International Order and Economic Integration

WAYS TO CONVERTIBILITY

The words at which our last chapter closed, bring us once again to the cardinal problem, by the solution of which any genuine international order – extending far beyond the narrower, purely economic sphere, stands or falls. Compulsory exchange control has, indeed, revealed itself repeatedly as the final and most important cause of the disintegration of international economic relations. To overcome it, and to restore the free convertibility of currencies is therefore the goal on the attainment of which all else depends.1)

In this matter, as in no other, the moment has come when an end must be made to all irresolution, through a courageous decision – prepared to go the whole way. Any further hesitation would, for various reasons, be undesirable, indeed dangerous. In the first place, there is practically nothing so demoralizing as a perpetually protracted discussion which is followed by no action. As, however, the abolition of exchange control is, in the last resort, a question of political morals this danger of demoralization is one to which the highest significance should be attached. Secondly, the circumstances, economic, political and psychological are more favourable today for the abolition of exchange control than they have been at any time since 1945, and we can by no means be certain that they will not once more deteriorate. Thirdly, it has been shown that now that the return to normal in economic matters has, in general made considerable progress, the shackling and distortions in international payments have become the point where further economic progress in the Western world is most seriously impeded. The importance can scarcely be disregarded which a final bursting of this bottleneck of international payments – which, as we have seen, is also a bottleneck in the international flow of capital – will have in deciding whether the development of economic forces is giving way to stagnation and retrogression, or whether an immense new field of expansion has been won.

With this is connected a fourth reason for the urgency of determined action. If, through the restoration of the convertibility of currencies the chief barrier to the international flow of capital in the Western world is not very soon eliminated, the danger will arise that those countries which are unable to maintain their investment activity by genuine savings at the rate which is required to secure progress and employment, will once more have recourse to inflationary investment financing, whereby the efforts for restoring convertibility would suffer a severe setback. A fifth reason lies in the fact that so long as exchange control continues to operate as the main cause of European economic disintegration, the efforts towards economic integration of Europe will be channelled in the direction of a continental autarchy and economic planning. It is right and necessary continually to expound – as in this book – to those romantic dreamers where European integration is concerned, the truth that as soon as the elimination of exchange control has reduced trade barriers in Europe to customs duties at reasonable rates, the problem of European economic integration will practically be solved, and in such a manner as to include the economic integration of countries outside Europe. If it is already difficult to find people able to grasp this, the cause of reason must inevitably become more hopeless the longer people in Europe are kept waiting for genuine, open integration through convertibility. Whoever holds the fictitious and closed integration of the romantic dreamers to be fraught with dangers, has all the stronger reason to create as soon as possible by the abolition of exchange control, the preliminary conditions for a Europe maintaining a free market economy and open to the whole world.

A sixth and last reason: – the more quickly and thoroughly an entirely new situation is created through the abolition of exchange control, the less will be the danger that through a change of Government the course of economic policy might once more become uncertain; for this course will be fixed decisively by convertibility, seeing that a return to exchange control would, for any government today, represent an extremely serious step. Once this is abolished and the abolition has moreover become – as we must earnestly desire – part of an international monetary system, it would be exceedingly difficult for any subsequent Government to destroy what has already been achieved, by a return to a ‘leftist’ course of economic policy. From this it follows not only that the basic assurance of a free market economy constitutes a sure foundation for convertibility, but that the contrary also is true, i.e. that a transition to convertibility constitutes the surest anchor for a free-market economy. Whilst the opponents of a free-market economy are by no means uncertain of this, which explains their resistance, open or concealed, against convertibility, it is open to doubt whether, on the other hand, the adherents of a free-market economy understand equally clearly that a transition to convertibility is the essential step which has now to be taken in order to secure a free-market economy.

We said just now, that a return to convertibility is, in its essence, a question of political morals. The abolition of exchange control has that much in common with the gold standard, which, in this connexion, must be taken seriously once more, since the restoration of convertibility can only be viewed in its right setting if, over and above it, the necessity is perceived of reconstructing a real international monetary system, – for which, after much painful experience, the gold standard remains the only possible pattern. The strongest barrier in the way of a restoration of the gold standard is not objective, but subjective in nature; it is a belief – quite recent but which has already stiffened into a dogma – that the gold standard is something that has been finally done away with and which one is now ashamed to own up to. The discussion on both convertibility and the gold standard, which should be the ulterior aim, is still characterized by an inclination to treat the status quo, in spite of its entirely recent origin, as something hallowed by usage. It is in accordance with the law of mental inertia, that that which is customary is easily allowed to prolong itself into the future, as the philosophical insight is lacking which would cause people to remember that what is customary today represented a clean break with what was customary yesterday. However, that which, in the case of the gold standard is at least highly probable, may, in the case of convertibility, be considered practically as certain, i.e. that the inner readiness of conditions for such a step has gone far beyond any outer expression thereof. Thus, merely a strong push is necessary in order to bring to this hitherto hesitant desire for a change-over to an almost explosive reality.

Convertibility means the abolition of exchange control, and with this, the overcoming of the European Payments Union, which is built thereon. The unequivocal nature of this aim does not, of course preclude the possibility that it may be expedient to arrive at it through stages of an increasingly perfect convertibility, e.g. if the situation in any one country were not considered sufficiently ripe to permit that country to follow the example of Canada, where, at the end of 1951, exchange control was abolished without reservation, with one stroke of the pen. Most proposals with any claim to realism, practically envisage such an approach by progressive stages.

Among the manifold varieties which may be contrived, one must be ruled out as undesirable, namely the one which may be termed ‘non-genuine’ convertibility, the reason being that it constitutes a species of ‘convertibility’ which achieves the freedom of payments transactions from exchange control at the cost a corresponding stiffening of import restrictions, and thus sacrifices substance to appearance. Such a pseudo-convertibility – sometimes termed merely ‘monetary’, – is dishonest, and unsuitable for attaining the object for which the abolition of exchange control is intended, namely the restoration of a free multilateral world-trade which, freed from bureaucratic arbitrariness and discriminatory practices will generally – i.e. limited only by customs tariffs which cannot so readily be removed – re-establish free prices and competition as a regulating and stimulating device also in international economic relations. The restoration of convertibility must inevitably imply the immovable principle that quantitative (collectivist) foreign-trade controls must cease to be the chief means of controlling the balance of payments. The responsible authorities in every country must be enjoined to produce a natural balance of payments equilibrium instead of an artificial one, and this by the time-honoured instruments proper to a balance of payments policy: for the equalization of short-term fluctuations, through an ‘open market policy’ on the exchange market (playing on the reserves by the purchase and sale of gold and foreign currency) and, for the equalization of fundamental fluctuations, through the regulation (restrictive or expansive as occasion demands) of the national economic aggregates (credit policy, supplemented by an appropriate budget). A further instrument which they will have to be permitted to use, in exceptional circumstances, but during a period of transition, and within certain limits, is the adjustment of the rate of exchange.

Whatever technique may be selected for the transition to convertibility, the result will depend on two basic preliminary conditions which correspond to the two instruments mentioned as pertaining to a classical balance of payments policy. One of these preliminary conditions is indicated by the simple truth, never sufficiently emphasized, that the way to convertibility leads inevitably through a change in the economic policy of each individual country. Convertibility begins at home, so that what happens within each country is of decisive importance in regard to the restoration of an external equilibrium, through a non-inflationary freemarket economy. There would be no sense, after the experiences encountered, in reverting once more to the EPU principle of the ‘cheese-plate cover’ and attempting to squeeze as many countries as possible into some international apparatus, whilst the causes of disturbance to the external equilibrium – which actually lie in national economic policies – continue to operate. We must begin at the bottom, i.e. with the individual nation, just as exchange control was introduced independently by each nation, although there was a mutual influence in both the world of ideas and the world of economic facts. This does not mean to deny that the step to convertibility becomes easier for each individual country in proportion as more countries decide simultaneously to take it, thus giving one another mutual support. Only by such means is it possible to create once more an international monetary system worthy of the name. National economic rehabilitation and international cooperation must be complementary the one to the other, and only through such a combination is success to be expected.

The other root-problem, on the solution of which a general return to convertibility depends, is the restoration of general liquidity, so as to allow each country sufficient manoeuvering space to parry any blows against equilibrium, promptly and effectually. In so far as single countries, in key positions, have not yet been able, through an increase in their reserve funds, to reach the amount necessary for their international liquidity, it will be necessary and expedient to obtain assistance for them from countries owning a sufficiency of gold, notably from the United States of America, in the form of exchange loans or the creation of an international convertibility fund. Meanwhile it should however be noted that the most important step to a restoration of international liquidity, is the revival of the international flow of credit. The more this can be reactivated, the smaller need be the size of national reserves, and vice versa, which provides the main explanation of the fact noted in many quarters, that at the time of the gold standard countries managed to exist with remarkably small reserves, also the other fact that the movement of gold among EPU countries is much more considerable than it ever was at the time of a gold standard because it must to a great extent substitute for international credit transactions, which the policy of exchange control has immobilized. That is one of the main reasons why a return to convertibility must not be limited to transactions on current account, but must include, as an essential condition, the freedom of international credit and capital transactions 2).

This demand is opposed by the fact that the main difficulty, as regards a return to convertibility is thought by many to lie in the danger of an incalculable export of capital, which is termed – with a frown, and, assuming a slightly demagogic air – the flight of capital. Thus, it is thought in many quarters that the abolition of exchange control should be limited, for the present, to transactions on current account, and that a more or less strict control of capital transactions should be retained. The idea appears to be clear enough, and its carrying out to be simple. And yet neither is the case.

In the first place it is by no means easy to prove whether this danger of a capital ‘flight’ is not very much overrated specifically in the event of an abolition of exchange-control, and in the climate created by the then prevailing economic policies which alone would allow such a move. Where would this ‘fugitive’ capital come from? What would be the motives? How large would the amounts be, at most? Whither would it be fleeing? Who would have an interest in liquidating his assets, which are probably invested in business of some kind, and transferring them abroad, unless it was somebody who would follow his money abroad? Secondly, it is an error to consider ‘capital flight’ as merely the manifestation of an incalculable psychological factor. Incentive and possibility depend much more decisively on internal economic policy, particulary on credit policy, the brakes of which need only to be drastically applied in order, should occasion arise, not only to check any ‘capital flight’ but even to compel ‘fugitive’ capital to return home, as happened in Italy in 1947, through Einaudi’s currency reform, and recently in Austria. As, indeed, a drastic credit policy constitutes, in any event, the primary condition for the equilibrium of its balance of payments, any country which, by taking such action, has shown itself ready for the abolition of exchange control, should ipso facto be reckoned as one in which the possibilities of capital flight are very limited.

This brings us to a third point. The idea that a bolt must be pushed in order to prevent ‘capital flight’ is rooted usually in the desperate notion that, when everything has been done to ruin the international credit of a country, the best one can do is to hold tightly on to what one has, transforming it by this very policy of control, into a ‘capital-trap’. A more courageous economic policy, and one giving better hope for the future, would be to put the question quite differently, starting with the assumption that everything depends on getting rid of the defeatist concept of a ‘one-way street’ where capital transactions are concerned (in the sense of a possible ‘capital flight’), and to develop traffic ‘in the other direction’. The greatest hindrance to this is, however, the exchange control itself. It amounts to the ‘moral devaluation’ of a currency, a stigma which must result in capital gravitating towards foreign countries as naturally as water flows by its gravity. It gives rise to a ‘mousetrap’ currency with the well-known consequences thereof; it corresponds to an economy of compulsion in the interior of a country, which always seeks to ‘make a fair distribution’ of available goods, instead of unleashing the forces that will increase production. It surely belongs to the world of totalitarian and collectivist concepts, to treat those persons as criminals who refuse tamely to expose their savings, financial assets and investments to the fate, which a collectivist and inflationary economic policy in their country is preparing, or threatens to prepare for them. One might, with equal right, attempt to prohibit skilled workers from emigrating to avoid such fate, –alleging their action to be a wicked ‘labour flight’, and arguing that this does as much harm to the national economy as does ‘capital flight’. In both cases this constitutes the melancholy privilege of totalitarian States. It is more civilized and at the same time more intelligent, to suit economic policy to people, and not people to economic policy.

This leads to the conclusion, which is anything but frivolous, that an abolition of exchange control in otherwise favourable circumstances (presupposing, in particular an appropriate discipline in monetary and financial policy, also the ‘right’ rate of exchange) will actually eliminate that ‘flight’ of capital, on account of which it is thought that exchange control cannot be given up. Here too the elimination of controls will create its own prerequisites; it will break a vicious circle in which we have been moving for the last decade. A currency, too, has its ‘goodwill’, which is just as important for the welfare of the country as is the quality of its products, and the prosperity of Switzerland rests as much on the one as on the other. One of the essential props of her balance of payments is the ‘goodwill’ of the Swiss franc. To regain this prop should be the main objective for each country, which has lost it. The most essential condition for this is, next to stability, a free currency, i.e. convertibility. That in itself is reason enough for the utmost wariness in the application of such controls on the flow of capital as shall, after the restoration of convertibility, still be deemed necessary. The door which is closed from the inside against those without, is also secured on the outside, against those within. That which, in virtue of a purely static calculation, we think to gain for the balance of payments, may be lost many times over in the dynamic reality.

A NEW INTERNATIONAL MONETARY ORDER

The abolition of exchange control by an individual country is, for that country itself, of tremendous significance if it wishes to restore an essential portion of its overall social order on the basis of freedom, and enjoy the fruits offered by the ‘goodwill’ of a healthy currency. There is sufficient reason, therefore, to restore free convertibility for one’s own country, even if this cannot be made part of a joint international action. We must repeat, however, that nothing short of such international action will constitute a return to convertibility in its full sense, because more important than the advantage to an individual country, pursuing this course independently, is the reconstruction of a genuine international monetary order, without which any international order, as a whole, would lack an essential part. After the failure of the Bretton Woods system, this was the vital purpose at the founding of EPU, and even if, – with all due respect to its merits –, the functioning of the latter did not, in this broader sense, come up to expectations, there is no reason why, today, this same objective shall not be attained by a better method.

For the attainment of this purpose, one must acquire a right historical perspective, by realizing fully that the present objective is to build up, after more than twenty years, from the chaos of national exchange controls, a new monetary system for the West, capable of functioning, in place of the international monetary system, which collapsed at that time, and which was imperfect and, above all, wrongly guided by the United States, resting as it did on a gold standard which had become meaningless. This consideration brings our thoughts inevitably back to the gold standard itself, since this constituted the international monetary order of the old economy and appears actually to be indispensible for the new economy also, after all attempts to find even a half-way substitute for it have failed.

The substance of these attempts was to combine money and gold by means of a simple but ingenious coupling mechanism, so that – at any rate for international payments –money could be exchanged for gold, and gold for money, at a fixed rate. The deeper significance of this currency order for international economic relations lay in the fact that it created an actual international monetary system, which not only united the national currencies, one with another, in a fixed relationship, but at the same time guaranteed the free exchange of national monetary units at this fixed rate, so that all countries on the gold standard were united, for practical purposes, in an international payments community. The three principal postulates for an international monetary system, namely those of unity, stability and freedom, were fulfilled to perfection by the gold standard, and none of the systems, which have been proposed as substitutes, are in any way equal to it.

Such an international payments community of free and stable currencies is, indeed, an essential sign both of a genuine world economy and of international economic relations along free-market lines. From this the following may be deduced: – The gold standard, which is practically the only possible form for such a payments community, was, in actual fact, an essential component of the old world-economy; it may well be described as the (liberal and economic) international monetary order which conforms to the free market economy, in contrast to the collectivist (political) order of national paper-currencies patched together by planned controls. It will therefore become an essential and, it appears, an indispensible ingredient of a new world-economy, in so far as no fundamentally different form can be found for an international monetary system which conforms to a freemarket economy, i.e. any fundamentally different possibility of a genuine international payments community of free and stable currencies, suitable for a human society not bound together in a single world State. It must be understood, however, that experience and reflection both testify to the absence of any prospect of finding a substitute for the gold standard of even approximately the same value. It follows therefore that the question ‘A gold standard or not’? amounts to such questions as ‘A free-market or a collectivist monetary system?’ ‘Non-political selfregulation or political control’? and finally ‘A free-market economy or collectivism’? In the recognition of these facts one should not, under any circumstances allow oneself to be confused by muddled thinking or vague sentiments, although gold has unfortunately become of late – and in a considerable measure – the object of a real ‘complex’, which prevents many people from logical and sober thinking, and makes them incapable of following up any objective analysis of the actual interrelation of facts. What has to be said about the unassailable position of gold in human society in general, has been set forth in my earlier book Die Gesellschaftskrisis der Gegenwart (5th ed, p. 403 et seq.).

Such concepts would, even a short time ago, have brought on one the gloomy reputation of a rather limited mental capacity and a hopelessly antiquated outlook. That collectivists of all shades of opinion reject a gold standard and even, on certain occasions speak of gold, in its general function as the commodity with the highest liquidity, as being worthless, is entirely understandable and corresponds to their idea – which is perfectly correct – that gold and a gold standard belong, in fact, to the liberal (free-market economy), and not to the collectivist, world. When, however, as has been happening for a long time even in quarters where adherence was expressed to the basic principles of a free-market and a world economy, gold and a gold standard, have been relegated to the sphere of outworn things, this has always been a sign of intellectual confusion, and would seem to be more and more recognized as such. This confusion had its origin in the fact that people did not understand the vital functions of gold in the machinery of world economy, and they thought that while maintaining a fundamental loyalty to the free-market economy they could nevertheless dally with the ideas of collectivism. The gold standard was criticized on the ground that gold was no stable measure of values, – as if the national paper-currencies had given proof of a greater stability, and as if much could not be done to increase the relative stability of the value of gold – the intrinsic worth of which is already high and makes it so universally sought after in disturbed times. Jokes were made to the effect that in South Africa gold was dug out of the earth with much toil, only to be buried once more in the vaults of Central Banks, – and in the meantime we have learnt that it is much more senseless and costly to expend much toil in bringing people into the world, and educating them, only to bury them once more, in an unproductive fashion, in the foreign exchange offices, among mountains of forms, if not actually in the prisons of a collectivist enforced economy. The gold standard was held responsible for the extraordinary unevenness in the international distribution of gold – which is very much like the views of a layman in medical science, who might try to make the water in a person’s body responsible for dropsy, instead of tracing it to deep disturbances in the circulation. It was deplored that the gold standard did not leave to a Government full autonomy with regard to its national economic policy – as if there ever could be such autonomy if there are close international economic interrelations 3).

If the general attitude towards gold and a gold standard seems recently to have become more favourable, this is probably bound up with another change of view which we have observed in the sphere of ideas on the theory of money. A contempt for gold was recently accompanied by a boundless overestimation of the possibilities of monetary management which resulted from a rather mechanical over-simplification of the quantity theory of money – however indispensable such simplification may be to grasp the essential interrelations. It seems that dangerous tendencies, only too near at hand in monetary thought prevailed, tendencies of mathematization, of thinking in terms of unreal aggregate values (e.g. ‘quantity of goods’, ‘price-level’, ‘volume of investments’, ‘volume of savings’, ‘value of money’, ‘purchasing power parity’, etc.), of expressing qualitative and functional things in terms of quantities, and of inadmissible simplification. This over-simplification of the quantity theory of money made its subscribers feel that the esoteric monetary doctrine in their possession was far superior to the barbarous imperfection of the gold standard, and that they were sufficiently equipped with a few intricate equation systems to look down contemptuously on those who preferred to trust themselves to the well-tried efficacy of a monetary system on a metal basis. Nevertheless it has in the meantime come to be increasingly realized how questionable this monetary variety of technocracy is, since it has become obvious what a world which is ruled by systems of equations instead of by a gold standard really looks like, and that gold, driven out by the proverbial pitchfork, always returns by the backdoor.

Anyone who, notwithstanding, still hesitates to acknowledge the basic principles of the gold standard, should contemplate that a decision in favour of a world economy includes, for all practical purposes, a decision in favour of this international monetary order. As matters stand today, therefore, a world economy presupposes a gold standard. The contrary is equally true, – that a gold standard presupposes a world economy. Just as a fundamentally free multilateral world economy cannot function without a gold standard, the gold standard is also unable to function without a fundamentally free multilateral world economy, i.e. one which allows all the national economies that are part of it to adjust to an external disequilibrium by means of appropriate movements of prices and quantities, which would be free to move in all directions. Such a world economy must be fundamentally free from ‘non-conforming’ commercial and monetary measures (those of economic planning, such as exchange control, quotas, foreign trade monopolies and barter agreements), and any ‘conforming’ interference with trade (in particular, import tariffs) should, as a general rule, not reach prohibitive proportions, least of all in countries like the United States, which, by reason of their wealth, importance and position as international creditors are mainly responsible for the functioning of the world economy.

Such freedom and mobility in the economic process which constitute the basic conditions both of the gold standard, and of a world economy, rest, on their part on two final and ultimate principles. On the one hand, the necessary minimum of economic freedom both within the national economies and in international economic relations, is incompatible with market rigidity, group anarchy and the paralyzation of production by monopolies, all of which have dominated the economy to an ever-increasing degree during the last two decades, and have made it a battle-field for embittered and narrow-minded contending interests. How, finally, this portentous question is to be effectually met, and an irreducible minimum of mobility restored, has become, indeed, the fateful question of our time. An answer to this question can, however, only be found if it is realized that the ultimate causes of the paralysis of the economic process, through the tenacious defence of each individual and group interest, are identical with the ultimate causes of the general social crisis of the present time; the emergence of the masses, proletarianization, and the infinite uncertainty of modern existence. The detailed conclusion from such a situation for a reform of our society and economy, have been stated in an earlier book by the author. We are still convinced that this is the only way of salvation, and are entirely sceptical concerning every attempt to solve the problem by some well-contrived mechanical method.

On the other hand a world economy (including a gold standard) positively requires, as does the free market economy as such, a stable frame-work of political, moral and legal standards, such as will secure to international economic relations in general, and, in particular to the gold standard, which depends so essentially on honesty, consideration and loyalty to principles, the indispensable climate of confidence, reliability, continuity and peaceful disposition. The gold standard is therefore not merely a matter of monetary technique, but is the final outcome of a deep-reaching ramification of economic political and sociological conditions, and attainable only at this price, at the same price at which, alone, a general international order, grounded on peace, justice and consideration, may be purchased. This means that a gold standard and a world economy are only possible among national economies, which are constituted as free-market economies, and which have retained that minimum of elasticity in regard to prices and costs which is presupposed in a free-market economy. Whoever holds a world economy, and with it a gold standard, to be worthy objectives, because, for him, peace, prosperity, security, justice and universality are also worth striving for, will immediately recognize in the conditions essential for a world economy and for a gold standard signposts for the orientation of his country’s internal economic policy. Thus, it is shown once more that all the urgent reform problems of our time, constitute an inseparable unity and that, without a glance at society as a whole, they cannot be rightly formulated, let alone solved.

But can we go back to the past? Has not something collapsed, which seems to mock any attempt to restore it? And are we then reduced, for lack of any other alternative, to accept this extremity and make the best of it?

Such questions, implying resignation, are entirely understandable, but they are also highly dangerous. For they are indeed the favourite refuge of all whose views are unclear or undecided, also of the extra-ordinarily large number of time-servers and of persons with interests in the present-day state of affairs. Everywhere in the social life of today, where programmes and ideas have gone bankrupt, their domination is artificially prolonged by the concept, deliberately spread, that we must stick to them, otherwise chaos will ensue. We have transported to an island, the dreaming palm-beaches of which promised an island of the blessed. And now that it has proved to be a devils’ island, attempts are being made to argue us out of the truth of our situation, or to frighten us into accepting it, by assuring us that our ships are rotten and that the idea of building new ships would only occur to weak-minded folk or to visionaries. It is our fate, they say, to end our lives on this island of serpents.

Is this really our fate? Or shall we not rather examine our ships as to their seaworthiness, repair them and, if necessary, build new ones?

One last thought. May we not ask ourselves – rightly – whether it may not be that, just as at the end of the Thirty Years War, all the energies which had given life to the wars of religion, were spent, so we, today, have already passed the climax of the mighty tide of revolutionary ideologies and are heading towards a new age, which looks for quiet, order, work and inner reflection, an age which is heartily tired of high-sounding words programmes, ideologies and myths, of material and intellectual mass-existence, of slogans, demagogues and watchwords, and is turning once more to the consideration of the things which are of lasting value to an impartial and honest person? This is nothing more than a question, which, however, we venture to submit – not without some hope, although without any self-deception. Neither in good fortune nor ill, neither in hope nor fear, must we let ourselves be troubled by the supposed dictates of any ‘spirit of the age’, nor be turned either from a decision which rests with ourselves or from the duty incumbent on each one of us to see to his own spiritual enlightenment, when such issues are at stake as the social crisis of the present time and its overcoming in a civitas humana and an international order.

NOTES

4. (p. 244) Convertibility:

I have treated in further detail this problem, which is exceedingly complicated, in my study entitled ‘Wege zur Konvertibilität’, which appears in the compendium ‘Konvertibilität’ edited by A. Hunold (Erlenbach-Zürich, 1954).

5. (p. 249) The role of gold:

The question arises here – and is much discussed today – whether the most effectual and promptest help which the United States could offer to restore international liquidity, would not be a noticeable rise in the American price for the purchase of gold (today $ 35 per ounce of fine gold). One can, with perfect right, refer to the fact that the rigid adherence to an unchanged goldprice, after the first World War, was one of the mistakes of that time which was fraught with the direst consequences, because, by reason of the world inflation since 1914, it came into a dangerously wrong relationship to the international level of prices. This led partly to heavy deflation, partly, however, to a gold standard bent on gold saving methods (Gold Exchange Standard) also to a colossal edifice built-up of intertwined international credit relations, which collapsed in the international liquidity crisis of 1931, burying world economy beneath it right up to the present time. Thus, the conviction is beginning rightly, if slowly, to dawn, that, with the official purchasing price of gold as it is today, the international value of all the gold available has become far too low to bear the strain of free international payments transactions. Should such a rise actually be effected, most of the problems of international liquidity would probably solve themselves, and against this the disadvantages, so often cited, would weigh lightly. It would be a measure calculated to put an end to a state of affairs which, anyhow, cannot be maintained permanently entirely abnormal, – a measure without which the reintroduction of a gold standard is unthinkable. It would of course, be dangerous to present this tension-reducing measure to a world determined to use it for the continuation of its undisciplined economic and monetary policies, instead of for a transition, through internal economic stabilization, to an external monetary freedom. It remains, however, to be seen, whether it might still not be possible to induce the United States to change their rigid attitude in this matter, if a sufficiently large block of countries were to submit to them a serious and well-founded plan for a return to convertibility, pointing out that a final adaptation of the price of gold to the international level of prices would constitute the most effectual, and the promptest help. For further details cf. the statements in the first German edition of this book, pp. 315-332 and 336.

6. (p. 254) International integration and national policies of stimulating economic activity:

A more detailed treatment will be found in the first German edition, pp. 324 et seq.; ALLAN G. B. FISHER, International Implications of Full Employment in Great Britain, London, 1946; W. RÖPKE, The Economics of Full Employment, An analysis of the U. N. Report on National and International Measures for Full Employment, New York 1952.

• 1. (p. 25) The Sociology of War:
• 2. (p. 27) War of Conflict and War of Aggression:
• 3. (p. 31) The inadmissable over-simplification of the peace problem:
• 4That the various factors are interwoven with extraordinary intricacy becomes particularly evident in the dramatic catastrophe of international interrelations which we call war). One of the moral perversities with which our age is afflicted was to deny at times the supremely catastrophic character of war, until two world wars brought disillusionment – let us hope for ever. For centuries the time-honoured belief existed that war was, as a rule, one of the incomprehensible evils of the world system, which – like the other Horsemen of the Apocalypse – Pestilence, Hunger and Death – had to be borne with resignation. Pacifism, in the sense of a mass movement directed towards the abolition of war, only became possible after the beginning of the modern age, when war, like all other things alleged to be the Will of God, came to be regarded in the light of critical and ameliorative reason, and, together with other social institutions, as a work of man which it would be quite possible to alter. Thus instead of being a subject of theology, war became a subject of sociology. Has it in this way become entirely comprehensible? To be honest we must admit that we are still very far from understanding it. Although men have at all times pondered over the phenomenon of war, and although recent generations especially have amassed a gigantic literature on the sociology of war, all that progress adds up to is that we possess a fairly complete list of the possible causes of war and that we realize the extraordinary intricacy which links these causes and which excludes any monistic theory of war sociology. Only a separate and comprehensive volume could do justice to the epistemology which results.
• 5In order to understand in detail what an international peace based on justice must accomplish, the various categories of war must be distinguished. Above all a difference must be made between two types of war, the importance of which is not lessened by the fact that they have often been combined with each other in the course of history and that there are borderline cases in which it is not easy to say whether the one or the other type predominates. A war may arise either through a conflict over concrete claims, which may be compared with a case under civil law (war of conflict), or through an act of violence which corresponds to a breach of the peace under criminal law (war of aggression) ). Whereas individual legal disputes arising from contentions of personal honour or material claims are finally settled by judicial decision, international conflicts of this kind may easily lead to war, as long as a decision by force of arms, which corresponds to the ordeal of the Middle Ages, is not abolished through obligatory international legal procedure, and before this is the case we shall continue to regard war rather as a tragic chain of events than as a vicious action. From their very nature such wars of conflict make it difficult to clarify the question of guilt, provided one of the warring parties – as is however often enough the case – does not misuse the conflict as an excuse for a war of aggression, or does not oppose the readiness of the antagonist to come to an understanding with inexcusable intransigence. This last applies on the whole to the case of the first world war, whereas we should not hesitate to characterize the second in its origin and in all its phases purely as a war of aggression, after it had already been preceded by the wars of aggression in China and Abyssinia.
• 6Is not then the solution of the war problem in reality very simple and only dependent upon the firm determination of the governments and the peoples? If this were our opinion we should be contradicting ourselves, since earlier on we termed just such thinking ‘internationalism’ and warned our readers against it. In actual fact this contradiction is only an apparent one. To explain it we should consider that the problem can be regarded from various angles. In formulating the solution of the war problem so sharply and smoothly above, we were regarding it from the juridical angle. Here in fact everything appears much simpler than it actually is. To be content with such considerations is to lapse into that monistic way of thinking which may be termed legalism and which is no better than economism or any other one-sided outlook. In indicating the legal solution the question has still not been answered as to the conditions under which the peoples and governments would be prepared to accept it firmly and undeviatingly. This question however brings us back to the higher level of the sociological, ethical and political considerations with which we started).