Mr. Chamberlin long has observed, analyzed, and reported economic and political develop­ments at home and abroad. This report is based on his European tour last summer and autumn. The giant atlas, sustaining the pillars that keep heaven and earth apart, is a figure in Greek myth­ology. But there is nothing myth­ological about the unique role of Uncle Atlas which the United States has assumed ever since it committed itself to participation in World War II by passing the Lend-Lease Act early in 1941.

Never in history has there been such a tremendous economic blood transfusion, such an outpouring of subsidies from one country to the rest of the world. Lend-lease aid to countries with which the United States was associated in the course of the war, very little of which was reimbursed by so-called reverse lend-lease, amounted to well over fifty billion dollars. It could be argued that it was more economi­cal to sustain allied forces than to spend this money on our own military effort. Still, in view of later developments, it seems a little ironical that about eleven billion dollars of lend-lease aid to the Soviet Union (not a penny of which has been repaid) was fol­lowed by vastly larger military and foreign aid expenditures for the avowed purpose of containing and checking Soviet designs of expan­sion and aggression.

From a war emergency, foreign aid has become a permanent habit. Grants and loans of dubious secu­rity to nations in all parts of the world since the end of hostilities add up to about 60 billion dollars, and every year the Administration can be relied on to ask Congress for additional appropriations of about four billion dollars. The re­quest is usually granted, with minor cuts.

These handouts have been used for a wide variety of purposes in a large number of countries. They paid the greatest share of food and rehabilitation expenditures under UNRRA. Some twelve billion dol­lars were spent on the Marshall Plan for European economic re­construction. Still larger sums have been contributed for the mar­tial plans that followed the Mar­shall Plan, for the military build­up of supposedly friendly nations in Europe and Asia.

The American taxpayer has also been footing the bill for a good deal of economic aid, some of it going to allied countries and some to neutrals like India and Yugo­slavia and even to a country like Poland which, through no desire of the Polish people, to be sure, is in the Soviet bloc.

And both at home and abroad there are always eager sponsors of bigger and better handouts for welfare purposes all over the globe. Some American Senators have sponsored support without a definite limit for India‘s plans of economic development. And a well-known British woman writer on economic subjects recently ad­vanced the proposition that the fate of the free world would hang in the balance until India was tided over the growing difficulties of its new five-year plan by an annual subsidy of one billion dol­lars in foreign currency. The United States was the obvious largest potential source of this proposed handout.

Insufficient Funds

Now, however, there are signs that America cannot play the part of Uncle Atlas much longer, and this for a reason that has often checked governments in extrava­gant courses in the past. The means to continue these lavish foreign subsidies are running out. Dollars have been used with such reckless profusion to prop up for­eign currencies and foreign econ­omies that the dollar itself is today in danger of becoming a weak currency.

It has long been a popular theory, especially among British economists, that Europe faces a so-called dollar gap. Europe can never, so this argument runs, sell enough in goods and services to the United States to pay for what it urgently requires in raw ma­terials and equipment from Ameri­can sources. This line of reasoning easily led to the conclusion that it is up to America, in one form or another, to subsidize Europe in­definitely.

But during the last decade this theory of the inevitable dollar gap has been knocked into a cocked hat. Indeed it has been proved true, but in reverse. Ever since 1950, with the sole exception of 1957, when there was an abnormal European demand for American oil because of the Suez crisis, the United States balance of payments in relation to Europe has been un­favorable. During the last two years, 1958 and 1959, the outflow of gold and of dollars which repre­sent claims on gold from America to the outside world has been especially strong.

Dwindling Gold Reserve

In its international accounts the United States was in the red by $3.4 billion in 1958, by about $4 billion in 1959. The United States gold reserve, which was $22.9 bil­lion in 1957, has now fallen below $20 billion. This, to be sure, is a tidy figure, about half the known gold reserves in the world. But an unfavorable balance of payments of $4 billion is not negligible either. Nor is the fact that Euro­pean countries hold short-term dollar liabilities in the neighbor­hood of $15 billion. Were all these liabilities presented at once, the United States would face the dis­agreeable alternatives of going off gold, in respect to foreign liabili­ties, thereby producing a tremen­dous international financial shock, or of seeing the gold reserve diminish to a very small figure.

To be sure, this is not likely to happen. Such a massive run on the dollar would not be in the best in­terest of the European holders of the dollar liabilities. It is the long-range trend toward an unfavorable balance of payments that is the serious aspect of the situation.

A Weakened Economy

Long accustomed to take for granted the idea that the dollar is the king of currencies, Ameri­cans do not realize, as Europeans do, what a weak, shaky currency can mean. When a country with a limited gold reserve finds itself spending a good deal more abroad than it receives from abroad, its financial authorities find them­selves tempted to resort to all sorts of disagreeable courses: to slap on quotas for the purpose of re­ducing the inflow of foreign goods; to limit the amount of money a citizen may take out of the country; to forbid foreigners to bring in or take out the currency of the country, and so on.

All such measures are entirely contrary to the spirit of a free economy and, in the long run, do more harm than good. But they are the usual consequences of a persistently unfavorable interna­tional balance of payments. When a currency is persistently weak it is apt, in the end, to be reduced in international exchange value. So, in 1949, the British pound, which had long been selling at a discount on foreign markets, was officially reduced in relation to the Ameri­can dollar from $4.00 to $2.80; and most European currencies ex­perienced the same or similar re­ductions in value.

Since that time, European cur­rencies, as a general rule, have re­mained stable in international ex­change value; but the French franc was devalued more than once before France finally set a stable currency course by intro­ducing anti-inflationary measures in the latter part of 1958.

Prospects of Devaluation

When a currency is cheapened in exchange value, the immediate effect is temporarily to right the balance of international payments. Exports are promoted and imports are discouraged because exports are cheaper, in terms of foreign exchange, and foreign goods be­come correspondingly more expen­sive. Just for this reason, because it makes foreign imports more ex­pensive, devaluation means a cer­tain amount of impoverishment for the people of a country that resorts to this practice.

Fifteen years, even five years ago, nothing would have seemed more absurd than the suggestion that the United States dollar might be exposed to the risk of devalua­tion. But, if one now travels in Europe and talks with financial experts in London, Zurich, and other financial centers, the possi­bility that the dollar might fall in international exchange value is seriously discussed. In striking contrast to the situation immedi­ately after the end of the war, dollars are being offered more freely than they are demanded in some European exchange centers.

Unbalanced Trade

What has created a situation where the dollar, long regarded as the Rock of Gibraltar among in­ternational currencies, can be seriously suggested as a candidate for devaluation? (The suggestion, to be sure, is certainly premature and may be altogether exagger­ated; yet the fact that one does hear it on occasions is not without significance.)

There would seem to be two principal reasons for this striking change. And the first of these is the prolonged attempt to play the role of an international Uncle Atlas, supporting the universe. Our over-all commercial trade balance, the surplus of what we sell over what we buy, is still quite favorable, even though it declined from $6 billion in 1957 to $3.3 billion in 1958 and seems likely to decline further in 1959. We also receive a substantial income from foreign investments, notably in Canada.

But these favorable items in our international balance of payments are offset by such expenditures, involving the outlay of dollars for foreign currencies, as $3.1 billion for United States troops stationed abroad, nonmilitary government expenditure of $1.6 billion, $1 bil­lion net outflow of government capital exports and a $2.9 billion deficit in private capital move­ments.

It is this imbalance that has caused America‘s gold reserves to diminish and its dollar liabilities to increase, to the tune of $3.4 bil­lion in 1958 and $4 billion in 1959. This is why Secretary of the Treasury Robert Anderson has been demanding that discrimina­tion against American goods in European markets should cease as not only inequitable in itself but also completely unwarranted by present financial and economic con­ditions. This is why the Adminis­tration is proposing that the Euro­pean countries, which have been gaining in gold reserves as the United States has been losing, should make more of a contribu­tion to projects for the aid of the economically retarded areas of the world.

Time for Reappraisal

The lesson of this situation for the United States is clear. Until a more normal balance of interna­tional payments is established, overseas commitments that involve dollar outlays should be scrutinized with the utmost care. Military al­liance arrangements should be re­examined, with a view to a fairer distribution of the financial bur­dens. Too often, in the past, the assumption has been made by for­eign governments and accepted by the United States that Uncle Atlas should carry the whole load or a disproportionate share of the load of expenditure in a common cause.

The American financial plight that has been receiving increased attention in recent months is a powerful argument for sweeping cutbacks in foreign aid appropria­tions, apart from the fact that these appropriations have already been discredited, in many cases, by waste and carelessness.

The best time to stop a run on the dollar is before it occurs. And, if the United States is to be of real help to peoples struggling against communist aggression and in­trigue, the first condition is that the dollar be maintained in a sound and solvent condition. The United States has now become, in many respects, the banker of the world; and a banker must justify confidence by the prudent handling of his affairs.

Inflationary Measures at Home

It is not only profligate and reckless spending abroad that has weakened the position of the dol­lar. A second cause is the failure to deal firmly with inflationary trends at home. There has been too much paying not for work per­formed, but for work not per­formed, to farmers for not plant­ing crops, to workers for unneces­sary and wasteful practices, gen­erally known as featherbedding.

Since there are in the market place no willing customers for un­rendered services and unproduced goods, the financing of such some­thing-for-nothing schemes depends on compulsion. Pressure group de­mands have led to government spending in excess of tax collec­tions; and the resultant deficits, monetized through the federal re­serve banking system, are reflected in rising wages and rising prices. The government has expanded the money supply to subsidize farm, business, and labor practices that could not meet the tests of open competition.

It is interesting to note that almost every European country has been improving its balance of pay­ments in relation to the United States in recent years. This is partly the result of a return to full normal productive efficiency on the part of European industrial nations and Japan. This is to be welcomed. It is infinitely better, from the standpoint of America’s own long-range economic interests, to have Western Europe an aggres­sive competitor (and for this rea­son, a larger potential market) than to carry Europe around our collective neck as an albatross, a prospect that seemed not unlikely in the years immediately after the war.

Competitive Weakness

But, while European competi­tive strength is to be welcomed, American competitive weakness is not. It was a sobering experience last summer to visit a new ship­yard in Hamburg, fitted out with all kinds of automatic devices, such as cranes that were operated by radio control, installed by Willi Schlieker, a Ruhr magnate who became a millionaire after the war. The workers in this shipyard were as skilled as Americans; their wages were about 75 cents an hour, a third or a fourth of what American shipyard workers would receive.

Allowing for the fact that, by and large, a mark will go farther in Germany than a quarter in the United States, one could under­stand the remark of the German engineer: "No one could afford to buy ships from an American ship­yard, unless it were heavily sub­sidized in one way or another."

There is no reason to sell America short as a major factor in industrial production and world trade. All the assets which have made it the land of the greatest prosperity for the most people (as proved by the world migration figures) are still here: an ener­getic, mechanically-minded popula­tion, a convenient layout of natural resources, superb engineering schools and research laboratories, a go-getting spirit that will over­look no tricks in trying to get and hold customers.

A Serious Warning

But even a champion in sport can suffer an upset if he becomes overconfident, neglects his train­ing, lets his muscles get flabby. A negative balance of $7.4 billion for a period of two years will not bankrupt America; probably onlya minority of Americans know there is such a deficit. But it should be taken as a warning nevertheless, a warning to re-ex­amine two of the weaknesses that have helped to bring it about.

First, there has been the im­pulse to play Uncle Atlas, to as­sume that all the world’s ills can be cured by writing bigger checks payable in United States dollars. This is not true. Countries that will not look to their own defenses, that will not put their own eco­nomic and financial houses in order, cannot be bailed out by American aid, however extensive.

Second, there has been a failure to take precautions against that modern form of clipping the cur­rency known as inflation. As a consequence there is a danger that we may price ourselves out of for­eign markets and falter in compe­tition with people who have had the courage and wisdom to impose on themselves sterner financial discipline.

It is time to give up grandiose dreams of being an Uncle Atlas, supporting the universe on our shoulders, and to take some more searching economic physical fitness tests to see that we are qualified to hold our own in a strongly com­petitive world.