Does England Need Controls?

October 12, 1953

LONDON—Everywhere in the world, where people are still free to express themselves, the prestige of socialism is clearly on the wane. Nowhere is this more strikingly demonstrated than in England. The Labour Party itself is split wide open on the subject of further nationalization. One speaker at the Margate Conference even declared that “nationalization is not the object of this party.”

But it is a little difficult to say exactly how far the change in British social thought has gone. If the British people are beginning to be fed up with nationalization, they still give very few signs of being fed up with government “planning” and its accompanying controls. Nowhere is this better illustrated than in the case of exchange control. Exchange control is a totalitarian measure. Before the second world war it was imposed in Europe only in Hitler’s Germany. Under it the citizens of a country are forbidden to buy or sell their own currency, or exchange it for any other, except at the fiat rate set by the government. To enforce such a control, the government must control all foreign trade. It does not allow exporters to keep or sell freely the dollars they earn. It does not allow its own citizens to buy what they wish from abroad, but only specified amounts of specified goods from specified countries or areas after they have obtained a special import license. A free-born Englishman is not even allowed to spend more than £40 ($112) a year on foreign travel for pleasure.

When the government controls foreign trade in this way it in effect controls the whole economy. Under exchange control a free economy is impossible.

Now the most important step away from exchange control (implying, in fact, its virtual abandonment) is for a government to permit its currency once more to be fully and freely convertible into any other. And this is a more important requirement for sterling than for any other currency in the world. For London has been traditionally the world’s banker. The world did business mainly in sterling.

Banks and business firms everywhere kept sterling balances in London to facilitate their trading operations and as temporary investments. As the value of sterling as a world currency lies precisely in its convertibility (into goods and other currencies everywhere), it follows that anything that prevents or restricts this convertibility lowers the value, the prestige, and the demand for sterling, and retards British recovery and expansion. Yet most of the bankers and government officials with whom I have talked here treat the problem of restoring sterling convertibility with indifference. Some of them even talk as if sterling convertibility were mainly something that Americans were pressing for and as if restoring it would be primarily a favor to us.

Even most of those who want to see convertibility restored treat the problem as too formidable for any present action. The British have, in fact, developed an altogether unhealthy sense of dependence on America. They talk as if the main requirement for convertibility were still further aid from us and a drastic reduction in American tariff barriers (with no corresponding reduction in theirs). Nearly everybody talks, in fact, as if the economic future of England were wholly dependent on the economic future of the United States. As one official put it to me: “When you get a cold, we get double pneumonia.”

The question an American is asked on all sides is, “When are you going to have a depression?” which is like being asked, “When are you going to be sick?”—and a serious answer is expected. This is rather like building up an alibi in advance; the next bad turn for England or Europe is going to be, by prior definition, America’s fault. This state of opinion is pathological. It paralyzes British initiative; and it is not supported by the facts. In 1952, for example, less than 6 percent of the exports of the United Kingdom went to the United States. If England threw away its crutches, it would be surprised to find how strong its legs really were.