From Bretton Woods to World Inflation

July 27, 1944

The agreements reached at Bretton Woods and the Administration’s plans for international talks looking to post-war commodity agreements combine to form a pattern of the kind of post-war economic world that our Government and certainly a number of other Governments have in view. From the standpoint of traditional freedom of trade the outlook is not an encouraging one. When Adam Smith made his great plea for freedom of trade in a world strangled by governmental obstacles and prohibitions, the freedom that he had in mind was that of the individuals directly concerned. “In every country,” he wrote, “it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.” The freedom of the individual buyer corresponded to the freedom of the individual seller, who likewise, Adam Smith argued, should be free to sell in the best market and presumably to take payment in the manner that he himself chose in return. But it is certainly not this kind of freedom, the freedom of the individual citizens of each country, that the Bretton Woods agreements or the proposed commodity agreements have in mind. On the contrary, these agreements presuppose a world in which the type of governmental controls developed in the Twenties and Thirties are to be expanded and systematized. What is contemplated is a world in which international trade is State-dominated.

An interdepartmental committee of technicians is working in Washington on a program for agreements to “stabilize” the price of international commodities. If the experience of the Twenties and Thirties proved anything, one would have thought that it demonstrated above all not only the futility but the harm of this sort of state “stabilization.” Even if we assume that we had a body of the ablest and most disinterested economists controlling the system, they would not be able to fix the “right” price for international commodities. They could not know and weigh properly the thousands of factors that go to form such prices and that determine their fluctuations from day to day. But, as a matter of fact, the Government experts are not always experts and they are almost never disinterested. They are usually the servants of pressure groups within their own countries. Almost invariably, as a result of the demands of their own growers or producers, their idea of “stabilizing” a commodity is to price it too high.

Out of scores of examples we need merely recall what happened in the inter-war period in the case of rubber and cotton. The British rubber producers, who had almost a world monopoly, restricted exports to force up the price. The first result was intense resentment in America, the chief consuming country. But the longer result was that the Dutch and other non-British countries expanded their production of rubber so “that the scheme ultimately left the British rubber growers in a far worse position than if it had never been put into effect. Similarly, the United States kept up the price of cotton artificially before the war by acreage restriction and Government loans. The result was not only that we lost foreign markets and had to put more than a whole year’s supply of cotton in storage, but that we encouraged an increase of cotton growing all over the world, thus permanently injuring American cotton growers.

There is reported to be dissent within the interdepartmental committee of technicians now working on the commodity agreements proposals. Representatives of the Department of Agriculture are represented as desiring permanent instead of merely temporary international commodity agreements, while other experts hold that such agreements fixing prices and production on world markets would be inconsistent with our governmental opposition to cartels. This is perfectly true. And in addition to this inconsistency we must remember that the nations that are the chief consumers of the raw materials will resent the fixing of prices above the natural market and that such economic disagreements will lead to dangerous political antagonisms.

There is a grave danger that the phrase “international cooperation” may be perverted to mean the drawing up of agreements between Governments to control at every point the economic transactions of their own citizens. In the economic field, on the contrary, true international cooperation means the termination of such governmental controls, which are invariably conducted in the interests of political pressure groups, and the return to a world in which men are free to trade and produce at the prices fixed by supply and demand and competitive efficiency.

The plan put forward by Winthrop W. Aldrich, Chairman of the Board of the Chase National Bank, deserved serious study. His objections to the Bretton Woods proposals—that their net effect would be for the good currencies to “be pulled down to the level of the poor currencies”—merited particular attention.