide areas of low economic productivity; and the increase of consumption and its direction into more efficient channels. Together they challenge the courage and creative genius of mankind.

If the United States determines to take the lead in helping attain these goals it must realize that a heavy cost is involved. But that cost would be far less than the costs of new deep depressions and new world wars. That is something which we really cannot afford. In the past we have failed to recognize the great responsibility which goes with vast power, political and economic. We must be prepared to make a contribution in both fields. We must recognize our political responsibilities for maintaining world peace; and equally we must recognize our economic responsibilities for achieving and maintaining world prosperity.

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  • ALVIN H. HANSEN, Littauer Professor of Political Economy at Harvard University; special economic adviser, Board of Governors of the Federal Reserve System; American chairman of the Joint Economic Committee of Canada and the United States; author of "Economic Stabilization in an Unbalanced World," "Fiscal Policy and Business Cycles" and other works; C. P. KINDLEBERGER, Associate Economist, Board of Governors of the Federal Reserve System; author of "International Short-Term Capital Movement"
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