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No Panacea. Only twice before in the 20th century have Britain's economic troubles required a devaluation of the pound, and both times the step was taken by Labor governments. Britain's first devaluation was in 1931, when it went off the gold standard in the midst of the Great Depression; that move forever tarnished Labor Prime Minister Ramsey MacDonald's image in his party. The second was Attlee's in 1949, when none other than Harold Wilson, then head of the Board of Trade, took a major part in planning the devaluation. Properly done, a devaluation can turn a nation's trade deficit into a surplus practically overnight. It is not, however, a politician's panacea, since it means initially a sharp reduction in the standard of living of the devaluing nation's citizenry as manufacturers' profits decline and the cost of what a workingman buys goes up.
Last week's devaluation forever shattered an article of faith, solemnly sworn to by governments on both sides of the Atlantic, that unilateral devaluation was no longer possible, since it would dismember the many fragile and intricate international monetary mechanisms that have developed since 1949. Keeping those mechanisms oiled and balanced is the task of the international banking community's senior members, who are usually referred to as The Club. The Club works with the International Monetary Fund in Washington and the Bank for International Settlements in Basel, the official bankers to countries.
No country has kept The Club busier or given it more nightmares than Britain, whose economy has palpitated in maddeningly regular intervals through a dozen sterling crises in 18 years. The pattern soon became all too familiar: a period of expansion leading straight to the brink of bankruptcy for sterling at $2.80, then a rescue loan to buy time while the government damped down the economy. Once a spell of austerity built up Britain's reserves anew, governments invariably felt politically impelled to relax restrictions and let the whole expansion-to-the-brink process begin again.
"To Save the Pound." When Prime Minister Harold Wilson and the Social ists took power late in 1964, the pound was in one of its deeper malaises. Before he took office Wilson had warned the Commons that "devaluation would be regarded all over the world as an acknowledgment of defeat, a recognition that we are not on a springboard but a slide." Still, there were those who argued, and last week saw their arguments vindicated, that Wilson's first act as Prime Minister should have been devaluation. He could justifiably have laid the blame on 13 years of Tory mismanagement and cleared the slate for the fundamental overhaul of the economy needed to make his Socialist dreams of progress for the country at least feasible.