You will have noted when the Conference discussed the economic problem that the Prime Minister laid stress on the fact that we had come to no final conclusions and, indeed, that we are by no means all agreed here in this country, even as regards the principles underlying the Monetary and Commercial Union schemes which economists have been discussing, not to speak of the details. Naturally it would not have been appropriate for me to air my own particular point of view at the meeting, but it might interest you, for your purely private information, to look at the enclosed memorandum in which I have embodied my objections on broad principle. I might add that Mr. Fraser has also seen the document, but naturally I should be glad if you would regard it as private and confidential.
What I feel is that the United States' outlook, or perhaps more truly the outlook of Mr. Cordell Hull, Mr. Sumner Welles  and their group, is substantially the outlook of the English Manchester school of a hundred years ago-an outlook which views all economic problems from the point of view of the trader and investor, with labour regarded as an instrument of production and not as an end in itself. Whether that point of view is theoretically right or wrong, it has become impossible in any country in which the mass of the working population have an effective say in the government. It has in fact also become impossible in other countries which, for reasons of national strength or development, are determined to push their industries by giving them effective protection. Whether that is done on Socialist lines, as in Russia, or on individualist lines by tariffs or quantitative restrictions, the fact remains that it will not fit in with schemes based on free trade principles. The issue is, as you very truly said at the Conference , primarily a political issue, and the discussions of theoretical economists, whether out of date or not, are at any rate irrelevant.
L. S. AMERY
1 May 1944
11. Yet it is in the absence of any such guarantee , and in spite of the experience of the inter-war years, that it is now suggested that we should renew the attempt to set up the Humpty- Dumpty of Nineteenth Century economics on his wall again. For the schemes which have been worked out, in respect both of commercial and of monetary policy, by our departmental officials in conjunction with certain American officials, are schemes entirely dominated by the Nineteenth Century conceptions of the minimum interference with trade, 'non-discrimination', i.e. the Most Favoured Nation Clause, and the maintenance of exchange parity.
The authors of these schemes, influenced by the experience of the past, have introduced into them certain easements and modifications. But the main objective remains unchanged. It is, I submit, incompatible with any national policy of stable employment based on national standards of living or with a planned expansion of our resources as individual nations or as a Commonwealth. It is, I would add, equally incompatible with similar policies which other nations will insist on pursuing and with an expansion of world resources based, not on promiscuous individual competition, but on national cooperation.
12. The Commercial Union scheme aims at including a substantial majority of the nations of the world in a multilateral convention by which they are to be obliged to reduce their tariffs to some undefined low level and to abjure all other methods of selective control of their import trade. In order to provide some inducement for joining the scheme the nations that stand outside are to be excluded from the benefits, such as they are, of the Most Favoured Nations Clause. On the other hand, those that come in are to be precluded from such mutually favourable bilateral arrangements, largely based on quantitative control, such as our treaties with the Scandinavian countries by which we secured our coal exports in return for guaranteed quantities or percentages of our imports of bacon and butter. Those who are members of the British Commonwealth and Empire are, moreover, to forgo the advantage they enjoy at present in not being under the obligations of the Most Favoured Nation Clause in respect of their trade with each other and are to be obliged to abandon, or at any rate reduce to an ineffective minimum, their present mutual preferential arrangements and to abstain from any new arrangements of the same character. It is not clear what is to happen to an Empire country which prefers to stay outside in order to be free to develop its own industries. But the result might well be that we might be obliged to give the Argentine better terms than Australia, if Australia stayed out, or Japan better terms than India. In any case the question for each of us is whether there is any reduction in the tariffs of American or of other foreign countries, a reduction extended, of course, to all the members of the Union, sufficiently far-reaching to compensate us (a) for the loss to our industries or agriculture in our home markets consequent on the corresponding reduction in our tariffs and (b) for the abandonment of our bargaining power whether within the Empire on the basis of tariff preference or of preferential long-term contracts, or with foreign countries on the basis of specific agreement. Aesop's fable of the dog who dropped his bone in the water in order to grab at its more attractive looking reflection is very much to the point.
13. The Monetary Fund scheme aims at securing exchange parity, but provides certain easements in order to give rather more elasticity than the old gold standard. The objection to it is not that gold is an element in the scheme: gold is likely for a long time to be an important element in currency and exchange. it is to making parity, and incidentally gold convertibility, a primary object of policy, as against the control of the internal price level, and to the total inadequacy of the easements provided. Some of these, such as the two ten per cent. step reductions and the amount to be subscribed to the Fund, are obviously inadequate to meet the great fluctuations which may yet occur in money values in America or elsewhere. Australia, which handled the last monetary crisis more successfully than any other country (except New Zealand, Sweden and Portugal, which followed similar policies) dropped her exchange below gold by 40 Per cent. in two steps, first by 20 per cent. below sterling when sterling was tied to gold and then another 20 per cent. with sterling when it went off gold. In our case we in 1931 threw 100,000,000 into the sea in our last unavailing effort to keep up our exchange parity. The measures that may be required in future years, not for competitive depreciation of the exchange, but to preserve the infinitely more important stability of our own internal price level may well have to be even more drastic than those to which we resorted in 1931.
As for the suggested right of special measures of exclusion to be taken against countries whose currencies are declared to be in scarce supply, i.e. more particularly the United States, who can believe that they are either workable from the economic point of view or politically feasible? 14. In any case the essence and object of the scheme, like that of the commercial scheme, is the restoration of the Nineteenth Century economic system. The two are essentially linked together and neither of them is compatible with economic policies aimed at security of employment and the raising of national standards of life, above all in the years of confusion and fluctuation which will long continue after this war. A time may come when things may settle down sufficiently to enable various currency systems to maintain a reasonable degree of parity with each other and when nations or nation groups will have built up their economies to the point when they can afford to forgo many measures of control and approximate increasingly to something nearer world free trade. But that time is remote and meanwhile toying with schemes that are not likely to be workable or acceptable in any future for which we can make practical provision only stands in the way of any effective policy of recovery.
15. The nature of such a policy was summed up in a sentence in a recent speech by the American Republican leader, Mr. Dewey.  'We shall be truly effective in helping with the rehabilitation of the world only if we first restore at home a healthy, vigorous and growing economy.' For us of the British Commonwealth that means, first of all, the building up, each in our own countries, of as balanced an economic life as our conditions allow, and the freedom, for that purpose, to exercise an effective and unfettered selective control over our imports. Secondly freedom to use the bargaining power of our markets, both through the development of inter-Empire Preference and also through specific trade agreements with those foreign countries that will give us value for value.
Thirdly freedom to retain full control over our internal price level, making the fullest use at the same time of the wide measure of exchange parity afforded by the sterling system.
16. The detailed methods by which these main principles are to be applied in practice may well differ in different parts of the Empire and from the point of view of different political parties.
They can be applied equally well under a system of state purchase and sale or licensed import or export monopolies or under free individual trading subject to tariffs, levy-subsidies, quantitative restrictions and differential customs duties. These are matters which can be settled as we go along and can vary, as between one Empire country and another, or in the course of years in each country, without detriment to our general purpose. The full working out of these principles may take more than one generation and may be left to the political trends of the day in each of our countries and to the general development of the world economic environment. What is needed now is to set a new course inspired by modern democratic conceptions of social health and national strength, and not to let ourselves be diverted by futile and dangerous attempts to restore the outworn economy of the past.
L. S. A.