Who Are the Isolationists?

June 26, 1950

The most encouraging world economic development in recent weeks is the news that real stabilization of the franc and the removal of exchange controls is being discussed in official French circles. The most discouraging is the foreign-policy manifesto of the British Labour Party. Together these developments symbolize the present conflict between international liberalism and isolationist socialism.

Whether French officials have in mind going on a gold basis, or going merely on a dollar basis, has not yet been made clear. Either decision would involve the serious initial problem of choosing a tenable rate. A rate fixed in dollars rather than gold would make the French economy a tail to the American kite. And as long as our own political authorities display their present carelessness about maintaining the integrity of the dollar, the wisdom of such a French decision would be highly dubious.

But what is most encouraging is that French officials are discussing the abolition of exchange control. Even by itself this would be an enormous step forward. Only freely convertible currencies will make possible free multilateral trade. That is what economic internationalism means.

The British Labour Party pamphlet unintentionally reveals a truth that socialists have always ignored or denied—that socialism does not promote international integration, but disintegration. It is nationalistic, isolationist, autarchic—not by accident, but inherently. What is most important in the Labour Party pamphlet is not that it rejects the Schuman plan, but its reasons for doing so—the general philosophy it enunciates. The British Labourites could properly have rejected the plan on the ground that what it proposes is merely a gigantic cartel. They rejected the plan, in fact, not on the ground that it would set up a monopoly, but on the allegation that this monopoly would be private and not governmental. The real truth is that, pernicious as a private European coal and steel monopoly would be, an inter- or supra-governmental one—using not merely economic but political power to exclude outside competition—would be far more so.

The British Labour Party declares that it “fundamentally rejects” proposals for freeing European trade by the removal of “customs duties, exchange controls, and quotas. . . . The sudden dismantling of internal barriers to trade would in the short term cause serious dislocation, unemployment, and loss of production. . . . Whole branches of industry . . . would go bankrupt.”

This is a tacit admission that these branches of industry could not stand competition and freedom of trade. It is a tacit admission that production in Europe under exchange controls, quotas, bilateralism, and other “internal” trade barriers is grossly uneconomic and wasteful. It is a tacit admission that national socialism and national planning are not reconcilable with international freedom of trade, including free exchange markets and full currency convertibility.

All this throws a brilliant light on the application of the Marshall plan. President Truman on June 10 once more denounced the “isolationists,” whom he identified as those who express any misgivings about our foreign giveaway programs. Yet it is the ERP program itself that has not only been tolerating, but sanctioning and subsidizing the isolationist policies of its British and other European beneficiaries—their exchange controls, bilateral treaties, quota systems, import prohibitions, their direct governmental discriminations against American goods. Our ECA officials have echoed and subscribed to all the isolationist European nonsense about a so-called “dollar shortage”—which is brought about purely by exchange control itself—and about a so-called “dollar gap”—which exists precisely because there is an ERP to fill it.

Our present foreign policy might be described, in short, as one that sanctions and subsidizes the economic isolationism of every country but our own. Yet freedom of trade has no meaning unless it is two-sided.