Assume that there is only the US, Britain and Poland

• America sells more than she buys, as a surplus country
• Britain sells just as much as she buys, as a balanced country
• Poland buys more than she sells, as a deficit country.

Multilateral clearing implies that in this case Britain should be “out of it”

• But Britain is released from these obligations only if the Americans are prepared to exchange their sterling-balances for Britain’s zloty-balances.
• Why should they be prepared to do this?
• Sterling balances (on our assumptions) are preferable to zloty-balances, because Britain, at least, is a country which has achieved “balance” in her total trade, while Poland is a deficit country.
• Why should the Americans exchange a better currency for one that is worse?
• If they can be made to do so, then we can have multilateral clearing.

Multilateral clearing exists in Europe.

• Germany forces the surplus countries to agree to the necessary exchanges of uncleared balances so that:
  • the countries which have achieved balance are relieved of all claims and liabilities from the bilateral clearings, and
  • the surplus countries simply remain as the creditors of the deficit countries.

How can multilateral clearing be achieved without the application of force?

• Through “Pool Clearing”:
  • Every country sets up a National Clearing Fund.
  • They agree on the rates of exchange by which each currency is to be related to all other currencies
  • Importers pay into their own National Clearing Fund using their own currency.
  • The exporter's National Clearing Fund is informed that payment has been received.
    • The exporter's National Clearing Fund pays the exporter
  • Each National Clearing Fund thus receives and disburses only national currency
    • it receives such currency from the home importers and disburses it to the home exporters.

Schumacher's Pool Clearing with Keynes' Bancor

SORA Pool Clearing can implement the original Pool Clearing or a perfected version without bancor and currencies

Assume this goes on for 12 months and each Fund has 3 outcomes:

1. Deficit countries will have excess local currency from importers
2. Surplus countries will be short of local currency for exporters
3. Balanced countries will be in same position as 12 months before
   • Deficit countries will spend the money buying Tbills.
   • Surplus countries will sell Tbills to get cash.

What would be the position of ownership of the deficit countries?

• America sells 10x more to Britain
• Britain sells 10x more to Poland
  • Britain having achieved balance is no longer concerned.
  • Her Fund has received an extra 10x from importers and disbursed an extra 10x to exporters.
• It follows that America owns a balance of 10x in Poland.
  • A sterling-balance, which the Americans could own, simply does not exist.
  • Thus the surplus country owns the cash balance in the Clearing Fund of the deficit country.

But what if there are more than three countries?

• America sells 10x more to Britain
  • Britain sells 8x more to Poland and 4x more to Holland
• America has a surplus of 10x
  • Britain a surplus of 2x
• Cash balances of 8x and 4x are held in the Funds of Poland and Holland respectively.

They belong to whom?

• What proportion of the zloty-balances and of the guilder-balances belongs to America and what to Britain?
• This cannot be answered unless the time sequence of all individual transactions were meticulously studied
  • The balances in the deficit countries have lost their identity.
  • The innumerable threads of business cannot be disentangled*.
  • 83% of the total of balances in Poland and Holland belong to America
  • 16% belong to Britain.
• This is the decisive feature of “Pool Clearing”.

The pooling of balances arises automatically out of the system's mechanism.

• No surplus country is ever called upon to exchange one balance for another.
• Under bilateral clearings, America—in our example—would possess the sterling-balances even if Britain had achieved balance or even if Britain were a surplus country herself.
• To multilateralise such a system, America would have to be forced against her immediate interest to swap her sterling balances against Britain’s balances in the deficit countries.
• There would be no country strong enough to enforce such swapping on a world-wide scale.
• Under Pool Clearing this whole question never comes up.
• Any such cash balances in the various Funds are always the result of a deficit in the total trade of the countries in question.
• Mere bilateral trade deficits do not create the appearance of uncleared balances, unless they represent at the same time deficits in total trade.
  • The pooling of balances arises automatically
  • But we still need to create some international machinery to give to this process a legal form.
  • An “International Clearing Office” can be set up as Trustee in the pooling of uncleared balances.*
  • All cash balances accumulating (in the form of a holding of Treasury Bills) in the Clearing Funds of the deficit countries are to be taken over by the International Clearing Office.
  • The Clearing Funds of the surplus countries will own each a share in the Pool, equal to the size of their respective surpluses.

The International Clearing Office requires no finance of its own.

• It does not have to create a new international currency.
• It is impossible:
  • to disentangle the mass of individual transactions which give rise to the various uncleared balances in the deficit countries and
  • to ascribe any one particular balance, or part of it, to any one particular surplus country.
    • The Gordian knot is cut by making all the surplus countries the joint owners of the balances in all the deficit countries.
    • In this way every national currency is made into a world currency.
    • The creation of a new world currency becomes unnecessary.
• The International Clearing Office—in this connection—does not require any special powers.
  • It is not an agency for control.
  • It is a purely administrative body, the central accounting office for the different National Clearing Funds.

The Clearing Funds of surplus countries become indebted to their internal money markets and acquire an equivalent share in the Pool, both their debt and their share in the Pool being equal to their trade surplus.

• The Clearing Funds of the deficit countries are left with balances of cash in hand (equal to their trade deficits) which belong to the International Pool.
• The Clearing Funds of countries with no surplus nor deficit will hold neither cash nor a share in the Pool.

This system is fully multilateral.

• It is immaterial to each individual nation where it buys or sells.
• Whether it sells to a deficit country or to a surplus country, its National Clearing Fund will disburse national currency to the exporters at home.
  • Thus, it will decrease the amount of cash in the Fund, or increase the debt owed by the Fund to the internal money market.
• Whether it buys from a deficit country or from a surplus country, its National Clearing Fund will receive national currency from the importers at home.
  • Thus, it will increase its cash or reduce its debt to the internal money market.
• All individual sales and purchases have the same technical effect, irrespective of the country to which goods are sold or from which goods are purchased.

They have the same technical effect.

• There is nothing in the technical set-up to induce any individual importer or exporter to choose his sources of supply or his markets, with reference to his country’s bilateral trade balances.
• Under a regime of a multitude of bilateral clearings, this would be quite different : each country would always have some clearings with a trade surplus and some with a deficit.
• Britain, in our example above, would have ready cash for additional imports from Poland, but not for additional imports from America.
• America would have ready cash for additional imports from Britain, but not for additional purchases in Poland.

Under Pool Clearing, these differential stimuli do not exist.

• The identity of ownership of the various balances accumulating in deficit countries (and in deficit countries only) cannot be separately established.
• The main stimulus that remains is for the surplus country to spend its surplus—anywhere in the world.

This is a great advantage, because:

• it avoids the dangers and frustration of Bilateralism and
• allows world trade to flow according to whatever economic criteria may exist for the international division of labour, instead of setting up the arbitrary criterion of bilateral balance.

A trading system that enforces strict bilateralism is arbitrary and discriminatory.

• The same does not necessarily apply to a system that enforces balance in the total trade of each country.
• The principal aim of any new system is the achievement of such global balance.
• Many bilateral trade problems exist:
  • A surplus country might be unwilling to increase its purchases.
  • A surplus country might drain other countries of all their liquid means for making international payments and may even force them into default.
• But balance is not an end in itself.
• The task is to achieve balance at the right level.
  • That level should be determined by those countries that need foreign goods.
  • This is the only possible meaning of the “Free Access” clause in the Atlantic Charter.
    • It promises “enjoyment by all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity”.

Under bilateral clearings, each country has free access to the trade and raw materials of those other countries which are its customers.

• Under Pool Clearing access to trade is universally free.
• Yet, no matter what is the technical set-up, every country must ultimately pay for what it buys.
  • It must be able to supply as much in goods and services to the rest of the world as it receives.
  • This does not deny the possibility of making international gifts, grants-in-aid, Lend-Lease, or reparation payments.
  • But they fall outside the scope of our investigation.
    • Our scope is exclusively on gainful trade.
    • A system of multilateral clearing may be superior to a system of many bilateral clearings.
    • But both are:
      • merely technical systems, and
      • dependent on more fundamental factors.
    • The maximisation of economic benefits from international trade can be facilitated but not automatically assured by any purely technical system.

How would Pool Clearing affect those more fundamental real factors?

• In this system, we can give every country the right to discharge all its cash obligations to the rest of the world simply by paying its own national currency into its National Clearing Fund.
• Every Clearing Fund would be entitled to receive any payment that arises out of international economic exchange:
  • payments for foreign goods and services,
  • interest, dividend and amortisation payments on old and new foreign debts, etc.
• Only new capital movements would have to be dealt with specially, whether they arise out of commercial lending or a private flight of capital.

Whenever a National Clearing Fund receives payment from a resident at home who wishes to discharge a debt abroad:

• it notifies the National Clearing Fund in the payee’s country, and
• the latter makes payment to the payee.

In this way, each country gives to each other country an overdraft facility for foreign payments.

• This might be a good way of getting world trade started again after the war when most countries will find themselves without any international means of payment.
• But it cannot be expected that any country would wish to give to the rest of the world an unlimited overdraft upon its own resources.

How should these facilities be quantitatively determined?

1. Each country might let its National Clearing Fund to run into debt with the internal money market up to a specified amount.
   • After that amount has been reached, exporters would receive payment only to the extent that means of payment have been made available by importers.
2. Or one might approach the problem from the other side: not from the angle of the granter of the overdraft, but from that of the recipient.
   • Each country would be given a certain maximum limit beyond which the cash balance in its National Clearing Fund would not be allowed to rise.
   • After that amount had been reached, the Clearing Funds of the world would take no further notice of notifications coming from the Clearing Fund of the “overdrawn” deficit country.
     • They would refuse to make any further payments to their home exporters for goods delivered to that country.

These two methods are the same in the sense that stop (or ration) deliveries to the overdrawn country.

• But their effect on the rest of the world is different.
• If six countries each agree to allow the five others jointly an overdraft not exceeding 10x.
  • If all countries. except one, have a trade surplus, the remaining one can go on accumulating deficits up to a total of 50X, which may be grossly excessive.
  • But if these six countries agree amongst themselves that no single country should be allowed to have a trade deficit exceeding 10x, then the worst that might happen is:
    • that five countries become deficit countries each using its overdraft facilities to the full, and
    • that one country remains as the sole creditor on Pool Clearing account to 50x.

The first method of limitation makes it quite clear to each participant country what is its maximum stake in the Pool.

• If this were chosen, the maximum overdraft facility each country is to give would have to be kept so low
  • No one country, no matter how small, could ever become excessively indebted
  • This would rob the whole system of all its potentialities.
• The second method makes it clear to each participant what is its maximum indebtedness to the Pool.
  • This method is the only workable one.
  • If this were chosen, a maximum could be worked out for each country, adjusted to its normal trade turnover
  • It would be left to each surplus country to see to it that its own surplus did not become excessive owing to a deficiency of purchases.

The actual determination of these upper limits is not difficult

• The leading nations of the world would have to
  • agree on some definite formula (e.g. 30% of yearly exports as the maximum overdraft)
  • Then invite all the other nations to join in on these terms
• For a start, pre-war trade would have to be taken as a standard
• If the same formula is applied to all countries, there will be no occasion for special bargaining and detailed negotiations.
• As the trade of any one country expands or contracts, so will its maximum deficit be allowed to increase or decrease.

Assume, then, that appropriate limits have been fixed for the deficit any one country will be allowed to incur, and the system is put into operation.

• It will work smoothly as long as every nation avoids exceeding the deficit limits
  • In this respect it would be analogous to a Gold Standard system
    • It works satisfactorily as long as deficit countries balance their foreign exchange income and expenditure in such a way that their gold reserve remains intact

What forces operate within the system to facilitate this task?

• The main force is the fact that the holding of surpluses becomes unprofitable and risky.
• The surplus, instead of being convertible into gold or interest-earning investments, is tied up in the Pool:
  • It is a share in the Pool
  • The Pool’s assets are always the weakest currencies of the world
    • It is the currencies of the countries that have been unable to earn as much as they have spent

As opposed to a bilateral set-up, Pool Clearing gives to each country the fullest opportunities to avoid becoming a surplus country: it can allow its importers to buy freely anywhere in the world, without regard to bilateral trade balances.

• If Argentina has made large deliveries to Great Britain, she can avoid becoming a surplus country by buying more from other countries.
• This will not solve the British deficit, if there is one.
  • But it solves Argentina’s problem.
  • The point is that each country can with the greatest ease and freedom
    • avoid the accumulation of a surplus, and
    • reduce it once it has come into existence.
  • If Argentina were tied down to spending all the proceeds of her exports to Britain on British goods, she might experience difficulties in finding suitable and competitive goods on the British market.
  • But if she is entirely free to spend her money wherever she likes, then any failure to spend on imports as much as has been earned on exports can only be a failure of effective demand within Argentina.

Such failures can occur.

• Under the Gold Standard (or any other international monetary system based on free convertibility), they led to the general pursuance of a beggar-my-neighbour policy.
• Most countries during the 1930s strove desperately to make up for the deficiencies of home investment by export surpluses.
• Those who succeeded reaped a double advantage.
  • They increased home employment and accumulated either gold reserves at home or capital investments abroad.

Under Pool Clearing a similar trend would undoubtedly assert itself, if the participating states failed to achieve a constant high level of employment at home.

• But it would take different forms.
• The surpluses arising out of current trade could not be converted into gold or interest-earning assets.
  • They would be held as a precarious and barren investment.
  • It might be that this deterrent against surpluses, or this incentive to import, would prove insufficient in a severe home unemployment crisis.
  • But at least it is a force in the right direction which is absent from most other systems.

Any discouragement of surpluses might be thought to lead nations to limit their exports rather than increase their imports.

• But this is unlikely.
• The temptation to aim at export surpluses is greatest when there is home unemployment.
• Restricting exports voluntarily just then would not recommend itself to any nation.
• If export surpluses are made unattractive by Pool Clearing, a way out will be sought through speeding up imports by an expansionist internal policy (possibly with government help or on government account) than by slowing down exports.
• If this is so, the system would produce a strong inner tendency towards the expansion of world trade
  • It would be different from the pre-war system when every international trade disequilibrium immediately set in motion restrictive forces.

The aim must be to achieve balance in the trade of every nation.5

• Such balance can be most easily achieved if potential surplus countries are discouraged from achieving a surplus.
• An attempt to throw the burden of adjustment primarily on the shoulders of the deficit countries (as in the past) is bound to fail, or at least to lead to competitive trade restriction.
• A surplus in one country leads to deficits in other countries as light produces shadow.
• It is easier to spend additional amounts than to earn additional amounts.
  • This is why any new system of international trade should be so designed that all its inherent forces induce the surplus countries to dissipate their surplus, rather than inducing the deficit countries to make a (probably fruitless) attempt to balance their accounts:
    • by forcing their goods on an unwilling world or
    • restricting their purchases.

Pool Clearing would exert a considerable influence on the surplus countries to try to avoid all the risks in holding a share in the Pool through measures that would increase the activities of their importers.

• But there are limits even here.
  One of the countries might simply be unable to offer, at the right price and delivery dates, the goods to pay for all their purchases.
• The evidence of this would be that their deficits showed a strong and apparently irresistible tendency to rise to their limits.
• It is in the interest of all countries that the maximum limit should not be reached, because otherwise exports to the “overdrawn” countries might have to be rationed by direct intervention.
• In this case, the system, as far as the trade of the “overdrawn ” country is concerned, would probably degenerate into some form of Bilateralism.

In a situation of this kind there are, roughly speaking, three ways of escape that might recommend themselves:

1. The deficit country could be given loan.
   • This is always the easiest, though not always the most satisfactory way out.
   • In the case of “backward areas” that stand in need of industrialisation, in all cases of genuine economic development, loans should be resorted to.
   • But an attempt should be made to distinguish such cases clearly from others where the urge to borrow and the urge to lend arise merely out of the desire of creditor and debtor country alike to postpone the carrying out of necessary adjustments in their respective structures of production.
   • Balance should be the watchword.
   • International loans, which make possible a (justifiable) long-term lack of balance, should be treated as the exception.
   • This might be considered too much to ask for.
   • But however that may be, without adherence to some strict principles of this sort, no system, whatever its technical design, can do lasting service.
   • No system can ever enable some countries to follow a permanent policy of buying from the rest of the world more than they sell.
   • Nor can it enable other countries to follow a permanent policy of selling more than they buy, and at the same time guarantee the creditor his money back, when he (or his country) is unwilling to accept it in the form of goods and services.
2. The deficit country's currency could devaluate.
3. Some fundamental rearrangements of the internal structure of production of some of the countries concerned might be called for.

How, then, could the “exception”, i.e. capital movements for the purpose of industrialising backward areas, be worked into the system of Pool Clearing?

• It would be incompatible with the fundamental principles of the system, if Clearing Fund balances that have arisen out of past business were to be consolidated into long-term interest-bearing indebtedness.
• Credits should, on principle, be given only in connection with new deliveries to the deficit country. The difference between a conversion of existing clearing balances and making new deliveries on credit may appear slight.
• If a deficit country gets dangerously near its maximum deficit limit, does it not come to the same whether it transforms a part of the Clearing Fund balance into a bonded debt or obtains current imports on credit? Assume that Poland has incurred a large deficit; the Polish Government (or possibly even some private firm or institution) takes up a loan in U.S.A.
• the American creditor pays dollars into the U.S. National Clearing Fund, and the Polish National Clearing Fund disburses a corresponding amount of zlotys to the Polish borrower.
• This would be a purely financial transaction, with the result that the United States could sell more without increasing the internal indebtedness of her National Clearing Fund (which represents her export surplus and her share in the Pool), and Poland could buy more without increasing the cash balance of her National Clearing Fund (which represents her import surplus and her indebtedness to the Pool). If this is admissible, then the principal feature of Pool Clearing is marred: the pressure which the system exerts upon potential surplus countries to dissipate their surpluses by increased purchases is relaxed.

Ther be two ways to handle this problem.

1. (a) Let us assume that the rule is adopted that all “financial” lending operations under Pool Clearing are prohibited.
   • If Poland needs more foreign goods and services than she can immediately pay for with her exports, she could obtain a foreign credit “in kind”.
     • She would ask some countries to let her have certain specified deliveries on a deferred payment basis.
     • She would then obtain goods without being obliged to pay into its National Clearing Fund at once.
     • Instead, she would issue a bond specifying the interest and amortisation payments that will be made later.
       • When these latter payments fall due, they would take the form of money and would be made into the Polish National Clearing Fund, like any other international payment under the scheme.
   • This kind of arrangement would make international capital movements far more conscious and more easily recognisable.
     • New borrowing would be for specified purposes only
       • It would take the form of imports (which might be producers’ or consumers’ goods) without immediate payment.
     • Interest and amortisation charges would appear as a mortgage on the future overdraft facilities of the debtor country.
     • The objection is that in this way the lending operation itself (although not the return flow of interest and amortisation) would become bilateral
       • For example. Poland could not borrow in the US and then spend the proceeds on additional imports from Britain.
       • It is difficult to estimate the weight of this objection.
2. (b) Alternatively, the lending might take the form of an agreement between the U.S. Clearing Fund and the Polish Clearing Fund.
   • Under additional imports made by Poland up to a specified amount are not to be paid for by the Polish importer through the Polish Fund, but by the American creditor through the American Fund.
   • This arrangement would give Poland freedom to expend the loan money anywhere in the world.
   • The objection that might be raised against it is that it would lend itself too easily to misuse.
   • The weight of this objection, again, is difficult to estimate.

Whichever of these two alternatives is chosen, the debtor country will always be able to discharge the legal obligations of its indebtedness.

• Such payments will increase the cash balance in its National Clearing Fund.
  • It might raise it to the upper limit specified under the general scheme.
  • They would act in the same way as payments made for additional current imports and create the same problems of adjustment.
• Similarly, the National Clearing Fund of the creditor country would make corresponding payments to the creditor, thereby possibly increasing its own indebtedness to the internal money market—increasing, in other words, its share in the Pool.
  • They would act in the same way as payments disbursed for additional current exports and create the same problems of adjustment.
  • It would then be up to the creditor country (assuming that it is also a surplus country) to avoid becoming too large a holder in the Pool, by increasing its foreign purchases anywhere in the world.

This arrangement would show quite clearly the essential nature of international capital movements.

• They always are an exchange (from the debtor country’s point of view) of import surpluses to-day against export surpluses in the future.
• They are economically sound wherever there is reason to expect that the debtor country can increase its future capacity to export by increasing its current imports.
• If import surpluses are incurred without developing internal productivity and capacity to export, then existing maladjustments are not resolved and their solution is merely postponed.
• Escapist policies of this sort cannot be made impossible by any technical system.
• But it might be found that the arrangements suggested here will serve to clarify the position sufficiently to make their adoption less likely.

(2) We now come to the second way in which an adjustment might be sought when a country appears to be unable to sell enough to pay for its purchases: devaluation.

• There is normally some level for each currency at which exports and imports will balance.
• But here again, “balance” is not everything, and equilibrium rates of exchange in many cases may mean disequilibrium somewhere else.
• They might, for instance, bring such a deterioration in the country’s “terms of trade” as to be unbearable.
• But these are probably special cases. On the whole, a correct adjustment of exchange rates must be considered of the utmost importance.
• The principal criterion for correctness, and the object in view when changes are made, must be the establishment of “balance”, i.e. the avoidance of undue cash holdings or debits in the various National Clearing Funds.

Under Pool Clearing, the determination of the rates of exchange comes from the cooperation of the different National Clearing Funds.

• No one country is able to settle the rates of exchange of its own currency in opposition to the rest of the world, as has been possible hitherto.
• Clearing Fund A receives a certain amount of its own currency from an importer who has bought goods from an exporter in country B.
• Clearing Fund A thereupon advises Clearing Fund B of the payment received, and it is up to the latter to pay the exporter at the ruling rates of exchange.
• Thus, in order to alter the value of its currency, Clearing Fund A must first seek agreement with all other Clearing Funds, so that they will actually make their disbursements to their respective home exporters at the new rates.

Can such an international agreement on exchange rates be obtained?

• This question sounds more formidable than it really is.
• Under any system, even in an unorganised one, there must always be agreement between those who exchange currencies.
  • Nobody proposes to leave these dealings entirely unorganised.
  • Governments are already accustomed to taking a hand in them.
• Therefore, it will not be too difficult to get some working agreement to start with.
  • Once a start has been made, it must be left:
    • to the actual development of trade (and lending) and
    • to a process of trial and error to find those rates of exchange which most nearly establish an equilibrium position between the different countries.
• Without some organised international effort, this cannot be found and the necessary revisions which changing circumstances demand cannot be carried through.
• There will be Exchange Equalisation Funds, no matter what system is finally adopted.
  • These institutions will get into touch with one another to settle policy on a wider or smaller scale.
• In the current stage of world political development, Pool Clearing does not add to the difficulties inherent in international co-ordination.
  • In fact, the Pool might be merely seen as an Exchange Equalisation Fund on a world scale.
• The inner mechanism of Pool Clearing, moreover, itself provides time and inducement for co-operation.
  • It becomes unattractive, as we have seen, to accumulate surpluses.
  • But it becomes also unattractive to all participants to allow the deficit of any country to rise dangerously near its maximum limit.
  • It is in the interest of both potential surplus countries and potential deficit countries to find an equilibrium level of exchange.
  • Before this, this was not the case.
    • No matter how hard deficit countries might have been striving to reach equilibrium rates, the surplus countries found it useful to hang on to their surpluses and to answer the devaluation of other currencies by a devaluation of their own.
    • Competitive devaluations, under Pool Clearing, would be completely pointless.

After each country accepts the duty of keeping its own Clearing Fund in balance and grants the right to every other country to keep this balance in their own case, then there should be some international agency to provide the machinery for reaching common decisions.

• The International Clearing Office, proposed above, might fulfill this function.
• But this would imply that its power and status would have to be raised far beyond that necessary for carrying out the purely formal “trustee” functions of “pooling”, as they have been described.

Our choice in this matter is not very wide.

• We can leave the conduct of economic affairs to a multitude of sectional interests (be they private or “national”)
  • This shall be at the mercy of forces which have landed us in economic and political disasters.
• Or we can make an attempt at some form of world planning.
  • Such an attempt may be successful, if the strongest nations take a determined lead and accept responsibility not only for the well-being of themselves but for that of the world as a whole.

All economic phenomena, in an era of quick transportation and intensive economic exchange, are interconnected.

• It would be foolish to propose that everything should be controlled centrally.
• But international trade is of fundamental importance as a strategic point of control.
• It is time for some international control in this field.
• The object of control should be merely to:
  • achieve balance in the Clearing Funds of the various nations, and
  • avoid long-term cumulative surpluses and long-term cumulative deficits.

This would have far-reaching effects also on purely internal policies in the different countries.

• Internal monetary policies, for instance, exert a strong effect upon external trade.
• A proposal, however, to subject them to international control would at the present stage appear wholly Utopian.
• Thus each nation should be free to do internally whatever it pleases; to aim at full employment with all its might; to distribute its national income according to its own principles or lack of principles; to control foreign exchange transactions or to leave them uncontrolled; etc.
• Its responsibility to the rest of the world should end when it has balanced its Clearing Fund accounts.
• The primary responsibility should rest on the shoulders of surplus countries to spend as much as they have earned; and a secondary responsibility should rest on the shoulders of the deficit countries to make available, at the right prices, etc., a sufficient volume of goods so that all cash obligations can be discharged in kind.
• If an adjustment of the rates of exchange appears conducive to the discharge of these responsibilities, the International Clearing Office, as the responsible international agency, should seek to arrange it.

(3) In some cases the degree of devaluation necessary for “balance” may be such that vital interests of the country in question will be endangered.

• It is then that international loans might be considered, but they have been dealt with above.
• With the help of loans, or without it, the country would have to reorganise its industry, which would often mean a change over from home production to exports, or from one kind of export goods to another, or else a curtailment of its purchases.
• But a reorganisation within the deficit country alone might not solve the problem.
• An equal duty falls upon the surplus countries to reorganise in such a way that they can take more goods if more are offered.
• In such cases it may sometimes be unavoidable to, adopt a certain degree of Bilateralism.
• A country that changes its structure of production so as to be able to export more must know the market whose requirements it is hoping to meet. And a country that makes similar internal changes so as to create additional import requirements must know its sources of supply.

Adjustments of this kind are admittedly difficult to effect, and even more difficult to enforce.

• But these difficulties again are not peculiar to Pool Clearing. They are inherent in any attempt at international economic co-operation, whether for the control of raw materials, cartels, transport, or anything else.
• It is often a matter merely of “Economic Intelligence”, of the spread of reliable knowledge, and the compilation of reliable statistics of productive capacities and human needs.
• A clear recognition of the necessity, of balance, together with a system of exchange which makes surpluses unattractive, might exert pressure in the right direction.
• But it must be emphasised that no system, whatever its technical form, is likely to endure unless the great cyclical waves of unemployment, which have been the greatest single factor of disruption in the past, can be avoided in the future.

At the start of this essay we accepted that certain advantages could be gained by employing the clearing principle for international trade.

• But this assumption is not entirely unjustified.7
• Compared to free international convertibility of currencies, Pool Clearing offers at least one outstanding advantage: that its inner mechanism tends to overcome temporary disequilibrium situations in international exchange by expansion instead of restriction.
  • The buyer is given the first move in the game, on the self-evident theory that one country’s imports are another country’s exports and that, if only demand can be liberated, supply will largely take care of itself.
  • Thus the main burden of adjustment is placed on the surplus countries, and forces are brought into play to make them spend their surpluses, thereby enabling the deficit countries to get rid of their deficits without restricting their purchases.
  • The overdraft facilities to be granted to each country are an expression of the determination to give the buyer the benefit of the doubt, and a means of getting international trade started again after the war, in spite of the widespread shortage of international cash.

This inner expansionist force of the system is its most important feature.

• There are other ways to attain the isolation of trade from speculative capital movements, which this system brings about.
• The medium-term stability of exchange rates is the minimum degree of international co-operation needed in this field.
• The same applies to the fact that Pool Clearing would make the international payments position of each country “transparent” by summing up its vital aspect in one figure, the debit or credit balance of the National Clearing Fund.
• All this can be attained in many ways, not necessarily through Pool Clearing.
• But can we get this expansionist element into the international system by other means?
• Is this element something worth striving for?

Only by considering the available alternatives can we decide whether it will be worth it to establish such a system and whether the new risks involved can prudently be taken.

• At least two alternatives are clearly visible:
1. A continuation of the pre-war trend.
   • This split up the world's trading system into innumerable uncoordinated bilateral systems.
   • This is absurd.
2. A continuation of the war-time trend.
   • It aimed at the formation of regional economic blocs with some eventual form of multilateral clearing.

Economic regionalism might be considered superior to the anarchy of rigid Bilateralism.

• But it surely cannot be the last word in post-war economic organisation.
• The above attempts to show just one way of driving a wedge into the solid block of resistance against economic planning on a world-scale.
• Other ways exist.
  • They should be fully described and discussed.
  • Some world-embracing scheme, conceived with realism and daring, must be developed to meet the challenge of Bilateralism and Economic Regionalism.
  • Such a scheme should above all have an inherent tendency towards expansion.