===== PAGE 1 =====

Benjamin M. Anderson 375

So, to summarize: We will recognize you and refrain from trying to cripple

What about agreeing, more or less roughly, as follows? you with unfair regulatory laws. But you will recognize us

We of management will try to repress monopolistic prac- and refrain from trying to destroy us by unfair and ruinous
tices, unfair treatment of competitors, and business racketeers. laws.

You will try to repress monopolistic practices, unfair treat- STRENGTH THROUGH FREEDOM
ment of fellow-workers, and labor racketeers. The United States can be strong only by acts of popular
We will tell you the financial facts of life about us. You free-will.
will tell us the financial facts of life about you. That is why I say in conclusion just two things to you of
We will try to reduce the number of our “strikes” which management and to you of labor.
withhold inventions and products. You will try to reduce One. Go ahead and turn this country into a continuous
the number of your strikes which withhold labor and service. brawl, and government will chain you both.
We will try to give you job security and basic. income Two. Make a better choice. Work together and stay free.
security. You will try to give a full honest day’s work every If you stay free, I have no doubt of the result—a strong
day. America, an America Unlimited.

International Currency

GOLD VERSUS BANCOR OR UNITAS

By BENJAMIN M. ANDERSON, Ph.D., Professor of Economics, University of California, Los Angeles, Cal.
Delivered before the Chamber of Commerce of the State of New York, New York City, February 3, 1944

R. PRESIDENT, Gentlemen, and Friends of the I remember Franz Meyer that day coming into the officers’
M Chamber: I remember one thing with pleasure lunchroom of the Bank of Commerce, his face very grave.
about the time when I became a member of this It was a stirring day in the foreign exchanges. And some-
Chamber. That was the sponsorship. I was at that time body expressed sympathy about the sterling picture. He
the Economist of the old National Bank of Commerce. said, “Yes, it is grave. It is serious, very serious.”
James S. Alexander, president of that institution, sponsored But I didn’t think Meyer was as unhappy as he seemed
my membership here and A. Barton Hepburn, of the Chase to be and I ventured a question: “What is our position,
Bank, seconded the nomination. I feel proud today of that Mr. Meyer?” And he answered, his face lighting up: “We
sponsorship in this Chamber. are short.” He had had no illusions.
It was before I went to the Chase Bank—but by the way, Well, that afternoon—I am going to take a little time
there was an inadvertence in your statement which I want for this episode—I watched him. I think he had ten tele-
to correct. I was with the Chase Bank from 1920 to 1939 phones on his desk—maybe only eight.

—nineteen years—before that, two years with the Bank of “Yes, yes, I buy $4.26. Yes, I sell $4.29.”
Commerce. Then he looked at me and grinned. “I make $1500.”
I began this study of post-war foreign exchange stabiliza- He was a very good trader!
tion about the end of January 1919, and I want to tell you But the market was full of all kinds of disorder for a

about the studies forced upon us in the years 1919-20, be- day or two until something like a level could be established.
cause they are tremendously significant as giving the basis And he and other men, buying at $4.26 and selling at $4.29,
for interpretation of the proposals of the Keynes and White were bringing order into it.
plans. And don’t let anyone tell you that the Trader who makes
We had a startling figure for exports from the United a profit in a wild foreign exchange market is doing anybody
States in January 1919, with a balance of trade, I think, any harm. He is doing good. The bid and asked prices
of 410 million dollars. That trade balance ran up—it reached would have been very much further apart if he had not been
635 million dollars in June. This great volume of goods there trading.

going out reversed the business reaction that had started We spent billions of good American dollars in direct
with November, the Armistice, and turned business up about pegging of foreign exchanges. I say billions—let’s get the
March into the beginning of a great boom. figure rather exactly—something less than three billions al-

What was doing it: Well, we were, for four months together from the Armistice down to June 30, in relevant
after the Armistice, advancing money from the United States Government advances, in pegging, and in supporting, after
Treasury which was being used in pegging the foreign ex- the pegging stopped, the foreign exchanges and the export
changes—precisely what these plans propose—francs and trade on the basis of it.
lire, but above all sterling, Then I expected that the export trade would have to drop

And seeing the immense volume of exports and seeing the pretty soon. I thought those foreign exchanges could not
immense strength of those foreign exchanges, I looked into it stand the strain. The Continent of Europe was going pretty
rather carefully. I had as my tutor a man who I shall always badly to pieces—unbalanced budgets, printing more bank
feel great affection for, Franz Meyer, the foreign exchange notes. I though that the pressure on those exchanges would
trader of the old National Bank of Commerce—a very good bring the thing to an end sooner than it did.
trader, a man who knew foreign exchange, who got for me Foreign exchanges did go down, but here was the anomaly:
information from various of the other foreign exchange men. sterling went with the continental exchanges. And England

On March 20, 1919, J. P. Morgan & Company suddenly was the one country over there, of the belligerents, who was
unpegged sterling. They had been buying all the sterling improving her financial position—balancing her budget,
offered, with dollars provided by the British Government, working towards the resumption of gold payments. The
borrowed from the United States Treasury. They un- thing was anomalous.
pegged it. Then late in the autumn it began to be pretty clear what


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376 Vital Speeches of the Day

was happening. When our Treasury stopped, London Europe against unfavourable balances due to the United

stepped in. Britain interposed her immense credit, her im- States or South America or elsewhere. How, indeed, can

mense financial prestige, between us and the weak Conti- any country hope to start up trade with Europe during the

nent. They were buying goods here, giving us sterling, giving relief and reconstruction period on any other terms?”

us dollar obligations, selling them on the Continent for Very nice!

francs, for lire, for drachmae. And then as we sold goods If we had had the Keynes-Morgenthau Plan in operation

on the Continent for francs and lire and drachmae, we did in 1919, England could have bought goods here, sold them

not keep them. We sold them in London. London was the at a profit on the Continent, paid for them by putting francs,

great center for all kinds of speculation. If you wanted to lire, drachmae into the International Exchange Fund, while

sell anything, you could sell it there. we got credits in that fund, and England, by remaining net
But this time they got stuck. They bought all the debtor to the fund, would have had her profits free and

drachmae, all the lire, all the Belgian francs, all the French clear, and we would have had big credits in an international

francs, the depreciating exchanges that were created here fund composed of deteriorating drachmae, lire, francs and

through exports. And the strength of sterling had been bend- so on.

ing, yielding, but sterling carried on that boom for another I don’t propose to advocate that measure.

year. Now, I take it that there is general knowledge of the

Private creditors on this side, taking sterling, taking dollar nature of these plans, and there is not time for me to explain
obligations of England, giving also open account credits to the technical details of them. The big thing that they pro-
the Continent, put up another three and a half billions. pose is to put the strength of the strong currencies behind

Then we got fed up and our ability to give credit became the weak currencies to peg the exchanges. And we did it,
restricted, and the thing crashed. We went through the we tried it; it was no good. We must not do it again. We
great crash of 1920-21. wasted six and a half billion dollars doing it the last time.

If we had had a reaction in 1918, when we were braced Now, what is the right way to do this thing ?
for it, it would not have done much harm. Everybody was First: The thing we did last time—gifts for the weakest
braced for it. By 1920 a great many people had come to countries; Red Cross or the kind of thing that Governor
accept the idea of a permanently higher price level. A great Lehman is expected to do—but gifts, not loans. Don’t call
volume of credit had been extended against commodities at it loans. Don’t expect to get the money back. Wipe it off.
high prices. Immense real estate speculation had taken place Limit it to what is essential. Most of it ought to stop after
—great increase in farm debt for speculative purchase of the first harvest after the war.
farm lands. We were not in good shape for a reaction, but And even as you make those gifts, make demands upon
we went through it. the governments of the countries that receive them that

And meanwhile this six and a half billions we had given they get their financial houses in order. Gifts, as well as
Europe—three billions from the Government and three and loans, should do the recipient permanent good.

a half from private creditors—did no good. Europe was in But, second: Stabilization loans—tens of millions to two
far worse shape at the end of 1920 than she was at the be- or three hundred millions at the maximum, not the billions
ginning of 1919, proposed by these plans—conditioned on drastic internal

The point was that the Finance Minister of a European financial and currency reforms, conditions on foreign super-
country, faced with pressure from his people—returning vision of the use of the proceeds of the loans.
soldiers wanting pensions, wanting pay, people wanting food, Now, here we have historical precedents of a very definite
pitiful, nobody willing to be taxed, nobody willing to buy sort. We did that for Austria in 1923. We straightened
bonds—he was taking the easy way, he was leaning on the Austria out. We gave her a good start and the Austrians
state bank of issue, he was printing bank notes and more began to pull up from there.
bank notes. And as long as the foreign exchange market We did it for Hungary in 1924 and we sent Mr.
would take the paper money which he created, his people Jeremiah Smith, of Boston, over to sit on the lid, to counter-
could bring in food and luxuries from outside. sign checks, to see that the money was used properly.

We sold them a lot of luxuries in 1920. We sold them We did it for Germany in 1924 under the Dawes Plan—
everything but the raw materials they ought to have been two hundred million dollars. That was the biggest of these
using to work up and send back. stabilization loans. There was foreign supervision both of

There was no industrial revival, there was no financial the Reichsbank and of certain of the revenues. Germany
reform in Europe while this thing went on, while we gave started right up into a dramatic industrial revival.
an artificial support to foreign exchange. We did it for Poland in 1927—seventy-two millions, as

Now, it is precisely this kind of thing that the Keynes- I remember. The loan would have been a little bigger if
Morgenthau Plan wants to do—to put the dollar behind I had not been critical. I did not want to make any more
the weak exchanges and support them, keep them pegged, foreign loans at that time, but for some reason the Bank
so that goods may be sold, exports go out. We will have of England was said to have wanted my approval of it, and
another boom—a very wild, unsound boom. We will get I carefully examined the figures. I was not satisfied with
fed up after a while with pouring so many dollars into that the figures on the floating debt of Poland and insisted on
great international machine that they propose. We will pull more information. I finally concluded that they were bor-
up and cut our losses, and have a crash. rowing too much to use in buying silver for coinage. They

This folly—our own Treasury, I think, has no financial had been so sick—their people—of a very inferior, shoddy
recollection of this episode; Mr. Keynes has. And I want silver coin that they wanted to give them a very fine silver
to read you a little passage from the Keynes Plan which coin. I persuaded them that the standard of the Swiss franc
shows you that he has. The episode was pretty costly to was good enough, and then took that difference off the face
England. She had stood in between us and the Continent. of the loan before I gave my approval,

The Keynes Plan, Section 14, says as an argument for Well, we put the Honorable Charles 8S. Dewey, who was
the plan: in the United States Treasury, over there in Poland to

“This would give everyone the great assistance of multi- supervise that loan, to countersign checks, to see that it was
lateral clearing, whereby (for example) Great Britain could properly used. It worked ; stabilization of currency, balanced
offset favourable balances arising out of her exports to budget, it straightened out.


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Benjamin M. Anderson 377

I want to put in parentheses here that I spent Monday this country before our investment market can work right,
night with Mr. Dewey, who is now Congressman from either at home or abroad. We must repeal the Johnson Act,
Illinois, working from about six-thirty until one-thirty, going of course, before we can lend to foreign governments.
over a bill that he has since introduced, a copy of which I We ought to change one of these very humiliating pro-
have, designed to provide a way whereby our Government can visions of the Securities Act, requiring a foreign government,
cooperate with other European governments or can cooperate in the prospectus which it signs, to confess repudiation. The
with investment bankers in this country, or other countries bankers sponsoring such a loan ought to put that fact into
for that matter, and go in on joint account up to 50 per the record, of course, but it is a little humiliating to ask
cent of credits. a foreign government to submit to the Securities and Ex-

That is a very modest sort of thing as compared with that change Commission a statement like that and perhaps to
10 billion-dollar bank Mr. Morgenthau wants to establish have to revise it six or seven times to fit the wishes of the
for investment purposes. Securities and Exchange Commission. There is need for

Dewey’s bill calls for half a billion as a revolving fund. the legislation to be changed with respect to that as a matter
And as it is going to be used on joint account up to only 50 of international good feeling. :
per cent, another half billion would be called for from the But for either foreign or domestic freedom of American
other participants in the credits. But you don’t need more for capital, in either foreign or domestic use, I think we have
these stabilization loans, if you see to it that they accomplish got to go further.
their purpose. New capital for domestic purposes through the securities

I won't go into the details of this bill, Mr. President, but market is very difficult to get—there are tremendous hurdles.
I will say that I endorse this bill. And I am going to venture Since the Securities and Exchange legislation has been in
this request, that you refer it to an appropriate committee existence, we once got up about 50 per cent of new issues,
of this Chamber for study. as compared with 1923, in a part of 1936 and 1937, but

Let me describe the bill for the record. It is House Joint most of the time it has been under 19 per cent of 1923.
Resolution No. 226, “to provide for central reconstruction I don’t make the comparison with the boom years and the
fund” and so on, introduced by Mr. Dewey, February 1, wild years of '24 to '29.

1944, referred to the Committee on Foreign Affairs. I recommend the abolition of the Securities and Exchange

That German loan of 200 million dollars looks very small Commission. I recommend the substitution for that of a
today, but it was amazingly effective. Germany got no Securities and Exchange Division of the Department of
benefit from it directly. The German budget was not relieved Justice, which shall not work in detail with every trans-
by it. The German Government could not spend it for action, but which shall punish, under criminal law, violations
domestic purposes. The German Government got 200 mil- of the Securities and Exchange legislation—certain criminal
lion dollars of gold which it put into the Reichshank as a law.
gold reserve. Then the German Government got from the There is no more reason for the detailed regulations of
Reichsbank, in exchange, 800 millions in marks. But it was the Securities and Exchange business than any other legiti-
obliged to use all of that 800 millions in marks in buying mate business.
goods in Germany for delivery in kind on reparations ac- I recommend that there be created in the Department of
count: coal and other things. And it was obliged, moreover, Commerce a purely ministerial body to receive registration
to find, that year, 200 millions more, so that none of the statements and prospectuses, so that there may be a respon-
prceeds of the loan could be used for internal affairs. sible document, on the basis of which a man may be sued

If there had been no reparations problem and if Germany if he has misrepresented or omitted essential facts, on the
had been able to use, under the supervision of the creditors, basis of which a man may be put in prison if he has done
that 800 million marks in putting working capital into the the wrong things, made the wrong statements,

industries and perhaps some measures of relief, the thing We have got to do that or something like that to get our

would have been far easier. securities market free for either foreign or domestic post-war
But just the stabilization of currency got them back to a purposes.

sound gold currency forthwith. They had been through a Now, one thing that I would emphasize in connection

welter of inflation—money sinking, sinking; everybody losing with the measure of Mr. Charles Dewey is that the board
confidence and hope. Just the sound currency and the bal- is a purely American board. The Keynes-Morgenthau plans
anced budget, themselves, were business-energizing factors. and Mr. Morgenthau’s investment bank—both have an inter-
Business started right up, production started right up, full national board in control. All three have an international
employment came about. board in control.

They were pretty helpless when that thing started. There A bank, a majority of whose board of directors is made up
was a desperate shortage of working capital. That shortage of debtors to the bank who want to borrow more money,
of working capital with other complications led to a sharp is not a safe bank. That feature alone of these three plans
reaction in the winter of ’25-26; but there was prompt would damage any sound plan, I think. The lenders should
recovery. The thing went on strongly until '29——early ’29. control, not the borrowers, in a financial institution.

Then troubles began to come. Both of these plans, the Keynes Plan and the Morgenthau

Germany would not have had these troubles, Germany Plan, propose to monetize the bad debts which England owes
would have pulled through and the stabilization would have to the outside world. England, following Mr. Keynes,
lasted, had it not been for the complication of reparations. allowed sterling to get into a very perilous state. It ceased

Now, Germany is a special case after this war, of course. to be gold. It became paper—fluctuating paper, with not
Investment bankers to whom I have talked say, “No, we even a promise to be redeemed. The irredeemable paper
won't sponsor any German bonds. We are not probably was treated as a “thing-in-itself”.

going to sponsor any Italian bonds. But bonds for Denmark, Parts of the world followed England in that—in the be-
bonds for Norway, bonds for France, bonds for England— lief that you can do that. But sterling got to a very perilous
yes, we can do that, under the proper conditions.” state. And the war broke out. Everybody wanted to get rid

Now, these conditions, to my mind, involve definite agree- of it; they blocked it. You cannot even sell it now. It is
ments about stabilization of currency on a gold basis. blocked.

There is going to be need for some legislative changes in The balances are very great and they are growing. In the


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378 Vital Speeches of the Day

middle of August, the London Economist set them at over good its promise, and with the circumstances that govern
a billion pounds—around 4 billion dollars at the official rate the probable time of the redemption.
of sterling. But added to that, the part to India is increasing

alone at the rate of 300 million pounds a year.
Well, if after the war England tries to restore a free Governments and loyal peoples have often been quite

pound, lets people sell their claims on London in the open unwilling to look upon their irredeemable paper money as
market for what they will bring, sterling will go very low. merely dishonored promissory notes. Always in times of
And so the Keynes Plan proposed a sleight of hand by currency disorders there arises the doctrine that “a pound’s
which all this blocked debt would be put into the inter- a pound” and not merely a promise to pay gold coin of fixed
national fund, and the Morgenthau Plan worked out details. weight and fineness. There is believed to be some magic in
It is to be put in there for 23 years and no payments made governmental authority that can make something out of
for three years, and after that 2 per cent a year for 20 years. nothing. The prestige of a long establishment and powerful
Meanwhile England’s creditors would have credit with government is very great. The habits of the people in accept-
this fund for cash, bancor in the case of the Keynes fund. ing the long established currency tend to sustain its value.
We are not sure in the case of the Morgenthau fund, because ~The legal tender quality of paper money aids in holding it
we are not sure if that institution will have deposits or not. up, since creditors must take it in payment of old debts, even
They don’t say anything about their liabilities. though they may try to avoid having to take it when new
Well, that is no way to help England. debts are created. When a currency which has had world
The Federal Reserve Bank of the World ought not to wide prestige as long as the pound sterling has, starts on a
take debts that people cannot pay into its portfolio and hold downward course, it is difficult for the world to believe that
them for 23 years and create money against them. That is the worst is going to happen, and at various stages in its
pretty bad. depreciation it has foreign support as well as domestic
We must help England, yes, but the way for England to support.
help herself is to make a settlement with each of these Thus we saw the unanchored paper pound, 1931-1939,
countries that they owe separately—the most of them in the treated by British policy as “a thing-in-itself” and no longer
British Empire, the biggest part—and then come to us for a promise to pay gold, still accepted, though with growing
four or five hundred millions which they will use in making distrust, by central banks of the Scandinavian and Baltic
payments to them, giving them some cash and some long countries as a substitute in part for their own gold reserves.
credit—work things out as an embarrassed debtor usually The financial prestige of Britain was very great. Value is a
does with his creditors. We will help with some cash and psychological phenomenon. But there are rational elements
she will get that cash on much better terms, here, at a much in the psychology of value, and hope too long deferred and
lower rate of interest, if she will definitely go back to gold— too often disappointed will destroy value.
fixed gold sterling. I think she has got to do that anyhow
in her own interest.

IRREDEEMABLE PAPER AS AN INDEPENDENT STANDARD

GOVERNMENTAL COERCION AND THE VALUE OF MONEY

We cannot afford to stay with Mr. Keynes any longer. Yet another factor can be invoked by governments to sus-
. Vv tain the value of irredeemable paper money, and that is the
GoLp REMAINS THE STANDARD OF VALUE power of the government over the economic lives of men.

Gold remains the international standard of value, despite In the period of the French Assignats, the laws fixed penal-
the efforts of governments to substitute irredeemable paper ties of the severest kind against transactions which recognized
for it, because in the last analysis neither men nor govern- the depreciation of the paper. But despite the penalties, the
ments will trust anything else. The Tripartite Agreement, French paper money dropped steadily in value and com-
involving the United States, Great Britain and France, modity prices soared. The Federal Congress in 1864,
which immediately preceded the collapse of the gold bloc in blaming the depreciation of the Greenback on the manipula-
late 1936, did not substitute paper dollars or paper pounds tion of speculators in the gold market, passed an act for-
or paper francs for gold. The governments did not trust bidding gold futures. The results were disastrous and the
one another enough for that. If in the course of the day's Congress, without debate, repealed the law two weeks later.

trading in the foreign exchange market, any government It was prevailing doctrine among economists down to the
accumulated a sizeable amount of another government’s cur- First World War that governments could not coerce their
rency, the differences were promptly settled in gold. peoples into accepting at face value a dishonored paper money.
But war brought an immense revival and intensification of

Goip AND PAPER MONEY governmental power, and new governmental techniques for

Gold needs no endorsement. It can be tested with scales intruding intimately into the bookkeeping of the people. In
and with acids. The recipient of gold does not have to trust Germany this power was intensified under the Hitler regime
the government stamp upon it, if he does not trust the gov- and these techniques were elaborated, and we have had the
ernment that stamped it. No act of faith is called for when spectacle in Hitler's Germany of a paper currency, with a
gold is used in payments, and no compulsion is required. microscopic gold reserve and without gold redemption, cir-

Men everywhere, governments everywhere, and central culating against commodities at fixed prices for the com-
banks everywhere are glad to get it. When paper is offered modities, or at all events, at controlled prices. As faith
instead of gold, it will be accepted on faith if the government waned, Germany substituted coercion, and as the govern-
or the bank which has issued the paper has proved itself ment was virtually omnipotent, and the people dared not
worthy of confidence by a satisfactory record of redeeming assert their individual rights, and as the Gestapo was tre-
the paper in gold on demand. If there is a suspension of gold mendously efficient, Germany made the system work.
payments, the paper will still be taken on faith, at varying
degrees of discount, so long as there remains a general
expectation that the government or the issuing bank will Always the doctrine had been, moreover, that even though
some day make good its promise. The amount of the discount a dishonored paper currency might be accepted at home,
will vary in a free gold market or in a free foreign exchange nothing could prevent it from depreciating in the foreign
market with the circumstances that make it more or less exchanges, because the people would smuggle it out of the
probable that the government or the issuing bank will make country and sell it for what it would bring to get good

COERCION AND FOREIGN EXCHANGE RATES


===== PAGE 5 =====

Benjamin M. Anderson 379

money. But we saw develop in Germany a system of control in trade between Britain and other countries, and has almost
of the export and import of currency, as well as securities entirely ceased to be a tool for conducting trade between
and commodities, so tremendously effective that very little two outside countries—which used to be one of its most
German currency could get outside and that when it got important services. It has in general ceased to be a valid
outside, the foreign banks had little motive for buying it tool for trade among the units of the British Empire. In
because they could not get it back into Germany again to general it prevails only in the mother country itself. England
use it. We saw rigorous control of all exchange transactions, has gigantic blocked debts to the outside world due on de-
and such a limitation in the volume of these transactions mand, but she does not allow her creditors even to sell their
that the German government and the Reichsbank could make credit claims for what they can get.
the so-called “official rate” effective on the limited volume But men and governments are still eager enough for gold.
of transactions permitted, and the “official mark’ in the Gold is being currently used on British Government account
foreign exchanges held firm at the nominal parity. Mean- to pull down the great discount on the rupee in India and
while a great multitude of different kinds of marks, valid to bring out hoarded food reserves in India. Gold is being
for special purposes, sold at varying rates of discount in the used in Persia which is glad to get gold but reluctant to take
foreign exchange markets, but even these were regulated and sterling.
controlled.
GoLp as THE Post-War INTERNATIONAL CURRENCY
THE Tyranny oF HITLER AND THE TYRANNY OF GoLD . . A

Now what is the outlook for an international currency

The temporary success of the German monetary and in the post-war world? Men, governments and central banks
economic experiment led to the superficial generalization on all over the world will take gold without question whenever
the part of certain opponents of the gold standard that gold they can get it. Most of the paper currencies of the world
had been proved to be unnecessary, that Hitler had found they will not take except at heavy discount and in limited
a way to do without gold, and that the long tyranny of gold amounts, and they will seek to hedge them if they can, and
was over. Parenthetically, I much prefer the tyranny of they will seck to pass them on quickly if they can when they
gold to the tyranny of Hitler. Gold is not capricious. take them. The American dollar they will readily take

All it requires of men and governments and central banks because of our practice of exporting gold when the dollar
is that they be honest, that they keep their promises, that goes to the “lower gold point” in the foreign exchange
they keep their demand liabilities safely within the limit of markets. What else is there but gold to serve as an inter-
their quick assets, and that they create debts only when they national currency? I think there is nothing else.

can see how these debts can be paid. Gold has no intuitions,
and gold has very little imagination. THE Keynes AND WHITE PraNs Rest oN Coercion

In summary on this point: (1) Men, governments and Co. . .
central banks will accept gold in payments because they ody this is not the view of he Jritish g reasury repre-
want it for itself. (2) Men will take paper promises to pay re resent db Me. Mo th ¢ ¥ M a Tord
gold as money without difficulty so long as these promises Ko nes Dro ol tL. " at 1 an I. ie. %)
are kept and they believe that they will be kept. (3) When in d Pop bored In lp 1 tonal ly fi po lation ¢
paper promises to pay gold are dishonored men will continue iE “but not un toy 31 i He calls . eh in relation to
to take them at varying degrees of discount in the hope that ol 2 compound a ¢ peg o ¢ cry LI Anson par
the promise will later be kept, and because of the prestige ord for 0 d ng ot | 5 Ase § oanco He rh e h le:
of the issuing authorities fortified by the legal tender pecu- 1d Th Be ath In it 1s not boo or ¢d, muc less
liarities of money and by the habits of the people and of the golC. € international money 1s to be credit entries on the
. books of the international fund and overdraft privileges with
world with respect to a long established currency. And . .
fnally, (4) when these fail, if your government is powerful that international fund. The assets of the fund are zero
’ ’ when the fund starts and its liabilities are zero, but as trans-
enough and tyrannous enough, and your people are suffi- actions multiply and the fund does business, its balance
ciently submissive, and you extend the government into the , ce ge tiles: oo Loe
< A sheet swells on both sides, its liabilities being deposits in
details of the daily transactions of the people, you can make . oh . :
: r y FOL bancor and its assets consisting either of overdrafts in bancor
a dishonored paper circulate at controlled prices inside your A . i
X A or of a multitude of national currencies—dollars, pounds
country, and you can keep it out of the foreign exchange francs, drachmae—and in time, presumably German marks,
market. If foreigners happen to have deposits in your banks ’ . pg J .
which they want to sell in the world’s markets outside, you Its purpose is to hold the different exchange rates together,
v to put the strength of the stronger exchanges behind the
simply refuse to allow them to transfer these balances on . .
ho: . weaker ones. It would increasingly lose dollars and other
the books of the bank, or you limit the uses to which they . . ‘ : !
can put them in your own discretion strong currencies and increasingly acquire weak currencies
P y : or the bancor obligations of the central banks or exchange
stabilization funds of the weaker countries. Its assets would
progressively deteriorate. Indeed both Keynes and White
The post-war world will witness, I have no doubt, the plans contemplate this. They contemplate reductions in the
complete collapse of the Hitlerian monetary system. I ven- exchange rates of the weaker countries, and in the nominal
ture the confident prediction that the forces of coercion which gold equivalent of the bancor or unitas.
have been sustaining the value of the German mark will Now, on what substance can the value of bancor rest?
soon be sensibly abated, and that the controls which have On gold? No. The Keynes plan has some ingenious devices
upheld the mark in the foreign exchanges will work with to prevent situations in which bancor could be shown to be
diminished effectiveness. at a discount in terms of gold, which, however, could break
And the British experiment of a pound unanchored to down readily, even with good faith on the part of all the
gold, treated as a “thing-in-itself”’, can give us a very tragic participants in the fund, which would certainly break down
picture. The prestige of that pound in the international if important countries remained outside the fund, and which
markets is badly shattered. Foreigners who had entrusted would break down in the event of any failure of any country
their funds to London found them promptly blocked when to comply with the requirements of the fund. But it does
the war came. The pound has ceased to be a serviceable tool not rest on gold. The bancor is explicitly never to be re-

Tue Limits oF COERCION


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380 Vital Speeches of the Day

deemed in gold nor in anything else. On what, then, will it Was THE OLp GoLD STANDARD A “STERLING STANDARD’?
rest? On faith? On prestige? Maybe we can create a
prestige for an international fund whose assets consist of
the dishonored promises of governments and central banks
which have lost their prestige. It is possible that the prestige

of the United States would be so great that for a time we iq, in London which made it work. The doctrine adds
alone could carry the burden of sustaining the bancor, but that when New York became the center after 1918. the

I doubt that our generosity is sufficient for this, and I ques- gold standard failed because New York lacked London's
tion that we dare risk our strength, already strained by our wisdom. Now the fact is that pre-war London had far less
war finance, in so great and so needless a post-war task. control and responsibility prior to 1914 than New York did
But neither the Keynes plan nor the Morgenthau plan pe; 1918, and that policy played a much smaller role in
proposes to rely upon faith alone. Both propose a great deal the earlier period. There were many gold standard money
of coercion. Governments are to coerce their ‘peoples in markets competing with London for gold prior to 1914,
preventing the international movement of capital funds, several of them very powerful, as New York, Berlin, and
which means, as Keynes himself recognizes, the contro] of Paris, and many others of real influence, as Amsterdam,
all foreign exchange transactions. Now here, I think, we Vienna, Switzerland, the Scandinavian countries and Japan.
find real difficulty. Who shall coerce the coercers? These all steadied one another. All would pull gold away
Who shall force the government of the United States, or from any country that was over-expanding credit, and force
the government of Russia, or the government of Britain, or jt to pull up. It was not policy. As Mr. Woodward of the
the government of Argentina to comply with the mandates of Central Hanover said to me one time, “It was nature.”
the governing board of the international fund? The pro- [International cooperation came only in crises—and then at
visions of the White-Morgenthau plan make it very explicitly stiff rates of interest. Now New York lacked this steadying
their duty to do so, and section V1I, 8, of the July 10 version influence from 1918 down to 1925, and did not get adequate
of the White plan makes it the obligation of every member competition for gold till France got into the game—in an
country of the fund “to adopt appropriate legislation or gyer-drastic way—in 1928. New York used policy in the
decrees to carry out its undertakings to the fund,” and those  1920’s—bad policy. But I must add that Benjamin Strong
undertakings are numerous and drastic. For either the learned this bad policy from Montagu Norman. Both we
Keynes plan or the Morgenthau-White plan to work, would and London over-expanded credit in the 1920s, but we
require a world state with an authority over economic trans- had the semblance of an excuse in our over abundant gold,
actions as great as the authority which any national state \yhile London had no excuse at all.
has effectively asserted in peace time. I want to see a real gold standard world again, with
Is it realism to suppose that the whole world can hang several powerful money-centers competing for gold, and
together in the support of bancor or unitas when the British holding one another in check. I don’t want international
Empire can’t hang together in support of sterling within the monetary cooperation in ordinary times. It prolongs un-
British Empire? sound tendencies, as in 1924-29, and then it breaks down
"The Keynes plan, morever, definitely suggests international in crises, as in 1931. I want competition in ordinary times,
control of commodities and an international “over-normal and cooperation only in crises—at a stiff rate of interest.
granary,” and an international control of investment. It sees I have been too close to the centers of wisdom and power
the Clearing Union as facilitating these purposes as well as in governments and central banks to have any belief at all
foreign exchange stabilization. The document states, “We in the adequacy of their wisdom to do more than routine
have here a genuine organ of truly international govern- things. The more I see of governmental economic policy,
ment.” The White plan is not so frank, but there is much the more I trust the automatic forces of free markets. The
sympathy for these ideas in important Washington circles. more I see of public monetary policy, the more I trust gold.

There is a myth widely current which I wish to challenge.
It is that prior to 1914, the world was on the sterling
standard rather than the gold standard, that London con-
trolled the gold standard and that it was only super-human

“Freedom Through Discipline”

ELECTIVE SYSTEM DEFEATS PURPOSE OF LIBERAL EDUCATION

By MORTIMER ADLER, Professor of the Philosophy of Law, University of Chicago
Radio Address delivered over the Mutual Broadcasting System, February 7, 1944

HE word “discipline” is more usually connected with dom. In government, that is, in societies directed by laws,

the notion of duty than with the notion of freedom. liberty can consist only in the power of doing what we ought

We think of discipline, whether self-imposed or im- to will, and in not being constrained to do what we ought
posed by another, as systematic regulation directed toward not to will. Liberty is the right of doing whatever the laws
doing well the things we ought to do. We seldom connect permit, and if a citizen could do what they forbid he would
the idea of freedom with the regulation of conduct in terms be no longer possessed of liberty, because all his fellow citizens
of ought or should. Freedom, we think, is doing what one would have the same power.”

pleases. If freedom were that, if it were the opposite of do- Thus we see that political liberty is a freedom achieved
ing one’s duty, freedom might be achieved in the absence of through the discipline of laws. Under anarchy, there is no
discipline rather than through it. freedom. There is only license for every man to do what he

But true freedom is identical with duty. It is necessary to pleases, and since the desires and wants of individual men
understand this in order to perceive that discipline is indis- will bring them into conflict, freedom from laws necessarily
pensable to such freedom. As Montesquieu wisely and tersely means subjection to the war of each man against every other.
said, “Political liberty does not consist in an unlimited free- Where men recognize no rights or duties, only might pre-


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