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The progress of European recovery has been anything but steady since the winter of 1946-1947. It moved forward rapidly in 1948 and the very beginning of 1949, but the U.S. recession in the summer of 1949 set Europe back sharply. Indexes of production were stagnant or declining in most of Europe during that summer. It looked as if what was originally conceived as a largely physical task of expanding agricultural and industrial production had already, at a much earlier stage than anticipated, encountered the problem of inadequate markets for the output that could be produced. The setback was climaxed by the devaluation of sterling in September and devaluations of practically all other European currencies that followed immediately in its wake. This paper is concerned with the economic state of Europe now and in the near future, it contains certain views which may have a wider application in time and in space. It is written in the belief that there are lessons to be learned from current European experience which have quite general significance for economic policy, public and private, here as well as in Europe. As the title of this paper suggests, it is intended as an essay in political economy rather than in pure economics or economic theory.

This article suggests possible remedies to deal with European financial crisis. Taxes must be greatly increased and public expenditures greatly diminished so that current revenues will not only meet prevailing expenditures but also suffice to permit some amortization of public debt. In Great Britain a restoration of the old gold parity should be looked for. There must be a rational economic settlement of the German reparations question, based on a dispassionate economic analysis of Germany's ability to pay. Industry in Europe must revive. It can be made to revive, however, if the reforms above indicated are accomplished, and if outside help in the form of new capital is obtained. Measures designed to help the exchange problem may properly be made part, however, of the more comprehensive settlement above outlined. A comprehensive settlement might be worked out in the form of a compact between the governments of Great Britain and the United States, together with the bankers of Great Britain, the United States, and Japan as the party of the first part, and the former Continental belligerents as the party of the second part. Part of the proceeds of the new loans made by the United States might well take the form of gold to increase the reserves of the authorities in Europe issuing paper money (chiefly central banks), so as to facilitate their resumption of actual specie payments.