Mr. Stricker is a member of the Business Research Staff of General Motors Corporation.
As long as we maintain a free price mechanism, consumers will guide the economy by the countless transactions which they initiate every day. Their actions maximize the use of available resources.
For many years there have been groups in other countries who have advocated government schemes to control the production and the prices of basic materials. In the 1920′s the export of rubber from the Malay States, the Straits Settlements, and Ceylon was under strict control by the British under the Stevenson Plan. The price rose from 15¢ per pound in August 1922 to $1.01 per pound in November 1925.
Opposition to the Stevenson Plan became marked in the United States under the enormously high prices of 1925. Among other things, some consideration was given to the possibility of promoting rubber production in tropical areas in the Western Hemisphere. More important was the renewed use of reclaimed rubber. The use of reclaimed rubber had amounted to more than one-half that of new crude rubber in the United States in 1917 but had dropped to less than 20 per cent in 1922. In 1927 and 1928, its use once more equaled 50 per cent that of crude rubber in the United States and almost one-third of world new crude rubber consumption.
The British Colonial Secretary announced the decision to abandon restriction on November 1, 1928. He said this decision was made because it was difficult to influence prices with a reduced proportion of output under British control and the prospect of losing a still larger part of the market to the Netherlands Indies, where planting had been stimulated and where producers not only had lower costs than in restriction areas but also every inducement to use new developments such as seed selection and bud grafting. He also reported opposition to the scheme in Ceylon, smuggling, and the corruption of native staffs.
Another control scheme which also failed to stabilize production or price was the Brazilian coffee valorization plan. The controls broke down, and instead of stabilizing prices, the price was lower than ever. The most spectacular development in Brazilian policy regarding coffee was the burning of enormous amounts; from 1931 to 1938 Brazil destroyed 65 million bags, or 8,600 million pounds, the equivalent of total United States imports for five years.
We are sympathetic with the problems of countries whose national income and well-being are involved with the markets for a few basic commodities. Indonesia and Bolivia depend on exports of tin, Brazil of coffee, Chile of copper for necessary foreign exchange. There are numerous other examples that readily come to mind. Experience, however, does not hold any promise that these countries will prosper from government control schemes. If we can maintain a high level of gross national product in our own economy, we assist the underdeveloped countries by our demands on the world markets for primary commodities. This is our greatest opportunity to help others while helping ourselves.
During the course of World War II, a group within the State Department drafted proposals to guide the world economy during the postwar period. The results of their work were embodied in a document known as “Proposals for Expansion of World Trade and Employment,” issued in November 1945. One of the proposals provided for intergovernment commodity agreements designed to meet the recurrent problem of stabilizing the prices of raw materials. This proposal was sponsored by our government to aid countries such as those we have just mentioned.
The State Department believed that it had improved upon the earlier control schemes by providing for government representation from countries with important consuming interests on the intergovernment control board for any commodity. This was an improvement over the earlier plans such as the Stevenson Rubber Act. However, a conference of government representatives sitting down around the table is quite different from a free market in which buyers and sellers adjust the supply-demand relationships through the operation of the price mechanism. Any such scheme of necessity implies government controls over price and production.
The United States proposals were referred to the Economic and Social Council of the United Nations. They ultimately were incorporated in a charter for the International Trade Organization adopted by an international conference which convened at Havana, Cuba, in November 1947.
The commodity agreements proposals were Chapter VI of the Charter. The Havana Charter was submitted to the Congress by former President Truman in 1949. The House Committee on Foreign Affairs conducted hearings during the spring of 1950 but failed to report the resolution and it died in Committee. Pending adoption of the resolution, the United Nations attempted to establish the Charter, chapter by chapter. The implementation of Chapter VI was through an organization known as the Interim Coordinating Committee for International Commodity Arrangements. Although the Havana Charter is dead, we are still operating in the Interim.
While the initial thinking on commodity agreements was directed toward the problem of surpluses and the stabilization of prices, the Korean emergency presented a new set of problems involving shortages. This eventually resulted in the birth of an extracurricular organization: namely, the International Materials Conference. It had the power to make recommendations to governments on the allocation of critical materials. This organization, sponsored largely by our own State Department, was established outside of the United Nations structure in view of the difficulties involved in operating an organization with such powers if Russia and her satellites had a voice in all its decisions during the Korean conflict.
The International Materials Conference actually allocated copper, nickel, sulphur, cobalt, tungsten, molybdenum, zinc, and newsprint to all the nations of the Free World in accordance with what it called a country’s “entitlement for consumption.” The allocations were implemented in the United States by using the Defense Production Act with its material and price controls. As the IMC began to hamper seriously many industries in the United States, Congress made its own examination of this organization and amended the Defense Production Act in 1952 restricting the powers of the IMC over our economy; and in addition, it provided that no funds appropriated to the State Department could be used to pay any of the expenses of operating the IMC. This organization was disbanded in 1953.
In the meantime, another effort was made by countries largely dependent upon the production of raw materials to establish another group within the United Nations with powers to deal with commodity problems. A report released in November 1953 entitled “Commodity Trade and Economic Development” became the basis for a resolution submitted to the Economic and Social Council in the spring of 1954 providing for the establishment of a Commission on International Commodity Trade.
The United States representative to the United Nations Economic and Social Council opposed the establishment of this Commission, particularly in view of its very broad terms of reference. They included provisions to establish “just and equitable” relations between the prices of raw materials and manufactured goods. The United States representative voiced our unalterable opposition to any such proposal involving complete regimentation of the world’s economy.
In spite of United States opposition, the Commission was established in 1954. The Commission has produced a number of statistical studies, but it has been unable to do anything more in view of the fact that the United States has not participated in its work.
At the present time, our government is a party to two international commodity agreements, the International Wheat Agreement and the International Sugar Agreement, both established many years ago. We are not a party to the International Tin Agreement, and we are not participating in a proposed new Coffee Agreement.
Certainly our experience with wartime price and allocation controls within the United States, with the rubber and coffee schemes I have described, with our efforts to stabilize domestic agricultural incomes, and with the International Materials Conference, does not give us a basis to expect government controls to be superior to free markets.
No one can foretell the future. However, in my opinion, the free play of competitive forces set in motion by your day-by-day decisions over the long run will be more successful in insuring that the world’s resources are put to their most productive use than the decisions of well-meaning bureaucrats. The truth of the matter is that none of us is smart enough to plan a regimented world economy.
