Forty years ago, Wendell Willkie published a book entitled , which advanced the concept that the fate of each nation is inextricably intertwined with that of every other. That thesis, which seemed nothing more than a dream in the midst of the Second World War, is a truism now. The soaring vision of Jean Monnet in designing the Common Market, the birth of the United Nations, the World Bank, and the International Monetary Fund all moved us toward one world. But swift as were the politicians, technology moved still faster and further.

One result, little recognized by the general public, is that technology has combined with finance in a new and unique way that makes obsolete some of the old ideas of compartmentalized national markets, in much the same way that the advent of the tank in World War I and air power in World War II changed the concept of military power. In advancing this thesis, I am aware of the fact that General Billy Mitchell, who championed the theory of air power, was court-martialed for his trouble. It is also true that when the idea of using a tank in warfare was presented to Lord Kitchener, Britain's secretary of war during World War I, he dismissed it as "a pretty

Machiavelli, who knew something about such matters, put it this way:

. . .it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new ...

When the radio was invented and brought into commercial production, pundits opined that the phonograph was dead, that the record industry would be only a footnote in technological history. When television came along, we were told with equal certainty that the radio business was on the way out. None of this happened, because entrepreneurs in the electronics industry followed the targets of opportunity and created a world that was not as predicted.

Modern society is a mosaic made up of an ever-increasing number of these individual pieces, and the picture they create changes as fast as the pieces themselves. Charles Evans Hughes went to bed on election night in November 1916 secure in the knowledge that he had been elected President of the United States, only to be awakened to the unpleasant reality that California had voted for his opponent and the election had been lost. Now we watch newscasters on the major networks, with the help of computers, project the "winner" of our national

The new combination of science and finance produces some unease at present because often the consequences of scientific discoveries are not always anticipated. It is a well established principle that a change of degree-if carried far enough-may eventually become a difference in kind. In biology, this is how new species are created and old ones die out. It can be argued that the speed of electronic information flow when it reaches sufficient velocity changes the nature of the transaction itself. Speed is what transforms a harmless lump of lead into a rifle bullet, or a collection of snapshots into a motion picture. When speed is combined with size in the financial markets, the numbers may rise to a point where they reach a critical size, and the market that's created becomes totally new and an integral part of our evolving world order. When this phenomenon is truly understood, the world can adjust, but first we must understand the magnitude and nature of change.

When I joined the international division of Citibank in the 1950s, instructions were clearly set forth that you never sent a cable if a letter would do, and the letter often went by sea mail. We took our first halting step toward the electronic age when we set up a telex line between the Citibank offices in New York and London. This circuit stuttered out about seven characters per second. Today, we have the capacity to transmit data at the rate of 152,300 characters per second. This is not just a change of form, it is a change of substance.

The flow of data around the world is now so huge and so diverse as to have worked a fundamental change in the world's economy. Every day, a computer system called CHIPS in the New York Clearing House processes the debits and credits of London Eurodollar trading in a volume approaching some two

People of all nations have long since adjusted to the grim reality that an intercontinental ballistic missile can travel from the Soviet Union to the United States, or a reverse path, in about thirty minutes, carrying enough explosives to render our society unlivable. We now have a less visible but perhaps equally profound challenge to the unlimited sovereign power of nation-states in the technical reality of global communications. Satellites have made communication costs almost insensitive to distance. There has been steady elimination of economic and technical barriers to the instantaneous exchange of information among peoples. This information is not always welcome and the political implications are enormous, even though barely visible on the horizon today. The luxury that some nations have permitted themselves of tight censorship has become increasingly difficult. The seventy commercial satellites currently circling the earth can now pump information from the skies to millions of transistor radios held in the hands of people who live in places that were once thought of as remote areas. It is not only news that is affected, because in the high-speed global transmission of digital data, the computer switching centers of the world make no distinction between the front page of the , the general ledgers of branches of multinational banks, or the television show you watch in your living room. They are riding, so to speak, in the same stagecoach. In fact, it is this technology that has made us a global community in the literal sense of that word. Whether we are ready or not, mankind now has a completely integrated international financial and informational marketplace capable of moving money and ideas to any place on this planet in minutes.

But the technological revolution poses thorny political problems. Since the digital information flowing in cables or moving through space will include such things as television

What we are witnessing and participating in is a true revolution, and like all revolutions it is creating political unease. If a nation-state cannot control what its citizens see and hear, a little of the power of the state has slipped away even though a government might still force a modern Galileo to renounce scientific fact or decline a Nobel Prize.

Today, except in a very few instances, national borders are no longer defensible against the invasion of knowledge, ideas, or financial data. The Eurocurrency markets are a perfect example. No one designed them, no one authorized them, and no one controlled them. They were fathered by controls, raised by technology, and today they are refugees, if you will, from national attempts to allocate credit and capital, for reasons that have little or nothing to do with finance and economics.

America's ill-fated experiments with a so-called interest equalization tax provide another example. Designed to assist America's balance of payments, it gave instead great impetus to the Eurobond market and did little or nothing for the U.S. balance of payments. Eurobond issues placed in the public and private markets reached just under twenty billion dollars by the time the interest equalization tax was replaced, in July 1984. Once again, one nation's policies had unintentionally created a new international institutional market of such usefulness that it will not go away. The extent of capital flows depends only on the number of sophisticated investors.

What it all adds up to is a quantum jump in the efficient channeling of the world's capital flows. There are those who

Behind that argument lies a complaint by some governments that the existence of a free market disciplines them when they engage in over expansionary policies, because the stream of electrons, increasing the mobility of money, makes it more difficult to ignore the one-world nature of financial life.

The old discipline of the gold standard has been replaced, in fact, by the discipline of the information standard. While the new control is not as harsh as the old automatic adjustment of gold shipment, it is in the end almost as certain. It is the successor to the Bretton Woods arrangement, with its pegged rates, where the marketplace punished overly inflationary countries through the loss of reserves. And even then, countries endeavored to maintain their freedom to inflate by imposing exchange controls. Efforts by some governments now to apply reserve requirements or other controls are only intended to mute the market's response to wide differences in domestic economic policies. Such moves carry with them grave risks for global financial stability. The very fact that the Eurocurrency market has been free has enabled it to act as a safety valve to the financial tensions and pressures inflicted by varying monetary and fiscal policies and such shock events as the OPEC oil price increases.

In his classic work on the gold exchange standard, Jacob Viner wrote that state intervention in private international markets leads "with a certain degree of inevitability to the injection of a political element into all international transactions." The presence of this political element, he noted, necessarily implies a "marked increase in the potentiality of economic disputes to generate international frictions." Politics and diplomacy will be substituted for more routine methods of settling commercial and economic disputes.

If governments and central banks now intervene more

A few years ago, I had an opportunity to demonstrate a small, portable plastic earth station. It was not hard to do. The disk was about the size of a large salad bowl and all I had to do was set it on the windowsill of a room on the top floor of Citibank headquarters in New York City. In less than a minute, a printer started to chatter out the Dow Jones running commodity report. As it happened, at that moment the Connecticut Bankers Association was suing to prevent us from opening an office for our finance company in one town in Connecticut. I could not help reflecting on the fact that we had just created what amounted to the basis for a commodity trading operation in less time than it took a Connecticut lawyer to get his legal pad out of the desk and start protecting his client's supposed monopoly.

In time, we got to open that one office in Connecticut, and that's still all we have there. Over the same time frame, we bought two transponders on the Westar Five satellite, now in orbit, and set up earth stations in more than a dozen cities throughout the U.S., which are handling the bank's domestic data flow. The course of these two events illustrates the mismatch between the rapid pace of technology and the determination of some to resist it.

The fact is that banking is a branch of the information business. One of the giants of the news industry, Baron Reuter, was among the first to grasp clearly the relationship between communications and finance. During the financial crisis and gold rush in Australia in early 1892, Reuter set up a money-by-cable remittance system that could transfer funds less expensively than did the commercial banks at that time. This service was profitable, and very popular with the public, but predictably unpopular with the banks.

Baron Reuter understood the fundamental relationships of

The irrationality of our regulatory approach to these matters can hardly be exaggerated. In a recent far-ranging review of new telecommunications and computer technology, put it this way:

The distinction between telecommunications and computers is now technological nonsense. . . . Not bureaucrats, not lawyers, not customers, certainly not engineers-can say anymore where data-processing stops and message-carrying begins.

Our own Federal Communications Commission devoted seven years and millions of taxpayer dollars trying to maintain that distinction before finally giving up. That may prove to be the first time in history when a government agency had to refrain from regulating something because it couldn't define it.

No one has ever defined with any precision the business of banking, but the history of Reuter's gives us a clue. The history of innovative banking parallels that of the great news gathering systems, for good banking like good journalism is based on sound information speedily delivered. In the sixteenth century, Jacob Fugger built the preeminent financial institution in Europe on fast couriers bringing news from agents stationed in Spanish America, Mediterranean Africa,

Our current banking network, with its Euromarkets and its automated payments system, is not the cause of the world capital flows, but merely a means of transmission. It has become almost a book-entry system for part of the world. In fact, Henry Wallich, a governor of the Federal Reserve, has called it "the ultimate in intermediation between lenders and borrowers, between savers and investors."

This means of transmission of information and money is a primary cause of the fact that international banking is a system designed by fate to exist in a certain state of economic tension with all governments, including the most democratic. This tension is an ancient phenomenon dressed in electronic clothing.

Observing the achievements of the bankers of Amsterdam during the seventeenth century, a French philosopher, Charles de Montesquieu, congratulated them for having made it impossible for the princes of the world secretly to devalue their coinage. The standard of money can no longer be secret, he said, because the banker has learned to draw a comparison between all the money in the world, and to establish its just value.

Montesquieu did not think this activity would increase bankers' popularity with governments, and he warned of still another danger: By extending credit, banks had created a new species of wealth, and throughout history the princes of this world have rarely approved of wealth circulating outside their own control. There are countries, he observed, "where none but the prince ever had, or can have, a treasure; and wherever there is one, it no sooner becomes great than it becomes the treasure of the prince." There are few princes left in the world today, but only the vocabulary has changed. Governments now talk of "stateless money" instead of treasure, but the thought remains. There are still many countries where private banks are not welcome. Banks are unwelcome in Communist

Today, this phenomenon can be observed as the Euromarket handles billions of dollars, deutsche marks, and other currencies subject to the jurisdiction neither of the country that issues the currency nor of the country where the transaction takes place. It does no good to wish that the technology had never been invented, and it won't go away. Just as the high seas are free to carry the world's commerce-stateless waters, if you will-so the Euromarkets are stateless markets to clear the world's financial transactions with a speed and an efficiency unmatched in history.

Modern technology has welded us into an integrated economic and financial marketplace which governments-and all of us-must learn to live with. The clock cannot be turned back, though the nature of this phenomenon is not as clear to the world's opinion-makers as it needs to be.

The beneficent results of low-cost, instantaneous international financial transactions, which we have almost begun to take for granted, are by no means appreciated in every quarter. Laws designed to control transborder data flows are being passed and many more are just over the horizon. All have laudable purposes-protecting privacy, for instance-but there are some people who suspect that, whatever the stated objective, proposed regulations of transborder electronic data flows are also coming more and more to look like old-fashioned economic nationalism.

As banks have grown into a global, interconnected financial network to meet the needs of a global marketplace, fears have been articulated that the system may be vulnerable-that

It is pointless to debate whether that perception is wholly true, partially true, or not at all true. Whether or not the system today is as fail-safe as it should be, it is not perceived as such by some people. The motives of these groups range from a philosophical distrust of what might be termed economic free speech in a truly efficient market, to genuine worries about the quality of credits being financed. Others, watching the worldwide inflation eat up the world's substance, look for something or somebody beyond their own national fiscal and monetary policy to blame. Whatever the motive, and regardless of whether the disquiet is real or imagined, until that perception is changed our doors will remain open to eager visitors who volunteer to help protect people's assets when what they really have in mind is controlling the flow of capital.

Since this tension between those who see the benefit of intermediation on an international scale and those who don't will continue, it behooves us in the private sector to make the system as efficient and safe as possible. We should make sure that the payments mechanism functions through good times and bad, that reciprocal currency lines are in place, and that there is a well-ordered cooperation with the world's central banks, which are themselves a major user of the market.

If those of us who are qualified to deal with improving the market do not respond, others will fill the vacuum. Much of what we must do is to make more explicit and more visible practices that already exist. As the perception grows that we live in a world of limited resources and unlimited demand, the world problem continues to be how to make maximum use of these resources. Helping to solve that problem has always been a banker's basic business-and with the tools now available,

In fact, we are already doing it. What we have to defend is our right to continue to do so.

As world policy adjusts to these realities, so must we adjust and rethink how the world's financial system will function in the age of almost instant information. There is no longer anywhere in the world to hide. Even those countries that are self-sufficient in food, in energy, and in natural resources can no longer isolate themselves from the rest of the world. This state of affairs does not necessarily make the world an easier place in which to live. There are many days when buyers and sellers, politicians and bankers, all long for the past world of fixed exchange rates and for what seems in retrospect like simpler times. We are tempted to dream of the return to more compartmentalization of national security, when the castle wall constituted a real obstacle to the invader. But the progression of innovation is irreversible. Each new invention brings changed circumstances with which the world must cope. Edward III forever changed warfare at the battle of Crecy by introducing the Welsh longbow against the French. Today, the financial longbow is the linking of the satellite, the computer, and the cathode ray tube. The kind of world that existed in July 1944, when the United Nations Monetary and Financial Conference gathered at Bretton Woods, New Hampshire, has changed so much as to be almost unrecognizable. The nature and distribution of economic and military power has changed dramatically, and this, combined with the new technology, has destroyed many of the old arrangements. We all have our own investments of intellectual capital in things as they were yesterday, and sometimes even a compulsion to preserve them in the face of all evidence to the contrary. To recognize in a clear-eyed way the existence of an international information standard is not in any sense to denigrate the achievements of the old fixed exchange rates of Bretton Woods any more than taking the Concorde to New York denigrates the achievements of the clipper ships. It is simply

The truth is that there is a new phenomenon in the world and one with which we have to deal. There exists a global marketplace for ideas, money, goods, and service that knows no national boundaries. The beggar-thy-neighbor policies originally developed by Colbert and still pursued by some governments, often urged on by their merchants and industrialists, can no longer work. We now have a new calculus which, I believe, will in the end be beneficial to the world. It exerts global pressure on all governments to pursue sounder economic policies because it is becoming increasingly obvious that it is now impossible to hide in our new electronic world.

There are some who find this disconcerting, and no doubt it has unwanted side effects. Markets can and do overreact until fact can be sorted out from fiction, often at great cost. Maybe life was easier in the age of the homing pigeons, but the hard truth is that the genie will not go back into the bottle and the scientific advances are irreversible. Modern gold-or the liquid capital of our citizens-will flow in or out of our countries in response to information, as did gold itself in other times. It is up to us all to learn how better to manage our affairs so that we may benefit from the new technology, and not be hurt by it.