ERP Reverses Its Aims

October 23, 1950

Santayana once defined a fanatic as a man who redoubles his efforts after he has forgotten his aims. The definition would apply equally well to the typical bureaucrat or government planner. The history of ERP is an outstanding example.

The Marshall plan began as a mistaken remedy based on a wrong diagnosis. The European bureaucrats contended that their trouble was a “dollar shortage,” and that the remedy was for the United States to give them dollars. Our own bureaucrats took this at face value and started giving away billions of taxpayers’ money.

But the “dollar shortage” merely got worse. It was being created, in fact, by the very measure ostensibly designed to prevent it—exchange control at absurdly high currency valuations. The European bureaucrats argued that they were losing gold and dollar reserves in spite of their exchange controls, not because of them. But when on Sept. 18, 1949, Sir Stafford Cripps reversed his position overnight and slashed the official value of the pound from $4.03 to $2.80, the effect was an almost immediate reversal in the sterling area’s net flow of international payments. Britain’s gold and dollar reserves are now more than double last year’s prede-valuation level. And in August, for the first month in thirteen years, our own imports exceeded our exports.

Yet though the so-called world “dollar shortage” is curing itself, there is no suggestion from our own ECA that we can terminate or taper off our outward flow of gift dollars. On the contrary, our own officials are still warning us that we must continue to throw our money all around the world even after 1952; they are putting no pressure on Britain to free sterling from controls as the Canadian dollar has now been freed, and they resent hints that British socialism has done anything to offset our aid to Britain.

In 1949 the British nationalized railways lost $58,000,000. This deficit was paid in fact though not in form by American taxpayers. The funds that we turned over to the British Government to pay for things that it would otherwise have had to pay for itself released $58,000,000 of its own funds to pay the socialized railway deficit. The end result is the same as if we had paid for that deficit direct. And now the British Labour Party is going to nationalize the steel industry, and create new deficits.

The slightest suggestion that we should refuse to subsidize European socialism is rejected by our ECA bureaucrats as an intolerable interference in Europe’s domestic affairs. But let any European country attempt to move toward a free economy, or toward prudent finance, let it seriously try to protect the integrity of its currency unit, and our ECA bureaucrats will forget all about “noninterference” and berate that country in no uncertain terms.

A New York Times dispatch of Oct. 2 from Rome, for example, reports that our ECA officials there are appalled to find that the Italian Government has finally balanced its budget! It is to this, and not to the inevitable hangover from the previous inflationary spree, that our ECA “experts” attribute present Italian unemployment. “It is absurd for the [Italian] Government to be showing a surplus” now, according to our ECA administrators. They are “particularly disheartened by the slow rate” at which Italy is spending our money! They are urging “larger expenditures” on the Italian Government and “a more liberal policy of investments”—which are Keynesian euphemisms for Government subsidies to private business and for the philosophy of spend and spend and spend.

Our ECA officials find it particularly hard to understand Italy’s “fear of inflation.” They might get some glimmering of light on the subject if they consulted official index numbers, which show, for example, that the cost of living in Italy was 50 times as high last year as in 1938 and is still 48 times as high.

Queer people, these Italians, definitely in need of a pep talk from someone like Leon Keyserling.