The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
HA L.5.2 CONFIDENTIAL Hi RFD. 27 Board of Governors of t h e Federal Reserve System Division of Research and Statistics International Section REVIEW OF FOREIGN DEVELOPMENTS J a n u a r y 1)4, 19 Exchange Control and Quantitative Trade Restrictions German Holdings in Switzerland. Russia end Bretton Woods. Bretton Woods Institutions with Present Signatories As Mombors A New Foreign J3x change Rate Structure for the French Empire British Agricultural Policy. Exchange Control and Quantitative Trade Restrictions 1 I4. 5 9 •II4. l6 Robert Triffin The ratification, a few days ago, of the Brotton Woods Agreements augurs well for the success of the proposed International Conference on Trade and Employment. It m a y now be hoped that an International Trade Organization will emerge during the coming yo^r and form a natural and necessary complement of the International Monetary Fund and of the International Bank for Reconstruction and Development. The ITO proposals, recently released in connection with the conclusion of the British loan negotiations,constitute a roulistic and constructive approach toward many of the most vital and difficult problems confronting the world economy. Of special importance are the provisions relating to exch .nge control and quantitative trade restrictions* On the first of these problems, the proposed ITO convention merely refers to the Articles of Agreement of the International Monetary Fund and to the necessity for common membership in, and consultations between, the Fund and the ITO. Quantitative trade restrictions, on the other hand, which were not dou.lt with in the Brotton Woods Agreements, form the object of detailed provisions, far more specific in character than those devoted to exchange control in the Articles of the Monetary Fund. It had often been pointod out, during the discussion of the Brotton Woods Agreements, that such limitations on the use of quantitative trade restrictions would form an indispensable complement of the Fund's provisions on exchange control, Indeed both types of instruments can b e , and have been, used at times for similar purposes and with similar results. Thus the ITO proposals are of vital importance for the success of monetary as well as of commercial cooperation by the Unitod Nations. - 2- CONFIDENTIAL IVhilo in full agreement, therefore, with tho purposes of the I TO proposals on quantitative trade restrictions^ I would venture to question whether they tro well adapted to the ends sought. A first and fundamental doubt relates to the wisdom of sop-D.rc.te treatment of exchange control and quantitative trude restrictions—at least when the latter are used in a comprehensive manner, for tho purpose of safeguarding the balance of payments, as contemplated on page Iq. of the ITO document, I would like to suggest an alternative approach which would emcompass both problems in a uniform und coordinated manner: tho broadening, through an international convention, of the type of exchange control legislation recently adopted in Paraguay and Guatemala, with the help and udvice of the Board's representatives, and briefly discussed in this Review of November 5> 1945* by Mr. /lter. The ITO proposals are based on a different and, to my mind, largely unworkable >r ineffectual, approach which admits individual rationing of exchange by administrative discretion, within the framework of a "previous representative period" concept. The core of tho proposed commitments is that "any allocation of such quotas among sources of supply should be based in so far as practicable upon the proportion of tho total imports of the product In question supplied by the various member countries in a previous representative period, account being taken of any special factors which m.,.y huvo affected or which may be affecting the trade in that product" (pp. 1I4.-I5). This suggestion, attractive as it may ..ppet.r ft first view, is open to serious objections; 1. First of all, country discrimination can e-.sily be brought in through the back loor <~s long us allocation of exchange among commodities is left to the discretion of the members. The ITO document docs not prevent this. While the criterion of a "previous representative period" could, in theory, be later extended to cover commodity, as well as country, allocation, it would bo completely inappropriate in this respect, since any allocation of source exchange should change the "representative" pattern of imports in favor of the more essential, and ag,.inst the less essential, imports. 2. Tho "previous representative period" criterion tends to freeze the channels of trade in a very arbitrary and uneconomic manner. The resulting distortion und unreality will bo the more marked as nno must go further and further back into tho past to discover a "representative;" period. Structural changes brought about by the war make it extremely difficult to accept as representative not only wartine, but even pre-war patterns. Difficulties c.re even greater in the ccso of the many countries in which pro-war trade was already subject, since the early 'thirties, to import quotas and exchango control regulation. 5. The recognition of these inadequacies is implicit in the qualifying language used in clause (a): "in so far as practicable" and "account being taken of any special factors which may have affected or which may be affecting the trade in that product." These qualifications are obviously necessary but, in so far as they apply, they - 3 - CONFIDE NT L»L invalidate tho objoctivo criterion upon which tho proposals depend for the prevention of discrimination. Lj.. It is true that othor clauses may be invoked in this case (sec clauses (b) and (c) on p. 15)* but they merely provide for information and discussion, und not for a method of resolving differences that mfcy arise between members• These objections to tho "previous representative period" criterion arc sufficiently grcvo to wcirrunt study of the alternative approcoh mentioned above, which has the further advantage of being squally applicable to exchange control and quantitative trr.de restrictions. JL general description of the system may bo found in Mr. liter's article. Basically it eliminates discriminatory practices at the roots, by outlawing tho whole procedure of administrative rationing and allo» cation, substituting for it a flexible and impersonal system based on tho free interplay of available exchange supplies and current demand. Traders may buy whatever they please wherever they please (presumably from the cheapest source of supply) subject only to tho auction premia that would arise with respect to less essential categories of transactions. Various mandatory provisions make the system as largely nondiscretionary us possible and go much further than tho ITO proposals toward guaranteeing "equality of treatment" without freezing trade into uneconomic channels. In so far as automatic mechanisms are substituted for arbitrary discretion, the .-.ifficultios raised by the "representative period" criterion do not oven arise. Conflicts are reduced to & minimum and tho small range of discretion left to national administration can easily bo brought under tho control or supervision of an international authority. Tho alternative procedure here suggested also incorporates, in concrete organizational terms, the recommendations of paragraphs 2, k, end 5 of Section C and of the whole Section F of Chapter III jf the ITO document. Specific reference is made, in the Guatemalan legislation, to tho subordination of the national exchange control system to the international agreements or conventions accepted by Guatemala. The introduction of controls is permitted only when certain concretely and statistically defined criteria are mot and is, even then, subject to tho Fund's or ITO's approval. Thv restrictions are self-liquidating and will automatically disappear when exchange becomes available again. The cr.sos of inconvertible and of scarce currencies aro also provided for in tho legislation. It has beon argued at Chupultopee that some controls might be justified, oven when oxchangc reserves are more than ample with relation to current balance of payments needs, in order to ensure tho utilize-ti rn of those reserves for purposes of economic development. If this be agreed to by tho ITO, some controls or quotas might bo established for a few clearly defined categories of unessential transactions, while tho bulk }f imports remain entirely free of such restrictions. Evon in this case, tho method suggested in this paper would, with minor modifications, constitute a bettor safoguard against abuse than tho "previous representative period" criterion. c - k - CONFIDENTIAL German Holdings in Switzerland R, E. Towurds the end of November 19U5 ^n official statement wr.s issued in Born by the Swiss Clearing Office giving preliminary figures for Gormen assets in Switzerland, llorc than 25,000 declarations wore received, muny of thorn incorrectly or incompletely filled out, thus causing delays in the publication of the results of the investigation. Further delays occurred because special legislation had to be passed to lift the professional secrecy of the lawyers which was possible only aftor prolonged negotiations* According to the Clearing Office, an accurate unalysis of those intricate declarations entailed considerable difficulties end work. The preliminary report (which includes figures for Liechtenstein) shows German holdings in Switzerland c.s follows: Millions of Swiss francs Assets hold by persons domiciled in Germany (excluding Swiss nationals) Assets held by Gorman nationals domiciled in Switzerland assets held by German nationals and German*controlled corporations in third countries Assets held by persons domiciled in Austria (excluding Swiss nationals) Assets hold by persons domiciled in other ureas formerly belonging to Greater Germany (excluding Swiss nationals) Total 371 254 79 Ip. 7 752 In addition approximately U,000 declarations are still pending involving the following estimated emountst Millions of Swiss francs Assets hold by German nationals domiciled in Switzerland Assets hold by persons domiciled in former Greater Gormany Assets held by Germans donicilod in third countries Total 120 90 25 235" The total ©mount of Gorman assets in Switzerland thus appear8 to be close to one billion Swiss francs. However, it must bo emphasized thut this figure should be accepted with reserve end that it is not as yet fin..l. It may bo of interest to point out that estimated Swiss claims blocked in Gerrany unount to between three and four billion Swiss francs. -5 Russia and Bretton Woods T CONFIDENTIAL Alice Bourneuf and Alexander G-erschenkron Russia's failure to join the International Fund and Bank prior to the deadline of December Jl has, at least for the moment, dimmed the prospects of economic collaboration with Russia. At the same time, it is disconcertingly difficult to discover the rationale of the Russian attitude. The first explanation thi»t comes to mind is that Russia may consider the obligations she would incur as too heavy in relation to the advantages offered to her by these organizations. Yet a scrutiny of the principal obligations which Russia would huve to fulfill does not lend much support to this supposition. The obligation to maintain the par value of the currency is comparatively light in tho cc.se of Russia (a) because in conditions of r. complete state trading monopoly a change in tho rate of exchange must bo judged less in terms of economic effects then in terms of administrative convenience, and (b) because it is stated in the Fund Agreement (Article IV: Section 5, °) that "r. member may change tho par value of its currency without the concurrence) of tho Fund if the change does not affect tho international transactions of members of the Fund." There is little doubt that tho Fund would agree that this provision applied to & change in tho rato of the ruble. For the Russians could bo relied upon to find ways and moans by which even such transactions as tourist expenditures in, or emigrant remittances to, Rusria would remain unaffected. Similarly, the obligation to avoid restrictions on current international payments is of very limited importance to Russia. As long as tho Russians control tho current transactions which give rise to current payments, avoidance of restrictions on payments does not necessarily lead to any substantial change in Russia's foreign trade. The only possible exception refers to remittances to other countries by persons residing in Russia. Under the agreement, such remittances will bo regarded "without limitation" as current payments only if they ure "moderate" and designed to cover "family living expenditures." Tho Russian exports at Brotton Woods registered a reservation against even this limited interpretation and suggested that the definition of such transactions as current or capital transactions should bo left to special agreements between the Fund and. the members cone or nod. The amounts in question would certainly bo very small, particularly because foreign workers in Russia usually have had private contracts under which parts of their salaries or wages could be transferred abroad, ut any rate, tho Fund Agreement gives Russia sufficient power to hold such remittances to a negligible level. The Fund Agreement imposes upon members the obligation to refrain from discriminatory currency practices. Yet, it is again obvious that a state trading monopoly country, where not only the rato of exchange but also the prices are controlled, may indulge in discriminatory policies while applying the same rate of exchange to all transactions with all countries. Exchange rates may be a somewhat moro convenient instrument of discrimination than aro prices but this is hardly an important consideration. It is only under the tarns of - 6 - CONFIDENTIAL tho "State Trading" section of tho "Proposeds for Expansion of World Trado and Employment" t h a t Russia would be subject to the formal, although probably not supervisable and not enforceable, o b l i g a t i o n to abstain from discrimination i n t r a d e . But of courso Russia could become a member of the Fund without evon j o i n i n g the prospective I n t e r national Trade Organization. Thoro i s nothing in the Fund Agrooment t h a t n i g h t provent the Russians from attempting to e s t a b l i s h , by use of discriminatory trade p r a c t i c e s , a Russian economic b l o c , say, i n Eastern Europe, i f t h i s be t h u i r g o a l . I t i s possible thfat adherence to tho Fund of countries in Eastern Europe might tend to render more d i f f i c u l t Russift'a e f f o r t s i n this d i r e c t i o n . Howovt;r, all. three of the countries i n Eastern Europo which were e l i g i b l e t o sign the Fund und Bank Agreements (Yugoslavia, Czechoslovakia, Poland) did so before December 3 1 , 19U5» &nd t h e r e i s no i n d i c a t i o n t h a t Russia attempted to interfere with their actions. Another consideration may bo mentioned. In general Russia's foreign trade operations in tho past have been conducted in foreign currencies or gold. Thus, foreigners havo had no occasion to buy or sell ruble balances and market fluctuations in the value of the ruble have been impossible. Russia might find i t disagreeable if her membership in the Fund ware to load, against her will, to tho acquisition of substantial ruble balances by foreigners. But such a development is quite unlikely, if not impossible. It is true th-t under tho Agreement the Fund would receive rubles from Russia to the ejnount of over 80 per cent of her quota, and that further ruble amounts would accrue to the Fund as p. result of Russia's borrowings* But if the Russians desiro to continue to conduct their trade in currencies other than tho ruble, foreigners would have no occasion to obtain rubles from the Fund, and there is l i t t l e in tho Fund to prevent the Russians from pursuing such a policy. It is conceivable that in tho case of countries with which Russia may have a considerable export surplus for which she insists on being paid in convertible foreign exchange or in gold, tho governments concerned might exert pressure on tho Fund and cause i t , in turn, to press Russia to agree to accept payment in rubles obtained through the Fund.l/ Such pressure is likely to grow stronger if Russia should develop an over-all export surplus in her foreign trade as nay well be the case in the next decade. In general, i t is probable that Russia would prefor to accumulate gold or dollars rather thun to increase her drawing rights on tho Fund, Moreover, the acceptance of rubles in payment for Russian exports might present certain clangors from Russia's point of view in that i t might, to some extent, widen tho market for ruble; notes smuggled out of Russia and thus tend to induce such smuggling on a larger scale. All this is imaginable but hardly very serious. Russia could refuse t.o bo persuaded by tho Fund authorities and s t i l l insist on payments in convertible funds; or she could agree to accept rubles on a very small scale. At any rate, in such a case, 1/ Members of the Fund are not in general obligated to maintain their currencies convertible into gold or foreign exchange, They can live up to their obligations by converting balances of their currencies held by other members into tho currencies of those members. - 7- CONFIDENTIAL she could protest effectively should she discover that tho rublo holdings of the Fund wore not reduced by the full equivalent of tho balances converted. It would bo surprising indeed if consideration of such remote contingencies had influenced Russia.'8 present attitude to the Fund. Tho only remaining major obligation is to supply economic information under tho Fund Agreement, The pertinent provisions may indeed be looked upon with disfavor by tho Russians, One could argue, somewhat cynically, that the Russians could simply provide incorrect figures. Yet, even if we assume that tho Russians, desired to do this, to supply false statistics over a long period of time is not an easy matter. In the past, at any rate, tho Russians tended to suppress rather than falsify statistical information. It is true that certain items of information required under the .Agreement, such us gold statistics (holdings, output, exports), prices, and tho invisible current items and capital movements in the balance of payments, were either not divulged at all in the lust 10 or 15 years or divulged sporadically or in a disguised fashion. But it is also true, first, that we h a w a reasonably good idea of some of these items, and, second, that the Russians probably could still successfully resist demands to supply very detailed information. At any rate, this information seems to touch only very indiroctly on the question of Russia*s military security. While tho supplying of information may be annoying to the Russians and regarded by them as u disadvantage, this disadvantage must be measured in terms of tho advantages they may oxpect from the Fund. From the point of view of tho Russians, the advantages of the Fund are fourfold; l) stability of exchange rates; 2) maintenance of the role of gold; 3) absence of exchange discrimination against Russia; and I4.) the credit facilities* Since tho Agreement has been signed by members having more than 65 per cent }f the quotas, the Russians will benefit with respect to exchange stability and gold even without becoming members of tho Fund. It is different with regard to tho third and fourth points. The advantages of the former are self-evident, and there is likewise little doubt that the credit facilities of tho Fund can play an important rolo in Russia's foreign economic relations in tho years to come. While it is necessary to combat exaggerated notions ;if the Russian need for credit (as for instunoo the implied notion of the Colmer Committee that tho Russians may bo willing to reduce thoir military expenditures in oxohungo for a loan) , foreign loans arcdoubtless of great importance to Russia for eliminating numerous bottlenecks in tho process of reconstruction. jVbsonco of foreign loans would greatly hanpor this process. It should be noted that, under the spocific conditions of a planned economy country, the use of Fund loans for reconstruction purposes is practically impossible to prevent. To bo sure, the Russians are more interested in long-term than in short-term credits; it is truo that they would like to borrow on more favorable terms than those, to bo granted by the Fund. But there is little doubt that they could profitably utilize every cent they may receive from the Fund. Moreover, the very fact of their - 8 - CONFIDENTIAL membership in the Fund and of thuir access to its resources would bo likely to improve considerably their bargaining position with regard to long-term loans obtainable from other sources. At any rate, it would soon that the urgency of the Russian demand for foreign loans should bo very nuch more important than the relative inconvenience of divulging; economic information to the Fund. This is perhaps loss convincing in the case of tho Bank. There the advantage of credit facilities is offset by the sharing of tho aggregate creditorsV risk which might involve a drain on the Russian reserves of gold and foreign exchange. Apart from general questions of economic cooperation, Russia's participation in tho Bank guarantee would probably bo the most tangible advantage the United States could derive from Russian participation in the Bretton Woods organization. By the same token, this participation would be the most palpable obligation Russia would undertake in accepting the Agreements. But if this consideration deterred Russia from signing tho Brotton Woods Agreements, it is still not clear why Russia did not adopt tho same strategy as Colombia by signing the Fund Agreement while refraining from signing tho Bank Agreement. It has been mentioned in public discussions on tho subject in rocent days that Russia has been reluctant to join an organization where it did not possess the right of vetoing the decisions and resolutions of the organization. It is true that the Russians havo insisted on the veto right in the UNO and on oth0r occasions. But they never claimed this right at Brotton Woods\ and to assume that tho Russians would under no oiroumstancos join an international organization unless they had at least such a negative instrument for determining its policies sooms to underestimate the flexibility Df Russian policies. It is difficult to believe that the Russians would forego concrete advantages for the sake of an abstract principle. With regard to general policies, whatever influence tho Russians ru.y have in the Fund and tho Bank, it is clear that it would be lurgor if th«-y were- in rather than :ut. With regard to policy toward Russia herself, it is possible that the Russians iney fear that they would receive loss than fair troutwent in the Fund and the Bank. Tho Russians may consider that a veto power would be useful to them in preventing certain decisions directed against thornsolves. But it is difficult to think of decisions t} be taken by the Board of Governors of the Fund under the Fund Agreement which would place Russia at a greater disadvantage than she would inflict upon herself by her failure to join the Fund* Thus v. scrutiny of possible Russian motivations, to the extent that they may be found in the Agreements and in tho mode of operations of tho. Fund, does not suggest a rational motive for Russia's remaining outside tho Fund. This conclusion is reinforced by tho fact that none if the reservations Russia made at the conclusion of the Bretton Woods conference seems to concern a matter serious enough to justify Russia's abstention. It is difficult, therefore, to escape the impression that the reasons for Russia's attitude are of a tactical nature and extraneous to the Bretton Woods organizations. It may bo that Russia's policy is dictated by tho hope that she will bo able to use a subsequent - 9 - CONFIDENTIAL offer to join the Fund as a bargaining weapon in order to obtcdn concessions from abroad, particularly from the United States. In other words, tho Russian government nay boliovo that if Russia had joined before the ond of 19U5 it would have obtained few additional advantages beyond having created goodwill. At a later dato, tho govornnont nay be able to obtcdn a noro tangible quid pro quo as tho price of adheronce to Bretton Woods. This at lec.st is a ration,-.! explanation, and one which ulso appears to conform to the observed pattern of Russian negotiation tactics. If this be tho policy, it is probably ill-conceived in the present case. Tho establishment of tho Fund &nd the Ban!: is assured, and it is noro thun doubtful that Russia's decision to disregard tho deadline of December 3^ c a n ^dd appreciably to Russia's bargaining position. In fact, as far as tho intangible but important element of good will is concerned, the Russian attitude is likely to have weakened rather than strengthened Russia's hand in future negotiations. Those who believe in tho importance of Russia's integration into the world economy and' in the benefits of broad economic cooperation with that country for the cause of peace und rising welfare will still welcome Russia's adherence to the Fund and would regard it as unfortunate if any obstacles were to be placed in the path of Russia's entry. But they would regard it as unjustifiable and as an ill omen for the cause of this cooperuti>n if Russia should expect the United States to pay a special prico in order to induce Russia to join. Bretton Woods Institutions with present Signatories As "Members " Alice Bourneuf This note analyses the position of the Fund and Bank if the membership is confined to present signatories of the Agreements as compared to the position with full membership of the countries represented at Bretton V/oods. Tho analysis is confined to tho quantitative changes in the assets and tho distribution of voting power in the two institutions. It appears that the Fund would be in a stronger position to meet demands upon it with the present signatories as members. Tho Bank's operations would be curtailed but its ability to meet the demands of specific borrowers would probably bo unaffected und its overall financial position would be littlu changed. The following tablo shows tho status of Fund and Bunk subscriptions and membership on tho basis of those countries which signed the Agreement prior to the December Jl, 19U5» deadline. - 10 - CONFIDENTIAL TABLE 1 FUND AND BANK SUBSCRIPTION AND MEMBERSHIP Per cont Present Pull of Signatories Membership (in millions of dollars) 1 to 2 83.2 83-5 Fund Quotas Bank Subscriptions Number of Fund Members Number of Bank Members 1/ The differences between tho total Fund quotas end subscriptions is accounted for as follows• Tho United States subscription to tho Bank is 3*175 million dollars as compared to its 2,750 million quota in the Fund. The subscriptions of Latin Amorloan countries to the Bank STO somewhat smaller than their Fund quotas Colombia joined tho Fund and not the Bank. 2/ The difference between tho Fund and Bank total is accounted for by the Colombian action. 3/ Not including Denmark which is in Q spocial category and will be allowod to sign as soon as agreement is reached on its quota. The countries which did not sign the Agreements and their Fund quotas and Bank subscriptions are as follows. T/ELE 2 SUBSCRIPTIONS OF NON-SIGN/.TORIES Fund Bank Quotr.s Subscriptions (in millions of dollars) Country Russia Australia Now Zealand Venezuela H a i t i , El Salvador, Nicaragua, L i b e r i a , Panama Colombia Total 1,200 1,200 200 200 50 15 50 10.5 10.5 U.5 35 1,U75.5 1,500.0 There is reason to believe that at least some af these countries will apply for membership in the near future,i/and may be admitted to membership by the Board of Governors before the Fund and 1/ Venezuela asked to sign bofore December 31» 19U5 with a reservation regarding exchange controls and was not allowed to do so. - 11 - CONFIDENTIAL Bank actually begin, operations m the sfono terms us if they had signod before December 31. Also, soiru countrios not represented at Bxvtton Woods rru..y be admitted to momborship before long. However, the probabilities that Russia, .Australia, and Now Zealand will not apply for membership in tho near future are sufficiently groat to make it worthwhile to consider the distribution of quotas and voting power and the financial position of tho Fund and Bb.nk on the assumption thut for a time at least tho present signatories :)f the Agreements constitute the actual members. Tho absence of Russia, Australia, Now Zealand, and the others increases substantially the proportion of the assets of the two institutions contributed by euch of the present signatories and also each country's percentage of the total voting power. The United States and tho Unitud Kingdom together on the basis of the present sigmtorics have 50 per cent of the totul Fund voting power rather than I4.I per cent, and 5U per ccsnt of the total Bank voting power rather than I4I4. per cent. TABLE 3 MONETARY FUND Country United States United Kingdom China Franco India Canada Netherlands Belgium Total Latin .America Other countrios Total percentage of Quotas Percentage of Voting Power Pro so n't Full Full Present Momborship Signatories Membership Signatories 26.03 37.55 33.8)4 31.25 I0.I6 17.75 Hi. 77 13.38 7.51 7.01 6.25 5.81 5.11 U.80 6.1k 5.79 5.U6 I-+.55 5.18 U.29 U.10 5.28 3-96 3. U 3.75 3.66 3.13 3.03 3.Oli 3.07 2.56 2.53 6.3U 8.33 100.00 5.57 23. Uo 100.00 9.96 11.ia 25.11 100.01 99.99 9.73 TABLE k Country United States United Kingdom China France India Canada Netherlands Belgium Total Latin M e r i c a Other countries Total INTERNATIONAL B/NK Percentage of Quotas Perconto.ge of Voting Power Full Present Full p'rosent Signatories Membership Signatories Membership la. 78 17.11 7.89 5.92 5.26 U.28 3.62 2.96 3.76 7.1+3 100'. 01 3l|.89 lU.29 6.59 U-95 h.ho 3.57 3.02 2.U7 3.68 37-87 15.68 7.1|0 5.62 5.03 U.11+ 3.55 2.96 7* 2k 31.37 12.99 6.13 U.66 U.i? 3.U3 2.9I1 2.U5 7.9U 22.13 10.51 23.93 99.99 100.00 100.01 - 12 ; CONFIDENTIAL The percentage distribution of the Fund's assets as between the currencies of probable lenders through the Fund and the currencies of probable borrowers from the Fund, and the percentage of gold and the currencies of probable lenders to the maximum normal drawing privileges of the other countries, aru substantially altered by the absence of the countries which did not sign before December 31« (See Table 5«) The percentages given under Items 6 and 8 of Table 5 show that the position of the Fund in the senso of its ability to meet probable demands for strong currencies on the basis of initial subscriptions to the Fund is much stronger with the. present signatories as members than it would be with full membership. This is a consequence of the fact that Russia <i.nd most of the other non-signatories are all prospective borrowers from the Fund or, at least, not probable lenders. It also reflects the fact that the gold und dollar contributions of all those countries which did not accept membership is a smaller percentage of their total quotas than that of those which did uccopt membership. The result is that the probability that members will be able to obtain strong currencies from the Fund up to the amount of their maximum noro&l drawing privileges is greater with the present signatories as members than it would be with full membership. TABLE 5 INTERNATIONAL MONETARY FUND - ANALYSIS OF ASSETS ( i n m i l l i o n s of J..:liars) Present Signatories Full Membership 1 . Subscriptions of the United States and Canada (gold and curroncy) 3,050.0 3,050.0 755.7 9U7-9 2. Gold or United States Dollar Sub-, scriptions of Other Countries.!/ 3- Total Gold and Currencies of k. 5. 6. 7. 8. Pr o'bo,bl e Lenders Currencies of Other Countries Total Assets; Item 3 + U Percentage of Item 3 to 5 Maximum Normal Drawing Privileges of Countries other than the United States and Cunadei/ Percentage of Item 3 t ° 7 3.805.7 3,513.3 7,32!+.O 52 % 5,029.7 76 % J799779 U, 802.1 8,8bb.'O 6,697.9 60 % 1/ Estimated required gold and United States dollar subscriptions on the basis of estimated gross official gold and dollar holdings as of Juno 30, 19U5. Actual gold and dollar payments will depend on not official gold and dollar holdings as of the date on which countries having 65 per cent of the quotas allocated at Brotton Woods have agreed with the Fund on initial par values of their currencies and the Fund is ready to begin exchange transactions. This probably will not be before August 1 but could conceivably be as early us July 1, 191+6. 2/ This is equal to total quotas minus the United States and Canadian quotas plus the amount of gold and United States dollars contributed by countries other than the United States or Canada (or Item 5, minus Item 1, plus Item 2 in the table shown above). - 13 •- CONFIDENTIAL The p o s i t i o n of the Bank i s also a l t e r e d but not subs t a n t i a l l y . On tho b a s i s of the p r e s e n t s i g n a t o r i e s of the Bank Agreement, the subscribed c a p i t a l of the Bank t o t a l s 7,600 m i l l i o n d o l l a r s r a t h e r than 9,100 m i l l i o n . Sinco tho t o t a l loans and guarantees of the Bank oan not exceed the subscribed c a p i t a l plus accumulated surplus and r e s e r v e s , the Bank's power to make and guarantee loans i s correspondingly c u r t a i l e d . The p r o b a b i l i t y i s thut R u s s i a ' s borrowings from the Bank might huve oqualled her s u b s c r i p t i o n so that tho a b i l i t y of other countries to borrow from the Bank i s probably not a l t e r e d by the fact t h a t Russia i s not a member. Furthermore, t h e i r prospects of borrowing d o l l a r s arc not affectod, as they are in the case of the Fund, because the Bank's a b i l i t y to lond d o l l a r s or guarantee dollar loans i s not l i m i t e d by the amount of gold and d o l l a r s subscribed to the Bank but may be as l a r g e «~s the Bank's t o t a l p rwor to lend or guarantee loans Tho percentage of tho United S t a t e s s u b s c r i p t i o n to t o t a l s u b s c r i p t i o n s to the Bank, as shown in Table 3» i s increased from 35 per cent to l\2 per cent which i s a measure of the percentage sht.ro of the United S t a t e s i n tho ultimate r i s k s of tho Bank's o p e r a t i o n s . Any judgment as to the effect on the u l t i m a t e solvency of the Bank, in the sense of i t s a b i l i t y to meet any l o s s e s on i t s loans und guarantees, of the a b s t e n t i o n :>f Russia and the other countries from monbe-rship, must r e s t on assumptions as to t h e i r a b i l i t y and w i l l i n g n e s s to l i v e up to t h e i r o b l i g a t i o n s under the Bank Agreement. I t i s frequently argued t h a t c o u n t r i e s l i k e Belgium, Canada, France, tho Netherlands, the Union of South Africa, the United Kingdom, the United S t a t e s , and Euusia arc the c o u n t r i e s represented at Bretton Woods which could be counted on most c e r t a i n l y to meet c a l l s on t h e i r s u b s c r i p t i o n s even though payments were c a l l e d in United S t a t e s or Canadian d o l l a r s . On t h i s assumption, Table 6 shows t h a t the Bank could bo most c e r t a i n of 77 por cent of i t s total s u b s c r i p t i o n s e i t h e r with the present s i g n a t o r i e s as members or on t h e b a s i s of f u l l members h i p . However, -criy assumptions as to the a b i l i t y of various c o u n t r i e s to meet t h e i r o b l i g a t i o n s to the Bank a t some time ten or f i f t e e n years from now can be l i t t l e more than pure guesswork. T/.BLE 6 INTERNATIONAL BANK SUBSCRIPTIONS OF A SELECTED LIST OF COUNTRIES AS COMP/RED TO TOTAL SUBSCRIPTIONS (Millions of d o l l a r s ) Present Pull Signatories Membership 1. Total Subscri ptions 2. Subscriptions of Selected Li st of Countries 'A, Percentage of 2 to 1 7, 600 9,100 5,350 7 ,050 77 % 77 % ** 1 ^ " 4. Now Foreign Exchange Rato Structure for tho French Empire CONFIDENTIAL Hans J. Dernburg The monetary unit throughout most of the French Empire is the fr^nc; notable exceptions are the piastre of French Indo-China, which before the wur was pegged to the Metropolitan franc at the rato Of 1 to 10, and tho Syrian-Lebanese pound, which was attached to it at the rate of 1 to 20. In tho pre-war period, the franc currencies of .French colonial ureus were held at per with the franc of Metropolitan Franco. « During the liberation period, there was a definite trend toward restoring in the French colonies franc currencies which would be at par with the Metropolitan franc. The recent franc devaluation, however, is breaking with the tradition by creating different franc zones. The new policy, although dictated primarily by economic conditions, seems to be in line with certain political tendencies to liberalize the organization of the French Empire and to give eventually each colony or protectorate a status commensurate with its development. Both political and financial developments in tho French Empire in the last five youra socm to have had a bearing on the determination of tho recently established rates and it may be helpful to review certain facts. From March 19i+l until February 19UU* the French colonie,s under control of General do Gaulle were members of the sterling &roa,~/ The franc was pegged to the pound sterling at 176-5/8 which was tho exchange rate prevailing before tho war for Metropolitan France. The corresponding dollar rate was U3*$ franca to the dollar (l franc = 2.26 cents). When Syria and Lebanon became members of the sterling area in September 191+1 > the Syrian-Lebanese pound was pegged to the pound sterling at 8.83; this rate corresponded to that of 176-5/8 francs to tho pound, one Syrian-Lebanese pound having an exchange value of 20 frunos* After tho landing of -Allied troops in North Africa in November 191+2, the Allies set exchange rates for these formerly Vichy-controlled colonies. The originally established rates of 300 francs to the pound sterling and of 75 francs to tho dollar were changed in February 19^-4-3» °-s * result of French representations at the Casablanca Conference, to 200 francs to the pound and 50 francs to the dollar (l franc -* 2 cents). The disparity between tho "do Gaulle franc" end the NorthAfrican franc was abolished through tho important Franco-British agreement concluded on February 8, I9kh, in Algiers (Algiers Pact). The rate of 200 francs to the pound was mude the uniform rato for theentire French Empire except Indo-China, then still under Japanese rule. Correspondingly, by agreement with tho United Stutos Treasury, the rate for the dollar was established at SO francs, T/~TTiesc included originally French Equatorial Afr ica7* the Cair,ero0ns under French mandate, French Oceania f-nd French Establishments in India. In tho course of time, Syria and Lebanon and Ma woro added. c - 15 - CONFIDENTIAL As a r e s u l t of tho Algiers Pact, membership of the French Colonies and Mandates in the s t e r l i n g area was terminated r,nd the franc bloc reestablished. Sinco tho French hud guaranteed to maintain tho s t a b i l i t y of the Syrian-Lebanese pound with regard to s t e r l i n g , special treatment Was given to Syria and Lebanon. These mandates were placed in tho franc b l o c , but the Syrian-Lebanese pound remained pegged to t h e pound s t e r l i n g . The r a t e s were fixed as follows: 1 SyrianLebanese pound s 22,65 francs and 1 pound s t e r l i n g = 8*83 SyrianL ob anesa pounds. Prior to the liberation of Metropolitan Franco, the rate of 200 francs to the pound and a corresponding dollar rate wore also agreed upon for Metropolitan France, thus restoring parity of the colonial franc currencies with the Metropolitan franc. However, this parity was abandoned with the devaluation of the franc effective) December 26, 19-45* since devaluation did not take place at a uniform rato throughout the Empire. As a result Df the devaluation, the "franc zone" now includes throe sectors in overseas t e r r i t o r i e s : (a) The currencies of Algeria, Tunisia, Morocco, the Antilles, and French Guiana were devalued at the st-mo ru.tio as tho Metropolitan franc (58.3 P e r cent) and will therefore remain at par with i t . Their new exchange value is 119.10669 francs to the dollar (1 franc = . 8I4. cent) and I4.8O francs to tho pound sterling. (b) Tho franc currencies of tho remaining African Colonies—/ and of Saint Pierr© and iiiguelon weru devalued at a lower ratio (29.1 per cent) than tho Metropolitan franc and 1 local fruno of these areas now exchanges for 1.7 Metropolitan francs. Their neiy exchange value • is 70.06 francs to the dollar (l franc = 1,1+3 cents) und 282.35 francs to tho pound sterling. (c) The currencies of New Caledonia, the New Hebrides, the French t e r r i t o r i e s in Oceania end the French Colonies in the Pacific .wore not devalued. .As a result, one local franc now exchanges for 2.I4 Metropolitan francs while no change occurred with respect to the pound sterling or the dollar* Tho dollar and the pound sterling are fixed at I4.9.627 francs (1 frc.nc - 2,0 cents) and 200 francs respectively. In accordance with tho French guarantee mentioned earlier tho Syrian-Lebanese pound remained stable in terms of the pound sterling (f.nd the dollar)} us tt result of the devaluution of the Metropolitan franc the Syriun-Lebanese pound is now worth 5U0U francs. The Indo-Chinese piastre, which before tho war (and before Japanese occupation) was linked to the franc at the rate of 1 to 10, was devalued to the same extent us the eurroneios listed undor "b" and is now worth 17 francs; 7«OO6 piastres equal one dollar and 28.235 "piastres equal one pound sterling (against I4.lt! piastres to the dollar an i I7.7I4 piastres to tho pound in"19U0). 1/ They are French West" Africa, French Equatorial Africa, French Togo, French Cameroon, French Sonaliland, Madagascar, and Reunion Island. - 16 ~ CONFIDENTIAL It is difficult to evaluate thoso developments bocauso of the great number of colonies involved. The principle of the new colonial rates is that the relation of the colonial currencies to the franc of Metropolitan France should be based on the economic conditions of each territory. This principle had boon accepted at the Conference hold at Brazzaville, capital of tho French Congo, in January 19^4- Mid *t other meetings dealing with the status of the colonies. Generally speaking, currencies of those French colonies which bed been under Vio.hy control (such as the North African colonies) wore devalued most, while tho currencies of those which had been under control of General de Gaulle and had become temporary members of tho sterling area were devalued less or not e.t all. Tho degree of devaluation of the North .African currencies has already been criticized by some North African representatives in the National Constituent Assembly in Paris who huve pointed out that the economic situation of their territories would justify a higher monetary value for their currency than for that of Metropolitan France. It has also boen pointed out that the differences between economic conditions in French West Africa, French Equatorial Africa, Madagascar and Reunion Isle, which wore all put into one group, should have necessitated different monetary rates. In establishing the rates for the North African colonies at I4.8O francs to the pound sterling, the French government may huvq been influenced by the fact that this is tho some rate at which the colonial (Italian) lira has been fixed. Trade between French and Italian colonies may be facilitated by the parity of their respective currencies. British Agricultural Policy Wilollyn Morolle Mr. Thomas Williams, Britain's Minister of Agriculture, announced in the House of Commons on November 15, 19U-5, the principles on which the L*»bor Government's agricultural policy is to bo based. For those who had expected a more specific statement of policy, the essentially vague character of tho official announcement is disappointing: it provides the basis for little more than conjecture as to what the size ttnd structure of the domestic agriculture muy be after the transition period. Nor is it more explicit as to the methods which may be used to protect domestic producers from foreign competition. Briefly, the policy provides for full agricultural production, guaranteed prices as far as four years in advance, assured markets, the efficient use of land, dispossession of farmers who are unable or unwilling to improve practices, acquisition of land for public use if necessary for full productivity, the establishment of a commission to manage and develop these lands, and the organization of County Committees appointed by the Minister of agriculture to provide agriculture with local leadership and guidance. JAIthough tho Labor Government appears prepared to underwrite the future prosperity of agriculture, the methods to bo employed await legislative fiction. Whether assistance is to bo givon by quantitative regulation of imports, by tho imposition of tariffs, or by direct - 17 - • CONFIDENTIAL subsidization of production, the cost will be paid by the public. Since the Government is committed to bettering the standard of living of the common man, it is committed to a cheap food policy. In pursuance of this policy, lurge subsidies to agriculture will be required especially in the production of those commodities in which Britain does not have a comparative advantage. As an tltornfttive, c. high price policy may be pursued with the prices of imported foods increased by tariffs to the levol of domestically produced foods. The full burdon of tho latter policy will bo borno by tho consumer and efforts to raise nutritional stc.nda.rds nullified. All indications seem to point to the adoption of a large scale scheme of direct subsidisation of producers. If the Government is to accomplish its objectives, G decision to subsidize must be accompanied by measures designed to eliminate outmoded highcost methods of production. British taxpayers und consumers want to know what tho cost will be "to promote & healthy and efficient agriculture capable of producing that part of the nation's food which is required from home sources at the lowest prico consistent with the provisions of adequate remuneration and decent living conditions for farmers and workers, with a ro«s»soni«.blo return on capital invested." In 1938-39 when Britain wus producing one-third of its food requirements, the cost of direct and indirect subsidies to agriculture was estimated to be around h 100 million and total output, inclusive of direct subsidies, was valued at h 280 million. Tho Ministry of ^Agriculture's monthly indox of prices of form produce (1927-29 * 100), which includes direct subsidies to formers,averaged 90 in that year. By 1 9 ^ } t;ho average price index hud advanced to 170 and homo production had expanded sufficiently to provide two-thirds of Britain's restricted war-time diet. In February 19UU, it was stated in the House of Commons that the unnual cost of food subsidies was then t 205»G million. The individual items were; broad, flour, und oatmeal, t 60.U million; meat, L 23.1 million; potatoes, fc 28.6 million; eggs, h 11.3 million; domestic sugar, -L 10.5 millionj milk production, h 10.5 million; cheese, fc 3*7 million; bacon, h 1.6 million; other (including fluid milk consumption schemes), h 56.1 million. Although the policy statement provides little information about tho future size of the industry, tho tenor of tho proposals suggests output considerably greater than tho pre-wo.r loyol. Some indication of the magnitude of the cost of such u program to tho nation can be gained from the data given above. True enough, the policy statement provides that "all prices—minimum and actual--will be fixod with due regwrd to the need for tho greatest possible efficiency und economy in methods of production" tnd also thfct "if it should become necessary to apply a quantitative limitation to any section of the assured homo market, this would bo announced 18 months before the harvest in the case of crops and at least two yours in advance in the case of livestock, milk, and eggs." Efforts to translate the veiled statement concerning limitation of production into workable legislation which will limit output by eliminating high cost producers have yet to be disclosed. Tho outlook for reductions in farm prices is not bright since wages to bo consistent-with Government policy may continue their - 18 - CONFIDENTIAL upward trend and tend to cancel reductions in cost brought about by the use of improved practices. With this hazy cost picture in view, it is small wonder that the Government has felt it necessary to warn farmers that they ure not being given a blank check. Since British imports of food have long provided a large share of the exchange necessary for foreign purchases of British exports, decisions on British agricultural policy aro of particular interest to countries exporting agricultural products. Out of British imports of food, drink, and tobacco valued at h Lj-32 million in 1937* i, 289 million were spent on grain i*hd flour, meat, dairy products, and fresh fruits and vegetables. .A largo proportion of the four principal groups of food imports was supplied by Empire sources. In 1937, ubout 50 par cant of her imports of grain and flour, dairy products, and fresh fruits and vegetables and 1+0 per cent of her imports of meat products oamo from British countries. Argentina w.,s the largest supplier of foodstuffs outside tho Empire, having furnished 29 per cent of Britain'3 grlwdn and flour imports in 1937 &n(l ?h P e r cent of her imported moat. Denmark runked second as a supplier of mo~ts and dairy products. Tho United States figured in the agricultural import picture of tho United Kingdom primarily as a supplier of raw cotton and tobacco. Domestic agriculture, which supplied ono-third of Britain's food, was largely devoted to producing livostock and livestock products. In tho crop year 1937-38i ^o output of livostock and livostock products amounted to 7^ per cent of the value of the total domestic output. To support a livostock industry of this size, about 8.5 million tons of feedstuffs were imported annually. It is not likely that British imports of agricultural products will equal the pre-war level in the immediate future.- Nor is it likely that they vrill remain at the war-time lo«r, for even with the great expansion of production •.vhich occurred in the war years Britain's food rations were not generous. If legislation providing for subsidized production is integrated with a national policy directed toward full employment and social security, tho resulting higher income may raiso total demand to a level capable of absorbing expanded domestic production and a fairly high level of imports in addition. Imports of tobacco from the United States will probably not be affected by the change in agricultural policy. However, imports of United States cotton will depend largely upon tho United Kingdom's ability to export cotton textiles. Muny bulk purchases of food huve been made during the war and some of those contracts extend through I9I4S. A continuation of State trading and bulk purchasing in the post-war period may drastically affect the direction of trado in the future. As a guide in appraising the recent policy statement, a review of the policies from which it developed may bo helpful. The world-wide collapse of farm prices in 1920 struck British agriculture with full force. British farmers reacted to the situation by reducing employment, by neglecting necessary maintenance, by contracting production, and by seeking Government aid. The pleas of tho farmers for direct aid were reinforced by those of tho general public in the later 'twenties when it booune apparent thut the cultivated acreage was dwindling rapidly and that about one-fifth of the agricultural laborers had migrated to urban areas. - 19 - CONFIDENTIAL Facod w i t h t h e p r o s p e c t of a c o n t i n u i n g d e c l i n e under a laissez-faire policy, the Government intervened in 1926. At f i r s t , agricultural assistemco was limited to efforts to improve efficiency; direct aids such as subsidies were sidestepped since the Government considered them unsound. In the meantime, the scheme of Empire preference as a meun8 of developing resources and trade with the Empire was gaining general favor throughout the United Kingdom* Agricultural groups, whose opposition to Imperial Preference hud been stiffest, were won over by the prospect of gaining assistance for domestic production to offset the competition arising from concessions to Dominion agriculture. A system of preferential tariff8,which had i t s beginning in Canada in 1898, was gradually extendod to include to some degree nearly all purts of the Empire by the lute f twenties. Thus, even before the signing of the Ottawa agreements in 1932, i t was obvious that the United Kingdom had abandoned i t s traditional froo-trado position end had embarked upon a policy combining protection of domestic production and Empire preference. In line with this policy, a series of measures was enacted which provided for direct assistance to agriculture by means of subsidy payments and established certain restrictions upon the importation of competitive agricultural products. With the exception of sugar beets, which were f i r s t subsidized directly from the Exchequer in 1925, the general program ?f protection began in 1932. By 1939, direct subsidies wore paid on wheat, barley and oats, sugar beets, c a t t l e , snoop, end milk sold for manufacture. Import restrictions and price guarantees protected the domestic market for potatoes, hops, bacon, t^nd hems. Thus, by the outbreak of the second World War, British producers and distributors of foodstuffs were accustomed to a large nousure of Government assistance. The changing pattern of domestic production i s shown i n the foil ova ng t c.bl o s. .Acreages of Selected. Crops and Grasslands in tho United Kingdom (in thousands of t-cros) 1923-25 1930 Grains Potatoes Sugar beets Total crops Temporary grass anA clover Po naanent pasturo Tot*l ucreuge (excluding rough grazing) 1939 19U1 6,502 5,613 5,308 9M6 768 32 68I4. 70U 3U8 1,1+21 3k9 U3U 10,521 9,302 8,813 iU,6l7 U.712 lt.,627 J+,093 U,752 17,590 18,315 18,733 11,698 31,679 31,067. / 32,823 Number of Livestock in the United Kingdom (in thousands) 1923-25 1930 1939 7,861; 7,759 8,873 9,51+5 Cattle Shcop 22,301 2l+,669 26,888 ?o,3Ui Pigs 2,670 1,875 j ,157 Source; Official Statistics for tho United Kingdom. l / Excluding 600,000 acr^s used for military installations. - 20 - CONFIDENTIAL Because of urgent need for food and fiber, the program of assistance outlined above was superseded tit tho outbreak of tho war by a system whereby ull food domestically produced was purchased at & guaranteed price. In order to maximize production, prices wore sot at Q. level which provided profits oven for uneconomic farms. In addition, incentive puymonts were mc.do on acreages of who&t and potatoes. As a result, the change-over from the pre-war pattern, emphasizing livestock and livestock products based on uso of grassland and imported foodstuffs, to a war pattern,emphasizing the production of high energy und protective foods,was accomplished rapidly. Increased mechanization and wider application of scientific knowledge helped to reduce costs and resulted in a larger output for the labor used, About three million acres of land were reclaimed and six million acres of permanent pasture were diverted to the cultivation of crops. Although the seizure of inefficiently utilized land was permitted, few such seizures were necessary. In general, emphasis w&S placed on crops for direct human consumption and on dairy products at the expense of poultry and livestock production for meat. Enough sugar and potatoes were produced to fulfill ration requirements and cereal and vegetable crops were increased, to a point whore, in terms of nutritional content, 60 per cent of the nation's food was grown at home.. Before tho war, about two-thirds of tho food was imported. Im May 19U3* & four-year program for agriculture was instituted which guaranteed markets und established price floors for crops u nd for milk, cattle, calves, sheep, and lambs until the summer of Tho plGn provided for a review of the general financial condition of agriculture by farmers' organizations and the agricultural departments each February for the purpose of fixing prices for tho harvest of tho following year. This program aimed to ensure stablt markets for British farmers through the transition period from war to peace and to allow time for the formulation of long-term policies for agriculture as a purt of the national economic policy. In May I9I4U, influential farm organizations meeting in a joint eession sponsored by the Royal Agricultural Society drew up a statement of objectives to be considered in formulating agricultural policy. In general, the official policy announced by the Labor Government follows the recommendations sponsored by the Royal Agricultural Society and provides for the continuation on a permanent basis of essential features of the May 191+3 program; In adopting tho policy sot forth in the Hot Springs agreement as a working principle, Britain can be expected to alter agricultural output us the world food shortage eases so as to increase the production of relatively perishable foods needed for better nutrition such as vegetables, fruits, milk, eggs, and meatj to encourage tho expansion of livestock production in urcus whore the necessary feedstuffs ean be grown or economically imported; and to limit the production of bulky, o.-.sily stored and shipped foods in areas whore they can not bo produced efficiently. Trends in this direction are already discernible in the current decline in wheat acreage from the peak of - 21 •- CONFIDENT I A 1914.$ knd in the price increases permitted on all principal commodities except cereals in the February 19U5 review of prices. Dairy herds have been expanded as a part of the war progrun, as have vegetable acreages. The nations attending the Hot Springs Conference agreed that it wus the responsibility of every nation to assure adequate food for the life and health of its people. Although the national lovc-1 of nutrition in the United Kingdom was improving before the war, a l,.rge percentage of the population is still inadequately fed. It has boon estimated thut if the United Kingdom were to grow at homo the additiDnal food necessary for an adequate national diet, increases in production over the 1939 rate would be; milk 65 por cent, eggs .60 por cent, fruits 70 per cent, vegetables 60 per cent, and meet 15 per cent. i. subsidized consumption program such as thut suggested in tho Beveridge plan may bo instituted to aid those who otherwise can not afford an adequate diet. The element of newness in the policy announced by the Labor Government lies not in the nature of the proposals but in tho projected application of those proposals to a peace-time economy. Planned agricultural production and control by public bodies of the private use of land imposes a grave responsibility upon the Government, The conflict of interc-st between the 93 P o r cent of tho population not engaged in agricultural pursuits and the 7 por cent so engaged must be reconciled and the still greater conflict between an expanding high-cost domestic agriculture and cheap imported food must be resolved. The extent to which Britain maintains self-sufficiency in food production will bo determined in the long run both by the degree of efficiency attained and by tho willingness of the taxpayers to support 0. high level of agricultural antarky. Tho artificial raising of prices to protect high-cost producers cun be accomplished only by means of enormous subsidies, either direct or indirect, which will in the long run result in a loworing of tho standard of living. It seems unlikely that the British public will be vailing to pay this price permanently for a prosperous agriculture. The success of tho British program will accordingly depend, in thu long run, upon tho ability of British farmers, with governmental guidance, to concentrate upon those areas of production in which the gap between domestic and world prices can be narrowed or eliminated.
@FedFRASER