Proposals for International Economic Co-operation, 1919–1933

There was little appreciation in the twenties of the difficulties of effecting real, as distinct from monetary, transfers of wealth from one economy to another. The problem of balance of payments adjustment needed theoretical elaboration. There were differences of opinion among economists about the proper level of international prices. The theory of international capital movements, particularly disequilibrating short-term capital movements, was primitive.1 A substantial improvement in economic understanding was needed before the problems of the period could be properly analyzed.2 Better policy required better economic theory, particularly in the United States where, significantly, the only academic appraisal in print of any of the reconstruction schemes of the early twenties was that by Benjamin M. Anderson, Jr. Schemes for stabilizing the exchange rates which do not strike at the underlying difficulties are futile and harmful. Exchange can be ‘pegged’ through borrowing in the American market, so long as American lenders will supply unlimited dollars for the purpose. This was done during the war and for five months after, the greater part of the dollars required being supplied by the United States Treasury. It was necessary during the war. After the war it did great harm.… The burden upon the United States Treasury was unendurably great, and it is impossible to suppose that either the American government or American banking interests will again assume it.