World Liquidity A Problem

Press, Volume CVIII, Issue 31680, 16 May 1968, Page 26

World Liquidity A Problem

The world economic crisis, the severest since the 19305, would have been far worse had there not been a reasonably good degree of economic management by governments, said Professor B. P. Philpott, to the Lincoln farmers’ conference yesterday.

However, in one respect governments’ economic management had not been good, the advice of economists had not been taken, and this had caused the trade crisis to be deeper than it otherwise needed to be. This was in international liquidity. Professor Philpott, who is professor of agricultural economics and director of the agricultural economics research unit at Lincoln College said that for a long time governments had been urged in vain to arrange for the controlled creation of international credit to maintain growth in international trade. Arrangements involving the International Monetary Fund had only now been approved over the stern objections of the French. It was to be hoped that it would not be too late. If there was more international business each year there had to be more international money to finance it, unless there was to be a drastic fall in prices. If more money was not created each year then countries finding themselves short of overseas reserves had to try to build up reserves by reducing imports and expanding exports—earning balance of payments surpluses, he said.

Every country could not earn a balance of payments surplus at the same time. Some had to go into deficit. If they did not wish to do so the universal attempt to increase exports and reduce imports was doomed to frustration, and what would happen was a general decline in economic activity multiplied throughout the world. For the last 20 years or so the supply of international money had been largely in the form of gold, or dollar and sterling deposits. The supply of gold had been inadequate to meet monetary demands because its price had been kept at the same level of $35 an ounce. If it was to perform its function as an international money—and he did not believe it should —then it would have to be about doubled in price. The other form of international money had been dollars, not created specifically as such, but simply through the accident of United States foreign investment, foreign aid and military spending. It was just the accident of United States world-wide spending that had filled the gap in world money supplies, and if it had not been for

that the economic situation would have been far worse than it already was. However beneficial this flow of dollars into the reserves of central banks throughout th? world had been, it had not been regarded as such by President de Gaulle and those who surrounded him, who viewed with alarm this evidence of American domination, and they instead urged a return to a revalued gold as the basic international money. No Change The Americans for good or ill—he thought probably for ill—refused to budge from a gold parity of $35 an ounce, partly because they did not believe that there should be any further enthronement of gold and also because by raising the price an unwarranted benefit would be conferred on the South Africans, the Rus-

sians and, above all, the French and other speculators against the dollar. The Americans felt, along with most, that the proper route was the dethronement of gold and the setting up of new arrangements at the International Monetary Fund, under which credit created by that institution would eventually take over the role of gold. “In the meantime In their determination to stick to the present gold parity the Americans are doing, or are -soing to have to do, all the things that we do not want to see done—that is, deflation at home, cutting down on overseas spending and overseas investment, and there is even a danger, especially in an election year, of a resurgence of strong protectionist sentiments against imports. . . . “The only light one sees on the horizon is the possi-

bility of a settlement in Vietnam which could reduce military spending abroad and thus avoid some of the need to reduce some other types of spending,” said Professor Philpott.