FUNK'S 'NEW ORDER'
Schacht was out of office by 1940 and it was his successor, but close collaborator, Walther Funk, who was responsible for the 'New Order' - the reorganisation of Western Europe after the fall of France. A Japanese economic historian says that once the Schacht 'new plan' had been established:
'there remained a problem of multilaterally clearing of bilaterally unsettled balances. The “New Order" which Dr.Walter Funk, the German Economic Minister and President of the Reichsbank, announced on 25 July 1940, was a resolution to the above problem by establishing a multilateral clearing system with Berlin as the central clearing house for European payments. The reichsmark would be the international currency within the German-controlled area but the national currencies of the different countries would be remain [sic. would remain? would be retained?]. Their national currencies will be stabilized in relation to [the] reichsmark which would remain stable in relation to gold or the U.S. dollar. Mark balances in the German-Danish clearing account, for example, could also be used to settle Swedish claims. Dr. Funk insisted that this currency scheme would be entirely divorced from gold and adopted from the doctrine of nominalism by Knapp who said that “the currency does not depend for its value upon its gold cover, but on the value which the State gives it". [The] currency scheme under [the] “New Order" was the first practical plan for a post war monetary and economic order.' (p.30) (16)
(16) Takekazo Iwamoto: 'The Keynes plan for an International Clearing Union reconsidered', The Kyoto University Economic Review, 1997, 65(2): pp.27-42. The English is sometimes a little awkward.
According to Skidelsky Keynes made no mention of the 'Schachtian' system prior to 1940, not even in the Preface to the German edition of the General Theory, published in 1936. (17) But in 1940, while developing his own ideas for a post-war international order, he expressed a quite lively interest. To continue Iwamoto's account:
'In November 1940 Keynes was asked by Harold Nicholson, the Minister of Information, to prepare a counter proposal for German propaganda of “New Order". Keynes replied to this request:
"In my opinion about three-quarters of passages quoted from the German broadcasts would be quite excellent if the name of Great Britain were substituted for German [sic] or the Axis, as the case may be. If Funk's plan is taken at its face value, it is excellent and just what we ourselves ought to be thinking of doing."
'In a memorandum entitled the Proposal to Counter the German "New Order", dated on 25 December 1940, circulated on 1 December [sic. January?], Keynes expressed a certain sympathy with the German proposal based on Schachtian bilateralism. In the memorandum he says: “After the last war laissez-faire in foreign exchange led to chaos. Tariffs offer no escape from this. But in Germany Schacht and Funk were by force of necessity to evolve something better. In practice they have used their new system to the detriment of their neighhbours. But the underlying idea is sound and good." He goes on to say: "The most definite of the German plans so far is [the] currency scheme of Dr Funk ... It has only one merit, namely that it avoids some of the abuse of the old laissez-faire international currency arrangement, whereby a country could be bankrupted, not because it lacked exportable goods, but merely because it lacked gold ... The arrangement we are now slowly perfecting, by which international exchange returns to what it alway should have been, namely a means for trading goods against goods [ie barter - PB], will outlast the war." [A] similar point was repeated in his first draft of the ICU [International Clearing Union - PB], about ten months later:
"Dr. Schacht stumbled in desperation on something new which had in it the germs of a good technical idea. This idea was to cut the knot by discarding the use of a currency having international validity and substitute for it a [system that?] amounted to barter, not indeed between individuals, but between different economic units … The fact that this method was used in [the] service of evil must not blind us to its possible technical advantage in [theservice of a good cause … I expound in a separate paper a possible means of still retaining a currency having an unrestricted international validity. But the alternative to this is surely not a return to the currency disorders [of] the epoch between the wars, mitigated and temporarily postponed by some liberal Red Cross work by the United States, but a refinement and improvement of [the] Shachtian device."' (18)
(17) p.230.Skidelsky quotes his preface to the German edition as saying that his '"theory of output as a whole", while "applicable" to German conditions, was "worked out having the conditions of Anglo-Saxon countries in mind - where a great deal of laissez-faire still prevails"'. Skidelsky then comments, rather surprisingly: 'It is a pity that he did not put the adjective "rightly" or "fortunately" after "laissez-faire"'. As if Skidelsky has forgotten that Keynes was constantly inveighing against laissez-faire.
(18) pp.30-31. I have suppressed Iwamoto's italicisation of certain passages. His source for the quotations is a book I haven't read, Armand von Dormael: Bretton Woods, birth of a monetary system, Macmillan, 1978.
Skidelsky (pp.196-7) gives an interesting quote from Keynes in a private letter written in November 1940:
'If Hitler gets his new Europe going properly, with barter replacing gold ... and with all the nations playing the cultural and ethnographical roles allotted to them, while the Vatican provides the slave states with a philosophy of life, then England can be made to look like an intolerably disruptive pirate nuisance in the eyes of Europe. We would become the real aliens, the Protestant dissenters, the Berbers of the North. In Hitler's favour is the fact that he has the will and ambition to govern Europe and that Rome, Berlin and Munich are the natural places to do it from. But as long as the blockade is effective he is compelled to loot, and while he has to loot the conquered territories, his propaganda must fail.'
That might give us some idea of what the British thought they were doing, keeping the war going when there was still no guarantee of the entry of the US.