The Dream World of the MSA

November 24, 1952

Not least among gains achieved by the election of Mr. Eisenhower and a Republican Congress is that it provides an opportunity for reexamining both the details and the principles of our foreign-aid program.

A few days before the election a New York Times story disclosed the contents of a “secret Green Book” prepared by the Mutual Security Agency “as a basis for discussion of next year’s program.” And what its proposals chiefly reveal is that MSA officials have learned absolutely nothing from mistakes of the past; that they are dreaming up more grandiose schemes than ever, involving still more bureaucratic agencies and jobs, still more economic controls, still more burdens on the U.S. taxpayer, still more drains on our national resources.

One of the proposals is for “a multi-billion-dollar currency stabilization fund to be called the Atlantic Reserve System.” The reader will not be surprised to hear that: “If coordinating the currencies of the North Atlantic community requires a substantial degree of pooling of resources, the major contributor to the pool by far must be the United States, which possesses over 80 percent of the gold reserves of the system.” Nor should he be surprised to learn of the hope of our MSA bureaucrats that “tying together the major currency systems of the Atlantic community . . . would end the preoccupation abroad with dwindling gold reserves that has prevented expansionist economic policies.”

In plainer English, this means that we are to be asked to give or throw away most of our gold reserves by allowing people everywhere to demand this gold in exchange for practically every European paper currency, no matter how overvalued, and that European governments are not only to be permitted but encouraged to continue the very paper money inflation (“expansionist economic policies” is the MSA euphemism) that causes gold drains.

This scheme is designed to bring about something called “managed convertibility.” The phrase (as well as the whole scheme) overlooks the fact that all currencies were freely convertible into each other when exchange rates and markets were free; that nothing but the existing exchange controls and other bureaucratic restrictions now obstruct this convertibility; that the system we have today is best described as one of managed inconvertibility; and that the way to get full convertibility is not by more management but by less of it.

The Atlantic Reserve System (so far as one can gather until further details are made available) is simply to be thrown on top of several organizations already designed to do virtually the same job—the International Monetary Fund, the International Bank, and the European Payments Union. This is another illustration of the bureaucratic maxim that what’s worth doing is worth overdoing.

Other schemes in the Green Book contemplate an “Atlantic Economic Board” and an “Atlantic Commodity Board.” The latter “would seek to stabilize production and prices of essential raw materials through long-term agreements with leading producer countries and thereby remove the need for restrictive cartel arrangements.” In other words, the “need” for private cartels would be removed by setting up an enormous international governmental cartel, fixing prices and production quotas and allotting consumption quotas—in short, regimenting the world economy.

All this, it need hardly be said, is the very opposite of what the world now needs. What it desperately needs is a restoration of free markets, free prices, free production, free consumption, free trade. In the monetary field it needs an end to bureaucratic parlor tricks, to exchange control, to deficit financing, to artificially depressed interest rates, to more paper money. It needs a return to the gold standard. It is not foolproof and it is not perfect, but it is infinitely better than bureaucratic caprice.

What the world’s bureaucrats have still to learn, in brief, is that it is precisely their controls that create most of the problems they are trying to solve.