Faculty Experts Applaud Devaluation

As Great Britain, armed with last month's $4.03 to $2.80 devaluation of the pound, resumed her fight to wipe out her dollar deficit and thus get back on her feet economically. University economists found themselves in general agreement this week that devaluation should prove a big stimulus to recovery and that there isn't much Soviet Russia can do about it.

Generally optimistic views over the British action and its effects on west and East came from seven of the University's economic experts--men familiar with the problem through work with the Economic Cooperation Administration the University's Russian Research Center, and through general studies in the field of international trade. Of these men, only one was not convinced that devaluation had at least al fair chance of solving Britain's economic woes.

Among those here backing the devaluation is one of Harvard's newest economists. Arthur Smithies, professor of Economic since February when he came here direct from full-time work with the ECA. Smithies was director of the Fiscal and Trade Policy Division, and he still holds official ECA title as a consultant.

Professor Smithies believes Britain can reap most of the devaluation benefits, but he isn't quite sure how much good will result. "We can't be certain Britain will be economically independent of the United States when the Marshall Plan ends in 1952," Smithies says, "but the important thing is that progress can now be made."

"With a four dollar pound it was much less profitable for British sellers to export to the dollar area than to the soft-currency areas. the thirty per cent devaluation should now make exports to the United States just about as profitable as to the non-dollar areas," Smithies points out. "I doubt if anything besides devaluation would have worked. And without devaluation the United States either would have to continue subsidizing Britain beyond 1952 or else abandon her to wrestle with the financial crisis that would seem bound to occur."

One of the biggest threats to the success of the devaluation is the possibility that British wages and other costs will arise. Professor Smithies is optimistic about this point: "I think British costs can stay down because I don't believe there is much likelihood that wages will rise by much. And even if wages and costs should rise somewhat, they can't possible rise by the thirty per cent of devaluation."

Williams Has Reservations

Also glad to see devaluation but qualifying his optimism with certain reservations in John H. Williams, Ropes Professor of Political Economy. Professor Williams has been consultant for the Economic Cooperation Administration and the Organization for European Economic Cooperation and is the author of "The British Crisis," an article currently appearing in Foreign Affairs Magazine.

"Devaluation is the most obvious way of attacking the British problem," Professor Williams says. "But no program for stopping Britain's loss of reserves and correcting her dollar deficit will carry conviction unless the right foundation in British policy is laid for offsetting certain dangers." Among the dangers the professor fears are (first) the possible upward spiral of British prices and wages and (second) poor management in the repayment of Britain's wartime sterling liabilities which might thus result in the funnelling up ECA aid through the British economy to outside recipients."

Professor Williams also cites Britain's conflict between improving her balance of payments and running a social walfare state. While he does not complain that British nationalization as such holds back production and productivity, Professor Williams believes both sides of the British socialist budget are to high. "Taxes, always essentially restrictive, have been raised so high as to dry up saving and destroy incentives among workers producers, and investors."

Finally, Professor Williams believes that much of the success or failure of the British action will depend on the United States. The fundamental cause of Britain's and Europe's dollar deficits "lies in our short-run economic instability and our long run tendency to outstrip others in production." The remedy here, Professor Williams feels, may be President Truman's "Point Four" plan to build up undeveloped regions through export of American technology and skill. "And we must preserve stability at home if we really want to achieve a world balance by some other means than the expenditure of our own taxpayers' money."

Mason, Haberler Hopeful

Another optimistic faculty expert, perhaps even more optimistic than Professor Williams is Dean Edward S. Mason of the School of Public Administration. Mason is also professor of Economics and an ECA consultant.

Devaluation considerably improves Britain's changes of getting on her feet, Mason feels. "Exports will rise to the United States, and Britain will now be in the competition for the important Latin American market." Twin stumbling blocks seen by Mason are the possibilities that America will up her tariffs and that the increased cost of British imports may set off inflation in Britain. But still optimistic, Mason doubts that either of these two possible dangers will materialize.

Warburg Professor of Economics Gottfried Haberler, who handles Harvard's graduate course in International Trade, calls the pound devaluation a "courageous" move and thinks it has a good chance of completely wiping out Britain's dollar deficit by 1952, providing low British incomes don't force general wage rises.

Professor Haberler was surprised at the extent of the devaluation and also at its coming despite Sir Stafford Cripps' assurances that it would not "But at least we can now be fairly sure that there will not be any further devaluation in the near future," Professor Haberler says.

As for the move's chances of success, Professor Haberler agrees with Professor Williams that Britain's internal welfare program should be less lavish and that her sterling war debt should be repaid less liberally. He also thinks this country sooner or later will have to allow its export volume to drop. "Otherwise we must resign ourselves to subsidizing the world forever."

Harris Not So Sure

Despite the optimistic views of his colleagues, something of a minority view was voiced by Seymour e. Harris '20, professor or Economics and head of the undergraduate International Trade course. "Britain will still have a substantial deficit in 1952," he predicted, "largely because the American market won't take much more British goods." Professor Harris says the British deficit is so large that "even if the United States were to double its purchases of British goods, it still would not cover a large part of the deficit."

What intensifies this particular difficulty, Professor Harris believes, is that devaluation in other countries will cut Britain's chances of increasing sales outside of the United States in the Latin American and sterling area markets. "Consequently I'm not overly enthusiastic about devaluation, because there is so much else that must be done.

While most of the University's experts were concerned with the effect of devaluation upon Great Britain and Western Europe, two in the Harvard family were nothing the impact of the British action upon Soviet Russia.

A Look at the Iron Curtain

Wassily W. Leontief, professor of Economics on the executice committee of the Russian Research Center, had two observations to make:

In one sense the soviet countries cannot affect devaluation because the volume of East-West trade is now low for obvious political reasons. "If England wanted to sell to Russia, devaluation would prove a big help; but as long as trade is so small it does not matter."

And Professor Leontief warned against the train of thought that devaluation will greatly add to the economic strength of the West and that consequently there should be little to fear. "Russia may be rubbing her hands right now in hopes the British worker will have to cut his tandard of living by such degrees that Communism will easily be able to take over Britain."

The chairman of the Russian research Center's economic project. Associate Professor Alexander Gerschenkrop agrees that because of the trade barriers, devaluation's overall effect on the Soviet East will be "small for the time being." But he remarked that, although Russia theoretically has been always trying to wreck the Marshall Plan, in practice she has continuously been exporting grain to western Europe, and buying some production goods in return. "Perhaps in economic policy, Russia is not so interested in discouraging western trade as we suppose."