The Realist Base of American Foreign Policy
RESERVE BANKING IN INTERNATIONAL FIELD
By A. A. BERLE, JR., Assistant Secretary of State
Delivered at the Fifth Annual Meeting of the Alabama State Chamber of Commerce, Birmingham, Ala., October 15, 1942
Vital Speeches of the Day, Vol. IX, pp. 53-56.
IN war, as in peace, sound foreign policy must be based on the solidest political and economic facts. Unless this is true, it is difficult to be victorious in war, and impossible to organize peace after victory. The salient points are well known; but they bear repeating.
The United States is productive, strong and independent; and proposes to stay so. She has found that the best means of remaining productive, strong and independent is to maintain disinterested friendship with all other nations; and that this policy works best when all other nations are themselves productive, independent and as strong as their circumstances permit. We have no wish to acquire the territory or dominate the affairs of other nations; and no peace-loving nation need fear us. Equally, we propose to handle our affairs so that we need fear nobody.
Every once in so often certain other nations become possessed of a wild desire to conquer as much of the globe as they can. The present war comes directly out of such a plan. The Nazi-Japanese combination intended to do just that. The United States and our neighbor nations of the New World were a direct target in this wild scheme. We have had to join with other law-abiding nations to defend ourselves. We propose to finish the job. The present policy of this Government is make war—war to the victorious end. New methods are needed, and new factors must be considered.
As the world has grown smaller—and you can go around the world today without great difficulty in ten days—schemes of conquest are no longer certain to be checked by the Atlantic and the Pacific Oceans. These oceans, now, can be crossed quite easily. Today, an occasional air raid probably would not seriously threaten our existence. But tomorrow— that is another story. No student of aviation fails to point out that we are only beginning to learn what air power can do. On the drafting boards of the aviation designers there are already plans which make present air warfare and airtransport look as obsolete as a sailing ship looks alongside an ocean liner.
Both in this war and after it, our foreign policy must take account of that fact. It changes our whole point of view. In the last war, and in the present war, the German explosion of conquest was met by barriers—the British and French land armies, and the sea, held by the British and American Navies. These barriers borrowed time for us— time to produce munitions, to organize armies and air force, and to meet our better prepared enemies on even terms. But the future does not offer to lend us time. It puts us in a permanent front-line. If you imagine two or three hundred Pearl Harbors occurring all over the United States, you will have a rough picture of what the next war might look like— if we let a "next war" start. This is a new factor, and we have to take account of it also, and so use victory that a new war cannot start.
In our great international crisis, certain nations habitually wind up on the same side as the United States.
First in our thinking is the unity and coherence of the American Family of Nations. This Hemisphere, following a great ideal, has steadily drawn together in friendship, at a time when other continents were breaking apart into groups of enemies. How strong and deep this habitual friendship can be is notably illustrated by the great part which Brazil is playing in the present conflict.
And, during a century and a quarter, though Britain has been a great maritime power, a great competitor and our nearest overseas neighbor among the great powers, we have lived at peace with Britain, and have twice been her ally. No dispute has arisen which could not be solved by reason and common sense. I think our relationship with Britain rests on something more solid than cousinly sentiment. Great Britain, in the last analysis, has found that a strong United States is a great buttress of a world in which Britain can live. We, on our side, have found that a strong and serene British Commonwealth of Nations is a great guarantee of the kind of world in which we want to live. Year after year, we have come to work together in all essential matters. Neither of us fears the other; neither of us has sacrificed independence. We do not even forego our right to puff, grunt, complain about, and argue with each other. In all crises, we necessarily and instinctively hang together— and both of us have been safer and better off on that account.
Another great power which has habitually joined with us is Russia, though few Americans have realized that fact until lately. When the country was young, the mere existence of Russia prevented Napoleon from becoming a world conqueror; and this fact made us safe. Later, and in the difficult days of our Civil War, Russia stood by the United States as a great counter-weight against interference on this Hemisphere by any European power. In the first World War, at the sacrifice of her own armies, Russia twice carried out a general military push which enabled the western nations to draw breath and equip themselves for final triumph. Today, a defense of unparalleled bravery, symbolized by the deathless name of Stalingrad, has probably proved the turning point in the Nazi drive for world power.
Since the appearance of the Far East in western affairs, we have had an historic friendship for China and she for us. The cornerstone of any American policy in the Far East must be close working relations with the Chinese nation,—a very great nation, devoted to a world at peace. The struggle carried on by Generalissimo Chiang Kai-shek and the Chinese people has made it possible for this country to meet a Japanese attack, timed to coincide with the Nazi attack;and China saved us in the east as Russia and Britain have saved us in the west.
You may say that these countries have only acted in their own interest and are defending themselves. That is true. We have done the same. The point is that their own interests and their own self-defense have regularly proved of vital importance to us in maintaining our national interest and our self-defense—not once but over and over again in our history.
Out of these relationships has now been forged the greatest union history has ever seen—the United Nations.
The greatest tribute to the strength of the United Nations recently has been the violent attempt of the Axis to break it up. You have heard Axis propaganda attempt to make Russia believe that Britain and the United States would let her down. At the same time, German lies were spread that Russia would betray her allies. Meanwhile, the poison squad was busily endeavoring to sow dissension between Britain and the United States. Most of this propaganda has missed its mark; its real importance is to show the Nazi fear of these great friendly nations, when they unite.
They have united, in their common interest, to an amazing degree. I want to trace some of the outlines of their united effort.
Modern war is a continuous process. It involves organizing and maintaining a continuous belt line from the farms and the munitions factories to the fighting fronts. All of this huge belt line has to work all the time, and work in gear. If any part of it breaks down, all the fighting fronts are endangered.
For that reason, the United Nations have already forged a huge international economic system. That system exists now, and is working. This war runs through all the continents, and includes fronts in the Arctic Aleutians and the African tropics. It ranges from the Solomon Islands to the Russian steppes, and is fought in the Egyptian desert and in the Channel ports. When supply has to flow to all these fronts, you can see that the economics of war are international by their very nature.
It has been necessary to organize production on an international basis so that supplies, civilian and military, may be planned ahead, may be created for tomorrow, and may be gathered for today. No one country could possibly achieve this. There are, accordingly, combined boards which plan the utilization of the raw materials resources of the United Nations; such a board is working in Washington now, and a counterpart exists in London.
Raw materials are useful only as they produce supplies and munitions. Last June there was created a combined Production and Resources Board, which shall "take account of the need for maximum utilization of the productive resources available to the United States, the British Commonwealth of Nations and the United Nations."
There is a Combined Food Board to work in collaboration toward the best utilization of food resources, and to formulate plans for the development, expansion and purchase of necessary food.
Since supplies must reach the place where they are needed, there is a Combined Shipping Board, which, in essence, pools the shipping of the Allied maritime powers.
When it comes to arms, the language of the agreement is worth repeating: "The entire munitions resources of Great Britain and the United States will be deemed to be in a common pool." Out of this pool, all the United Nations must draw their war supplies, save Russia, who has supplies of her own, but needs all re-enforcement from the pool that ships can carry and ports receive. The Munitions
Assignment Board has the huge task of allocating the weapons of war to the fighting fronts.
Were it not for this vast machinery, the war would probably have been over long ago. Were it not that this machinery is truly international, the free fighting nations would have been weakened one by one to the point of defeat, and hammered into submission for lack of munitions, or starved into impotence for lack of supply.
This is the "commerce" of war time: a commerce such as the world has never seen. This commerce matches armor against danger; maintains distribution and supply behind the lines. This commerce says, in a word, that the combined resources of all the free nations shall be devoted to the common defense, and shall be laid on the line when and where they are needed.
During the period of war, this is the machinery that must support the economic life of all the United Nations, including ourselves. Sometimes we have been criticized because the huge machine did not get into action more rapidly. Much of this criticism is sound and useful. But it must be remembered that all this huge design of war-time life has been built within a period of nine months. It will increase in effectiveness until the war is over.
When victory comes—as come it will—this vast machinery will be the way by which the civilian population of most of the world gets its supplies. The organization will be there, and standing; it will have under its direct charge the resources of most of the world.
I ask you to remember this, because we shall have the problem, when peace is won, of keeping and holding that peace through an extremely difficult period. You cannot expect order in a hungry world—and the world will be very hungry indeed. The machinery which has been built up to supply us during war time will have to be used, in large measure, to keep us supplied until the commerce of peace can be re-established. There will be no other way. Until new arrangements can be made to reopen the flow of trade and commerce, to start production out, to repair the wrecked plants, and replace the broken machines, we shall have to rely for a time on the war supplies, while we are working to reestablish the business of peace.
The technique of that period of transition must be planned and thought out soon—for this time we cannot risk the breaking of all ranks which took place in 1918 when Germany collapsed. Then the Allied machinery stopped at once; Europe, and, to some extent, America, were shaken in the convulsion of a great economic crisis. In the ensuing confusion, the victory of World War I was literally frittered away.
In that transition period, it will be necessary by a combined effort to make arrangements,—and make them quickly—so that nations generally can use their resources and their manpower to satisfy their peoples' needs.
Since no country wants to be on either the giving or receiving end of an international breadline, this means economic arrangements which permit nations to get into production as rapidly as possible and put their resources to work. They literally must increase their resources by trade and commerce—for no other peaceful way has yet been devised.
For that reason, the trade routes and markets of the world have to be reopened. The endless barriers, restrictions and hurdles by which trade has been slowly strangled in the last twenty years will have to be removed. This rule goes for everyone,—including America. No country can expect to cut itself off from general commerce without harming its neighbors a great deal and itself most of all.
To do this, however, we must squarely face one fact, and arrange to meet it. Open trade and life-giving commerce cannot exist unless you have a financial system so arranged that the goods can move; and do; and so handled that business can be done, and is.
For the transition period, at least, financial arrangements must therefore be worked out so that our neighbors in this world community can set up in business again. It will be essential for them; it will be sound commerce for us.
Perhaps an illustration close to home may be useful. At the close of our Civil War, the South was exhausted and her economic life was broken. The capital and credit of the country were concentrated in the North. Endeavors were made at that time by some enlightened citizens to try to put some of this northern capital and credit to work in the southern states. But most of the northern bankers at that time did not have the vision or the courage to do the job; and there was no central banking system able to move in. Instead, the money and credit which could and should have rebuilt the ruined areas went into the fantastic speculations of the Goulds, the Jim Fiskes, and the Daniel Drews, and caused the wild scandals of the New York Stock Exchange.
Reestablishment of the South was unnecessarily delayed for an entire generation. Nor did the rest of the country escape; it had to suffer the hardships of the long panic which began in 1873. It took the country thirty years to recover from that mistake.
I do not see that the task is impossible. We have the resources. If it is desired to use gold as a financial base, as many people do, we have at our command by far the greatest share of the world's gold. What is more important, we have the production and the goods available to back up our finance. We shall be in a position to make and deliver almost anything which is required to give to our neighbor countries a new start in international economic life. At the very time this is most needed, we shall want to keep our plants busy, our people employed, and to provide jobs for the returning soldiers. With ordinary intelligence, we should be able to assist the general situation, to everyone's advantage.
A good many years ago, we discovered that the trade and commerce of this country could be paralyzed by a system of banking and finance which was not sufficiently elastic. It took three panics to teach us that lesson—the panic of 1893, the panic of 1903, and the panic of 1907. In all those panics we saw trade within this country drop to nothing, though the goods were there; we saw men out of work, though the work was there to be done; we saw banks fail, though the assets were there; we saw hardship in the midst of obvious plenty. Then we finally learned our lesson and passed the Federal Reserve Act of 1914.
The existence of that Act, and the creation of the parallel agency of the Reconstruction Finance Corporation, made it possible to -end the depression of 1929 just as soon as a government was chosen which had the will and the determination to do it.
Somewhat the same problem exists in the international field. Perhaps it is not amiss to suggest that business and financial men begin to do some thinking as to how the methods which have proved successful within the United States may be applied so that the trade and commerce which is necessary for the health and for the peace of the world may be re-established and kept going.
Because of this, a good many observers, both practical bankers and students, have been advancing the idea that wecould profitably extend some of the principles of reserve banking to the international field. Certainly, experience suggests that this is a logical line of development. After World War I the various financial systems of the victorious powers endeavored to go it alone, fighting each other at times, cooperating at times, in much the same way that governments made shifting alliances and had shifting antagonisms. The United States particularly endeavored to do this, and the fiasco of American foreign finance is an unpleasant memory, unhappily kept alive by reams of defaulted bonds and unsuccessful international schemes. Had that same capital and energy been used with intelligence and care, and in sound cooperation with other countries, there is great reason to believe that the results would have been better for us, and that the economics of the world would have been more productive; and, most important of all, that there would have been more employment, better wages, and a higher standard of living for workers and producers.
This time we shall have to do it better. For purposes of common defense we have erected an economic machine for war supply capable of developing the entire world. In the light of this experience, it should not be too difficult to create institutions capable of handling the finance of transition and turning the processes of reconstruction into permanent processes of international trade.
I have stressed the possibility of creating a system of international finance, because that is likely to be the first problem which arises. It is not the only problem; and not at all the most dramatic and most appealing. It is one step which we can consider seriously, because we already know the technique. If we solve that question, we shall have a tool in our hands with which we may be able to attack other and still greater problems.
At the beginning of this essay we noted that the foreign policy of the United States was based on the strength and independence of this country but also on the disinterested and cooperative friendship with other nations. We found that certain groups of countries in all major crises have tended to draw together, linked by common interest. We have found that this was true in political crises, as it is today in the great and bitter experience of war.
Let it never be said that cooperation is the child only of war. The first World War taught us that military victory depended on united action. The last two decades have shown us that united action is no less essential if victory is to mean peace. The second World War has given us a vision of limitless economic power achieved by cooperation. We must not, again, lightly throw away that power in the moment of triumph, when arms are grounded and we embark on the task of healing the world.