People always believe they live at the center of history. In Dickens's phrase, it is either the best of times or the worst. Dickens believed this to be nonsense, and it is. Some times are a lot better or worse than others, and most are stuck somewhere in between. But the present is usually confusing, and the best way to understand it often is to take an excursion into the past.
That thought recently prompted me to visit Charles P. Kindleberger, one of the nation's most respected economic historians and a professor of economics at the Massachusetts Institute of Technology. He has spent most of his life studying the world economy, which now seems in a particularly unsettled state. The United States is entering recession, economic growth in Europe is slowing and high oil prices remain a crushing burden for almost everyone.
It is difficult to know what to make of all this. Doomsday visions come easily. War or high prices shut off oil. The international banking system breaks down, incapable of swallowing the huge sums received by oil producers (the 1980 surplus is estimated between $110 billion and $120 billion) and relending the money to consuming countries. Trade and econimic growth stagnate. Protectionism and unemployment rise.
But doomsday, although frequently forecast, continually frustrates its prophets by refusing to arrive. Kindleberger isn't predicting doomsday, but, given his perspective on history, he's worried. He believes that in a world where national economics are linked, the system's success depends on an economic superpower, which -- consciously or not -- acts to prevent the system from destroying itself.
In the 19th Century, that power was Britain. When its own economy slowed, diminishing its need for imports, its overseas lending and investments picked up. This provided a new source of growth. After World War II, the United States assumed the superpower role. In the late 1940s, the Marshall Plan shoveled out $14 billion to destroyed allies. The United States gave the world a stable currency -- the dollar -- that could be used as a vehicle for international trade and investment. And it supplied essential commodities -- grain and oil -- in time of crisis.
What bothers Kindleberger now is that no economic superpower exists. The last time that happened was between world wars, because "Britain couldn't [be a superpower] and the United States wouldn't." To Kindleberger, the vacuum of power explains the severity and length of the Depression. If you believe the Depression helped lead to other things, such as Adolf Hitler and World War II, the significanceis far more than economic.
Kindleberger isn't arguing that the economic slide of 1929-30 could have been prevented. But he contends that the absence of a major stabilizing force meant that things got much worse than necessary. Britain's inability to lend substantial amounts to distressed banks on the Continent led to their collapse. The resulting loss of faith in banking institutions deepened the distrust of paper currencies and led to their conversion to gold.
All this fanned chaos. To protect their currencies, countries mistakeningly kept money policies unnecessarily tight. Forced to go off the gold standard -- under which they would exchange paper currency for gold -- they engaged in competitive devaluation. This was intended to make exports less expensive. But the United States had passed the Smoot-Hawley Tariff Act in 1930, and other countries took similar steps. So producers were competing for diminishing markets, which kept driving prices down. But nose-diving prices (zounds!) were the basic problem, preventing producers from repaying debts and forcing further contraction of credit.
You don't have to agree precisely with Kindleberger's reading of history (rival explanations of the Depression abound) to appreciate his basic point. If nothing else, the past few years have reminded us of the pithy but forgotten truth that a sense of certainty and trust keeps things together. Especially in international relations, it's easy to lose faith in other governments and other cultures. If one country is acting as ultimate protector, setting an example for others to follow, confidence stands a better chance of surviving.
That the United States couldn't preserve in overwhelming post-World War II economic dominance probably was preordained by our allies' growing prosperity. But the accompanying loss of political leadership has gone much further than was inevitable.
If we are now galled that we don't seem to get more support from our nominal allies, few of us realize that our policies invited this disrespect. Because other countries viewed scarece oil as a chief source of instability, they regarded our oil price controls and exaggerated consumption as a source of instability. And because other countries used the dollar to conduct international trade and investment, they reduced regarded our inflationary economic policies -- which made them distrust the dollar's value -- in the same way.
As Kindleberger points out, the role of superpower isn't an easy one. Other nations naturally get jealous. Yet the role often requires the superpower to take steps that don't seem in its own short-term advantage. It does so because it believes that the health of the whole system supersedes its own immediate gain. But this is a very difficult point to sell politically. Only recently, the House of Representatives cut back U.S. foreign aid contributions to international development banks by one-third.
All this diminishes U.S. international influence and contributes to an enormous fragmentation of interational economic and political power. It is here that Kindleberger's anxieties seem relevant for the present outlook. Economic stresses may be greater in the next few years than in the last. Slow growth and high oil bills may accentuate national expert drives while limiting import markets -- a formula for more protectionist pressures. Many financial specialists doubt the capacity of private banks to handle oil surpluses.
Collective interests do exist. About one-quarter of our exports go to non-oil-developing countries. As in the recent past, today's worries about the stability of the world's economy may prove exaggerated. But if they don't, they imply a need for new international mechanisms -- probably negotiated by government -- to cope with global trade and money problems. But will anyone be able to do the designing and manage the construction?