WESTERN FINANCIAL SYSTEM IN COLLAPSE

Press, Volume LXXXIV, Issue 25447, 19 March 1948, Page 6

WESTERN FINANCIAL SYSTEM IN COLLAPSE

BRITAIN’S ECONOMY

[By WA Special Correapoiteams.l n Tn-dav Professor Dennis Roberts on. Professor■ of Political Economy at the University of Cambridge, continues his replies to toe serlas of Questions on Britain’s grave flnancial plight put to Mm by Emulre correspondents. He points out that technically toe financial system of the western world has already collapsed and that in one sense Britain is already “bankrupt,”.but; discusses methods at dealing with the situation. LONDON, March 8. operation is behind us and that it Is

the convalescence—arduous enougfcwhich is ahead. It is at this point that I feel Inclined to invoke (though 1 have already broken it) the good rule which appears at the top or our Cambridge examination papers, “Not more than five questions to be attempted.” For the remaining questions contain great boss words like vital, breakdown and survival, which scare me. But I will do my best to stay toe course. Question No. 7: A "Menacing Problem" Should the financial system of the Western world collapse, in the form of nations being unable to meet payments for vital necessities, what will' be the consequences? If worst comes to worse and Britain goes bankrupt, with «ll her gold spent and loans exhausted, could she survive on a basis of barter of goods she makes for lood she must have? 7. Of course if one cannot get what is vital to one, one dies. Perhaps that is all that need or can be said about the first part of the question, except this, that many people before now have had to live on less than they would ever have believed they could live on. But I don’t wish by verbal niceties to evade- discussion of the menacing problem that lies behind the second part of the question though I can’t possibly “answer" it. First, however, I think I must be allowed to pull the question about a little. Britain is already "bankrupt" in the restricted sense that she cannot pay ner sterling creditors in the form in which they would like to be paid, though she can pay them what she promised to pay them, namely English legal tender money'. Again, looking to the future, it will not make much difference ia principle whether she hands over all her gold to the United States when she still has (say) £150,000,000 of gold left, on- toe old principle that you must always keep one Cao on the ranks. So the essence of toe question is best revelled, I think, if we forget about “bankruptcy’’, and ask simply, ‘What is the measure of the danger that would he done to the economic life of Britain through complete inability to purchase more than a strictly limited amount per annum, say £100,000,000 worth, in a certain area, namely, that in which payment has to be made in United States and Canadian dollars? How far could that situation be compensated by Increased purchases from other sources, or how far, on the contrary, would it impair our present ability to purchase from these other sources?’ "Obviously, toe only answer worth giving would be, one backed by an elaborate analysis, commodity by commodity and source by source. But short of that, there are one -or two things that may be worth saying, and I will continue my reply to. this question later. (In his concluding replies, to be published on Saturday, Professor Robertson queries some aspects of the British government’s financial policy.)

Question No. 5. Would you say that one method which may be shortly adopted to meet the crisis in the West is to raise ; the price of gold, thus creating larger < supplies of dollars wherever gold is ] held—and further that by all indications American policy, specially as reflected in France, appears headed in I this direction? 5 If I understand the question aright, it is that the Americans should raise the doUar price of! gold, thus causing every ounce of gold we nave to ISd them to be worth more dol- ' lars But would it for any length of time be worth more wheat, more i machinery? Anlntricate question tola • the relation between the statutory price of gold in any country and the nrice level of commodities, and I i should not care to dogmatise. But m : any case is there really the slightest evidence that the thought* pf the j American authorities are turning in * this direction?" tn 1983 **?S price of gold to counter deflation, and such a thing might happen again one day, though next time let usliope by International action, a* provided In the Bretten Woods agreement. But now (unless the price movements of me last few weeks have altogether altered their outlook) they are still preoccupied with the perils of inflation, to the flames, of which a rise in the price of gold could surely only add fuel. I can’t believe that they would choose , this way, of all ways, of attempting to , ease the position of the European or , Dominion buyer.. , ; Question No. 6 Collapse of Financial System i Is it a fact that the financial system of the iVhole Western world is in dan- ] ger of collapse? • .. 1 6. There are wonderful anaesthetics s nowadays which muddle one up so that ■■ one thinks the operation is still to come ; and then finds that it is over. Perhaps • that suggests the right answer to this question—the financial system of the West has collapsed, some time ago. We are rfow fiddling about with experiments at building it up again. One ; of these, which centred on restoring < to the pound sterling a key role which > it was not yet strong enough to play, ■ did not turn out very well. Now we have numerous arrangements for the : financing of mutual expansion of trade between pairs of countries—good as : far as they go, but carrying dangers of Undue hardening of the arteries of intercourse. We have an embryo attempt to minimise these dangers by ' ingenious arrangements for all-round ■ clearance between certain European countries. We have high hopes of the Marshall programme being so admin- ' istered as to give prominence to those so oddly named ‘‘off-shore” purchases, thus rebuilding a circular stream of payments (ana doing something to help Canada with her difficult problems). It Is all very difficult, and complicated and uncertain; but perhaps : we shall get on best if we can manage to believe that in this field the