Does the World Need a World Bank?
As a medium of exchange, the situation of money is different from that of other commodities. If there is an increase in the quantity of other commodities, this always means an improvement of conditions for people. For instance, if there is more wheat available, some people for whom there was no wheat available before can now get some, or they can get more than they would have received under the previous conditions. But with money the situation is very different.
To point this out, you have only to consider what happens if there is an increase in the quantity of money. Such an increase is considered bad because it favors those who get the new money first at the expense of others; it never happens in such a way as to leave relations among individuals unchanged. Let us take the following situation. Imagine the world as our world is, you know. Some people own money and also claims on money, claims to get money from somebody else; they are creditors. Then there are also people who are debtors, who have debts in money.
Now imagine a second world which is precisely the same as the first world except for one thing, that wherever there is a quantity of money available, a cash holding, or a demand for money in the first world, there is in the second world the double of it. That means that everything is the same in both worldsl; nothing is changed except something in the arithmetic. Everything in the second world is multiplied by two. Then you will say, "It doesn't make any difference for me whether I live in the first world or the second world. Conditions are the same."
However, if changes in the supply of money were to bring this about, one might think that this also was only a problem of arithmetic, a problem for accountants; the accountants would have to use other figures, but it would not change relations among individuals. It would be absolutely uninteresting, immaterial, for people whether they were living in a world with larger or smaller figures to be used for accounting and bookkeeping.
But the way money changes actually occur in our living world does not correspond to this. The way in which changes in the quantity of money are really brought about in the world is different for different people for different things; the changes do not occur in a neutral way; some people gain at the expense of others. That means, therefore, that if the quantity of money is increased or doubled it affects different people differently. It means also that an increase in the quantity of money doesn't bring any general improvement of conditions. This is what the French economist Say pointed out very clearly at the beginning of the 19th century.
We could deal with this problem from the point of view of the world market and the World Bank. Assume that there are some people who think that the best solution for the monetary problem would be a world paper currency, issued by a world bank or a world institution, a world office, and so on. And now assume we have such a thing. Many people want to have it. They think it would be a wonderful idea. There would be somewhere, possibly in China, an office for the whole world. And this office alone would increase the quantity of money. Yes!
But who would get this additional quantity of money? There is no method of distribution which would be satisfactory to everybody. Or let us say that the international bank issuing a world money for all countries wants to increase the quantity of money because, they say, there are now more people born. All right; give it to them. But then the question is who gets the additional money? Everybody, every country, would say the same thing: "The quantity we got is too small for us." The rich countries will say, "As the per head quota of money in our country is greater than it is in the poor countries, we must get a greater part." The poor country will say, "No, on the contrary. Because they have already a greater part of money per head quota than we have, we must get the additional quantity of money."
Therefore, all these discussions of, let us say, the Bretton Woods Conference , were absolutely useless because they did not even approach the situation in which they could deal with the real problem which, as far as I think, none of the delegates and none of the home governments that had sent these delegates even understood. There will be a tendency toward higher prices in those countries that are getting this additional quantity and those who receive it first will be in a position to pay higher prices. So other people will want more, you know. And the higher prices will withdraw commodities and services from the other nations which did not get this new money or not a sufficient quantity of it.
It is very easy to write in a textbook saying that the money should be increased every year by 5 percent or 10 percent and so on. Nobody talks of decreasing the quantity of money; they want only to increase it. People say, "As economic production — or the population — is increasing, one needs more and more money, more liquidity." I want to repeat what I said which is very important; there is no way of increasing — or of decreasing — the quantity of money in a neutral way. This is one of the great mistakes that is very popular. And this will bring about a struggle between all countries, or groups of countries, for whatever the units of this system will be.
But one doesn't need more and more money generally. And if one increases the money, one can never increase the quantity in a neutral way, in such a way that it does not further the economic conditions of one group at the expense of other groups. This is, for instance, something that wasn't realized in this great error — I don't find a nice word to describe it — in starting the International Monetary Fund. Even that dreadful ignoramus who was called Lord Keynes had not the slightest idea of it. Neither did the other people. It was not all his fault — why did they permit him to do this?
It is impossible to have a money that is only government-made, made by the world government, if it is not once and for all limited in its quantity. And limiting the quantity of money is not something which those who are suggesting these things want to happen. Such a state of affairs cannot prevail. In regard to a money, which unlike the gold standard is not increased except as it is increased by the given situation of gold mining, increasing its quantity is not only a quantitative problem; it is, first of all, a problem of to whom this increase should be given.
Therefore, all those ideas that one could bring about a world currency completely produced and operated by some world institution is simply based upon a complete misunderstanding, ignorance of the problem of the nonneutrality of money, of the fact that increases or additions to the money cannot be dealt with in a way which will be acknowledged by all people as a "just" distribution.