Knowledge that Transforms

I would like to thank Mr. Ball for his thoughtful criticism 1 of my proposal to extend a foreign exchange guarantee to official holdings of foreign exchange and for this opportunity to clarify some points in my original presentation.2 Mr. Ball has levied three general criticisms against my proposal for introducing a multilateral exchange guarantee for official holdings of foreign exchange through the intermediary of the IMF:

O NE of the more embarrassing by-products of the United States' farm problem has been the accumulation in recent years of stocks of surplus crops. These surpluses enable others to picture the United States as hoarding food while millions in other lands go hungry. For some time it has been evident that it would be highly desirable to use the United States' farm surplus as economic aid to populous countries, especially those with severe food problems; indeed, some steps have already been taken to do this under the Food for Peace program, and more have been suggested. However, the United States government has properly hesitated to make really full-scale efforts in this direction, at least partly because of the probable effect which such efforts would have on the food export markets of such close allies as Canada and Australia, as well as of such rice producers as Burma. This paper proposes, in broad outline, a possible method of expanding the Food for Peace program in such a way that the food export markets of friendly nations are not damaged. We are concerned, however, only with the problems raised by the undesirability of dumping our surplus on such export markets. There are certainly likely to be other problems involved in an expanded surplus disposal program, but these we do not discuss. It is hoped that despite the unrealism involved, this paper will stimulate useful discussions. Let us begin by listing the features that a plan for disposal of the surplus should have: i. The plan should provide for disposal of the surplus with a minimum of disturbance to the export markets of friendly nations. Also, it should be added that it would be desirable for the plan not to aggravate or induce balance of payments or foreign exchange problems in participating countries.' 2. Benefits under the plan should accrue primarily to those nations at which the program is primarily aimed. It seems poor strategy to adopt a plan such that the Communists can claim (falsely but plausibly) that we are really benefiting only ourselves and our rich capitalist allies at the expense of the poorer nations of the world. Moreover, while there is no objection as such to other food importers (the United Kingdom, for example) benefiting from the program, this clearly should not be allowed to happen at the expense of the underdeveloped countries at whom the program is primarily aimed. (We shall henceforth refer to the latter nations as countries.) 3. It should be clear to all that it is not possible for any country or group of countries to increase its benefits under the plan at the expense of the United States or of other exporting or beneficiary nations by deliberately falsifying its needs. Preferably, the plan should be selfpolicing in this respect that is, such clarity should not be achieved by sanctions external to the workings of the program. 4. Consistent with the other points, the program should cost the United States as little as possible. Of course, it is perfectly reasonable to subtract from the costs of the program the costs of storing the surplus which would be saved by the disposal thereof.

The proposals presented above show a simple, feasible arrangement whereby countries, holding part of their official reserves in the form of foreign exchange, may be protected from existing reductions of the value of their international reserves. As a consequence, a country's incentive is removed to undertake changes in the composition of its international reserves which would have disequilibrating effects on the countries whose currencies are held as international reserves. A proposal of this type, while it may be used alone, would be most effective as part of a more comprehensive international monetary arrangement. This proposal is modest in that it covers only official holdings of foreign exchange. It makes a small contribution to increasing the stability of the international monetary system. It is believed, however, that although the proposal is modest, it is a significant contribution.

W HEREVER the test of implementation Al is applied to prescriptions for policy based on a priori reasoning, the mortality rate in ideas is bound to be high. Washington, D.C. is notoriously the graveyard of fond hopes and high aspirations. It seems fair to suggest that the conventional fate has overtaken a number of the ambitions in the monetary field announced at the outset of the Kennedy administration. Generally speaking, the President's advisers came to Washington persuaded, first, that monetary policy had been too stringent during the Eisenhower years, and, second, that the Board's policy of confining open market operations to the short end represented an unnecessary f orfeiting of a powerful weapon for stabilizing the economy through alteration of the interest rate strutture. But even the first few months of power brought home the realization that the opportunity for monetary leniency, under circumstances in which domestic economic conditions warrant such a policy, is significantly, even embarrassingly, restricted by the nation's balance-of-payments position. Several of the administration's experts had earlier been concerned about the restrictive implications of the external pressures. However, they failed to recognize the full magnitude of the problem, because they did not then appreciate, what experience has since taught: how difficult it is for the Federal Open Market Committee to alter, save temporarily, the interest rate structure by purchasing securities of varying maturities. As a consequence, the nation experienced in the recent recession an unheralded degree of monetary restraint, one which would probably have been regarded as intolerable had it occurred under the previous administration. Perhaps it is wise, however, not to reflect too long on the ironies of politics, but rather, in fairness to the highly qualified men who are the President's advisers, to acknowledge how quickly the lessons have been learned.

IN this paper it is assumed that the goal of economic development is rising per capita real incomes and that Paul Hoffman's suggested per capita income figure of $300 annually 1 is acceptable as the income level dividing the underdeveloped from the developed economies. It is the purpose in this paper to examine the capital formation rate and the rate of generation of GNP in Burma since I948, the year in which Burma achieved independence. On the basis of Burma's demonstrated economic performance since independence, an endeavor is made to determine the magnitude of the economic development task confronting the Burmese economy. The method employed in this endeavor is one of determining, under varying sets of assumptions concerning aggregate capital-output ratios and population growth rates, the time required to accumulate capital in sufficient amount to provide real per capita incomes of $300 per year.

7 I would like to express my appreciation to Dr. Mendershausen for having called my attention to a number of errors which crept into my original calculations. I have now recalculated all figures for I958 and I959. The results are almost in substance although a number of the figures require minor corrections. By unchanged in substance, I mean (I) there is still mutual discrimination between the Soviets and the Bulgarians and (2) the Bulgarians still appear to discriminate more heavily than the Soviets against the rest of the Bloc, particularly with respect to exports. The only error of direction appears to be Bulgarian imports from the USSR in I959 (Table 2) in which it turns out that the Bulgarians did not discriminate against the Soviets on a by-commodity basis. However, they still discriminate in I958 on imports and also in I959 on a weighted value basis (Table 3). Recalculated figures are available upon request.