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The World Dollar Problem*
Published online by Cambridge University Press: 18 July 2011
Extract
The exhausted countries of Western Europe started reconstruction after the Second World War with productive facilities hardly sufficient to provide for current subsistence needs, and with gold and foreign-exchange reserves, foreign investments, and export capacities greatly reduced. Many—though by no means all—of the lacking goods could best be obtained from the United States, and recovery would have been long delayed without United States aid. To the superficial observer the existence of a “dollar problem” was thus proved beyond doubt. Actually, these countries did not just lack dollars, but were short of factors of production and lacked a surplus of goods and services with which to expand those factors.
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- Copyright © Trustees of Princeton University 1959
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1 Insofar as a Frisch effect might occur, it could not be remedied by discrimination against the United States. Discrimination could indeed ensure that the contractive effect of a country's reduction in imports hits only countries with a global balance-of-payments surplus; however, to do so it would have to be directed, not just against the United States, but against all countries that at that moment happen to be in surplus. The United States has never been die only surplus country, and has at times been in deficit.
2 In other words, foreign exporters, and the monetary authorities of their countries, treat dollar receipts as final payments rather than as “credits” granted to the United States; just as a resident of the United States treats a dollar receipt as a final payment rather than as a credit to the Treasury or the Federal Reserve.