Balance of payments explained

The balance of payments has been for so long a vital talking point in any discussion of Britain's economic situation that there is a constant danger of the familiarity of the term breeding contempt - particularly amongst those of us who are not economists and who are unfamiliar with the technical monetary vocabulary. This small book * sets out to clarify the issues at stake with a minimum of jargon. Despite, or perhaps because of, his limitations of purpose, Tom Drinkwater is able to relate the balance of payments problem to our national affairs as a whole. The balance of trade - the relationship between exports and imports - is shown as only part of an economic fabric which takes in such services as insurance, shipping and banking, and the longterm export of capital from which the subsequent profit may be either transferred to this country or reinvested abroad. Also discussed are the short-term capital activities of the City of London and, of course, the intensive international dealings of the British Government from which the ebb. and flow of interest have a profound influence on the overall balance of payments position. During the period since the end of World War II, Britain has suffered no fewer than seven balance-of-payments crises - at intervals of apprcximately 3 years, and it is the theme of this book to question the viability of Britain's relationships with the rest of the world. Officially we have been told that it is the trade gap which is the cause of the difficulties and that salvation requires only that we increase our exports. Frequently the popular press refers to the problems with such similes as "prudent housekeeping." Yet the trade gap throughout this period has been very much smaller than it was before the war: how then can one explain the countries relative freedom from such crises in the prewar period? The answer lies partly in our military expenditure abroad, which shows now as a debit to be met by the British taxpayer whereas before the-war.the cost of military bases was frequently forced on the colonial peoples. But more important as a contribution to the imbalance has been the persistent outflow of capital abroad - a use of capital which has necessarily retarded the development and capital re-equipment of the British productive economy in this country. It is in this situation that the stop-go policies of successive governments has disrupted the economy on each occasion that ‘stop' periods have been introduced in response to the balance-of-payments position. Among the proposals discussed by the author are: more severe restrictions on capital exports, import quotas, the sale of privately owned foreign assets, and a major cut in overseas military expenditure. (* "A Guide to the Balance of Payments" (LRD Publications) 98. Rliackfriars Road. Tiondon. Se.1. nrice 5/0a_)