Britain’s Collectivism vs. ERP

April 19, 1948

Two days after the Marshall Plan was safely enacted the Economic Commission for Europe released “the most complete and thorough study” on European recovery. This report, according to a Geneva dispatch to The New York Times, “contains the facts and analyses that Congress wanted before acting on ERP but could not get because they did not exist. It contains powerful ammunition for those who believe that many of the troubles of Western Europe are due to the pursuit by governments of domestic policies encouraging a continuation of the dollar shortage . . . rather than industrial weakness or even losses and changes due to war.”

The report shows that total commodities available for home use in Europe as a whole, excluding Germany, had reached 96 percent of the prewar level on a per capita basis by 1947. Six European countries had more goods per capita than in 1938. All this did not prevent the cartoonists who were supporting the Marshall Plan here from invariably picturing present-day Europe as a starving old woman in rags, waiting to be rescued from death while pompous congressmen had the callousness to debate the problem.

“With the exception of Britain’s, every [European] country’s foreign balance of payments has been moving steadily away from equilibrium largely as a result, the survey finds, of continuous inflationary pressure combined with artificially overvalued exchange rates.” Even the exception of Great Britain here hardly seems to harmonize with the recent statement of The London Economist that the British economy “is now using up its last reserves.”

Yet what are the British doing—or being allowed to do—to help themselves? In Sir Stafford Cripps’s budget message we have part of the answer. It is a new graduated tax upon the portion of a man’s income derived from investments. For example, a man with an income of £50,000, all derived from investments (whether in real estate, stocks, or even government securities), would pay a special tax of £24,000 in addition to his ordinary income tax of £45,000—making a total tax of £69,000 or £19,000 more than his total income.

Such a tax will destroy capital values and further disorganize British production. It will not only prevent saving and investment but force dissaving and disinvestment. In the long run this must reduce productivity and real wages. It seems highly unlikely that the amount of American capital which we can contribute under the Marshall Plan will be enough to offset the amount of home private capital that the British Government is destroying.

Meanwhile, even if Britain’s production should recover in spite of everything its government is doing to prevent it, this would not necessarily solve the immediate crisis, which consists in the gap in its international balance of payments. The British bureaucracy can see this problem, as it can see every other economic problem, only in collectivist terms. It has completely forgotten that individual consumers and producers, acting in accordance with free market forces, automatically solved in the past the kind of problems its own policies are now creating. It thinks bureaucrats must set “targets” for the output, import, and export of everything.

The British trade deficit is certain to be chronic as long as the government maintains exchange control with an overvalued pound. The mere attempt to offset the distortions which such exchange control brings about must lead to increasing regimentation of the rest of British economic life. Under exchange control a free economy is impossible. The only solution is to let the pound be freely bought and sold at the prices established in a free market. But this is the one solution which the Socialist doctrinaires now in control of the British economy are determined never to permit. Meanwhile our government has virtually committed itself to support this Schachtian device for four years, and to drain American capitalism for funds for British zealots to use in destroying capitalism and production in Britain.