Gray Is for Giveaway

December 4, 1950

When Gordon Gray was asked by the President last March to study our “foreign economic policies and programs,” there was little doubt concerning what his conclusions would be. He was hardly expected to conclude that the Truman Administration’s giveaway program had been a mistake.

The report contains a few sound recommendations such as the reduction of trade barriers and of farm price supports. It even pays brief lip-service to the idea that future civilian loans and grants “should be substantially less than we have been spending.” But it winds up by urging on net balance bigger and broader foreign giveaway programs than ever. And it endorses every fallacy and misconception behind our existing giveaway program. Gray is no serious reexaminist.

There is not space to analyze or even mention all these errors here, but I should like to touch on a few central ones.

1—Like all previous Administration documents of the sort, it ignores the central fact that every dollar we send abroad to increase the productivity of foreign countries must reduce by at least an equal amount the increase in our own productivity. We can push forward the capital development of foreign countries only by postponing our own. If we donate X dollars for a hydroelectric plant in France we can’t use the same dollars to build a new hydroelectric plant in the United States. Yet the Gray report never once reminds the reader that we cannot give away our cake and have it too.

The notion that America has such a “mature economy” that it cannot profitably absorb any more of its own capital is monstrous nonsense. We could use almost limitless new capital in adding to the quantity and quality of our housing alone.

2—The emphasis of the Gray report is persistently in the wrong place. It doesn’t once recognize and state clearly that the chief obstacle to the capital development of most foreign countries—particularly the much-discussed “underdeveloped areas”—has been their own governmental policies. These policies are hostile to foreign capital—and almost equally hostile to their own domestic capital.

None of the Point Four zealots seem to have stopped to ask themselves the question: If the natural resources are there to be developed, and foreign capital hasn’t yet come in to develop them, why hasn’t it? Private capital goes where it is offered the highest returns or the lowest risks. It goes to the borrowers who most efficiently fill consumers’ needs and have a record of honesty and repayment. That is why private capital tends to provide the most rapid and best balanced world development. Government handout capital, “invested” for political purposes, in the main diverts, distorts, and retards economic development.

3—The Gray report shows no understanding of all this. It even recommends enactment of the bill for “government guarantees of private investment against the risks of non-convertibility and expropriation.” This bill proposes that private foreign investors be allowed to make whatever profit comes from their investment, but that the taxpayers be compelled to pay the losses. Such a proposition has only to be stated plainly to be recognized as preposterous.

Such guarantees, moreover, in effect condone and encourage the very practices they are supposed to insure against. If such government guarantees do not exist, private capital will flow, as it should, only to those countries that have proved by their actions and record—and not merely by offering smooth assurances or signing “investment treaties”—that they will not interfere with currency conversion and will not expropriate property. For contrary to the tacit assumption of the Gray report, no honest or liberal government is compelled to seize foreign investors’ property or to prohibit foreign investors from converting whatever currency they earn into their own currency—or into any other currency—at the best rates they can get.

There is no room left to analyze the dubious assumptions the Gray report makes about financial military aid to foreign governments. But that can be done at a later time.