Sense Instead of Dollars

March 28, 1949

The Marshall Plan has now become sacrosanct and apparently impervious to argument or facts. Even when a high official of the British Government blurts out in an official speech that Britain has now achieved complete recovery, he raises only a few eyebrows in Congress, and these are promptly lowered by the hasty assurance of other officials that the first one spoke out of turn. Yet Undersecretary Mayhew’s statement is confirmed by the official indexes of Great Britain, and for that matter of Ireland, the Netherlands, Norway, Sweden, and Denmark, which show that industrial production in all these countries is now above the prewar level.

When this is pointed out, the reply is: “True; but our country still has an unfavorable balance of trade; and of course it is the American taxpayer’s duty to pay for it. And he may as well know that we intend to go on buying more than we sell even beyond 1952.”

In brief, in spite of the fact that these countries are now producing more than they produced before the war, they announce that they will continue to live beyond their means. They will continue to consume more than they produce. They will continue to buy more than they expect to pay for. They present figures showing what their foreign-trade deficit is going to be in future years. They talk as if a foreign-trade deficit were something foreordained, some malign fate, instead of something that they bring about by their own policies.

It is not merely the former European belligerents but our Latin American neighbors, and in fact nearly all the former neutrals, who now complain of a “dollar shortage.” The primary cause of these chronic foreign-trade deficits and dollar shortages is not mysterious. It is exchange control. Every government that imposes exchange control contends that it is forced to do so by the dollar shortage. The truth is the reverse. It is the exchange control itself that causes and perpetuates the dollar shortage.

It is needless to spell out here all over again just how and why it does this. I have explained the reasons in my book Will Dollars Save the World? in 1947 and in numerous Newsweek columns since. They have been pointed out in the last few years by such economists as John Jewkes in England, Wilhelm Röpke in Switzerland, Trygve Hoff in Norway, and Gottfried Haberler and Walter Sulzbach here, to mention only a few. But so far as the ECA is concerned, they might just as well never have written.

Perhaps an analogy would help. The 1947 per capita income of Mississippi was lower than that of Great Britain, Denmark, Sweden, or France. Yet Washington did not start rushing millions of dollars into Mississippi either to “halt Communism” there or to enable Mississippians to buy more goods from New York. But if Mississippi’s state government suddenly decreed that 50 cents in Mississippi was worth $1 in New York; if it ordered its exporters to turn over all their dollars from sales to New York to the state government and accept only 50 cents apiece for them; and if Mississippi’s government then allotted the proceeds to its importers to enable them to buy every dollar’s worth of goods from New York at a cost to the importer of only 50 cents—then everybody in Mississippi would want to import from New York and nobody in Mississippi would be crazy enough to export to New York. Mississippi would immediately have an unfavorable balance of trade and an appalling shortage of New York dollars.

If Congress is determined to go ahead with the ECA—as apparently it is—then it ought at least to insist on one minimum condition. This is the abolition of exchange control. Such a condition would not only save American taxpayers billions of dollars; it would do more than any other single measure to restore free enterprise in Europe and bring real world recovery. Exchange control is not only a totalitarian device in itself (inspired by Hitler’s Schacht); it is the keystone of present European controlism, nationalism, and socialism.