Tough Years Ahead

Anthony Eden said that Britain had been "doing tne splits over an ever-widening abyss." Last week Britain slipped and was left clinging to the face of a clif f.

"Dollars to Save Britain." The story of this calamity--one of the most important events of the postwar world--begins two years ago when Lord Keynes came to the U.S. to talk about getting dollars to save Britain. Keynes started with the idea that nothing less than 5 billion dollars would prime the pump; even that would have to be protected by special restrictions against seepage. The American negotiators told him he was wrong; they said 3.75 billion was enough, and that Britain, in .the interests of freer world trade, would have to throw away protective restrictions. The British, having no choice, agreed to the smaller sum, and promised that after July 15, 1947, they would permit those who got British pounds in "current transactions" to exchange them for dollars.

Americans who remember 1933 could understand this. Then some banks were sound, some were busted and some were half-busted. Some half-busted banks reopened with the understanding that old accounts of depositors were still tied up, but deposits made after the reopening were fully usable. In the British situation, the 14 billion of sterling balances around the world (tied up like the old deposits in half-busted U.S. banks) are known as "accumulated sterling." Since the British have not nearly enough dollars to exchange for this "accumulated sterling," they had never promised to pay it off after the July 15 deadline.

Run on the Bank. When the British accepted the hard bargain driven by the U.S., they tried to make a virtue of necessity and kidded themselves that lifting of restrictions on "current transactions" would work. It did not. Traders in other countries wanted dollars more and pounds less than the British Treasury thought they would. The British pound had so little production back of it compared to the U.S. dollar that when anybody owning pounds had a choice he converted them into dollars, with which he had more chance of buying the food or shoes or trucks or machinery he wanted.

These traders, assisted in some cases by the central banks of their countries, found ways to disguise the "accumulated sterling" as "current transactions" money. The result was a run on the British dollar supply. Before July 15, the British Treasury had been losing dollars at the rate of 77 million a week. After July 15, the rate suddenly jumped up to 115 million a week; in the last six days, dollar withdrawals totaled $237 million. This situation was just as if new runs had started on the half-busted U.S. banks after they reopened in 1933, and the banks had found no way of distinguishing between the new deposits and the old.

The Old School Belt. Tense with anxiety, the British Treasury's gloomy office in Great George Street tried to stop the "run on the bank." Chancellor of the Exchequer Hugh Dalton, whose toothy grin is almost inextractable, predicted that the run would slow down in August. He was wrong again. Prime Minister Attlee called a Cabinet meeting.

Sir Wilfrid Eady, bone-tired after a year and a half of financial negotiations with Canada, Argentina, India and Egypt, had been dispatched to Washington, along with other financial experts. Cameron Fromanteel Cobbold, Deputy Governor of the Bank of England, was vacationing in the south of France. Set in rapid motion by the crisis, he "dipped down" in Britain for a quick check with Whitehall and the Bank of England's headquarters in Thread-needle Street, arrived in the U.S. unshaven and with his old school tie (Eton's black with narrow light blue stripes) holding up his pants (see cut). Not even the Old Etonian belt could disguise the fact that this flurried arrival departed from the tradition of the British Treasury and the Bank of England. Ties as belts were not normal Threadneedle wear. Britain's financial pants for two and a half centuries had been held up by the stoutest braces. At last the almost omniscient Treasury had made a major mistake in estimating how the world's currency exchanges would react.

Secrecy enveloped the crisis until bumbling Defense Minister A. V. Alexander let the cat out of the bag at a Navy League dinner. He said: "I'm sorry I'm late, but I've just left a Cabinet meeting. This is one of the most momentous days in the history of the British Empire, and I advise you to listen to the Chancellor of the Exchequer tonight."

On the air that night, Dalton almost told Britain the worst. Sterling, he said, acquired in "current transactions," would no longer be convertible into dollars. Dalton, however, did not tell the British that in agreeing to this suspension the U.S. had insisted that the $400 million remaining in the U.S. loan to Britain was to be frozen. In other words, the loan that had supported the British for a year was finished. It had not brought Britain the recovery which the American experts confidently, and the British experts reluctantly, had hoped it would.

Transatlantic Drivel. The reaction could scarcely have been worse. London's usually sober Economist blew its top. It growled: "American opinion should be warned that over here, in Great Britain, one has the feeling of being driven into a corner by a complex of American actions and insistencies which, in combination, are quite intolerable." Then it snapped: "Not many people in this country believe the Communist thesis that it is the deliberate and conscious aim of American policy to ruin Britain and everything that Britain stands for in the world. But the evidence can certainly be read that way."

Washington talked comparable drivel. Experts there blamed the British for not foreseeing the "run on the bank." Washington's own overoptimism was dying hard. It still professed hopes of a freer trading world, based on the agreement which 18 nations had reached last week at Geneva. But nobody in Washington had a clear answer to this question: How was the world going to move toward freer trade until a businessman could once again walk into a bank and exchange one currency for another at a rate fixed by the operation of free markets?

In his closing speech at Geneva, Britain's Representative Harold Wilson forecast the future: "The methods we may have to use in the intervening months and years may appear to be opposed to the principles and methods of the draft [free trade] charter." Then Wilson returned to London and was even more specific: "We shall be working on bilateral agreements instead of multilateral." This meant that Britain, the second greatest trading nation in the world, would still be tied to the ideas of blocked currency and barter agreements that had been developed by Hitler's Dr. Hjalmar Schacht.

In Washington, weary Sir Wilfrid Eady sighed: "It is no fun for us, and for a few weeks it will be no fun for this country." This was typical British understatement. For a few years, at least, world economics was going to be no fun whatever for anybody.

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