A Comment on United States Economic Policy and the "Dollar Gap" of the 1920's

Abstract

N his recent article on international economic disequilibrium in the ig20's,l M. E. Falkus suggests that, since American agriculture and industry had a great competitive edge over the rest of the world, American commercial policies were largely irrelevant to the trading situation. Thus he excuses to some extent the illiberal, restrictive, and irresponsible international economic policies pursued by the United States during this period, in questioning their effectiveness and by denying the potential effectiveness of alternative policies. He also implies that, since in his opinion an effective adjustment in the i920's was probably impossible, the world crisis of I 929 was inevitable-although it might, possibly, have been avoided if the deficit nations had adopted, in the i920's, some of the highly restrictive policies which wrecked world trade in the I 930's.2 The purpose of this comment is to point out that these and other implications drawn by Mr Falkus do not necessarily follow from the evidence he presents. In concentrating mainly on the tariff Mr Falkus is to some extent avoiding the basic issues since there does not appear to be any serious suggestion, by a reputable contemporary commentator or a historian, that changes in tariff policy, in isolation, and without other adjustments, could have prevented international economic imbalances during the I 920'S.3 Quite clearly the tariff is only one factor which must be considered in connection with other, probably more important, influences affecting relative price structures and the international flow of goods, services, and capital. It is important to note that some of these influences were probably of basic significance in determining the effectiveness of the tariff which may, for example, have varied in accordance with the value of the dollar. While the tariff may have been ineffective at the exchange rates which actually prevailed, it might, conceivably, have been much more significant if the United States dollar had been allowed to appreciate.