1951 The Keynesian International [Mattick]
Published in Contemporary Issues 8, Spring 1951.
Anticipating America’s role in the wake of the first world war, President Wilson encouraged his fellow-citizens in 1916 by saying that ‘we must play a great part in the world whether we chose it or not. We have got to finance the world in some important degrees and those who finance the world must understand it and rule it with their spirits and with their minds’. The simple message he had to bring, he added, was merely this: ‘lift your eyes to the horizon of business.’ His anticipations were fulfilled beyond all expectations. The war destroyed Europe’s dominating position within the world economy and the United States turned from a debtor into a creditor nation. America’s rise to supremacy continued uninterruptedly, and out of the second world war she emerged as the world’s sole creditor. But though her ‘eyes are still lifted to the horizon of business’, and though in business terms America indeed rules the world, its profitability is questionable and its future insecure.
With the ‘end’ of the second world war and in view of the vast devastation of both Europe and Asia, the revival of the disturbed world economy became America’s responsibility. However, United States aid to the outside world was still conceived in business terms. Despite America’s persistent favourable balance-of-trade throughout the inter-war years, it was still held possible that an international trade equilibrium could be re-established through international lending and investments. In Alvin H. Hansen’s opinions of 1945, for instance, unceasing American loans would not only secure full employment at home but may lead to such a general expansion of capital as to allow for repayments and interest. ‘If we manage our own affairs reasonably well,’ he wrote, ‘if we enter into international co-operation on international monetary and financial arrangements, and if the foreign loans are invested in productive and useful projects, then it is reasonable to suppose that over a long-run period the interests and amortization charges can be paid. They will be relatively small in proportion to total international transactions and can quite easily be managed in a reasonably stable and prosperous world.’
This cheerful statement based itself on the unrealistic hope that ‘the rise of Russia on one side of the globe and the economic and military power of the United States on the other, … presents a new basis for world security and peace’, and on the projection of Keynes’ unproven monetary theory of capital expansion from the national to the international scale. The illusion of a continued American-Russian co-operation within the framework of the United Nations was soon shattered, however; not a lasting peace but the ‘cold war’ followed the defeat of the Axis powers. Not the desired integration of the world economy but inescapable power politics determined America’s lending policy, the outright grants, and Marshall Plan aid. It is hoped, of course, that these ‘emergency steps’ will incidentally help strengthen the necessary trend towards a world-trade equilibrium, and that the seemingly unprofitable subsidies of to-day may yet become to-morrow’s profitable business. But thus far, they have led only to new ‘emergency steps’ in a consistently disintegrating world economy.
Testifying in behalf of the European Recovery Programme, Secretary of State Dean Acheson pointed out, that in order to maintain the volume of American exports which the free world needs, it would be necessary to allow for European imports, to invest American capital, to grant loans, and to continue to give gifts. ‘It is in the carrying out of such a policy, and in our determination … to do it however long it takes and whatever it requires of us,’ he concluded, ‘that the frustration of the Kremlin’s design for world dominion lies.’ Of the ways mentioned to maintain the required volume of American exports, only the last is of immediate significance. This was made clear by Paul G. Hoffman, who stated, that ‘by 1953 the Marshall-plan countries will barely have their noses above water’ and that ‘no substantial improvement can be expected for the next decade’. He felt, ‘that it will take fifty years for Europe to come back to where she can buy and pay for what they need from us and service already existing loans’. To ask Europe to accept aid in the form of additional repayable loans, he considered an ‘immoral act’, as such loans could never be collected. Far from despair, however, Paul Hoffman pointed out, that the second world war ‘will have cost the United States $1 trillion 300 billion before it is finally paid for’, in view of which the Marshall aid expenditure necessary to avoid another war, ‘will turn out to be the greatest bargain the American people ever had.’
The political and economic relations between the American and the European Continent, represent only one aspect of the power problems besetting the world. There is the question of Asia, of the backward countries in general, with which United States policy must concern itself. Here, however, America has met with little or no success. No Marshall Plan welds the Eastern nations to the United States, no Pacific pact matches the Atlantic pact. Loans and direct aid could not stem the ‘liberation’ movements which terminate in the Russian power bloc. Apparently, the war in the Pacific yielded nothing; the whole of Asia, even more than the rest of Europe, remains contested ground over which new wars will probably be fought. To escape these wars, President Truman offered yet another ‘bargain’ to the American people by initiating the so-called ‘Point Four’ programme for technical assistance and general aid to economically under-developed countries.
Being President, however, and therefore budget-conscious, Mr. Truman outlined his programme in a limited form and in business-like fashion. Suspected of harbouring ‘socialist tendencies’, he stressed the need for the outflow of private investments beneficial to backward nations. To accelerate such endeavours, he recommended that the ‘Export-Import Bank be authorized to guarantee United States private capital … against the risks peculiar to those investments’, such as the ‘dangers of inconvertibility’, and the ‘dangers of expropriation’. Although Mr. Truman made it clear ‘that the development of under-developed economic areas is of major importance in our foreign policy’, he forestalled all possible accusation of fostering ‘dollar diplomacy’ by suggesting the closest co-operation between the United States, the International Bank for Reconstruction and Development, and the United Nations Organization in the execution of the programme.
The Administration’s ‘Point Four’ proposals were criticized because of their narrowness and stinginess. This is no field for private investments, it was said, as the conditions in Europe and Asia do not attract private capital despite all guarantees. The whole project was too insignificant to affect the miserable living conditions in backward areas. It should be enlarged, should encompass more territory and release greater activity; it should be government-financed, and carried out in a true spirit of internationality. James P. Warburg, for instance, saw in the Administration’s proposals just another example of America’s ‘bargain-basement diplomacy’, in which the ‘immaturity’ of her foreign policy manifests itself. He pleaded for the extension of the ‘Point Four’ programme far beyond the considerations of its originators, and for its integration with the Marshall Plan, so as to yield a broader plan of world-wide reconstruction and development. Because America has at present ‘about twenty billion dollars a year of excess productive capacity to use in the implementation of her foreign policy’, Warburg suggested a huge programme of capital exports designed to ‘build up the purchasing power of the other nations of the world to a point where, eventually … the dangerous gap in America’s balance of payments will be eliminated’.
Foreign aid, in Mr. Warburg’s opinion, must be more than ‘merely another instrument in the existing negative power struggle’. In the words of the President, it must really ‘help the free peoples of the world, through their own efforts, to produce more food, more clothing, more materials for housing, and more mechanical power to lighten their burdens’. Only thus will they be enabled to combat ‘false doctrines’ and to defend the democratic way of life. Out of other considerations but in the same vein, Senator Brine McMahon, in speaking on the problems of the hydrogen bomb, suggested a yearly expenditure of ten billion dollars for five years, for the ‘Point Four proposals, the development of atomic energy everywhere for peace, and general economic aid and help to all countries, including Russia’. By such a policy, he said, ‘we would have probably saved mankind from destruction by fire, and we would have paved the way toward :a new era of unimagined abundance for all men, based upon atomic energy constructively harnessed’.
On the other side of the Atlantic, on the receiving-end so to speak, an even greater optimism supports the spending policy. Not thinking in terms of war, and assuming a full European recovery through American help, Ireland’s foreign minister Sean MacBride, for instance, envisioned a coming situation in which both Europe and America, in order to maintain full employment, will be forced to disencumber themselves of chronic overproduction by way of some form of peace-time lend-lease and the periodic cancellation of international credit balances. He proposes the sending of all surpluses to the world’s under-developed areas; a project to be financed by a gigantic American-European joint investment pool. ‘Surplus output,’ he said, ‘should never be considered a problem as long as people in any part of the world are underfed and living in subnormal conditions, until, as Keynes has been quoted as saying "the last Hottentot owns a Rolls-Royce car".
The unrealistic thinking here recounted, which tries to make an economic virtue out of the political necessity to support and stabilize the non-bolshevik world, can serve as no more than an apology for the current subsidizing practices. Although they are supplemented here and there by direct military aid, financial means of control are still of major importance to the Western nations. Authoritarian methods of control are available only to a limited degree under the exceptional circumstances of occupation and war. Otherwise, as Dean Acheson has pointed out, ‘We do not intend, nor wish, in fact we do not know how, to create satellites’. The strict political integration that characterizes the Russian relationship to her satellites, where the latter’s governments are merely extensions of the Moscow government, presupposes a totalitarian outlook, terroristic methods of control, and determination towards a complete integration of the various economies into the centralistically-directed Russian autarchy. All that the United States can at present do in controlling other governments, or in influencing their policies, is to offer or to deny further material and financial aid.
Degrees of collaboration and control are thus determined by the various national needs and their urgencies, and by the means available for foreign aid. While the needs of the nations are unlimited, the material and financial means are not. This is one of the reasons why American aid finds many objectors, who try either to cancel it, or to cut the unavoidable expenditures down to a minimum. The arguments against extensive foreign aid are based on the competitive or monopolistic needs of some industries, on the traditional ideology of a balanced budget, on the demand for lower taxes as an incentive for private investment, on the fear of a strong government vis-à-vis the business interests, on the illusion of a possible retreat into a new ‘isolationism’, and often merely on the aversion to play Santa Claus on other than the Christmas days.
These arguments indicate actual and imagined discrepancies between ‘social’ and ‘private’ interests or, rather, between the business interests and the national needs as interpreted by the government. To compromise the varying interests is supposedly the function of democratic government, or vice versa the compromise is thought to constitute government policy. In its broad outlines and basic direction, of course, foreign policy is determined rather by the long-run needs of national security and national growth, than by the shifting power constellations of various pressure groups at any particular time. Still, the manner in which the ‘general line’ is maintained, is to some extent dependent upon the changing fortunes in the internal political struggles, which result at times in contradictory decisions.
With regard to foreign policy, to be sure, the government already enjoys a large degree of independence, enabling it to follow an elected course of action to its end. But it does not possess the unhampered authoritarian manoeuvreability given to the Russian adversary. It must still ask for funds, and its demand may not be granted. Assuming then that America’s expendable funds were as large as they are thought to be by those who want to finance world peace, their unimpeded distribution to this end would presuppose the existence of an omnipotent government. Short of this, their actual employment will depend upon the distribution of influence and power as between government and business within the government and within the business world.
The artificiality of the question ‘to upend or not to spend for world security and peace’, is brought to the fore by the fact that the surplus output of the United States, and the hoped-for surplus production of a revived Europe, are quite insignificant when compared with actual human needs in the under-developed areas of the world. They are even small when compared with the actual needs in Europe and America. There would not be much surplus output in the United States for some time to come if the needs of the low-paid sections of the population were given consideration, if slums were abolished and working conditions humanized. Whatever surplus production there is, does not suffice to mitigate to any noticeable extent the near-starvation or actual famine conditions under which the bulk of humanity exists. But even if the surplus output could be raised so as to become an effective weapon against the poverty that endangers the peace, it cannot be expected that a ‘share-the-wealth plan’, while rejected at home, would find application on the international scene.
Help is offered, therefore, only to those ‘willing to help themselves’, that is, to nations capable of development and ready to support a ‘free’ world economy. To initiate their capital formation and, eventually, to partake in the resulting rewards, are the economic reasons advanced in support of the political considerations of the foreign aid programme. The alleviation of human misery is seen as the by-product of a larger output and a greater productivity in the backward regions; the pump-priming policy of the depression years is to be applied internationally. But not with the optimism and abandon of the earlier national schemes of government-financing, which had been based upon its assumed ‘multiplier effect’ on consumer spending. Although pump-priming in under-developed nations requires not only monetary means but also technical assistance, Dean Acheson made bold to say that ‘the remarkable thing about this kind of help is that you can get big results by making a comparatively small outlay of dollars for the services of skilled people’. Even before any type of help was actually mobilized, he assured the American people that American aid would not build large mills, mines and factories,
but would merely support an educational programme designed to teach the people in the under-developed regions to do things for themselves. This form of aid, of course, is not a practical solution for the problems besetting the backward nations in ‘terms of food, shelter, and a decent livelihood’, but solves at most the employment problems of some Americans hunting for jobs abroad. And even this is questionable, as the technical ‘know-how’ without the technical ‘wherewithal’ is quite superfluous.
The meagre suggestions of Government, Congress, and Senate with regard to American aid under ‘Point Four’ justify the accusations of insincerity and lack of understanding brought forth by those proposing a global Marshall Plan. Their own ‘generosity’, however, is as inapplicable as the ‘realistic’ government-programme is meaningless. In the first place, there is the difficulty of raising the funds necessary to finance the peace of the world in an economy in which no one, and no institution, has at any time superfluous funds, where at all times all fight for a larger share of the national income whatever its size. But aside from this, the immediate pressures of the prevailing power struggles within the nation, among the nations, and between the two dominating power blocs, exclude the adoption of a world-wide welfare programme for the abatement of the social and imperialist frictions that drive the world towards war.
England’s prosperity, for instance, depends upon overseas supplies of essential foodstuffs and raw materials. Engaged in an attempt to regain her former exchange position, she can hardly share the enthusiasm for the industrial development of the backward areas. In fact, she cannot help but sabotage such endeavours, since ‘anyone familiar with the present compelling desires of under-developed primary producing countries to industrialize and to turn to the domestic production of manufacturers will realize the special dangers which now confront the balance of payments of a country in England’s position.’ A real concern for the backward nations would be strange, Indeed, at a time when the highly-developed industrial
enemy-nations are turned into under-developed areas with a great amount of unemployed ‘know-how’. At the first sign of a revival of Japan’s industry ‘the cotton manufacturers of Great Britain … called upon American mill operators to join in an effort to limit Japan’s activities … American shipping operators, fearing the effects of a resurgent Japanese merchant marine are for preventing the reopening of world shipping to Japanese vessels.’ And this notwithstanding the alleged preoccupation with the increase of world production and with the extension of world trade, and notwithstanding Japan’s damaged and worn-out industrial equipment, her paucity of natural resources, her 80 million population in a decreased area, unable to feed themselves save by increasing industrial exports. This attitude contradicts the current propaganda for a general betterment of living standards. It made no sense to Senator McCarran, for instance, who wondered about the ‘senseless policy of destruction of German industrial facilities’ and the ‘enforced paralysis’ of the German economy. ‘Destroying steel plants in Western Germany,’ he said, ‘and then using American dollars to erect them elsewhere is shortsighted—a useless expenditure of United States money’. As we have learned from Dean Acheson, however, ‘steel plants’ are not in the ‘Point Four’ programme, so that ‘elsewhere’ can only mean the Western nations allied to the overall strategy of the ‘cold war’.
The American-Russian power conflict commits the United States to the attempt to secure the continuation of Western Europe in its present socio-economic form. This implies the propping-up of the West-European nations and the support of their policies vis-à-vis vanquished Germany. It implies both the Morgenthau Plan and the Marshall Plan. As Germany cannot be revived without altering the existing power relationships, all revisions of the Morgenthau Plan required a relatively greater strengthening of the Atlantic-pact nations. But no real European revival is possible within the setting of the ‘cold war’ and without a full regeneration of the German economy. American aid to Western Europe can therefore not be terminated, despite the time-limit set to the Marshall Plan. This is the dilemma of a victory which destroyed one aspirant for world rule only to raise another.
Of all American aid in the post-war years about 90 per cent, went to Western Europe. With the accentuation of the conflict between the ‘East’ and the ‘West’, little aid will be given the backward areas. This miserliness finds its reason not only in the need to concentrate upon the urgencies of the moment, but also in the difficulty of fitting the backward regions into the American strategy. In the divided world of to-day, there is no independent way for the under-developed nations to partake in world affairs. They must line up with either one or the other of the power blocs. They cannot choose freely between competing social systems, but are subjected to internal and external pressures often inexpressible in terms of dollars and cents. It will therefore not do, to ask the Chinese ‘people’ to compare the Russian credit of ‘no more than $45,000,000 per year’ with" the American ‘grant—not loan—of $400,000,000 … in the single year of 1948′, in order to convince them of the unreasonableness of their choice of allies. It is not Russian economic aid that turned China ‘communist’, but the Russian success in the last war. There simply is no other power in China’s proximity able to
counterbalance Russia’s new influence in Asia. Neither will it do to point to the ‘lack of any sign of a great programme of industrialization’ and to surmise that Russian policy intends ‘to make China‘s economy more “colonial“ than before, so that it can provide foodstuffs and raw materials for the new industrial area of Siberia.’ For whether this is so or not is quite beside the point, as it is now Russia’s turn in Asia. And Russian imperialism incorporates the Asiatic ‘liberation’ movements, and the attempts to ‘revolutionize’ their economic life along state-capitalist patterns. The turmoil in the ‘awakening’ backward regions cannot be ended by aiding their development, as it is this development which causes the ferment. A changed world situation prevents this development from following the direction of the laissez faire ideology. In all Western nations government control over the economy, and over social life in general, has been steadily increasing. This has long been a fact in Russia, and it is nearing completion in her satellites. Even the American economy operates more upon government than upon private capital. Under such conditions, China’s development, for example, could only lead to the completion of the totalitarian structure prepared by the Kuomintang. By supporting this type of development, as John King Fairbank writes, ‘Russia is still turning to her ends the potentialities of revolution in backward areas’. As the first prerequisite for a successful power competition in Asia, he suggests ‘a continued evolutionary development in the United States’, the content of which, however, he does not reveal. But this mysterious ‘evolution’ is to enable America ‘to retain leadership in the world-wide struggle for individual political liberty while at the same time aiding other peoples in poorer circumstances to develop whatever degrees of collectivist or socialist economy they need to meet their problems’.
But why stop there ? Why not include the ‘people in poorer circumstances’ who are in Europe, or even in the United States? However, as little as Russia is inclined to support private property in the United States, just as little could America be interested in the development of state-capitalist systems abroad. In the second world war, to be sure, totalitarian and democratic nations fought as allies against other authoritarian powers, and even to-day American and British loans reach Yugoslavia. But such alliances do not affect the differences between the competing social systems, even though the imperialist division between authoritarian and democratic regimes is reflected in all the liberalistic nations as the problem of state-control and nationalization. What in some countries still appears as a conflict between government and business, manifests itself on the world-wide scale as an opposition between ‘communism’ and capitalism. Still, the opposition is real and cannot be resolved by way of argument. Professor Fairbank’s improvement upon the propaganda-slogan of the peaceful side-by-side existence of capitalism and socialism is even less realistic than the original. It overlooks, moreover, the fact that the totalitarian state with all its collectivization is not a socialist society, and it ignores the obvious dynamics of the prevailing social systems, whether based on private-property or state-ownership, which tend in the direction of a centralized world economy.
Notwithstanding these centralizing tendencies, nobody, of course, objects to the development of any part of the world ‘in principle’. But it must not unfavourably affect the vested interests of to-day, it must not decrease the profitability of the existing capital, nor diminish the political power of the dominating states. If possible, it must be a controlled development, suited to the economic, political and strategical needs of the great powers. Thus conditioned, the ‘principle’ is violated more often than not, and foreign development, in practice, is furthered by advanced nations only to the extent to which it enhances the interests of the latter. The emphasis, to be sure, is now on power; yet, power for its own sake is neither a capitalist ideal nor a solution for the prevailing social and economic problems. It is used so as to lead to a return of world conditions, in which nothing matters but profitability, seen as the medium for a boundless capital formation on which the general welfare presumably depends.
From the point of view of power politics, however, it appears more practicable to retain the strength of the West-European nations than to create new allies for America in the backward regions; quite aside from the question whether or not the under-developed countries would be willing to accept this honour. To turn these areas into formidable obstacles in the way of Russian imperialism would require far greater supplies than those needed to bolster the Atlantic defences. Moreover, the backward nations offer fewer guarantees that American aid will not be turned against American interests. That Western Europe has priority in American strategy is clear also to the Europeans, for otherwise England would not be able to suggest that American aid to South-East Asia should be accompanied by a proportionate reduction of the British debts in that area, that is, be turned into aid to Britain. Otherwise they would not present the solid anti-Russian front of to-day, or carry on their own colonial policies in contradiction to the promises of ‘Point Four’.
At any rate, the distribution of American surplus production all over the globe would spread it ineffectually thin. American-Russian relations have reached a point of deterioration, where all policy is geared to the eventuality of war. At such a time, when ‘a massing of Russian troops on the Yugoslav border, or anywhere else in Europe, could add three to four billion dollars to the country’s present budget’, one cannot expect much sympathy for the long-run needs of the world economy as a whole. Particularly not in face of a government budget already exceeding 42 billion dollars, and in view of the forthcoming additional expenditures set by the stockpiling of critical raw materials, the development of new and ever costlier weapons, and the general increase of a type of production ‘consumable’ only by war. Indeed, in the world as it is to-day, a consideration of the long-run needs of the world can lead to a desire for war, in order to remove the obstacles to this end, if only to stop a development which threatens to turn most of the world’s labour into Sisyphus-labour.
It is in order to escape the inextricable consequences of a consistent power policy, that the suggestions for a global Marshall Plan are made. It seems more rational to pay for the avoidance of war than to pay and die in actual warfare. And if the war should come nevertheless, the allies who shall have been won by such a policy would still enhance the cause of the United States. This seems especially plausible to those who think that help extended to the outside world will ultimately benefit America’s economy as well, and who feel sure that an uninterrupted general increase of production will profit all nations and may be instrumental in the pacification of the world. The theoretical background for this trend of thought is to be found in John Maynard Keynes’ theories of the depression years.
Economic stagnation, large-scale unemployment, and the eclipse of international trade had led Keynes to the conclusion, that the classical theory of a self-adjusting market mechanism can work only under special circumstances which, however, no longer exist. He held that in a ‘mature’ capitalist system an economic equilibrium with full employment needs for its realization government interferences which would further the investment of capital. They were to overcome a so-called ‘liquidity preference’ on the part of the capitalists, who, beset by fear of a declining profitability, were thought to be engaged in a kind of investment strike. In Keynes’ view, the ‘liquidity preference’ could be broken by monetary policies which lowered the rate of interest. Economic activity could be bolstered by fiscal policies, manipulating government revenues and expenditures so as to compensate for changes in private demand. Large public works could initiate an all-round advance of economic enterprise and, finally, a wisely planned state-controlled investment policy would possibly end depressions altogether. The simultaneous pursuit of these policies by all countries would increase both the level of domestic employment and the volume of international trade. This involved abandonment of a fixed gold standard and a return to some protectionist practices, but Keynes was convinced that the discarding of the traditional rules of international trade need not lead to an injurious competition for a favourable balance-of-trade. It would rather offer the existing equilibrium tendencies an opportunity to operate under conditions of expansion instead of conditions of contraction.
Keynes thought that a controlled monetary inflation and deficit-financing would enable the government to resume, increase, and regulate production. With the economy again in full swing, the deficit could be recovered and the money stabilized. And the Keynesian theories found application during the depression and ever since. Those who oppose this theory of ‘spending’ point to an inescapable and finally unbearable interest burden in the wake of an increasing government debt, which, by hampering private enterprise, will undo the temporary gains with a vengeance. Against this, it is said that a certain proportionate development between the national income and the national debt, would render the latter harmless. It is also argued, that an internal debt cannot really be considered a debt, as the money taken out of the system is again returned to it; that from a ‘social point of view’ the whole procedure may be looked upon as a mere matter of book-keeping. Theoretically it is not difficult to project this position from the national to the international scene. And this projection is made easy by the actual dependence of the Western world upon the American economy, and by the division of the world into two competing socio-economic systems. If it is true that the nations of the Western world stand or fall together, they may very well be considered an entity. If the Western world is not such in fact, a development in this direction would no doubt be furthered by the adoption of a ‘social point of view’ which transcends the narrow national interests.
A slackening economy, according to Keynes, may be revived by fostering either the ‘inducement to invest’ or the ‘propensity to consume’, or else by attending to both simultaneously. He favoured an emphasis upon the ‘inducement to invest’, as he found even the ‘mature’ society short on productive capital. There are others, of course, who would like to emphasize the ‘propensity to consume’ but do not know how to go about it. The only kind of ‘consumption’ which has thus far been favoured, was the destructive consumption of war. This makes the ‘mature’ society somewhat less mature and finds the world in still greater need of additional capital. Keynes saw the dilemma, but in face of large-scale unemployment, he thought that even wasteful loan expenditure might enrich the community. ‘Pyramid-building, earthquakes, even wars may serve to increase wealth,’ he said, ‘if the education of our statesmen on the principles of the classical economics stands in the way to anything better.’ And war, including deficit-financing on an unprecedented scale, did give an enormous impetus to the expansion of the American economy. Of course, some other countries did not do as well, and still others were reduced to rubble in the process, but for America war did ‘enrich the community’.
Now, however, an old problem arose anew: what to do with the additional productive capacity acquired during the war? Even before the war, ‘effective demand’ had not been large enough to assure full employment. To many people, the answer to this problem is quite simple; all that is necessary for a full utilization of America’s productive capacities, they think, is to create ‘effective demand’ for peaceful purposes, just as it had been created for purposes of war. Some, like Thurman Arnold, think that the destruction of Europe has solved the problem already. ‘During the depression,’ he said, ‘we got nowhere. The great lack was the absence of effective demand for our production. Lately these demands have been created out of sheer necessity, and I think we are in a dawn of the greatest industrial era this country has ever had.’ When questioned, ‘whether he really thinks that in order to have prosperity we are in need of the destruction of war’, Arnold answered: ‘Of course destruction is sometimes necessary. When Hitler achieved power, the destruction seemed necessary… Now it is necessary to meet the threat of Russia … and perhaps a certain amount of destruction or dislocation may accompany the threat, but it is necessary to do it. And what has happened because of that necessity? We have gotten on our toes and we are going places.’
As the ideas of the Marshall-planners admittedly do not spring from a newly-arisen sense of international solidarity, but from the consideration of ways and means to stop Russian expansionism, it is clear that they assume that just as in the case of the destructive demands of war, the momentarily ‘uneconomical’ dispersion of American surplus-production may lead in the end to an ‘effective demand’ allowing the American economy to operate at full capacity even under conditions of peace. Behind this reasoning lies the conviction, that American production needs an ‘effective demand’ larger than that brought forth within the boundaries of the American economy; that for the latter to flourish, the world must be ready and willing to buy her products. It must be a world of ‘open doors’, of free competition, in which the United States could not fail to succeed because of her dominant position in production.
However, the greater the optimism with regard to modern productive capabilities, the more pessimistic the outlook with regard to ‘effective demand’. It is widely feared, that the end of Marshall Plan aid will be a catastrophe for both Europe and the United States. Foreign aid, it is held, provided a ‘market’ for American goods otherwise unsaleable. The European revival is based on production for exports, which the United States cannot accept, and the backward nations cannot afford. Despite its vast devastation, Western Europe suffers already from an unmarketable surplus of steel, coal, and other industrial commodities. Because there is no demand for European goods in America, there is no ‘effective demand’ for American goods in Europe. To better their balance-of-trade, the European nations cut or freeze their wages, reduce their imports, and drive for greater exports, regardless of the needs at home or the repercussions in other countries. The general drive for greater production, it is feared, will end in a new and world-wide depression. ‘Unless we can adjust human society so that the two dangers—revolt against poverty and unmarketable surpluses—cancel each other out,’ said Lord Boyd Orr, ‘our civilization cannot survive even if another atom bomb is never dropped.’
While there is a lack of ‘effective demand’, there is, of course, a great need of food, coal, steel, and all kinds of commodities. Despite Marshall Aid, and despite the ‘surpluses’ of the revived European economy, her people lack adequate food, lack coal to heat their dwellings, lack steel to rebuild their bomb-torn cities. In America, too, in spite of her surplus-production, a large minority lives in dire need and a majority hopes to better itself. The use of the actual and the potential surpluses would, indeed, require the adoption of an internationally-oriented ‘social point of view’. But, then, the ‘surpluses’ would be recognized for what they are, a grotesque and misleading mask of well-being upon the emaciated face of uncountable unstilled wants. The world would stand revealed as one of great shortages, generally in need of social and industrial emancipation, so as to lighten the burden of the people in the advanced as well as in the backward nations.
To have an immediate effect, a ‘social point of view’ could find realization only in the free sharing of the world’s surpluses, based on urgencies of need. In the long run, it would have to lead to the re-organization of the world economy and the re-division of its labour toward a world-wide co-operation tending to end the economic and political phases of human misery. At this time, however, the ‘social point of view’ is confined to the playful speculations of economic theorists, and even here, it is a social point of view with limitations. In its present form, it is a point of view leading to a conscious search for ways and means to maintain the social status quo. To the economists, this means first of all guaranteeing full employment or, at any rate, hindering the rise of large-scale unemployment.
Between the twin-evils of unemployment and over-production, it is the latter which seems to many people the lesser one. It is in any case easier to get rid of surplus commodities than of a surplus population, which, furthermore, may be needed again for a sudden expansion of industrial activity. However, as wages are ‘costs of production’, the maintenance of profitability of the producing enterprises excludes the distribution of the surplus product via the wage system. This system itself excludes ‘free distribution’ to the needy layers of society on any significant scale, for under the wage-system people work only if they must. Under conditions of a declining international trade, the physical character of the surplus product may exclude its consumption altogether, or over-production may exist in all fields of production simultaneously. Because of these and other reasons, the hope to rid society of its over-production through foreign aid is irresistible, as this seems to leave the social and economic conditions at home largely undisturbed.
But not for long. It is not difficult to propagandize the working population to produce for foreign aid, as they have very little say in such matters anyway. But it is less easy, and bound to become impossible, to convince the enterpreneurs and businessmen that sharing America’s wealth with other nations will serve their own ends too. Although a foreign aid programme allows for a larger production than would be possible without it, the government ‘buys’ the surplus commodities with funds extracted from the community. And though in this way it helps some corporations which could not function without a steady demand, it helps them at the expense of others which are still able to function independently. To the latter, foreign aid means merely a greater tax-burden, reducing their incomes and limiting their expansion, thus endangering their very existence. They are opposed to it in the sense in which they are opposed to public work programmes, which also affect some interests favourably and others unfavourably. They prefer less than full employment, which brings with it a readier acceptance of an increased productivity by stationary, or slower rising, wages. They favour the conditions that make for an increase of the market-demand through lower costs. And in so far as they are able to assert themselves, they will limit the foreign aid programme.
As a means to secure full employment at home, the foreign aid programme raises a question of expediency; whether to cut down production and feed the unemployed, or to keep employment up by supporting foreign governments and businesses. Foreign aid would here be a type of hidden unemployment, an expensive form of work-relief. And the arguments for and against public work programmes would cover those on the question of foreign aid. However, just as a continuous increase of public works would disturb private enterprise, since it limits its sphere of action and hampers its expansion, so would a constant out-flow of surplus production financed by public funds, for this, too, sets borders to business extension and leads from stagnation to decay. It would amount to a reversal of the hitherto practised policy of private wealth concentration, which would violate all the rules that sustain the prevailing society. It could end only in the dreaded nationalized economy, which it set out to prevent. It may, perhaps, arrest the growth of ‘socialism’ in other nations, but only to further it in the United States. Self-defeating as a permanent and large-scale policy, it will be employed only as an instrument of power politics designed to secure the free capitalist world.—The Hottentots will have to get along without a Rolls-Royce.
 Wilson Papers, Vol. IV, pp. 229-233.
 America’s Role in the World Economy, Penguin ed, p. 136.
 Ibid., p. 5
 The New York Times, 22nd February, 1950.
 Point-Four: Our Chance to Achieve Freedom from Fear. New York, 1949, p. 36.
 Inaugural Address, January, 1949.
 The New York Times, 3rd February, 1950.
 The Statist, London, 10th December, 1949.
 The New York Times, 17th March, 1950.
 The New York Times, 31st March, 1950.
 J. E. Meade, Planning and the Price Mechanism, New York, 1949, p. 111.
 The Oriental Economist, Tokyo, 21st May, 1949.
 The New York Times, 8th April, 1950.
 Dean Acheson in an Address on U.S. policy in Asia before the Commonwealth Club of California. (The New York Times, 16th March, 1950.)
 The United States and China, Harvard University Press, 1948, p. 339.
 Frank Pace, Jr., Director of the Budget, in a speech before the American Retail Federation. (The New York Times, 4th April, 1950.)
 The General Theory of Employment, Interest, and Money, New York, 1936, p. 129.
 Proceedings of a Conference sponsored by ‘The Economic and Business Foundation’, New Wilmington, Pa., 20th December, 1948, p. 18.
 Ibid., p. 21.
 The New York Times, 1st May, 1950.