The Monetary Fund: Some Criticisms Examined

PERHAPS no economic measure has ever received the careful consideration, extensive discussion and painstaking labor that went into the formulation of the proposal for an International Monetary Fund. The preparations for the United Nations Monetary and Financial Conference were a model of democracy in action. During the two years that elapsed between the emergence of the proposal in its original form and the final draft drawn up at Bretton Woods, literally hundreds of conferences were held with experts of some thirty nations. Hundreds more took place among American experts -- from the staffs of the Treasury, the Federal Reserve Board, the State Department and other agencies of the government -- and among interested groups of businessmen, bankers and labor. Comments pouring in from all over the country were studied with care. The original documents went through more than twenty drafts, several of which were published here and abroad and widely distributed for study. Before the Conference was called, foreign experts had many months to study the proposals and to discuss them with appropriate groups at home.

In June 1944, about sixty representatives of some fifteen major nations met with a score of American experts at Atlantic City, and for two weeks worked to improve the proposals. Finally, in July 1944, representatives of 44 nations met at Bretton Woods. These representatives included finance ministers, officials of Central Banks of most of the countries, Treasury officials who help to shape monetary policy in the major countries and to administer the large stabilization funds of the world, scores of monetary experts, economists, legal authorities, bankers, and almost all of the hundred or so technical representatives of foreign countries who for more than a year had participated with the American experts in consideration of the various drafts.

For three and a half weeks these experts labored 14 to 16 hours a day in committees and subcommittees, going over every provision, studying every suggestion, discussing in greatest detail every point of difference. Each line of each provision was subjected to the closest scrutiny. In the light of all this, the attempt which has been made by certain commentators, familiar with the background, to convey the impression that the monetary proposal was the hastily compiled and visionary blueprint of a handful of men inexperienced in the real problems of foreign exchange and finance is somewhat puzzling. The charge that it was thrust full-born upon the public without giving it an opportunity to examine, criticize, or make recommendations can be interpreted only as a manœuvre to undermine confidence in the soundness of the proposal.

Fortunately this criticism comes from a small, albeit powerful, group. The bulk of expert and informed opinion approves the proposals, and the number of supporters multiplies as the plan is studied and understood. This is due to the fact that, once understood, the proposals are recognized as effective machinery for achieving ends the desirability of which has been driven home by painful experiences of the last quarter century.

The proposal for an International Monetary Fund rests on two premises. The first is the need for stability, order and freedom in exchange transactions; without these we cannot have the expansion of world trade and the international investment essential to the attainment and maintenance of prosperity. The second is that stability in the international exchange structure is impossible of attainment without both international economic coöperation and an efficient mechanism for implementing the desire for such coöperation among the United Nations. Once these premises are accepted, the proposed International Monetary Fund is recognized as the necessary instrument for securing coöperation on international monetary and financial problems and the most logical and effective means for adopting and maintaining mutually advantageous policies.

Owing to the essential simplicity of the framework, the area of agreement was broad almost from the beginning. It is with respect to the technical details, from their nature complex, that agreement had to come slowly. That it was reached at last was unquestionably due to the wide discussion the proposal received and to the careful and earnest consideration given to every criticism and suggestion.

Many of the criticisms and suggestions proved invaluable. Certain others, however, had to be rejected for the reason that they did not meet the need or did not offer a practical basis for coöperation on international monetary and financial problems. I should like to consider some of these suggestions and criticisms and explain just why they are unacceptable.

II

A suggestion frequently offered is that exchange stability can be most effectively established by restoring the gold standard in other countries, particularly England. To these critics the automatic functioning of the gold standard on pre-1914 levels appears as the ultimate desideratum of international monetary policy.

Now it is true that the decades before the First World War were a period of relative stability in international economic relations, and that in part the stability was a consequence of the gold standard. However, that gold standard was never even in its heyday an automatic and self-correcting mechanism, but one requiring a considerable amount of supple management. The gold standard could not have been maintained even to the extent that it was unless there had been coöperation among the leading Central Banks, particularly at critical junctures.

Fundamentally the stability of the decade before the First World War was due not to the gold standard but to the fact that the world economic structure was sufficiently resilient and adaptable to permit playing the game according to gold-standard rules. Unfortunately, the world today is much more complicated than the world of the nineteenth century, and the economic problems with which it confronts us are much less amenable to simple and rigorous solutions. To expect the restoration of the gold standard to bring back the resiliency of bygone days is, therefore, to put the cart before the horse.

That is not to say that there were not real advantages in the old gold standard. It did give assurance to businessmen that the exchange policy of a country would conform to a prescribed pattern of stability and freedom in exchange transactions. That is a worthwhile advantage in so far as it contributes to a high level of international trade and investment; but unless the economic structure of the great industrial countries and of the countries producing primary raw materials has the degree of flexibility and adaptability requisite for the operation of the gold standard, it will not be possible to continue maintaining the gold standard in periods of stress. The gold standard has repeatedly broken down under the strain of acute emergencies. Twice within a generation the gold standard has been abandoned by the very countries that had struggled to restore it. It is no use to argue that if countries would only make the "necessary adjustments" the gold standard could be maintained. The countries involved regard such adjustments as adjustments to a Procrustean bed.

The restoration of the gold standard in the leading countries is not a policy that we can hope to see widely accepted. Few countries are again willing to commit themselves irrevocably always to undertake restoration of equilibrium in their balance of payments wholly via the route of wage and price deflation or through import restrictive devices. In Britain, for example, the public is convinced that the difficulties of the 1920's and the 1930's were due to the restoration of sterling to its prewar parity and to the overvaluation of the pound. So long as these views are widely held, no British Government will assume the responsibility for restoring the gold standard. In a debate in the House of Commons, the Chancellor of the Exchequer said most emphatically: "Certainly the attitude of His Majesty's present Government would be one of most vehement opposition to any suggestion that we should go back to the gold standard." The representatives of many other countries have likewise indicated that a return to the old gold standard is politically impossible in their countries.

But while a return to the old gold standard is of doubtful wisdom for some countries and impossible for many countries, there is no reason why we should not obtain its advantages without imposing its rigidities on countries unwilling to accept it. That is precisely what the International Monetary Fund does. It requires countries to define their currencies in terms of gold, to maintain exchange rates stable within a range of one percent above and below such parity, to make no alterations in the parity of their currencies except after consultation with the Fund, or with its concurrence, and to impose no restrictions on current transactions except after consultation with the Fund, or with its approval. While some countries are not prepared to adopt the gold standard, they are willing to take coöperative measures of this kind to provide stability and order in international exchange transactions. Those countries which elect, as does the United States, to adhere to the gold standard can, of course, do so without in any way complicating the operations of the Fund.

It should be pointed out that even if countries were to adopt the gold standard there would be no assurance that they would maintain it. It would do little good to have countries repeat the experience of the 1920's, struggling to restore the gold standard only to abandon it under the impact of a great depression. It is far better to obtain an agreement through international monetary coöperation, and to establish a stable if moderately flexible exchange structure which has good chances of being maintained, than it would be to impose on other countries an ephemeral and involuntary restoration of the gold standard which they will abandon at the first opportunity or pretext.

III

Some critics object to the Fund because it permits flexibility in exchange rates; they seem to believe that, once established, the parity of a currency has the sanction of moral law.

The Articles of Agreement for the International Monetary Fund provide that one of the purposes of the Fund is "to promote exchange stability, to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation." Stability of exchange rates is not, however, identical with rigidly fixed rates that cannot be changed under any circumstances. The difference between stability and rigidity in exchange rates is the difference between strength and brittleness. It is the difference between an orderly adjustment, if conditions warrant it, and eventual breakdown and painful adjustment. The assumption that rigidly fixed exchange rates are always advantageous is no longer held to be axiomatic. It is true that if countries permit wide fluctuations of exchange rates in response to temporary changes in their balance of payments, the level of international trade and international investment will be adversely affected. But when the economic position of a country shifts because major factors have affected the world's demand for its exports, the proper remedy may be an adjustment in exchange rates.

The world needs assurance that whatever changes are made in exchange rates will be made solely for the purpose of correcting a balance of payments which cannot be satisfactorily adjusted in any other way. The world needs assurance that exchange depreciation will not be used as a device for obtaining competitive advantage in international trade; for such exchange depreciation is never a real remedy. It inevitably leads to counter measures, and the ultimate effect is to reduce the aggregate volume of trade. This is precisely what happened in the period of the 1930's when competitive exchange depreciation brought wider use of import quotas, exchange controls and similar restrictive devices.

The Fund gives the assurance the world is asking for; it provides a method of obtaining orderly exchange adjustments if they are needed to correct a fundamental disequilibrium. Such adjustments can be made only on the proposal of a member and only after consultation with the Fund. The Fund cannot object to a proposed change if, together with all the previous changes -- whether increases or decreases -- it does not exceed 10 percent of the initial par value of the currency. All other changes in exchange rates can be made only with the concurrence of the Fund. In the postwar period initial exchange rates will have to be set for countries that have been cut off from world trade during the war, and a procedure has been provided to adjust promptly any error made in the selection of initial parities. Such adjustment is preferable to allowing a persistent overvaluation or undervaluation of a currency.

The purpose of exchange stability is to encourage trade. We should defeat this purpose if we insisted on rigid exchange rates at the cost of severe deflation, which would reduce world trade and investment and spread depression from country to country. While the Fund would have every reason to object to exchange depreciation as a means of restoring equilibrium better achieved in other ways, it would not force upon a country a rigid exchange rate that can be maintained only by severe deflation of income, wage rates and domestic prices. Nor if a change in exchange rates is necessary to correct a fundamental disequilibrium, could the Fund object on the grounds of the domestic social or political policies of a country; it cannot be placed in the position of judging such policies of its members. It could not forbid countries to undertake social security programs or other social measures on the ground that such measures may jeopardize a given parity. Englishmen have not forgotten that in the sterling crisis of 1931 social services were cut in the attempt to maintain the fixed sterling parity. To use international monetary arrangements as a cloak for the enforcement of unpopular policies whose merits or demerits rest not on international monetary considerations as such but on the whole economic program and philosophy of the country concerned, would poison the whole atmosphere of international financial relations.

These provisions of the Fund assure a stable and orderly pattern of exchange rates without restrictive rigidity. It puts the sanction of international agreement on stable and orderly exchange arrangements. If any change in exchange rates is made after the Fund has expressed its objection, the member becomes ineligible to use the resources of the Fund; and if the difference between the member and the Fund continues, the member may be compelled to withdraw from the Fund. Altogether, the Fund provides greater assurance of exchange stability than would be possible under the gold standard.

IV

It has been asserted that the Fund is only a device for lending United States dollars cheaply and that the money will be wasted or lost; that other countries just want to get our dollars, and that there is nothing to stop them from quickly draining our dollars from the Fund.

This is an argument that could be made only by persons who either have not carefully studied the Fund document, or are attempting to frighten people into economic isolationism. The fact is that from Article I to Article XX safeguards have been written into this agreement to make sure that the Fund's resources cannot be dissipated or lost. Some of these safeguards are briefly discussed below.

The Fund will not accept an initial par value for the currency of any country if, "in its opinion the par value cannot be maintained without causing recourse to the Fund on the part of that member or others on a scale prejudicial to the Fund and to members." In fact, the Fund will "postpone exchange transactions with any member if its circumstances are such that, in the opinion of the Fund, they would lead to use of the resources of the Fund in a manner contrary to the purposes of this Agreement or prejudicial to the Fund or the members."

To meet an adverse balance of payments for approved purposes, a country is entitled, subject to certain quantitative and qualitative limitations, to purchase the needed exchange from the Fund. The purchases of exchange must not cause the Fund's holdings of the member's currency during a 12-month period to increase by more than 25 percent of its quota, nor to exceed by more than 100 percent the quota of the country. The Fund may waive these limitations, especially in the case of members with a record of avoiding large or continuous use of the Fund's resources. The Fund may also require the pledge of collateral as a condition of waiver and it may prescribe whatever other terms and conditions it regards as necessary to safeguard its interests.

Some critics have spoken of these provisions on the sale of exchange as confirming automatic credit rights to countries who are not what they call "credit worthy." The criticism is wholly unjustified. The technique of conditionally permitting a country to buy foreign exchange to a limited amount is commonly used in stabilization operations. It is included in all of the bilateral arrangements under our own exchange stabilization fund and in the Anglo-Belgian, Anglo-Dutch and Belgo-Dutch exchange agreements recently announced. The safeguard is that this conditional right can be terminated whenever it is not used for the purposes of the agreement. It is specifically provided that a member acting contrary to the Fund's purposes may be declared ineligible to use the resources of the Fund.

Apart from these general limitations, there are special provisions designed to assure the liquidity of the Fund and the revolving character of its resources. Members purchasing foreign exchange from the Fund are expected to use their own reserves of gold and foreign exchange in an equal amount, provided their monetary reserves exceed their quotas. When their balance of payments become favorable members are expected to use half of the increase in their reserves in excess of their quotas to repurchase their currencies held by the Fund. The provision that a country must use one-half of the increment in its reserves to repurchase its currency from the Fund is the counterpart of the provision that a country must meet one-half of the deficit in its balance of payments by use of its own reserves. The fact is that if over a period of time all countries were to maintain their international payments in equilibrium, the distribution of the Fund's resources would not only be restored to its original position, but because of the growth in monetary reserves, even strengthened.

The Fund has other provisions to assure the revolving character of its resources. A country purchasing exchange from the Fund with its currency must pay a service charge of three-fourths of one percent. This is a relatively heavy charge and it will induce countries, as intended, to place primary reliance on their own resources rather than the Fund's. Further, the Fund levies charges on its balances of a member country's currency; these charges rise steadily as the balances held by the Fund increase and the period over which they are held lengthens. When the charge rises to 4 percent on any of the Fund's holdings, the member and the Fund must consider means of reducing the Fund's holdings of the currency.

Finally, there is a specific provision safeguarding the gold value of the Fund's assets. No country can diminish its obligations to the Fund through depreciation. Whenever the par value of a member's currency is reduced, or its foreign exchange value depreciates to a significant extent, the member must pay to the Fund an amount necessary to maintain the gold value of the Fund's assets.

Some critics fear that other nations are not interested in maintaining a sound Fund, that the Fund will be managed by debtors and that the United States will have only a minority voice. This fear is hardly warranted by the facts. The United States will have 28 percent, and the United Kingdom, the British Dominions and India together will have 26 percent of the total voting power. Provision is made for having the two largest creditor countries on the Executive Directorate. In all voting involving the sale of exchange, the votes of creditor countries are adjusted upward and the votes of debtor countries are adjusted downward. These are quite obviously ample safeguards to protect the creditor countries. But the greatest safeguard is the common interest of all countries in maintaining a Fund that will become the basis for stable and orderly exchange arrangements without which the world cannot have the expansion of international trade and the resumption of international investment essential to a prosperous world economy.

In the period after the war the world may need more dollars for imports from the United States and other payments to the United States than will be available; a number of countries may experience a scarcity of dollars. If we attain a high level of employment in this country after the war and resume international investment on an adequate level, the dollar will not become a scarce currency; the volume of imports and the purchase of services from abroad should be sufficient to cover all legitimate foreign demands for dollars. Failing such action, however, there is the real possibility that dollars will become so scarce that the Fund will not be able to sell as much dollar exchange as members wish to buy. This is not likely to happen quickly: 1, the Fund would have large resources of dollars and gold; 2, there are quantitative and qualitative limitations on the purchase of exchange from the Fund; and 3, member countries are required to use their own resources of gold and dollars when making use of the Fund. But in time, if the balance of payments becomes too one-sided, there may be a shortage of dollars. Such a shortage, if it develops, will not be because of the Fund but in spite of the Fund. Some critics have argued as if the Fund itself would be the cause of the scarcity in dollars. The Fund cannot create a shortage of dollars. On the contrary, the Fund inevitably postpones a shortage of the currency most in demand, even when it doesn't prevent it.

Long before any acute scarcity of a currency develops, the Fund would have considered the situation and taken whatever steps were feasible to remedy it. The Fund might find that the principal cause of the difficulty was excessive imports by countries utilizing the Fund, and it would require corrective measures as a condition of continued use of the Fund's resources by such countries. The Fund might find that the causes of the scarcity were high trade barriers in the country whose currency was scarce, or a failure to undertake adequate international investment, and it would propose appropriate remedies. In the meantime, if the Fund should find that the difficulties were of a temporary character, it could use its gold resources or borrow the scarce currency under terms agreed with the country.

If, notwithstanding the delaying and corrective action of the Fund, a general scarcity of a particular currency is developing, the Fund may issue a report to member countries setting forth the causes of the scarcity and making recommendations designed to bring it to an end. This report may be issued while the Fund still has that currency and means of obtaining more. When the Fund finds that it will not be able to meet the prospective demand for a member's currency, the Fund will declare that currency scarce and thereafter apportion its existing and accruing supply of the scarce currency with due regard to relative need of members, the general international economic situation, and other pertinent considerations. The Fund would, of course, never exhaust its dollar supply. It would have a continued inflow of gold and dollars from its other transactions which would be available for sale to members. These provisions make the resources held by and accruing to the Fund available for dollar payments in the United States. The over-all utilization of dollars is sure to be larger under the Fund than it could be without it.

When a country is short of dollars, it is certain to take steps to limit the demand of its nationals for dollars. Without the Fund this action would take the form of establishing whatever controls the country wished. Under the Fund agreement, the limitations on the freedom of exchange operations that a country may impose with respect to a scarce currency are definitely prescribed and are undertaken only after consultation with the Fund. They must be no more restrictive than is necessary to limit the demand for the scarce currency, and the limitations must be relaxed and removed as rapidly as conditions permit. Furthermore, a member must give sympathetic consideration to the representations of other members regarding such restrictions.

Very definitely this country assumes no moral responsibility for a scarcity of dollars. The technical representatives of the United States have made it clear to other countries in a number of memoranda that a scarcity of dollars cannot be accepted as evidence of our responsibility for the distortion of the balance of payments. I quote from such a memorandum: "It should not be overlooked that the disequilibrium in the balance of payments cannot be manifested as a problem peculiar to one country. Whenever the supply of a member country's currency is scarce, this scarcity is likely to be accompanied by excessive supplies of the currencies of other countries. In such cases the responsibility for the correction of the maladjustment is not a unilateral one. It will be the duty of the Fund to make a report not only to the country whose currency is scarce but also to the member countries who are exhausting or are using the resources of the Fund in a manner which is not consistent with the purposes of the Fund."

Some critics have expressed the view that once the Fund's holdings of dollars have fallen considerably below the subscription of the United States, it will not be able to function. This is completely wrong. The Fund will continue to be the means for international monetary coöperation and for maintaining stability and order in exchange transactions. The Fund will hold all currencies, except the dollar, in adequate amounts and will continue to sell such currencies to members. From its transactions, the Fund will also have dollars accruing to it, which it will sell in limited amounts to other countries. In time, of course, the Fund's position with respect to dollars will be fully restored if the United States does not have a persistently large favorable balance of payments. The United States can always acquire whatever currency it needs from the Fund. Furthermore, its position as a subscriber to the Fund is fully secured by the obligation of other countries to maintain unimpaired the gold value of their currencies held by the Fund, and by their obligation to redeem in gold or dollars any currency that is distributed to the United States if the Fund should be liquidated.

V

A view frequently expressed is that the proposal for the Fund is too ambitious, that the problem can best be solved by stabilization of the key currencies -- the dollar and sterling and perhaps some few others -- and that other currencies can achieve some degree of stability by adherence to the dollar or sterling.

In part this exclusive concern with the key currencies reflects a fear that exchange stability and freedom in exchange transactions are not universally desirable policies; that many countries should be permitted to have fluctuating currencies and to use exchange control to manage their international payments. Whether this objection to the Fund is well taken is a matter of opinion. Regardless of the degree of stability or freedom one may prefer, few will deny that orderly exchange arrangements are essential, and such arrangements are practicable only through coöperation on a multilateral basis.

The emphasis on the key currencies in which international payments are made seems to me completely mistaken. The dollar and sterling are, of course, the most important currencies; but the currencies of other countries also are important to the extent that they affect volume of international trade and investment.

Some illustrations may help. Taking the sum of exports and imports, England's trade in 1937 was about 15 percent of the world total and the United States' trade was about 12 percent of the world trade. Is it of no importance to achieve currency stability in the countries carrying on nearly 75 percent of world trade among themselves? Only 11.5 percent of our trade in 1937 was with England and only 23 percent with British Empire countries other than Canada. Is it of no consequence to us to obtain currency stability in the countries with which we have more than 75 percent of our trade?

The fact is that we are directly interested in the exchange rates of all countries, because all countries are either our customers, competitors or suppliers. The problem of the American cotton exporter offers a helpful illustration of the importance of general exchange stability. He is interested, of course, in the exchange rates of cotton importing countries, cotton exporting countries, and textile importing countries -- in other words, he is interested in the exchange rates of England, Japan, Germany, India, Egypt, Brazil, Mexico and a host of other nations. What happens to the price of cotton in the United States when the exchanges depreciate in these countries? The answer can be found in the sharp fall in the spot price of cotton in New Orleans from 9.08 cents in May 1931 to 6.06 cents in October 1931, when currency depreciation occurred in nearly all of these countries.

Some critics carry the key currencies concept so far that they completely identify postwar monetary problems with the British balance of payments in the postwar period. They propose that the United States and England enter into a bilateral agreement for stabilization of the dollar-sterling exchange rate, and that Britain remove restrictions on exchange transactions and fund the abnormal sterling balances accumulated by India and the Dominions as a result of Britain's war expenditures. To enable England to meet the need for foreign exchange that such a program would involve, it is proposed that the United States lend five billion dollars to Britain.

There are, of course, a number of variations of this approach, all of which miss completely the real postwar problem in Britain, the United States and elsewhere. The net change in Britain's foreign exchange position on capital account is large, and in time Britain will want to restore her international economic position. But that problem is neither as urgent nor as great as the question of her current balance of payments after the war. To facilitate the restoration of balance in her international accounts Britain needs an expansion of world trade. A loan to Britain to enable her to establish exchange stability and freedom from exchange control will not of itself help significantly with Britain's problem, or with the world's problem of establishing a sound postwar pattern of international payments. Such a loan might burden Britain with a dollar debt while making no real contribution toward balancing Britain's international payments. On the other hand, the Fund and the Bank, by providing the favorable conditions necessary for expanding world trade and investment, would be of real help in establishing a sound postwar pattern of international payments and would contribute substantially to prosperity in this country and abroad.

VI

With those critics who say that additional measures are necessary no one disagrees. The position of the United States Government from the beginning has been that the Fund and the Bank must be supplemented by other measures. There is every reason to expect that these other measures will be taken, and that they can be taken with greater confidence because of the Bretton Woods program.

The maintenance of stable and orderly exchange arrangements will be best assured if the great industrial countries pursue policies for maintaining a high level of business activity. Under such conditions international payments can be kept in balance without difficulty, for the greatest distortion in the balance of payments occurs during periods of business depression, when international trade and investment fall off.

It would be helpful, of course, to lower the barriers to international trade. The United States has been pursuing the policy of reducing tariffs through reciprocal trade agreements. More can be done and will be done to achieve a general relaxation of trade barriers. But this cannot be done until there is assurance of orderly exchange rates and freedom in exchange transactions for trade purposes. A depreciation in exchange rates is an alternative method of increasing tariff rates; and exchange restriction is an alternative method of applying import quotas. With the Fund, countries can undertake reciprocal tariff reduction knowing that such agreements will not be defeated by offsetting action on the exchanges. It should be noted that with high levels of business activity, countries will not be tempted to follow the false road of trade restrictions to provide more employment at home.

Nearly every critic has said that stability of exchange rates is possible only if countries put their economies in order. Nobody disagrees with this view, certainly not those who were at Bretton Woods. The countries that were occupied by Germany have a difficult but not insuperable problem in restoring their economies. In western Europe, the Germans retained wage and price controls in order to exploit production more effectively in these countries. Because of these controls, the monetary system did not get out of hand, and with energetic measures it will be possible to attain international economic stability. In eastern Europe, the situation has deteriorated so far that completely new monetary systems will probably be necessary. The measures that will be taken for monetary stability can be effective only if the public has confidence in the currency. Can there be any doubt that reconstruction and stabilization in these areas will be more prompt and more effective with the Bank and the Fund to give confidence to the people of these countries?

To those who sincerely believe that the Fund should not be instituted until after the period of postwar transition, it must be pointed out that while the Fund is not intended to provide resources for relief, reconstruction, or the settlement of wartime indebtedness, it does have a most valuable function to fulfill during the transition period. Quite apart from the special problems of the transition, the world will have the same problems of exchange and payment as before, and the Fund is essential for dealing with them. It is of vital importance that the postwar pattern of exchange rates should be initially determined by consultation between the Fund and member countries, and that whatever adjustments become necessary should be made through and with the Fund. Most significant, during this period of transition the general lines of international monetary policy will be definitely determined, and it would be a tragic error to allow a relapse to the monetary disorders of the 1930's through inaction and delay.

The plea that we should wait several years before attempting any comprehensive program for international monetary collaboration has been made by a few economists whose objectives are admirable and whose approach is careful and responsible. But it is the approach of perfectionism: let us postpone action until more evidence is in -- next month, next year, some years hence. Unfortunately, this counsel of caution plays directly into the hands of those who are not disinterested. There are, in truth, economic isolationists as well as political isolationists. One tactic of political isolationists is the attempt to kill all concrete and specific proposals for international political security and coöperation not by forthright opposition -- the public would too soon recognize such opposition for what it is -- but by a plea for postponement. They hope that the passage of time will multiply frictions among the United Nations, and that they can effectively use the time thus gained to create frictions and aggravate points of potential difference; therefore, they reason, the very deferment of agreement will make the attainment of agreement more difficult. To them delay is merely a subterfuge to facilitate sabotage of our plans for an international security organization. The economic isolationists hope that the general environment may somehow become unfavorable for measures of international economic coöperation. We must answer them in the same way as we are answering the political isolationists -- by going straight ahead with the implementation of the program for international economic as well as political coöperation. The American people have unequivocally endorsed that program.

Quite recently, the suggestion has been made that the Fund be dropped and that the Bank be authorized to make stabilization loans. There is in this suggestion a basic error -- the assumption that the principal purpose of the Fund is to provide additional exchange resources. Primarily, the Fund is the means for establishing and maintaining stability, order and freedom in exchange transactions. The resources of the Fund are only for the purpose of helping countries to adopt and keep such policies. Long-term stabilization loans would defeat this purpose. We need constant, continued and general coöperation on exchange problems and exchange policies, and this is possible only through the Fund. Both the Fund and the Bank have important but distinct functions in maintaining a high level of international trade and sound international investments. While each could function alone, they supplement and strengthen each other. Together they could make a great contribution to a prosperous world economy.

The world is in desperate danger of reverting to economic isolation after the war, and economic isolation will inevitably breed political isolation. Those who talk of waiting and of bilateral arrangements with one or two countries are in fact proposing that we do nothing, that we allow the world to drift back to the restrictions and the disorders of the prewar decade. This is a risk neither we nor the rest of the world can afford. We have the opportunity to put into effect the fundamental principle which must be the basis for a peaceful and prosperous world, the principle that international problems are an international responsibility to be met only through international coöperation. The Fund and the Bank are concrete applications of this principle in the international currency and investment spheres.