Perhaps no matter is more significant today to a student of international economics than the state of unbalance in the level of economic development and the rate of economic growth in the different countries of the world. Particular imbalances in the sphere of trade and payments that have loomed so large in our thinking in the post-War years are no doubt serious, and they have made significant impact upon the structure of international economic relatious.
We have witnessed a long period of dollar shortage resulting at one stage in a drastic devaluation of a number of currencies, including our own, and only recently we saw its reversal and a sudden appearance of what may be called a state of dollar abundance. We have experienced inflationary tendencies operating in varying degrees in the different economies of the world, and we have had, associated with all this, large scale discriminatory import restrictions, quota arrangements, exchange controls, etc. These are extraordinary phenomena, and they are threatening to be persistent and obstinate.
The International Monetary Fund, which was established in 1946 with the object of creating conditions for a smooth and balanced flow of international trade, has even now to have recourse to a certain waiver clause permitting these restrictions if conditions remained abnormal. And a recent Currency Yearbook brought out by the us Currency Expert, Franz Pick, stated that at least sixty out of the ninety-three currencies which his team surveyed are out of gear with the us dollar and require far-reaching adjustments. Normality in international payments is yet very far off. So international economics is most important.
These particular imbalances are no doubt partly due to the damage to productive capacity and trade channels wrought by the war. But in so far as this were so, they were to pass off with the end of the period of reconstruction and the adjustments of the currencies in conformity with the domestic price levels of the trading countries. There are, in fact, people who think that this is all that there is to the problem of international disequilibrium, who argue that the current imbalances in the sphere of international payments are solely due to dislocations caused by the war and that their persistence is due to the ‘irrational’ domestic policies pursued by the various countries of the world. ‘Whatever may be the nature of the origin of disequilibrium,’ argues Lord Robbins in the context of the post-war problem of dollar shortage, ‘there is an important sense in which its persistence may be said to be due to monetary or financial causes.’ For, as heshortage] it is possible to conceive of financial adjustments, either by way of alterations of the volume of expenditure or alterations in the rate of exchange, which would tend to put it right. So international economics is most important.
Now this is taking too simpliste a view of things. It is true that if, after the period of reconstruction was over and production was restored to the pre-war level, national economic policies throughout the world were permitted to be determined exclusively by considerations of external equilibrium, then the era of discriminatory import restrictions, exchange control and things of that sort would by now be over. But there is no reason why external equilibrium should be the only or even the main concern of an economy and why domestic policies designed to secure fuller employment or more rapid economic development should be considered to be at all ‘irrational’.
We shall indeed go off on false scent if we do not recognize that the peculiar national economic policies which are so often made the scapegoat in the context of post-war payments disequilibrium are a reflection of a general awareness of a deeper imbalance in international economic relations arising out of varying levels of economic development and varying rates of economic growth in the different countries of the world. It is this deeper imbalance rather than its specific outward manifestations that I propose to discuss in this paper. So international economics is most important.