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William McChesney Martin, Jr., Papers
Box 15/Folder 7


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Series IV, Subseries B
Speeches by Martin, 1949-1951

r

REMARKS BY THE HONORABLE WM. McCHESNSY MARTIN, JR.,
ASSISTANT SECRETARY OF THE TREASURY, AT THE FIFTY-FIFTH
ANNUAL CONVENTION OF THE FLORIDA BANKERS ASSOCIATION
MIAMI, FLORIDA, APRIL 11, 19^9

FOREIGN AID AND THE TREASURY

It is an honor, indeed, for me to be the guest of the
Florida Bankers Association here in Miami and have a chance
to Ret acquainted with you.

As a new man in the Treasury,

pinch hitting on this occasion for Secretary Snyder who
regrets very much that pressure on his time prevented his
acceptance of your invitation, I am delighted to have the
opportunity to learn from you how the Treasury can serve
you better and to share with you some of our thinking.
Naturally, a group like this has a primary interest
in the management of a Federal debt in excess of $250
billion.

The policies pursued cut across the fields of

money, credit, prices, wages, taxes, interest rates, and the
formation of capital. How effectively the debt is handled
in terms of reduction, whenever possible, distribution to
meet the needs of all investor groups, and relationship to
monetary and credit control, is a matter of vital concern to
every citizen of this country.

Difficult as was the task of

raising these staggering sums, it is likely, in retrospect,


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2.

to prove child's play compared with the complexities of
management the Treasury now faces.

The advice and under-

standing of the entire financial community is needed, as
never before.
My particular sphere of responsibility in the Treasury,
however, is in the field of International Finance and its
relation to the problem of our fiscal and monetary policies.
World War II has brought, about important changes in the
structure of world commerce, and we must squarely face the
new responsibilities which the changing character of the
world economy has thrust upon us.

Accordingly, I want

briefly to review with you this morning what the United
States has been doing with its foreign aid programs, and
how the growing importance of our foreign trade is directly
connected with our Federal budget.
We in the Treasury, like yourselves, are looking forward to an early end of United States extraordinary assistance.

No one likes to give away money indefinitely, nor do

self-reliant people enjoy receiving on such a basis. Let
us not fail to recognize, nevertheless, the crucial importance of our postwar aid and the vital necessity of continuing the Economic Cooperation Administration until
Europe fully recovers.

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3.

It seems to me that the whole approach taken by the
American Government after this war contrasts most favorably with the approach taken at the end of World War I.
In no area is this reflected more clearly than in the contrasting attitude toward the repayment problem after the
two wars.
After World War I, v/e insisted, without any regard
to the feasibility of repayment in real goods, that our
European allies repay for all United States aid, even for
the shot and shell which had been expended on the field of
battle.

After World War II, in contrast, there has been a

growing appreciation of the fact that we can approach the
whole foreign lending problem only from the point of view
of a true aDprpisal of the recipient countries1 capacity
to repay.
In the case of Europe, there is an increasing recognition that we cannot reasonably expect Europe to repay r.ll, or
perhaps even a major part, of the total aid required from
the United States.

This current estimate of the repayment

prospects for United States foreign aid, it should be noted,
is contrary to the original hope of this Government.

It

was thought at the time of the Bretton Woods Conference
that, apart from relief aid, the emergency reconstruction

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needs of the war-torn areas of Europe and Asia would be on
a small enough scale so that they could be met entirely
through loans — in the first instance by the Export-Import
Bank and other government agencies and then principally by
the International Bank for Reconstruction and Development.
AS we all recall, a large measure of dollar aid was rendered
in 19^6 and 19^7 on this straight loan basis.

There was the

British loan of $3,750,000,000; Export-Import Bank reconstruction credits of over $2,000,000,000; and surplusproperty and post-VJ-day lend-lease credits of over
$2,000,000,000.
By the middle of 19^7, however, it had become generally
recognized that some new way of financing the dollar aid requirements of Europe had to be found. The Export-Import Bank
emergency reconstruction credits were coming to an end early
in 19^7* as available resources were exhausted and in conformity with the understanding that the International Bank,
which was just beginning to operate, would assume responsibility for this type of credits.

The latter institution,

however, found it impracticable to raise funds in the open
market in the amounts required for further reconstruction
needs; nor did it appear likely that the countries involved
could service additional credits on a loan basis.

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The British

5.
line of credit, expected to last until 1951*was largely
exhausted by the end of August 19^7.
The unavailability of private financing made it clear
that, if the remaining dollar needs of Europe were to be met,
they would ha.ve to be met directly by the United States
Government. Accordingly, the logical and necessary bulwarks
to the Export-Import Bank reconstruction credits and the
British lines of credits were the interim aid grants to
France, Italy, and Austria, in the winter of 19^7 and the
EGA grants and loans now being utilized. The emergence of
the European Recovery Program reflected the conviction of
the Executive Branch and Congress that the remaining postwar
dollar-aid requirements might extend over a further U-year
period, might amount to as much as $17,000,000,000 and would
have to be met largely on a grant rather than a loan basis.
Despite the fact that further United States aid to
Europe will be large on a grant basis, the long-term dollar
loan obligations of the countries participating in the postwar European Recovery Program may now aggregate about
$12,000,000,000.
Long-term dollar lending of this magnitude will mean
average annual service charges of approximately three-fourths
of a $1,000,000,000 throughout most of the 1950!s and 1960fs.

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6.
This creates a major policy problem for the United States.
From the standpoint of the borrowing countries, it means that
they will have to develop a surplus on current account over
and above their essential requirements in the U.S. of approximately the same amount to meet the service charges, unless
this country provides them with the necessary dollars through
extended private lending and direct investments abroad on a
corresponding scale.

From the standpoint of this country,

it means that, unless borrowing countries can develop such a
current surplus or attract adequate capital they will either
have to restrict payment on their obligations to us or drastically curtail their future imports from this country.
I find it hard to believe that many Americans would consciously favor sacrificing our export interests, or encouraging an indefinite continuance of foreign aid with little prospect of eventual repayment, merely to curtail an increased
flow of imports into this country.

The only real hope I see

for future normal world trade, the reestablishment of an effective multilateral trading system, and the long-run solu- .
tion of the dollar repayment problem, lies in the expansion
of this country's foreign trade, on both the import and the
export side, and the eventual development of the import surplus which is normal for a matured industrial economy.

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7.
There are several factors which will tend to increase
our imports:
First, travel expenditures abroad should increase substantially in the postwar world if for no

other reason than

the fact that our national income has risen so substantially
above prewar levels. In any event, it seems very likely that
this will turn out to be a highly important source of dollars
for foreign countries.
Secondly, imports of raw materials should be at substantially higher levels as a result of higher national income
and the wartime depletion of domestic supplies of many such
items.

V/ho would have thought, for example, that copper,

lead, zinc, iron ore and scrap would ever have been in short
supply in the United States?
Thirdly, imports of luxury and semi-luxury items, noncompetitive or only partially competitive with United States
products, may rise substantially with continuing high national income here and progressive recovery abroad.

Moreover,

our expanding population will consume larger .quantities of
goods which are not produced here at all or not in adequate
quantities.
Overseas trade, because of its romantic and pioneering
character, lends itself to the best in the American tradition

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g.
of private enterprise.

It is in this field, perhaps more

than in our domestic production, that the U.S. opportunity
lies to demonstrate to the world the achievements of the
American way of life. This trade may be small percentagewise.

It may be only 5* or J, or 9 percent of our total —

but it is my conviction that it contributes to maintaining
a rising living standard with a minimum of unemployment and
without it there is the possibility of substantial unemployment with less production of goods and a lower standard of
living.

The American productive machine depends in part on

the reestablishment and development of sound two-way foreign
trade.

It is obvious that at the present time trade exists

only on an artificial, subsidized basis, and that our endeavors should, be directed toward the reduction of extraordinary governmental assistance and greater reliance on the
private capital market for foreign capital requirements.
The United States is the greatest economic power in the
world today and the great creditor nation.

The goal of our

foreign-aid programs is a self-supporting Europe by 1952,
but let us not forget that our world position will require
us to continue to invest heavily abroad for a long time to
come and to import goods and services in larger amount as the
return on our capital investment.

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I hope this investment

9.
will be private and not governmental, but again let us have
no misunderstanding of its vital necessity.

Investment of

European funds was the keystone in the arch of the expanding
world-trade pattern in the Nineteenth Century, and investment
of United States funds must now take over this role to make
possible that expansion of production here and abroad which
will assure rising standards of living and contribute to the
economic improvement of underdeveloped countries.
The Office of International Finance in the Treasury
advises the Secretary on the formulation and execution of
programs and policies in the international financial and
monetary field.

In doing this, its purpose is to see that

each dollar spent in our foreign financial activities is expended wisely and to promote policies which will ultimately
reduce the strain on our own budget.

The advice and criti-

cism of groups such as this will always be welcome and it is
my hope to hear from many of you from time to time as to any
suggestions you may have .toward furthering this objective.
¥hile many of the activities of my office are technical,
nevertheless, its broad operations implement the objectives
espoused by President Truman in his Inaugural Address when
he stated,

if

The United States is pre-eminent among the natiom

in the development of industrial and scientific techniques.
The material resources which we can afford to use for the

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10.

assistance of other peoples are limited. But our imponderable resources in technical knowledge are constantly growing
and are inexhaustible.
"1 believe that we should make available to peace-loving
peoples the benefits of our store of technical knowledge in
order to help them realize their aspirations for a better
life.

And, in cooperation with other nations, we should

foster capital investment in areas needing development.1'


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REMARKS BY THE HONORABLE ¥M. MGGHESNEY MARTIN, JR.,
ASSISTANT SECRETARY OF THE TREASURY, ON THE OCCASION OF THE
MEETING OF THE SOUTHERN ASSOCIATION OF SCIENCES AND INDUSTRY
AT WASHINGTON AND LEE UNIVERSITY, LEXINGTON, VIRGINIA, AS A
PART OF THE BICENTENNIAL CELEBRATION, MAY 3,

It is indeed an honor and a privilege for me to
participate in this Bicentennial Celebration of Washington
and Lee University.

This is particularly so because through

my father, a graduate and trustee, I am a direct beneficiary
of the trust which has been discharged so faithfully by those
who have shared in administering the heritage of this famous
school.

The subject which has been assigned to me today is

"Business and Education."

In treating it, my thesis is sim-

ple: What education has done for business in the development
of this country, business must now do for education if both
are to remain strong and independent.
The men who laid the foundation of this University two
hundred years ago were in the business of making a living and
that, fundamentally, is the reason of business today.

They

wanted not ^ust a bare subsistence, but a living free of the
shackles of the old world. They realized that in order to
build and maintain such a condition, education was almost as
/
necessary as religion and that if they were to have leaders
of Christianity, education was essential to prepare and train
them.

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2.

For the most part, they were Scotch-Irish immigrants
and, practically contemporaneous with their establishing a
small settlement, they started Augusta Academy. Robert
Alexander was made principal and his assistant was the Rev.
John Brown, who was later to become his successor.

I want

to emphasize this because the Scotch-Irish did not permit a
man to be ordained a Minister of the Gospel unless he had
been thoroughly educated and to be educated in those days
meant ha/ving a v/orking knowledge of Greek, Hebrew and Latin.
This is significant beca,use it meant that they knew what
Plato, Aristotle, Cicero and others of the classics had
written about Government,

I think it is also fair to assume

that they were familiar with the writings of John Locke,
Montaigne and others of more modern tines. You also can be
sure that the form of government desired in this new land
had been discussed at great length before they left home and
on board ship during the voyage across.

They were steeped in

the same sources that contributed so much to the thinking of
Washington, Jefferson, Hamilton, Franklin and others whose
thoughts are so clearly embodied in our Declaration of Independence.

They considered as truths solf-evident, "That all

men are created equal; that they are endowed by their
Creator with certain unalienable rights; that among these


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3.
are life, liberty and the pursuit of happiness.11

Above all,

they wanted individual liberty and independence and were
willing to give up just so much of their freedom to do as
they pleased as was necessary for the good of their settlement .
They were familiar with Aristotle and they felt there
was much truth in his view when he was asked,

lf

How much

superior are educated men to uneducated men, lf and he answered,
-,*J*****""
' ,

"As much superior as the living are ££&& the dead,'1
All of these men were familiar with the discussions
which had been going on in the colonies for some time and
when the news of the Battle of Lexington reached them, they
promptly changed the name of their Augusta Academy to Liberty
Hall.
Now the pioneer business man understood the need of an
education, and the education he considered worthwhile in his
day and what is, in my judgment, still worthwhile in order to
keep us reminded of our basic rights and condition, is encompassed in what we now call our independent liberal arts college.

He felt that this kind of knowledge and learning ex-

tended his horizon and enabled him better to create the atmosphere and environment he was trying to create. His capital


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consisted largely of his rifle, powder horn, and bullet mold
and the freedom of opportunity to better his heritage as he
saw fit.

He immediately, as soon as he settled, added what-

ever land he could stake out to his ca.pital and established
a school to give a larger vision to his children.
What was demonstrated here in the valley of Virginia
was what occurred in every early settlement throughout this
new country.

Schools and colleges were founded to prepare

men for Christian leadership and to broaden them in their
knowledge of world experiences.
George Washington, who, I understand, made the first
contribution to the endowment fund of Washington and Lee said
in his farewell address:

"Of all the dispositions and habits

which lead to political prosperity, religion and morality are
indispensable supports. . . . And let us with caution indulge the supposition, that morality can be maintained with- t
out religion. Whatever may be conceded to the influence of
refined education on minds of peculiar structure, -reason and
experience both forbid us to expect that national morality
can prevail in exclusion of religious principle."
For many years living was simple enough so that individuals through the apprentice system, or by the use of native
inventive genius and common sense, could handle, if not


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5.
master, the conditions of trade.

It was commonly thought

that only the professions such as the ministry, law or medicine needed college training, but trade grew rather rapidly
into business and such big and complicated business that the
need for a college education and even for graduate training
rapidly developed. Harvard saw this need and established
the Harvard Business School.
Washington and Lee has a school of commerce and administration, but in these instances and I think in most other instances, the foundation course is the college of arts and
sciences.
In reading the catalog of Washington and Lee, I was impressed with the fact that when General Lee became President,
he thought the reconstruction of the South could be hastened
by making available schools of journalism and engineering in
a South that then had nothing but ruins, the ruins of a disastrous and losing war, with which to start business again.
It seems only fair to assume that Washington and Lee made a
vital contribution to the reconstruction and rehabilitation
of the South, which is recognized today in the meeting here
of the Southern Association of Sciences and Industry.
It seems so axiomatic today that business is dependent
on education that it may seem out of place to develop the
relationship as I have done, but it has seemed wise to bring

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6.
this to mind for at this time when conditions make contributions to endowment difficult on the part of individuals
and there is an increasing dependence by education on Federal
and State Aid, it may be the duty of business, if it wishes
to preserve itself in the American tradition of free enterprise, to find a way to come to the rescue.

There are per-

haps some who still think that any education beyond reading,
writing and arithmetic is a waste of time. That is all they
had and often they say,

I?

We have made money and that f s good

enough for anyone," but I am sure they have never learned
how to enjoy their so-called success.

Their horizon was

limited by their business and their only way of spending the
day was to return to the old desk and, in many instances, get
in the way of younger men.
If I understand it clearly, it really took the first
World War to awaken the general public in this country to
the desire and importance for an education more than the
three R's.
As our country has developed, business has needed more
help from specialized education.

For instance, there was a

time when one end of a grocery store could be boarded off
and a bank established there. To make a success of the banking business, all the banker had to know was that the

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7.
borrower was honest, thrifty and working on some project
that offered good prospect of success.

Now the successful

banker must know not only local conditions but also world
conditions, and some years ago the American Bankers Association realized this situation and promoted the formation of
the American Institute of Banking to study economics, accounting, commercial law, and other subjects needed in every
day banking work.

This was so beneficial and successful

that it added a graduate school of banking where qualified
bank officers and clerks could carry on advanced study. •
A number of years ago, the Hew York Stock Exchange
recognized its need for both specialized and advanced training in its field and established the New York Stock Exchange
Institute.

Today, the New York Institute of Finance is an

important part of the brokerage community, and I have no
hesitation, from first-hand experience, in stating that the
amount of money expended on this activity has repaid the investment community much more than many times the amount spent
in other directions.
Every big business today has its research department
which applies education to business.

Its purpose is to im-

prove its methods and extend its horizons.

It does not hold

with some who say that now that all our territory is occupied

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8,
there is a limit to expansion.

It took education to make

the oil under the desert of Saudi Arabia available and it
took education to add the atom bomb to the agencies of destruction.
The emphasis today is on science and industry, and
education is making an effort to meet these needs of business
not only through its science departments but also through its
schools of commerce and industry.

But right here, if I may

be allowed to do so, I would sound a note of caution.

In

emphasizing the "material,1' there is grave danger of pushing
aside or at least minimizing what may be embraced under the
broad term "spiritual."
In my judgment, the work of the independent liberal
arts college is essential for the protection of our form of
government and the extension of our culture.

It should be

used as a foundation and from such a foundation one can go
into engineering, brokerage, banking, medicine, law, government or the ministry.

The man who knows nothing but engi-

neering, architecture, manufacturing, sales technique, or
some other one line is as much handicapped, especially as he
grows older, as the-so-called self-made man who never took
an education and is subconsciously just a little bit proud
of it.

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It may seem useless for one who intends to be a
banker, manufacturer, or broker to study Greek or Latin,
but anyone who has agonized over Greek irregular verbs is
likely to have a memory so trained that he has little difficulty in mastering the nomenclature of banking, manufactur%

ing or the Stock Exchange.
Business needs education, especially that afforded by
the independent liberal arts college. It can take a young
man with such a background and give him the necessary technical training in its research and statistical department
rather quickly.
It would, indeed, be interesting to know how many of
the men in the laboratories received a foundation knowledge
from a liberal arts training.

Without some such foundation,

no amount of specialized training is likely to produce the
judgment, perspective, and balance which is the end result
of a sound and progressive man.
State institutions supported by taxation have their
decided usefulness but also their dangers as, in these days
of varying ideologies, they could be subject to political
pressures.

Independent liberal arts colleges and also in-

dependent technical schools are needed as bulwarks to the
free enterprise system.

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In these days of propaganda, of

10.

half truths, constantly twisted and reiterated, and what
has frequently been referred to as group or sectional politics, a clear understanding of how our government was developed and the fundamental principles which have secured us
for over 160 years must be taught and understood.

That is

the only real hope for true social security.
There are too many of this generation who have the idea
that this government exists like the light and the air.

They

must be made to realize that our government is the result of
years of struggle, service and sacrifice and that "eternal
vigilance is the price of liberty."
To me, it would seem that the independent institution
is really vital if we are to preserve our priceless heritage.
It is becoming more and more difficult in the light of continuous taxation for individuals to contribute and, as business needs the independent institution, especially the
college of liberal arts, the time seems to have come when
business must find a way to support them out of its earnings.
Failure to arrive at some solution of this growing problem,
and I realize it will take time and study, endangers the
foundations of all wo hold dear in these United States.


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TREASURY DEPARTMENT
Washington
Statement by Assistant Secretary of the Treasury
William McC. Martin, Jr., before the Senate
Committee on Banking and Currency on S, 1664,
"to amend the National Bank Act and the Bretton
Woods Agreements Act, and for other purposes."
10 A.M. ~ June 10, 1949
Mr. Chairman and Members of the Committee:
I am appearing before your Committee on behalf of the National
Advisory Council on International Monetary and Financial Problems to present its views on S. 1664* which the Committee is now considering. The
bill would amend the National Bank Act to permit national banks to deal
in the bonds of the International Bank, and would, by amendment to the
Bretton Woods Agreement Acts, exempt securities issued or guaranteed by
the International Bank from the provisions of the Securities Acts. The
National Advisory Council has given serious consideration to the proposed
legislation and believes that it should be enacted*
With your permission, I would like to address myself to the policy
considerations underlying the National Advisory Council's support of the
pending legislation. In the opinion of the National Advisory Council,
the International Bank for Reconstruction and Development will have an
increasingly important role in the future development of the international
capital market. It seems clear that, to the extent that economic and
political conditions abroad permit the Bank to assume greater responsibility in financing reconstruction and development, it is in the interest
of the United States to encourage the Bank to assume that responsibility.
During the next few years, it is hoped that many more nations will
be in a position to apply for loans to finance projects and programs consistent with the purposes of the Bank. The continued effectiveness of
the International Bank will depend upon its ability to meet these requests,
To do this, the Bank will have to raise additional funds in the securities
market of the United States*
It is the opinion of the National Advisory Council that the enactment
of S. 1664 would facilitate the widespread distribution in the United
States of securities issued or guaranteed by the International Bank. For
a detailed analysis of the structure and operations of the International
Bank, particularly with respect to the effect that the proposed legislation
would have on its marketing operations, I will defer to the representatives
of the Bank who will appear before you.
However, if I may, I would like to touch briefly upon one of the
principal problems which will be remedied if the proposed legislation is
enacted*
S-2023

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~ 2At the present time, although national banks may invest in securities
issued by the International I3ank, they are not authorized under the National
Bank Act to deal in such securities* The proposed legislation would remove
this legal disability by amending the National Bank Act to permit national
banks to deal in securities issued by the International Bank*
Both the International Bank and the National Advisory Council believe
that in order that this permission may be really effective in broadening
the market for the Bank's securities they should be exempted from the
Securities Acts* The reason is that the whole marketing system of national
banks is geared to deal only in securities which are exempt from the
Federal Securities Acts, mainly federal, state, and municipal securities;
and it is not adapted to meet the various requirements pertaining to
securities subject to those Acts. The proposed legislation would meet
this practical difficulty by amending the Bretton Woods Agreements Act to
make the securities issued or guaranteed by the International Bank exempt
securities under the Securities Acts.
In connection with the enactment of the proposed legislation, careful
thought has been given to the position of investors in the United States*
I believe that the unique characteristics of the securities of the International Bank and the nature of the safeguards provided in the proposed
legislation constitute ample protection.
It should be noted that by virtue of the large subscription of the
United States in the shares of the International Bank, there is a correspondingly large official participation by the United States in the direction of the Bank. Under the guidance of the National Advisory Council, the
United States Executive Director, who holds approximately one-third of the
total votes of the Bank's Executive Board, directs his activities to
effectuating the United States policy of making the Bank a sound, strong,
effective instrumentality for financing appropriate projects for reconstruction and development. In this connection, it may be noted that the International Bank may not sell its securities in this country without obtaining
the prior consent of the National Advisory Council; nor can the Bank buy or
deal in its securities without that consent.
It should also be borne in mind that the securities of the International Bank are backed by the joint obligation of some 4.8 nations, each
of which is severally liable up to the full amount of its subscription. A
nation which might otherwise be tempted to default on a particular foreign
obligation might well be deterred from such action by the knowledge that a
default to the International Bank is simultaneously a default with respect
to 47 other nations upon whom the burden of meeting prorated subscription
calls would fall.
Adverting to the protection the United States investor enjoys with
respect to foreign securities which are not exempted from the Securities
Acts, it may be appropriate to note that the essence of this protection
is the requirement for full and fair disclosure of pertinent information*


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~ 3~
The Securities and Exchange Commission does not make a determination as to
the yrorth of a security offered for sale. It is not the function of the
Commission to approve or disapprove any sale of securities so long as the
facts concerning the securities are fully stated.
With respect to the International Bank, it may be stated that through
its quarterly and annual reports and other statements, it makes a full
disclosure to the public of all its activitieso Moreover, under the proposed legislation, the Bank would be required to file with the Securities
and Exchange Commission such annual and other reports with regard to its
securities as the Commission shall determine to be appropriate. Finally,
if the Securities and Exchange Commission should at any time be of the
opinion that the interest of the United States investor requires that the
securities of the International Bank be subjected to the Securities Acts,
the Commission may, in consultation with the National Advisory Council,
suspend the exemption granted under the proposed legislation.
In my opinion, the enactment of the proposed legislation will further
the interest the United States has in the continued effective operation of
the International Bank without prejudicing the rights of United States
investors. I, therefore, recommend favorable action on the bill under
consideration.


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- o 0 o-

/

REMARKS BY THE HONORABLE WM. McCHESNEY MARTIN, JR.,
ASSISTANT SECRETARY OF THE TREASURY, AT THE FORTY-SEVENTH
ANNUAL CONVENTION OF THE SAVINGS BANKS1 ASSOCIATION
OF CONNECTICUT
WHITEFIELD, NEW HAMPSHIRE, OCTOBER IS, 19^9

11!30 A.M. (for Release on Delivery)
FOREIGN AID AND THE TREASURY

It is an honor, indeed,

for me to be the guest

of the Savings Banks' Association of Connecticut and
have a chance to get acquainted with you. I am delighted
to have this opportunity to learn from you how the
Treasury can serve you better and to share with you
some of our thinking.
Naturally, a group like this has a primary interest
in the management of a Federal debt in excess of
$250 billion. The policies pursued cut across the
fields of money, credit, prices, wages, taxes,
interest rates,

and the

formation of capital. How

effectively the debt is handled in terms of reduction,
whenever possible, distribution to meet the needs of
all investor groups, and relationship to monetary and
credit control, is a matter of vital concern to every
citizen of this country.

Difficult as was the task

of raising these staggering sums, it is likely, in
retrospect, to prove child's play compared with the

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2.

complexities of management the Treasury now faces.
The advice

and understanding of the entire financial

community is needed, as never before.
My particular sphere of responsibility in the
Treasury, however, is in the field of International
Finance and its relation to the problems of our fiscal
and monetary policies. The Office of International
Finance in the Treasury advises the Secretary on the
formulation and execution of programs and policies
in the international financial and monetary field.
In doing this, its purpose is to see that the money
spent in our foreign financial activities is expended
wisely and to promote policies which will ultimately
reduce the strain on our own budget. The advice and
criticism of groups such as this will always be welcome
and it is my hope to hear from many of you from time
to time as to any suggestions you may have toward
furthering this objective.
World War II has brought about important changes
in the structure of world commerce, and we must squarely
face the new responsibilities which the changing
character of the world economy has thrust upon us.


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3.
Accordingly, I want briefly to review with you this
morning what the United States has been doing with its
foreign aid programs, and how the growing importance
of our foreign trade is directly connected with our
Federal budget.
We in the Treasury, like yourselves, are looking
forward to an early end of United States extraordinary
economic assistance. No one likes to give away money
indefinitely, nor do self-reliant people enjoy receiving on such a basis.

Let us not fail to recognize,

nevertheless, the crucial importance of our postwar
aid and the vital necessity of continuing the Economic
Cooperation Administration until Europe is more nearly
self-supporting than it is at present.
It seems to me that the whole approach taken by
the American Government after this war contrasts most
favorably with the approach taken at the end of World
War I. In no area is this reflected more clearly than
in the contrasting attitude toward the repayment problem
after the two wars.
After World War I, we

insisted, without any regard

to the feasibility of repayment in real goods, that our


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European allies repay for all United States aid, even
for the shot and shell which had been expended on the
field of battle. After World War II, in contrast,
there has been a growing appreciation of the fact
that we can approach the whole foreign lending problem
only from the point of view of a true appraisal of
the recipient countries' capacity to repay.
In the case of Europe, there is an increasing
recognition that we cannot reasonably expect Europe
»
to repay all, or perhaps even a major part, of the
total economic aid required from the United States.
It was the

original hope of this Government that the

emergency reconstruction
through loans.

process could be met entirely

As we all recall, a large measure of

dollar aid was rendered in 19^-6 and 19^7 on a straight
loan basis.

There were the British loan of $3,750,000,000,

Export-Import Bank reconstruction

credits of over

$2,000,000,000, and surplus-property and post-VJ-day
lend-lease

credits of over $2,000,000,000.

By the middle of 19^7, however, it had become
generally recognized that some new way of financing
the dollar aid requirements of Europe had to be found,


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5and that they would have to be met directly by the
United States Government. Accordingly, the logical
and necessary bulwarks to the Export-Import Bank
reconstruction credits and the British line of
credits were the interim aid grants to France, Italy,
and Austria, in the winter of 19^7 an^ "the EGA grants
and loans now being utilized. The emergence of the
European Recovery Program reflected the conviction
of the Executive Branch and Congress that the remaining
post-war dollar aid requirements might extend over a
further U-year period, might amount to as much as
x

$17,000,000,000 and would have to be met largely on
a grant rather than a loan basis.
The United States cannot shirk its responsibilities
as the greatest economic power and the greatest creditor
nation in the world today.

The goal of our foreign

aid program is a self-sufficient Euroioe by 1952. While
the European countries have made substantial advances
under the European Recovery Program, much remains to
be done if the dollar gap is to be closed and they are
to be able to stand on their feet. Recent adjustments
in exchange rates should help many of these countries


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6.
to improve their dollar position and to move toward a
higher level of trade in both directions. However,
this action does not constitute a cure-all for the
difficult and complex problems currently faced in
international payments.

Exchange adjustment is but

one step, albeit a most important one, which helps to
clear the way by removing some obstacles to the
effective and fluid functioning of a world Drice system
in accordance with free enterprise incentives.
Foreign countries have been spending $12 billion
a year in our market and have been exporting about
$6 to $6-1/2 billion of goods a year to us.
clear that

It is

they cannot continue to sustain their

current level of imports from us unless they can earn
more dollars by increasing their exports of goods and
services to the dollar area.

If--as is to be hoped—the

volume of imports into the United States increases
significantly, whether as a result of devaluation or
simply because foreign countries increase their sales
efforts in this market, it is possible that a few
industries will ask for the raising of our tariff
rates.


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I would like to ask you to consider this question

7.
in the broadest possible perspective from the point of
view of

the long term interest of the economy as a

whole.
¥e are faced with a very serious problem in
attempting to restore international trade to a satisfactory balance. We cannot

maintain our exports at

a high and our imports at a low level indefinitely
without continuing to finance the gap with funds
provided by the American taxpayer.

If Europe is to be

self-sufficient, we must allow the European countries
to earn the dollars they need to pay for the American
goods and services which are essential to their economies
if they are to avoid social unrest and political
instability.

Trade will sooner or later have to go

back on a more self-balancing basis.
But this is not all. Our own position will require
us to continue to invest heavily abroad for a long time
to come.

Investment of European funds was the keystone

of expanding world trade in the 19th century, and investment of U. S. funds—I hope primarily on a private basismust now take over this role in order to make possible
that expansion of production here and abroad which will


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g.

assure rising living standards and economic progress
in under-developed areas.

It is a role which creates

a major policy issue for the United States.

For while

such investment will undoubtedly mitigate the dollar
pressure

on foreign countries in the near future,

eventually we will have to be prepared to import goods
and services in larger amount as the return on our
capital investments.

As their service charges fall

due on past and future investments, borrowing

countries

will have to develop a surplus on current account over
and above their essential requirements in the United
States; otherwise, they will either have to restrict
payment on their obligations to us or drastically curtail
their future imports from this country.
Fortunately, there are several

long-run factors

which will tend to increase our imports of goods and
services:
First, travel expenditures abroad should increase
substantially in the postwar world, if for

no other

reason than the fact that our national income has risen
so substantially above prewar levels.

In any event,

it seems very likely that American tourists will turn
out to be an even more important source of dollars for
foreign countries than in the past.

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9.
Secondly, imports of raw materials should be at
substantially higher levels as a result of higher
national income and the wartime depletion of domestic
supplies of many such items. Who would have thought,
for example, that copper, lead, zinc, iron ore and
scrap would ever have

been in short supply in the

United States?
Thirdly, imports of luxury and semi-luxury items,
non-competitive or only partially competitive with
United States products, may rise substantially with
continuing high national income here and progressive
recovery abroad.

Moreover, our expanding population

will consume larger quantities of goods which are not
produced here at all or not in adequate quantities.
The only real hope I see for future normal world
trade, the re-establishment of a functioning multilateral
trading system with exchange convertibility, and the
long run solution of the dollar repayment problem, lies
in the expansion of our foreign trade, on both the import
and export side, the expansion of our foreign investments, and the eventual development of the import surplus
which is normal for a matured industrial economy.

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10.

Therefore, I find it hard to believe that many
Americans would consciously favor not only sacrificing
our vital export interests but also
indefinite continuance

encouraging an

of foreign aid with little

prospect of eventual repayment, merely to curtail an
increased inflow of imports into this country.

A

sustained low volume of imports and the consequent
worsening of the dollar position of the European
countries would inevitably involve an increase in
unemployment as a result of our falling exports. It
would involve greater difficulties for foreign countries
in their efforts to reduce their dependence on economic
aid from the United States.

It would involve impeding

the processes by which our investors can receive the
yield on their investments abroad through the normal
movement of goods to the United States market. The
net upshot of such a restrictionist policy would be a
long-term drain on our national income and our Federal
budget with no quid pro quo to show for it, along with
the very real danger of increasing economic instability
and tension throughout the democratic world.


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11.
Overseas trade,

because of its romantic and

pioneering character, lends itself to the best in
the American tradition of private enterprise. It is
in this field, no less than in our domestic production,
that the U. S. opportunity lies to demonstrate to the
world the achievements of the American way of

life.

In the light of the brilliant record of American
industry for initiative, inventiveness and efficiency,
I think we need never worry about our being able to
compete on fair and mutually advantageous terms not
only in the domestic market but also in the markets of
the world.

I feel strongly that the United States

has much more to gain than to lose by the relaxation
of existing barriers to international trade, and that
conversely any action on our part

designed to raise

such barriers would entail substantial net loss to
our economy as a whole. It is no less to our interest
than to the interest of our economic neighbors in this
hemisphere

and across the seas that we work out and

promote ways and means of sharing the special

talents,

skills and resources the nations separately possess.


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12.

Our foreign trade seems small percentage-wise.
It may be only 5$, or 7$, or 3% of our total—but it
is my conviction that it is a crucial

segment of our

economy which makes a decisive contribution to maintaining a rising living standard with a minimum of unemployment, and that without

it there is a real possibility

of a smaller national income with substantial unemployment and a lower standard of living. The American
productive machine depends in part on the re-establishment
and development of sound two-way foreign trade.

It is

obvious that foreign trade at the present time still
to a large extent exists on an artificial, governmentfinanced basis, and that our endeavors should be
directed toward the expansion of international trade
within the framework of a reduction of extraordinary
governmental assistance and of greater reliance on the
private capital market for foreign capital


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requirements.

TREASURY DEPARTMENT
Washington
The following address by William McChesney Martin, Jr.,
Assistant Secretary of the Treasury, at a luncheon of
the Chicago World Trade Conference, at the Hotel Sherman,
Chicago, Illinois, is scheduled for delivery at about
1;00 p.m., C.S.T., Monday, February 27, 1950, and is for
release on delivery.

U. S. FOREIGN TRADE LOOKS AHEAD
Four years ago it was my privilege to address a meeting sponsored by
this same group on the prospects for resumption of normal peacetime foreign
trade. Today as we stand on the threshold of the last fifty years of the
20th Century, I have taken as my topic, "U. S. Foreign Trade Looks Ahead."
Four years ago we were all hopeful. The war had ended and we were
proceeding rapidly to reconvert our industry from war to peacetime activities. The cardinal principles of U. S. foreign economic, financial, and
commercial policy were then, and they remain today, the achievement as
rapidly as possible of a multilateral trading system based on non-discrimination, freer trade, and general convertibility cf currencies.
These objectives resulted from the general recognition that bilateralism,
discriminatory tactics, quotas and preferences were all types of economic
naticnalism which laid the groundwork for the horrible conflict through
which we had just passed. There was for the first time almost unanimous
recognition of this at Brettcn Woods. Our whole postwar economic thinking
was focused around the conviction that high levels of employment and rising
standards of living could be achieved on a permanent basis only through
moving in this direction. When lend-lease was terminated, the UNRRA program,
the expanded lending authority of the Export-Import Bank, subscriptions to
the International Monetary Fund and the International Bank for Reconstruction
and Development, the Anglo-American Financial Agreement, Interim Aid grants
to France, Italy and Austria, and finally the European Recovery Program and
other programs have totaled a commitment by the American people of over
thirty billion dollars, as a direct earnest of their devotion to these
basic principles.
All of these expenditures were a part cf our hope for a "brave new
world." AS we look back, I think you will all agree we have been far from
realizing this "brave new world." Our thinking v/as in terms of internaticnal
cooperation and goodwill. We expected that the high ideals cf the war
period wculd be reflected in political agreements and policies and attitudes
which would make possible the realization cf the four freedoms.

S-2260


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- 2f
I need net emphasize the extent to which cur hopes of political
cooperation have failed. Certainly the world of 1950 is far from attaining
freedom from fear. In the atmosphere of the atomic bomb, there has
naturally been a tendency to preserve nany of the types of restrictions
which are part of a war economy or a world economy dominated by the fear c f
future wars. The adoption of the principles of non-discrimination and
convertibility of currency as a means of realizing freedom of international
commerce involves risks* A certain amount of dislocation of production and
employment is inevitable. If a country today imprrts what it formerly produced f^r itself or what it did without and if it exports goods which it
formerly consumed at home or »vhich it did not produce, there is necessarily
a shifting of labor and of capital from one employment to another. The
change is worthwhile, however, if we can believe that in the long-run we will
be better off; that the dislocations incident to change are transit!.onal;
and that after a time a certain Equilibrium will be reached at which the
situation will be markedly improved. The adoption of policies, therefore,
conducive to long-run benefit represents a hazard in faith in the future
and to a considerable degree the world has not yet been willing to assume
that risk.
If we look purely to the economic aspect of the situation, apart from
problems of international politics, we can see that the problems of postwar
reconstruction have been far greater than we had anticipated. Our economic
forecasts were over-optimistic. We did not realize the extent to which
the economies of the world had been impaired by the destruction of capital
in the form of factories, transportation equipment, or the wearing out of
industrial plant and even the exhaustion of soil resulting from the scarcity
of fertilizers. We did not adequately appreciate the extent to which it
would be difficult to restore trade within countries and trade between
countries. The extent cf the postwar inflations has upset many calculations
and postponed the attainment of financial stability. It has net been easy
to collect taxes in many cf the war-torn countries. The level of public
administration deteriorated, particularly in countries occupied by the
enemy, where it was patriotic to sabotage the administrative process. The
economic and political disorganization of Europe contributed a good part to
what has been commonly referred to as the dollar problem, i.e., the inability
of foreign countries to secure the amount of American goods they desired by
paying for them from their current earnings cf dollars, by the export of
goods and services to this country or to other countries, which might have
a surplus in their international accounts with the United States.
The people and the government of the United States have been aware of
these problems and we have tried to make cur contribution toward their
solution. During the war we devoted enormous economic resources to the
allied countries. By our assistance it was possible to sustain the economic
life of the countries who were joined with us in battle. With the close of
hostilities we made settlements of the obligations arising from this war
which would not unduly burden trade in the future. In addition, our first
postwar programs involved the extension of large credits to foreign countries
When it became clear that the mere extension of credits in the amounts which
could ultimately be repaid was not adequate to deal with the problems, the


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- 3Congress of the United States voted billions of dollars of economic
assistance without expectations of repayment, without expectaction of any
special economic advantages to the United States beyond those which would
accrue from the reestablishment of a stable economic world in which there
would be a rational pattern of international trade.
The details cf the agreements implementing these programs varied from
time to time, but their dominant note was that all we expected from foreign
countries was that they would help to restore balance in world trade at a
high level and to move as rapidly as possible toward ncn-^discrirninatory
international trade and exchange policies. We also recognized that these
objectives could not be realized at once.
It is practically impossible to have non-discriminatory trade and
exchange regulations unless currencies are convertible. Full convertibility
of currencies was scarcely possible at a time when many countries could not
by their own efforts, earn the dollars they needed and when monetary
reserves were exhausted. life recognized that the transitional period would
take some years. The transitional period should be really transitional and
the steps taken by the various nations in this intervening period would tend
to bring abcut the desired enc, rather than to be of such nature as tc
postpone its realization to the indefinite future.
It is obvious that there is no easy solution to these problems. We
can not expect the countries of the world immediately to abolish their
quantitative restrictions r n trade, reduce their tariffs or to permit the
free purchase of foreign currencies. If this action were to take place at
one stroke of the pen the dislocation would be too great. We could not
expect that as long as present conditions prevail that countries could
successfully assume the burden of freely converting their currencies into
gold or dollars. Yet it is clear that multilateral trade will continue to
be severely hampered until we have a greater degree of currency convertibility. Obviously, the greater the restriction :n the use of currencies
to fbtain foreign currencies, the farther we are away frcm non-discriminatory
multilateral trade. Moreover, it does not matter whether this restriction
is brought ab<~ut through exchange regulations or through direct controls of
trade. It is immaterial except as a matter of administration whether an
importer can not obtain goods from abroad because of his inability to buy
the requisite exchange or because he can not get the import license.
Consequently, in developing trade and exchange policies for the future it
is important to realize that an obligation of one sort can be circumvented
by a restriction of another scrt. To attain the ideal cf multilateral trade
we must move ahead on the trade front as well as the exchange front.
What we should expect for the immediate future is that the countries
of the world will not adopt policies which will make the eventual resumption
of convertibility more difficult and that to the extent that they are able
they sh ulci move in the direction of producing the conditions which will
make convertibility possible at the appropriate time. As long as the present
imbalance in the international accounts of the world continues, full convertibility is scarcely possible. It is possible, however, for the countries


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- 4to move in the direction cf convertibility by stages and it should be
possible to devise ways of avoiding discriminatory features in these
programs* There is always the danger that in a program cf restricted convertibility that vested interests will grow up and production and trade
will be directed in terms cf the discriminatory arrangements set up. The
essence of discrimination is, after all, that a higher price is paid for
goods obtained from cne country than would be necessary to obtain the same
goods from another country. Put concretely, there is discrimination against
dollar goods when a country pays more in terms of its own currency than it
would have to pay for the goods if it used its currency for dollars at the
official rates of exchange. The ultimate aim of ncn-discrimination and convertibility is the direction cf a ccuntry's resources into those channels
which yield the greatest returns and so make the largest contribution to the
standard of living of a people. If this test of price comparability is used
most of the dangers cf discriminatory trade practices are eliminated even
though it is possible to make payment only in inconvertible currencies.
Another step forward could be taken if countries would settle parn^ of
their international balances in gold or dollars. This would assure the
regular application .f the test of price comparability.*/If country A settles
part of its balances with country B in gold or dollars/ it will not be
vdlling to pay a higher price for country B's goods than it would for
American goods. Partial payments in gold or dollars could thus be a helpful
device for reenforcing the principle of non-discrimination. The larger the
portion .: f the balances settled in this way, or the more frequent the settlements, the closer is the approach to the ultimate ideal of convertibility.
I threw this suggestion out as merely one way in which the countries of the
world can move toward convertibility. At the same time there will be need
of relaxation cf direct trade controls since it is obvious that a periodic
or partial settlement in gold or dollars could be negated by trade restrictions which mibht in fact enforce a greater degree of bilateralism than
now prevails.
A great part of the problem of imbalance in the postwar period has
arisen from internal conditions. Where there is a continuing inflation
there is always a greater incentive to import and a greater deterrent to
export. Part of the so-called "dollar gap" represents merely the existence
of inflation in some foreign countries.l-A second, factor which may be
significant is the level of exchange ra'tes. Though the adjustments cf last
September were large, it is as yet too soon to say whether they have been
fully successful. In those countries which are locking forward to an
investment of American capital there is also a problem of establishing conditions which will attract American capital. We have had a program of
treaties of friendship and commerce with other countries which include provisions for equitable treatment of foreign capital. But American economy
is an economy of private enterprise. We expect that capital will move
abroad in the form of private investments and, obviously, the private
investors must have satisfactory conditions,—
On the other hand, the United States must realize its position in the
present-day world economy. Our imports and our exports form a very large


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- 5percentage of the world total. Much of the international investment in the
next few years will have to come from this country. The countries of
Europe which formerly supplied the bulk of foreign investments are not in
position to make new investments abroad. In fact they have become capital
importers. American business must look to expansion in foreign countries
and American investors must look more farorably on foreign investment. I
am sure that under appropriate conditions they will do so*
The United States has now became the largest creditor on long-term
account. The United States has traditionally had an expert surplus. It
would be Utopian to believe that the flow of capital investment from private
channels will be sufficient to cover the large export surpluses that we
have had in recent years. These surpluses have been made possible by a
policy cf gifts and grants and governmental credits to foreign countries.
These payments were made primarily in view cf the necessities cf foreign
countries and what we have believed was the long-run interest of the world
economy. The Government should not continue to subsidize exports indefinitely.
As United States extraordinary assistance decreases, we must frankly
face the fact that we will havova larger volume of imports or a reduced
volume cf experts, or both. There will have to be adjustments in our own
economy as well as in foreign countries. The patterns of U. S. foreign
trade ano the trading practices of the world will depend upon the way in
which these adjustments are brought abcut. The world can drift in the
direction of a lower volume of trade or we can try to move in the direction
of a higher volume. Foreign countries may continue along the lines cf
discriminatory trading practices and inconvertible currencies, or they may,
on the other hand, take the alternative of moving toward convertibility and
non-discrimination. We can, if we wish, encourage a larger volume of
imports, and in the long-run, in my judgment, this will be beneficial to cur
whole economy and ultimately produce an increase in cur experts also.
We can not avoid the problem. The solution will depend as much upon
decisions by other countries as by ourselves. Their policies will affect
our decisions quite as much as cur policies will affect them. It is
important that we decide consciously what our role should be rather than
drift with the tide of events.


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TREASURY DEPARTMENT
Washington
The following address by William McChesney Martin, Jr.,
Assistant Secretary of the Treasury, at a luncheon of
the Chicago World Trade Conference, at the Hotel Sherman,
Chicago, Illinois, is scheduled for delivery at about
1;00 p.m., C.S.T., Monday, February 27, 1950, and is for
release on delivery.

U. S. FOREIGN TRADE LOOKS AHEAD
Four years ago it was my privilege to address a meeting sponsored by
this same group on the prospects for resumption of normal peacetime foreign
trade. Today as we stand on the threshold of the last fifty years of the
20th Century, I have taken as my topic, "U. S. Foreign Trade Looks Ahead."
Four years ago we were all hopeful. The war had ended and we were
proceeding rapidly to reconvert our industry from war to peacetime activities. The cardinal principles of U. S. foreign economic, financial, and
commercial policy were then, and they remain today, the achievement as
rapidly as possible of a multilateral trading system based on ncn-discriminaticn, freer trade, and general convertibility cf currencies.
These objectives resulted from the general recognition that bilateralism,
discriminatory tactics, quotas and preferences were all types of economic
nationalism which laid the groundwork for the horrible conflict through
which we had just passed. There was for the first time almost unanimous
recognition of this at Bretton Woods. Our whole postwar economic thinking
was focused around the conviction that high levels of employment and rising
standards of living could be achieved on a permanent basis only through
moving in this direction. When lend-lease was terminated, the UNRRA program,
the expanded lending authority of the Export-Import Bank, subscriptions to
the International Monetary Fund and the International Bank for Reconstruction
and Development, the Anglo-American Financial Agreement, Interim Aid grants
to France, Italy and Austria, and finally the European Recovery Program and
other programs have totaled a commitment by the American people i f over
thirty billion dollars, as a direct earnest cf their devotion to these
basic principles.
All of these expenditures were a part cf our hope for a "brave new
world." AS we lock back, I think you will all agree we have been far from
realizing this "brave new world." Our thinking was in terms of international
cooperation and goodwill. We expected that the high ideals cf the war
period wculd be reflected in political agreements and policies and attitudes
which would make possible the realization cf the four freedoms.

S-2260


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Federal Reserve Bank of St. Louis

- 2I need net emphasize the extent to which our hopes of political
cooperation have failed. Certainly the world of 1950 is far from attaining
freedom from fear. In the atmosphere ol" the atomic bomb, there has
naturally been a tendency to preserve many of the types of restrictions
which are part of a war economy or a world economy dominated by the fear cf
future wars. The adoption cf the principles of non»discriminaticn and
convertibility of currency as a means of realizing freedom of international
commerce involves risks* A certain amount cf dislocation of production and
employment is inevitable. If a country today imperts what it formerly produced for itself or what it did without and if it exports goods which it
formerly consumed at home or which it did not produce, there is necessarily
a shifting of labor and of capital from one employment to another. The
change is worthwhile, however, if we can believe that in the long-run we will
be better off; that the dislocations incident to change are transitional;
and that after a time a certain quilibrium will be reached at which the
situation will be markedly improved. The adoption of policies, therefore,
conducive to long-run benefit represents a hazard in faith in the future
and to a considerable degree the world has not yet been willing to assume
that risk*
If we look purely to the economic aspect of the situation, apart f.rom
problems of international politics, we can see that the problems cf postwar
reconstruction have been far greater than we had anticipated. Our economic
forecasts were ever-optimistic. We did not realize the extent to which
the economies of the world had been impaired by the destruction of capital
in the form of factories, transportation equipment, or the wearing out cf
industrial plant and even the exhaustion of soil resulting from the scarcity
of fertilizersf YiTe did not adequately appreciate the extent te> which it
would be difficult to restore trade within countries and trade between
countries. The extent •: f the postwar inflations has upset many calculations
and postponed the attainment of financial stability. It has net been easy
to collect taxes in many cf the war-torn countries. The level of public
administration deteriorated, particularly in countries occupied by the
enemy, where it was patriotic to sabotage the administrative process. The
economic and political disorganization of Europe contributed a good part to
what has been commonly referred to as the dollar problem, i.e., the inability
cf foreign countries to secure the amount of -American goods they desired by
paying for them from their current earnings of dollars, by the export of
goods and services to this country or to other countries, which might have
a surplus in their international accounts with the United States.
The people and the government of the United States have been aware of
these problems and we have tried to make our contribution toward their
solution. During the war we devoted enormous economic resources to the
allied countries. By our assistance it was possible to sustain the economic
life of the countries who were joined with us in battle. With the close of
hostilities we made settlements of the obligations arising from this war
which would not'unduly burden trade in the future. In addition, our first
postwar programs involved the extension of large credits to foreign countries.
When it became clear that the mere extension of credits in the amounts which
could ultimately be repaid was not adequate to deal with the problems, the


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- 3Congress cf the United States voted billions of dollars of economic
assistance without expectations of repayment, without expectacticn of any
special economic advantages to the United States beyond those which wr-uld
accrue from the reestablishment of a stable economic world in which there
would be a rational pattern of international trade.
The details rf the agreements implementing these programs varied from
time to time, but their dominant note was that all we expected from foreign
countries was that they would help to restore balance in world trade at a
high level and to move as rapidly as possible toward non-discriminatory
international trade and exchange policies. We also recognized that these
objectives could not be realized at once*
It is practically impossible to have non-discriminatory trade and
exchange regulations unless currencies are convertible. Full convertibility
of currencies was scarcely possible at a time when many countries could not
by their own efforts, earn the dollars they needed and when monetary
reserves were exhausted. Yn'e recognized that the transitional period would
take some years. The transitional period should be really transitional and
the steps taken by the various natiens in this intervening period would tend
to bring abcut the desired enc, rather than to be of such nature as t-«.
postpone its realization tc the indefinite future.
It is obvious that there is no easy solution to these problems. We
can not expect the cc-untries of the world immediately tc abolish their
quantitative restrictions on trade, reduce their tariffs or tc permit the
free purchase of foreign currencies. If this action were tc take place at
one stroke of the pen the dislocaticn would be too great. We could not
expect that as long as present conditions prevail that countries could
successfully assume the burden of freely converting their currencies into
gold or dollars. Yet it is clear that multilateral trade will continue to
be severely hampered until we have a greater degree of currency convertibility. Obvicusly, the greater the restriction :n the use of currencies
to ( btain foreign currencies, the farther we are away from non-discriminatory
multilateral trade. Moreover, it does not matter whether this restriction
is brought ab^ut through exchange regulations or through direct controls of
trade. It is immaterial except as a matter of administration whether an
importer can not obtain goods from abroad because of his inability to buy
the requisite exchange or because he can not get the import license.
Consequently, in developing trade and exchange policies for the future it
is important to realize that an obligation rf one sort can be circumvented
by a restriction of another scrt. To attain the ideal of multilateral trade
we must move ahead on the trade front as well as the exchange front.
Yftiat we should expect for the immediate future is that the countries
of the world will not adopt policies which will make the eventual resumption
of convertibility more difficult and that tc the extent that they are able
they sh uld move in the direction of producing the conditions which will
make convertibility possible at the appropriate time. As long as the present
imbalance in the international accounts of the world continues, full convertibility is scarcely possible. It is possible, however, for the countries


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- 4to move in the direction cf convertibility by stages and it should be
possible to devise ways of avoiding discriminatory features in these
programs. There is always the danger that in a program cf restricted convertibility that vested interests will grow up and production and trade
will be directed in terms cf the discriminatory arrangements set up. The
essence of discrimination is, after all, that a higher price is paid for
goods obtained from cne ccuntry than would be necessary to obtain the same
goods from another country. Put concretely, there is discrimination against
dollar goods when a country pays more in terms of its own currency than it
would have to pay for the goods if it used its currency for dollars at the
official rates cf exchange, The ultimate aim of non-discrimination and convertibility is the direction cf a country's resources into those channels
which yield the greatest returns and so make the largest contribution to the
standard of living of a people. If this test of price comparability is used
most of the dangers cf discriminatory trade practices are eliminated even
though it is possible to make payment only in inconvertible currencies.
Another step forward could be taken if countries would settle part of
their international balances in gold or dollars. This would assure the
regular application , f the test of price comparability. If ccuntry A settles
part of its balances with country B in gold or dollars, it will not be
willing to pay a higher price for country B!s goods than it v/ould for
American goods. Partial payments in gold or dollars could thus be a helpful
device for reenforcing the principle of non-discrimination. The larger the
portion cf the balances settled in this way, or the more frequent the settlements, the closer is the approach to the ultimate ideal of convertibility.
I throw this suggestion cut as merely one way in which the countries of the
world can move toward convertibility. At the same time there will be need
of relaxation of direct trade controls since it is obvious that a periodic
or partial settlement in gold or dollars could be negated by trade restrictions which mifeht in fact enforce a greater degree of bilateralism than
now prevails,
A great part of the problem of imbalance in the postwar period has
arisen from internal conditions. Where there is a continuing inflation
there is always a greater incentive to import and a greater deterrent to
export. Part of the so-called "dollar gap" represents merely the existence
of inflation in some foreign countries. A second factor which may be
significant is the level of exchange rates. Though the adjustments cf last
September were large, it is as yet too soon to say whether they have been
fully successful. In those countries which are locking forward to an
investment of American capital there is also a problem of establishing conditions which will attract American capital. We have had a program of
treaties of friendship and commerce with other countries which include provisions for equitable treatment of foreign capital. But American economy
is an economy cf private enterprise. We expect that capital will move
abroad in the form of private investments and, obviously, the private
investors must have satisfactory conditions.
On the other hand, the United Stat .s must realize its position in the
present-day world economy. Our imports and our exports form a. very large


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- 5percentage of the world total. Much of the international investment in the
next few years will have to come from this country. The countries of
Europe which formerly supplied the bulk of foreign investments are not in
positicn to make new investments abroad. In fact they have become capital
importers, American business must look to expansion in foreign countries
and American investors must look more favorably on foreign investment, I
am sure that under appropriate conditions they will do so.
The United States has now become the largest creditor on long-term
account. The United States has traditionally had an expert surplus. It
would be Utopian to believe that the flow of capital investment from private
channels will be sufficient to cover the large export surpluses that we
have had in recent years. These surpluses have been made possible by a
policy of gifts and grants and governmental credits to foreign countries.
These payments were made primarily in view of the necessities of foreign
countries and what we have believed was the long-run interest of the world
economy. The Government should not continue to subsidize exports indefinitely,
As United States extraordinary assistance decreases, we must frankly
face the fact that we will have a larger volume of imports cr a reduced
volume of exports, or both. There will have to be adjustments in our own
economy as well as in foreign countries. The patterns of U. S, foreign
trade ana the trading practices of the world will depend upon the way in
which these adjustments are brought about. The we rid can drift in the
direction of a lower volume of trade or we can try to move in the direction
of a higher volume. Foreign countries may continue along the lines of
discriminatory trading practices and inconvertible currencies, or they may,
on the other hand, take the alternative of moving toward convertibility and
non-discrimination, "nVe can, if we wish, encourage a larger volume of
imports, and in the long-run, in my judgment, this will be beneficial to our
whole economy and ultimately produce an increase in our exports also.
We can not avoid the problem. The solution will depend as much upon
decisions by other countries as by ourselves. Their policies will affect
our decisions quite as much as our policies will affect them. It is
important that we decide consciously what our role should be rather than
drift with the tide of events*


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TREASURY DEPARTMENT
Washington
(The following address by William McChesney Martin,
Assistant Secretary of the Treasury, before the
60th Annual Meeting of the Virginia State Bar
Association at the Greenbrier Hotel, White
Sulphur Springs, West Va., is scheduled for
delivery at 9:00 P.M. EST Saturday, August j?,
1950, and is for release at that time.)
People sometimes think of the Treasury as concerned almost
entirely with the planning, collection and enforcement of taxes,
the printing and coinage of money, and the running of Savings Bond
Campaigns. But the "work of the Treasury is by no means limited to
matters of domestic finance. In addition the Treasury plays a
major role in the sphere of international finance. The international
financial policies of our country must, as a rule, be shaped in the
light of broader policy considerations. Consequently, decisions
on international financial questions, usually require close collaboration between the Treasury and various other Government agencies,
including obviously the Department of State.
I thought it might be of interest at this time to talk briefly
about a few of the wartime and post-war operations in international
finance in which the Treasury has played an important part.
The
matters I have in mind represent only a part of Treasury's broad
activities in this field, A comprehensive survey could not possibly
be given in a single talk, and it would certainly be unwise to make
the attempt in an after-dinner speech. That would be a poor return
for your hospitality and the honor you have done me in inviting me
tc address you.
One of the problems which confronted the United States during
the two World Wars and which indeed continues to confront us is
that of assisting friendly powers through financial and material
aid in the conduct of the mutual defense effort. In World War I,
as you know, we provided this aid largely in the form of loans. Our
post-war experience, however, taught us a lesson, that the British
had learned over a century before in the struggle against Napoleon,
that loans between allies in a major war for survival are unlikely
to work out satisfactorily. After making a few loans to their allies
the British realized that only a fraction of them could be repaid,
They then ceased making loans altogether and provided aid to their
allies in the form of outright subridies. We, in our turn, found
that the war debts engendered a considerable amount of ill will
toward us among the borrowing countries.
The financial and exchange difficulties of the borrowing countries made it difficult
for them to service the loans, Accromonious debates arose as to

S-2l4ll

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_ 2whether or not the payment of war debts ought to be contingent on
the receipt of reparations from Germany. Repayment difficulties
•were greatly intensified by the depression of the 1930 's and after
attempts were made to scale down the debt charges to make them manageable
practically the whole of the war debts went into default.
We learned the lesson of this post-war experience and in
enacted the Lend- Lease Act, which authorized the President to furnish
defense articles of any kind to nations whose defense he deemed vital
to our own security, without requiring repayment in any strict sense,
Any direct or indirect benefit to the United States was regarded as
an adequate basis for making the transfer. Some of the items supplied, such as ships^Flturned to us after the war; in some cases,
cash settlements were effected to cover a relatively small part of
the items transferred. Our allies reciprocated as far as possible
by furnishing our forces "reverse" lend-lease, These reciprocal
transfers became an important part of the total program which was
based essentially on the concept of mutual aid in a common defense
effort,
Although the lend-lease program was administered by a new ad hoc
government agency, Treasury was responsible for the procurement of
a number of important classes of materials transferred under the program. Treasury also participated in the financial arrangements
relating to lend-lease, including the ultimate settlement of the lend
lease accounts. Treasury may take some pride in the fact that the
lend-lease idea was first proposed in that department. It will be
of interest to this audience to recall the statement made by the late
Mr. Stettinius, in his book, "Lend- Lease, Weapon for Victory," that
the Treasury lawyers derived the lend-lease idea from an old statute
of 1892 which authorized the Secretary of War "when in his discretion
it will be to the public good" to lease Army property "not required
for public use" for a period of riot longer than five years. Under
this statute, various army items such as tractors, cranes and barges
had been leased from time to time. Under the lend-lease Act the
principle was extended and modified so as to make it possible to
supply weapons to our allies. The Mutual Defense Assistance Program
under which we are now providing military assistance to friendly
nations to strengthen the free world against armed aggression represents a further development of the lend-lease concept*
Treasury's wartime activities included the operation of the
Foreign Funds Control. As soon as the so called "phony" war was
ended by the German invasion of Norway and. Denmark in April 19i|0,
the Treasury blocked the assets in the United States of the countries
which were overrun. By the middle of 19l|l this blocking action extended to all the countries of continental Europe as well as to
China and Japan, This action was designed to prevent the Germans
and Japanese from making use of the assets in this country which
rightfully belonged to persons in invaded areas , These blocked
assets could not be utilized without a license. The existence


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- 3of this control deprived the Axis countries of much of the incentive to use force and duress to make foreign owners of American
assets assign them to the invading powers.
Besides preserving the relatively large assets of the citizens
of the overrun countries, the blocking action immobilized the funds
in this country — a substantially smaller total — which belonged
to the Axis powers. The Treasury controls prevented enemy countries
using transactions through American banks and financial institutions,
even indirectly, for the furtherance of their ends. By means of the
licensing system we exercised controls over various enterprises,
including plants which were owned or controlled from Germany arid
Japan, and made these enterprises work in the interest of this
country rather than for our enemies. The Treasury controls also
had extra-territorial effects and, in coordination with similar
controls exercised by our allies, helped disrupt enemy Pctivities
in Latin America and other countries outside the field of conflict.
A phase of the Foreign Funds Control worth mentioning was its
extension to our overseas territories. For example, the Treasury
sent members of its staff to the Philippines to supervise the blocking
of the extensive Japanese assets in the Islands. At the outbreak
of war this staff took custody of Japanese assets. Philippine
financial institutions were invited to deposit their dollar and peso
currency with the American authorities in order to prevent its capture.
When the defense of the Philippines became hopeless the currency
was burned to make sure that the Japanese would not get it. We
shipped Philippine gold holdings out of the country and dumped considerable amounts of silver in the harbor. Work of this nature
involved risks for the Treasury people engaged in it, and several
of them were in fact captured arid interned by the Japanese.
The military planning of our armies for the liberation of countries
which had been overrun by the enemy had to be accompanied by plans
for restoring the economic and financial systems of the liberated
countries. One financial problem with which Treasury was much concerned was the provision of a suitable local currency. We could
not count on being able to get this on the spot, since we might find
local banks destroyed or unusable because of the questionable loyalty
of their management. Local currency would be needed which our troops
could spend individually and which the Army could use to purchase
local supplies and to pay local civilians who might have to be put
to work. It would obviously be much easier to hire laborers to unload ships and do other essential jobs if we could pay them cash
at the end of each day, rather than give them receipts promising
payment at some future time.
Our first invading Armies carried with them spearhead currencies
which they could use until local currencies or supplementary military
currencies could be provided. In North Africa we used as a spearhead


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-ucurrency yellow seal dollars which were simply United States silver
certificates on which the seal had been printed in yellow rather than
in blue. The yellow seal was to enable us to segregate the currency
if we were driven from North Africa. It also made it possible to
distinguish this currency from the regular United States currency
which we found in circulation when we arrived.
The use of the yellow seal dollar as an invasion currency soon
gave way to the use of local currencies. These local currencies,
unlike the yellow seal dollars,were not obligations of the United
States. Under international law a friendly force trying to liberate
the territory of a friendly power from an occupying enemy may validly
expect that power to render all practicable assistance, A good case
could, therefore, have been made for requiring the governments of
the liberated countries to provide all local currencies end credit
needed by the allied forces. We decided, however, to make certain
reimbursements to these governments.
When local currencies were supplied to United States forces
for military expenditures the relevant military appropriation was
charged for the dollar equivalent in the United States. The rate of
exchange for the local currency was established by the United States
in liberated areas by agreement with the local authorities. In
this way the local currency expenditures of the military forces
were not a net addition to but a part of the expenditures authorized
by Congress, so that in this way Congress maintained its control
over the expenditures of the United States military forces.
During the war, despite the demands of immediate war-time problems, the United States, in conjunction with its allies, turned
its attention to the great problems of reconstruction and development which would have to be faced after the war. It was recognized
that these problems could not be successfully met without a high
degree of international cooperation. It was also recognized that the
United States would have to play a much more important role in the
reconstruction program after World War II than it had done following
the first world war. The Treasury took the lead in this country in
the formulation of plans for the establishment of post-war, international
financial institutions and took a major part in the work of the
Bretton Woods Conference in 19kk. As you all know, this conference
resulted in an agreement to set up the International Monetary Fund
and the International Bank for Reconstruction and Development, institutions to be owned and controlled by the member nations as a
joint venture,
I suppose that members of the Bar more than sny other group
have a sympathetic understanding and appreciation of the tremendous
difficulties, both technical and otherwise, which had to be overcome
before the representatives of the kk nations who assembled at Bretton
Woods could be persuaded to agree on a precise form that post-war
monetary cooperation should take. However, an agreement was achieved
and the United States accepted membership in the Fund and Bank after


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being authorized so to do by the Congress in the Bretton Woods
Agreement Act of July 19li5«
The fundamental purpose for which both institutions were established
•was to facilitate the expansion and balanced growth of international
trade and to contribute thereby to the promotion and maintenance of
high levels of employment and real income and to the development of
the productive resources of all members,
It would take me too far afield to discuss at any length the
functions and operations of the Bank and Fund. Suffice it to say
that, due to the uncertain economic and political conditions which
have prevailed since the war, neither the Fund nor the Bank has made
as great a contribution as it would have been capable of making in
more normal times. This is not to imply that the contribution they
have thus far made has not been an important one. Both institutions
have provided extensive and effective machinery for consultation
and have built up an extremely useful store of technical information
to which many members are turning more and more for guidance in
planning for increased productive capacity and the attainment of
more stable economies. In addition the F3ank has thus far authorized
loans for productive purposes to fifteen member countries totaling
over $800 million.
A feature of the Bretton Woods Agreements Act of special importance
to Treasury was its provision for the establishment of the National
Advisory Council on International Monetary and Financial Problems,
The Council was directed to coordinate the policies and operations
in the field of international finance of all agencies of the Government
and also of the representatives of the United States in the Fund and
the Bank. The Secretary of the Treasury is the Chairman of the Council,
the other members being the Secretary of State, the Secretary of
Commerce, the Chairman of the Board of Governors of the Federal
Reserve System, the Chairman of the Board of Governors of the ExportImport Bank, and the Administrator for Economic Cooperation, The
Treasury provides the Secretariat for the Council as well as the
Chairman, and much of the work of the Treasury in recent years in
relation to problems of international finance has been closely
related to the activities of the Council. The Treasury takes a
leading part in the activities of the inter-agency working groups
and committees which prepare reports, sift issues, and make
recommendations on international financial problems for action by
the Council,


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- 6Because of the importance of the international financial interests of the United States, the Treasury maintains financial
experts abroad in a few foreign capitals. These men are representatives of the Secretary of the Treasury, and, in addition, act
as financial advisers to U.S. Ambassadors and occupation authorities.
In countries in -which there are EGA Missions, the Treasury representatives also act as financial advisers to the Mission Chiefs,
The Treasury representatives abroad maintain close liaison with the
local treasuries or ministries of finance on international financial
matters of concern to the United States, and assume key roles in
our foreign financial negotiations.
The relationships between representatives abroad and the local
treasuries supplement the direct contacts continuously maintained
in Washington between the Treasury and financial representatives
of foreign governments,
My aim in this talk has simply been to give you the highlights
of some of the important problems of international finance with
which, in recent years, Treasury has been actively concerned. The
problems of this nature which face us to-day are many and complex.
New difficulties arise as we endeavor to continue aid to the free
world and at the same time expand our own defense program and our
military assistance to friendly countries.
May I, in conclusion, express my great pleasure at being here
to-night and take this opportunity to extend to the Virginia Bar
Association and its members my best wishes.


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o 0 o


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