Money Talks

Some 750 of the best economic engineers of 45 nations went to the White Mountains of New Hampshire last week -- but not for a vacation. They went to Bretton Woods to join, the British and Americans in batting one another over the head with blueprints for a world stabilization fund.

Among the gentlemen present were Chiang Kai-shek's Finance Minister Dr. H. H. ("Daddy") Rung, Canada's Ilsley, Mexico's Suarez, Netherlands' Beyen, Russia's Stepanov, Iran's Ebtehaj. No one knew last week how they would line up; most of the preliminary skirmishing between the British and the Americans in the Battle of the Blueprints has taken place under cover. The first open blow was struck last spring by John Maynard Keynes, First Baron Tilton, with a proposal that in effect would give the British dominance in world currency arrangements. The second was a counterproposal by Harry D. White for the U.S. Treasury, giving the U.S. the upper hand through its vast hoard of gold.

To the white-pillared Mount Washington Hotel, the chosen battlefield, Lord Keynes led a British delegation of 15 which included two of England's best economic brains: Lionel C. Robbins and Dennis H. Robertson.

White was the key member of the U.S. delegation of 47 (200, including secretaries), headed by Henry Morgenthau, with Federal Reserve's Marriner Eccles, Foreign Economic Administrator Leo Crowley and State Department's Dean Acheson as colleagues. Other members of the U.S. delegation included Edward Eagle Brown, lawyer-president of Chicago's First National Bank, Economic Stabilizer Fred Vinson, Vassar Economics Professor Mabel Newcomer, and a quartet of Congressmen from the House and Senate Banking and Currency Committees.

Modest Proposal. The debate may become a babel of economic argument on the sort of machine that the Stabilization Fund should be. But some things it cannot be are clear. The proposed Stabilization Fund will not give milk to the world's Hottentots. Nor can it pour out the billions that must be poured into occupied countries if they are to be restored as going economies. Nor can it solve the problem, which loomed huge after the last war, of collecting billions in reparations.

The U.S. will probably have to advance billions to other nations: 1) to prevent world destitution, which would endanger American peace; 2) to enable countries which the U.S. needs as customers and suppliers to buy the American tools necessary to go back into business.

In the light of such a prospect, the proposed World Stabilization Fund is small change, an $8 billion fund into which the U.S. may put two and a half billions, the equivalent of what the nation now spends every ten days on the war. And the Stabilization Fund would undertake a very modest job, by providing a somewhat big ger and more flexible supply of international exchange.

In this respect the Stabilization Fund would be a kind of International Federal Reserve System. In temporary emergencies it could lend foreign currencies to nations which were momentarily hard pressed to meet payments in those currencies. This would save them from embargoing imports or from dumping their own currency and starting competitive currency depreciation. Its only counter to deep-rooted disequilibrium would be to change the par value of a currency.

Modest Sea Wall. Because of its limitations, some U.S. economists who favor a world stabilization fund fear that this may be the wrong time to undertake it.

Come peace, many countries will be unable to balance their budgets immediately. Existing trade barriers will still stand; some new ones may be created. Reparations problems and the return home of refugee capital are to be expected. All these money movements may start economic tides running like the tides of Fundy.

If these tides are not controlled by other means, they could easily break the modest sea wall provided by the Stabilization Fund. So some think that the Fund should not be set up before the tides are harnessed, but after.

Lord Keynes answered this objection flatly: "I am certain that this is not a case of putting the cart before the horse." His belief: if the tides are not properly harnessed, machinery for adjusting exchanges will be all the more necessary.

One reason for action now is that many exchanges that were virtually extinct have already been revived. The lira has been valued at 1-c- (in liberated Italy), the franc at 2-c- (in Normandy), the guilder at 53 1/2-c- (in Dutch New Guinea). Even the yen has been fixed -- at about 5-c- -- in the Marshalls and the Marianas. The problems of maintaining or altering these and still other rates must soon be met.

Under U.S. urging, the meeting at Bretton Woods may also formulate a plan for a World Reconstruction Bank. This would be in effect a world RFC by the same analogy that the Fund would be a Reserve System for world exchange.

The suggested Reconstruction Bank is slightly bigger than the exchange fund--$10 billion ($3.3 billion put up by the U.S.). Even this $10 billion may prove small compared to the size of the problem.

A main difference between the Keynes and the White plans is that Keynes leans a little more toward flexible money, White a little more toward hard money (gold). Both plans were criticized in both countries. Many U.S. bankers thought that neither plan provided for hard enough money. Many British financiers feared that neither plan provided enough flexibility.

The British were thinking of their experience between wars when, in 1925, they went back to the pre-1914 gold standard at $4.86 to the pound. This rigid valuation of the pound priced British goods so high that Britain either had to cut prices (including wages) or lose sales abroad. Since cutting prices was too painful, British foreign trade suffered steadily. In 1929 depression hit Britain hard and stayed with her until 1931, when Britain went off gold, let the pound slump--and began to recover.

The British reaction to all this is "Never again!" Thus a month ago, before setting out for the U.S., Keynes reassured the House of Lords: "the question ... is whether we are in any sense returning to the disabilities of the former gold standard. ... I should say that this plan is the exact opposite of it."

Yet to reassure Congressmen and U.S. bankers, most of whom now oppose the plan, Harry White will have to convince them of just the reverse. This is not quite as impossible as it sounds. A world stabilization fund would be in effect a modification of the international gold standard (just as the Federal Reserve System modified the domestic gold standard). Fortunately for White, all modifications can be described in terms either of their likeness to or difference from their original.

The British want the plan flexible enough so that Britain or any other nation can change the exchange value of its currency if the changing postwar world catches it again, as in 1925-31. This is Britain's particular protection against an American return to high-tariff policies. The British will perhaps give up this protection in the hope that the U.S. will not return to such policies.

Either Or. The outline of the Stabilization Plan to be discussed at Bretton Woods compromises this difference thus:

Any member country can change the par (gold) value of its currency (to be agreed upon when joining the Fund) by not more than 10% after consulting the Fund; it may change the value of an additional 10% with the consent of the Fund. Thus the possible necessity for devaluation was recognized, but the U.S., as biggest stockholder in the Fund, would have considerable say (amounting practically to a veto) if any other nation wanted to devalue by more than 10%. In return the British would get something : if any nation's currency became scarce, other nations might, with the consent of the Fund, ration the scarce currency. This means that if the U.S. insists on selling more than it buys (making dollars hard for others to get), other nations, instead of having to give up their gold, can put a partial embargo against U.S. imports. This would leave the U.S. free to choose its course but would put a penalty on abuse of that freedom.

The exact terms of these compromises are being fought out at Bretton Woods. Whatever the terms, Congress and Parliament will certainly criticize them and perhaps reject them. In fact, only one provision of the proposal is not likely to be criticized: after a three-year breathing spell no member shall (except by special permission of the Fund) use any devices that prevent businessmen from buying and selling freely in every country.

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