Dollars and Doughnuts
By GRAHAM MUTTON MINDs innocent and quiet used to think, with Marx, that just as the proletariat would go on being exploited and `miserificated' till the masses revolted, so 'the capitalists' would go on miserificating each other in cut-throat competi- tion for exports of manufactures, till capitalism entered its death-throes. Instead, after the world's two first and worst wars, there has been more and more room for exports of manufactures— despite the Iron Curtain, despite the most rapid rate of industrialisation all over the world, and despite all manner of impediments to trade. The volume of world trade has now risen steadily for twelve years. More and more of it is in manufac- tures; most of them still consumers' goods, but a growing proportion of them producers' (or capi- tal) goods. Matching the rise in world population, due mainly to the lengthening of human lives, industrial capitalism roars ahead everywhere. The world's demand for capital has never been so great, or grown so fast. Savings cannot match it, so inflation runs riot everywhere at varying rates. Empires break. Sovereign States multiply, each with its sovereign and differing controls over goods and money. All these things in turn put differential strains on different countries' econo- mic systems, their exchange rates, balances of trade and payments, and their relative strengths, in an increasingly trading world.
The late Lord Keynes and other economists glimpsed something of this toward the end of the war when they set up the International Monetary Fund and Bank. Neither of these world institu- tions emerged as Keynes (and other British economists) hoped. But Keynes, ere his life came to an untimely end, wrote in the Economic Jour- nal what seemed to many of us an optimistic essay 10 the effect that the postwar world dollar short- age would not persist. Despite the Berlin air lift, . Korea and other alarums and excursions from beyond the Iron Curtain which have led North Americans to defend the West with theft' men and their dollars—things unforeseeable by Keynes— the world's shortage of dollars has persisted. Now it is as acute as ever. Indeed, in the last two years North America has been drawing in the gold and dollar reserves of most other trading nations. The exception is West Germany which, restored on a liberal American economic basis in 194.8-49, has been drawing most of Europe's gold and dollars unto itself by a combination of export surpluses, lagging imports and no burdens of defence. Hence the latest collapse of the French franc and the persistent weakness of sterling at its all-time low' since the devaluation of 1949.
Inflation may be worldwide; but, as some of Orwell's pigs were 'more equal than others,' so is it with inflations. Whereas the pound sterling has lost one-third of its purchasing power since its devaluation in 1949, and the franc a bit more, the Deutsche mark has only lost 7 per cent., and the dollar 14 per cent. No wonder people want hard currencies. And you must add to that the horrible fact that all West Europeans distrust the future of sterling and francs—that British and French, as well as others, envisage a future in which either Socialists or Right-wingers will mulct private owners of their foreign equities (especially those in 'hard currency' countries) if not of a lot of other property as well, and 'pay' them with depreciating and quickly worthless 'gilt-edged' paper. Accordingly within the sterling area from Hong Kong to Bombay and Kuwait, and in the currency systems of the weaker West European brethren, there are as many leaks outward into hard currencies as there are holes in a colander. The French buy bar gold. The British and others set up companies abroad, or shunt goods or other assets about within the sterling area, eventually finding a loophole. But the obvious, elementary fact is that the whole trading world prefers dol- lars, German marks, or Swiss or Belgian francs— or gold, or equity shares in companies in these lands—to being confined and controlled, and probably devaluated or expropriated, in their home currency. Crises of confidence, indeed !
Moreover, that elusive process known as pro- ductivity goes ahead faster in North America and West Germany (and one or two other spots) than in Britain, France, etc. This is another way of saying that inflations are held in check by faster- rising productivity in hard-currency countries: i.e. faster-rising productivity maintains the exchange rate and purchasing power of a cur- rency. Canadians, Americans, Germans—both managements and trade unionists, Left or Right voters—raise their standards of life mainly by flogging their capital equipment : more shift- work, better-planned work, fewer restrictive prac- tices, less artificially made (but highly paid) human work that turns nothing out. More efficient capital and more effective work of both machines and men—even, as in North America, with fewer hours of human work per week— make a currency worth more. It turns out more from the same resources. It enables prices to come down, or stay stable, or rise more slowly than elsewhere. It enables wages and other incomes to buy more without having to be raised as much as in the `wage-push' or 'cost-inflation' countries. The comparisons and contrasts between the politics, policies and industrial efficiencies in North America or Germany on the one hand, and in Britain and France on the other, are instructive and depressing. Sir Donald MacDougall of Nuffield College, Oxford—and formerly of Whitehall, the OEEC and other international institutions—could scarcely, therefore, have chosen a better moment for bringing out his classic study of the world's dollar problem.* He broadly asks whether, over the next ten or twenty years, that problem is likely to persist to an extent that will imperil economic relations between the dollar and non-dollar por- tions of the free half of the world. The sterling area does about one-third of the free half's inter- national trade; so, as that system is already menaced as a going concern, the author's evalua- tion of the dollar problem is vital to us. He is far from reassuring. He thinks an adverse trend will persist in the foreseeable future between the rest of the world and the dollar area, resulting in an adverse balance owed to that area, and a con- sequent drain thither. He does not set much store by continuous or spasmodic, voluntary or in- voluntary, devaluations of our non-dollar curren- cies to put this right. Indeed, on the whole he leans towards 'floating' exchange rates for the rest of us, within wider limits. (This may well be debated at the IMF in September.) But—after taking account of possibilities of more American lending abroad (public or private), of raising the price of gold (only a temporary palliative), of tariffs, physical inflation-controls, inducements for more American imports, etc.—Sir Donald remains sceptical, if not minatory and pessimistic. His work is so thorough, able and illuminating that we must take heed of his admirably clear assessments. He has set Keynes's last essay to rights. There can be no higher praise than that.
But 'what good came of it at last?' What do we do, now, and in the next ten or twenty years, menaced in our economy—and the sterling area —by apparently uncontrollable inflations, punc- tuated by stop-gap controls, devaluations or expropriations? Can the sterling area, with its multiplying sovereign Dominions, make a go of the European Free Trade Area, and in other ways face the economic streaking-ahead of North America (and Germany)? Or will it gradually disintegrate : Australia, India, the West Indies, Malaya, African and other Dominions flying off into a nominally economic sovereignty, but actually into closer dependence on the dollar area? If so, what will poor Britain do then? And what will rich North America do, in order to hold her new economic associates together, and stop them gravitating away from the West towards the Communist camp? Has Europe, with Britain and a successful sterling area associated with it, a chance to withstand the North American drag? If so, will we all agree, politically, to do the economic needful?
These are not queries of the next ten to twenty years, like most of those analysed in Sir Donald's lucid pages. They are actual and cogent, here and now. Look at France. Look at ourselves. 'Look homeward, angel!' Whatever is decided in Ger- many and in the IMF next month, the sterling area will be won or lost in Britain; Britain won or lost in Europe; and Europe won or lost as an economic entity enabled to withstand a persistent dollar shortage. Mr. Maudling, please note. Then have a word with Sir Donald.
* THE WORLD DOLLAR PROBLEM. By Donald MacDougall. (Macmillan, 50s.)
Previous page
