REALLY LONG READ

1971-2021: 50 Years Since the USA Reneged on Bretton Woods

For the CWO, and indeed the entire political tendency to which we belong, it is axiomatic that we are living through capitalism’s third global economic crisis. For over a century the economic system (mode of production) which was once progressive for humanity, in that it created the material possibility of a prosperous world community without national borders or class divisions, has represented a barrier to human progress when it is not a direct threat to human existence itself.

The key, of course, is that having created a world economy, the laws of motion of capitalism mean that by the turn of the twentieth century,

the process of capital concentration and centralisation [had] reached such proportions that henceforward the cyclical crises which had always been an intrinsic part of the process of capital accumulation would be global crises, resolvable only by world war.

Platform of the Internationalist Communist Tendency

Capitalism’s fundamental law of motion is the drive for profit, or rather to increase the rate of profit by continually reducing the cost of production of individual commodities whilst vastly increasing output per worker. Nowadays ‘capitalism’ and the ‘profit motive’ are coming under attack from various kinds of reformists (notably environmentalists shocked by capitalism’s plunder of the planet and destruction of the natural world, and would-be social reformers, outraged by the growing ‘wealth gap’ in a world burgeoning with consumer commodities). What they inevitably overlook is not just that capitalism is ‘unfair’, but that the fundamental injustice, which is at the heart of this mode of production, is the appropriation by capital of the new value (wealth, if you like) created by the working class over and above the value of their wages. This is all the more dramatic as capitalism’s constant scientific and technological innovations (since the industrial revolution, for example) have entailed a stupendous increase in productivity, i.e. the amount of new value created by the average wage worker in a given period of time. Yet this is not reflected in the number of hours worked. (Since 1870 only a very few long-established first world economies, such as Germany, the UK, France, have even managed to halve the average number of hours worked per year.⁽¹⁾)

Yet historically this fundamentally unjust system, which has no other dynamic than to ‘maximise profit’, served to create a global economy with the means to potentially allow the whole of humankind to participate in the creation of a world community of “freely associated producers”.

However this constant “tearing down (of) all the barriers which hem in the development of the forces of production” (Marx, Grundrisse) never has been a linear development. Capitalism has always been subject to booms and busts: regular crises leading to wage cuts and unemployment for the workforce; write-offs, take-overs and eventually a renewed cycle of accumulation for capital on a more concentrated, centralised, higher technological basis which brought increased productivity rates (otherwise understood as rate of exploitation) but a generally lower rate of profit. This tendency for the general rate of profit to decline,

… is in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint.⁽²⁾

Marx, Grundrisse

Why? Because it is both the reason for its continual expansion and the cause of recurring crises during which capital is devalued, becomes more concentrated and centralised, and in so doing prepares the way for a new round of accumulation. Historically this meant development from individual entrepreneurs clawing back profit on a single enterprise, to joint stock companies, stock exchanges and, on the European continent especially, the development of finance capital. In terms of the cyclical crisis it meant an increasing synchronisation, first between sectors within domestic economies then throughout the capitalist world. By the end of the nineteenth century it meant the growth of big business, pools, cartels, mergers and monopolies at home and the massive export of capital abroad, as the drive to offset the tendency for the rate of profit to fall, accelerated the search for more profitable investment outlets overseas. Thus a world economy came into being, and the battle for new markets and investments, for cheap sources of raw materials, became more than straightforward economic competition and turned into what was termed ‘the new imperialism’ — against a background of a long, drawn-out series of international economic crises, once labelled the Great Depression (1873-96). Like today, the period before the First World War saw a dramatic increase in foreign trade but also growing signs of capitalism’s movement away from laissez-faire to more direct involvement of the state in protecting the domestic economy. This could be seen in the return to tariff barriers by England and France in the depressions of 1873, 1882, 1890 and 1907. Marx, who died in 1883, did not predict the First World War. (Although Engels, who died in 1896, did.) But Marx did foresee that that capitalism would outgrow the stage of free competition.

As long as capital is weak, it still relies on the crutches of past modes of production, or those that will pass with its rise. As soon as it feels strong, it throws away the crutches, and moves in accordance with its own laws. As soon as it begins to sense itself as a barrier to development, it seeks refuge in forms which, by restricting free competition, seem to make the rule of capital more perfect, but are at the same time the heralds of its dissolution and of the dissolution of the mode of production resting on it.

ibid., p. 651

But it was for the next generation of revolutionary Marxists, confronted by the ‘new imperialism’, and then by world war itself, to explain the changed reality of capitalism. Bukharin and Lenin (unlike Kautsky) saw that the imperialist war was not an aberrant interruption to the normal course of capital accumulation, but an intrinsic part of it, since capital had become so centralised and concentrated that the purely economic competition had given way to competition between states, whose interests were inextricably bound up with the interests of monopolies and finance capital. For Bukharin laissez-faire had given way to state capitalism. Lenin used the term ‘monopoly capitalism’ or ‘state monopoly capitalism’ (in State and Revolution). It was Lenin too who spelled out clearly that with imperialism capitalism had entered a new historical epoch of decay as a mode of production (although adding that “It would be a mistake to believe that this tendency to decay precludes the possibility of the rapid growth of capitalism ...”). It is this understanding of the historically decadent nature of capitalism that underpinned the formation of the Third International, whose founding Congress announced that the present epoch is one of wars and revolutions. It is in keeping with Marx’s own vision of how the inner contradictions of the system, which was developing the material basis for communism, would eventually become a barrier to the birth of that new society.

Here is Marx again in the Grundrisse, on the falling rate of profit:

The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given to it to be gone, and to make way for a higher state of social production. Hence the highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation of capital, degradation of the labourer and a most straitened exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises in which by momentous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it can go on. … Yet these regularly recurring catastrophes lead to their repetition on a higher scale and finally to its violent overthrow.

ibid., p.750

In the 20th century, two world wars (and one defeated working class revolution) were the outcome of the cyclical capitalist crisis writ large. Having annihilated “a great portion of capital” the Second World War provided the basis for the longest capitalist boom and, what has turned out to be, an even longer economic crisis in capitalism’s history to date.

Bretton Woods

Even before the war in Europe was over, before the Allies had finished bombing German cities to pulp and the USA had dropped the atomic bomb on Hiroshima, negotiations were underway to define the post-war new world order. It was to be a world divided between two very unequal imperialist blocs: the USSR and its Eastern European satellites on the one hand and the USA with its Western European associates, eventually suitably stripped of their colonies, on the other. And even before the political deal for this re-division of the world was made at Yalta in February 1945 (by Roosevelt, Churchill and Stalin), a hotel in the US mountain resort of Bretton Woods in New Hampshire became the venue for the USA and the ‘Allies’ to wrangle over the economic basis and terms of trade for the new world order. (July, 1944) Reams have been written on the wrestling between the negotiator for severely beaten British imperialism, John Maynard Keynes, with his proposition for the creation of an independent currency for international trade (the ‘bancor’) and the USA negotiator, Harry Dexter White, whose counter-proposal that the US dollar should become the currency of international trade was inevitably accepted. (Especially as it was accompanied by the threat to cut off any further US credits for the Allied ‘war effort’.⁽³⁾) The USA was now imperialist top dog and it was the dollar that would be the new yardstick for international trade. In the new world order member states would peg their currencies to the US dollar, and to ensure no return to the beggar my neighbour currency devaluations of the inter-war years, the USA would peg the dollar to gold, at a price of $35 per ounce. Part and parcel of the arrangement was the setting up of the World Bank, charged with acting as creditor to the IMF with transactions inevitably in dollars. The one big rider to this is that Russia did not ratify the final agreements and in 1947, at the UN General Assembly, denounced the Bretton Woods institutions as “branches of Wall Street” and the World Bank as “subordinated to political purposes which make it the instrument of one great power”.⁽⁴⁾

The Russian delegate, Andrei Gromyko, was not wrong. However, his opposition to the final Bretton Woods settlement was by no means opposition to an imperialist carve-up. It was simply resistance to US domination on the part of a weaker imperialism. Weaker, but nevertheless with its territory spanning most of Europe and a huge part of Asia, the USSR (so-called ‘Union of Soviet Socialist Republics’) was trying to secure its own satellites and escape from hegemony of the dollar. By this point Churchill had delivered his Iron Curtain speech,⁽⁵⁾ and Truman had announced his ‘doctrine’ that the USA would support any ‘democratic nation’ under threat from authoritarian forces. In 1947 the USA began to implement the Marshall Plan for its allies in Europe. Essentially this meant financial aid to countries the USA perceived as under threat from:

Communist movements … directed by Moscow, (which) feed on economic and political weakness. The countries under Communist pressure require economic assistance on a large scale if they are to maintain their territorial integrity and political independence. At one time it had been expected that the International Bank could satisfy the needs for such assistance. But it is now clear that the bank cannot do this job. The United States is faced with a world-wide challenge to human freedom. The only way to meet this challenge is by a vast new programme of assistance given directly by the United States itself.⁽⁶⁾

In response the Soviet Union formed the Council for Mutual Economic Assistance (Comecon) in 1949, in part to discourage countries in Eastern Europe from participating in the Marshall Plan and to counteract trade boycotts imposed by the USA and by Britain and other Western European countries.

Meanwhile the war had left the UK bankrupt, and in hock to the USA, a fact emphasised by the terms of the loan Keynes was sent to negotiate with the US (and Canada) in 1946. Above all, the stipulation that countries with trade balances in sterling would be allowed to convert them into dollars from July 1947, led to a run on British dollar reserves. Convertibility was suspended, but by 1949 a more realistic exchange rate was established when sterling was devalued from $4.03 to $2.80.⁽⁷⁾ In fact, the situation facing sterling was only a more dire version of what faced many states. By the end of September more countries, including Australia, Canada, Finland, France, India, Ireland, Israel, New Zealand, Norway and Sweden, followed the UK and devalued their currencies against the dollar. The immediate threat to capitalism in the West was not from ‘communism’ spreading from Russia but from the dearth and destitution facing the working class of its bankrupt allies turning into something more politically dangerous than inconvenient strikes and protests. And not only US allies. From November 1945, through 1946, the biggest strike wave in the history of the USA, fuelled by a rapid rise in inflation and involving more than 5 million workers, largely outside of the trade unions, occurred. The challenge for US capital was to find a way to improve the situation of the working class by reviving both its own domestic economy, and the economies of its allies. Marshall Aid, which transferred approximately $13 billion to Western Europe between 1948 and 1952 was as much about countering the threat from within as from communist movements “directed by Moscow”.

The scene was set for a bi-polar imperialist division of the world, the Cold War and the biggest boom in history.

The Long Boom

With up to 50% of world manufacturing inside the USA,⁽⁸⁾ and the dollar as the prime currency of international exchange, US capitalism was in prime position to lead a new cycle of capital accumulation. In 1960, with its balance of trade in surplus, the GDP of the USA accounted for 40% of total world output. It was a boom in which its allies soon caught up — thanks in part to the US running a budget deficit to finance the Korean war (which gave a boost to West German exports in particular), and the regeneration of Japan. It’s worth reminding readers today how much that upsurge in production, born out of the destruction of world war which allowed for a new round of capital accumulation, changed working class lives. So often defined as a ‘consumer boom’, this boom was predicated on the expansion of state welfare measures planned during the war and designed to undermine any inclination for workers to be attracted to ‘communism’ (read Stalinism) and essentially paid for by money taken out of workers’ wage packets before they opened them. For the first time hospital and health care were available for all (in the UK the famous NHS) while national sick pay, unemployment benefit entitlements and viable old age pension schemes put an end to the workhouse in Britain and generally ensured that workers did not have to carry on working until they dropped. Meanwhile, working class children were now entitled to secondary education and a small minority began to enter the ivory towers of university academia (subject to a means-tested grant for a living allowance), giving rise to theories about the ‘rise of the meritocracy’.

The early post-war decades were a time of very low unemployment (the capitalists called it full employment) and rising real wages, which enabled workers to purchase an increasing variety of consumer goods, as well as state house (and high rise) building programmes which created new towns and reduced, but never quite eliminated, the shortage of housing. In the UK rationing was phased out by 1954 and as early as 1957 Prime Minister Harold Macmillan could pronounce that “you’ve never had it so good!”

In tandem with the US, building new road networks and expansion of the car industry were prioritised over railways, especially in the UK where the (unprofitable) railway network that had linked up the whole of Britain was slashed to make way for the expansion of the car industry. The Sixties proved a boom time for the car industry, with the number of private cars doubling from almost 5 million to nearly 10 million in the decade between 1961 and 1971. Moreover, car or no car, with many firms implementing a summer shutdown with holiday pay, tourist firms expanded to create a mass market in ‘package holidays’: in the transition from Butlins to Benidorm many working class families travelled abroad for the first time.

More generally, the expansion of the market in consumer goods led to the proverbial boom in production of ‘labour-saving devices’ from vacuum cleaners to washing machines, which reduced the time ‘housewives’ needed to stay at home. The unintended consequence, in a period of ‘full employment’, was that more and more women ‘entered the labour market’. Unlike previous periods of increased female employment (usually wartime) this has proved to be a permanent trend, reflecting the domination of services in the capitalist economy as well as the practical possibilities opened up by the general availability of female-controlled contraception by the end of the Sixties.

This is an overview of how the capitalist boom affected the working class in Britain but it was essentially the same for workers in the Western capitalist bloc. In France, the boom years are referred to as Les Trente Glorieuses (1945-75), in Italy as Il Sorpasso (the decades which went beyond all others); in the USA, workers were assured they were living the American Dream. After being told we had never had it so good, Britain headed into the Swinging Sixties and the working class embarked on a decade or so of official and unofficial strikes. From 1963-7 2-3 millions of working days were ‘lost’ each year, culminating in 4.7 million in 1968. However, this robust workers’ militancy never really went beyond the horizon of the workplace. When boom turned to bust the working class had no vision of an alternative to capitalism.

US Reneges on Bretton Woods: Beginning of the Prolonged Bust

On 15 August 1971, President Richard Nixon unilaterally announced the “temporary” cancellation of the mainstay of the Bretton Woods agreement: the system of fixed exchange rates based on the direct convertibility of the US dollar to gold. In effect the dollar was the unit of international trade. As trade picked up and countries like West Germany and Japan began to account for a bigger share of international trade, demand for dollars outside the USA grew, as did financial wheeling and dealing on the Euro dollar market. By the early Sixties there were more dollars outside the USA than could be covered by the gold in Fort Knox. As inflation edged up towards the end of the Sixties more and more of those dollars were being converted to gold, increasingly not at the official rate of $35 per ounce. The system was unsustainable. The USA was already running a growing budget deficit, largely due to expenditure on the Vietnam war. But in 1971 the US balance of trade showed negative for the first time since the war. The ‘Nixon Shock’ spelled the beginning of the end of the Bretton Woods economic frame for the world economy. By the time Nixon confirmed the permanent end to a fixed exchange rate with gold in 1973 the price of gold had reached $100 per ounce. The equivalent price today is around $1,900. Clearly there can be no going back.

The de-linking of the dollar from gold not only allowed the US Treasury to ‘print’ dollars at will, it was effectively a devaluation of the currency which rebounded on the price of commodities traded mainly in dollars on the world market, notably oil. This not only upped the cost of raw materials for competing Japanese and European (largely West German) manufacturers, it sparked continual price increases throughout the Western world for typical working class consumer goods. During the Seventies the UK had some of the highest annual inflation rates in Western Europe. The prime architect of the ‘Nixon Shock’ was Treasury Secretary John Connally whose infamous quip (at the G10 meeting in Rome) that the “dollar is our currency but your problem” had not prevented him from imposing a 10% surcharge on imports into the US, and a 90-day wage and price freeze for workers in the USA. Indeed the working class in the USA found themselves in the same boat as workers elsewhere in the world’s ‘advanced countries’ and beyond. According to the OECD workers’ share of national income in the G20 declined steadily between 1970 and 2014, with the working class in the USA experiencing the fourth largest drop of around 11%. This is now a worldwide trend which includes so-called emerging economies. (Today workers’ share of total global output is estimated to be around 50%.)

The USA’s abrogation of a key part of the Bretton Woods agreement it had carved out in its own interests ushered in a long, downward stage in the third cycle of global capitalist accumulation. Over the last five decades we have seen the collapse of the USSR and the post-war imperialist carve-up agreed at Yalta while the USA, now barely accounting for a fifth of global GDP, is struggling to maintain its domination. So far it has managed to retain its top dog position, largely thanks to the dollar’s role as the predominant unit of international finance and trade — something it could not have done if the dollar’s link to gold had been retained. When a certain Saddam Hussein threatened to trade Iraqi oil in euros rather than dollars, the USA showed it is prepared to defend its own economic interest with direct military might by invading Iraq (Operation Desert Storm) in 1991 and then again, even more ferociously in 2003. For a brief spell capitalist pundits were telling us about the uncontested hegemony of the US. That narrative ended after Chinese capitalism stepped in to keep up demand and international trade during the global recession which followed the bursting of capitalism’s biggest-ever financial bubble (the so-called sub-prime crisis) in 2007-8.⁽⁹⁾

Today everyone knows that China is challenging the US. But what’s important for the world working class is to recognise that these two rivals are part and parcel of the same capitalist system, facing the same crisis of profitability which is making it harder and harder to find profitable place to invest, and driving capitalism throughout the world to find ways and means of upping the rate of exploitation: the amount of new value created over and above the cost of wages and the general upkeep of the labour force. In other words, after five decades of capitalist crisis there is no going back to the Swinging Sixties for the working class. And why indeed would we want to when the alternative of getting rid of decaying capitalism and replacing it with a world society of freely associated producers is staring us in the face?

ERayner

Notes

(1) See ourworldindata.org, incidentally a useful website (although openly advancing liberal optimism regarding the future of the capitalist economy) which encourages its data to be used freely.

(2) Marx in the Grundrisse, Pelican ed. 1973, p.748

(3) See “Uncontested Hegemony: From Bretton Woods to the Gold Pool, 1945-60” in The World Economic Crisis, Fitt, Faire and Vigier, p.74-77.

(4) See Eric Toussaint, cadtm.org

(5) Delivered at Westminster College, Fulton, Missouri, 5.3.46 where he had rhetorically declared: “From Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the continent.” Annotated facsimile available on the website of the National Archives.

(6) From a memorandum by Will Clayton, Assistant Secretary of State for Economic Affairs, on his return from Europe early in 1947, quoted in Brett, op.cit. pp.106-7.

(7) See for example, Benn Stein, The Battle of Bretton Woods, Princeton Press p.331

(8) Estimates diverge. E.A. Brett, in The World Economy Since the War (Macmillan) is a conservative “more than 40 per cent”, p.63.

(9) “During the agonizing 18-month recession, unemployment reached as high as 10 percent and GDP shrunk by a whopping 4.3 percent. The economy only turned around after massive government stimulus spending (more than $1.5 trillion) to prop up the failing banks and inject capital into the shell-shocked economy.” history.com In fact the crash was much more than a US one. The world economy was pushed into recession, with knock-on consequences including the Arab Spring, ‘austerity’ for the working class and a further decline in productive investment.

Sunday, August 15, 2021

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The End of Bretton Woods: A Contemporary Analysis

The article below is a translation of a piece first published in Italian by the Internationalist Communist Party (PCInt) in their journal Prometeo, 16/17 (Third Series), in 1971. As such it is an analysis made long before the ICT came into existence and at the very time when the Nixon administration was tearing up the fundamental basis of the USA’s own post-war settlement – the link of the dollar to gold. The article clearly sees that this signals the opening of the crisis at the end of the cycle of accumulation which began in the wake of the Second World War. For the working class the post-war boom period was already giving way to rising unemployment and inflation. Reading it today we would expect to find that much of what is written would have been superseded by history but in fact the opposite is the case. In fact the author draws a clear picture, on the one hand of a United States stumbling to react to economic forces beyond its control and of a working class suddenly having to face up to growing unemployment and a rapidly rising cost of living. In 1971 nobody could have foreseen how world capitalism, particularly the United States, would manage to find ways of prolonging the crisis without a cataclysmic showdown. What we do know is that the crisis that emerged in 1971-3 has not gone away, despite the unprecedented extent of state intervention in the economy. Contemporary capitalism’s increasing reliance on speculation and financial profiteering while investment in the production of new value stagnates is testimony to the continuing crisis. It still has not been resolved, either by a massive devaluation of capital, or by the working class taking its own road to the only civilised solution: a global community of freely associated producers.

The Crisis of the United States

Before starting the economic analysis based mainly on data, let's try to define the fundamental characteristics of the current crisis. These underlying theses will return and feature in almost the entire article and for the most significant data we will expressly refer to this premise, noting how the current situation is faithfully traced back to it.

Analysing the situation, we can say that capitalism has long since entered a phase of "permanent crisis".⁽¹⁾ The same recurring data occurs for almost all the advanced capitalist countries where the situation has become pathological and the remedies implemented only serve to mitigate this perennial crisis which then returns to explode with greater force.

But how does the "permanent crisis" differ from other crises? And what are its fundamental traits?

We have seen (see note) that the "permanent crisis" does not imply the end of cycles, which is an inherent part of the capitalist structure itself, but it means that the "knock-on effects", the general tendency of the capitalist economy, is downward and increasingly bringing capitalism closer towards its final collapse.

In this historical moment the high organic composition of capital and the high degree of technical proficiency achieved have lowered and reduced the profit margins of the capitalists who, nevertheless and only by means of very high rates of exploitation, have managed to obtain considerable profits. Yet all this has led to inflation which asphyxiates the domestic markets of the capitalist countries which by now are no longer able to completely absorb production, thus causing overproduction, especially agricultural, to reach particularly high levels. Here, in order to have greater profits, the capitalists prefer to destroy part of the product and re-sell the remainder at higher prices.

All this takes the capitalist economy down the road of stagflation (i.e. of stagnation and inflation at the same time) so that while production remains stagnant, prices skyrocket, and in this way the capitalists try to obtain surplus profits. However, in doing so they run into problems of realisation: the absence of sufficient demand to absorb the product, and with this we return to inflation of the markets and the circle thus closes and no escape is possible. For this reason, enormous problems of accumulation are created for the capitalist economy, since for capitalism to survive it is not enough that a certain amount of surplus value is produced but it must be realised, and above all reinvested, to bring new profits; otherwise there is a steady fall in the rate of profit. The imperialist countries therefore try to procure super-profits by exporting capital, investing in underdeveloped countries, which they say is providing aid, but where wages are lower and where, due to the lower organic composition of capital, profit margins are higher.⁽²⁾ The markets of the so-called socialist countries also function as reservoirs of profits and surplus value.

These are the main characteristics of the "permanent crisis" and are particularly obvious at this moment, testifying to the inability of capitalism to resolve its contradictions, and highlighting the need that every capitalist country has to export its crisis, and make somewhere else bear the burden, thus helping to increasingly undermine the entire capitalist system as a whole.

Moreover, at this moment the fragile and precarious world equilibrium has been definitively broken. Each country is aware that the situation is now rapidly deteriorating and is trying to deflect the crisis from itself.

An examination of the situation tells us that today, more than ever, there is a need for a world party that knows how to bring a revolutionary outcome to this crisis that otherwise capitalism will solve, almost certainly, with a war perpetrating its domination of oppression and exploitation for yet another time period.

Having established this premise, let's begin to examine this situation in a concrete way. The current crisis is of a structural nature, but since the Italian and world press have focused on the monetary crisis, it therefore seems logical to give a brief general picture of the monetary situation.

The current monetary system is based on the 1944 Bretton Woods Accords and is called the "gold standard of exchange". This system is based on the convertibility of all currencies into dollars and the direct convertibility of dollars into gold, at a gold price of $35 an ounce; this relationship is obviously fiduciary and is based on the convertibility of dollars into gold.

But the growing deficit in the American balance of payments, due to the American attempt to maintain both economic and political dominance in the world with its numerous wars (such as Vietnam, the Middle East conflict, and the expansionist policy involving domination like that of NATO) has undermined the strength of the dollar which has become a suspect currency. In fact the gold reserves of the United States have fallen from $22.8 billion in 1950 to $17.81 billion in 1960, to about $10 billion today.⁽³⁾

At this moment America has lost its competitiveness on world markets, and in order to try to restore it, it demands that all other nations foot the bill; now they are arguing over the price. One of the conditions requested was the revaluation of the main European currencies as well as the yen, but the revaluations requested by the International Monetary Fund, which is very close to the American point of view, and the actual revaluations on the money markets controlled by the various Central Banks, which therefore represent the revaluations proposed by Europe and Japan, are for the moment very distant from each other.

Currency	Re-evaluations Predicted by the IMF /	/ Market Re-evaluations (31 August)
Yen	17%	5.3 %
Mark	14%	8%
Franc	8%	4%
Lira	6%	2.5 %
Sterling	7%	2.7 %

The monetary remedies proposed as a solution bring nothing new onto the world stage,⁽⁴⁾ and are simply a reflection of the economic crisis in which capitalism is struggling.

The American monetary situation is also serious because the United States has long since lost its first place in favour of Germany as the country with the largest monetary reserves, and now Japan is also considerably nearer. All this brings considerable difficulties to the American policy of being the dominant power in the world. Once the economic situation is added to this, we get the complete picture.

We have said that the crisis has an instrumental character, so let's examine the economic situation of the countries most permeated by this crisis and, first of all, the American situation itself. Let us remember first of all that the American crisis cannot, as has been said by various parties, have been determined by the workers' struggles of recent times since the cost of labour index in the USA, which is closely linked to the greater or lesser combativeness of the workers — taking 1954 as the base of 100 — in 1970 was 122. Thus, in 16 years there has been an increase of 22%, equivalent to approximately 1.3% per year. Incidentally, in Italy from 1967 to 1971 the cost of labour rose by about 54%.

Compared to this low increase in labour costs, inflation has risen considerably. In America consumer prices, with 1967 equal to 100, have increased by 21.8% or approximately 7% per year. Meanwhile investments remain stagnant, even with a slight decrease, falling from $80 billion in 1969 to $77.8bn currently, a decrease of 2.7%. This confirms the position expressed at the beginning of this article and explains the pathology of the current situation of capitalism.

We can briefly summarise the crisis situation of the American economy with some figures: unemployment stands at 6.2%, overall the number of unemployed is over 5 million, 14.5 million workers are laid off, 25 million are classified as ‘poor’.

The industrial production index declined from 111.5 at the beginning of 1969 to 102 at the beginning of 1970 and to 105 today.

The trade balance is in deficit for the first time since 1893 and has gone from around $7 billion in assets in 1963 to $745 million in current liabilities.

The balance of payments was negative in 1970 by $10.7 billion and by $11.3 billion in the first six months of 1971, thus creating a record deficit.

The American market is now saturated and in the agricultural sector this is particularly evident. As regards maize, current production is 52,995,381 tons; domestic consumption is 27,406,392 tons; the export of 19,773,312 tons makes a total of 47,179,704 tons; thus, compared to the total, there is already an overproduction of 5,815,680 tons. However, if we add to these 29,732,661 tons placed in reserve or deposited in the State's grain coffers, we get an overproduction of 35,548,346 tons per year.

The situation is no different for wheat where overproduction amounts to 45,435,000 tons and the same can be said for rice, as well as for other cereals and other agricultural products.⁽⁵⁾

The Nixon plan aims to make the other Western countries which are in competition with the United States, in practice the EEC and Japan, pay the cost of the American crisis. The asking price was $13 billion to be added to the US balance of payments. It now appears that this price has shrunk to $11 billion. Given that the US balance of payments is currently in deficit to the tune of $11.3 billion, this is equivalent to asking $22.3 billion from other countries. This price is due to be paid by revaluing the currencies of all other competing countries and decreasing exports to the United States.

In addition, the Nixon government is trying to re-stimulate domestic demand on an overloaded home market. By eliminating the 7% consumption tax on the purchase of cars it has released about $7 billion for consumption; the $50 federal income tax exemption will release about $2 billion, but that $9 billion is very little compared to gross national product (GNP) of which it doesn't even account for 1%.

Possibly more important to the American economy will be the economic agreements which will follow from Nixon’s trip to China⁽⁶⁾, and from which the American capitalists could make more profits. But where would these profits be reinvested? An increase in American domestic production would require the home market to expand. The answer will then be: “export industries”, forgetting that the US economy remains a predominantly closed economy⁽⁷⁾ where exports are just over 4% of GNP, where the home market is more important than foreign markets and which lacks a wide base of medium and small industries dedicated exclusively to export as, for example, in Italy, whose economy is notoriously open. Secondly, in order to export goods, the US must obtain the currency revaluations it asks of other countries, thus making its commodities competitive on world markets; in this case the crisis would shift to other countries which would have to react by closing themselves off to American goods, making the crisis more and more chronic. As you can easily see, the characteristics of the "permanent crisis" are perfectly reflected in the current American situation.

The Economies of Competing Countries

Japan

The main competitor of the United States today is Japan which has a constantly expanding, mainly open economy, which invades international markets with its goods.

The "miracle" of the Japanese economy is due, first, to a very high rate of exploitation. Taking 1965 as a base of 100, labour productivity rose in 1970 to 188.3, an increase of 88.3% in five years. Second, is the index of a high rate of production.

Again, taking 1965 as the base, production more than doubled with a 121% increase in five years. Alongside all this there was a very low wage rate, although in the last four years real wages have increased by 39.5%, a rate very similar to that of the other capitalist countries, thus re-awakening workers’ militancy in Japan. To date industrial profit rates in Japan are estimated to be 12-13% with GNP over 60,000 billion yen, of which almost half is due to public investment. In order not to lose its competitiveness on world markets, Japan has been increasingly opposed to revaluation of the yen⁽⁸⁾ and on 4 June it launched an eight-point plan which removed non-tariff barriers to international trade, eliminated export tax reliefs and a commitment was made to liberalise the inflow and outflow of capital. But all this was not enough for the United States. By its 10% surcharge, the US seeks to impose a large and massive revaluation of the yen on Japan. The fact that it is so large is explained by the extent of the devaluation of the dollar against gold which is about 25% (the price of gold in dollars on the free market has gone from $35 per ounce of the official parity to $44). Consumer price inflation in Japan is significant. From the 1965 base of 100 it has steadily risen to 130.2 by 1970. However, wholesale price rises have been very contained, with the export price index rising from 100 in 1965 to the current 110.1, and it is believed that the 1971 increase will be only 1.2%. This testifies once again to the definition of the Japanese economy as mainly geared to exporting. It means that the Nixon surcharge has hit hard as 31% of Japanese foreign trade, equal to $5.983 billion, goes to the United States.

In Japan the total labour force is also a very high percentage of the population. In fact in 1970 out of a population of 102,747,000 the workforce was 50,400,000 of which 8,990,000 were employed in agriculture; unemployment was 1.14% with 570,000 unemployed, this is excluding the underemployed and according to official statistics.

To give an exact measure of Japanese competitiveness, let us examine the balance of payments and the trade balance. A balance of payments surplus of ¥2058 billion in 1963 to a surplus of ¥4839 billion in 1970; the trade balance went from a deficit of ¥166 billion in 1963 to a surplus of ¥4019 billion in 1970.

What will happen to the Japanese economy now? Both the revaluation and the surcharge affect it deeply and it is thus easy to predict that the consequent obstruction to Japanese exports will lead Japan into a serious crisis, further reducing the stability of the fragile capitalist equilibrium.

The EEC Countries

Let us now examine the economic situation of some of the countries of the EEC, the other major competitor of the United States. The European economy is closely linked to the American economy and is now suffering the repercussions. First of all, we specify that the union between the six countries of the EEC did not lead, and could not lead, to the complete economic integration of the adhering countries. The economic policies of the six remain very distant from each other and are far from ensuring a certain stability for the European Economic Community. This contrast is more striking if we consider France and Germany, which coexist for sheer convenience.

Later we will examine the German and Italian economies with a very brief reference to the French and British situations which, in any case, fit into the picture we traced at the beginning of the "permanent crisis". We also recall that the measures taken by the United States are affected by the fact that 87% of EEC exports go to the United States, amounting to $5.785 billion.

Let’s very briefly examine the French situation. If the franc were revalued, the French economy would return to the very low level of 1969 when the French franc was devalued by 11.1%; moreover, the current stagnation of French production testifies to the seriousness of the economic situation, especially since it is combined with a considerable rate of inflation.

On the other hand Germany, alongside Japan, has broken the world economic equilibrium and the United States is expecting a significant economic revaluation from it.

The German economy is the leading economy within the EEC. Let’s start with a brief overview of how it looked prior to the American measures using 1962 as a base. The cost of living index was 128.9 with an increase in 1970 of 4.5%; industrial production overall rose 159 with an increase of 5.1% over 1970; the industrial price index rose to 112, with an increase of 5 over 1970, (we also note the small increase in export prices for Germany in 9 years); orders to industry were 185 with an increase of 0.5% over 1970; the retail sales index was 156.1 with an increase of 10.7% over 1970; the number of unemployed was 206,000 against 198,000 in 1970 with an unemployment rate of 0.7%; job vacancies were 701,000 against 835,000 in 1970; monthly German exports stood at 12.9 billion marks of which 9 billion were directed to the United States; imports 11 billion marks with a surplus of 1.9 billion marks. This data shows how serious the situation is for the German economy after the US surcharge.

To summarise:

Variation to date	March 1962 = 100 /	/ Variation in 1970
Cost of living	128.9	+4.5
Industrial production	159	+5.1
Retail Sales	156.1	+10.7
Orders to industry	185	+0.5
Industrial prices	112	+5.1

Let's see what the economic situation looks like after the American measures.

Gross national product has decreased in real value by 1.5% and is expected to fall globally as well. The cost of borrowing is now 11% and the cost of living has gone up by 6%. Orders to the steel industry, renowned as the leading industry in the capitalist economy, fell by 12%.

German exports to the United States underwent a de facto revaluation of 25-27%. In the automotive sector this revaluation is even more pronounced and is around 35-37%. If we consider that cars constitute most of German exports to the United States, this figure takes on its true dimension. Furthermore, the German economy has also been hit by a revaluation of 12-15% against its European partners.

In sum, the German and Japanese economies, with their high rates of development, accounted for the lion's share of world markets. Moreover, Germany’s holding of $16.5 billion meant it now also controlled the largest world monetary reserves. Thus the traditional American economic dominance has been severely undermined. It can therefore be said that Nixon, in order to try to heal the American economy and to maintain it dominance in the world, has implemented his "new economic policy" which has nothing to do with that of Lenin, apart from the name.

Again, before dealing with the Italian situation, we will mention Britain in the context of the premise of "permanent crisis" which had anticipated Nixon's measures. Britain has not imposed any surcharge as it doesn’t have the position of strength from which the Americans can deal. All this demonstrates once again how the present situation came about. Recently Chancellor of the Exchequer Barber admitted that the decline in investment, the decline in economic activity with contraction in production, had been much greater than the British government had expected.

The British economic plan, like the American one, provided for a reduction of sales tax and significant incentives for industry as well as tax relief for 1971/72 of £1,100,000,000. There was also the voluntary reduction(!) of inflation which dropped from an annual rate of increase of 9% to only 5%.

Now let’s look at the Italian situation which is of particular interest to us.

Italy had a trade deficit of Lire 625.2 billion in 1971 against 714.7 in 1970. The balance of payments showed a surplus of L373 billion against the deficit of L359.8 in 1970.

Despite the positive balance of payments, the Italian industrial situation does not appear so rosy.

Average daily industrial production fell by 7.7% compared to July 1970 and by 3.4% compared to the first half of 1970.

Let’s examine some sectors in particular (1966=100):

Sector	June 1970 /	/ June 1971 /	/ 1970 to 1971
Textiles	118	103.1	-11.9
Machinery	142.6	132.8	-9.8
Means of transport	134	123	-11.0

In July 1970 prices and the cost of living increased: consumer prices by 4.9%, wholesale prices by 5.3%, the cost of living by 5.3%.

By 1 August 1970 the rise in consumer prices was clear. Hams and cured meats increased by 16-18%, cheeses increased by 20%, milk by 11%, fruit and vegetables by 15% (it should be noted that while consumer prices increased, wholesale prices decreased by 1% due to agricultural overproduction), the price of clothing items increased by 20-30%. These figures continue to deteriorate sharply.

We also note that the Italian public debt amounts to L14,500 billion, equivalent to 24.9 of national income and, moreover, that tax revenues were L636 billion or 9.14% lower than expected in the first seven months of 1971, so presumably even the illusory and demagogic reforms⁽⁹⁾ are unlikely to be implemented due to lack of funds.

The IGE also brought in L53,402,000,000 less than expected. We can see that the situation is not easy for Italian industries, and especially for exporting ones, by noting that only in the last few months 118 companies have asked for rescue intervention to avoid the bankruptcy of the GEPI Finance Act (IRI, IMl laws, etc.).⁽¹⁰⁾

Let's now look at the situation of the workforce in Italy.

The workforce is 19,593,000 of which 566,000 (2.9%) are unemployed and 297,000 (1.5%) are underemployed, with total unemployment at 1.1%.

This is the official data. But if we examine the situation more closely by taking only one sector, for example the industrial sector for which we have data, we note that out of a total of 8,284,000 employed there are 7,297,000 full-time workers; that 829,000 are ‘part-time’ temporary workers (with less than 32 working hours per week) and 159,000 unemployed, giving a total of 987,000 units, and suggesting a wider percentage of unemployment or underemployment equal to about 11%. We should point out that these figures are also from ministerial sources and probably lower than reality, because the latest data released by the press bring the total unemployed to almost 2 million. The official data excludes temporarily laid off workers who would significantly increase the total, and who in recent times have increased so much that the authorities prefer to keep silent about their number. Let's extract some significant data from the ISTAT survey:

The phenomenon of fewer hours worked in 1971 is macroscopically reflected in the data of the wages supplementation scheme. Already this year, at the end of September, the hours of non-work paid from the Cassa's "piggy bank" are about 158​​ million (expected to be 250 million by December). Thus there is a good chance of beating the 1965 record (280 million), when hundreds of thousands of workers were marginalised.⁽¹¹⁾

We conclude this article crammed up to the hilt with data, which is, however, necessary, by outlining an overview of the prospects that this situation of crisis opens up for the revolutionary movement. There is no doubt that, as with all crises, the solution to this one, unless there is a revolutionary outcome, will be war and if there is no strong world communist party this will, once again, heal capitalism’s lacerating wounds. Today, more than ever, is the time for the union of the internationalists, who are and remain the only force capable of giving an authentically revolutionary outlet to the current situation, because the hour of the struggle against capitalism is closer.

Pico

Prometeo no.16/17 (1971)

Sources for data:

• Bulletin of the Federal Reserve
• American Agricultural Yearbook
• Japanese Annual Statistics
• Mondo Economico
• Successo

Notes

(1) The "permanent crisis" does not imply the loss of the cyclical nature of the capitalist economy, since it is precisely through cyclical crises that capital destroys and recreates itself by temporarily gaining new vigour, but it implies that the capitalist economy has embarked on the downward slope in the accumulation process due to the fall in the rate of profit, making the need for war more and more necessary in order to give capital renewed strength.

(2) In underdeveloped countries production is not carried out by exploiting the most advanced technical reserves, there is therefore a greater use of labour power than capital, therefore the capital employed thanks to the mass of surplus value produced by the workers can receive very high rates of profit compared to the rates of the advanced countries. In this regard, we quote Marx's thought "What is valid in a country for different and successive degrees of development, is also valid for different contemporary and coexisting degrees of development in different countries". In a poorly developed country where the average [rate of profit, trans.] is formed by the primary accumulation of capital, the general profit rate will be 66.75%, while it will be 20% in a country which has reached a much higher degree of development.

(3) American gold reserves must cover at least 25% of domestic circulation, and the minimum limit is $10 billion.

(4) The most important of the proposed remedies are Special Drawing Rights, the so-called gold-paper. In practice, this means that instead of having currencies anchored to gold, the availability of monetary withdrawals will depend on a country’s level of contribution to the IMF, all therefore based on relations of force and economic power.

(5) The data on agricultural overproduction are rounded to the ton for maize, the approximation for wheat is somewhat greater.

(6) Already, some American industries export to the Chinese market, including General Motors.

(7) In order to change its economic structure, for example from closed to open, a capitalist country needs either a deep and general crisis that destroys most of its productive means or a war that produces the same result; then the economy is rebuilt on the basis of the new model.

(8) The revaluation of a currency implies that the goods exported by the country that made the revaluation will become more expensive on the world market — and that the goods of other countries will become cheaper, causing a contraction in the exports of the currency of that country.

(9) Capitalism will never be able to give real structural reforms, but not only that, it usually fails to even give the reforms it needs, in order not to break the unity of the bourgeois front. Thus the reforms are mediated by the contrast between the advanced and the backward bourgeois sectors.

(10) GEPI is the acronym of the Società per la Gestione e Partecipazione Industriale which was set up by the laws referred to here in 1971 to bail out firms and entities that were in financial trouble especially in the state sector. IRI and IMI were the main organs of Italian state finance set up under Fascism but carried on under the Republic. GEPI’s main aim was to save jobs by saving the firms that provided them.

(11) The Cassa is short for Cassa d’Integrazione which was a fund which paid workers in most (but not all) industries who were not actually sacked but laid off in rota thus keeping the numbers of technically unemployed down.

Monday, September 13, 2021