John Wood on the rise and fall of sterling
Sterling and British Policy Susan Strange (our, £4.00)
In this pioneering investigation into the rise and fall of sterling as an international cur- rency, Miss Susan Strange tells the story as a political theorist rather than as an economist. Instead of the traditional preoccupation with the mechanics of the sterling area system, she prefers to examine the impact of chang- ing international circumstances on that mach- inery. And as the pattern of world power has changed for more dramatically than the pat- tern of world trade, it is indeed surprising that no previous systematic attempt has been made to consider the consequences of changes in a country's world standing on the status and acceptability of its currency.
Miss Strange also hopes that her book will contribute something towards the study of international political economy, as distinct from international economics. But the only new analytical tool she uses is a form of categorisation—a new classification of cur- rencies into Top, Master, Negotiated and Neutral. And as a currency can turn up in more than one category depending on cir- cumstances—sterling •appears in three, and the dollar in all four categories—this proves to be confusing rather than illuminating.
Nevertheless, the general narrative forms an exceptionally valuable account of what has happened to sterling since the ill-fated Anglo-American Loan agreement of 1946 (which failed to avert the mishandling of the enormous war time sterling balances), through Marshall Aid, IEPA, ERP, EPU, in and out of the gold pool, to the Basle agreements (due now to be re-negotiated), all, of course, by way of two devaluations—just to mention some of the political improvisations which may or may not have helped to shore up the international currency mechanism, itself an artefact worked by the politicians of 1943 to 1946.
Naturally, any political assessment of sterling must rest on a thoroughly accurate diagnosis of the economic facts about the sterling system, and particularly about the United Kingdom. This is bound to be a com- plex task and is made no easier by the ludi-
crously inadequate presentation in the official statistics of Britain's international accounts, and the equally unhelpful heap of explana- tions, excuses, nostrums and opinions about the British economy which, though discarded as fashions changed, still lie around.
Miss Strange overcomes both hazards with assurance. She is as well aware of the unim- portance of the much-trumpeted shortcom- ings of the home economy as of the real importance of the less publicised damage to the balance of payments caused by the growth of government spending abroad, par- ticularly for foreign aid and for military purposes.
Inevitably, there is room for disagreement. Not everyone would regard the import of food on easy terms as eccentric, or describe investment abroad as a 'leak', due to 'our exaggerated propensity to invest capital over- seas.' Since we earn more from our overseas investments than we lend abroad each year, this particular piece of analysis seems ill- founded.
Above all, however, the general lessons to be drawn from this survey of the post-war years will be controversial. Miss Strange is hopeful that things will never be so bad again. That will be so only if we have truly learned from the past. And one of the out- standing themes of the book is that it has been the inability and slowness of the policy makers to force the necessary adjustments to a fast-changing world which has been re- sponsible for much of the agony of sterling and the dollar since the end of the war. If so, does it not follow that for the future, much greater reliance must be placed, not on further political decisions, but on market mechanisms which, whatever their other dis- advantages. are incapable of keeping a prob- lem alive for twenty-five years?
The abolition of exchange control, and of the fixed exchange rate system, and even (pace Miss Strange) the reopening of the foreign bond market in London may yet prove to be the way to relieve the British people and government of their endless ob- session with the balance of payments, which as the author says, 'we and a good deal of the rest of the world too are so heartily sick and tired of hearing about.' For her efforts to restore the gaiety of nations by stopping Britain from being an international bore, Miss Strange deserves thanks all round.
John Wood is Deputy Director of the Institute of Economic Affairs
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