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In 1946 Michal Kalecki published a short essay under the title 'Multilateralism and Full Employment' - the two terms that evoke the two essentially contradictory ideals of the post-war settlement in Europe. Kalecki summarised the problem as follows:

'Roughly speaking, the principle of multilateralism requires that each country should be guided in its purchases in other countries solely by the price and quality of goods without taking into consideration whether the supplying countries are or are not buyers of the produce of the country in question. It will be seen that the operation of such a system in balancing foreign trade may create serious difficulties for those countries which pursue a policy of maintaining full employment. Each country at full employment will require a certain volume of necessary imports. Now it is by no means obvious that it will be able to secure under a multilateral trade system a level of exports which will provide it with a sufficient amount of foreign exchange to pay for the volume of imports required at full employment. The country concerned may thus tend to achieve more security in its foreign trade by concluding a series of bilateral agreements with other countries relating in some way imports from and exports to those countries. Or it may enter together with other countries into a "regional block" expecting, on the basis of the economic characteristics of the participants, to be able to secure within the block a large part of the required imports in exchange for its exports. (The trade within the block would be operated on a multilateral basis, while the exchange proceeds from exports to countries outside the block would be "pooled" and allocated to the member countries of the block according to a certain schedule.)'  (1)

(1) M. Kalecki: 'Multilateralism and Full Employment', The Canadian Journal of Economics and Political Science / Revue canadienne d'Economique et de Science politique, Aug 1946, Vol. 12, No. 3, p.322.

Prior to the war, the only Western European country that had achieved full employment was Nazi Germany. The means by which Hjalmar Schacht and Walther Funk dealt with the problem of balancing imports and exports was looked at in the previous article in this series. They may be said to illustrate the first of the methods Kalecki outlines - 'a series of bilateral agreements with other countries relating in some way imports from and exports to those countries'. Lloyd George in Britain, supported by Keynes, had proclaimed full employment as a realisable aim. But Keynes's argument turned mainly on the uses of public expenditure in manipulating the domestic economy. He had little to say about international trade. His Dublin talk on 'National Self Sufficiency' and the appendix to the General Theory on mercantilism suggests that he rather disapproved of it. 

Britain in the 1930s, without achieving full employment, adopted, with Keynes's approval, the second of Kalecki's possible methods, the 'regional block', in this case the Empire expanded to the 'sterling bloc' - the wider area of the world willing to use sterling as its currency.

By the time the war broke out and he was engaged in negotiations with a USA determined to establish multilateralism - and in a position of strength to do it - Keynes had come to see the methods developed by Schacht and Funk as containing the seeds of a solution. Hence his proposal for an 'International Clearing Union', somewhat on the lines of Funk's 'New Order' in Europe - a system by which money gained from export surpluses would be pooled and made available under certain conditions to countries in deficit. Britain, however, wholly dependent on subventions from the US, was not in a position to impose its will in the matter and the American view prevailed. The American scheme, which was agreed at Bretton Woods to the accompaniment of lashings of American aid to the countries that agreed it (including the Soviet Union) recognised that under multilateral free trade countries would get into balance of payments difficulties. After all, the point of the exercise for the Americans was that they should achieve a balance of payments surplus, but this could not be achieved unless other countries had a balance of payments deficit. The World Bank and International Monetary Fund would provide loans to countries that got into serious difficulties, but these were loans that would have to be repaid and they came with conditions concerning public expenditure which would render any 'Keynesian' policy of maintaining full employment impossible. 

But this system did not immediately come into effect and, as we will see in a later article, in the context of the Marshall Plan and the need to mobilise European support for the Korean war, the Americans introduced the 'European Payments Union', which was actually much closer to the Keynes (and Schacht and Funk) principle of the Clearing House.