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Page 62 to a safer level, we must aim not merely at balancing our trade on current account, but at achieving a considerable surplus.

8. We cannot rely for this purpose on direct financial assistance from the United States. The experience of recent months has shown that United States aid will not only be greatly diminished in amount, but also closely confined to support of the Defence Programme. Moreover it is also clear that continued reliance on aid is in itself undesirable; it not only weakens our moral position vis-à-vis the United States in international affairs generally, but, by disguising to a greater or lesser extent our true economic position, tends to create the dangerous impression that it may be possible to avoid some of the more painful adjustments that are necessary. This is not, of course, to say that we can expect no co-operation and assistance from the United States in the international economic field, but the prospects of successful negotiation with them will be good only if we have by our own efforts put ourselves fairly and squarely on the road to economic strength and independence.

9. The policy which we must adopt for this purpose can be stated in general terms quite simply. Our general course, in all our economic affairs, must be to give first and overriding priority to regaining our national solvency in the sense of being able to pay our way as a nation in the world. In concrete terms this means using every means to secure a rapid and continuous increase in exports-and exports of the right kind to the right markets-while at the same time we limit our imports, both of food and raw materials, as far as possible to what is essential for our survival and in particular to what will further increase our earning capacity. This in turn calls for a continuous increase in our industrial production, and for a policy which ensures that the bulk of it is acceptable, both in price and quality to world markets, and is in fact exported. In its turn this requires a policy on home invest- ment, which provides for the necessary re-equipment and expansion of our fac- tories. In all of these fields-imports, production and investment-this task of winning national solvency through production and export must not be subordinated to other objectives-defence, social services, &c.—which, however desirable in them- selves, do not contribute directly to our paramount aim and which would in any event be impossible to achieve if we failed in our first task. At the same time we must devote what resources we can to producing at home goods which would other- wise have to be imported. The most important field here is home food production, where the maximum expansion consistent with our major objective is clearly called for.

10. A general policy of this kind calls for action in a number of inter-related fields; my views on these are set out in the paragraphs which follow.

III

External Financial Policy

11. I am not in this paper defining the exact course which we should follow in our external sterling policy. This will depend in part on the reactions of Mr. Menzies, who is arriving next week and who represents one of the most important Commonwealth countries. We must also watch the development of the future constitution of the European Payments Union (E.P.U.) and of the Organisa- tion for European Economic Co-operation (O.E.E.C.). It is clear, however, that we cannot continue indefinitely with an inconvertible currency and with sight liabilities which are not adequately limited having regard to the weakness of our gold reserves. The value and purchasing power of sterling depend on the willingness of other countries to accept and use sterling, which in turn depends on the ability of this country and the Sterling Area to make ourselves solvent and to compete in world markets. To ensure that the world will accept sterling in payment for what we need and will trade in sterling so as to make use of our financial and marketing services, convertibility must be an early objective: at the present time, especially with E.P.U. gold payments at 100 per cent., we have many of the drawbacks of a convertible currency and none of the advantages. The smooth working of any international payments machinery must depend largely on the adoption by the United States of America of revised and enlightened policies on imports and raw material purchases which would tend to lessen the present world dollar disequilibrium. At some stage we must talk to the United States about these matters; clearly such talks could be successfully concluded only after the new President has taken office. It is essential, however, that we use the time between now and then to show what we can do by our own efforts.

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