ECONOMICS: 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.