I. The World Economy And The Fund’s Objectives
- International Monetary Fund
- Published Date:
- September 1948
IN previous reports the Executive Directors of the International Monetary Fund have stated that progress towards the Fund’s objectives depends not only on the willingness of countries to support agreed exchange policies but also on their ability to develop strong national economies and balanced international economic relations.
During 1947 and in the early part of 1948 considerable progress was made in strengthening the economies that suffered devastation and dislocation as a result of the war. Over the world generally production rose and recovery continued, despite widespread political tension and conflict and the disturbances which this caused in many economies.
In nearly all countries, however, the need and demand for goods continued to be abnormally great and there were increasing difficulties in meeting international payments for import surpluses. Although loans and grants financed a major part of the balance of payments deficits, there was a further large drain on the gold and dollar assets of most countries of the world.
The European Recovery Program, inaugurated in April 1948, assured the continuance of assistance by the United States in financing imports required for European reconstruction, and thereby averted a threatened setback of recovery not only in Europe but all over the world. The restoration of international balance, however, still requires important and difficult adjustments in many national economies and for most of these adjustments the national authorities now have the main responsibility.
Progress in Recovery
The problems of making international payments have overshadowed the real progress which has been made in recovery. The last war destroyed a vast amount of equipment and facilities. It prevented the replacement of much equipment as it wore out. In most countries there was a stoppage of normal investment and development. Stocks were depleted and demands were deferred. These are the real deficiencies which the postwar world has to make good. They can only be made good by production. With regard to this basic factor, 1947 was a year of progress.
Although European production in 1947 was hampered by another unusually poor harvest and by shortages of coal and other vital materials, industrial production was about 10 per cent greater than in 1946. By the end of 1947 nearly all the European countries had reached or exceeded their pre-war outputs. This was a remarkable achievement for a group of economies which had so recently been devastated and dislocated by war.
The magnitude of the recovery effort made by Europe is shown not only in the increase in production but also by the large proportion of resources invested in reconstruction and the modernization of industry, notwithstanding the delay which this imposed upon the recovery of consumption from the low levels inevitable immediately after the war. Investment on the scale which prevailed would not have been possible without the large import surplus which was obtained from the United States and other Western Hemisphere countries.
German production, however, remained far below pre–war. The continued loss of the German market was a serious problem for some countries; in general, however, it is the German capacity to export which is of greater consequence for European and world recovery in the immediate future. The bulk of German pre–war exports went to Europe and consisted of coal, chemicals, metal manufactures, machinery and electrical equipment, the lack of which has retarded European reconstruction. If European countries could obtain needed goods from Germany and pay for them with their exports to Germany, the strain on dollar payments would be eased.
European countries made considerable progress in expanding exports also during 1947. Exports from the sixteen countries participating in the European Recovery Program appear to have been almost 30 per cent greater in volume than in 1946 and only 10 to 15 per cent less than in 1938. Some countries attained virtually their pre–war export volume. In the United Kingdom the index of export volume in 1947 was 8 per cent above 1938 and for the first quarter of 1948 stood at 126.
In the Western Hemisphere 1947 production exceeded the high levels of 1946. The industrial output of the United States was the largest ever attained in peacetime and was about two–thirds greater than in 1938. Its agricultural output exceeded the pre–war level by about one–third. Exports rose and were two–and–one–half times the pre–war volume. Canadian production also increased and was far greater than before the war. In most Latin American countries the output of 1947 rose above that of 1946 and also was substantially higher than before the war.
In other important areas production increased or was maintained at high levels. In Australia, New Zealand and South Africa the wartime development of production was by and large maintained. In the Middle East and India, however, recovery was retarded by shortages of equipment and facilities and in the Far East political strife and warfare continued to impede recovery.
In 1947 most countries sought to augment their productive resources by enlarged imports and thus to speed recovery. Since ability to export could not keep pace with the needs and demands for imports, deficits in balances of payments continued and even increased. Although there were several kinds of payments problem in 1947, the most serious problem concerned dollar payments. Nearly all countries, including those in the Western Hemisphere, had current account deficits with the United States. Many had additional dollar deficits in their trade with other parts of the Western Hemisphere. Part of the trade among countries outside the Western Hemisphere also required payment in gold or dollars. Compared with 1946 most members of the Fund covered a smaller proportion of their foreign exchange expenditures by earnings. Despite the help of grants and credits, there was a further serious drain on reserves and a further deterioration in the international financial position of nearly all countries.
The net use of gold and short–term dollar assets by other countries to make payments to the United States in 1947 was $4.4 billion. In addition members of the Fund other than the United States subscribed $650 million in gold to the Fund. As the Executive Directors pointed out in their last Annual Report, the monetary reserves of most countries were seriously depleted by the war and its aftermath, and were already dangerously low at the beginning of 1947. If governments and monetary authorities had not sacrificed these reserves, drastic curtailments of imports would have been inevitable, with consequent breakdowns in production.
The magnitude of the payments problem is shown by the summary figures of the 1947 balance of payments of the United States on current account. The United States exported to the rest of the world goods and services valued at nearly $20 billion. Imports of goods and services by the United States enabled other countries to earn $8.5 billion and net private United States investment abroad and net remittances from the United States furnished an additional means of payment of $1.3 billion. This left the rest of the world with a deficit of more than $10 billion on its current purchases from the United States.
This deficit was financed in two ways: first, by loans and grants, and second, by the liquidation of gold and dollar assets. From net loans and grants by the United States Government about $5.7 billion was used in 1947. Of loans by the International Bank $300 million was disbursed. Over $450 million of dollar exchange was purchased from the Fund. Settlement of the balance required the rest of the world to liquidate $4.4 billion of gold and short–term dollar assets.
Of all areas Europe had the largest deficit; its deficit on current account with the Western Hemisphere was approximately $8 billion. The major portion was met by about $6 billion of loans and grants, of which the United States Government supplied $4.8 billion, Canada $580 million, the International Bank $300 million, and UNRRA over $200 million; the equivalent of about $250 million was furnished by Latin America in credits or by the accumulation of European currencies. In addition European countries purchased $430 million from the Fund. After meeting the remainder of the deficit and paying their gold subscriptions to the Fund, the gold and short–term dollar assets of these countries had declined by $2 billion. Besides the problem of meeting their dollar payments to the Western Hemi–sphere, the European countries had difficulty in settling the balances arising from trade among themselves and with other parts of the world, as many countries endeavored to obtain dollars or other hard currencies for part at least of their exports.
The sterling area outside the United Kingdom had a deficit on current account with the Western Hemisphere in 1947 of $750 million and an additional dollar deficit with some other countries. The members of the sterling area draw upon the central reserves held by the United Kingdom to meet most of their gold and dollar requirements and, therefore, their deficit affects the figure for the drain of gold and dollar assets from Europe. As a result of these drawings, as well as of the trade and capital movements within the sterling area, the sterling balances held by the members of the area, other than the United Kingdom, declined from the equivalent of $11,770 million to about $11,100 million at the end of 1947. In addition South Africa sold gold to meet the deficit in her trade with the United States and the Western Hemisphere.
Most Middle Eastern countries, including those within and outside the sterling area, had deficits on current account with the United States in 1947. The countries of the Far East also incurred deficits on current account with the Western Hemisphere and the United States. These were met in part by credits and grants from the United States and aid from UNRRA, which together amounted in 1947 to roughly $1.1 billion. In the case of China the deficit, excluding that portion which was covered by UNRRA, is estimated at about US $430 million and was financed mainly by the depletion of official and private gold and dollar holdings.
Within the Western Hemisphere nearly all countries had large deficits on current account with the United States and there was a consequent drain of reserves. Canada had a current account deficit with the United States of $1.1 billion and further had to make capital payments of $240 million. Of Canada’s surplus with the rest of the world of $1.2 billion, $600 million was financed by Canadian grants and loans. In these circumstances the deficit with the United States had to be met by the use of $740 million of Canada’s gold and dollar assets. The deficit of the Latin American countries on current account with the United States was about $2.2 billion. Roughly one–third of this deficit appears to have been financed by net receipts of Latin America from transactions with countries outside the Western Hemisphere and roughly another third by receipts from capital transactions with the United States. To settle the balance, Latin American countries sold about $800 million of their gold and short–term dollar assets. A few Latin American countries—notably Cuba—added to their assets; these additions amounted to $170 million. Argentina suffered the largest drain: $635 million.
As the pressure on reserves increased a number of members found it necessary to draw upon the Fund. Aggregate exchange sales by the Fund for local currency amounted to over $460 million in 1947. While the sum is not large compared with the dollar deficits of the countries concerned, the aid from the Fund came at a time when other resources were sharply diminished and gold and dollar reserves were falling rapidly. The use of the Fund under these circumstances provided help in continuing international payments while solutions to the problem were sought.
The “Dollar Shortage”
The payments problem now confronting the world is generally described as a dollar shortage. It is important, however, to understand the true nature of this problem. Although common to all areas and to almost all countries except the United States, the problem as it relates to Europe deserves particular consideration, not only because the absolute dollar deficit there is so large, but also because of the repercussions in all other parts of the world.
Before the war most European countries had a surplus of imports from the Western Hemisphere. This was financed by earnings from services and by a surplus in their current transactions with other parts of the world, which in turn had an export surplus with the Western Hemisphere. Receipts, however, from services, including shipping, insurance, and the tourist trade, have now fallen very sharply and in many cases have been replaced by net payments. During and after the war, too, the principal creditor countries of Europe were obliged to liquidate a large part of their overseas investments and to incur large debts to cover current requirements. Europe’s capacity to finance an import surplus has thus been greatly reduced. It has been further impaired by the disruption of the triangular trade which formerly assisted Europe to balance its international payments.
On the other hand, since the end of the war there has been an unprecedented need for imports in countries other than the United States. The resources of the countries of Europe and Asia which were devastated by the war have been found insufficient to enable them to complete recovery, and they have, therefore, had to depend to an appreciable extent on external resources for the purpose. At the same time, the capacity of these countries to export has been severely reduced. This has necessitated an unusually large import surplus.
The goods needed could in the main be acquired only in the United States and because that country was able and willing to assist in financing a large export surplus, world demand has been largely concentrated on exports from the United States. The payments difficulties of the countries severely dislocated by the war inevitably affect the areas closely dependent upon them, such as the countries of the Middle East, Asia, and the Western Hemisphere countries which traded extensively with Europe before the war. The exceptional demands on the part of these countries for the exports of the United States have been due in part to shortfalls in exports from Europe. They, too, have therefore experienced payments difficulties, in spite, in some instances, of large current exports or the accumulation of large reserves during the war.
International payments difficulties have been further intensified by the large rise in world prices, which has magnified exchange deficits. If there had been something approaching equality between Europe’s imports and exports, the rise in world prices would not have seriously affected its international economic position. In fact, however, Europe’s imports have been very much larger than its exports, and the rise of prices therefore appreciably widened the gap in its international payments. It has correspondingly reduced the purchasing power of grants and credits, accelerated the depletion of gold and dollar reserves, and diminished the real value of the remaining reserves.
The postwar shortage of dollars reflects primarily the great need for United States goods to raise the level of consumption and investment above that which other countries could reach within the limits set by their own resources. It does not reflect a decline in the United States demand for imports; the volume of imports into that country in 1947, though slightly below that of 1946, was nevertheless as great as in 1937 and considerably greater than in 1938. What is often described in financial terms as a “dollar shortage” is in reality a symptom of the present inadequacy of production in many parts of the world in relation to the continuing great need for goods resulting from the war.
The European Recovery Program
In last year’s Report the Executive Directors stated that the lack of adequate exchange resources in certain key countries of Europe threatened a world–wide payments crisis with serious consequences for the world economy. Most important was the danger that the rebuilding of the economies of many countries in Europe would be interrupted and even set back.
To help meet the widening crisis, the United States Government in June 1947 took the initiative in proposing that the European countries cooperate in preparing a program of self–help and mutual aid which would be supplemented by financial assistance from the United States. In response to this invitation sixteen European countries, eleven of them members of the Fund, joined in preparing a four–year program. Following discussions between the United States authorities and these European countries and consideration of the program by Congressional Committees, the United States Congress authorized $5 billion of grants and loans to be made available to the sixteen countries and Western Germany during the year beginning April 1948 under the conditions laid down in the Economic Cooperation Act. At the same time a permanent body, the Organization for European Economic Cooperation, was set up by the sixteen European Governments and the Commanders in Chief of the three zones of Western Germany.
The European Recovery Program is intended to give the participating countries time to adjust their economies, to increase production and to restore their international position. The restoration of stability and balance in Europe is an essential step in the establishment of a strong and stable world economy. It is, therefore, of vital importance to all countries and requires the cooperation of all. For this reason the Fund and the Bank and other international organizations have a duty to facilitate the adoption of policies which will bring about the necessary adjustments in world production and trade. The task is not, however, primarily one which international organizations can perform. The main responsibility now rests with national authorities. The European countries must themselves place their economies on a self–sustaining basis and carry through the policies necessary to complete recovery.
Direction of European Exports
In 1947 it was the deficit with the Western Hemisphere which accounted for most of the over–all deficit in European balances of payments. Deficits with countries outside the Western Hemisphere were substantial in 1946, but the increase in production and exports in 1947 enabled Europe as a whole to bring its current payments with these regions nearly into balance. Progress in the restoration of equilibrium in European payments will be largely measured by the narrowing of the dollar gap during the next few years, and a decreasing need for American assistance will be the best test of success of the European Recovery Program.
European import requirements from the Western Hemisphere are likely to continue to be considerably greater than before the war, because of the increase in population and the need for increased raw material supplies if industrial production is to expand. On the other hand, investment income will, as a result of the loss of foreign assets by certain European countries, continue to be considerably less than before the war. The gap in Europe’s dollar payments may be bridged in part, as it has been in the past, through the development of an export surplus with areas other than the Western Hemisphere, particularly Africa and Asia. For this to be possible, it will be necessary for these parts of the world, in turn, to develop an export surplus with the Western Hemisphere. These areas might also be further developed as alternative sources for certain European imports and this would diminish European demands for imports from the Western Hemisphere. Such developments, however, even if supplemented by American investment abroad and by increased expenditures by United States tourists, are unlikely completely to restore the dollar payments position of Europe. An expansion of European exports directly to the Western Hemisphere, therefore, appears essential if Europe’s dollar shortage is to be eliminated by the end of the program of United States assistance.
Only a small part of the increases in European exports in 1947 went to the Western Hemisphere, though some countries have been steadily expanding their exports in that direction. It is not, however, a failure of demand for import goods in the Western Hemisphere which checks the expansion of European exports, for the volume of imports of Western Hemisphere countries in 1947 appears to have been in the neighborhood of 50 per cent above 1938. The difficulties involved in a substantial increase in Europe’s export to the Western Hemisphere, should indeed not be underrated. Trade connections have been broken and require time to re–establish. For certain European products, Western Hemisphere countries have developed alternative sources of supply at home and abroad. A notable increase in Europe’s exports to the Western Hemisphere will require a wider range of products and in certain cases this will involve investment and new production which can take place only gradually. The need of the European countries to retain a large share of their own output, their desire to restore customary trade connections, and their obligation to supply the overseas areas associated with them all have to be recognized. Some European exports to countries outside the Western Hemisphere have diminished the need for dollar imports and have therefore helped to relieve the dollar shortages of other countries.
A high level of demand in the Western Hemisphere will be a necessary condition for increasing exports to this region. A further relaxation of tariffs and import quotas in the Western Hemisphere countries applicable to primary commodities as well as to manufactured goods would be helpful in encouraging the necessary increase and redirection of world trade. But recognition of these considerations should not obscure the fact that Europe’s need to increase its exports to the Western Hemisphere arises not only from the exceptional circumstances of the transitional period but also from more enduring changes in the world economic structure.
Production and Investment
For the restoration of international balance increased productive efficiency and expansion of output are clearly of basic importance. In some countries production can be expected to improve rapidly with the restoration of orderly conditions. To the extent that improved international political conditions permit the shift of manpower and other resources from non–productive to productive uses, recovery will be hastened. In many countries output and efficiency should steadily increase as new plant and equipment are brought into operation. In a number of countries output per manhour is below the standard of prewar. The record of investment indicates that practically all countries, and especially those whose capital equipment has been reduced by the war, have been making strenuous efforts to increase their production by increasing and improving their equipment and facilities. Such enlarged investment programs are indispensable in order to overcome the destruction and depletion caused by the war. By increasing the capacity to produce they should ultimately increase the capacity to export and hence reduce import surpluses.
Even with external assistance, however, it will not be possible to meet all of Europe’s investment needs, including public construction and housing, during the next few years. Limitation of investment will therefore be necessary, and the greatest care will be needed to ensure that resources are allocated to investment purposes in a manner that will make the greatest possible contribution to the prompt recovery of Europe. This applies also to countries outside Europe where the resources are not adequate for the investment which is being attempted. In most cases excessive investment has been a factor in generating the current inflation, and some of the investment which takes place under inflationary conditions is of a low order of importance.
Where investment has to be limited, as in Europe, some projects whose effects upon production though large would be long–delayed will have to be postponed in favor of other types which promise quicker returns. Because of the critical problems of international payments, priority will have to be given to investments that will increase the production of goods for export, and particularly of goods which can be exported to the dollar area and to other regions for payment in gold or dollars. Special consideration will also have to be given to investment that will diminish the present dependence on imports from the dollar area. Now that much of the most urgent investment has been made, there is greater need to subject investment to careful scrutiny in order to make certain that it will promote recovery and not generate fresh inflationary pressure.
During 1947 monetary authorities became increasingly concerned with the problem of inflation. The use of manpower and material for war purposes had inevitably brought in its wake inflationary forces. Incomes were increased as war expenditures were expanded, but the supply of goods available for purchase with these incomes could not be correspondingly increased and in fact was usually reduced. The effects of increased incomes and inadequate supplies were kept in check in many countries by wartime controls on consumption, investment, and prices. As a result of the repression of spending, much of the inflation in these countries was therefore latent rather than active. It was manifested to a considerable extent in an increase in liquid resources held by the public rather than in a rise of prices. The accumulated purchasing power, however, in many countries left a legacy of inflationary pressure that still remained to be dealt with after the war.
There were considerable differences between the approaches to this problem adopted by national governments when the war was over. In some countries, where wartime price controls had been reasonably effective, controls were removed and prices left free to rise. In the United States, for example, the level of prices responded quickly after the removal of price controls in June 1946 to the higher level of incomes and the accumulated purchasing power. While the rise was more moderate in 1947, the large export surplus, the record level of investment, and unusually high consumption demands continued to put pressure on prices. Because of the large volume of exports from the United States to the rest of the world, price movements in that country had special significance for many other economies.
In Canada price controls, which had also been effective during the war, could not afterwards be retained with the same rigor, particularly in view of the trends in the United States. While the appreciation of the Canadian dollar to parity with the United States dollar in 1946 limited to some extent the rise in Canadian prices, there was in 1947 a delayed response to the higher United States price level.
In Europe, where the degree of inflation varied widely, there were some countries where the control of prices and demand was limited and to a large extent ineffective. The inflation in these countries during and since the war therefore took the form almost entirely of a rise in prices. The continuance of inflation in France and Italy in 1947 was not, however, the result only of accumulated purchasing power; it was partly the result of failure to bring currently generated monetary demand into balance with available supplies, although in Italy a restraint was placed on this demand in the latter part of 1947 by the adoption of a more restrictive credit policy.
In a number of countries in northern Europe where wartime inflation had been kept in check by price control, rationing, and allocation, these controls were retained and have been more or less effective. Some of the accumulated purchasing power whose effects had been kept in check has, however, been activated, and this has led to considerable increases in prices and costs. The maintenance of effective controls is more difficult than it was during the war, and in certain instances they appear to have hampered production and weakened the incentive to work. Despite the costs involved, many countries believe, however, that in present circumstances these controls are the only alternative to the dislocation which would follow if controls were removed and a sharp increase of prices were permitted.
In certain countries attempts have been made to deal with latent inflation by monetary reforms designed to eliminate or insulate a part of the purchasing power held by the public.
Such reforms were undertaken, for example, in Belgium, Czechoslovakia, Denmark, the Netherlands, Norway and Yugoslavia, with varying degrees of success. In Belgium, as a consequence of the reduction of excess purchasing power achieved in the monetary reform of 1944 and of the strong measures taken to limit credit expansion, it was possible to eliminate most wartime controls.
In the Middle East and India, expenditures on behalf of Allied Forces brought about a large inflation which was manifested in higher prices, though not to the full extent in higher costs. Since the end of the war there has been some tendency for prices to fall, but the price levels in these regions are still on the whole relatively high.
In China the basic economic problem today is currency inflation. Its fundamental cause is military expenditure, financed by bank notes and government bank credit, which in the present condition of the country cannot be significantly reduced. In Japan the continuance of large budget deficits after the war has also resulted in steep price increases.
In Latin America the large export surplus to the United States during the war brought about some inflation. The inflationary forces, moreover, have been intensified since the war by public and private investment financed to a considerable extent by bank credit. While in some Latin American countries the rise in prices has not exceeded that in the United States, in most of this region it has been significantly greater. So long as imports were not obtainable the price inflation in Latin America did not cause an international payments problem, but as goods became more readily available in the United States the spending which took place to meet deferred needs and the spending resulting from the continued generation of inflation led to excessive demands for imports. The dollar reserves accumulated by these countries, while large in terms of pre–war purchasing power, were, like all reserves, diminished in value by the rise in world prices and turned out to be inadequate for meeting all these demands.
Inflation is a serious handicap to recovery and to the restoration of international economic equilibrium. Waste of resources and misdirection of production have resulted from rapidly rising prices. Much of the investment in some countries has been directed toward escaping the consequences of holding cash rather than toward expanding output and increasing efficiency. The excessive domestic demand that accompanies inflation adds to the difficulty of maintaining an appropriate flow of exports, for output that might have been available for export is otherwise absorbed and prices are pushed to non–competitive levels. Inflationary pressure also stimulates imports, including imports of goods which may not be necessary for essential consumption and investment. Rationing and allocation are not always sufficient to ensure an adequate diversion of goods from home to export markets, and even where official pressure does bring about an expansion of exports, the individual exporter often finds an advantage in selling in the higher–priced markets of Europe and the Middle East, rather than in the lower–priced markets of the Western Hemisphere.
A number of countries have to deal not only with the problem of current inflation but also with the latent inflation represented by the abnormal accumulation of liquid wealth. Where the latent inflation is moderate it might be gradually eliminated through a combination of import surplus, budgetary surplus, and expansion of production—although, unless some rise in prices is permitted, it would apparently be necessary in many countries to retain controls for a considerable period of time. Where the degree of latent inflation is very large it will not be possible to eliminate it except by extreme measures. Failing such elimination, the excess liquidity will in time in one way or another bring about a rise of prices. The measures that may be taken to eliminate a large degree of latent inflation will depend upon the magnitude of the problem, the distribution of the cash holdings between consumers and business units, and the institutional arrangements of each country.
If the countries concerned are to increase their exports of “dollar goods”, they must be in a position to offer them at prices attractive to Western Hemisphere markets. The decline in productive efficiency resulting from unfavorable conditions in Europe is a handicap to exports which the progress of European recovery should remove, but if countries are to succeed in expanding exports they cannot permit their export position to be undermined by inflation. For these reasons an essential condition for the strengthening of the balance of payments position of deficit countries is to prevent the generation of new inflation.
Fiscal, Monetary and Exchange Policies
The solution of the balance of payments problem and the completion of recovery are thus seen to require a further expansion of production and improvement of productive efficiency, a further increase of exports in general, and an expanded flow of exports in the directions most likely to diminish dollar deficits. Investment, both private and public will have to be limited to available resources and preference given to investment which will have a relatively prompt effect upon the balance of payments.
These ends, however, cannot be achieved, and even vigorous efforts to accomplish them may be frustrated, unless government and monetary authorities take appropriate measures to prevent the generation of current inflation. There is no single program of fiscal, credit and monetary measures which is applicable to every country but the general policies which can be effective are well understood.
Fiscal policies should be directed as a minimum toward achieving a balance between government revenues and expenditures, including those of state enterprises, and, where possible, toward achieving a cash budgetary surplus. This will require the reduction of governmental expenditures and the maintenance of high tax rates. Savings should be encouraged by all appropriate measures. Investment should not be financed in such a way as to lead to an expansion of bank credit. An increase of money incomes should not be permitted unless accompanied by an expansion of output, particularly of consumer goods.
Investment and production, prices and exchange rates will require continuous scrutiny by the authorities of each country to ensure that international payments, and particularly dollar payments, are brought into a tolerable balance. A failure to make steady progress in restoring such a balance should require a reconsideration of a country’s policies. If the failure is primarily due to the fact that a country’s exports are not competitive in world markets, and if the country cannot bring its export prices to a competitive level in other ways, it will of necessity have to adjust its exchange rate. Important considerations of timing arise in this connection to which reference is made in the next chapter.