The object of this paper is to consider the international implications of national policies aimed at maintaining high and stable levels of employment. It is now widely realized that such policies are not only compatible with, but actually prerequisite to, a large and steady flow of world trade. Substantial progress has been made since the end of the war in setting up the framework for a new international system of monetary and trading relations. The two Bretton Woods institutions are ready to start operations; and a conference just concluded in London has produced a draft charter for an International Trade Organization. This is a good time to inquire how this new system can be operated so as to agree rather than conflict with the domestic objective of stability at full employment.

The search for domestic stability at full employment must nowadays be accepted as a datum. The international monetary system should be—and, I believe, is now—so devised that the balance of international payments can never force a country into a state of deflation or inflation. Foreign trade fluctuations may continually necessitate relative shifts in the structure of prices and production, but should not compel any country to depart from the general norm of domestic stability. On occasion, domestic stability may of course break down; inflation or deflation may occur; but, if so, it will be for autonomous internal reasons, not as a means of bringing a country's external accounts into balance.