For a Customs Union

March 15, 1948

The strength of the Marshall Plan is its strength as a symbol. It is a token of America’s generosity and good intentions, of our concern for the future of Europe, of our desire to halt the spread of Russian Communist aggression. The weakness of the Marshall Plan is that it is not in fact the appropriate means for securing its intended aims.

Now that the political realities are at last becoming obvious to all, it is clear that further disasters can be halted only by a union of Western Europe. Probably most Americans now favor this. But we still fail to recognize that such a union can be effective only with our own participation and unequivocal military guarantees.

Our present attitude toward collective security illustrates our national habit of smugly prescribing for others medicine that we do not dream of taking ourselves. Another illustration is our attitude toward customs unions. We praise Benelux. We urge other free nations of Europe to form such unions. But never at any time do we seriously suggest that we ourselves join such a union.

Yet we should seriously consider joining a customs union, if only for the educational value of such an idea. From the moment we considered doing this ourselves, we would have a better understanding of the obstacles and hesitations in Europe. At home a hundred vested interests would rise in protest. And their protests could not be lightly dismissed, even if we considered the matter solely from the standpoint of the general welfare.

For under the cover of tariff protection there has grown up in this country a specific structure of production, a certain relationship of the size of each industry to every other. A customs union would mean an eventual increase in efficiency, production, and consumer welfare. But it would also mean a substantial alteration of our own structure of production, with attendant heartaches and tragedies for particular producers and workers. If we wished to soften the shock and minimize the costs of transition, the customs union could not be put into full effect except by gradual stages.

Clearly, also, the wider we attempted to make such a union, the greater would be its difficulties. The problem would be difficult enough if we proposed a union with Canada alone. It would be much more complicated if we attempted also to include Great Britain or the whole British Commonwealth. It might seem insuperable if we tried to bring in Europe or Latin America.

But all this is no reason for not making a start. For the benefits to efficiency and trade, enormous as these were, would be perhaps the least of the benefits of a customs union. They would be exceeded by the value of the economic and political by-products. A customs union would be impossible without many other reforms. It could not work unless the currencies of the member countries were freely convertible into each other in any amounts at fixed rates; and this in practice would mean that these countries must be on a free gold standard. It would not work if any member government imposed price control, or if one imposed different prices from another, or if prices in one nation differed from those in another except by costs of transportation.

This means in practice that the member countries would either have to form a complete political union or that they would have to permit free markets. And this would mean that no member government could impose the present fashionable strangling network of price controls, rationing, allocations, exchange control, blocked currencies, bilateralism, prohibitions on capital export, import and export licensing, crushing and confiscatory taxation, constant threats of government expropriation, and all the rest. For the moment one member government adopted any part of this network, the customs union would either break down or become in fact a pretense and a fraud. A customs union is the most important single step that could be taken, apart from a military alliance, to bring that federation of free nations which is the only alternative to disaster.