LAST April the American and British Treasuries published two plans for monetary stabilization after the war, one the work of Harry D. White, Director of the Division of Monetary Research of the Treasury Department, the other of Lord Keynes, now serving as an adviser of the British Treasury. Since I commented on the two plans in these pages last summer [i] several events have occurred which might indicate that the present is not a good moment to continue the discussion. In July there appeared a Canadian plan which was in the nature of a compromise between the other two. In August a revised White plan was published. Then in the autumn Lord Keynes came to Washington for the first time since the plans were announced. Until the results of the conversations which then occurred become known there is much to be said for postponing further technical analysis.

For a discussion of the nature of the problem, however, as well as of the issues which may determine national attitudes towards it, we do not need to await the definitive work of the experts. There are reasons, indeed, to believe that this sort of discussion should not be delayed. Early comments on the plans in the press, both here and in Britain, were largely non-committal. But, as time went on, the opinions expressed took more definite shape. It can be said that from the time of the publication of the revised White plan in August the American press and American banking and foreign trade opinion have been almost uniformly unsympathetic to both plans. For example, on September 29 the New York Times rejected them both and quoted with approval a statement calling for the restoration of the gold standard at the earliest possible date after the war.

In England the comment has revealed a strong determination to avoid the gold standard and what is called the "straitjacket of 1925-31." This determination seems to be shared by all classes in the community. The opposition to the White plan has been pronounced. On August 24 the Manchester Guardian wrote of it: "Let it be said at once that no British government could accept anything remotely like these proposals and remain in power beyond the first postwar election." On the Keynes plan, British opinion has been generally favorable. But the London Economist of August 28, after withholding judgment for several months, stressed the basic similarity of the two plans, warned of the danger of "repeating the gold standard mistake of 1925 and of setting up an excessively rigid system which cannot be maintained," and expressed doubts whether even the British plan is flexible enough to work in the conditions that are likely to exist after the war.

In my previous article I raised two main questions: Is it wise to attempt to deal both with the problems of the transition period from war to peace and with longer-run currency stabilization under a single plan? Could the longer-run stabilization be best effected by the adoption of an over-all plan like the Keynesian clearing union or the White stabilization fund or by a more graduual "key countries" approach, beginning with the dollar-sterling rate and tying in, as circumstances warrant, the other currencies significant for international trade?

Towards the second suggestion American banking opinion has seemed to be generally sympathetic; but in England, so far as I am aware, there has not been the faintest favorable response. British opinion seems fully as opposed to tying sterling to the dollar as to tying it to gold. The British alternative to the Keynes plan is an enlightened bilateralism. How it might work out is described by The Economist in the article just quoted. "The principles of the clearing union have for some years been applied within the boundaries of the sterling area. . . . Other such groupings may well come into existence, and it ought not to be very difficult to build up a system of currency groups with substantial freedom of payment within each group and controlled -- but not restrictively controlled -- exchanges between group and group. . . . There is not the slightest reason why the relations between these groups and the dollar, or the dollar group, should be relations of hostility or discrimination -- unless, indeed, it is hostility and discrimination to suggest that other countries cannot spend more dollars than they earn." This proposal has some similarity to my own "key countries" suggestion, except that what I had in mind was that by stabilizing the principal currencies, each of which would be central for an area of trade or be otherwise internationally significant, a truly multilateral system could be attained. But the difference between the suggestion of starting this process with the dollar-sterling rate and The Economist's hope that the relations with the dollar would not be necessarily hostile shows how wide is the gap to be bridged.

On the other suggestion -- to treat separately the problems of the transition period and those of long-run currency stabilization -- there seems to be almost complete agreement in this country. Whether the British or the American experts really intended that their plans should be used for both purposes seems now less clear than was at first assumed. It has been said on excellent authority that this was not the case, and the misinterpretation has been ascribed to the failure to bring forward simultaneously with the currency plans the more comprehensive program for dealing with the postwar problems. The need for a clear and unmistakable separation between these two problems now seems to me the greatest single prerequisite for the success of any plan for currency stabilization. There is a fundamental conflict between the requirements of the transition period and those of longer-run monetary stabilization; any plan that serves one purpose well is bound to fail in the other. In the immediate postwar period the chief needs will be for relief and rehabilitation and for the liquidation of the foreign-owned balances that have accumulated in certain countries, most notably in England. These will be needs of very large dimensions. In my previous article I spoke of the inflationary danger of meeting these needs by a method which would expand American bank reserves and deposits, already greatly enlarged by the war. I cannot avoid the conclusion that preoccupation with this problem has been one of the main reasons for the marked difference between the American and British experts with regard to the size of the stabilization fund or clearing union and the amount of the American commitment. But to restrict unduly the provision of funds for these immediate postwar needs would be probably the greatest mistake that could be made. We are brought back to the fact that the two purposes are in conflict with each other.

The immediate postwar need will be for lending and borrowing -- or, as I earlier suggested, for extension of lend-lease -- and very probably many of the loans will have to stand for a considerable period. It was doubtless because of this problem that Sumner Slichter in the July issue of FOREIGN AFFAIRS called for the creation of an international bank before the end of 1943; and one of the most significant recent developments was the publication by our Treasury experts in October of a tentative draft for an international bank. I cannot discuss this proposal here beyond saying that I have the greatest difficulty in understanding how there can be an international bank, except in a formal or nominal sense, or for very limited purposes, in a world which has only one large creditor country and many debtor countries. My present point is that, however it is to be met, the first and most pressing need after the war will be for lending and borrowing or for lend-lease.

But this is a totally different thing from what is required in any successful plan for currency stabilization. In any such plan the fundamental requirement is the maintenance of an even balance position with only temporary fluctuations from it. Under the gold standard, for example, such a position is supposed to be indicated and maintained by a two-way flow of gold, and any pronounced and sustained tendency for gold to flow one way is a sign of disequilibrium calling for major international adjustments.

The danger under the Keynes or the White plan, unless the needs of the transition period are handled separately, would be that the clearing union or stabilization fund would get into a chronic lopsided condition. Some countries would have run up large debits and other countries (mainly the United States) largely credits, and each group of countries would then be expected to pursue the policies of adjustment which are required by the plans -- and this not by reason of anything arising out of their, by then, more normal situations but because of the past misuse of the stabilization fund. The alternative course, and the wiser one, if such a condition were allowed to develop, would be to reorganize the fund and start over again; but it seems not unlikely that by then the whole scheme would be discredited.

The right remedy, as I have said, would be completely separate provision for relief and reconstruction, war balances, and all other requirements of the transition from war to peace. On some parts of this program we are already embarked;[ii] but it will be a laborious task, more difficult and less fascinating than working out the mechanics of plans for currency stabilization. It seems fair and prudent to insist that no decision on currency stabilization should be made until these plans are known and have been weighed in their entirety. If this procedure is followed, it may help to create a better atmosphere in this country for further consideration of the plans. Undoubtedly, one factor making for hostility has been the suspicion that under the guise of a world currency plan other matters were being brought in that did not properly belong, and this unfavorable attitude has not been helped by references to the advantages of "anonymous borrowing," or of "denationalizing" or "impersonalizing" loans.

An interesting question in recent discussions has been whether, if an adequate program is worked out for the transition problems, a plan for currency stabilization should be set in operation simultaneously with it or at the end of the transition period. This is another of the major questions and it is closely related to the first, for if the two plans are set up simultaneously the currency plan will inevitably be the catch-all for any inadequacies in the transition program. We would probably do a better job on relief, reconstruction and war balances if we knew we could not fall back on the currency plan; and we would run less danger of ruining the latter if we postponed it. One argument advanced in favor of having the currency plan at once is that we must avoid the monetary chaos that followed the last war. The analogy, however, is misleading. We now have well-developed systems of exchange control, and the task of currency stabilization this time will not be to prevent wild gyrations of exchange rates but to work toward the economic and political conditions and the level of exchange rates under which the controls can be relaxed. This will take time, and meanwhile a good program for handling the transition problems, internationally and nationally, would be the greatest help. From this point of view it can be argued that the right time for a plan designed to stabilize currencies under more normal conditions is when those conditions have arrived.

A more persuasive argument for the immediate adoption of a currency plan is that the only time, if ever, that the nations will agree on such a plan is now, under wartime stress and in close wartime association. With this can be coupled the argument that once the plan is agreed upon it need not go into complete effect at once. The enemy countries, in any case, could be brought in only after a period of preparation; and even in the case of the United and Associated Nations criteria could be established for determining the conditions under which each would participate actively. This could be a way of incorporating the "key currencies" proposal into the White or Keynes plan, though it would still leave in my mind the question whether the more elaborate plan, with its international governing body and its formalized rules and quotas and voting powers, is really necessary or would really work. Like the editors of The Economist, I fear the plan might prove too rigid, though I think I am not giving this word the application they intended. I do admit, however, that the safeguards I have mentioned -- the separate treatment of transition and long-run problems and a well-conceived procedure for a gradual incorporation of countries under the stabilization plan as they become ready -- would go some distance toward lessening some of my doubts about the currency plans.

II

But there is a deeper difficulty. The examples of conflict between British and American opinion already cited -- and I might have quoted at much greater length -- reveal a conflict between two fundamentally different schools of thought. Followed into all of its logical ramifications, the conflict embraces the entire clash of ideas between the principles of a world economic system as handed down from the classical economists and the closed-economy principles developed by Lord Keynes and others during the nineteen twenties and thirties. I have not believed that the two are irreconcilable, and one of the best reasons for such a view now is that Lord Keynes is strongly for their reconciliation. But it will be a formidable task and will call for a high degree of tolerance and sympathetic understanding by each country of the other's problems. The main question about the currency plans is whether we are prepared, on either side, to adopt them in our present divided state of thinking.

England's fears about currency stabilization, and especially about being tied to gold or to the dollar, are summed up in the phrase "the straitjacket of 1925-31." It means two things, or two aspects of the same thing. England wishes to control her internal economy and to avoid the external pressures which threaten that control. All through the British discussions of the currency plans runs the determination to avoid unemployment resulting from deflationary pressure. This is why the British fear the currency plans may be too rigid. The attraction for them of the Keynes plan is that it promises an expansionary method of adjustment, whereas they think the White plan, like the gold standard, would be deflationary. This is a rather difficult point to unravel. Basically, as I said in my last paper, the monetary mechanism of the currency plans and of the gold standard is the same. The only sense in which the Keynes clearing union could be more expansionary than the gold standard would be in providing larger foreign exchange resources and a better distribution of them. This would be an advantage all round by facilitating trade. But I cannot avoid the feeling that it is just here that the confusion between the transition period and the longer-run enters in. If the problems of the transition period are handled separately, the need for a very large fund, just to facilitate trade all round, becomes much less clear. The main purpose would be to provide some leeway for merely temporary departures, as circumstances might warrant, from the normal requirement that international transactions must balance. If the plan did not work in this way it would be a failure. But the size of the fund is itself an element of the problem, and too large a fund would be as dangerous as one too small. Probably only experience could give the answer.

According to the classical gold standard theory, the effect of gold flow should be two-sided -- a fall of prices in the gold-exporting country and a rise in the gold-importing country. This should lead to a reverse flow of gold and the opposite price changes. The complaint of the British about the gold standard in the inter-war period was that it worked only one way, by gold outflow and deflation in the debit-balance countries. I will come back to this question later. But what many of them seem to mean when they contrast the Keynes plan with the gold standard (or the White plan) is that under the Keynes plan the adjustment process would again be one-sided, but that it would be a process of expansion in the creditor country rather than contraction in the debtor country. One thing this suggests is that the surplus country should simply let its credits in the clearing union pile up indefinitely; and some stabilization plans I have seen come to just about that, even providing for periodic cancellations and for starting over again if the credits get so large as to bother either party. Sometimes, too, the discussion of foreign "investment" as the balancing agent becomes almost as mechanical as this. But that of course is not what Lord Keynes means or what his plan provides. Some of the statements in his White Paper, however, do make it seem unrealistically simple for the creditor country to take over the burden of adjustment. This is especially true of the statement, often made by other British economists as well, that a surplus country need never have a larger surplus than it wants to have.

This could mean a rise of prices in the creditor country, as under the gold standard; but that only raises the question whether inflation is any more desirable to the creditor country than deflation is to the debtor country. It could also mean exchange control or direct manipulation of the trade, capital or other items of the balance of payments; but this raises the question whether direct controls are to be used as methods of adjustment or whether one of the objectives of the plans is not to lessen the need for such controls. Finally, there are the possibilities of correcting the balance by trade and investment policies without direct controls, and of appreciating the currency. But these are not so easy, and their effectiveness is not so clear as the statement that a country need never have a larger surplus than it wants to have suggests. Moreover, all the methods of adjustment mentioned are applicable in reverse to the debtor countries. The discussion leads nowhere, and we are forced to examine more carefully the particular circumstances, and also the character of the thinking, in the countries concerned. The real question is whether the nations can find and agree upon a system requiring mutual adjustments in which the benefits outweigh the costs.

III

For England the dangers in fixed exchange rates are undoubtedly much greater than for this country. With us, foreign trade plays a smaller rôle and the impact of changes in the balance of payments upon the domestic economy is much milder. Only in unusual circumstances, like those of the transition period from war to peace, are we likely to face a serious threat of inflation from external causes. Much more likely in most circumstances would be the threat of deflationary pressures upon the British economy. Two of the chief lessons from the inter-war period are the difficulty of finding new equilibrium exchange rates after a great war has profoundly changed international relationships, and the need for providing an orderly method of adjustment as the basic circumstances change thereafter. It seems safe to predict that no currency plan which does not promise this measure of flexibility of exchange rates will be acceptable to England or to other deficit countries.

But if such countries were to press for changes in exchange rates as their favorite method of adjustment to international pressures, the main purpose of the plan would be defeated. The circumstances in which a nation can benefit by major changes in exchange rates are rare. England undoubtedly did benefit from the depreciation of the pound in 1931, partly because it had been seriously overvalued when she restored the gold standard in 1925, and partly because the change occurred in the unique circumstance of a world-wide depression. The depreciation of the pound undoubtedly deepened temporarily the depression elsewhere and forced other countries to depreciate. It was one step, though not the first, in the vicious circle of depreciation which is one of the chief dangers of the process. That it enabled England to base her own recovery in part upon cheap imports is one of those paradoxes which could happen only in the buyer's market conditions of a great depression, and probably even then only when practised by a country occupying a central position in world trade. But it did give relief from the tyrannical pressures of the preceding six years, and has stood ever since as the landmark of England's recovery of a reasonable degree of control over her internal affairs.

The counterpart of the undue emphasis upon flexible exchange rates is the emphasis upon the need for protecting the internal cost-price structure from external pressure. The classical economists in discussing the interplay of national price levels under the gold standard did not regard the price adjustments as inflationary or deflationary. This may have been because prices were then less rigid, or because they left the business cycle out of their analysis. For some time I have not been satisfied that price changes played so large a rôle in the adjustment process of the gold standard as the classical theory pretended, and ascribe more importance to capital movements and to income changes. Undoubtedly, however, whenever serious maladjustments persist, we are brought down to a choice between making cost-price adjustments or changing the exchange rates, that is, unless we resort to the third alternative of directly controlling exchange transactions and the balance of payments.

The tendency in modern monetary and fiscal theory to treat the stability of the cost-price structure (or at any rate avoidance of any downward pressure on it) as the force majeure to which all policies must be adapted, is the most striking element of conflict between what I earlier called the closed economy economics and the classical world system. Granting that the latter made too much of the need for price adjustments, I question whether a multilateral trade system can ever be attained along with adherence to a rigid internal cost-price structure. In England's case in 1925, the adjustments would have had to be too sweeping; the mistake was in overvaluing the pound. After this war also the first major task will be in general to adapt the exchange rates to the price levels, rather than the other way round. But for the continuing operation of the system, once reasonably stable currency relationships have been found, cost-price adjustments must also play a part.

Whether such adjustments are deflationary depends upon how they are combined with other policies. In the great depression, Sweden and Australia were able to combine substantial downward adjustments of wage rates and other costs with expansionary monetary and fiscal measures, and with exchange rate adjustments designed to improve their international position and to stimulate recovery. It is noteworthy, too, that these are progressive countries and that the measures in question had the support of a majority of organized labor. In Britain today, and in some other countries, the development of a conscious state responsibility for social welfare, the plans for improving social security, the political as well as the economic emphasis upon the maintenance of full employment by measures under national control rather than in response to international forces whose control must be shared with others, provide ample explanation why fears are felt of too rigid currency plans. But unless a reasonably stable multilateral trade system can be worked out the internal objectives will probably be jeopardized as well.

IV

As for the United States, it is entirely understandable that we should approach the currency plans with a preference for the gold standard. Our brief departure from it in 1933 showed that in severe depressions even we might depreciate the currency if others did, but it indicated no lasting desire for a variable exchange rate. What it may have done (I have the influence of the farm bloc particularly in mind) was to close the door permanently to any possibility of appreciating the currency, which is one of the remedies for maladjustment recommended by Lord Keynes to creditor countries.

The reproaches leveled against this country during the inter-war period -- particularly in the twenties -- for its failure to perform its rôle as a creditor country presented a confusing picture and were bound to cause us some uneasiness about undertaking such a responsibility again. The uneasiness is not lessened by the frequent references we read as to how well England performed the task when she was the leading creditor prior to 1914. Some of the main causes of the monetary chaos after the last war were, quite apart from any relations that would normally exist between creditor and debtor countries, mistakes that we must hope will not be repeated, such as the reparation payments and the inter-Allied debts. The failure to achieve political and economic stability in Europe was mainly responsible for the recurrent panicky flights of capital to this country. The raising of our tariffs in the face of a world which was required to repay its debts to us brought down upon us, and rightly, more condemnation than any other single action; but was quite in line with the action of other countries that were demanding reparation payments from Germany. As for exports of capital, they occurred, particularly to Germany and Latin America, but were misdirected and mismanaged, and they are commonly listed as elements of disturbance in a troubled decade. The reproach that we were "burying the world's gold in the vaults of Washington" after England's return to gold was mistaken. There was no lack of expansion here; we were already embarked upon the boom which ended in the crash of 1929, though its development was obscured by the fact that it showed itself not in a rise of commodity prices but in security prices and incomes. Our attempt to redistribute gold by reducing interest rates in 1927, after consultation with the European central banks, ended in increased security speculation and a return flow of the gold. Reviewing the decade as a whole, and in the light of the ideas then held, we find a confusing picture. It is not one to suggest that the rôle of a creditor nation in a postwar period is simple.

As for the analogy with England in the nineteenth century,[iii] there are some rather striking differences. One is our mixed agricultural-industrial economy. There is much more likely to be a divided national opinion in this country than in a more predominantly industrial country where capital exports and receipts of interest are matched naturally by industrial exports and agricultural imports and where controversies about tariff policy are less likely to arise. This point should not be over-emphasized. I have often pointed out that foreign trade is largest between the industrial countries with high purchasing power. But it is a troublesome feature of our situation, and after the war may be intensified by our production of synthetic rubber and other substitutes for products formerly imported.

Another peculiarity is that though we are a creditor country we still have the power of attracting capital for investment and speculation as well as for safety, under favorable conditions, and in a boom may easily switch from being a net exporter to being a net importer of capital. In such a case, expansion here does not relieve but only intensifies deflationary pressures upon deficit countries, and probably leaves them no effective remedy but direct control of capital exports.

Prior to this war, England was a creditor on income account, with a characteristic excess of merchandise imports. Her foreign investment was for the most part made by leaving her income abroad, reducing her import balance rather than creating an excess of exports. In our case, tourist expenditures and remittances to foreigners have been offsets to our receipts of interest, and they are likely to expand after the war. To them will be added at some stage the export of capital. The prospect is thus for an excess of exports for some time to come. Whether this difference between our creditor position and England's earlier position raises any problems for currency stabilization and the future of world trade I am not sure. Theoretically, it would seem not to matter. Ability of foreign countries to buy from us would be furnished by our capital exports, with no effect upon their debit-credit position in the stabilization fund or clearing union. A country is probably in a better position to control its balance of payments, however, if it has an excess of imports. This advantage has often been pointed out in discussions of a country's ability to benefit from bilateral trade, but it would seem to apply also when the problem is that of a creditor country's responsibility for controlling a multilateral trade system. The application to our own case is that whereas, as a country with a net excess of exports, we have a particular interest in a multilateral system, we are in a less favorable position than England formerly was to make such a system work effectively.

After this war England will need greatly to expand her export trade. Some writers estimate that she will need an expansion of 50 percent and that she will have to couple it with a strict control of imports. Whether there will be room for both Britain and the United States to expand their export trade, and for the other debit-balance countries to do so too, is an interesting question. It suggests, of course, the desirability of a marked expansion of trade all round. While there may be no theoretical difficulty so far as concerns currency stabilization, one of the main purposes of which is to bring that about, there may be danger of excessive rivalry for markets or of a wave of protection against foreign goods such as occurred after the last war.

It might be better for the outside world to have our capital but to get its imports from Britain or other countries, and under conditions of high production and employment here that might suit us too. Avoidance of the practice of tying loans to the exports of the lending country would be one step in this direction. But for it to go very far, there would have to be something equivalent to one-way gold flow from this country, or in terms of Keynes' clearing union, a deliberate piling up by us of debit balances. Such a movement, coupled with a rise of our price-level relative to outside prices, might achieve the purpose, and some writers have even suggested a deliberate restriction of our exports to help bring it about. But these are heroic measures. Except possibly for the rise of prices, they seem improbable. Certainly there is nothing in the plans to suggest that such actions are expected.

One of the peculiarities of the inter-war period most remarked upon was the persistent demand for American goods and the chronic shortage of dollars to pay for them. This suggests foreign buying in excess of our capital exports and perhaps also misdirected spending of the borrowed funds. One service we could do to foreign countries would be to restrict our lending to the really necessary demand for foreign goods in the borrowing country. Expenditures for domestic labor and resources should be financed at home. This need not mean that the foreign borrowing should be limited to producer goods; it could include essential consumer goods producible more cheaply abroad than at home. By talking of "satisfactions," an economic theorist could probably convince himself that any disposition of the proceeds is justified; but his case would wear thin if the loan were spent, for example, on foreign grand pianos to entertain the Chinese workers on a Yangtze River Development project financed with foreign funds. One cause of the strong demand for American goods in the inter-war period, and of the persistent bias in our favor of the international accounts, was undoubtedly the attraction of American durable consumer goods. It suggests that there is room for the application of some homely principles of household economics to international trade between creditor and debtor countries. Another probable cause of the dollar-exchange shortage, however, was technological change; this gave our exports a persistent advantage beyond the power of foreign investment to overcome, despite its theoretical tendency to equalize costs. How to neutralize such a persistent advantage in the interests of international stability is not readily apparent, and suggests again that the task of the creditor country under present conditions is not simple.

I conclude again, as in my previous article, with the statement that the greatest contribution we can make to world stability is to maintain high production and employment here at home.[iv] This would maximize imports and create the most favorable conditions for reducing tariffs, though it probably would not, by itself, lessen exports. The advantages of a high level of production for currency stabilization are sometimes overstated to imply that international trade adjustment could be made a one-sided process of expansion in the high production country. If the expansion could go on indefinitely without danger of a boom this might be true, though there is always the difficulty of a reversal of the capital movement and the feeding of expansion in the creditor country by deflationary pressure on the outside world. That this is not a fanciful fear is shown by the fact that our attraction of foreign funds in the late twenties is often cited as one cause of the world depression which later ensued.

V

The main question about the British and American currency plans, as I said earlier, is whether we are prepared, on either side, to adopt them in our present divided state of thinking. Any solution acceptable to both nations will have to involve some fairly drastic compromising of national attitudes. Whether this can be achieved by a formal plan, at one stroke, and with all the elaboration of an international governing body with votes and quotas, is one of the chief problems. Whether the corrective measures prescribed by the experts would have teeth, and whether if so the countries would join, are parts of the same problem. It is a nice question whether once the scheme was in operation moral pressure would keep it going and compel the necessary compromises of conflicting viewpoints. Perhaps it would. But a breakdown would be tragic.

My own preference has been for a more gradual approach based initially upon the currencies most essential for world trade, and providing criteria as to the conditions under which currencies could be brought into some more comprehensive scheme. But, as I indicated earlier, these different approaches are not entirely irreconcilable. My present attitude is one of wanting to see how national attitudes and the currency plans themselves develop. Whatever plan is followed, the essential prerequisites for its success are a completely separate plan for handling the problems of transition from war to peace and a thorough going British-American understanding.

This paper must conclude like the last one by pointing out that the currency stabilization plans were announced as only one part of a larger program embracing commercial policy, long-term and medium-term investment, and measures for stabilizing the prices of primary products in international trade. Before final decisions are reached, at any rate before legislation is adopted, we ought to see the whole program. Only then can one form a mature judgment on the currency plans themselves.

[i] John H. Williams, "Currency Stabilization: The Keynes and White Plans." FOREIGN AFFAIRS, July 1943.

[ii] As this article goes to press, details are becoming known regarding the funds to be made available through the United Nations Relief and Rehabilitation Administration. The proposal to spend about 2.5. billion dollars in this manner constitutes a step in the right direction, but this amount will not take care of reconstruction needs in a broader sense, which also must be prevented from becoming a drag on the international stabilization mechanism. Britain, for instance, will have a great deal of reconstructing to do, although in the UNRRA she will be not a beneficiary but a contributor. It may furthermore be necessary to make provision for bridging the period which may elapse before Britain and particularly the continental nations can reestablish their export trade. As to British war balances, they have been estimated at 4 to 5 billion dollars, and growing at the rate of some 2 billion dollars a year.

[iii] Of major importance for England, of course, were such factors as her central position in world trade and finance, the use of sterling as the world currency, the London discount market as the international clearing mechanism, and the Bank of England's control over interest rates.

[iv] The maintenance of high employment at home is, however, a problem no less complex than that of international currency stabilization. On the methods to be employed national opinion is far from united, and government planning for the postwar period seems less advanced than on the currency problem.

You are reading a free article.

Subscribe to Foreign Affairs to get unlimited access.

  • Paywall-free reading of new articles and a century of archives
  • Unlock access to iOS/Android apps to save editions for offline reading
  • Six issues a year in print, online, and audio editions
Subscribe Now
  • JOHN H. WILLIAMS, Professor of Economics at Harvard University and Dean of the Graduate School of Public Administration; Vice-President of the Federal Reserve Bank of New York
  • More By John H. Williams