In the first six months of 1933 the world will be wondering between two alternatives; and until doubt is resolved it would be vain to expect genuine decisions from an International Conference. The alternatives are these. Will it be apparent by the middle of 1933 that this slump is the same in kind as past slumps though so violent in degree, and is gradually working itself off by the operation of natural forces and the economic system’s own resiliency? Or shall we find ourselves after a modest upwards reaction and dubious hopes of recovery, plunged back again into the slough? So long as there is any prospect of our realising the first alternative – and its realisation is not impossible – we may be certain that the International Conference will confine itself to pious words. Only in the other event, with hopes dashed and the oppression of renewed and universal despair terrifying the delegates, will there be any chance of action commensurate with the problem.
It is easy to predict the agenda of the Conference. A number of resolutions will be passed declaring that many things ought to be changed, but without a serious intention of changing them. Exchange restrictions will be denounced, but those countries where they exist will regret that they are in no position to abate them. It will be said that debts should be written down when they are beyond the capacity of the borrower, but no individual creditor will offer to write them down. The Conference will declare that there should be a general return to the gold standard as soon as possible, but those countries which have gained their liberty in this respect will not surrender it except on conditions which they do not expect to see satisfied. The Conference may agree, even with French acquiescence, that prices should be raised. But will it offer any plan for raising them?
So long as the Conference deals with symptoms and not with causes the shadow of futility will lie across its path. Its first task therefore should be to distinguish one from the other.
The trouble began with something that is best described as “a state of financial tension”. In the United States the causes of tension were internal; elsewhere they were in their origins mainly international. These initiating causes are well known – on the one hand a frenzy of speculation in the United States, on the other hand a cess ation of the international lending which had been off-setting the disequilibrium of the balances of payment between countries which war debts and tarriffs would have already produced otherwise. A state of financial tension means that individuals and communities suddenly find much increased difficulty in putting their hands on money to meet their obligations, with the result that they take various measures to reduce their purchasing.
There is one, and only one, genuine remedy; namely to increase demand – in other words to increase expenditure. As the slump progresses it becomes more difficult to do this. At first a relief in the financial tension would have been enough by itself. But when the decline of prices and profits has gone beyond a certain point, the incentive to produce, and not merely the financial ability, has disappeared. At this point, the State itself must, in my judgement, start the ball rolling by deliberately organising expenditure.
The essential task is to divide measures for the direct relief of financial tension between nations.
Our plan must be spectacular, so as to change the grey complexion of men’s minds. It must apply to all countries and to all simultaneously. Each at the same time must feel able to remove barriers to trade and to purchase freely. If we all begin purchasing again, we shall all have the means to do so. The appropriate stimulus to the activity of trade will vary from nation to nation; in some a relief from taxation, in some a programme of public works, in some an expansion of credit, in some a relaxation of exchange and import restrictions, in some a repayment of pressing debts, in some the mere removal of anxieties and fear, in some the mere stimulus to the lords of business to be courageous and active again. What is the charm to awaken the Sleeping Beauty, to scale the mountain of glass without slipping back? If every Treasury were to discover in its vaults a large cache of gold proportional in size to the scale of its economic life, would not that work the charm? Why should that cache not be devised? We have long printed gold nationally. Why should we not print it internationally? No reason in the world, unless our hands are palsied and our wits dull.
The plan would be as follows. An international body – the Bank of International Settlements or a new institution created for the purpose – would be instructed by the assembled nations to print gold certificates to the amount of (say) $5,000,000,000. The countries participating would undertake to provide a lawful ratio of equivalence, though not necessarily an unchangeable one, between gold and their national moneys. The gold certificates would then be distributed to the participants in proportions determined by a formula, based on their economic weight in the world . . . I see no disadvantages in [this plan] and no dangers. It requires nothing but a little more elastic than usual.
The delegates to the World Conference should assemble in sackcloth and ashes, with humble and contrite hearts. It is, I suppose, well nigh the fiftieth of post-war Conferences. Fear and greed, duplicity and incompetence, but above all conventional thought and feeling, have brought their collective performance far below the level of the participants regarded as human individuals. But here is a last opportunity. Finis Coronat opus.
The above is an edited extract