Taxes for Revenue Are Obsolete Ruml 1946

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A merwan sjjairsA Quarterly Journal of Free OpinionJANUARY, 1946 Winter Number Vol. VIII, No. 1

Principal ContentsReview andC o m m e n t 1Winds of Opinion 4Th e Rising Price of Laurels Virgil Jordan 7The Loan to Great Britain Garet Garrelt 8The Socialization of England A Digest 14Detroit Letter A Correspondent 19Th e Law That W as To End Strikes L. Lamprey 20Washington Notes Mabel R. Deakins 23Innocents under the Gun Walter Gordon Merritt 25T h e M i n d of Science From the Record 29Taxes for Rev enue Are Obsole te Beardsley Rural 35Bank S t r u c t u r e ofUSSR Official Paper 39D is i l l u s io n me n t of a Socia l is t D. R. Davies 43Books G.G. 45

RussiaThe Nature Cure

Gaunt Prophecy John Rustgard 51The G entlewoman from I l l inois Jessie Swnner 53Our Changing Balance Sheet William E. Wrather 56The A tomic Comp etitor Clark Goodman 59Stalking Lend -lease Rep. Albert J. Engel 61Canada's Trade Ja m w ith Britain 62Why We Can't Buy Ful l Em ployment Bradford B. Smith 65Russia and Germany. The Colmer Committee 70

Index to Volume VII


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Notes on ContributorsThe Rising Price of Laurels. Dr. Virgil Jordan is president of theNational Industrial Conference Board.The Law That Was To End Strikes. Louise Lamprey is an historianof the old New England school; author of "Building an Empire,""Days of the Pioneers."Innocents under the Gun. Walter Gordon Merritt is a writing lawyer

with a special interest in the law an d philosophy of labor relations.Taxes for Revenue Are Obsolete. Beardsley Ruml, Chairman of theFederal Reserve Bank of New York, is an audacious thinker inthe new world of social fiscal policy.Gaunt Prophecy. John Rustgard's writings are increasingly brief andnow almost entirely confined to private circulation. See noteat the end of his article.The Gentlewoman from Illinois. A speech by Jessie Sumner is anuncomfortable event in the House of Representatives.Why We Can't Buy Full Employment. Bradford B. Smith is one ofthe brilliant young economists on the conservative side.

American Affairs is a quarterly journal of thought and opinion. In tha tcharacter it is obliged to touch many subjects that by nature are contro-versial. Its pages are intentionally open to views and ideas that provokedebate. By printing them the National Industrial Conference Board doesnot endorse them: it undertakes only to acknowledge the integrity of thecontributors and the good faith of their work.

Published Quarterly by'National Industrial Conference Board, Inc. EditorialOffice, U7 Park Avenue, New York 17, N. Y. Cable address, NICBOARD ,New York. Subscriptions, $2.50 per year postpaid. Single Copies 75 cents.Mu ltiple Su bscriptions available to Associates of the National IndustrialConference Board for mailing to more than 25 separate addresses, $1.50 per year.


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A merican AffaiirsG A R E T G A R R E T T , Editor

JANUARY, 1946 Copyright, 191>6 t byNational Industrial Conference Board, Inc. VOL. V I I I , No. 1Review and Comment

By theEditorTHE CURRENT spectacle in the economic hip-podrome is a tableau of frozen acrobatics. Itmay be there for some time or it may end suddenly.A figure in tarnished tinsel representing CollectiveBargaining is held aloft by Wage Price Policy, whosemuscles are t au t and seem about to snap from thestrain of standing in a forked position with a barefoothold on each of two contrary-minded animals.One animal is Deflation and the other is Inflation.They are tied together by their tails, and their mus-cles, too, are tense as they lean in opposite direc-tions with all their weight. This amazing pyramidis balanced on Price Level, which is a tight ropeacross what appears to be a terrible chasm. Thethrill of it for the audience lies in the fact that thepose must hold and nothing can move until some-thing happensand nobody knows what will hap-pen. Collective Bargaining is in great danger, cer-tainly, and would be unable to save herself, but sheis limp, perhaps unconscious. The only sounds arefrom Wage Price Policy, who keeps exhorting thosewho are chasing a pig around and around the edgeof the chasmand from the pig. The pig is Profit;and the meaning of this part of the spectacle belongsto superstition. It is believed that if the pig can becaught and sacrificed, one of the contrary animalsmay be appeased and relax a little, which will givethe chasm time to fill up in a miraculous manner,according to the prophecy of the court Economist.The idea about the pig is that his squeals are propa-ganda, that he is too fat, and that in any case heis immortal, so that although he may be sacrificedand eaten up, still hewill live, perha ps not privatelyin the flesh any more but in spirit as an everlastingsocial possession.

ANALYSIS of the tableau is as follows. TheJ L V first of the two contrary propositions, tied to-gether by their tails, is that wage rates must rise,else there will be deflation; the second is that pricesmust stand still, else there will be inflation. Theargument as to wages is that unless the hourlyrate is raised to compensate for the loss of overtime

pay the national peacetime payroll will be less thanthe wartime payroll, which means that there will bea shrinking payroll, and a shrinking payroll is defla-tionary. Therefore, there must be the same wagefor fewer hours worked in order that the peacetimetake-home pay shall be comparable to what thewartime take-home pay was. How much this wouldincrease the wage cost of peacetime goods is a mat-te r in dispute; but be it much or little, it must notbe added to prices, for fear of inflation. If a higherwage cost cannot be added to prices, what will be-come of it? It must be absorbed by the employer;he must payit out of profit. From this it followsif one is obliged to make sense of it at allfirst, thatthe price level with which we came out of the war,with all its distortions and internal strains, is eco-nomically sacred and must neither rise nor fall; andsecondly, that profit is a quantity deducted fromlabor's share in the produ ct. L arge profits, there-fore, are derived at the expense of the wage earnerand limit the size of the payroll.

A L THOU GH we have lived for a long time with aJi \ profit and loss economy, being in fact foundedupon it, it seems that we know very little reallyabout the nature and meaning of profit. The fact isthat wages are not paid out of profit. Wages andprofit both are paid out of production. Wages arehorizontal. Profits move vertically, up and down,an d are subject to sudden variations. This is be-cause wages come first. You have to pay wages orgo out of business at once, whereas, if there is noprofit after wages, you may go on doing business, atleast for a while, in the red. In any industry at agiven time there will be some enterprisers workingin the red, some making a moderate profit, and afew making very handsome profitall 'producingand selling competitive thing s at competitive prices,and allpaying the same wages. In any industrythere are high-cost producers and low-cost pro-ducers, and again, all paying the same wages. Thelow-cost producer is the one who makes the profit.H e is the one who continually cheapens the cost ofhuman satisfactions. His profit is from superiormethod, management and technology. Even so, theprofit, especially if it is very large, is a liability,


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AMERICAN AFFAIRSbecause in a free economy someone else sooner c:later will beat his method and his technology andtake his profit, unless, of course, in order to keep ithe is always beating himself. Nevertheless, in everyindustry-wide wage dispute, as now in the automo-tive industry and in steel, it is the profit of thelow-cost producer that is cited to prove that higherwages can be paid. This you can understand. Noone will insist that in a wage dispute all the argu-ments shall be rational. But when the Governmentembraces the same fallacy and imparts it to thepublic, economic truth is in trouble. This is thesame government that has been very vocal in itsanxiety about the future of small business, but youcould hardly conceive a policy more likely to exter-minate the small enterpriser, or one more certainto concentrate the nation's production in fewerhands, than that of charging higher wage cost toprofit. Only the big profit makers can stand it at all,and not even these for very long.

A CERTAIN labor leader, famous for his verball \ indignations, was saying: " . . . and at the endof the day, from having performed that one monoto-nous, repetitive task on the assembly line, hour afterhour, a man is not himself. His individuality iscrushed. His ego is enraged, and he is hardly "He was interrupted there by one who said: "Youwouldn't be trying to fool yourself, would you? Youknow what a factory was like forty or fifty yearsAnybody Wanna Bet?

DONTWORRY, KIDWE'LL PASSHIM THST/MEf

ago. Compared with the very best factory then, thevery worst assembly line today is heaven for a manwho must work for wages. Labor did not createthat assembly line. Labor itself did not create theconditions under which men now work for wages.Who did?" The labor leader took his count andcame up saying: "All right, all right. But the assem-bly line you think so well of is there now, and thatis where we begin."

fTlHE IMPROVEMENT in the conditions underA which men work was paid forhow? It waspaid for out of what is called profit. But it wasprofit only in the sense that it was money thatmight have been dispersed either as dividends orwages, or as both, and wasn't. It went back to thejob instead, to create a more favorable environmentfor work. If the environment is improved men aremore comfortable and more productive; if bettermachines are installed, the productivity per manhour of labor is increased and there is again moreprofit to be divided three waysto the wage earner,to the owner, and to the job. To improve the jobis management's business; and the rule is that man-agement has to resist the shareholder who wantsmore dividends and the wage earner who wantshigher wages out of the visible profits. The twotogether, if they were unresisted, would take every-thing out and starve the job, and that is one reasonwhy management is so often found guilty of tryingto hide and disguise profits. Now come the automo-bile workers demanding a thirty per cent increase ofwages out of profits that have not yet been realizedthat is to say, out of expected profits, which theywould devour beforehand; and this expectation ofhigher profits is based on the fact that, as Mr.Reuther says, the motor car industry, specificallyGeneral Motors, has introduced a large number ofnew and more efficient machines, whereby the pro-ductivity of labor will be increased, which, if it hap-pens, will cause cost to fall and the visible profit torise. But where do these machines come from? Dothey fall into place out of the sky, costing nothing?N o. They come out of past profits, withheld by themanagement from both wage earners and sharehold-ers in order to improve the job. If management hadnot done this there would be no possibility of in-creasing the wage.

Reprinted by permission New York World-Telegram, copyrightOctober 16, 1945

THE TRAGEDY of it is that the wage earnerwill pay for these fallacies at last. In a freeeconomy both wages and profits are unlimited be-cause production is unlimited. If you limit profitsyou limit wages. The use of unlimited profit is tostimulate competition and production, and this istrue even of what are called monopoly profits, onlygive it time to work. Limitation of profit for anyreason, or by any means other than by the natural


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January 1946 3means of competition, is the beginning of the deathof free economy, and those who deny it are thosewho do not believe in free economy, though thetime to say so may not have come. The idea nowcontrolling the executive mind in Washington isthat if the producer were free to make his ownprices he would, for the sake of an immediate profit,price himself out of the market; and it is assumedthat industry based on mass production would dothis, for example, the m otor car indus try. If theidea is sincere then all that one may say about it isthat it is absurd and that those who entertain it areignorant of the principles that govern mass produc-tion. In the first place, no industry based on massproduction could possibly increase its profit by pric-ing the product beyond the reach of the mass cus-tomer; in the second place, one has the record. Theformula for big profits is a small margin of profit perunit, times x. In this formula x is the quantity pro-duced and sold. The variable is x. It may be in-creased only by reducing the price. An automobilemanufacturer says and thinks: "Tell me how I canget $50 off the price of an automobile and I will tellyou exactly how many more cars I can sell in ayear."

M ANAGEMENT seems to think that the treeof trouble is rooted in the radical character ofthe national labor leadership; that if it were only alittle more reasonable all the problems would bemuch easier to solve. It is not so simple. There areconservative leaders at the national level, but all ofthem are uneasy because the local and regionalleadership is much more radical, besides being new,and wilful and reckless. These radica l leaders on th


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AMERICAN AFFAIRSWinds of Opinion

We have so degraded the democracy for which wefought that, when brought to the bar of justice, itwill be found a harlot that has been whistled off thestreets of chaos.Senator Wheeler.We have always been a prey to the nations thatgive lip service to our ideals and principles in orderto obtain our material support. The war that is nowin the making is not even intended to defend orestablish democratic ideals.Patrick J. Hurley, onresigning as Ambassador to China.We must not resign ourselves to a fatalistic be-lief that economic controls are a necessary featureof modern societies. Economic arrangements be-tween nations depend upon man-made policy. Letus struggle to achieve the type of world we thinkwill best serve the interests of mankind and nottake the defeatist attitude that totalitarian con-trols are inevitable.Winthrop W. Aldrich.I am asking you to exercise that admonitionwhich we will find in the gospels and which Christtold us was the way to get along in the world: "Doby your neighbor as you would be done by." We aregoing to accept that Golden Rule, and we are goingforward to meet our destiny.President Truman.We now have 25 cents back of the dollar. Thenational debt is still being increased. The more thenational debt is increased the thinner is the backingbehind the dollar. When the man in the streetloses confidence in the American dollar, then noth-ing we can do will prevent terrible inflation.Senator George.Fear of the atomic bomb will not prevent futurewars.Sir Stafford Cripps.No wars are logical, because logical thinkers wouldnot create them. Therefore, we have to concludethat wars are started by madmenmadmen whoclaim some kind of outrage. Persons who, at theend of each war, ballyhoo strength through weak-nessno more warsshould ask themselves thequestion: "If this be right, why have we had somany wars?" It is an insurmountable argument.General George S. Patton, Jr.The people look to their State to give them morewages, higher standards of living. The State canonly do so by dissipating energy, by tapping re-sources. And so the time comes when the State mustmake fake money. First it is called "inflation."Then, because that is unpopular, "devaluation."

Now they call it "dilution." But it is all the samethingfake money. Thus you have insecurity.Savings become illusory.Dr. C. G. Jung, in alec-ture on "Psychology and National Problems."It would be a great mistake to mislead the pub-lic into thinking that its great wartime savings canever be spent quickly. Theonly chance of derivingfull benefit from themin the transition period ormore permanentlyis to spend them (if at all)very gradually.The Economist, London.There can be no doubt that Socialism is insep-arably interwoven with totalitarianism and theabject worship of the state. I declare to you, from

the bottom of my heart, that no socialist system canbe established without a political police.WinstonChurchill.We must face the fact that peace must be builtupon power, as well as upon good will and gooddeeds.President Truman.Nearly every Washington release, no matter whatit is about, contains a dire prophecy of unemploy-ment. These prophecies pretend to be founded onstatistics. The statistics are bunk. No one any-where can do more than guess at the size of futureemployment.Samuel Crowther.The government can do much to make self-employ-ment and adventurous investment either more at-tractive or less attractive . . . The level of employ-ment is determined by the relative importance thatthe people . . . attach to adventure and security.Prof. Sumner H. Slichter.When a man loses the right use of his mind, his

friends put him in a state institution, but when awhole people start turning imbecile they committhemselves to the tender mercies of government.In one sentence, that's what I think about the so-called full-employment bill.Dr. George S. Ben-son, President of Harding College.On many occasions in the past we have seen at-tempts to rule the world by experts of one kind oranother. There have been the theocratic, the mili-tary and the aristocratic, and it is now suggestedthat we should have a scientistic government Winston Churchill.But we didn't go to Tokyo to psychoanalyze theJapanese. We didn't go to Tokyo so that they


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January 1946could have an election. We went to Tokyo tobeat the Japanese. We went to Tokyo to putShinto savagery and feudal militarism out of busi-ness in the Pacific in which we live. We went toTokyo to take the balance of power in the Far Eastout of Japan's hands. Mr. Justice Douglas.

The luxuries of the government come from thebread of the people. Representative Joseph W.Martin, Jr.Their own interest in a healthy economy is, in thelong run, greater than their interest in a few dollarsof inflated profit in 1946, which, after all necessarycost absorption, will be easily the most profitableyear in their history. C hester A. Bow les, Price Ad-ministrator.If we had set out deliberately to find a way to

increase the man-hour cost of cotton, we could havefound no more effective way than to reduce thecotton acreage of each cotton farm and to freezequotas of the acreage to the high-cost farms, check-mating the natural shift of production to low-costareas.C . T. Revere.The sole purpose of industryincluding manage-ment and laboris to serve the consumer, and thiscan only be done successfully by giving the con-sumer a better and better product at lower andlower cost. If industry fails in this, it may have

good reason to expect retaliation in the form oftotalitarian government in place of our present de-mocracy./. F. Lincoln, President of the LincolnElectric C ompany.In our internal policies each will follow the coursedecided by the people's will. You will see us em-barking on projects of nationalization, on wide, all-embracing schemes of social insurance designed togive security to the common man. We shall beworking out a planned economy. You, it may be,will continue in your more individualistic methods.

Mr. Attlee, the British Prim e Minister, in his addressto the Am erican C ongress.The stock market now has the support of boththe optimist and the pessimist. Anonymous.Millions of dollars are now coming into the stockmarket from men who, discouraged by the seem-ingly endless fight with labor and the government,have quietly sold their individual enterprises to themajor corporations that are better equipped to carryon that one-sided struggle. Statement by Standard& Poor's C orporation.One place where labor unions most of the timerun circles around management is in getting their

story before the public. Business will serve itselfand the whole community well when it recognizesthis and takes the necessary steps to correct it.The Financial Post, Toronto.It is high time to squelch Jewish and Arab na-tionalisms by merging British, American and Rus-

sian nationalisms.The New Republic.The war has been well financed. As we enter whatI hope will be a long period of peace, our bankinginstitutions, business in general and individuals arein a healthier financial condition than ever before.Under Secretary Bell of the United States Treasury .In Russia they are frankly incorporating intotheir communist government the best features ofour capitalist system, while we are tending to putinto our democracy some of the worst features of

communism, which are now discarded in Russia.Professor Irving Lang muir.Just as the country has raised its prices and tradeditself out of the cotton market, so can labor raise itsprices and trade itself out of prosperity. NugentFallon, President, Federal Home Loan Bank ofNew York.The Soviet reporter is free because no exterioropinions can influence him. Abroad the journalist'sprofession is a career. With us it is a combat post.Pravda.

NOTEUnder the title, "Notes on the Yankee Dollar/' thereappeared in the Autumn number of American Affairs adigest of the debate in Congress on the Bretton WoodsInternational Mon etary Agreements. In the course ofthat debate Senator Taft made the following statement:"One of the witnesses, Mr. Burgess, was asked why theAmerican Bankers Association had modified its position,and he said, 'Well, we thought we ought to do the bestwe could because we found that the country was patho-logically inte rnatio nal. '" Now M r. Burgess tells us thatthis apparent quotation was not an accurate quota-tion, and taken either alone or along with the rest of thediscussion it did not fairly represent his own attitudeand tha t of the American Bankers Association. It istrue that what is said in debate does often distort thepicture unless one goes back to the record, which in thiscase was a very long one with many lively exchangesaside. American Affairs had certainly no desire to be-little the efforts of Mr. Burgess and the American Bank-ers Association to improve this legislation. The pointit intended to makeand it was Senator Taft's point, toowas that these efforts were largely defeated by reason

of two facts; namely, that the bankers received so littlehelp from other sources and that a propaganda conductedby government had created a great wave of internationalemotion. Editor.


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AMERICAN AFFAIRSThe Almanac ofHenry A. Wallace

What He Saw Twenty Years Ago

From the New York Herald Tribune, Aug. 7, 1925WILLIAMSTOWN, MASS., Aug. 6.Dele-gates to the Institute of Politics, who in thelast two weeks have been told that Europe is fullof "political dynamite," that various nations arechafing for war, that the Moslem world is preparingan uprising against the white races, that the Mon-roe Doctrine has gone to smash, that Latin-Ameri-can countries hate the United States, that Italy is"spawning children on the world with haphazardrecklessness" and that overpopulation will sooncause starvation, heard from Henry A. Wallace, edi-tor of Wallace's Farmer, today that by 1960 thenations "in their scramble for food and markets"will go in for "another universal bloodletting."Birth control and the invention of synthetic foods,Mr. Wallace said, were possible preventives ofsuch a universal calamity. As for the United States,he added, it will have to diffuse birth control meth-ods more widely to check the tendency in this coun-try of reaching the saturation point of 200 millionpopulation."Undoubtedly by 1935 and probably by 1930," hesaid, addressing the 200 scientists, political econom-ists and statesmen assembled at a conference onagriculture and population increase, "the alarm offood shortage will again be sounded and we shallhave the back-to-the-land movement with us. Thispropaganda will presumably increase continually,but with no avail, until by 1960 affairs will havereached such a pass that nations in their scramblefor food and markets will find another universalbloodletting the only solution for the problem.Fundamentally, the problem is one of controllingpopulation rather than making agriculture techni-cally more efficient.

"Assuming that no cheap method of making syn-thetic food is discovered, I am willing to make arough prediction as to the trend of agriculture andpopulation in the United States. The estimate of200 million people in the United States as the satu-ration point appeals to me as reasonable. Long be-fore that point is reached the public consciousnesswith respect to birth control will have greatlychanged. At any rate, the knowledge of birth con-trol methods will have become widely diffused."Our foreign-born farmers and our more ignorantSouthern farmers are producing twice as many chil-dren as is necessary to maintain a stationary farmpopulation. Our native-born city people are pro-ducing barely enough children to maintain thestock."

GreedBy Senator Harry S. TrumanCongressional Record, Bee. 20, 1937ONE OF the difficulties, as I see it, is that weworship money instead of honor. A billionaire,in our estimation, is much greater in these days inthe eyes of the people than the public servant whoworks for public interest. It makes no difference ifthe billionaire rode to wealth on the sweat of littlechildren and the blood of underpaid labor. No oneever considered Carnegie libraries steeped in theblood of the Homestead steelworkers, but they are.We do not remember that the Rockefeller Founda-tion is founded on the dead miners of the ColoradoFuel and Iron Company and a dozen other similarperformances. We worship Mammon; . . .It is a pity that Wall Street, with its ability tocontrol all the wealth of the nation and to hire the

best law brains in the country, has not producedsome financial statesmen, some men who could seethe dangers of bigness and of the concentration ofthe control of wealth. Instead of working to meetthe situation, they are still employing the best lawbrains to serve greed and selfish interest. Peoplecan stand only so much, and one of these days therewill be a settlement. We shall have one receivershiptoo many, and one unnecessary depression out ofwhich we will not come with the power still in thesame old hands. . . .Our unemployment and our unrest are the resultof the concentration of wealth, the concentration ofpopulation in industrial centers, mass productionand a lot of other so-called modern improvements.

Exporting Unemployment to RussiaBEFORE the war Russia bought from us abouttwice as much as she sold us. Russia sent usfurs and some coal, manganese, caviar and a fewother raw materials, with virtually no manufacturedgoods. There is no reason to suppose this patternwill alter much immediately after the war. This isideal, in that it opens a market for surplus Americanmanufactured goods, thus letting us export a cer-tain amount of our unemployment without having,in turn, to make way for an equal amount of theproduct of other lands.William L. Batt, in thebook "What the Intelligent Citizen Needs To Know."

Our Own UntouchablesSeveral members of the FCC are conservative intheir thinking; they are likely to seek to give many,if not all, available channels to individuals and

groups who are highly undesirable from the socialpoint of view, who will use their stations either forthe sole purpose of making money, or to spreadreactionary propaganda.The New Republic.


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January 1946

The Rising Price of LaurelsBy Virgil Jordan

Preface to adiscussion of foreign bans at the November Meeting of THE CONFERENCE BOARDOUR discussion tonight is especially timely, ifnot precisely appropriate to the Thanksgiv-ing season, for it comes on the eve of announcementof some form of government loan, credit or grant toBritain, probably to be followed by similar proposalsfor other Allies, not to mention arrangements formeeting the unimaginable costs of occupation, ad-ministration and rehabilitation of the conqueredcountriesall of which will add a few more zerosto our national debt, since we shall be reducingtaxes at the same time.There should be nothing surprising in this pain-fully pecuniary aspect of the laurels of victory, forthis will be the second time in a generation that wehave been faced with the problem of public policyinvolved in international financing of reconstructionafter winning a world war. Almost exactly twentyyears ago when Mr. Coolidge was saying: "Theyhired the money, didn't they?" I can rememberthat, in these monthly meetings, we were discussingthe question of funding the interallied war debts,an d THE CONFERENCE BOARD was publishing exten-sive studies of the capacity of these countries torepay war loans and of Germany to pay reparations,all of which were added to the endless archives ofunregarded experience Though the fundamentalsunderlying postwar problems of international fi-nance probably remain much the same, there arecertain differences between the situation after thelast war and the one we face today which I shallmention briefly by way of preface to our discussion.

For one thing, the problem of foreign financing isnot now complicated by intergovernmental or pri-vate war debts. Lend-leasethat invention of po-litical technologytook care of that; and this time,too, there was no foreign private war financing inthis country. It will probably prove true that theproblem now is not confused by the fiction of repa-rations, either, except possibly in connection withRussia, for none of the other Allies this time ex-pects that reparations, if any, will amount to asmuch as occupation costs, and it is likely that thebalance of the account of conquest will run the otherway.It took about thirty-five years to do it, but thethesis of Norman AngelPs book, "The Great Illu-sion," which Keynes popularized or plagiarized inhis "Economic Consequences of the Peace" seemsfinally to have been accepted, at least by the West-ern nations, though Uncle Joe still thinks there issomething in the junk business. At any rate, this

time it looks as though we shall be starting on ourinternational postwar financial career from scratch,except for a lot of loose ends which the various fed-eral lending agencies will have to clean up, and forsome problems hanging over from prewar privateloans. This may not be all to the good, because theabsence of any large mass of indigestible intergov-ernmental war debts may favor the governmentalapproach to the problem of postwar financing andemphasize another important difference between thesituation now and that after the last war.L ast time the difficulties a bou t war deb ts and thedisillusionment about reparations helped to pushthe problem of postwar international financing andtrade back into private hands, and we had our for-eign loan and export boom of the Twenties. Theoutcome was not so happy for private investors, butthe amount involved was comparatively small, andI sometimes wonder what that boom would havebeen like if it had been conducted with governmentmoney for the currently popular purposes of pro-moting domestic full employment or expanding con-sumer purchasing power. Anyway, this time thereis no question of private investors or the publicvoluntarily putting up any money for these pur-poses. The amounts are too large, and the risksalso, an d in the interval since the last war the prin-ciple of socializing risks and losses has been gener-ally accepted.Today, foreign lending is one form of compulsorycollective investment or spending part of the mech-anism of State Capitalism, which is well estab-lished both in the lending and receiving countries,an d the individual citizen is involved mainly astaxpayer, government security owner, bank deposi-tor and life-insurance policyholderwhich is enough.When we discuss foreign loans today from an eco-nomic point of view, we are really talking about theoperation of this fiscal mechanism of State Capital-ism in its effects on the domestic balance of savingand spending rather than about the questions ofprivate enterprise in foreign trade and capital in-vestment abroad that concerned us in the Twenties.Since then the control both of foreign trade and ofcapital markets has passed largely into the handsof government in every country concerned, and in-ternational lending and borrowing has become aninstrument of domestic policy. Almost all the coun-tries involved have become in some form or meas-ure collectivist in their economies.This difference from the conditions under which


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January 1946 9And so on and on, until there is a picture of anAmerica that was better fed, better clothed, andwarmer, and greatly increased her national wealthduring the war.Until the abrupt termination of lend-lease, theBritish hopefully expected, in fact, took it almost forgranted, that aid in that principle would be retro-active to the beginning of the war; or, if notthat, then that Great Britain could expect fromAmerica an outright grant-in-aid amounting to sixor eight billions of dollarsand this on the ground,as L ord Halifax explained on the Am erican radio,and as the London Statist afterward rephrased it,"that in men, materials and impalpables, Britain'swar contribution was so much in excess of that ofany of her allies that on any other computation thanthat of an unimaginative sterling-dollar ledger, Brit-ain is in a creditor not a deb tor position." Whichwould mean that after having provided during thewar $25 billion of lend-lease aid, all of which wasgoing to be wiped out, the United States was stillindebted to Great Britain on moral account. When,after the fall of Japan, the American governmentput a period to lend-lease, with the announcementthat postwar aid from America would be subject tonegotiation, the British were shocked.The British Position

One of the complete and balanced statements ofthe British position appeared in The Statist, onSeptember 29th, after the loan negotiators had setout for Washington, as follows:

"W hat are the courses open to Britain? She has tokeep alive, and socially contented, some 40 million in-habitants who must import to live, and who cannotimport unless they expo rt. Havin g in the 1850's, orthereabouts, thanks to Peel, abandoned island autarky,and having failed, as yet, to achieve imperial autarky,she must importand beg permission to exportfromher powerful Allies. Her choice on this setting outwould seem to be between a gracious or grudging as-sent to the terms offered her and the facing of a pre-carious period in which she attempts to exist on whatresources her Dominions, Colonies and friendly ster-ling-convoy countries can afford hera period precari-ous because its hardships and the erratic incidence ofimports may lead a politico-economically untutoredpopulace to revolt against the failure of war to leadto immediate Utopia, and precarious also because theattempt to build an imperial-sterling-convoy autarkymay fail, and the last state of a suitor Britain be worsethan the first. That is Britain's apparent outlook.

"But what are the courses before her wealthy Ally?Behind any sectional desire in the United States maybe the general desire to see re-established a world not onlyat peace but able to trade again with the fewest pos-sible difficulties. Behind any American sectional de-sire there must also be the 'official' desire to see re-established a Europe and an Asia whose political andeconomic mood is calculable for at least a generation or

so ahead. If th e British factor is weakenedstill moreif, by economic anemia, it is eliminatedthe worldmust enter and endure at least a generational phase ofacute economic and political incalculability. If theBritish connection, as the past hundred years hasknown it, is severed, or in any way disintegrated, thebalance of nations in both welt politik and trading op-portunity must be so dramatically changed that Amer-ica's own outlook must be one of doubt, difficulty anddanger, particularly her outlook over the Pacific."Stultification

Such was the climate of feeling in which the nego-tiations took place. A loan on any terms, that is tosay, anything less than an unconditional grant ofof dollar aid, was bound to seem to the British agrim thing; and they would take it to mean thattheir rich American ally was unable to comprehendthat its debt to Great Britain was incalculable.But discussion of the loan was stultified in anotherway by an idea that controlled the mind of Wash-ingtonthe idea, namely, that the loan had to besold to the American people, and that it had to besold not for what it really was but as somethingthey could be persuaded to accept. Thus, in manyvariations, there appeared in the news columns andin the space occupied by news commentators a state-ment like this, which happens to be from The NewYork Times:

"The British negotiators came here with a perfectlysound' argument for obtaining this financial aid as agift, on the theory, well-documented, that she wouldnot have needed the help had she not disrupted herexport trade to give herself wholly over to the waragainst the Axis. But even though some of our negotiators saw the merit of this argument from the Britishpoint of view, they knew that Congress and probablya majority of the American people would not acceptit. Therefore we provided the aid as a business-like loan, instead of giving it as a gift."This is the kind of statement that is two thirdstrue and one third untrue. It is true that the Britishnegotiators came with an argument for aid as agrant or as a gift and not as a loan; it is true that

the American negotiators were more or less sympa-thetic to that point of view; it is untrue that "there-fore we provided the aid as a business-like loan."The final agreement was in two parts. One partcovered the settlement of lend-lease and the dis-posal of surplus prop erty in England . On these ac-counts, or, tha t is to say, on account of the overhangfrom lend-lease, the American Government givestitle to the surplus property and takes the BritishGovernment's I.O.U. for $650 million. The secondparagrap h of th at settlemen t read s: "I n the lightof all the foregoing, both governments agree thatno further benefits will be sought as considerationfor L end-lease and Reciprocal Aid."This was signed on December 5. On December 14it appeared in the news that Great Britain had lim-


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January 1946 11ploy ment and real income, and to the creation ofeconomic conditions conducive to the maintenanceof world peace."So that is one thing the American Governmentwanted this loan to Great Britain to mean. Thequestion is: Did the American Government get whatit wanted, or, what did it get? The agreem ents nowpresent themselves.The Agreements

There is first a Joint Statement by the UnitedStates and the United Kingdom on the proposalscontained in the White Paper. In this Joint State-ment, Great Britain commits itself as follows:"Equally, the Government of the United Kingdomis in full agreement on all important points in theseproposals and accepts them as a basis for interna-tional discussion; and it will, in common with theUnited States Government, use its best endeavorsto bring such discussions to a successful conclusion,in the light of the views expressed by other coun-tries."All this means is that for purposes of an interna-tional conference Great Britain accepts the agenda.There is then a Joint Statement concerning thesettlement of lend-lease and, thirdly, the financialagreement.Under the terms of the financial agreement, GreatBritain undertakes to do the following things,namely:1. W ithin one year to discontinue the famousdollar pool. The dollar pool worked in the followingma nner: If, for example, Ind ia sold goods to theUnited States for dollars and was paid for themin dollars, it was obliged to surrender those dollarsto Great Britain in exchange for a credit in poundsat the Bank of England. Thus, Great Britain gotthe dollars and India got a credit in pounds. Thetheory of the dollar pool was twofold: first, thatGreat Britain should accumulate dollars against allcontingencies; and, second, that once the dollars hadbeen converted into pounds India had no dollars tospend in the United States or anywhere else andcould not spend her pounds if Great Britain refusedto release them. The first reason was valid untillend-lease began; after lend-lease began therewas really no need for Great Britain to accumulatedollars in that manner, certainly not in any case forpurposes of war, because she could get all the dol-lars she wan ted by lend-lease arrang em ent. Afterlend-lease, therefore, the only rational reason forthe dollar pool was that England should be able tosay where and how India should spend her money,and this held for all the countries of the BritishEmpire.

2. By the term of the agreement, Great Britainundertakes within one year to cease controlling for-eign exchange in a manner prejudicial to importsfrom the United States; but this is limited to only

such American products as are "permitted to beimported into the United Kingdom," which meansthat although exchange may be free, imports stillmay be controlled by quota restrictions and importlicensing; and even this is subject to Article VII ofthe International Monetary Fund Agreement whichsays that when and if dollars are scarce a member ofthe fund owing dollars may impose such restrictionsas it may deem necessary upon the freedom ofexchange.3. As concerning quotas, licensing arrangementsand other "quantitative import restrictions," GreatBritain undertakes that if they are imposed it shallbe in a non-discriminatory manner, provided thiswould not prevent her from making use of noncon-vertible currencies, and provided, again, it wouldnot interfere with any desire she might have toassist the economy of a war-torn country; and evenwith this reservation the undertaking shall hold foronly the five years during which no interest shall bepayable on the American loan.4. Great Britain "intends" as soon as possible tomake settlements with the various countries thathave blocked balances at the Bank of England, sothat this money may be in part released.5. That such blocked balances as are releasedshall, within one year thereafter, be entirely free, soth at India, for example, may spend her money whereshe likes.6. As concerning the touchy ma tter of Em pirepreferencesa system of tariff arrangements where-by all members of the British Empire are encouragedto buy and sell Britishit is not true, as many say,that Great Britain is pledged by the agreement totake down her fence if and as American tariffs arereduced. She is pledged only to negotiate abou t"tariffs and preferences."Malediction

But if that is all, how does one account for theoutburst of ill-will and malediction with which theloan agreem ent was received in Great B ritain? Allalong she had been saying, as if it were a threat,that if the terms were ungenerous she would declineto accept the loan at all; she would rely upon herown resources entirely and go along with her sterlingbloc and her fenced-in Empire economy, and at thesame time refuse to sign the Bretton Woods agree-ments providing for an International MonetaryFund and an International Bank for Reconstruction,As it turned out she really couldn't have meant itbecause the loan agreement was very promptly ac-cepted by the British Parliament on the ground ofurgent necessity.The feeling was then released, as if a dam ofrestraint had burst, and it was astonishingly bitter.The London Times, saying that this was Eng-land's "economic Dunkerque," was mild.The Economist, long distinguished for the tran-


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AMERICAN AFFAIRSquillity of its judgm ents, said this terrible thin g: "I tis aggravating to find that our reward for losing aquarter of our national wealth in the common causeis to pay tribute for half a century to those whohave been enriched by the war."The Spectator said this was a bad beginning forthe "American century which we have been prom-ised as the prize of victory, for unless the UnitedStates can learn to use the immense wealth andpower she has acquired by the Allied victory withgreater magnanimity and generosity, then the Amer-ican century will prove an unmitigated evil to everycountry that cannot escape it." These were themore conservative utterances.The New Statesman and Nation said, a little un-wittingly: "We run grave risk of ultimately beingcompelled to invoke all of the ingenious 'escapeclauses' in the agreement and of becoming an in-solvent debtor when we shall have forfeited ourpower of economic independence." (Th ank s to LordKeynes, no doubt, for the "ingenious escapeclauses.")Lord Woolton, who led the opposition in theHouse of Lords, said this was England's "hour ofdegradation." She was obliged to surrender herrights to the power of the dollar, when in fact allshe had expected or had asked for was a "rightfulrestitution of the dollars we paid for a commoncause."Something They Cannot Say

The feeling was national. Expressions of it dif-fered in degree of intensity only, not in kind; andwere, taken altogether, so unreasonable that Ameri-can resentment would seem hardly appropriate.Curiosity would be more intelligentthe curiosityto ask why there was this feeling and what it meant.As you ask that question it may occur to you thatthe loan agreement was a scapegoat. It w as theloan they were talking about but it was somethingelse they were thinking and feeling, something the}7could not say.This thought will lead to a re-examination of theBritish problem. W hat is it really? Th e accepteddefinitions of it are well known that she is in avery tight debtor position, owing other countries,principally countries within the Empire, more poundsthan she can pay on demand, these being the blockedbalances at the Bank of England; that she mustfind an enormous amount of capital to spend uponher industries, not only to restore them to what theywere before but to make them much more efficientthan they were before, for unless she does this shecannot hope to hold her competitive place in theworld's markets; that in the meantime, she must beimporting food and raw materials; that she mustre-house her population, and that then she mustbegin to increase her exports and continue to in-crease them until they are at least one-half greater

than ever before, and this only to restore the stand-ard of living in England, to pay off her creditors,to recover her lost investments and to hold her econ-omy together.It is a task of heroic proportions. On the otherhand, British resources are vas t. Th e British E m -pire as a whole is not in a debtor position and itsresources are largely unimpaired. Indee d, it is al-most self-evident that the natural resources of theBritish Empire suffered less depletion than theresources of America during the war, owing of courseto the fabulous outpouring of lend-lease.It will be said at once that you cannot in thissituation regard the British Empire as a whole. Y oumust regard England alone. England is the debtor;it is Englan d that is in trouble. Bu t if you ta keEngland alone, she is still in wealth and power sec-ond only to the United States in the whole world,and her access to the vast resources of the Empireis a fact.The American MenaceSo now returning to that irrational feeling whichneeds to be accounted for, seeming to rise from adeep sense of injury, there is a strange observationto be made. It finds its expression in the same fewwords, endlessly repeated, in the newspapers, in theweeklies, in the House of Commons, in the House ofLords and in the street; and those words have littleor nothing to do with the terms or details of theloan. They refer to American powerthe power ofthe American dollar, the power of American wealth,the unlimited economic power that is America, andfrom which perhaps there is no escape. It m ay bethat in this light what we call the plight of GreatBritain begins to assum e a fatal aspect. Th e oneproblem they cannot hope to solve is the menace ofAmerican power.

As a test, put it to the edge of fantas y. Supposethat suddenly this American power should cease tobe. Suppose that having performed its prodigioustask, thanks to which the British Empire was saved,it should now vanish away. How relatively simpleall other solutions would be for Great Britain. Th epound sterling would be again the best money in theworld and England's creditors would be quite willingto wait, because there could be nothing better thana deposit at the Bank of England. She would be theone great industrial power left in the world. Herexports of machines and manufactures would be be-yond competition and she could price them in anyreasonable wa y. She would be paramount on thesea again, and in the air.UnrealitiesOn the other hand, taking the loan from the A mer-ican point of view, much that has been said andwill be said about it here also is unreal; and thiscomes of the idea that it must be sold to the Ameri-can people as a piece of good business or as a


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January 1946 13transaction that somehow will work out to theirmaterial advantage. If we believe that Englandmust increase her exports one-half over anythingthey were before the war in order to pull herselfout, which is true, and that she must increase themeven more, perhaps double them, in order really toraise the standard of living in England, then it canhardly make sense to argue for this loan that is a"way of" opening the markets of the world to Ameri-can exports on more favorable terms, knowing allthe time that if we really put forth our strength inforeign tra de it will be the ruin of England . If wesay that the ultimate meaning of the loan is thatwe shall give England freer access to the Americanmarket, in exchange for freer access to British mar-kets, are we not fooling ourselves? In a littlewhile the result of that would be that we should findourselves engaged in the competitive export ofunemploymentEngland trying to export her un-employment to this country and this country tryingto export its unemployment to the British Empire.Th at would not jwork. If it worked for GreatBritain all the more it would not work here. More-over the White Pape r says: "I t is impo rtant th atnations should not seek to obtain full employmentfor themselves by exporting unemployment to theirneighbors."If the loan is not a financial transaction, whichdefinitely it is not, and if its advantage to thiscountry on grounds of economic policy is, to say theleast, debatable, then why was the American Gov-ernment so anxious to make it, seeming even moreanxious to make it than the British were to receiveit? Th e answer to this will be found in th e AmericanGovernment's White Paper which Great Britainaccepts in principle as a basis for nego tiation. Thefirst sentence of the White Paper reads: "The mainprize of the victory of the United Nations is a

limited and temporary power to establish the typeof world we want to live in."

The one justification for the loan is political, andpolitical on a very high plane. What the loanrepresents is an investment proposed to be made inan Anglo-American world; and it may well be that ifit had been held out in that light to the Americanpeople, frankly, from the beginning, there would benow much less danger of its turning out to be a badinvestment. If it were debated in that characterthere w ould be no stultification. People would knowwhat they were talking about and be able to under-stand their own decision. Moreover, if it were soconsidered, one very awkward question would notarise. That question is: Does the loan, regardedas a financial transaction, contradict the Americangovernment's theme of nondiscrimination? Certainlyas a commercial loan it is discriminatory in favor ofGreat Britain, unless we are prepared to make com-mensurate loans on the same terms to all of ourallies in the war, Russia included, and it will natu-rally be so regarded.Paragraph 3 of the Financial Agreement reads:"The purpose of the line of credit is to facilitatepurchases by the United Kingdom of goods andservices in the United States, to assist the UnitedKingdom to meet transitional postwar deficits in itscurrent balance of payments, to help the UnitedKingdom to maintain adequate reserves of gold anddollars, and to assist the Government of the UnitedKingdom to assume the obligations of multilateraltrade, as defined in this and other agreements."

How many other nations will say that they areas much entitled as Great Britain to borrow moneyfrom this rich country for the very same purposes?

What Unemployment Is NotTH E problem of unemploym entthis is a point tha t cannot be too stronglyemphasizedis insoluble by any m ere expenditure of public money. Itrepresents not a want to be satisfied but a disease to be eradicated.Unemployment cannot be attributed to any general want of adjustmentbetween the growth of the supply of labor and the growth of the demand.If labor generally had become or were becoming a drug on the market, thereturn to labor would be diminishing. In fact the return is increasing whetherlabor be regarded separately or in its combination with land and capital.The paradox has to be facedthat the creation or provision of work isthe one thing th at is no remedy for unemployment. I t ma y palliate immediatedistress. It may increase general prosperity. It may cause unemploymentfor a while to be forgotten. It does not banish disorganization from the Sta te. These quotations are from "Unemploy ment A Problem of Industry"written thirty -seven y ears ag o by W. H. Beveridg e, since become Sir William,author of the Beveridg e Plan and the book now current, entitled "Full Employ -ment in a Free Society."


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14 AMERICAN AFFAIRS

The Socialization of EnglandA Digest by the Editor

BEGINNING of Great Britain's career as asocialist state will make a fuzzy page in herhistory. The King's blessing was upon it; the social-ists, of course, had written the King's speech, andthen in turn they gravely observed the ancient ritualand brought on their program "in the name of HisMajesty's Government.*' There was no great mo-ment. The one stage value was the absence ofconscious drama.The Economist said: "The maturity of Britishpolitical instinct has been demonstrated once again."In the language of transition there was a certain

want of clarity, and on the conservative sideespecially on that sidea preference for words ofunderstatement. This you might put down either tothe long seafaring habit of accommodating the wind,which is a deep national trait, or to the Englishman'snatural dread of pushing the logic of a matter to itsextreme definition.But there was something more. The political ideasof the time are militant and entail economic conse-quences. Socialism is the aggressor; free capitalismis on the defensive. A self-contained nation maychange its political religion and make it nobody's

business, but a nation in Great Britain's situationmust think of many things. It is very importantfor the world to believe that as England embracessocialism she does not really change, or that as shechanges she is all the more what she was beforeand this is for two reasons.The first of them is the pound sterling. To everynormal Englishman its prestige has the nearness ofhis own skin. If the world should begin to doubtit in any way, that would be very bad, indeed, andthis is a danger because the doctrines of socialismare not historically associated with sound money.Secondly, Great Britain is in an awkward debtorposition, owing much more than she can immedi-ately pay, and must look to the United States forfinancial aid. But again, unhappily, the fact is thatthis rich country, the only one that has any greatlending power left, is the last refuge in the world forfree private enterprise, and therefore largely hostileto socialism. It would not be well for the UnitedStates to get the notion that she was financingsocialism in Great Britain.

GraciouslySo altogether it was that the honorable privateowners of the Bank of England made no publicscene about surrendering their property to the state.

Lord Catto, the governor, graciously offered to con-tinue as governor of the nationalized bank and evenWinston Churchill at first could say: "The nationalownership of the Bank of England does not, in myopinion, raise any matter of principle." In sayingthis he expressed the common conservative senti-ment, which was that nationalization of the bankwas merely in effect a deferred ceremony because fora long time the Bank of England had behaved asif it were the lawful wife of the British Treasury,with really no policy it could call its own. And soit was also, on the other hand, that the Labor Gov-ernment repudiated some of Harold J. Laski's ter-rifying utterances, probably for fear of the effectthey might have upon British credit. Even those towhom socialism is an evil and a portent of disasterwere resolved to take it as a piece of foul weather.The City, which would be our Wall Street, took itvery well indeed. In one cartoon version the OldLady of Threadneedle Street-^the Bank of England

The Best of Bad WeatherAn Advertisement Current in England

SOCIALIZATIONHow will they affect your business?

s o u r c e s , t o g e t h e r w i t h e x c l u s i v e m a t e r i a lf l d i I d i l d C i lBritain has chosen a Labour Governmentwith a powerful majority capable of im-plementing the full Socialist programme. Companies are given n every issue, anaBig changes C M be expected, necessitating provide essential data in framing policya vast amount of new legislation-Butt of Inaddition to this information for Horn*which will have a direct intuence on busi- Marketing, every Bulletin contains theness affairs. latest news of Export development*, andThere may be new restrictions,but equally once a month a special supplement deaU mthere will be new opportunities. T h: im- detail with some speciic aspect of Over-portant thing for Higher Executives is to seas Marketingbe fully informed of all changes, to be Subscribers to theaware of newtrends, and tobe ready to Government and Munmeet new conditions asfTh e i n f o r m a t i o n yo u ^ M ,, * K IV w'*fc.*nw , . _sented accurately and concisely in the trial and Commercial Concerns throughBritish Bulletin of Commerce. Up-to-the out the world. We we aWe to accept aminute facts from oftda l Government number of additional subscribersSakurittio tmn: Ct. Britm* U . 4 . 0 f*tonura. Ottnt fl.).OM u a .T*# laiicriMi fr 194) tetti Vol 1dl mn frvm \t*m*rf tonrlnht. Vbi. 8 tttm 1946.

BRITISHBULLETINof COMMERCE

\ A LIMITED AMOUNTOFADVERTISING SPACE

IS AVAILABLE

17.18, Henrietta Street,Strand, London, W.C27tJtpftOM TIMpf. (or 4728


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January 1946 15appeared as a lively young creature wearing aknee-high skirt and high heels, very pleased withthe sensation she created. In all the magazines thatcirculate among bankers and executives appearedan advertisement by the British Bulletin of C om-merce, beginning with big type as fol lows: " N A T I O N -A L IZA TIO N , PU B L IC C O N TR O L . SO C IA L IZA TIO N . HOWwill they affect your business?" It went on to saythat although Great Britain had chosen a LaborGovernment with a powerful majority capable ofimplementing a full socialistic program,, still, alongwith many new troubles, there would be new oppor-tunities, too.But a Revolution

Nevertheless, it was a revolution, and the mean-ing of it grew; and it was a revolution conductednot by labor, or by trade unionists, who are easy toknow, but by intellectuals, who are unpredictable.In E ngland, labor spelled with a big "L " does notmean labor. The Labor party is not what we shouldcall a labor party ; it is a socialist party . The chair-man of its executive comm ittee is Harold J . L aski,who provides the ideology, which is Marxian, andwhose ambition is to sing the requiem mass at theobsequies of world capitalism.

Even after the King's speech, introducing the newgovernment, and with no doubt that the Bank ofEngland would be nationalized, there were manywho evidently believed it would not go too far.British industrialists were almost unanimous in say-ing to Americans: "This socialization is no threat toindustry. " Then th e socialists began to unroll theirprogram; and four months later Winston Churchill,who had been holding the opposition at pianissimo,put his foot on the pedal and began to rumble: "Weare being harassed, harried, tied down and stifledby vaguely thought out and physically unattainableplans for a socialist future." T ha t the people hadvoted for it, he said, was one of the great disastersin England's history. "I foresee," he continued,"with sorrow but without fear, that in the next fewyears we shall come to fundamental quarrels in thiscountry. It seems impossible to escape the fact thatevents are moving and will move toward the issuethe people versus the socialists."

A few years. But meanwhile the socialists weresaying that in five years they would take Englandso far into socialism that it would never be able toget back, and at the end of it private capitalismwould be ready for M r. L aski's funeral oration.They made it very clear that to nationalize theBank of England was not a formal gesture intendedonly to imprint upon a relation t ha t had long existedbetween the Bank and the Treasury a sanction oflegality. It was, instead, a seizure of power. Theymeant to use the Bank of England as a social instru-ment, and in any way they liked.

The Program UnfoldsOn the second reading of the bill, which openedthe d ebate, the Chancellor of the Exchequer said:

"I hold in my hand a document entitled Let us Facethe Future; a Declaration of Labor Policy for the C on-sideration of the Nation. The nation considered it,and having done so, elected this House of Commons,from which this government draws its democratic man-date, to govern for five years at least. Then we willtry again. The electors of Britain having given thisgovernment a large and clear majority in this House,we have an unchallengeable popular mandate to carryout all that is contained in this document, on page fiveof which I find these words: What will the Labor Partydo ? Then follow a number of other undertakings andthen this: The Bank of England with its inancialpow-ers must be broug ht under public ownership, and theoperation of the other banks harm onized with indus-trial need. This bill fulfills that m and ate. In poin t ofform, I ven ture to claim tha t it is a model. It will indue course, make a streamlined socialist statute."Other streamlined socialist statutes would follow,for this was only the beginning. "This government,"said the Chancellor of the Exchequer, "have a man-date, an emphatic mandate, for a five-year plan ofeconomic development. It is a mandate, for at leastfive years, to lay the foundations of an economicplan for this country, and a new social order. Th atis wha t this great L abor m ajority is here for, andthis bill is one of the foundations."

A G reat BargainThere was a nice bit of irony in his saying th at theBank of England, besides being an indispensablesocial instrument in the hands of the socialists, wasreally a fine bargain, and one they could not hopeto find anywhere else in England:"From the financial point of view, the Bank of Eng-land is by far the best of all the propositions whichwe intend to nationalize in this country . Some of theothers are a bit depreciated; they show marks of pri-vate wnenterprise. No t so the Bank of England. 'Safeas the Bank of England' is still an apt phrase, whichmeans what it says. The bank's affairs have beenmost prudently managed for many years. It hasset a fine example which others would have done wellto follow a little more closely, by steadily strengthen-ing its position and by putting to reserve each yeara considerable part of its earnings. The bank stock isa gilt-edged security, a trustee security. It ha s changedhands, over a long period now, at a price very closeto that of comparable British Government securities,such as local loans stocks. The B ank of England stockhas maintained an unchanged dividend of twelve percent over the past twenty-three years, since 1922."This bill, therefore, provides that the stockholdersshall receive a suitable quantity of a new three per centgovernment stock, so as to assure to them the sameincome as they get now, at least until the year 1966,when the Treasury will have the right to redeem thisnew stock at par. To have offered term s less favor-able than these would, in my view, have been unfair


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1 6 AMERICAN AFFAIRSto the stockholders, of whom there are some 17,000.The bank stock is fairly widely distributed; 10,000 outof the 117,500 stockholders hold less than 500 of bankstock. The average holding of all the 17,000 is 850.On the other hand, to have offered better terms thanthese would, in my view, have been unfair to thecommunity."

ReasonsThe two principal arguments for taking over thebank, he said, were these:"The first is that we must make sure that today'slaw fits today's facts and prevents any backsliding intobad old ways. The second, and even more important,is that we must make sure that in the years ahead,we have an integrated and coherent system of financialinstitutions. We planthis House of Commons is de-termined to planfor full employment, and full pro-duction for an expansive economy, for increasing trade,both at home and abroad; and, especially in the earlyyears of reconstruction, against restriction and in favourof abundance. If all this is to be done, we must havethe Treasury, the Central Bank and the clearing banksall pulling together. We cannot afford to have theirpullingor even the possibility of their pullingindifferent ways. Th at will frustrate the whole plan.They must all pull together, and their operations mustharmonize with the national interest and industrialneeds."The opposition raised its minority voice to say

that these two reasons were not very convincing.Had not the Bank of England and the Treasurybeen pulling together? Was that not admitted?Then other reasons were forthcoming.Mr. Pargiter, socialist, making his maiden speechsaid:"We promised the electors that we would see thatmoney was used as the servant, not as the master ofthe state.Mr. Gaitskell said:"The real issue in this debate, and the issue whichwe have to decide, is whether this country is to takecontrol of the head and fount of financial power."Mr. Da vies said:"The worker, rightly or wrongly, has blamed theBank of England in the past for the periods of de-pression through which he has passed and he regardsthis change, which the House is being asked to approveon the second reading of this bill today, as onewhich will influence his happiness and his welfare inthe future."I t was a challenge, said Mr. R a n k i n , to the threefundamenta l concepts of capi ta l i sm:"The results of which I have described were thedirect outcome of certain monetary beliefs which areinherent in capitalist economy. What are they? First,that the quantity of money available is limited; sec-ondly, that the money is private property; and, thirdly,that those individuals and nations who desire to pro-duce commodities must borrow that money and mustpay rent for its hire. I suggest that if the bill beforeus is going to mean anything in overcoming the social

and industrial disabilities which I have described, itmust present a challenge to those three fundamentalprecepts in capitalist economy. First, the bill says, ineffect, that money is no longer private property, andhaving said that it must take the second step; it mustencourage the tendency towards a lower rate of inter-est, towards a zero rate of interest in the end; andthirdly, it must utilize the capital assets that will becreated in housing, for example, to expand, and notto contract our economy."Mr . Hal l sa id :"This is the first of the government's nationaliza-tion measures. It marks an epoch in the life of thecountry. It is the first, and, to many people, one ofthe most crucial measures. We, on this side of theHouse, believe it is essential to make a start with thecentral financial machine of the country. [HON. M E M -BERS: 'Why?'] For the simple reason that he whocontrols the purse, controls other things, too."One very curious fact was t h a t the government ,represented by the Chancellor of the Exchequer andthe Financial Secretary to the Treasury, blanklydeclined to reveal the reserves and assets of theBank of England, which never in its long existencehad published a complete balance sheet. The pur-chase price had been calculated on the market price,and that was all the government would say to thequestion: What do we get for our money? So faras Parliament could find out it was a pig in poke.Probable, however, a very fat pig. And so the Bankof England was socialized.

Then the ProgramTHREE weeks later the Lord President of theCouncil, Mr. Morrison, arose in the House ofCommons and said:"His Majesty's Government believe that it is inthe public interest that they should give a general in-dication of the further measures they propose to in-troduce during the life of the present Parliament tobring certain essential services under public ownership.This statement, which follows the clear indication ofgovernment policy contained in the King's speech atthe beginning of the session, will enable the ministersconcerned to enter into consultation with the indus-

tries affected."As stated in the Gracious Speech, the governmentwill introduce a bill during the present session to na-tionalize the coal-mining industry. At a later stagein the lifetime of this Parliament the government in-tend to introduce measures to bring under nationalownership the electricity supply industry and the gasindustry. This will implement the concerted plan forthe coordination of the fuel and power industries whichwere foreshadowed in the King's Speech."I t is the intention of the government to introduce,during the life of the present parliament, measures de-signed to bring transport services, essential to theeconomic well-being of the nation, under public own-ership and control. Governm ent policy in regard tocivil aviation and tele-communications services has al-ready been announced. In regard to inland transport,


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January 1946 17powers will be taken to bring under national ownershipthe railways, canals and long distance road haulageservices.

"As regards road passenger transport it is regardedas essential that the undertakings of the municipalitiesand companies should be fully coordinated with thenational scheme, and it must be considered whetherthis can best be achieved by transferring ownership toa national authority or by providing for the creationof regional or joint boards responsible for their ownfinances. The second alternative would make it neces-sary for some control to be exercised over these boardsby a national authority in order to insure conformitywith general policy and their proper correlation bothwith one another and with other forms of transport."Dock and harbor undertakings will be brought with-in the scope of the national scheme. The most suit-able form of public ownership is under examination,as is also the question of including certain appropriateancillary activities." It is not the intention of the government to pro-pose the nationalization of the shipping industry, andwe shall rely on the industry to have full regard tothe public interest. The government look with confi-dence to the shipping industry generally to play a fullpart in the effort towards national economy recovery,and are alive to the problems with which our shippingfinds itself confronted as a result of the war."The Coalition Government invited the iron andsteel industry to submit a report on the improvementsrequired to put the industry on an efficient operatingbasis. The government [the Socialist Government 1propose to await this report, which is expected shortly,

before taking final decisions on the future organizationof the iron and steel industry."During the interval which will necessarily elapse be-fore the plans outlined above can be presented to Par-liament and carried into effect, all necessary develop-ment in the industries concerned must proceed. Thegovernment, therefore, propose to see that progressiveundertakings will not be prejudiced if they continue todevelop in the interim period; and the appropriate de-partments will enter into early consultations on thepoint with the industries concerned."The compensation payable will have regard to anyextent to which an undertaking has not been maintainedup to the time of transfer, and the government willnaturally take precautions in its legislation to protectthe acquiring authority against any transactions en-tered into in the interim period, whether by way ofcontract or otherwise, which may prejudice thatauthority."The proposals outlined in this statement involveimportant changes in the ownership and organizationof a series of industries vital to the national well-beingchanges which were approved by the people at theGeneral Election. The policy issues involved must betaken as having been decided and approved by the na-tion, and it will be for Parliament, government and theactive leaders and workers of the industries concernedto pull together in a high public spirit so that thesegreat changes may be carried through smoothly and suc-cessfully, thereby promoting the well-being of the na-tion, including efficient service for the wide range of

privately owned industries to which the successful op-eration of those industries coming under public owner-ship is vital."Slightly Stunned

The opposition was slightly stunned. This wasmuch more of a program than had been foreshad-owed by the King's speech, more than had been re-vealed in the debate on the bill to socialize the Bankof England. Mr. Oliver Lyttelton, for the opposi-tion, hoped the Parliament would be permitted todebate "these matters upon which the future of ourindustries so largely depend."The Lord President of the Council said:

"If I may say so, I see no need for that at all. Inthe first place, legislation will be introduced, and thatwill be debatable. In the second place, the oppositionhad ample opportunity to raise this on the address inreply to the King's Speech, but they did not debateit, they did not move an amendment, and the addressin reply went through without a division. If the oppo-sition did not discharge their functions in the debateon the address, it is no part of my business to helpthem do so now."M r . L y t t l e to n s a id :

"I must press this point. It is easy for the leader ofthe house to make these parliamentary points, but thereare several parts of this schemephrases such as 'oth-er ancillary services' and matters of policywhich werenot covered by the Gracious Speech. Surely it is hardlytreating a matter of such importance with the respectwhich it deserves, if we are to be fobbed off withthis sort of general statement."The Lord President of the Council retorted againthat the opposition had missed its chance. If it hadwished to debate the socialization of England itshould have seized that parliamentary privilege atthe time of the King's speech. And all of this wasidle furor anyhow, because nothing the opposi-tion could have said would have made a bit of dif-ference. Its further privilege was to debate, not theprogram, but the specific bills as they were broughtbefore the House.In the statement of the program the Lord Presi-dent of the Council had said that in the intervalsof time, while the acts of nationalization were pre-paring, the industries concerned would be ex-pected to go on with important works of develop-ment. Reminding him of this, Lieutenant-ColonelDower, from the opposition benches, said: "I wouldlike to ask him whether if his car was going to besmashed tomorrow, he would sit up tonight to de-carbonize it?"The Lord President of the Council replied:

"The hon. and gallant gentleman may think it con-sistent with his parliamentary duties to incite industryto sabotage the public interest. If I may say so, in-citement to sabotage of the public interest is not con-sistent with the duty of the legislature."


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18 AMERICAN AFFAIRSThe Power of Money

Every socialist entertains in some form the ideathat there is an enormous natural increment ofwealth which belongs to the people but which, inthe capitalistic system, disappears into the hands ofthose who control money. If the people controlmoney they will be able to capture it. This appearedin the debate on the socialistic government's firstbudget. Colonel Stanley gently heckled the Chan-cellor of the Exchequer on the ground that althoughhe had reduced taxes he had not balanced thebudget, saying:"Of course we all agree now that our grandfathersknew nothing about economics; we have only to lookat the way they used to run things at a profit. But ifthey knew nothing about economicsand they neverhad the advantage of attending the right hon. gen-tlemen's lecturesthey did know something about hu-

man nature. They realized that, from time to time,it was to be expected that some chancellors might behuman, and that, being human, they might be swayedin their decisions, not purely by economic considera-tions, but by popular approval, by the applause of theirsupporters, or even, so base is human nature, by elec-total considerations. In their ignorance they devised,in order to counteract this tendency, a constitutionalconvention which was regarded as more binding thanthe laws of the Medes and Persians, that year by year,whatever the temptation, the annual budget should bebalanced. Th at criterion now has gone, and the budgetis only to be balanced over a period. There will un-doubtedly be a great temptation for every chancellorto make it 'jam today,* and leave the powder to an-other day and possibly to another chancellor."The Chancellor of the Exchequer replied:

"I would remind the right hon. and gallant gentle-man that the doctrine of which he is speaking was setforth in the White Paper on employment, for which heand myself and our other colleagues were jointly re-sponsible.Colonel Stanley admitted this to be t r ue , but said:"What I ampointing out is that it will be a tempta-tion to some of the weaker natures, and I am en-deavoring to strengthen the right hon. gentleman

against the possibilities of that temptation. He isgoing to be in a particularly difficult position with largenumbers of supporters around him watching withanxious eyes in case he should ever stray into the pathsof financial rectitude."Freedom

It was then that Mr. Norman Smith explained themeaning of the new freedomthe freedom of peoplefrom the tyranny of money, as follows:"There is an assumption that the budget ought tobe balanced. Who said that it ought to be? I rejoice

that the chancellor is departing, so far as the LondonSchool of Economics' principles he espouses will allowhim to depart, from supporting this monstrous prin-ciple that the budget should be balanced. To balance

the budget is a crime against civilization. If I hadmy way, the budget would not be balanced at anytime, let alone over a period of years. [Laughter.] Hon.members opposite laugh, but is it as funny as that? Weall know that there is an annual increment of pro-ductivity in this country or in any country which, issimilarly advanced technologically. The outcome ofimprovement in technology which goes on uninterrupt-edly increases the capacity to produce year by year,and theeffect of war is immensely to accelerate and ac-centuate that process. Th at necessitates an increase inthe total amount of the circulating currency needed tosustain business currency which inevitably takes theform, not of bank notes or of coins, but of chequescirculating from one banking account to another. Thatis why one finds a constant increment in bank de-posits. This annual increment in bank deposits is createdou t of nothing by the joint stock banks by the methodadmirably, clearly and precisely defined in paragraph 74of theMacmillan Committee's report. Surely the budgetought not to be balanced, when private institutionscan bring into being every year the necessaryincrement in the circulating currency to support cur-rency increases such as those necessitated by increasedtechnology? Th at ought to be added to the creditside of the budget . . . a handsome gift to the creditside of the budget, without a penny of taxation andwithout any inflationary effects whatever."

Parliamentary GovernmentAn American who had been listening to thisdebate in the House of Commons on the socializa-

tion of Great Britain would have become graduallyaware of something missing, some very familiarthing left out; and that, when he thought of it,would be any reference to the constitutionality ofthe measures, or to any supreme law in writing. Butthat is parliamentary government. In England, lawis what the Parliament says it is. Lieutenant-ColonelBirch made a contribution that was probably wastedor lost, going as it did to a very deep level of humanmotives. He had been defending free enterprise andthe profit motive on familiar ground; then hesaid: "There is not only the possibility that enter-prise will dry up if you decry it and the disadvan-tages to efficiency of destroying free enterprise, butthere is also the question of the health of the State.Dr. Johnson once said: 'There are few ways in whicha man can be more innocently employed than ingetting money,' and I think that the history ofrecent years does confirm that those who tyrannizeover their bank balances are not the same peoplewho tyrannize over their fellow men. I never heardthat Hitler, Mussolini, Tito or Franco were everthe least interested in the profit motive, and per-haps if they had been we should not have seen somany miseries as we have. The effect of cutting outprofit for men and their families as an honorablemotive for ambition can only be to sharpen thestruggle for power."


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January 1946 11)Labor Relations

Detroit LetterBy Our Correspondent

Detroit, December 31L ABOR strife in Detroit, w hatever th e outcome ofA present negotiations, will reach no "show-down." There will be significant contract changesand far-reaching new agreements. There may, inthe Ford case, be new understanding and coopera-tion, but no showdown.New contracts and agreements covering hours,wages, vacations with pay, pensions, annual wage,or variations of them, will cover practically all otheremployers north of the Mason-Dixon line and willreach the South in the not too distant future.The Ford-UAW mutual responsibility agreementwill set a new pattern but it is not basic. Conceivedin sincerity and approached realistically by bothsides, it will present man y p roblems, involving manypeople. It is entitled to a fair chance, and with thethought of being helpful we suggest that specialprovision be made to cover veterans. Productionline work is not soothing to fox-hole and seagoingveterans. Without wishing to disrupt productionthey will walk away from work quite frequently.If some foreman penalizes such a veteran, or fireshim, obviously all the legal batteries of the veteranswill come into play. Assuming the Ford-UAWplan becomes effective, other manufacturers wouldbe well advised to cover the veterans before makingthe plan effective.Storm Center

Make no mistake, Detroit is the center of social,economic and political change. We in Detroit havelong known it. Cabinet officers now recognize it an dtop politicians are taking action. This will not helpestablish permanent peace.Present troubles are merely another phase of th elong fight of the unions to consolidate and enlargetheir gains. Every agreement will be heralded as a"new era in management-labor relations," just as somany have been, by both sides, since Myron Taylornegotiated the first major contract with the steel-workers. But there has been no new era.There are several significant factors of major im-portance which have been misunderstood by man-agement. The present leadership of the UAW isfar more conservative than those who would sup-plant it. The workers, the active workers or theirdelegates, would go much further than the presentleaders and use more forceful methods. They do notand would not for many years have the sensitiveunderstanding and respect for public opinion which

Reuther and a thoroughly able staff of public rela-tions advisors have demonstrated in the GM strike.Public Opinion

Since President Truman has emphasized that pub-lic opinion will be used to bring one or both partiesin a dispute into line, public opinion is going to beused as a modifying force. And in this dispute it isbeing accepted as a restraining force by both sides.Those who feel that it would be better to havea new set of leaders who would antagonize publicopinion more thoroughly and thus reach a show-down should first weigh the advantages and disad-vantages of that course.In view of President Truman's suggested use ofpublic opinion, the change in methods of approachto the public in this GM strike assumes greater sig-nificance. The union won a great deal of respectfrom those who by tradition always had votedagainst labor and opposed, automatically, every-thing suggested or sponsored by labor. They arein the important white collar group. This supportcame from those who wish higher wages and noincrease in prices. There are thousands like that inthe white collar group. General Motors Corporationlost a lot of support in the same group because of itsrefusal to "see the books." Most of these people haveborrowed money for their mortgages, loans or finan-cing of product purchases. They had to show "theirbooks," or, as one labor paper suggested, "baretheir soul" to get a loan. They can't understand whya corporation should not do the same thing.About Fact Finding

The union lost much of this support when itblasted President Truman for his back-to-work,fact-finding recommendation. They will recapturesome of the loss when it is realized that manage-ment condemns the recommendation with equalvehemence.One veteran trade union executive said: "Hell,maybe we're going to have democracy here beforewe introduce it to the Balkans. The unions, whichare the voting strength of the Democratic party,oppose fact finding; management, whichfinances heRepublican party, opposes fact finding. And thepublic, in every poll, demands it by huge majorities.Brother, maybe we're gonna have democracy, whatd'you know."Both the corporation and the union have madetheir advertising and publicity more direct, moresimple, more forthright than ever before. The cor-poration had previously used academic argumentsfar beyond the public's understanding, and the unionwas guilty, bu t less frequently. The great majorityof crack newspapermen in Detroit from all parts of


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opinion than th e corporation. For the firstorially and otherwise criticised the corporation for

The unions, with the support of the Michigan'sitizens ' L eaguelargely composed of Democratsreds of thousands of signatures to a "liberal" pub-isher asking him to start a morning newspaper inho recently obtained an A P franchise. When paperewspaper here. It will be the first time Detroit has

A M E R I C A N A F F A I R Stion, Detroit and Wayne County have voted Demo-cratic over the last twelve years. If Field does cometo Detroit it will mean more than a local paper. Itmay mean the difference between success and failureof the union drives in the years ahead.Such a paper might bring about a healing of theTruman-UAW breach, but it will not be in timefor the 1946 elections. In any event, the open breakplays right into the hands of the long-vision execu-tives of the union who have long felt that the CIOshould follow the AFL pat tern . They feel tha tthey voted for Roo

Documents

Taxes for Revenue Are Obsolete Ruml 1946