Tape 111 - International monetary bank and fund
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Transcript
Transcripts may contain inaccuracies.
- | Welcome once again is MIT Professor Paul Samuelson | 0:02 |
discusses the current economic scene. | 0:05 | |
This biweekly series is produced | 0:07 | |
by Instructional Dynamics Incorporated | 0:08 | |
and was recorded September 25th, 1972. | 0:11 | |
- | This is the week that the annual meetings | 0:15 |
of the International Monetary Fund | 0:18 | |
and the International Bank | 0:20 | |
are getting underway in Washington. | 0:22 | |
Therefore, it's an appropriate time | 0:25 | |
to talk about where we're going in the international field, | 0:27 | |
what's been happening since the last meeting | 0:31 | |
of the fund and the bank. | 0:34 | |
Since those meetings are just beginning, | 0:42 | |
we have no way of knowing what their outcome will be. | 0:45 | |
There have been some prepared working papers | 0:49 | |
prepared by the International Monetary Fund. | 0:52 | |
There've been some behind-the-scenes meetings, | 0:54 | |
preliminary negotiations | 0:57 | |
and sparring for negotiations to come, | 0:59 | |
but nothing dramatic or sensational | 1:04 | |
has yet appeared in those preliminary preparations. | 1:09 | |
Nor is there any particular reason to believe | 1:17 | |
that by the time you hear this tape | 1:19 | |
after the week of intensive meetings is over, | 1:23 | |
that there will be a great and earth-shaking announcements. | 1:26 | |
The time of the meetings is a very busy one. | 1:32 | |
There are many perfunctory, duties | 1:34 | |
that must be performed by the secretariat, | 1:38 | |
by the various officials. | 1:43 | |
It is a good time to meet then hotel carters, | 1:45 | |
it is a good time to meet the informally, | 1:48 | |
it is a good time to have more formal, | 1:51 | |
behind-the-scenes meetings, but it's not really | 1:54 | |
a productive time or an appropriate occasion | 1:58 | |
for hammering out the final agreement. | 2:01 | |
So I don't think that I should expect | 2:04 | |
a Portugal announcement like that of last October | 2:08 | |
or a new Smithsonian indication | 2:14 | |
by the time these fund meetings are over. | 2:21 | |
Indeed, not too much progress | 2:26 | |
seems to have been made in the area of negotiation. | 2:29 | |
A year ago when these meetings were being held, | 2:34 | |
the world was in limbo. | 2:37 | |
The Nixon shock had begun. | 2:39 | |
The first shoe had fallen. | 2:45 | |
We had suspended convertibility | 2:47 | |
of the dollar into gold formally, | 2:49 | |
but there had not yet been a de facto | 2:52 | |
interim resolution of exchange rates. | 2:56 | |
The import surcharge was on and so forth. | 3:00 | |
So it was a much more anxious time last September. | 3:02 | |
In October, once we began to indicate | 3:08 | |
that we wanted an agreement with the other countries, | 3:14 | |
with the Club of Nine so-called, | 3:16 | |
that we were willing to have a token increase | 3:19 | |
in the official price of gold, which ultimately worked out | 3:23 | |
to be from $35 an ounce to $38 an ounce. | 3:25 | |
We began to move toward that interim agreement, | 3:29 | |
which of course took place on December 18th | 3:33 | |
in Washington at the Smithsonian Institute. | 3:36 | |
The important thing to repeat | 3:41 | |
about the Smithsonian interim agreement | 3:43 | |
was that the dollar was depreciated. | 3:45 | |
It was depreciated relative to the yen by 17%, | 3:47 | |
which is to say the yen was appreciated | 3:52 | |
relative to dollar by 17%. | 3:53 | |
Those are arithmetically equivalent statements | 3:56 | |
or can be made equivalent. | 4:00 | |
The mark by 14%, the frank, the pound, | 4:02 | |
less than 10%, but the overall average | 4:09 | |
if weighted by importance international trade | 4:11 | |
is said to have represented | 4:13 | |
a 12% depreciation of the dollar. | 4:15 | |
This is quite a significant currency parody change | 4:18 | |
and it would only have been agreed to | 4:23 | |
and would only have been desirable | 4:26 | |
if there was a very considerable | 4:27 | |
long lasting chronic overvaluation of the dollar. | 4:30 | |
I believe there was. | 4:35 | |
So great was that overvaluation in my opinion | 4:38 | |
that it must remain an open question | 4:43 | |
whether this really extensive depreciation of the dollar | 4:46 | |
was adequate or will turn out to be adequate. | 4:50 | |
But as I've said many times, | 4:54 | |
both in writings and on these cassettes, | 4:56 | |
I don't honestly think that any jury of informed experts | 5:01 | |
could have given an objective finding | 5:07 | |
that a larger depreciation of the dollar was desirable. | 5:12 | |
We got as much as could be justified | 5:18 | |
in this uncertain situation. | 5:22 | |
Now, let's emphasize that this was a very good agreement. | 5:25 | |
The import surcharge was removed, | 5:30 | |
the danger of sliding rapidly into autarchy | 5:33 | |
and into exchange controls and capital controls | 5:37 | |
was if not averted, was at least reduced. | 5:40 | |
And economists pretty much got a good deal | 5:46 | |
of what they wanted. | 5:50 | |
Now, economists never get all they want. | 5:51 | |
I guess if you asked an economist | 5:53 | |
or a panel representative modern economists | 5:55 | |
what all that they would want, many of them would say, | 5:59 | |
at the least they want from now on, flexible exchange rates, | 6:03 | |
floating exchange rates | 6:07 | |
or some closer approach to flexibility | 6:08 | |
that we should stop pegging the exchange rates. | 6:12 | |
If the old Bretton Woods rates before 1971, | 6:16 | |
were bad as pegged rates, they'll say any new rates, | 6:21 | |
even if by good luck we happened to pick | 6:25 | |
about the right equilibrium ones will in time become bad. | 6:26 | |
And it's a bad system that depends upon stable | 6:31 | |
and pegged rates. | 6:35 | |
It's better to say pegged than stable | 6:37 | |
because of the rates that are pegged | 6:39 | |
may appear to be stable in the short run | 6:41 | |
but if they get out of whack, out of equilibrium, | 6:44 | |
as they're very likely to do over a period of time, | 6:46 | |
then they finally are ruptured | 6:48 | |
and so you really have unstable rates over a period of time. | 6:51 | |
Now we didn't get that at Smithsonian. | 6:57 | |
Probably it was too much to expect that we would get that. | 7:00 | |
We got, again to remind you, | 7:03 | |
a widening of the exchange rate bands | 7:06 | |
so that the currencies could fluctuate 2.5% | 7:09 | |
on each side of the Smithsonian parodies. | 7:14 | |
This was more than a doubling of the range | 7:17 | |
in which exchange rates could be flexible, | 7:21 | |
in which they could float in which they would be unpegged | 7:24 | |
in comparison with the previous Bretton Woods system. | 7:27 | |
And this was a step in the right direction | 7:32 | |
in the opinion of most economists. | 7:34 | |
It's very fortunate we got that because as you know, | 7:36 | |
in the months after Smithsonian, | 7:40 | |
the medicine which the economist had prescribed | 7:42 | |
did not appear to the lay eye to be doing much | 7:45 | |
to bring back a health to the cheeks of the ailing patient, | 7:49 | |
the ailing patient being the American dollar. | 7:53 | |
But also, we can think of the wider ailing patient, | 7:56 | |
the international system. | 8:00 | |
I saw that the dollar in fact I went to its flora ceiling, | 8:02 | |
depending upon which way you're looking at the problem | 8:07 | |
in many periods. | 8:10 | |
Particular last spring, I thought it was a close run thing | 8:12 | |
as to whether the Smithsonian Agreement I would break down. | 8:16 | |
And then again in June when the British pound | 8:19 | |
began to get in trouble, | 8:23 | |
when they began to get strikes in Britain, | 8:24 | |
when the miracle of the last depreciation of the pound | 8:27 | |
had begun to wear off, | 8:31 | |
the British government after bleeding badly | 8:34 | |
in terms of international reserves for a period of time, | 8:37 | |
very sensibly said, | 8:40 | |
we're going to shut off the hemorrhaging. | 8:42 | |
We're going to let the pound float. | 8:45 | |
Well, when the pound floated, | 8:47 | |
the speculators who had been selling it short, | 8:48 | |
made a killing, made a profit | 8:53 | |
or protected their exchange rate position | 8:56 | |
if they thought of this as a hedge. | 9:00 | |
And of course it reminded everybody that this is a world | 9:02 | |
in which you can't pay exchange rates | 9:05 | |
and that perhaps the other ailing invalid, the US dollar, | 9:07 | |
would also go the same way | 9:14 | |
and this led to a bear rate on the dollar. | 9:16 | |
So it was a near run thing | 9:20 | |
and it was rational to believe that the medicine prescribed, | 9:22 | |
the Smithsonian, even if it should turn out | 9:29 | |
to be in the right dosage, | 9:32 | |
would never get a chance to prove itself. | 9:34 | |
That chance I remind you, requires presumably | 9:38 | |
growing to almost any theory | 9:42 | |
of international trade adjustment. | 9:43 | |
A period of two or three years. | 9:46 | |
We did a vert the breakdown | 9:50 | |
of the house of cards of Smithsonian | 9:52 | |
but as we go into these new meetings, | 9:53 | |
it's still, I think a matter open to doubt | 9:56 | |
that will be given all the time needed. | 10:01 | |
About four tapes back, I asked myself the question | 10:06 | |
since nobody expected the prescription of the Smithsonian, | 10:12 | |
that is the depreciation of the currency prescription | 10:18 | |
to work instantaneously, | 10:21 | |
how has it actually worked out | 10:23 | |
in terms of what an informed person had a right to expect? | 10:24 | |
And the answer I gave then | 10:29 | |
and the answer I still think I must give | 10:30 | |
is that on the whole, the improvement | 10:32 | |
in the American balance of payments | 10:37 | |
has been a disappointing one | 10:39 | |
even given the fact that we had no right | 10:41 | |
to expect the improvement to be dramatic in the short run. | 10:43 | |
Indeed, up to the time that I now speak, | 10:46 | |
there have been no published statistics | 10:50 | |
showing any improvement at all. | 10:54 | |
There has been a continued deterioration | 10:56 | |
in our basic balance of payments. | 10:59 | |
Now, I must emphasize the word basic. | 11:02 | |
There was a little period in the second quarter | 11:05 | |
before the pound got in trouble | 11:09 | |
when it looked as if the on capital account, | 11:11 | |
there was going to be quieting down of speculators' fears | 11:15 | |
and the liquidity balance taking into account | 11:18 | |
capital account or the official settlements balance, | 11:24 | |
but again, not the balance of trade merchandise trade, | 11:26 | |
not the balance on current account, | 11:30 | |
that that might actually cease to be in deficit | 11:31 | |
in the second quarter. | 11:35 | |
That would have been a very small straw | 11:36 | |
in the right direction. | 11:38 | |
Alas, June is in the second quarter | 11:40 | |
and that hope was thought for it. | 11:42 | |
Now, I'm not speaking of that. | 11:46 | |
I'm speaking about the more important thing, | 11:47 | |
which exchange rate depreciation is supposed accomplish. | 11:50 | |
Namely, as the dollar gets cheaper, | 11:53 | |
then American goods are supposed to be less costly | 11:56 | |
and we are supposed to be able to export more. | 12:03 | |
Moreover, foreign goods are supposed to be | 12:05 | |
relatively more costly and we therefore, | 12:07 | |
are supposed to import less. | 12:10 | |
So both on merchandise, visible items | 12:12 | |
and on an invisible items in the balance of payments, | 12:16 | |
the depreciation is supposed to turn | 12:19 | |
our basic balance around | 12:21 | |
in so-called more favorable direction. | 12:24 | |
Now, that as I say, has not yet happened. | 12:28 | |
We don't have of course, the third quarter numbers | 12:33 | |
'cause third quarter numbers, third quarter isn't over | 12:38 | |
and we won't have any solid numbers for sometime after that. | 12:41 | |
But all the numbers which we do have and all the indications | 12:45 | |
are that there has been no improvement. | 12:49 | |
If anything, there's been still a worsening. | 12:51 | |
Now, perhaps if you want to play the game of rate of change | 12:53 | |
on the rate of change, it could be | 12:57 | |
that the rate of which things are worsening | 13:00 | |
is finally getting to be a bit better. | 13:02 | |
There are reasons. | 13:07 | |
For one thing, Germany and Japan | 13:09 | |
just to take the most dramatic surplus countries, | 13:12 | |
have been in recession, or at least in stagnation. | 13:16 | |
This is itself, partly a reflection of the Nixon shock, | 13:22 | |
but a quite prior to the August 15, 1971 action | 13:26 | |
by President Nixon in America, | 13:32 | |
there were business cycle forces working for a slow down. | 13:34 | |
It's worth emphasizing again, that in the postwar period, | 13:42 | |
the old universal business cycle | 13:46 | |
so that all countries are having their booms | 13:50 | |
and their recessions and depressions | 13:53 | |
at pretty much the same time, | 13:56 | |
that old pattern has been pulverized. | 13:57 | |
It's been broken up and different parts of the world now | 13:59 | |
have been having their expansions and their contractions | 14:03 | |
at different periods of time. | 14:04 | |
A good thing for the world, by the way. | 14:06 | |
The United States has been coming out of a recession | 14:10 | |
since the General Motors strike was settled | 14:14 | |
back November, 1970. | 14:16 | |
We should notice by the way, when election time comes | 14:18 | |
that the expansion will be just about two years old. | 14:22 | |
But although it was our turn to be coming out of recession, | 14:27 | |
it was their turn to be moving | 14:31 | |
into stagnation and recession. | 14:33 | |
Hence, it was not rational | 14:35 | |
in the months after the Smithsonian December Agreement, | 14:38 | |
to expect great rosy news in our balance of payments. | 14:42 | |
I've tried to factor that in | 14:49 | |
in my questioning as to whether the results have been | 14:51 | |
a bit disappointing, taking everything into account. | 14:57 | |
Of course, as always happens, | 14:59 | |
if you explain everything, understand everything, | 15:01 | |
then you explain away all problems. | 15:05 | |
But it's important to break this down | 15:09 | |
since there is reason to believe | 15:13 | |
that Japan is now on her way up. | 15:15 | |
On her way up from I have to report, | 15:18 | |
a 5.5% rate of yield growth | 15:22 | |
which is what the Japan considers to be | 15:25 | |
a rather serious recession. | 15:27 | |
Up back toward what has been | 15:31 | |
a more normal rate of real growth | 15:33 | |
for that miraculous economy, say 10%. | 15:35 | |
And so we mustn't make the mistake in economics. | 15:40 | |
It's the most common mistake I think that economists make | 15:44 | |
and also non economists, particularly the latter | 15:48 | |
of sticking too closely to the short run, | 15:50 | |
to the neglect of the intermediate run in the longer run. | 15:54 | |
Well, things won't be as bad in the slightly longer run | 15:57 | |
as they've been, but they've not been good. | 16:03 | |
This means that in our negotiations | 16:09 | |
with the rest of the world, we are in a sense week. | 16:12 | |
Furthermore, we in a sense still face | 16:17 | |
some very important problems. | 16:20 | |
What are the problems that are faced? | 16:24 | |
There's the problem of convertibility. | 16:27 | |
We are diametrically opposed to France on this issue. | 16:30 | |
The French want the dollar to be convertible. | 16:36 | |
They want it to be convertible into gold. | 16:39 | |
They would like to have the price of gold doubled | 16:41 | |
but if that is not to be, they would like to have | 16:45 | |
the $70 billion odd that are outstanding | 16:49 | |
around the globe be guaranteed. | 16:52 | |
So if there's a future depreciation of the dollar | 16:55 | |
and there's nothing awful to contemplate | 16:59 | |
in the future depreciation if the system is run right | 17:02 | |
and we have flexible exchange rates, | 17:06 | |
that may be just what the doctor will order in the future. | 17:08 | |
The French say they and the other central banks | 17:12 | |
of the world want to be protected | 17:15 | |
against the lowering of the value of the stocks of dollars | 17:16 | |
which they have accumulated. | 17:21 | |
The United States government | 17:25 | |
is opposed to guaranteeing these $70 billion | 17:26 | |
that are outstanding. | 17:30 | |
But remember this, by anybody's account, | 17:31 | |
even if the Smithsonian dosage is right, | 17:34 | |
there are still going to be many, many months, | 17:37 | |
even years in which the dollar deficits | 17:40 | |
and the balance of payments is going to be very large. | 17:44 | |
So there are a lot of more dollars | 17:45 | |
which need to be swallowed. | 17:47 | |
I think the most useful thing I could do | 17:49 | |
in the very limited time I have | 17:53 | |
is to take a specific proposal, solution to the problem | 17:55 | |
that is a reasonable one and comment on it. | 18:01 | |
I have before me, | 18:05 | |
what you've all seen reported in the newspaper, | 18:06 | |
a report by the Atlantic Council of the United States. | 18:09 | |
If there ever was an establishment document, | 18:15 | |
this must be regarded as it. | 18:18 | |
The Atlantic Council had as its honorary chairman, | 18:23 | |
Herbert Hoover, it has Harry S. Truman, | 18:26 | |
it has Dwight D. Eisenhower and Lyndon B. Johnson. | 18:28 | |
These are its honorary chairmen. | 18:32 | |
Its offices in Washington. | 18:35 | |
Its actual working chairman is W. Randolph Burgess, | 18:37 | |
a very distinguished New York banker | 18:40 | |
with Federal Reserve, Bank of New York background. | 18:44 | |
He was the Undersecretary of the Treasury | 18:48 | |
in the Eisenhower Administration. | 18:55 | |
Livingston Merchant, General Nortstart, | 18:56 | |
Henry Fowler, Neil McElroy, Eugene Rostow, | 19:01 | |
academe meets big business. | 19:04 | |
Alexander B. Trowbridge as the conference board | 19:09 | |
for former Secretary of Commerce and so it goes. | 19:11 | |
It has just come out with a report | 19:19 | |
and let me summarize what its main findings are | 19:22 | |
and comment as I go along on them. | 19:26 | |
Its first point is that it's going to take several years | 19:30 | |
before we can have a reformed international monetary system. | 19:34 | |
It's going to take a lot of negotiation | 19:37 | |
and to get that agreed upon, approved and put in practice. | 19:39 | |
And so, they say we can't just stay | 19:43 | |
with the Smithsonian interim arrangements. | 19:46 | |
We've got to have some new interim arrangements | 19:49 | |
to be sure that the Smithsonian Agreement can't even stand. | 19:52 | |
Now they are proposing | 19:56 | |
what some of those agreements should be. | 19:57 | |
The second point is that in order to buy the time, | 20:02 | |
it's necessary that all the foreign central banks | 20:11 | |
swallow all the dollars, | 20:14 | |
which our deficits from this point on create. | 20:16 | |
It is suggested that all the Smithsonian countries | 20:22 | |
agree to accept dollars in settlements | 20:24 | |
without qualification. | 20:26 | |
That means they don't come to us for Fort Knox goal. | 20:28 | |
They don't come to us for SDRs. | 20:30 | |
They take dollars if we thrust dollars on them | 20:36 | |
but and there's the hook in this, | 20:39 | |
the United States in return would insure the system | 20:42 | |
against any loss on the net increase of dollars | 20:45 | |
from future devaluation from the time of the undertaking. | 20:47 | |
I think this is a very serious commitment | 20:51 | |
and it should only be made if you have great confidence | 20:54 | |
that the present parody of the dollar is about right. | 20:58 | |
I don't have that confidence. | 21:02 | |
Now I don't feel strongly about this | 21:04 | |
as the people who without qualification, favor floating. | 21:05 | |
They don't wanna guarantee the convertibility of anything | 21:09 | |
from now until the end of time for the next 2000 years. | 21:13 | |
Any foreigner who takes dollars should realize | 21:17 | |
that all you can do is dump those on a free market | 21:20 | |
for whatever of his own local currency marks, yen, | 21:22 | |
frank, gold, anything else that he can get for them. | 21:26 | |
This is not, I repeat, not an innocuous suggestion | 21:31 | |
by the Atlantic Council. | 21:37 | |
It could be one that could be quite costly | 21:39 | |
and I think somebody should be taking his pencil out | 21:42 | |
and working on the tens of billions of dollars | 21:45 | |
that such a guarantee might well cost | 21:53 | |
in various contingencies. | 21:55 | |
In the meantime, so there point number three, | 21:58 | |
the United States must participate with other currencies, | 22:00 | |
with other countries in maintaining | 22:03 | |
stable exchange rates and convertibility. | 22:05 | |
Well, of course if you're sticking with the Smithsonian, | 22:07 | |
you have made a choice. | 22:11 | |
There's only 2.5% band and we're pretty much | 22:13 | |
testing that band although at the moment, | 22:20 | |
we're not at the ceiling or the floor | 22:23 | |
either way of looking at it. | 22:26 | |
Not too encouraging I would say from my viewpoint, | 22:30 | |
these first three points that have been made. | 22:34 | |
Those which are not innocuous have a hidden hook in them. | 22:36 | |
Now they come to make some suggestions | 22:41 | |
about the adjustment mechanism | 22:43 | |
and they say it must be improved. | 22:46 | |
Well, that's harmless enough. | 22:49 | |
But then they say and this is an interesting point, | 22:51 | |
there must be reforms which introduce greater symmetry | 22:54 | |
in the relations among national currencies. | 22:57 | |
I think that covers a multitude of issues. | 23:00 | |
First I would say we should understand it to mean | 23:03 | |
that the surplus countries have an obligation | 23:08 | |
to do something about the disequilibrium | 23:10 | |
as well as the deficit countries. | 23:12 | |
That's something which will be widely agreed upon | 23:14 | |
in the United States, not so widely agreed upon abroad, | 23:17 | |
but there's another aspect of symmetry. | 23:19 | |
The dollar has been a key currency. | 23:23 | |
Some people think, I do not | 23:25 | |
that we've been on a dollar standard. | 23:27 | |
What is being suggested here by symmetry | 23:29 | |
is the dollar just become another currency like the frank, | 23:31 | |
like the yen, like the mark, like the pound. | 23:36 | |
Not such a key currency. | 23:39 | |
The dollar need not longer be | 23:41 | |
the intervention which central banks use | 23:43 | |
in performing their part in keeping their currency parodies | 23:47 | |
at the agreed IMF levels. | 23:53 | |
Well, time is short. | 23:58 | |
Let me move very quickly | 24:01 | |
on to an important good recommendation of this report. | 24:03 | |
Very brief recommendation. | 24:08 | |
This paper recommends that a reform system | 24:09 | |
require prompt small and if necessary, | 24:11 | |
frequent changes in par values for countries in deficit | 24:14 | |
as well as countries in surplus. | 24:18 | |
This is some version of a gliding band | 24:21 | |
or a crawling peg and I wholeheartedly favor it. | 24:24 | |
It's a movement towards flexible exchange rates. | 24:28 | |
It's an element of flexibility. | 24:32 | |
They go on to say that the determination | 24:35 | |
that the crawling peg should crawl, | 24:37 | |
that the change should be made | 24:40 | |
would preferably be lodged in the IMF. | 24:41 | |
But if necessary, it could be operated | 24:45 | |
with agreed presumptive rules | 24:47 | |
for international encouragement of changes in exchange rates | 24:48 | |
with ultimate discretion | 24:52 | |
continuing to reside with the national governments. | 24:53 | |
What's involved here | 24:55 | |
is that a government might be given the right | 24:56 | |
if it wishes to exercise it. | 24:59 | |
Automatically in accordance with some formula, | 25:00 | |
if it's been running a deficit | 25:03 | |
of a certain type for four quarters, | 25:05 | |
then it's entitled to depreciate its exchange rate, | 25:07 | |
it's parody, and the whole band then moves | 25:10 | |
by a half of 1% or by 1%. | 25:13 | |
This is a very desirable feature. | 25:18 | |
It's one of the most important features. | 25:19 | |
There's a quite different controversial recommendation. | 25:22 | |
It's one that I myself personally would rather favor, | 25:28 | |
but it's not intrinsically connected with the other issues. | 25:32 | |
It has to do with the so-called link. | 25:38 | |
Now, let me remind you what that is. | 25:41 | |
We have in the world a cleavage naturally | 25:45 | |
between the developed countries | 25:48 | |
and the less developed countries, underdeveloped countries. | 25:50 | |
There's a difference in the GNP level standard of life, | 25:54 | |
life expectancy difference in the rate of growth. | 25:58 | |
And there've been some disquieting signs | 26:01 | |
that the advanced part of the world | 26:04 | |
is growing on a per capita basis more rapidly | 26:05 | |
than the underdeveloped. | 26:09 | |
So that the gap, the divergence is actually expanding. | 26:10 | |
Now naturally, just as men of goodwill within a country | 26:14 | |
are moved in the direction of redistribution of taxation | 26:19 | |
and policies so that the minimum standards of life | 26:23 | |
may begin to be provided for the unlucky. | 26:27 | |
So at the international level, | 26:31 | |
a humanitarian sentiment favors foreign aid | 26:33 | |
(mumbles) | 26:38 | |
and so forth. | 26:40 | |
However, at the polls, people in the advanced nations | 26:41 | |
have been giving less and less to foreign aid, | 26:45 | |
less and less as a fraction of their GMP, | 26:48 | |
the United States being notably a case, | 26:50 | |
the American voter is kind of tired of this. | 26:52 | |
He hasn't made an agonizing reappraisal, | 26:56 | |
but he's just bored with the subject. | 26:58 | |
So humanitarians are interested in a gimmick | 27:00 | |
and the gimmick which many of them have fastened upon | 27:03 | |
is this, if we're going to create new paper gold, | 27:07 | |
if we're going to create new SDRs, | 27:11 | |
Special Drawing Rights, International Monetary Fund, | 27:13 | |
new international liquidity which is to be as good as gold, | 27:16 | |
which has to be a basic international reserve, | 27:20 | |
then by a stroke of the pen, | 27:23 | |
you are creating purchasing power. | 27:26 | |
There becomes a problem then who's to get it | 27:29 | |
and there are two possibilities. | 27:31 | |
The first and most natural possibility | 27:34 | |
is that everybody in the IMF get it, | 27:36 | |
about in proportion to as importance in the IMF. | 27:38 | |
If you do that, Bangladesh will get very little | 27:41 | |
because Bangladesh is so poor | 27:44 | |
that it's very unimportant in the IMF. | 27:47 | |
The United States will get a lot. | 27:51 | |
Sweden will get a lot, Japan will get a lot. | 27:53 | |
Prosperous countries will get a lot. | 27:56 | |
And so it has been suggested and even approved in principle | 27:58 | |
by certain international bodies that there'd be a link | 28:02 | |
that some special bias be introduced | 28:05 | |
into the SDR creation mechanism, | 28:12 | |
which gives countries because of their poverty | 28:14 | |
more than their economic weight than the IMF would justify. | 28:18 | |
And it's interesting that this establishment organization, | 28:23 | |
the Atlantic Council has come out at least in the abstract, | 28:26 | |
in favor of this. | 28:30 | |
They point out that it might even help | 28:32 | |
the negotiations go forward | 28:33 | |
because a number of other countries | 28:35 | |
have in principle approved of this. | 28:36 | |
So you might get their other recommendations in | 28:38 | |
more they say, by having a link. | 28:42 | |
Well, I am a humanitarian and I am in favor of this, | 28:46 | |
but I must confess | 28:51 | |
that on grounds of tactics and expediency, | 28:53 | |
you are introducing a new element into the negotiations | 28:56 | |
and it might, instead of expediting agreement, | 28:59 | |
delay the reaching of agreements. | 29:04 | |
Finally, the last thing | 29:07 | |
and this will shock some of my listeners, | 29:08 | |
the Atlantic Council has recommended | 29:10 | |
that as we begin to free up capital movements, | 29:13 | |
countries do settle their deficits | 29:17 | |
and they settled them with international reserves | 29:20 | |
and they don't have to sell them all in gold. | 29:22 | |
We're not ready to return to that | 29:25 | |
but whatever their international reserves are, | 29:27 | |
so much in gold, so much in SDRs, | 29:30 | |
so much in even new kinds of international reserves, | 29:33 | |
then each country is to prorate what it has | 29:38 | |
and pony up that amount. | 29:41 | |
What this means concretely, | 29:44 | |
and this is where the man in the street | 29:45 | |
may raise some eyebrows, is that we have been holding fast | 29:47 | |
in Fort Knox with about $10 billion worth of gold. | 29:51 | |
We let gold go out freely when we had 25 | 29:54 | |
but even when we had 20, when we had 15, | 29:57 | |
when we got to 10, we got scared | 29:59 | |
and we're using this gold actually in kind of a silly way | 30:02 | |
because we aren't apparently, ever prepared to pay it out. | 30:05 | |
But it's there as kind of our mad money. | 30:11 | |
Our nest egg, it's our last resort. | 30:13 | |
Under the Atlantic Council's recommendation, | 30:15 | |
you would find in the couple of years to come, | 30:18 | |
certainly that we would be running deficits | 30:21 | |
and part of these deficits would have to be met | 30:24 | |
out of our gold and so you'd have to expect to see | 30:27 | |
10 billion in Fort Knox, go down to nine, go down to eight. | 30:29 | |
Not necessarily go down below five, | 30:32 | |
but it's a fairly shocking proposal not to economists, | 30:35 | |
not to bankers, not to men have affairs, | 30:41 | |
but to the ordinary plain man in the street. | 30:44 | |
I think you'll conclude from all this, | 30:46 | |
that we're at a very early stage | 30:49 | |
in arriving at any final solution | 30:52 | |
to our international finance problems. | 30:56 | |
- | If you have any comments or questions | 30:59 |
for Professor Samuelson, | 31:01 | |
address them to Instructional Dynamics Incorporated, | 31:02 | |
166 East Superior Street, Chicago, Illinois, 60611. | 31:05 |
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