Hard Things First

"I condemn the Morgenthau and Keynes plan in toto as putting the cart before the horse, as encouraging rather than checking unsound tendencies in Europe, and as introducing new unsound tendencies at home."

Thus last week Dr. Benjamin M. Anderson, famed onetime (1920-39) economic adviser to Manhattan's Chase National Bank--now professor of economics at University of California at Los Angeles--concluded an address before the Los Angeles Chamber of Commerce. His was the most severe criticism yet made of the different but parallel plans of Britain's Lord Keynes and the U.S. Treasury's Harry D. White (TIME, April 19).

As he usually does, Dr. Anderson talked tough. Against the plans, which both propose setting up a giant sort of international stabilization fund to manage the exchanges of member nations, Dr. Anderson advanced four major arguments:

>In order to start business in Europe, both plans provide for making short-term advances to nations which, for a considerable period after the war, will have to import more goods than they export. Most European nations will become debtors to the White stabilization fund (or the Keynes Clearing Union) while a few nations in the Western Hemisphere, pre-eminently the U.S., will become its chief creditors. Meanwhile, Britain, in buying more from the U.S. than it sells to the U.S., while selling more to the Continent than it buys, would have the net effect of increasing the position of 1) the U.S. as creditor; 2) Europe as debtor. Thus, said Anderson, the U.S. will underwrite the financial risks of Britain's trade and be left holding the bag if the European debtors turn out to be no good. Anderson criticized even more strongly the fact that the Keynes and White plans would use the international stabilization fund to relieve Britain of the immediate postwar necessity of paying off the blocked sterling balances of its creditors.

>In order to prevent abuse of either plan--whether by debtor nations failing to put their affairs in order or by creditor nations erecting tariff walls, etc. to prevent payments in goods--it would be necessary for the international stabilization fund to put pressure on the offenders. The necessity of doing this, said Dr. Anderson, would force the fund to become "a supernational Brain Trust to think for the world."

>Keynes and White give debtors as well as creditors voting power over the credit extended by the stabilization fund. Said Anderson, "A bank, a majority of whose board of directors are impecunious debtors to [it] . . . would very speedily become a ruined bank." The White plan actually gives the U.S. power to say no on certain orders of the board (a fact satirized by Britain's Cartoonist David Low--see cut, p. 85), but this, thinks Anderson, is not enough safeguard.

>The most serious charge that Dr. Anderson leveled against the two plans is that in the long run they would be likely not to stabilize trade and exchange but to disrupt it. He pointed out that this happened after World War I, when the U.S. lent $3 billions abroad in short-term credits. This money was chiefly used by foreign finance ministers to bolster their own foreign exchanges, thereby making it easier for them to neglect budget-balancing and other internal reforms. Result: as soon as the lending ceased, the exchanges went to pieces. All that the U.S. got out of it was the ill-fated boomlet of 1920 (caused partly by foreign buying of goods here) followed by the 1921 collapse. Actually only relatively small loans are needed to stabilize exchange after nations have put their houses in order. For example, Germany, after bringing inflation to a halt by financial reforms, was able to stabilize the mark with a loan of only $200 millions.

The Alternative. Dr. Anderson argued that the U.S. has to see to it that currency stabilization is made secondary to more basic reforms. His program: 1) generous Red Cross help on which no return is expected; 2) long-term loans (some, perhaps, in the form of gold), made conditional upon foreign treasuries trying to balance their budgets and maintaining firm discount rates; 3) lowering of U.S. tariff barriers so that Europe can sell to the U.S. as well as get goods from us; 4) underwriting by the U.S. of a "strong, safe peace, a peace that we can believe will be permanent."

Soundest part of Anderson's speech was this emphasis on the fact that stable exchanges depend on a permanent peace settlement. Strangest was his apparent assumption that the U.S. ought not to join in some kind of monetary policy-making institution. In one way or another, difficult economic decisions will have to be made. The question is whether the U.S. will have a hand in making them.

The big difference between Dr. Anderson and Messrs. Keynes and White is over the basic chicken-&-egg problem. Anderson insists that the U.S. can do little about foreign exchanges until all the harder reforms are made first (including a lowering of the U.S. tariff). Keynes and White believe that if a start is made toward stabilizing exchanges, the harder reforms may follow. The trouble with trying to do all the hard things first is that the U.S. may end by doing nothing. The trouble with deciding to do the easy things first is that the hard things may be indefinitely postponed. Out of the clash of the two viewpoints may come recognition of the important fact that the poultry business has to have both hen and egg.

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