It Talks in Every Language

Set the clock back to M-Day, Sept. 1, 1939. Subtract from the world of that date the German and Japanese military forces. The answer to this calculation is peace. Break that peace into its components. The components are poverty in the midst of plenty.

Now set the clock forward to V-Day. The German and Japanese military forces will by then have been subtracted. The answer again will be peace, peace in a world that will be at least one thousand billion dollars poorer in goods and equipment than the world of M-Day, poorer by perhaps fifty million men, women and children who might otherwise have survived.*

And if the world of V-Day is no richer in applied wisdom than the world of M-Day, this further calculation can be made. There will be no way except charity to put Europe quickly back on its feet again. International charity must inevitably soon run thin. When the U.S., for one, ceases to give goods away it will suffer from unemployment, despite and because of its vastly expanded productive capacity. Moreover, European and Asiatic collapse will be on a far greater scale than they were when U.S. relief and financial first aid dried up in the early '20s. In sum, the answer may be greater poverty in the midst of a greater potential plenty.

This calculation rests on the somber fact that the need to rehabilitate is in itself no guarantee that rehabilitation will take place. A row of shattered houses does not get itself spontaneously rebuilt any more than a valuable but unexploited mine spontaneously opens itself or milk spontaneously provides itself to school children or to Hottentots. In a world organized to enjoy the economies of a division of labor, work gets done only as the result of a command or an inducement.

In a free economy the universal inducement is money. Command can be issued only in a totalitarian state. Hence, unless the world is to drive itself through painful stages into totalitarianism, it must learn how to make money fill its full role as a stimulant to labor.

The Coin's Two Faces. Money is the commonest concern of mankind. Plain people talk about it constantly. In cafes, on trains, in bazaars, on front porches, over backyard fences everywhere in the world, money--the money price of things, the money rate for jobs--is the most common element in normal conversation. Not love, not crime, but money.

Despite its homely familiarity, when money goes abroad it cloaks itself in mystery. The present generation has seen this mystery in its darkest phase. It has seen the franc bloat and the mark blow up. It has seen Montagu Norman claw his way up from devaluation to set the pound on gold at the sacred rate of $4.86 1/2. It has seen Hjalmar Schacht counter with moneys designed to fit every purse and purpose. It has listened to the jargon of scores of theories. And it has rightly suspected that all this confusion had much to do with unemployment.

Yet international money was not always a tangle. Once it was almost as simple as coin in the pants pocket. And then there was better employment and a greater rate of progress. Out of this relatively happy experience and the unhappy turmoil of the '20s and '30s may come the knowledge that will make money simple and stimulating again.

The Golden Age. British bankers and statesmen of the 19th Century were the first to establish a world-wide money system. After they had digested the severe lesson of the American Revolution, they largely abandoned the closed system that had previously characterized their imperial efforts and those of the Spaniards and of other empires. They groped, argued, prospected and legislated their way to a new kind of international economy. This new economy served, as no former system had even attempted, to promote profitable economic conditions in most parts of the globe. For about a hundred years, as long as Britain held the necessary balance of power, the system incubated the industrial age the world over. It was a solid structure, made up of four sturdy elements: the British Navy, the gold standard, free trade, and overseas lending.

The first two of these elements served a policing function: the British Navy kept war lords within bounds, gold taught finance ministers discretion. The Navy, through its support of constituted authority and lawful procedure, was usually successful in preventing the seizure or destruction of property by rioters, revolutionaries, or plain bandits and pirates. Supplementing this strong arm was the practice of extraterritoriality : the setting up of courts to administer British law so that entrepreneurs might be spared the more extreme abuses of the local legal apparatus. Law backed by force made the Pax Britannica the assurance of peace and fair play prerequisite to any long-term investment.

Gold was an even more ubiquitous policeman in the strictly economic sphere. The main rules governing gold were simple. If a country bought more goods than it sold, it settled for the excess purchases by shipping gold in payment. Since nearly all currencies were convertible into gold as a common denominator, a country that lived beyond its international income soon lost backing for its currency and promptly got into serious internal difficulties, which might even include threats of assassination to its finance minister. The main virtue of the gold standard was that it operated with the impassivity of a natural law.

This quality of gold saved the statesmen of the financially more powerful countries from many an embarrassment. If the value of money had not been tied to the automatic action of the limited gold market, but had been under political control, then the politicians of a financially imprudent country could have accused the British of making economic war on them.

The insulation gold thus provided between finance and politics gave politicians and investors of the same country a useful degree of freedom from each other's affairs. It is not a politician's business to be wholly consistent. Indeed it is often his duty to change. He may, for instance, wish to be stern toward a smaller country at one time, lenient two years later, and conciliatory three years after that. But any change that can radically affect values is a change the investor cannot afford.

The British Navy and gold merely defined and enforced the rules of the 19th-Century economic game. The policies of free trade and continual overseas lending enabled the British to play the game itself with such successful results. The two policies were complementary, and it was the manner in which they were operated that made the orthodox gold standard, although clumsy, work as well as it did.

These two latter elements of the system, free trading and lending, can best be understood in the light of their joint purpose: to earn a maximum return by lending capital to those parts of the world which show most promise in undeveloped resources. The greatest stimulus for development is a ready market, and so, because basic foods, for instance, could be raised more cheaply in new countries, Britain opened her home markets to farmers and ranchers of the U.S., Argentina, the Dominions. At the same time British investors lent money to build railroads, grain elevators and packing plants in new countries whose produce was being encouraged. By & large the process was profitable both to lender and borrower.

British manufactures for export rose with the new trade that was created. The total of British trade was further swelled by shipping, banking and insurance services rendered, and British balances were kept fat by interest and principal payments on money lent abroad. Gold tended to accumulate in English hands, simply because a more advanced country finds itself able to maintain a higher rate of saving.

What the British did with this accumulating gold explains the continuing success of their policy up to World War I. They did not bury it in the ground as something sterile and useless. Though much of it was kept on deposit in London, for convenience, it was transferred to the account of others, both in payment for imports to Britain and as new capital for those places where natural resources were great but development slight.

Twenty Years' Crisis. During the period between World War I and World War II, all four of the elements that had made the international economic system work moderately well crumbled and collapsed. The failure of each element hastened the failure of the others, but two failures were probably basic, and both were compounded by U.S. refusal to take any responsibility in world affairs. More important of these two was the failure of the delegated authority of the League of Nations to maintain peace and the prospect of peace, as the British Navy unfettered had maintained it.

Before this there had been a failure of economic policy, not so fundamental as the failure to maintain peace, but just as disruptive of an international economic system. It was the failure of the U.S. to assume Britain's old role of lender to the world. Following World War I, it was taken for granted in banking circles that the U.S., now a leading creditor nation, would take on the job. Ambitious young Americans preparing for careers in finance spent a year or so after college in the City of London to pick up the British art and take it home with them. Sons of eminent European families, sensing the trend of power, got themselves apprentice jobs in the statistical and exchange departments of Manhattan banking houses.

Yet the transfer of financial leadership which all expected did not take place. U.S. bankers and the U.S. investing public did not play the game.

The bankers, to be sure, ran up the total of U.S. foreign loans from around $2 billion in 1912 to about $15 billion in 1930. But the loans were mostly in what British policy would have regarded as the wrong places. With short-sighted caginess, U.S. bankers placed their money where money already was and where business was well developed. About $5 billion of the $15 billion was placed in Europe and another $4 billion virtually at home in Canada. Only $117 million went to all Africa. Of the $5 billion that went to Europe, $2 billion went to Germany and England, nearly $2 billion more to France, Italy, the Low Countries and Scandinavia. The parts of Europe most in need of development shared the meager remainder. U.S. investments in backward, ambitious Poland were $177 million by 1930; British and French investments there were $345 million. Of the mere $1 billion placed in all Asia, $445 million was in Japan alone.

Yet U.S. investors were scarcely interested. Although under pressure they absorbed the bonds of German cities, South American republics and Japanese utilities, they did not get the habit of buying foreign securities and go shopping for more. On the contrary, they sold. Transactions on the exchanges showed a net decrease in U.S. holdings of foreign securities of $830 million between 1922 and 1930. The U.S. investor preferred to bid up securities at home.

While bankers and investors were thus ignoring the greatest economic opportunity that had ever been handed ready-made to a financial community, the politicians in Washington were compounding their economic solecisms. Tariffs, which caused the U.S. to run an export surplus when, as a creditor, it should have collected its interest in the form of an import surplus, were hiked even higher by the Hawley-Smoot rates of 1930. The Ottawa Agreements, raising a tariff wall around the British Commonwealth, the quota systems, the blocked exchanges, the abandonment of gold -- these were the complex but natural sequences of U.S. unwillingness to play its part. Long before the League of Nations had shown its inability to keep the peace, the U.S. had kicked away the economic fruits of peace.

A New Age. There will be another chance. When war ends, the U.S. will find itself with the greatest industrial plant in the world and more than 50 million soldiers and war workers looking for peacetime jobs. For a limited period after the end of hostilities, some of that energy can be turned to relief via Lend-Lease and agencies such as the Red Cross. But such relief is a part of the cost of war.

Rehabilitation is a long step further, and is really a deceptive name for new investment. It will be one thing to give bread to the people of Warsaw to see them through the first winter of freedom and to give seed for planting and pigs for breeding stock to Polish farmers, quite another to set the Poles up in the dairy business with new barns, tractors, tank trucks, cheese factories, and all the capital paraphernalia of advanced farming. Though such investment may be worth while, it will have to compete on economic terms with the attraction of similar possible investments in China, in Brazil, in the U.S. South.

To keep the U.S. busy -- with full employment and full industrial activity --there must be investment, much of it probably abroad. For U.S. industry, now built up to fight for more than just the U.S., is also built up to serve in peace time much more than the U.S. alone. Detroit (cars), Cleveland (tools), Milwaukee (mill parts), Los Angeles (planes) and many others are industrial cities geared to supply the world. They are world cities in terms of needed materials, as well. The appetite of advanced industry for special metals, special fibers, special chemicals to serve the home market alone may even shift the balance and force the U.S. to export to pay for its imports.

All this, of course, will become a gigantic boondoggle for the benefit of foreigners alone unless U.S. bankers are wise in picking the purposes and setting the conditions of investment and unless U.S. politicians become skilled in understanding and explaining the tariff policies that must accompany foreign investment. Yet, beckoning on to such an effort, the opportunities for productive investment spot the world map like huge rough jewels. The prospector need only pick up a few samples to realize their value as cut and polished stones:

> China has few good roads, few hydro stations. A few tens of millions for cement plants, road-building machinery, turbines and power lines could animate this nascent economy to a degree out of all proportion to the investment. China can pay interest in tung oil, tungsten, ramie cloth, embroideries, cheap pottery and in service to U.S. tourists.

> The Congo needs a first-class harbor at its mouth and locks around its falls and rapids. Once really opened, this dark Elysium can pay in low-cost vegetable oils, in copper, in minerals and fibers yet unprospected.

> The Middle East looks for development of the Nile sources and for rehabilitation of Mesopotamian irrigation works destroyed by the grandson of Genghis Khan 650 years ago and not yet restored. It can pay in minerals and fruit.

> Tropical countries need airports and sanitation and more developed plantations and agricultural processing plants. They can pay in cheap cellulose and starch and specialty fruits and vegetables.

> The St. Lawrence River needs a channel for ocean-going ships that would give the heartlands of the North American continent dock frontage on the seven seas. The U.S. can pay for it in toll receipts at an overall cost no greater than one day of this war.

Policy for Plenty. View the world as a challenge to investment, a challenge to the American sense of project and the frontier, and the outlines of the postwar money problem assume a definite shape.

The primary requisite is that money remain relatively stable over long periods of time, periods long enough to work out the international capital investments that world economy needs much more than it needs an international exchange of consumer goods. Given these conditions for investment, every Hottentot can have a skinful of milk a day if he wants it, provided U.S. ingenuity can find something for the Hottentot to produce that others want, and can stake him to the tools the work requires. The U.S., often doubtful in recent years whether it was really a capitalist nation, has arrived at a position where, for its own good, it will practically be forced to become the chief capitalist to the world.

Prelude. Before the task that was dropped in 1914 and was fumbled through the '20s can be picked up again by the U.S. and Britain and such others as may be in a position to join them, certain public attitudes in the U.S. must undergo a change.

One of these attitudes concerns tariffs. It will probably not be essential for the U.S. to embrace free trade, but economic man in the U.S. must take a firm resolve not to allow unemployment or threat of unemployment to panic him into raising old tariffs or adding new ones. He should not insist on exhausting the last high-cost mine before letting in a ton of foreign ore. Often he may find ways in which tariffs can be lowered for the profit of the very groups they are supposed to protect. But most of all he must be conscious of his consumer interest in low prices and variety of choice and must seek advocates --perhaps the storekeepers--to argue his political case for him.

Another attitude concerns bankers. Circumstance, politics and the bankers themselves put the calling for a while on the bottom rung of the ladder of public esteem. If they are no longer on the very lowest rung, it is not because the politicians have offered them a helping hand. On the contrary, politicians have taken over many private banking functions, with results in some cases that still await a critical examination. Some bankers have presumably become wiser for their bitter experiences, but they lack the opportunity to prove their wisdom and to attract new, able personnel. The public can well afford to insist that in the world economy bankers and the profit motive be given a chance to perform as they performed in the most thriving period of the world's history.

A third attitude in need of clarification concerns Great Britain. A frequent U.S. alternative to isolation is the all-too-obvious feeling: "Let's get in there and show those Limeys how things really ought to done"; usually accompanied by the corollary: "They're not very strong, but watch out for their tricks." It is, in economic terms, a parallel to the military attitude of Germans toward the British. It spells a sense of inferiority and perhaps guilt. For the benefit of a community leading citizens need to cooperate equably and equitably, not to engage in destructive rivalry. The same is true of leading nations of the world, particularly the U.S. and Britain. A good historical example of such destructive rivalry is shown on the chart below. When the world's two strongest major currencies, pound and the dollar, were handled competitively in 1920 and 1921 and again from 1931 through 1933, the result was near-chaos.

Curtain Raiser. At the very least, it will take the financial collaboration of the British Commonwealth and the U.S., on terms that can include others, to bridge the gap between immediate relief and long-term investment and to set the stage on which long-term investment can safely tread. This is the object of the tentative proposals of a group of British experts headed by Lord Keynes (TIME, April 5) and of somewhat similar proposals by a U.S. Treasury committee headed by Under Secretary Dr. Harry D. White (TIME, April 19). These proposals are in turn the subject of several critiques, most extreme of which has come from Economist Dr. Benjamin M. Anderson, of the University of California at Los Angeles (TIME, May 24).

The Keynes plan and, with variations, the White plan would provide every country with the monetary means to start doing international business at once on its initiative and responsibility, leaving long-term capital until later and to other agencies. The Keynes plan provides checks on both debtors and creditors and further provides means for applying gentle brakes to a debtor in danger of overextension. But it does not threaten the debtor with automatic raid and collapse, as the old gold standard often unfairly did. Yet without tying rigidly to gold, it does provide means whereby gold can be sold into those large and populous areas of Latin America, the Middle East and Eastern Asia where people mistrusting paper money are so eager to place their savings in gold that even now the markets in Bombay and Alexandria have bid up gold to twice its stated value in pounds or dollars. Finally, the Keynes plan provides a ready means for handling transfers to and from Russia, where large amounts of capital goods will be needed for some time after peace comes.

In underlining the responsibility of creditors, Keynes is doing no more than applying to international affairs the daily practice of the salesman who prudently refuses to overload his weak or greedy customers. In treating gold not as a bag of coin to be flung on the counter every time there is a balance to be squared, but as a reserve and measuring rod, Keynes is simply applying internationally the practice of domestic banking systems as exemplified by the U.S. Federal Reserve System.*

Of overall importance in both plans is the setting up of a forum (like the New York Federal Reserve under Strong and Harrison) where experienced men can exert their influence for sanity in financial affairs. Of like importance is the substitution of a multilateral agreement, a set of rules for voluntary participants to observe, in place of bilateral deals that can only fan destructive competition. Both plans write a text based on desperate rearguard campaigns of the '20s and '30s. They recognize the experience leading to the minimal Tripartite Agreement of 1936: that some collaboration, any collaboration, in international money matters is indispensable. "The Tripartite Agreement," said one potent U.S. exporter, "was worth a hundred trade treaties."

Nonetheless Dr. Anderson objects. He warns his countrymen that the British are slickers, that the U.S. has all the money and should take its time about seeing who should get small amounts of it and on what special terms in each case. Anderson's is the kind of parochial shrewdness that refuses medical aid to the victims of a flood in a neighboring valley until such time as the medical history of each victim and his ability to pay has been thoroughly canvassed. It was precisely such a policy following Versailles that let the German mark spurt like a severed artery untied and bled white the currencies of most of the other European belligerents.

A more valid warning than Anderson's might point out that the plans propose nothing more than a gentleman's club. Fair though they are, they expect gentlemanly behavior which, under internal political pressure, governments might not be able to live up to. An answer to this might be that the time has come when gentlemanly behavior is a political necessity.

Tableau. If some way of bridging the gap between relief and investment can be found, and if certain prevalent U.S. attitudes can be modified by a growth of insight, then it is possible that the new age begun by Britain in the 19th Century can be continued and strengthened by the concurrence of the U.S, and others. For the British Navy and extraterritoriality in this economic order it will be necessary to substitute collective military security and, perhaps, an international circuit court of appeals. And for gold, to substitute an international reserve bank. For free trade, a tariff structure exposed to the self-interest of all citizens. And instead of overseas lending, Britain, U.S. & Associates, investment bankers to themselves, each other and the world.

* The material cost of little World War I was estimated by the Carnegie Endowment to have been $337,946,179,657; military and civilian casualties 33,298,122.

*The Keynes proposals are contained in a 24-page pamphlet obtainable from offices of the British Information Services in New York, Washington, Chicago and San Francisco.

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