The Folly of Point Four: I

July 11, 1949

A speech that Secretary George C. Marshall made at Harvard a couple of years ago will cost us some $17,000,000,000 before we are through. And Point Four, added as a final touch to President Truman’s inaugural address to give it a little oomph, will cost us billions still incalculable.

In this column of April 11 I called attention to the striking parallel between Point Four and the proposal five years ago by Earl Browder, then head of the American Communists. This similarity is not accidental. Whether or not the proposals of Point Four stem directly from Browder’s, they embody the same basic collectivist and statist assumptions.

There is nothing new in the belief that sound international investment promotes world production. The only thing “new” in the “bold new program” is the paternalistic assumption that this process of international investment must not be undertaken, as hitherto in modern times, by private investors at their own risk, to private borrowers who have proved their responsibility, but must be nursed, spoon-fed, furnished with crutches, and guided at every step by government.

Mr. Truman, following Earl Browder, assumes that it is our duty to raise the standards of living of the so-called “underdeveloped areas” all over the world. What he never mentions, and does not seem to realize, is that we can do this only by lowering our own standards of living, compared with what they would otherwise be. If our taxpayers are forced to contribute x millions of dollars for hydroelectric plants in Africa, they will obviously have that much less for more hydroelectric plants here. If we contribute x millions of dollars for a housing project in Uruguay, we will have just that much less left for housing, or any other equivalent, at home.

This simple principle that we cannot give our cake away and eat it too has been utterly ignored in the whole hullabaloo about Point Four. If the American people are being urged to undertake Point Four primarily for charitable and humanitarian reasons, then they ought to be told in all candor that this charity will make them poorer and not richer. It is misleading to pretend that Point Four is at once a great charity and a shrewd way of selling more goods.

Yet Mr. Truman talks constantly as if we would grow richer by giving our capital away. “Our experience shows that the volume of our foreign trade is far greater with highly developed countries than it is with countries having a low standard of living and inadequate industry. To increase the output and the national income of the less developed regions is to increase our own economic stability.” Now Tiffany’s has also made the amazing discovery that it sells more to the rich than to the poor. But it has not yet occurred to the managers of that firm that it would increase its profits either by giving the poor the money to buy its jewelry or by making bad loans to them.

Another fallacy in Mr. Truman’s message on Point Four is his assumption that investment in backward or “underdeveloped areas” must necessarily increase world production or wealth more than the same investment in advanced areas. On the contrary, advanced industrial countries can more often utilize still more capital far more productively and efficiently than backward countries can utilize it.

Under free markets investors put their money wherever they see the prospect of greatest safety and greatest profitability. When private investors who are risking their own money are free to make their own decisions, that capital is likely to be placed where it is most efficient and productive. But if government officials or technicians, who will not be risking their own money but somebody else’s, are going to decide just where our foreign investments ought to be placed, they cannot be expected to pay scrupulous attention either to the security or the relative profitability of the loans they advocate. On the contrary, if experience is any guide, their recommendations will be determined primarily by political considerations.