Convertibility Now

October 11, 1954

Speaking before the joint meeting of the International Fund and International Bank on Sept. 25, R.A. Butler, British Chancellor of the Exchequer, declared that any real steps toward convertibility of the pound must depend on “more marked progress in the United States toward more liberal trade policies which would increase the dollar earning opportunities of the rest of the world. . . . We need time for the consideration of many intricate problems” before making the pound convertible.

These are extraordinary statements. So far as time is concerned, Britain has already had nine years since the end of the second world war. The pound is still inconvertible. And he was addressing his strictures to the nation that had made the British a heavy loan nearly nine years ago to make the pound convertible, and which both during the war and since then has poured billions of dollars of free grants into Britain to bolster its economy.

What Chancellor Butler’s remarks chiefly reveal is the psychopathic frame of mind to which continued controls finally bring a country. It is an economic scandal that so-called free, democratic nations still retain exchange control nine years after the end of the second world war. Exchange control is price fixing in currencies. It can be maintained only by forcing exporters to turn over the dollars they earn to the government and by undisguised discrimination against American goods through prohibitions and quotas. Such a system involves at least partial control by the bureaucracy of the internal economy. Directly and indirectly it dictates how British consumers shall spend their money and what British producers shall produce.

Now British officials have formed the habit of blaming their controls not on themselves but on us. Take the supposed requirement that America must reduce its tariff barriers even further to make a convertible pound possible. It is hard to see how British officials have the hardihood to lay down such a condition. Let us grant that our customs regulations are needlessly complicated and many of our tariff rates unjustifiably high. The truth is that they are as nothing compared with the barriers to trade that Britain (and, so far as that is concerned, all the countries that have exchange control) have set up. Even if we ignore the incomparably greater barrier of exchange control, the tariff comparison alone is already in our favor. The Tariff Commission recently calculated that the American tariff averaged about 5½ percent of the value of all our imports. On the same basis, it has been calculated, that the British tariff averaged more than 25 percent of the value of all British imports.

A few months ago Prof. Gottfried Haberler of Harvard published a carefully reasoned pamphlet, Currency Convertibility, explaining how and why British fears of the economic consequences of returning to convertibility are misplaced. (American Enterprise Association, Washington, $1.) But recent reports stress a new fear not mentioned in the Haberler pamphlet. This is based on the threat of the Labour Party, if it comes back into power, to reimpose exchange control. As a result of such threats, it is said, the Conservatives have postponed their plans for convertibility from next spring till a year or two later.

But so far from this threat being a reason for hesitation, it should be a reason for the Conservative government to permit convertibility now. New-found freedom once experienced is not easily surrendered. The more free the Conservatives make the British economy the more difficult the Labour Party will find it to return to power or to push the British people back into planning and controls. Since President Eisenhower took his bold action in eliminating price controls, for example, we do not find even Harry Truman calling for their restoration. Everything points to the wisdom of Britain’s returning to convertibility, at least at first, at a free and flexible rate rather than a fixed one. But such details are another story. The time to return to convertibility, in the interest of world economy, is now.