1941: World Economics

With the official declarations of war between the United States and Japan (Dec. 8, 1941) Germany and Italy (Dec. 11, 1941), the encirclement of the earth by armed conflict was completed; and while most Latin American nations were not actively at war, their situation hardly constitutes an exception to the statement that world economics is now war economics. Since the position of the different countries is discussed in detail elsewhere in this volume (See names of separate nations; also INTERNATIONAL BANKING AND FINANCE) the present article will attempt to give a picture of the salient trends of the world economic situation as a whole, with selective illustration. It must be noted however that one of the effects of the world crisis has been a drastic decline in both the quantity and quality of international information.

INTERNAL WARTIME ECONOMIC CONTROLS

Great Britain.

The experience of different countries with the problem of the price-level in wartime is of more than passing interest. In Britain, as elsewhere, the chief factor making for a rise of prices has been government expenditure. Since such expenditure on disbursement becomes income in private hands, a large proportion of it tends to increase the effective demand for a shrinking supply of consumer goods and commercial materials. If the whole of the war-expenditure could be taken currently from the pocket of the consumer by taxation, the pressure on the price-level would be relieved; a similar result would follow, for the time being, if it were met by voluntary savings taken out of current income. The extent to which these expedients are practicable, especially in a free country, is limited; nor in any case would they afford a complete solution of the problem, since along with a drastic change in the composition of current real income, its total must be vastly enlarged. This expansion may be to some extent brought about by the utilization of hitherto idle, or partially used, resources — in this respect the United States in 1941 was in a fortunate position; but it calls also for additional effort in the internal economy, with additional reward in the form of purchasing power, and for an intensification of demand for certain services and commodities in the international sphere. This expansion of the total production is everywhere financed mainly by the increase of bank loans and advances to the state, resulting in the creation of new credit money, much of which presently engenders an additional demand for, and supply of, currency; and since the accompanying expansion of production is not in the field of those goods and services which are demanded by consumers, upward pressure on the price-level is unavoidable. To offset this kind of pressure, three types of control are in general use: price limitation, rationing and priority-listing of goods, and direct limitations on the monetary amount of consumer purchasing.

Between September 1939 and September 1941 wholesale prices in Britain advanced 57 per cent, cost-of-living index by 28 per cent. By November 1941 the latter figure had risen to 44 per cent. In the early months of the war the rise in basic materials was sharp, due to the depreciation of the pound and the consequently enhanced cost of imports. Since the additional demand for imports supervened on a period of deficits on the trade and services account, the effect was severe; and war conditions did not favor an expansion of exports arising from the depreciation. It may be remarked that the history of the past ten years shows many cases in which such expansion, though theoretically probable, failed to occur.

Also of importance in 1939 were the increases in shipping and insurance costs, which it is one of the objects of blockade to bring about. This situation was eventually met by the government requisitioning British-owned vessels at contract prices; but such a move, while it may control, does not avert rising costs, which continued to mount during 1940. Various types of government underwriting were added to commercial insurance, but the shipping situation remained urgent until American resources came to the rescue.

Basic commodity prices in Britain rose little during 1940, and their cost was largely controlled by bulk purchases made by the Government. The entire New Zealand and Australian wool crop was acquired for the duration of the war and one year after. Much of this supply is in the United States as a British asset. Dried fruit from South Africa, bacon and dairy produce from Canada, copper, zinc and lead from Australia and Canada, the greater part of the Canadian aluminum production, Rhodesian copper, Argentine beef are among the bulk contracts thus secured at fixed prices. None the less, total supplies of consumers' goods have decreased, despite a subsidized extension of agricultural acreage and domestic food production, of which the entire output is now acquired by the Ministry of Food at favorable prices to producers and resold at a loss. By mid-1941 the volume of goods other than food available for sale to consumers had decreased by 50 per cent, according to an official inquiry; and a further diminution was expected as accumulated stocks were used up. On the other hand, the situation of essential food and commodity supplies was better at the close of 1941 than for two years previous, thanks largely to American aid.

The controls established in Britain may be summarized as follows: First, the Limitation of Supplies orders restrict the amounts of non-food commodities that may be released by wholesalers to retailers to a stated proportion (by money-value) of certain defined base-periods. The original base-period, six months ending Nov. 30, 1939, is now generally superseded by a similar period ending May 31, 1940; and the quotas run from 50 to 25 per cent. Sales of certain goods on the domestic market, including automobiles, wooden furniture and silk stockings, are prohibited altogether. In the case of textiles the Limitation of Supplies system is reinforced or modified by the system of ration cards for clothing.

Second, the rationing system has been steadily extended and improved. Tea, condensed milk, canned meat and fish, and eggs were added to the list of rationed foods in 1941, but the improving situation permitted enlargements of the allowances of cheese, sugar and fats in the latter half of the year. It was expected that food supplies from the United States, which constituted 5 to 6 per cent of the total in October, could be increased to as much as 25 per cent. The rationing system was increasingly supplemented during 1941 by the opening of canteens and restaurants under Government control at which workers in heavy industry could obtain extra allowances of meat and certain other foods. The feeding of school children also was considerably extended.

A third kind of control was represented in the type of rationing used, for example, in regard to meat, based not on quantity of commodity but on allowable money expenditure. This may be classed with the compulsory deferred savings feature of the last budget (see also INTERNATIONAL BANKING AND FINANCE) as a direct restriction of consumer spending. However, the limitations to such restriction are serious. In a free country it is exceedingly difficult to persuade workers to accept a curtailment of their standard of living at the precise time when their services are most valuable and their labor hardest. The British trade unions have not favored schemes to 'freeze' wages at levels which would have this effect. The argument that wages should be kept level with the cost-of-living index is hard to resist — though available statistics indicate that both wage-rates and weekly earnings have lagged some 10 points behind it. Yet since wages reappear as costs of production an 'inflationary spiral' may easily develop in so far as the economy is left free to settle its own prices. Increasing measures of both rationing and price control are therefore to be expected. Among basic price control measures added in 1941 should be mentioned the Government leasing of all British railroads for a fixed rental of £43,000,000 annually, to continue one year after war.

Germany.

In Germany, the nature and direction of the social system facilitated the imposition of stricter and more systematic controls at a much earlier date. Modern war demands a reorganization of the entire economic life of a community. No other states had advanced so far in this direction as Germany since 1933 and Japan since 1935. It is probable that in these cases alone had the advancement, or maintenance, of the civilian standard of living been consistently put second to the organization of the collective striking power. Particularly in respect of the control of profits and savings, the investment of new capital, the integration and location of heavy industry, and the stimulation of directed research, these powers presented a striking contrast to those which professed a desperate faith in the possibility of peace. Recent evidence suggests that the Russian government, in the above-named respects, displayed more foresight than was credited to it at the time.

The key to German policy of the past seven years is the intention to provide for an expanding economy, with its industrial center in western Europe, along lines which a land-power could control. This has involved carefully planned efforts, backed by various degrees of economic and military force, to achieve an expanding integration comparable with that which naval powers have been able to achieve in respect of overseas territories. Certain aspects of the expansion will be treated below; a necessary preliminary to the national effort required was an inventory of the estimated needs and resources for several years ahead, coupled with a systematic effort to produce or accumulate them within the home territory. Some phases of this effort are well known: for example, the large-scale production of synthetic rubber, which may be put at from 75,000 to 100,000 tons yearly (as compared with 15,000 tons in the United States for 1941) or about the normal pre-war consumption of greater Germany. The development of synthetic fuel-oils, fibres and plastics is also a familiar story. Such efforts at increased self-sufficiency were coupled, since 1934, with the piling-up of food and commodity reserves. Naturally, no statistics are available, but it is reliably reported that the stocks of cereals and fats were intended to last well into 1942 at the planned minimum rates of consumption.

What these rates were may be gauged from the German ration-system. This system which was put into effect immediately on the outbreak of war, had undergone remarkably little change up to November 1941; the only alterations of importance reported during that year (others may have taken place) were cuts of 25 per cent in the meat allowance, and 40 per cent in the clothing ration — this latter reflecting a decline in the stocks of cotton and wool, coupled with a shortage of labor and an increase in the army demand; the situation called for an emergency clothing collection for the troops in December 1941. In July 1941, as reported by the U.S. Department of Agriculture, normal consumers were entitled weekly to 4.96 pounds of bread or flour equivalent, .331 lb. of other farinaceous foods, .882 lb. of meat and meat products, .592 lb. of fats, .496 lb. of sugar, .331 lb. of marmalade (or .248 lb. additional sugar), .021 lb. artificial honey, .138 lb. of cheese, .069 lb. of curds. Milk was reserved entirely for children, and extra food allowances were available to heavy workers and special categories. As in the case of Britain, official statements testified that general health showed no deterioration. A feature of the systems in both countries was the artificial enrichment of the vitamin contents of basic foods. In both cases it must be borne in mind that the mere provision of a ration-card is no guarantee of the availability of the amount stated.

German measures of price-control date from long before the war. A general 'freezing' order, effective Nov. 26, 1936, forbade the increase of prices above the figures of Oct. 16, 1936; and this basis was maintained as the determining factor throughout 1940. In consequence, both the wholesale and cost-of-living indices for December 1940 showed little rise above their pre-war levels. On the basis of 1913 = 100, wholesale prices stood at 107.1 in August 1939 and 110.9 in December 1940; the cost-of-living index at 127.3 and 130.8. At the beginning of the war the original basis was supplemented by an elaborate system of controls, designed on the one hand to keep down costs and selling prices for public contracts, on the other, to curtail consumer buying by holding prices at pre-war levels. This entailed control of profit-margins, especially of differential gains arising from unequal costs of producing price-fixed articles. In general, the policy has been to prevent such gains being passed into purchasing power either as wage advances or additional dividends. Wage-rates were 'frozen' concurrently with prices, and the profits policy aims, roughly speaking, at recapturing all profits above 6 per cent; war profits being taken in their entirety. This policy, difficult of complete execution as are all such efforts, has not prevented a boom in German industrial stocks during 1941.

The price policy was further elaborated at the beginning of 1941 in the direction of cost-control; the intention being to place on producers the onus of justifying to the price-controllers all increases above the 1936 base. The same general principle of price-freezing, backed by systematic and minute regulations for each industry, has been applied to all industrial areas under German hegemony: Norway, Finland, Holland, France, Belgium, Slovakia, Hungary, Croatia all find their 'free' enterprise controlled and coordinated with as much efficiency as the social and political state of affairs permits.

The direct restriction of consumer purchasing power has also been carried much farther in Germany than elsewhere. To the fixing of wages and recapture of profits, which were well-established features of the German economy, the war added not only more taxes, but more deductions at the source. In the first winter of the war wages were subject to eight regular deductions: wages tax, war surcharge, civic tax, defense tax (on men not conscripted), three social insurance payments, dues to the Labor Front and contribution to the 'winter help.' These have since been consolidated and simplified, but the principle of deferred wages (called 'iron savings') has been introduced as in Britain. In Germany it takes the form of a so-called voluntary undertaking by the wage-earner to forego a part of his wage, which is thenceforward automatically withheld and placed in a special savings account that is locked until a year after the war; such sum being deductible from the wage for taxing purposes. A somewhat similar scheme is available to employers for depreciation funds or reserves.

United States.

Details of the internal economy of the United States are given elsewhere in this volume; but certain of its aspects may here be noted for comparative purposes. The war emergency supervened on many years of deficit financing, of which war preparation formed only a partial objective. The extremely high levels of bank deposits, note circulation and bank reserves reached in 1941 contained a high inflation potential; but for the time being the exceptional demand for consumers' goods was met out of accumulated inventories, and by the utilization of unused capacity and idle resources. By the end of the year this recourse had reached its limit in several directions, notably steel and other metals, and priority ratings were proving an effective means of rationing raw materials to industry and thereby curtailing civilian supply. Secondly, while no general price-stop was contemplated, control of prices was rapidly extended in the closing months of 1941. By mid-January 1942 the Office of Price Administration had made effective more than 60 'price ceilings' and brought another 100 commodities under informal control. These limitations covered nearly one-third of the national sales volume exclusive of retail selling. In so far, however, as the policy of price control permeated the field of consumer goods, recourse to rationing appeared probable, since without it a very inequitable distribution would result; a sudden and severe beginning was made in respect of automobile tires in January 1942.

Serious difficulties lay ahead, however. Wage-rates and earnings showed an almost unchecked advance, with the possibility of an inflationary cost spiral; the prospect of continued competitive bidding for labor by expanding war industry coupled with further inroads on the supply arising from the requirements of an expanding army strengthened the labor opposition to anything in the nature of a 'ceiling' on wages. The political strength of agricultural interests seeking to enlarge the farmers' share of national income constituted a further obstacle to effective price control. And while the eventual contraction of consumer purchasing power via taxes promised to be considerable, much might happen before such direct restriction became fully effective.

EXTERNAL WARTIME ECONOMICS

To a far greater extent than in the previous case, the present World War has been prepared for, and fought on, the economic front. The German effort to secure the economic hegemony of Central and Southeastern Europe has proceeded systematically since 1934; the Japanese bid for dominance in Northern East Asia has been in progress for over ten years; and in both cases the ultimate resort to arms was envisaged as a probable consummation of the policy of expansion. Centrally controlled regional economies with a maximum degree of self-sufficiency and a powerful bargaining position in respect of the open areas would appear to be the objectives; and such aims made inevitable a collision with both the politico-economic entities lying in the path of expansion and the external affiliations of France, Britain and America.

German Plan of Economic Integration.

The German plan of economic integration for the European area has made rapid headway since the fall of France, along lines fairly familiar to students of German methods. These may be briefly summarized as follows.

(1) While, in general, subjugated areas have been left with their local currencies, and even with considerable gold reserves, the rates of exchange with the reichsmark have been uniformly dictated at ratios extremely favorable to Berlin. Thus German forces in France have been enabled to conduct a disguised appropriation of French goods and properties: German buying agents in the Danube valley have been able to offer high prices for produce in local currency out of resources inflated by an arbitrary translation of the mark values of goods and credits supplied by Germany.

(2) The absence or closing of other markets has enabled Germany in large measure to dictate the economic activity of the subjugated areas; and the revised pattern of European integration controlled from Berlin has naturally erased such economic independence as was possessed by the former political units. Thus, for example, Alsatian agriculture is to be expanded, with enlarged planting of sugar-beet, oilseeds and tobacco and reduced acreage of hops; French winter wheat acreage has been enlarged and soybean cultivation stimulated; livestock production in Denmark and Holland is being curtailed because of the dependence on imported feeds, while its expansion is demanded in eastern and southeastern Europe where local fodder can be made sufficient. A large increase in the planting of olives and oilseeds was laid down for France, and an enlargement of the acreage under wheat and root crops for Belgium. In Poland large-scale agriculture was directly organized by Germans, aimed at an increase of from 50 to 100 per cent in the cereal-yield per acre. It may be suggested that the Italian economic design for an industrial system fed by overseas raw materials and fuel would need considerable revision to fit the Berlin plans. These demanded, among other things, increased cotton planting in southern Europe, Italy included. While much of the foregoing is undoubtedly in the blue-print stage, its execution is accelerated by certain factors, among which these may be mentioned: the control of prices exerted everywhere by German officials; the destitution consequent on German requisitioning, and on the shortage of agricultural labor; the German control of agricultural equipment and stock; and the transfer of masses of people from one area to another, including prisoners of war, Jews, Poles, Slovaks and Croats.

(3) The economic integration of the subjugated areas has been accelerated by a planned unification of the European transport system. Considerable progress in this direction was made since 1936 by means of concessions for railroad and canal construction, and Danubian and Black Sea port facilities. The process was accelerated after the annexation of Austria, especially in central European road construction. War conditions have brought a rigid restriction of civilian travel, reorganization of German traction organizations, concentration of production to eliminate bulk haulage, and systematic control of priorities by both the army command and regional commissars. On the other hand, the elimination of sea transport and the shortage of fuel have imposed a critical strain on all transport facilities — to say nothing of sabotage. It may be noted that a similar development and unification of road, rail and water transport is proceeding, under Anglo-American control, in the region between the Persian Gulf and the Caucasus.

(4) The expansion of German industrial control has been the most striking feature of the European economic front. The methods employed have been, broadly speaking, as follows. First, the placing of large orders dictated by the Wehrwirtschaft, experts of the German High Command, to take the place of contracts cancelled or eliminated by the subjugation of the local economies and the German control of raw materials. In most cases such orders offer the only alternative to wholesale unemployment. Prices, wages and profit-margins are all regulated. Second, there has been a rapid expansion of German bank control. The leading Viennese banks have been absorbed, with their trading and industrial connections in Southeastern Europe; the two leading banks in Slovakia were acquired; the five leading Rumanian banks have admitted German participation, and German banks hold a majority control of the Yugoslav Banking Union; in Poland, Alsace-Lorraine and Luxemburg German banks have opened branches; in both Northwestern Europe and the Balkans German-owned or controlled subsidiaries have facilitated financial penetration. The control of all foreign-exchange dealings, and the tying of local currencies to the mark, have been effective instruments of control by means of capital or loan participation. Third, the leading German concerns, under state direction, have been active in reorganizing or incorporating enterprises in occupied territory; especially the Reichswerke H. Goering A.G. (of which Skoda is now a subsidiary), the Kontinentale Oel A.G., and the I. G. Farbenindustrie. This has been done mainly by large issues of new share capital, very little of which has been offered publicly. Fourth, the cartel system, with various modifications, has been so widely extended as to make it the main instrument of German hegemony. German dominance in the International Steel and other cartels has been used to bring production and marketing policies into line. Franco-German collaboration was rapidly advanced in 1941 by this means, as for example in the Franco-German-Italian automobile agreement, and the combination of twenty French textile concerns with certain Finnish and Norwegian enterprises in a vastly enlarged cellulose syndicate. A European re-insurance cartel has also been organized.

While the stability and duration of all these arrangements may well be questioned, they obviously have implications which cannot be ignored in regard to the perennial conflict between the political and the economic bases of European reconstruction; the more so as in many cases — especially that of Poland — they mask a struggle for control between German, French, American and British capital.

Japanese Economic Penetration.

In the Far East the Japanese plan for grossraumwirtschaft, culminating in war on the United States, appeared in 1941 still to be producing more hardship than benefits. Rationing, which had been drastic since 1937, was further curtailed by a shortage of rice in the spring of 1941 — a commodity in which Japan is usually self-supporting. The German war on Russia closed the land-route for Japanese exports to the west; and only the tolerance of Britain and America maintained the supply of essential raw materials to Japanese industry and armament. The freezing of Japanese assets by the democracies in July had a double effect. So far as capital value was concerned, the Japanese retaliation affected a much greater total of Anglo-American properties than that of Japanese assets abroad; but the stoppage of trade was disastrous to Japan, whose exports to the democracies were of far greater relative importance than were theirs to Japan. Japanese merchants were left with inventories of goods whose sale in the home market, even if possible, was forbidden by war restrictions on consumption. Since the Dutch followed suit, a rapid expansion into new territories was almost an economic necessity, and had undoubtedly been long prepared for.

So far as meagre information indicates, the principal Japanese effort at consolidation in northern East Asia has taken the form of railroad-building. Japanese industries have in at least some cases been moved into Manchukuo, mining has been developed, and soybean cultivation still further extended. The economic régime, however, would appear to be insecure, inasmuch as the railroads are still subject to guerilla attack. Japanese gains in Indo-China and Thailand, if held, are of substantial economic importance; they include a possible 1,000,000 tons of anthracite per year from the former, together with rice, fish, tea, zinc, tin, wolfram, rubber and other commodities. Details are lacking as to the methods of exploitation.

In China, Japanese economic control in 1941 appeared to go little farther than the direct military occupation; while Free China, with its currency and imports sustained by British and American advances, made remarkable headway in developing its own resources. The extension of government banking is elsewhere alluded to (See INTERNATIONAL BANKING AND FINANCE). The economic program of the government called for extension of the munitions industries, development of new steel plants, an improvement and extension of tin mining, and further erection of power plants, textile mills and machine shops. The import of industrial machinery has exceeded 30,000 tons in four years. The most immediate task was that of road-building to allow a more rapid development of truck traffic; but considerable railroad mileage was also undertaken in 1941, some of it paralleling the Burma road.

American Economic Influence.

As in the domestic economy of nearly all nations, the international economic relations of the entire world were completely dominated by war and war policies in 1941. While the United States did not participate as an active belligerent until December, its economic policies gave practical and cumulative expression to the sympathies of its people throughout, and even before, the period of hostilities. Control of foreign trade from this point of view was much more thoroughly applied than in the previous war; as for example, in the 'moral embargo' laid upon the export of airplanes, parts and aviation gas to Russia on Dec. 2, 1939, and maintained during the period of hostilities with Finland until Jan. 21, 1941. Positive economic assistance to certain nations before the passage of the Lend-Lease Act in March 1941 was likewise guided by broad considerations of foreign policy; for example, a year-end statement by Mr. James A. Farrell, chairman of the National Foreign Trade Council, explained that loans and credits extended to Latin-American countries should be regarded as 'primarily of a political character and should not be confounded with investments designed to increase our trade.' The continued support given through the Reconstruction Finance Corporation to the government and people of Free China may be taken to reflect more than purely economic motives, as may also, perhaps, the continuance of gold and silver purchasing from nations most of whom happen to be actual or potential allies of the United States.

The heavy purchases of reserve supplies from overseas by agencies of the American government strongly influenced both the composition and direction of foreign trade; and the continuance of export licensing under the National Defense Act of July 1940 provided an effective means of aligning commercial activity with national requirements. Still further pressure was applied by the freezing of all assets of Germany, Italy and all invaded or occupied countries on June 14. 1941, followed by the closing of their consulates and by retaliatory measures on the part of the nations affected. With this action the closing of the European market was virtually completed, but the loss of exports to the continent was almost entirely compensated by the gain in exports to Great Britain, due at first to British purchases and after March to the operation of the Lend-Lease Act. For the first nine months of 1941 total exports to Northwestern and Central Europe amounted to $1,056,087,274 as against $1,096,159,621 in 1940; yet every country in the list showed a heavy drop except Iceland, whose receipts of American goods and equipment went up from $1,500,000 to over $4,000,000, and the United Kingdom, which received $1,024,212,180 of American exports in 1941 as compared with $698,151,708 the year before. The corresponding figure for the whole of 1939 was $505,226,000.

Among other measures of economic war must be mentioned the 'blacklisting' of firms, agencies and individuals of whatever nationality or location, accused or suspected of doing business with enemy states or their nationals; the effect of the blacklist is to prohibit all Americans from commercial or financial intercourse with such concerns, thereby freezing their American assets. The policy was started on July 17, 1941, when the State Department ostracized 1,800 German and Italian firms and individuals in Latin America. Some 3,000 Japanese firms and individuals were subsequently added. On Jan. 14, 1942, the policy was extended to Europe, in close cooperation with Great Britain. The new list included 506 firms or individuals doing business in Portugal, 166 in Portuguese possessions, 369 in Spain. 52 in Spanish possessions, 82 in Sweden, 196 in Turkey, and more than 400 in Switzerland. The list includes all types and sizes of concerns, and a variety of commodities ranging from shoes and films to aluminum and insurance.

So far as Latin America was concerned, very considerable dislocation of business resulted; but it was authoritatively stated at the close of 1941 that total exports to that continent had not been diminished. The figures bear this out. Total exports for September 1940 were $25,072,223; for September 1941, $48,561,109. Over nine months the totals were $337,537,964 for 1940, and $330,692,917 for 1941; Venezuela, the Argentine and Paraguay showed declines.

While no exact proportion can be cited, it is safe to say that nearly the whole of this trade falls under the direct control, positive or negative, of the American Government. The licensing of exports (with extended licensing of imports a probable sequel), the huge American purchases, the customary State Department supervision of private loans, the large official loans and investments of government agencies, the elimination of enemy enterprise, the American state maritime insurance, the scarcity and control of shipping, the gold and silver purchase policies and the latent executive power over the value of the American dollar, all point in the direction of a more than transitory integration of the economic life of the western hemisphere; a tendency which the grossraum economy of the Axis at present tends to reinforce. On the other hand, Mr. Farrell, in the statement above cited, claims that such measures 'should not lead us to the mistaken conclusion that hemispheric self-containment is either practical or desirable. What is natural in wartime stimulation of trade with our southern neighbors ought to be retained after the war, but we should shun the delusion that either Latin America or ourselves would benefit by any artificial efforts on our part to supplant Europe in future trade with that area. Recovery by Latin America of its vital stake in European markets must in the end prove advantageous to us through our multilateral transactions, on which we so largely depend in normal times.' In export circles, however, considerable speculation arose during the latter part of 1941 as to how feasible, or extensive, would be any possible return to privately directed international enterprise. Obligations arising out of American government advances, as well as the settlements for aid and supplies extended under the Lend-Lease Act, would continue to place considerable directive power in government hands; an extension of the international cartel system would ultimately tend in the same direction; and the all-important question of exchange and currency stabilization would demand direct international negotiation.

United States economic relations with Central America were without question permanently tightened during 1941; particularly with Mexico, 65 per cent of whose foreign trade came northward in consequence of the war. The preliminary economic agreement of December 1941, and the detailed arrangements to follow, presage a degree of integration that both geography and commonsense demand. Trade with Canada continued to increase, exports (nine months) rising from $510,978,483 to $675,306,240 in 1941, and imports received from $301,045,693 to $391,305,623. Notwithstanding that a very high proportion of this trade is strictly on war account, a permanent strengthening of the economic bonds of the Northern continent would appear inevitable. See also articles on BUSINESS; INTERNATIONAL CONFERENCES; WORLD WAR II.