Schumacher's Simplified Multilateral Clearing

This is the simplified version of Schumacher's Multilateral Clearing which was used by Keynes for his International Clearing Union and Bancor proposal in Bretton Woods, which were not accepted as they would regulate world trade. We build on Keyne's ideas and merge them with those of Adam Smith to create a social multilateral free trade system which is based on gold or grains, as part of social resource allocation system. Unlike the WTO which categorizes trade items and sets rules for each category as quotas and tariffs, our resulting Social Free Trade Association (SOFTA) deals with total trade values and in clearing trade imbalances by analyzing the resulting grain values> of products and commodities.

Assume that there is only the US, Britain and Poland

Multilateral clearing implies that in this case Britain should be “out of it” Multilateral clearing exists in Europe. How can multilateral clearing be achieved without the application of force? Assume this goes on for 12 months and each Fund has 3 outcomes:
  1. Deficit countries will have excess local currency from importers
  2. Surplus countries will be short of local currency for exporters
  3. Balanced countries will be in same position as 12 months before
What would be the position of ownership of the deficit countries?
  • It follows that America owns a balance of 10x in Poland.
  • Thus the surplus country owns the cash balance in the Clearing Fund of the deficit country.
  • But what if there are more than three countries?

    They belong to whom?

    The pooling of balances arises automatically out of the system's mechanism. The Clearing Funds of surplus countries become indebted to their internal money markets and acquire an equivalent share in the Pool, both their debt and their share in the Pool being equal to their trade surplus. This system is fully multilateral. They have the same technical effect.

    Under Pool Clearing, these differential stimuli do not exist

    This is a great advantage, because: A trading system that enforces strict bilateralism is arbitrary and discriminatory
  • But balance is not an end in itself.
  • The task is to achieve balance at the right level.
  • This is the only possible meaning that can be attached to the “Free Access” clause in the Atlantic Charter
  • Under a regime of bilateral clearings, each country has free access to the trade and raw materials of those other countries which are its customers.
  • Under Pool Clearing access to trade is universally free.
  • Yet, no matter what is the technical set-up, every country must ultimately pay for what it buys.
  • A system of multilateral clearing may be superior to a system comprising a multitude of bilateral clearings.
  • But both are
  • The maximisation of economic benefits to be derived from international trade can be facilitated but not automatically assured by any purely technical system.
  • How would Pool Clearing affect those more fundamental real factors? Whenever a National Clearing Fund receives payment from a resident at home who wishes to discharge a debt abroad: In this way, each country gives to each other country an overdraft facility for foreign payments.

    How should these facilities be quantitatively determined?

    There are two possibilities:

    These two methods of imitation come to the same in that they lead to a stoppage (or rationing) of deliveries to the overdrawn country. Which of the two methods to choose involves a question of principle.
  • The second method makes it quite clear to each participant what is its maximum indebtedness to the Pool.
  • The actual determination of these upper limits is not difficult

  • For a start, pre-war trade would have to be taken as a standard
  • If the same formula is applied to all countries, there will be no occasion for special bargaining and detailed negotiations.
  • As the trade of any one country expands or contracts, so will its maximum deficit be allowed to increase or decrease.
  • Assume, then, that appropriate limits have been fixed for the deficit any one country will be allowed to incur, and the system is put into operation.

    What forces operate within the system to facilitate this task?

    The main force is the fact that the holding of surpluses becomes unprofitable and risky.

    In contradistinction to a bilateral set-up, however, Pool Clearing gives to each country the fullest opportunities to avoid becoming a surplus country:
  • The point is that each country can with the greatest ease and freedom
  • If Argentina were tied down to spending all the proceeds of her exports to Britain on British goods, she might experience difficulties in finding suitable and competitive goods on the British market.
  • But if she is entirely free to spend her money wherever she likes, then any failure to spend on imports as much as has been earned on exports can only be a failure of effective demand within Argentina.