FISCAL: Mr. White’s White Paper

Taking no chances on being scooped on his own long-term fiscal plans for the world, Henry Morgenthau last week released to 43 United and Associated Nations, seven Congressional committees, and the U.S. press a well-hedged description of his much-bruited World Bank.*Billed as a “tentative proposal . . . [with] neither official status nor the approval of any department of the Government,” the blueprint for a United Nations Bank for Reconstruction and Development was sired by the Treasury’s economist, Harry D. White. But Henry the Morgue made it plain that he had adopted the child.

The Plan. Basic aim of the White-Morgenthau plan is to find a way to use the world’s wealth to put the world back on its feet† The plan proposes that the governments of the world pool part of their financial resources, search out needed investments, and underwrite those that private capital will not—or cannot be expected to—handle. Its framework: > The United Nations Bank would have a total capital of $10 billion (expressed in “Unitas” equal to $10 in gold), in nontaxable, nontransferable $100,000 shares, to be divided among the United Nations by “an agreed-upcn formula” based on “relevant data” such as the amount of national income and foreign trade. According to Treasury definitions of the formula, the U.S. would probably contribute about one third of the Bank’s funds, Russia and Britain about one tenth apiece.

But the initial contribution of any nation would be only 20% of its maximum obligation, and not more than one fifth of that need be in gold.

> The Bank would be empowered to make loans and to guarantee or share in private loans to member nations, provided:1) that the money is not available elsewhere, but 2) the loan looks good enough to pay off at reasonable interest, after 3) a written report by “a competent committee” has okayed the project, and 4) the borrowing government has guaranteed principal and interest.

> No nation can cast more than 25% of the Bank’s votes and, with a few exceptions, a simple majority may decide any controversial question. As a club against small defaulters with big votes (each share of stock is good for one vote, while each member country would be also entitled to 1,000 votes), members who do not pay up can be suspended by the same majority.

The Pros. Harry White’s argument for his Bank is the very argument that makes the average U.S. citizen leary of U.S. investments abroad: That the private investor got rooked after the last war.

He got rooked, say the Treasury, precisely because his foreign loans were made without any overall supervision, were improperly sold—and oversold—to him and to the borrower, at too-high interest rates and with too little regard for whether the money was actually used productively.

A World Bank, says the Treasury, should be able to police its loans much more intelligently. The Treasury pointed to the “sound banker’s” record of Jesse Jones’s RFC to prove that there are certain long-term risks which private capital might reasonably hesitate to take after the war. But a United Nations RFC, with risks spread across the world, could well afford to underwrite them.

The Cons. No one could quarrel with the Treasury’s basic aim. But plenty of critics had knives stropped for the specific Treasury formula. The Wall Street Journal, seeing bureaucracy under the bed, spoke darkly of “socialization of foreign investment and . . . nationalization of property ownership.” And a good many who ground their dusty way through the 17-page Treasury memorandum wondered how the World Bank could do so much more than private capital while insisting upon meticulously conservative safeguards for its money. The provisions for suspending defaulting members made it sound as if in due course the wealthy na tions might be the only members left.

Trouble is that the postwar fiscal needs of foreign nations are almost sure to be in exactly inverse ratio to their internal wealth. Moreover, the U.S. ability to meet those needs will be conditioned upon its ability to put its own economic house in order and to persuade its citizens to act internationally, in terms of lowered tariffs, settlement of war debts, etc. Until that has been accomplished, as Banker Leon Fraser put it last fortnight (TIME, Nov. 29), global fiscal institutions “are over-grandiose and oversimple at the same time.” They tend to lull the common man into believing that the affairs of the world can be settled before the problems of its component parts have been solved.

The Pay-Off. Nonetheless the world’s postwar problems have to be attacked somewhere first. Last week Harry White spoke hopefully of an international fiscal conference to be held “this winter.” For the first time press reports flatly stated that Russia, with her vast and secret gold hoard, was ready to talk turkey about postwar finance. The Treasury’s “tentative” World Bank at least made an opening for talk about something more concrete than the Four Freedoms when the discussions began.

* Almost all news of U.S. fiscal plans for the postwar world up to now—including an early outline of the World Bank—has first been heard of via London dispatches from the Financial News, influential daily published by Brendan Bracken, British Minister of Information (and Churchill protege).

† The German radio saw it otherwise, described it as “Morgenthau’s Jewish Bank, to Plunder the World.”