Instead of ‘Integration’

December 5, 1949

Two years ago our government made the mistake of supposing that it could buy European recovery merely by pouring dollars into Europe and not even insisting in return on the minimum reforms needed to make recovery possible. Slowly, by the pressure of events, our ECA officials have themselves come to realize that lasting European recovery can come only from the efforts of Europe itself. They know we cannot continue to give new blood transfusions forever. The chronic European hemorrhage is brought about by the policies of European governments. It will stop only when those policies are abandoned.

As evidence that our government finally recognizes this, the speech of Paul G. Hoffman before the Council of Economic Cooperation on Oct. 31 was encouraging. But from asking too little, he now seems to be asking too much. Instead of insisting on the practicable, he seems to be demanding the Utopian.

No less than sixteen times in his address he called for the economic “integration” of Western Europe. But precisely what does “integration” mean? Hoffman left this vague—so vague that European officials can interpret it as meaning much or little. He implied, however, that it was very far-reaching. He set up the “single market of 150,000,000 consumers” in the United States as the model to be duplicated for the 270,000,000 consumers of Western Europe. A “single market” of this kind implies nothing less than the political federation or unification of Europe.

It is not surprising that European statesmen look on this proposal with serious misgivings. What would our own feelings be if we were suddenly asked to “integrate” our economy with those of Canada and Mexico—or with those of Western Europe?

The danger of the Hoffman proposal is that in asking for the visionary we will not even get the possible.

To halt its present trade deficit and cure its general economic sickness, it is not necessary for Europe to adopt an “integration” of a type and degree that it never knew before in its history, even when it was most stable and prosperous. It need merely return to the economic policies that it practiced as a matter of course through most of the nineteenth century and adhered to in large part even through the ’30s.

I would begin to sound Utopian myself if I were to suggest that Europe think now of going back to the international gold standard. The European record of recent years does not make such a course easy. But it is important to remember that when each European country made it the central object of its monetary policy to keep on the gold standard at the parity it had previously adopted, there was necessarily that “coordination of domestic financial policies” that Paul Hoffman now calls for. No country could stay on the gold standard if it embarked on an independent policy of inflation. As long as each country’s own currency unit was kept convertible into a fixed weight of gold, it was necessarily freely convertible also, at a fixed rate, into all other gold currencies.

The international gold standard was the greatest adventure in economic “integration” that the world has ever seen. Combined with free trade or even with moderate tariffs, it turned the world in effect into a single market.

It may be too much to expect a return to gold immediately. But it is not too much for American taxpayers to expect, in return for the dollars they are daily being forced to pour into Europe, insistence by our ECA officials on at least three minimum reforms: balanced budgets, the end of artificial cheap-money policies, and the abolition of exchange control. The first two reforms would halt the inflation that is undoing all our sacrifices for European stability. The third would allow a reasonable flow of trade, end the dollar shortage, and halt the trend to totalitarianism.

But it would be inconsistent and ridiculous for us to demand even these reforms as long as we ourselves are heading for a deficit of more than $5,000,000,000 and persisting in a recklessly inflationary cheap-money policy.