Views and Comments Much-Quoted "Argument" on Gold with Jacques Rueff

Mr. Hirsch is the author of The Pound Sterling: A Polemic, and of numerous articles, including a views and comments much-quoted "argument" on gold with Jacques Rueff. The author was graduated from Excerpts from the statement of "As regards this combination of the London School of Economics the Secretary-General of the converging measures, it is essential in 1952, when he became a United Nations Conference that the industrial centers should financial journalist. He was on Trade and Development afford greater access to their markets for the exports of the financial editor of The Economist (UNCTAD), Raul Prebisch, at from 1963 to 1966. peripheral countries. the 39th plenary meeting of In 1966 he joined the staff of the Conference in New Delhi, "Similarly, the centers must the International Monetary Fund February 2, 1968. increase their flow of financial as a Senior Advisor in the "In my opinion, the starting resources in order to accelerate Research and Statistics point here must be recognition the rate of growth of the Department. "Since this book has of the following principles: peripheral countries. These been finished in midstream resources should be accessible to between my old position on The "Development is the primary countries showing their Economist and my new one at the responsibility of the countries that determination to shoulder this International Monetary Fund," he propose to develop. responsibility. Their determination notes in the Preface, "it is plain "In order to discharge this to develop will be very limited in that neither organization can have responsibility, the peripheral scope unless this flow of resources any responsibility for the text." countries need the cooperation is adequate. And these resources Leon, Paolo, Structural Change of the centers. will be largely wasted without an and Growth in Capitalism—A "The cooperation of the centers energetic policy of internal development. Set of Hypotheses, Baltimore, should not be residual—as it has Md., U.S.A., The Johns Hopkins been so far—but should be given "This policy of internal Press, 1967, xiv + 162 pp., a high priority; and it cannot be development makes it absolutely based on the immediate trade $6.75. necessary for the peripheral interest of this or that industrial countries to undertake with Originally published in Italian country, nor on its particular determination a series of internal under the title of Ipotesi sullo intention to secure certain political transformations of their structures sviluppo dell'economia concessions, but on the aim of and attitudes, where this has not capitalistica in 1965 by Editore solving a great common problem, already been done; and it also Boringhieri Torino, the English namely, the problem of requires them to be prepared to version has been translated and development. adhere to the reasonable revised by the author. His central "All this, as well as meeting a discipline of a development plan, theme is that the rate of profits in compelling human need, is of to spur on their reciprocal trade by the capitalist system is not uniform, paramount political importance means of regional or subregional but instead is permanently for the whole world and opens up groupings aimed at economic differentiated industry by industry vast prospects for the expansion integration, and to promote and sector by sector, with resulting of world trade to the mutual interregional measures for the monopolistic tendencies. advantage of industrial centers expansion of trade. The author claims that this and peripheral countries. "All these converging measures differentiation is derived from the "This solution of the common are geared to the need to quicken varying growth pattern in the problem of development requires the pace of development of the consumption of commodities. His both groups of countries to adopt peripheral countries until such concept of a series of profit rates a series of converging measures differs drastically from the time as they manage, one after aimed at clear and definite targets the other, to achieve a high growth traditional theories about the which should be progressively long-run functioning of the system rate and to maintain it with their quantified at the level of the own investment resources." and suggests a system of prices peripheral countries and at the dominated by demand. international level. The author concludes that the "These converging measures are workings of capitalism cannot be indispensable for tackling the The following are excepts from discussed within the framework of three main obstacles that make it the printed report of the Secre- traditional methodology. He difficult to accelerate the rate of tary-General of UNCTAD pre- suggests a new method of development: the persistent "dialectical economics" and sented to the Second Session trend toward external in New Delhi, February 1, ', provides examples of its possible disequilibrium—the trade gap— 1968. application. the chronic disparity between Paolo Leon, who was a staff savings and mounting investment "The conception of development economist with the World Bank requirements—the savings gap— policy and its requirements has until March, has returned to Italy and the external vulnerability of made great strides, but a difficult to work in private industry. the peripheral economies. stage of controversy had to be

©International Monetary Fund. Not for Redistribution gone through before a certain "This would be the most "It has thus been thought that basic consensus emerged on the effective and economical way of a body of independent experts, nature of the process and the using international finance, equidistant from the parties significance of the action required because, if these resources were involved, might meet these to deal with it. to be concentrated over a requirements better." "Neither the concept of a relatively small number of years global strategy nor the conviction and with a great multiplier effect, a smaller total amount of them that it is necessary to formulate Excerpts from a speech by the one came about suddenly. They would be required than would be Secretary-General of the United experienced some vicissitudes. The necessary if they were employed stubborn resistance to which the in smaller annual quantities with Nations, U Thant, to the Sec- less multiplier effect for a very idea of industrialization gave ond Session of the United Na- relatively long period. Herein lies rise up to the early 1950's may tions Conference on Trade and be remembered, as also the the most serious defect of Development, in New Delhi, dispute over economic planning international cooperation in this on February 9, 1968. decade: it has not been and the repeated objection to financing public enterprises, even forthcoming on a scale large "The intimate relationship enough to generate the many when they were well run. All these between the political and times larger amount of domestic difficulties have been overcome, economic aspects of world savings and the corresponding as has the reluctance to recognize problems was the subject of a acceleration of growth. the fact that, although inflation remarkable statement by the intensifies the trend towards President-designate of the external disequilibrium, the latter "This all goes to show that, International Bank for is a consequence of the whatever efforts are made to Reconstruction and Development development process itself and demarcate the objective elements at Montreal nearly two years of a plan and to limit to them the cannot be remedied by ago. As he pointed out at that monetary mechanisms alone. conditions that might be time, there is a direct and constant established for granting to a relationship between the incidence "The fund of knowledge peripheral country the supple- of violence and the economic accumulated so far is now enough mentary resources it requires for situation of the countries afflicted, to define the key elements of an financing it, there is an undefined and he drew attention to the internal development policy, zone in which examination of a danger of assuming that problems including those transformations on plan may go beyond the limits of of security could be dealt with by which such great stress has been objectivity and intrude into the purely military means. The most laid. This material could now private preserve of a country's important ingredient of help governments themselves to political decisions. It must be international security is economic decide in a general way, at the recognized that this examination, and social development, and not United Nations level, on the main together with the influence that the armaments and armed forces, guidelines of a development the suppliers of international however powerful the latter may policy and on the criteria on which finance naturally wield, exposes a seem to be. Mr. George Woods, international financial cooperation country to the risk of unacceptable who is here with us this morning, should be based. interference in decisions affecting has, of course, expressed similar its sovereignty. This is a point "The twofold pledge to mobilize sentiments and viewpoints on which causes the developing international and domestic several occasions. countries the utmost concern, as resources is an interesting case of was evident in the discussions demarcation between the aims "What can we say about on supplementary financing of a strategy and the exclusive progress since the first Conference and at the Algiers Conference. responsibilities of each country, in 1964 in creating the conditions because, in pledging to mobilize for economic and social "This concern is very legitimate development? It must be admitted its resources, a peripheral country and while, as stated earlier, it is that to a large extent it has been does not waive its right to true that the examination of a a period of frustrated hopes. The determine what kind of internal development policy is carried out countries that agreed in 1964 to action it will take to fulfill it. chiefly by the International Bank, it the establishment of UNCTAD Similarly, it is the prerogative of is equally true that the more are well aware that the building the industrial centers to decide on comprehensive requirements of a of a new institution, however the ways and means which suit development strategy make it necessary and important, cannot them best for making the financial advisable to raise a specific be a substitute for substantive contribution to which they have question, namely, whether it might measures. Nevertheless, the setting committed themselves. not be convenient and feasible up of UNCTAD has unfortunately "The inflow of international to choose new procedures, in not yet led to the adoption of the finance for a development plan view of the delicate responsibility measures which the situation should, as a rule, be greater, the involved in examining a plan patently requires. higher the proportion of additional and in following its implementation income a country proposes to set as regards the honoring of . . . "Unfavorable as the aside for savings and productive pledges to provide basic and circumstances have been, it was investment. supplementary financing. found possible by the major

©International Monetary Fund. Not for Redistribution trading nations to agree on an the other hand, clearly the of countries participating in an unparalleled program of tariff maintenance of existing parities institution, all the more easy it is to disarmament in the middle of last requires that each country be ensure respect for its decisions. year. This was quickly followed provided with an adequate volume And this is a consideration in by agreement at the annual of reserves, particularly countries, favor of the admittance to the meeting of the International such as the United Kingdom, which Fund of the socialist economies of Monetary Fund at Rio de Janeiro hold external reserves of third Eastern Europe, provided, of on qn outline scheme for countries. In this connection I course, they accept the international monetary reform. should like to repeat the proposal, statutory obligations. What is it that made it possible advanced some time ago, whereby "The evolution of the for success to be achieved in these at least part of the variations in the international monetary system is two major areas at a time when it sterling balances would be about to enter a new phase with was considered impossible to financed by the international the reform of the Fund and, above expand the efforts being made in community; it continues to be valid. all, the creation of reserves in the the much more basic problem of This is necessary if we wish to form of special drawing rights. To world economic development? keep the international payments me it seems evident that the "If we are frank with ourselves, system safe from shocks caused meaning of these recent I think we may identify two main by events taking place in distant developments is the acceleration reasons for the difference. The countries. of the process, already under way first is that, although both the "The experience your country for some time, whereby the Kennedy Round and the outline is undergoing seems to confirm importance of the role played by scheme for international monetary that the variation in the parity of gold in the system is decreasing. I reform will tend to benefit the the pound sterling will play a part underline this point because developing countries to some in the improvement of the balance some continue to insist on the need extent, their main significance is in of payments, to the extent to for an increase in the price regard to the economic relations which it is coupled with a of gold and a return to the gold among the developed countries. reallocation of the real resources standard. The defenders of this And it is simply a fact of life that that are available to Britain. I thesis hold that the assumed the developed countries have a think one might say that the inability of the United States to larger volume of trade and variation of parity is no alternative repay their short-term debts in monetary exchanges with one to an incomes policy; it can be a gold is the main fault of the another than with the developing contributory element, but does not present system, but to correct it world. constitute an exemption from the they suggest, paradoxically, that "But there is a second and obligation of freeing a greater the United States pay only half perhaps even more significant quantity of resources for exports. their debits and refrain from reason for the difference. While All the more so in a country that contracting new ones the new developments in trade must acquire surpluses on balance in the future! and monetary relationships among of payments at least for some "The process of creation of the developed countries involve years, in order to reconstitute a reserves must be in the hands of an exchange of reciprocal sufficient volume of reserves. To the countries responsible for obJigations, the developed world make this possible, the rest of the making the system work, so that continues to regard its economic world must collaborate, widening each may take part in the relationships with the less the receptivity of the market by decisions in proportion to its developed countries as a one- policies supporting domestic importance and to the role it plays sided affair in which concessions demand. An authoritative in international economic are granted but not received. personality, the French Finance relations. Conversely, a system Human nature being what it is, Minister, M. Debre, acknowledged mainly centered on gold—and this countries are much more willing to at recent talks in Rome that 'il would inevitably happen if its consider concessions for which convient, sans tomber dans price were raised—would hand there is some quid pro quo than I'inflation, d'avoir dans chacun de over the helm to forces operating those which are, or at least nos pays une politique pour in a way quite unconnected with appear to be, unilateral." soutenir et accoitre I'expansion.' rational decisions. There is a "In these conditions, with the saying that gold is the policeman who ensures international Excerpts from a speech by the United States set to eliminate their deficit, and the United Kingdom monetary order; but why should Governor of the Bank of Italy, engaged in acquiring this duty be entrusted to a robot Dr. Guido Carli, to the Over- surpluses, the way to make the instead of human beings? seas Bankers Club, London, on process of readjustment less Furthermore, to the extent to which February 5, 1968. painful for the international national currencies continue to be "The events of November show community is to proceed urgently used as a reserve instrument, a that the international monetary to the reform of the international strengthened multilateral system suffers damage when the monetary system according to the surveillance or a harmonized business community reckons that principles stated at the Rio de policy of reserve management the process of adjustment in impor- Janeiro conference and with the should prevent the relevant tant countries cannot be carried willing participation of all the decisions from being exclusively out without resorting to an alter- IMF countries. Here 1 should like entrusted to the countries ation in the rate of exchange. On to say that the greater the number which issue these currencies."