The Mystery of Rising Prices (1957)

From the June 1957 issue of the Socialist Standar

An interesting letter from a reader appeared in the Daily Mail on 26th April of this year: interesting because it put a question that baffles most people and because nobody gave the answer.

Here is the question: —

  “In these days of mechanisation it seems strange that most manufactured goods should get dearer. Our wonderful new methods are claimed to give up to ten times the results achieved by older manual methods. Can anyone explain this apparent paradox?”

It is a fair question, and the facts as stated are beyond dispute. Almost every day our newspapers carry reports of some startling increase of productivity, and alongside them announcements of higher prices. What then is the explanation of what the writer of the letter calls “this apparent paradox”? There are several factors, three of which are important. Firstly, the effects of increases of output are almost always wildly exaggerated; secondly, there are large industries in which productivity is falling; and thirdly, prices rise because it has long been government policy to take actions which inevitably raise prices. This last has by far the largest effect, sufficient to offset other changes that might otherwise lower the price level.

Governments and the Price Level

Continually since 1939 it has been the policy of successive governments, National, Labour and Tory, to inflate the currency; that is, to increase the amount of notes in circulation far beyond the amount that would have been sufficient to keep up with the growth of production, trade and population. The note issue in 1938 was under £600 million; it reached £1,400 million in 1945, and is now over £2,000 million. At one time most economists knew well what the effect on the price level is when an inconvertible currency (i.e., not freely convertible into gold) is excessively expanded: now they have forgotten or, like the politicians, prefer to turn a blind eye. Governments do this because, whatever they may say about wanting prices to fall or to keep steady, they really prefer gently rising prices and wages and profits, which give so many people the illusion of being better off. Also they wonder whether a fall in prices might mean a really big rise in unemployment, which would lose them votes.

The measure of the inflation of the currency can be seen in the fact that a gold pound, the sovereign, can be sold for three times its face value of 20/-. Another mark of inflation is the progressive fall of the pound in relation to the dollar. In 1938 the pound would exchange for 4.86 dollars. In 1940 it was reduced to 4 dollars, and in 1949 to 2.8 dollars. In 1932 the American dollar had already been cut to about half its gold content. Some economists expect a further devaluation before very long in Britain. This inflation is then largely the cause of prices being generally at least three times what they were in 1938.

If the government wanted to do so, they could limit or reduce the amount of currency and thus stop the price rise or bring about a fall. Several governments have done this in the past, including the Russian government in 1947.

Misleading Claims about Increased Productivity

We see, then, that even if there were a big increase in productivity through the use of more efficient machinery and methods or other causes, its effect on lowering prices could be offset by the government’s currency policy. But the claims of increased productivity are themselves widely misunderstood and exaggerated.

It is an elementary principle that if by some means the amount of labour required to produce an article could be reduced to half, the price could be halved, but we would expect this to take place only after the new method had become the typical one in at least a large part of the whole industry. If one firm only had possession of the new method they would not cut their price to half, but would use their favoured position to make larger profits, perhaps reducing the price a little in order to capture trade from their less efficient competitors.

But before we get to this point we have to be sure that what looks like a doubling of productivity really is what it seems. And here we are only too often presented with misleading information by newspapers that probably do not have full information (because firms rarely disclose it) and which, in any event, are more interested in sensationalism than in accuracy.

News of new machinery is usually presented in the form that some new machine attended by a small number of workers will do the work of a much larger number working by hand or with another machine. It is in this form that announcements about the power-driven coal cutters is reported; and recent examples have been the automatic factory and office machines loosely described as “automation.” But though we may reasonably assume that some increase in productivity is expected, this kind of information tells us nothing at all about increased productivity. Increased productivity in the last resort means producing an article with less labour, and to know to what extent this has been achieved we need to know about all the labour, including that required to make and maintain the machine. Often this information is not disclosed, as is pointed out in the booklet on Automation, published by the Department of Scientific and Industrial Research.

An example a few years ago was a report that “the world’s biggest signal box” had been opened by British Railways at York. In almost all the newspaper reports the item seized upon as news was that 27 men could now do the work formerly done by 70 men in a number of separate signal boxes. Doubtless the change over will in time produce some real saving of labour, but most of the Press reports omitted to state that the new box cost £500,000 (Manchester Guardian, 1st June, 1951). It will take a long time before the saving of the labour of 43 signalmen equals the amount of labour taken up in construction.

The coal mines are an interesting example. Astonishing claims have been made about the increased productivity expected from the use of machinery in the mines, but the annual output of coal per worker employed in the coal industry has remained practically unchanged in the years 1951 to 1956, at about 315 tons per year, compared with an output of about 330 tons a year 70 or 80 years ago; which brings us to another important factor often overlooked.

Declining Industries

The coal mines are typical of a number of industries in which the general trend is for output to fall not rise. When coal mining was in its infancy the rich seams near the surface were exploited and output was high. As these are exhausted miners have to go deeper, and poorer seams are extracted—with the result that more and more labour is required for each ton of coal. New machinery helps, but if the labour required to make the increasing amount of machinery produced in the engineering trades for the use of the coal industry is taken into account, the real fall in output is even greater than is shown by the above figures.

In an address to the Rotary Club of Los Angeles (reported in Manchester Guardian, 15th Feb., 1957), the chairman of the Socony Mobil Oil Company, Mr. B. B. Brewster Jennings, surveyed a number of the raw material industries and showed that what is true of coal is true of many other industries:

  “. . . raw materials all over the world are harder and costlier to get. We have seen this very clearly in our own coal industry, in which year by year more non-productive work is needed for every ton of useful coal. For most of our raw materials the picture is much the same.”

He instanced copper, the American oil industry, with more and deeper wells to produce the same output of oil, and iron ore in Canada. His conclusion was that man’s ingenuity will keep up with the rapidly increasing demand for these materials, but only at the cost of more and more capital being invested to do it; which is another way of saying that more labour is required in these industries for each ton of output.

This general trend in the raw material industries shows itself in the fact that raw material prices in the last half century have risen considerably more than the rise of the prices of manufactured goods. And it explains why we so often read that industries which are known to have introduced new machines and methods which reduce the labour required in manufacture (e.g., the motor industry) nevertheless announce higher prices “because of the increased cost of raw materials.”

The Real Increase of Productivity

The real increase of productivity in industry and transport, etc., as a whole is consequently not the very large amount conveyed by sensational newspaper reports, but on a much more modest scale. The Earl of Halsbury, managing director of the National Research Development Corporation, who has written much about “Automation,” was merely restating the accepted view among economists who have studied this problem when, in a recent interview, he said: —

  “Productivity in the United Kingdom rose at one and a half per cent. per annum in the United Kingdom for the first forty years of this century. It’s now rising at three per cent, per annum, double the old rate. . .” (Everybody’s, 16/2/57)

In America, according to the Bureau of Labour Statistics, productivity (i.e., the output per worker) in manufacturing industry rose between 1929 and 1953 by 70 per cent. As the period covered is 24 years, this means an average yearly increase of under 3 per cent. (Times, 18th January 1956).

Is this a gloomy view ?

The real facts about productivity may be a shock to those who believe that “automation” will bring a paradise of a workless world and to those who believe that capitalism can offer a spectacular rise of the standard of living. Actually a 3 percent increase of productivity each year could double output in about 30 years, but capitalism presents another gloomy aspect, that its wars and armaments make nonsense of the increase of productivity. Almost all of the increase of productivity of British industry in this century has been swallowed up in the expenses of armaments (now nearly 10 per cent. of the national income) and in succeeding destructive wars, which in a few years can destroy the achievements of a quarter of a century.

Socialism the Only Way to Secure the Benefits of Productivity

Socialists have the only hopeful answer to these gloomy facts of life under capitalism. Only Socialism can end war and armaments and thus stop that waste of production. Equally important, only Socialism can secure that the labour force and the materials now devoted to the financial, trading, and other activities necessary to Capitalism but needless in a Socialist system of society, can be freed for the production of useful articles and services. In this, Socialism offers the certain prospect that the output of useful articles could in short time be doubled. But this involves the abolition of capitalism and the establishment of Socialism in its place.

And, incidentally, to go back to our starting point, the problem of the writer of the letter to the Daily Mail will be solved in a way he has not thought of. Under Socialism prices will not be high or low; there will be no prices!

Edgar Hardcastle

Economists in confusion (1969)

From the May 1969 issue of the Socialist Standard

Devaluation of the pound showed how much confusion there is in the minds of government ministers and their economic advisers; subsequent events have added to it. It was carried out in November 1967 by the present Chancellor of the Exchequer, Roy Jenkins, only four months after his predecessor James Callaghan had denounced such a measure on the ground, among others, that it would lower real wages by raising prices. Naturally Jenkins had to claim that it was a very good thing and that it would give a golden opportunity to cure the balance of payments. He was confident that, as he put it, "of one thing we can be sure: 1968 will be different” (Article in Financial Times, December 30, 1967).

Apart from the fact that devaluation, as anyone could have foreseen, produced a big increase of profits for exporting companies, 1968 has been just like 1967—crises, government attempts to keep wages down, and a balance of payments deficit very little less than in the previous year. On the first anniversary of devaluation the financial columns were full of articles by economists and financial experts trying to explain why their forecasts had gone wrong. Some of them, influenced by American economists, have begun to question the validity of their own theories about money. This has been helped on by the disquiet of the International Monetary Fund and other bankers who lent the British government large sums of money to support the pound. They want to be sure that their loans will be duly repaid, and not in a currency depreciated by still further devaluation. The IMF insisted that 'the money supply' should be kept under control and from time to time they come over to ask Jenkins what about it. They are well aware that the prevailing theories held by the government and its advisers reject the idea that there is any need to control money supply and that, on the contrary, it should be expanded.

It is true that every Chancellor in the past quarter of a century has proclaimed his intention of stopping inflation, but this was merely a sop to electors, not to be taken seriously. George Brown recently admitted that inflation was government policy, but that it was to be kept to 'a minimum' (Sunday Times March 31, 1968).

The consequence has been a full-scale controversy about money itself. In the autumn of 1968 scores of articles appeared attacking or defending accepted theories; confused however by the fact that the writers could not agree among themselves what it was they were discussing. A typical statement appeared in The Times (September 28, 1968) from a correspondent who pointed out that while the International Monetary Fund defines money as currency (notes and coin) plus the money on current account in the cheque issuing banks, the British government’s Central Statistical Office defines it as also including money in deposit accounts of banks, and also money on deposit in other financial organisations—a difference running into something like £400m.

Still another school treats money in the much more limited sense of notes and coin only, which the last official committee on the question, the Radcliffe Committee, in its Report in 1959 airily dismissed as only “the small change of the monetary system".

The controversy was brought a stage further by an article in the Evening Standard (March 11, 1968) by Prof. Victor Morgan who demands a return to the Quantity Theory of Money. Unfortunately he too omits to say which definition of money he is using. His meaning is thrown more in doubt because he writes of the Quantity Theory having won general acceptance in the late 18th century and having continued to be accepted until the 1930s; the fact is that there have been several quite different theories under the same name, differing from each other in how they defined money. One of the earliest held that the price level is raised or lowered according to whether there is a large or small amount of precious metal in the country. (This was dealt with by Marx in Capital, Vol. I. p.139, in the Kerr edition).

Other quantity theories have been based on notes and coin; on those plus bank deposits on current account; or plus all deposits. It is possible that Prof. Morgan means one of the two last-named.

By contrast it is clear that when Lord Cromer, former Governor of the Bank of England, attacks the government for unduly increasing the money supply he means the note issue.

Prof. Morgan gives a description of the Quantity Theory which would fit several variations of it, saying for example that there is a strong connection between the growth of the money supply and the price level, and he cautiously adds that “no-one has yet demonstrated conclusively the precise ways in which monetary influences are transmitted” (meaning transmitted into changes of the price level).

He made no reference to Marx’s study of the subject. Marx did however supply the missing link. He showed that gold functions as the money commodity, the universal equivalent for all other commodities because, like them, it is an embodiment of value, the socially necessary labour required to produce it. When a certain total quantity of gold in the form of coins functioned as money in this way, to meet market needs corresponding to a given volume of production and buying and selling transactions, it represented a total quantity of value. Marx showed that if gold coin is replaced by inconvertible paper money and if the issue of paper money is increased (the note issue in Britain is about six times what it was in 1938 though production has less than doubled) the result is a corresponding rise of the price level, in addition to any other factors pushing prices up.

The crux of the matter is that if the notes in circulation are doubled they still represent only the same total amount of value, so that each note represents only half the value represented by each note before the doubling took place. It takes two notes to buy what formerly one note would buy: prices are doubled.

Unlike other theories, Marx’s explanation does in fact explain the big increase of the general price level and this is the answer to the economists (including Keynes) who dismiss Marx as of no account. The re-appearance of quantity theories of money marks the growing disillusionment about Keynes and his theories.

The body of opinion behind the views of Prof. Morgan is growing in this country and it is possible we may see a shift of official opinion in that direction, particularly if the Tories come into power. Prof. Morgan outlines what he considers to be the advantages of so doing:

  If the Quantity Theory is right, then so long as the money supply is unchecked the combined efforts of Mrs Castle, Mr Jones, and Mr Woodcock will be powerless to control inflation; only an effective control of the money supply could achieve this end, and if this control were made effective both incomes policy and the present interference by the Bank of England would be unnecessary.

Someone thinking on similar lines is Sir George Bolton, chairman of the Bank of London and South America, but he takes a gloomier view. He told his shareholders that "if the capitalist system is to survive, confidence in paper money must be restored”.

If such a shift of government monetary policy takes place it should not be forgotten that we have had it all before; both the long periods in which there was no excess currency issue and other periods (as at present) when it is the rule. Capitalism works just as evilly for the workers whichever way it goes. It is a capitalist problem, not a working-class one.

Edgar Hardcastle

Who Gains Through Devaluation? (1968)

From the January 1968 issue of the Socialist Standard

Devaluation, as its name implies, is the act of lowering the value represented by the currency of a country in relation to gold. It is a particular form of currency depreciation. Keynes in his Tract on Monetary Reform, published in 1923, suggested as a distinction between the two terms that devaluation is currency depreciation which has been “fixed and confirmed by law”.

Its importance to capitalism lies in the fact that contracts and loans are drawn up in terms of pounds, dollars, marks and so on, but the values represented by them may be changed, sometimes drastically. If someone lent ￡100 twenty years ago and received it back to-day it would buy only half what it would have bought when it was lent. A textbook case is that of a British bank which in June 1914 lent 750,000 roubles (worth 78,000) to a Russian bank. Years later when the loan was repaid in the form of 750,000 roubles the rouble had been so devalued that all the British bank received was ￡5, and the courts upheld this. (It will be noted that the document under which the British Government recently borrowed a large sum through the International Monetary Fund contains a clause that the money has to be repaid, not in pounds, but in the currencies of the lending countries. This is to prevent the lenders being caught by another devaluation of the pound).

In order to guarantee a large measure of stability to the value of the pound, British law for a century before 1914 gave the holder of Bank of England notes the right, on demand, to convert them into a fixed amount of gold, or to convert gold into notes – the rate being approximately a quarter of an ounce of gold to the pound. Under that guarantee the pound was “as good as gold” and was accepted as such in other countries. Now the note in inconvertible, and owing to over-issue, has depreciated so much that at the new rate of $2.4 its equivalent in gold has fallen to less than one fourteenth of an ounce instead of the original quarter of an ounce.

If a currency is fixed in terms of a certain weight of gold, devaluation would take the form of fixing it at a smaller weight of gold. The American dollar, under an act of 1900, was fixed at about one twenty-first part of an ounce (one ounce was equivalent to $20.67). In January 1934 it was devalued to one thirty-fifth of an ounce (one ounce is $35).

For many years the British pound has been held at a specified rate against the dollar; at $4.03 from 1940 to 1949, then at $2.8 and now $2.4. Through the dollar the pound is thus indirectly related to gold.

Devaluation, both in our own times and historically, has been a common practice. Pick’s Currency Year Book 1966 recorded that in a period of twelve months 22 countries had devalued their currencies, six of them more than once. Keynes observed that “there is no record of a prolonged war or a great social upheaval which has not been accompanied by a change in the legal tender”. He held that this historical process was no accident but was the outcome of two factors; the desire of governments to reduce the burden of national debts by repaying them in depreciated currency and the political pull of money borrowers who have a like interest against money lenders.

English history has the example of kings, notably Henry the Eighth, who depreciated the currency (and pushed up prices) by issuing coins whose real metallic value was below their face value. The seller of an article would insist on being paid a larger number of the debased coins.

Though changes of value are usually downwards they are not invariably so. The German Government upvalued the Mark in 1961 and has recently contemplated a further upward revaluation.

It is mistrust of the stability of most of the world’s currencies that has produced massive private hoarding of gold, wherever this is legal and often where it is not.

Generally speaking, while each government can make its own currency legal tender within its own boundaries, payments to other countries must be in the currencies of these countries or in gold – among the exceptions were the pound when it was convertible into gold, and the dollar. If exports from a country are sold abroad in large enough quantities the foreign money received for the exports will be sufficient to pay for imports. American exports have for years been large enough to produce a big surplus, but the size of American investments abroad and of overseas military expenditure including that on the Vietnam war, has been so great that there have had to be large payments abroad in gold. Although American gold holdings are still very large the belief has been encouraged that the American Government may in due course devalue the dollar again.

The situation of British capitalism has been much more precarious. There has not been a large export surplus, and at times there has been a deficit, and foreign holders of balances in London (estimated at about ￡4,000 Million) fearing devaluation have been in a position to create “a run on the pound” by pulling out their balances. The British gold and dollar reserve has been much too small to withstand the pressure, even with the help of foreign loans.

Foreign bankers and others with balances in London lacked confidence in the pound because they could observe the adverse trade figures, and also the depreciation of the pound internally, as measured by the continued rise of the price level, a much faster rise than in the USA. They have observed the policy of successive British governments of pushing up the issue of currency notes without any regard to the additions really called for by the growth of production and trade. (One of the conditions attached to the latest foreign loan obtained by the British Government through the International Monetary Fund is that “the growth of money supply will be less in 1968 than the present estimate for 1967”).

In accordance with the Marxian law of value, commodities express their value in the universal equivalent, gold, the money commodity, because gold, like the rest of commodities, represents a given amount of socially necessary labour.

If day to day buying and selling transactions were carried out in gold coin a certain total amount of gold would be required, representing a certain total value. If the gold is replaced by inconvertible notes the total value represented by the notes remains as before.

If the note issue is doubled the effect is merely that two notes are now functioning in place of the one unit of gold, and the outcome is that prices are doubled. If an article had been priced at ￡1 when the pound was ¼ of an ounce of gold, the doubling of an inconvertible note issue raises the price to ￡2. A larger increase of the note issue would correspondingly raise the price level still more.

At one time many economists, though rejecting the labour theory of value, nevertheless arrived at the same practical conclusion. Now the fashion is largely to disregard it.

The British currency note is more than five times what it was before the war, although total production has not even doubled. There are other factors affecting prices one way or the other but this is the main one in recent decades.

This policy of depreciating the pound has produced soaring prices – which all the post-war governments said they did not intend, and has produced the ceaseless race between wages and prices.

Their excuse for the policy of depreciation has usually been that it stimulates the growth of total production, but there is little evidence that it has done so.

But higher prices exact a penalty by increasing the difficulty of selling exports profitably. The Board of Trade reported recently that British exports were less well placed to compete in markets abroad in respect of price than they were twelve years ago – this in spite of big investments of capital to cheapen costs.

The Financial Times (21 November) stated that many firms fail to press exports because they are not sufficiently profitable.

Devaluation is a measure designed to counteract in export markets the higher prices resulting from the depreciation of the pound.

An example will show how the 14.3 per cent devaluation affects the prices of articles bought or sold in a country which has not devalued. Before the devaluation of the pound a $1000 article bought in USA for import to Britain cost ￡357. After devaluation it costs ￡417, an increase of 16.67 per cent. Conversely a British export selling in USA for $ brought in ￡357 before devaluation and ￡417 after, again an increase of 16.7 per cent.

The broad result is that devaluation helps British export companies but hits companies dependent on imported raw materials. Within a few days of devaluation it was being said that the better prospects for exports would put up profits by ￡250 million (Daily Mail 22 November). It was also forecast that the internal price level would rise by perhaps 5 per cent or 6 per cent.

The effects of devaluation cannot be isolated from other factors and it is not safe to read into the future what happened in the past. However, for what it is worth, after the 1949 devaluation of 30 per cent prices rose rather faster than they had been rising in the years before, profits rose sharply for two years and then dropped equally sharply, and the balance of payments moved in somewhat the same pattern. Unemployment rose a little then fell, but was back again at a fairly high level within three years.

The Wilson Government’s antics over devaluation followed the same humbugging course as in 1949―first the protestations that the government would not devalue because that would be bad for the workers, then the deed, then the pretence that it was a good thing after all.

Just before the Attlee Government devalued the pound on 18 September 1949 the Labour Party monthly journal Fact published an article explaining why the government would not devalue:

  If the pound were devalued to three dollars… up would go the price of bread. A similar rise would be unavoidable in the price of every commodity in which raw materials imported from outside the Sterling Area are a part of the cost. Thus, if devaluation succeeded in closing the gap (which is doubtful) it would do so by lowering our standard of living. The pound would buy less in Tooting and Bradford, as well as in New York and Winnipeg. Devaluation is therefore an alternative to wage-slashing as a device for cutting our prices at the expense of the mass of the people. (Fact, August 1949)

In 1967 it was the Chancellor of the Exchequer, Mr. Callaghan (now Home Secretary) who himself emphasised what a shocking thing devaluation would be; and then devalued.

The following are extracts from a speech by Mr. Callaghan in the House of Commons on 24 July 1967 (Hansard Cols 99 and 100.)

  Let there be no dodging about this. Those who advocate devaluation are calling for a reduction in the wage levels and the real wage standards of every member of the working class of this country. They are doing this, and the economists know it… This is a nostrum among economists who are quite clear-sighted and cold-hearted about its purpose. Un¬  fortunately it has been picked up by a number of people who clamour for devaluation because they believe that it is a way of avoiding other harsh measures. The logical purpose of devaluation is a reduction in the standard of life at home. If it does not mean that, it does not mean anything.

In 1949 after devaluation the Labour government insisted that wages should not go up because prices had gone up. In 1967 one of the “intentions” notified to the International Monetary Fund in connection with the loan reads: “There is no criterion for pay increases related to changes in the cost of living”.

Capitalism is not changed by devaluation: it has not become better or worse for the workers. “Strong” currencies or “weak” currencies do not alter the position of the workers.

British capitalism has been running an adverse balance of payments, has devalued its currency, and has about 600,000 unemployed.

German capitalism has been running a favourable balance of payments for years, altered the exchange rate of its currency upwards in 1961 not downwards, and early in 1967 had 655,000 unemployed !

There are no ways of making capitalism operate in the interests of the workers.

Edgar Hardcastle

The Floating Pound (1972)

From the August 1972 issue of the Socialist Standard

The Government's decision to float the pound is yet another confirmation of the Marxian theory of inflation. Floating the pound means that the government is not using its gold and foreign currency reserves to maintain a fixed exchange rate between the pound and the dollar £1=($2.60 till 23 June). As a result the exchange rate of the £ (which is but its price on the foreign exchange market) can, depending on demand, float up or down — but in practice under present circumstances definitely down. The “Times" estimates that when, after a few months, a fixed exchange rate is restored it will be around £1=$2.40 (or its equivalent), an effective devaluation of between five and ten per cent.

Devaluation, according to the Marxian analysis, is an official recognition that due to the over-issue of a paper currency the amount of gold represented by a pound-note has been reduced. Acting on false Keynesian doctrines, successive British governments, Labour and Conservative, have denied that, given a certain level of production and trade, only a definite supply of inconvertible paper money (i.e. paper money not convertible into gold on demand) should be issued if prices were to be kept reasonably stable. And that, if more money than this amount was issued, the inevitable result would be a depreciation of the currency or, what is the same thing from another aspect, inflation (rising prices). Instead they have followed the advice of Keynes to “let the money supply look after itself* and via the Bank of England have provided government departments with the money needed to maintain their expenditure and to subsidize private capitalist industry.

In the last quarter of 1971, for instance, Britain’s money supply was expanded at an annual rate of 25 per cent! (The Times, 9 March, 1972). Only recently have a few academics come to realise what Marx, and indeed many of the bourgeois economists of his day, knew: that the inevitable result of oversupplying an inconvertible paper currency is depreciation and inflation.

For a trading State like Britain this can cause difficulties. For inflation (at least if it proceeds at a faster rate than in other exporting countries) raises the price of exports and makes them uncompetitive on the world market. At the same time imports increase because of the lower prices of foreign goods. The result is a balance of trade deficit, leading to a balance of payments crisis. Also, and this is partly what seems to have happened to Britain this time, export prices can be uncompetitive because of a lower-than-average productivity. The international bankers obviously know all this and have decided to express their lack of confidence in the official gold content of the £ by selling their holdings.

When this happened in 1967 the Labour government gave in (as it had to), devalued the £ and, at the insistence of the international bankers, abandoned their programme of social reforms and imposed a wage freeze. This time a Conservative government has given in, but in a roundabout way: floating the £ for a few months so that it can find its own exchange rate is in effect only a slow-motion devaluation.

What devaluation is supposed to do (as long as other countries don’t devalue as well, of course) is to bring the devaluing State’s internal price level in line with the world price level; its export prices fall and imports from abroad become more expensive; the deficit on the balance of trade disappears and the crisis is solved — until the next time.

For the capitalists devaluation is a policy aimed at restoring the profits they lost through their goods at home and abroad being uncompetitive. But what about the workers? In Britain, which imports much of the food consumed by the working class, it means a rise in the cost of living which can only be recouped by determined action to raise money-wages too. This will inevitably bring the workers into conflict with the government made even more determined to resist wage demands by a desire to regain the confidence of the international bankers. Could there be any more obvious proof that capitalism cannot work in the interest of the vast majority the class of wage and salary earners?

Pounds, Dollars and Poverty (1949)

From the December 1949 issue of the Socialist Standard

We all like to be flattered, and no doubt the readers of the Daily Herald are no exception. Perhaps then, they were pleased to read in that paper’s leading article (14.10.49) that most voters understood '‘devaluation.” The leader continued:

  “The British electorate is not the ignorant, unthinking mass that the Tory Party considers it to be. The people grasped very readily the reasons for devaluation . . .” 

Far be it from me to devaluate the intellectual capacity of the electorate, but I wonder how many men-in-the-street would know what to say if asked— “What is devaluation”!

And it even seems that the Daily Herald itself is not doing its utmost to clear away the confusion when we read in the issue of 13.10.49 on Page 1, a quotation from a speech by Sir Stafford Cripps: “Discussing the cost of living, the Chancellor denied that his forecast had been too optimistic. There was no reason for immediate increases (apart from that already made in bread) on account of devaluation.” But on Page 5 (the same day) Lord Hollenden, President of the Wholesale Textile Association is quoted: “In September, he said, cotton cost 10% more than in August, wool 2% and silk 27% more. Since devaluation this rise has been greatly accelerated and costs are leaping.” According to “Time” (3.10.49): “The (British) Government last week raised the price of non-ferrous metals and of such humble objects as pots and pans. The first predictions of a 5% cost-of-living rise shot up to 10%.”

But let’s look at the advantages that devaluation is supposed to give us. We are told that “we” will be enabled to sell “our” goods at cheaper prices on the American and other markets and that this will help to reduce “our” dollar gap.

Now, we will leave it to the economists to say whether this will actually happen or not, but let's assume it does and that “Britain’s” economic problems are solved—how will this affect the workers?

I suppose the best that Sir Stafford Cripps, or any other capitalist politician of any Party, could possibly hope for is that “we” gain precedence in all the markets, that once more “we” become a “creditor” nation and again “ lead the world.”

And of course, “we” did lead the world, during the last century—that era of Britain’s greatest prosperity. And at that time, exactly how prosperous were the workers of Britain? Has the prosperity or otherwise of our national capitalist class ever made any difference to the miserable conditions of the mass of the people who create that prosperity? Do the producers ever get any of it?

The United States is “prosperous” now—but are the workers there any better off relatively than us? At the moment, some American trade unions are fighting for a national minimum wage in the same way as some of the workers in Britain are now doing. Also, according to Charles Luckman, President of Lever Brothers in America, speaking on 20.7.49:—“Twenty-seven million Americans have no kitchen sink, 18 million Americans lack washing machines, 25 million Americans lack vacuum cleaners. 1 million families need new homes this year, 40 million Americans have neither bathtub or shower.” (Quoted in the Western Socialist, August, 1949.)

So you see that, if we are poor its not because we owe America dollars, not because the pound has been devaluated or because we’ve lost “our” Empire; if we have no homes it’s not because our houses were destroyed during the war and if our standard of living is low and if we merely exist, having no opportunity to really live, its not because “our” country is no longer prosperous.

We are poor because we are workers under Capitalism. The workers have no financial interest in “getting Britain on her feet again”; whether our national capitalists are prosperous or not we as workers are always poor and we will always be so until we decide to destroy the system that legalises our exploitation.

Remember, workers, when next you read, for instance, that “Glaxo Laboratories, Ltd., have got C.I.C. consent to a 900% capital bonus” (Herald, 14.10.49) that you and your fellow-workers produced that. But ask for a fixed minimum wage of £5 a week and you are refused.

Your masters aren’t very grateful, are they?

Whether the Government is Conservative, Liberal, Labour or Communist, it makes no essential difference to you or me. All these stand for Capitalism. And for the workers, whether we are British, American, German or Russian, that means we will continue to be exploited, continue to work out our lives producing wealth for our master, faced continually with the problems of poverty, periodical unemployment and war.

And there is only one way out.

That is to abolish Capitalism and establish Socialism in its place. End private property society that robs us of the wealth we produce, and establish a world wide society that is based on common ownership and and in which there will be no Capitalist or working classes, no owners and non-owners, no wage workers and no money.

This society is coming, but it will come all the quicker if you join with us in our work for Socialism.

Wc need you, comrade!

Lisa Bryan

50 Years Ago: The Devaluation of the Labour Party (1999)

The 50 Years Ago column from the November 1999 issue of the Socialist Standard

The devaluation of the pound after repeated denials by Cripps that it would be devalued, is a symptom of the mental bankruptcy of the Labour Party. Gone is the easy optimism of 1945, when they were confident they could control and plan the capitalist system. Now all can see that capitalist forces are in control, driving them from one panicky expedient to another, all of the methods resorted to by Liberal and Tory Governments in past crises. (. . . ) “Fact”, the Labour Party Bulletin, for August, 1949, was even more unlucky. It came out against devaluation only a few weeks before Cripps introduced it. This is what it said:- “Thus if devaluation succeeded in closing the gap (which is doubtful) it would do so by lowering our standard of living. The pound would buy less in Tooting and Bradford, as well as in New York and Winnipeg. Devaluation is therefore an alternative to wage-slashing as a device for cutting our prices at the expense of the mass of the people” This was a boomerang indeed. Capitalism offers to those who administer it just such choices of evils as the one mentioned. Having to choose between devaluation (with higher prices and frozen wages) and wage-slashing, the Labour Government chose devaluation in order to avoid a headlong clash with the workers. The clash is not avoided, only deferred. 

[From Socialist Standard, November 1949]

Editorial: The Devaluation of the Labour Party (1949)

Editorial from the November 1949 issue of the Socialist Standard

The devaluation of the pound after repeated denials by Cripps that it would be devalued, is a symptom of the mental bankruptcy of the Labour Party. Gone is the easy optimism of 1945, when they were confident they could control and plan the capitalist system.

Now all can see that capitalist forces are in control, driving them from one panicky expedient to another, all of the methods resorted to by Liberal and Tory Governments in past crises.

Raising or lowering currencies in terms of gold has fairly often been the method used in the history of Capitalism for adjusting some of the financial and trading difficulties the system produces. Gold is still the standard to which the currencies used in world trade are related, even if, as in Britain at present, the relationship is indirect. The pound is fixed in relationship to the dollar—now 2.8 dollars to the pound—but the dollar is by American law fixed at a certain weight of gold, one ounce of fine gold making 35 dollars. The dollar too was devalued in the early nineteen thirties and fixed in 1934 at about three-fifths (59%) of the weight of gold it had formerly represented. The reduction of the pound from 4 dollars to 2.8 dollars, taken in conjunction with the earlier devaluation of the dollar, means in effect that the pound now represents about one-third (34%) of the gold it used to represent before the first world war.

Sometimes the change is upwards. This happened in 1925 when the pound, after being allowed to fluctuate for several years, was raised again to its 1914 gold level; only to be cut loose once more in 1931.

The purpose of devaluing the pound in September, 1949, was to try to give a temporary fillip to the export of British goods, while holding down wages in face of a rising cost of living; thus enabling exporters to sell at lower prices at the expense of the working class. Russia at the end of 1947, faced with a problem of high prices, an extensive black market and currency speculation handled the situation differently. They cut purchasing power by issuing new notes in place of the old ones, at the rate of only one new note in exchange for ten of the old, and by cancelling varying proportions of savings-bank deposits and investments in State loans—bondholdings were cut to one-third of their face value. At the same time this levy on savings was offset by a reduction of the prices of various essentials and by the abolition of rationing. The present devaluation by the Labour Government will not be the last; if and when the expected increased flow of British and European goods into America and American markets takes effect the demand may arise in those American industries adversely affected for another devaluation of the dollar in order to meet competition.

Although the Labour Ministers in devaluing and curtailing Government expenditure as a means of meeting Capitalism's crisis are behaving much like Ramsay MacDonald’s Government in 1931, they make the claim that they have one outstanding merit that distinguishes them from their predecessors, the merit of providing “full employment" The Daily Herald put this issue in a nutshell. The “dearer loaf," it said, quoting Cripps, will be “a vital contribution to the success of the national effort to balance our dollar trade"; and added, in its own words, “a vital contribution to maintaining full employment" (Daily Herald, 19/9/49). In effect the Labour Government, which insults the workers’ intelligence by describing itself as “Socialist," offers us the grim choice of evils, either to accept some lowering of the standard of living for all workers through rising prices, or to accept a drastic lowering of the standard of living through a big increase of unemployment. Either passively accept an all round worsening of conditions or be forced to accept it by the threat of unemployment and semi-starvation for large numbers.

The Labour Party spokesmen have betrayed their own lack of grasp of the realities of Capitalism by the way they have had to eat their own words. Cripps has, it is true, his defenders even outside his own ranks. The Manchester Guardian defended his repeated denials of the intention to devalue as a “necessary untruth," comparable with the patriotic lies of war-time; and in this was backed up by a Church dignitary, Canon Peter Green. But other Labour Party pronouncements proving that devaluation would be useless or harmful were on record and those who made them now have to be busy proving the opposite. On 19th May, 1948, the City Editor of the Herald, under the heading “Drop £ devaluation nonsense,” opposed devaluation on the ground that the assumed advantage of selling more goods to America (he took as his example bicycles) could only happen in a situation in which “we had spare labour (unemployment) and a glut of steel and rubber" to produce the additional bicycles, and that as these conditions did not exist, “all the theoretical benefits" of devaluation were non-existent too. (He overlooked the possibility that his Government might create the surplus for export by cutting the standard of living of the workers.)

“Fact,” the Labour Party Bulletin, for August, 1949, was even more unlucky. It came out against devaluation only a few weeks before Cripps introduced it. This is what it said: —

   “Thus, if devaluation succeeded in closing the gap (which is doubtful) it would do so by lowering our standard of living. The pound would buy less in Tooting and Bradford, as well as in New York and Winnipeg. Devaluation is therefore an alternative to wage-slashing as a device for cutting our prices at the expense of the mass of the people.”

This was a boomerang indeed. Capitalism offers to those who administer it just such choices of evils as the one mentioned. Having to choose between devaluation (with higher prices and frozen wages) and wage-slashing, the Labour Government chose devaluation in order to avoid a headlong clash with the workers. The clash is not avoided, only deferred.

The Purpose of Devaluation (1949)

From the December 1949 issue of the Socialist Standard

The alleged purpose of devaluing the £ was to enable British exporters to sell goods in America and elsewhere which they otherwise could not sell, the idea being that an article formerly priced at 4,000 dollars (or £1,000) would be much more attractive to an American buyer if he could buy pounds at a cheaper rate. To take the extreme case of the price remaining at £1,000 the American buyer can now get it for 2,800 dollars instead of having to pay 4,000 dollars. Actually some British exports much in demand have remained at their old dollar price which means that they sell for a higher price in pounds. Thus if the export continued to sell at 4,000 dollars its price in pounds. will have been raised from £1,000 to about £1,430 (at 2.8 dollars to the £).

Most articles will in practice be sold somewhere in between the two extremes, that is to say, sold at a smaller number of dollars (i.e. something less than 4,000 dollars) but at a larger number of pounds (i.e. something above £1,000).

Exporters who can sell at the old dollar rate and get a larger number of pounds will of course make much larger profits unless their costs of production rise equally through having to buy raw materials in America.

Those advocates of devaluation who think that it is a wonderful cure-all are living in a fool’s paradise. Obviously if it were so simple all countries would have done it long ago.

Devaluation is only a method of achieving a result that could be achieved in another way; and what we have to seek is the reason why Governments, including the Labour Government, sometimes prefer to resort to devaluation.

Since the purpose of devaluation is to enable British exporters to sell the goods that they could not sell before, it will at once be seen that this could have been achieved by the simple method of reducing the price of the articles. But what would have happened if the Government had ordered exporters to cut their prices? In the first place it would have reduced their profits, and if the reduction had been big enough it would have put the companies out of business—they would have gone bankrupt.

So if the Government had enforced a reduction of prices instead of devaluing the £, it could not have stopped there; it would have had to take the next step of saving the exporters from bankruptcy either by reducing wages or by getting cheaper production by trying to force the workers to work harder for the same wages.

This is the key to the situation. Rather than try to reduce the capitalists' costs of production by lower wages or harder work, the Government looked for a way out which works differently though designed to achieve the same result. It achieves the same result because devaluation raises prices at home through importers now having to pay a larger number of pounds to buy the same amount of goods as before in dollar markets.

The broad alternatives before the Government were (a) no devaluation but lowered wages or harder work, or (b) devaluation with a higher cost of living and wage freezing.

In practice the Government, knowing that it could not succeed, except by bitter struggle, in preventing any rise of wages at all, aims to hold wages back as far as it can while at the same time trying to get greater production as well (in some cases by longer hours).

One other thing devaluation was expected to achieve, that was to enable exporters to make a quick sale of otherwise unsaleable goods in order to get dollars needed for imports and thus buy a short breathing space for the rest of the Government's increased production campaign to bear fruit

The whole business of devaluation may be illustrated by taking the example of a concern which urgently needs cash to pay overdue bills, and which has stock on hand which is selling too slowly to enable the firm to find the cash through ordinary channels. In such a situation the firm may decide to have a sale to turn the stock into money. To do this it may have to sell the stock at less than it cost to produce but will think it worth while because it "buys time” and avoids bankruptcy.

Naturally they can’t go on selling their goods at less than cost of production, but they may hope to solve the problem by reducing wages or by inducing their workers to produce more at the same wages and by one or other method to be able to reduce their cost of production and gain a wider market for their goods.

The sale (like devaluation) solves no problem except to gain time. The solution to the problem for the firm as for the Labour Government is to gain markets at the expense of the working class, the workers having to accept a lower standard of living or to accept increased intensity of work.

And the “solution” itself is no solution in the long run because every capitalist country is striving to sell its goods competitively in the same world markets. It is just a phase in the never-ending treadmill of capitalism.

Edgar Hardcastle

The Review Column: Presidential Election (1968)

The Review Column from the January 1968 issue of the Socialist Standard

Presidential Election
In the United States, this is Presidential election year. The business of winning the Presidency is long and complicated and costly. Kennedy's campaign, first for the Democratic nomination and then for election, in 1960 and Goldwater’s for the Republican nomination in 1964, were classics of their kind in political strategy and technique.

For some time now, the men who are in the running have been organising the same sort of campaign, although most of the jockeying has been confined to the Republicans.

It would need a political earthquake to lose Johnson the Democratic ticket and Senator Eugene McCarthy, who will contest the nomination with Johnson on the issue of Vietnam, is probably little more than a slight tremor on the surface.

As their convention draws closer, the Republicans’ internal fight will become more bitter. Romney, Reagan and Nixon are now in the running and Rockefeller is always a possibility.

The point about all these men, on both sides, is that they hold out promise to the American electors. McCarthy wants to go easy on Vietnam; he promises peace. Rockefeller is strong for Civil Rights, Romney for what is called good, honest government. Reagan wants to go it harder in Vietnam, is cool on Civil Rights. Nixon seems, as ever, ready to do a deal on anything.

Johnson will promise that, if only he is given another chance, all will be well, all problems solved, all pledges redeemed.

The American workers will take their pick of the promises offered them. Listening to their candidates, how many of them will recall the many disappointments in the past? Johnson himself is an historic example of promises gone sour, of a smooth-tongued President who has had to use his talents to explain away the unpleasant realities of capitalism.

Like workers everywhere, the American voters have had plenty of this. Sadly, there can be little expectancy that in 1968 they will show that they have had enough.


Pilots’ Strike
Airline pilots are supposed to have one of the best jobs in the world. Glamour, excitement, travel, good pay—these are what most people enviously imagine the pilots’ job to consist of.

In truth, as any pilot will tell you, there is a lot more lo it. The strain of the job—of being responsible for an expensive aircraft and the lives of its passengers, of adjusting their life to the varying times of the world, can be enormous.

At peak travel periods, piloting an aircraft along a busy route can be little short of drudgery. The pay, to be sure, is above average. A pilot just out of training school gets £1500 a year and usually soon reaches about £2200. The top men. flying the big jets, can get as much as £5800 a year.

This is what made the go-slow and strike—things more usually connected with railwaymen and dockers—such a cause of amusement. Why should the man with rings on his sleeve, wings on his breast and a few thousand a year going into his pocket, want to strike?

Part of the answer to this question was given by Roy Merrifield, chairman of the British Airline Pilots’ Association. when he said " . . . we felt we had every reason in the circumstances to take strong industrial action against BOAC.”

The “circumstances” consisted of a dispute between the pilots and the airline over accommodation, pay and conditions of work—in other words, the same issues that bring dockers and railwaymen into conflict with their employers.

The pilots’ campaign was amusing and incomprehensible only to anyone who thought that only lower paid workers ever strike. It showed that all those who have to work for a living, whatever the scale of their pay or the attractions of their job. are members of one class with one common interest.

Higher paid workers like airline pilots have to learn this. As a matter of fact, so do the lower paid.

Callaghan Out

When James Callaghan resigned from the Chancellorship of the Exchequer, he changed something besides his job. Almost overnight he became transformed in popular conception—from Crafty Callaghan to Honest Jim, the man who could not bear to tell a lie.

The reason for this sudden metamorphosis was that Callaghan had lied about his intention to devalue the pound and then, although there was the precedent of Cripps to persuade him to do otherwise, he had chosen to give up the post of Chancellor.

The newspapers were so overcome by this example of what they decided was political honesty that they completely failed to raise two important points.

Firstly, none of them asked whether Callaghan might be resigning not so much in remorse over his lie as because his financial policies, on which he had more or less pledged his career, had collapsed.

Secondly, Callaghan said he was resigning as an act of apology for misleading the financial world. Now if it is to become the fashion for Ministers to surrender their offices over broken pledges there is no reason for it to stop at Callaghan.

The entire Labour government have misled, mostly deliberately, the people who voted for them. Yet so far they show no sign of resignation, nor remorse, nor even regret.

There is only one conclusion to be drawn from this. The Labour government are more concerned over the impression they make on the international financiers than the one they make on the British working class.

This is a reflection on the government, on its capitalist nature. But it also says a lot about the people who voted for them, and who are so obviously despised by them.

Jenkins In

Roy Jenkins, Callaghan’s successor, too has said some unfortunate things in the past. Only he was calling for an attack on the living standards of the rich—an even more embarrassing thing for a Labour leader these days. Many years ago, in 1951, Jenkins wrote a Tribune pamphlet called Fair Shares for the Rich. That was in the days when the Labour Party still talked about redistributing wealth and creating a more equal society (an empty dream under capitalism anyway). Jenkins suggested a capital levy so high as to be “a swingeing property tax” and a “fiscal onslaught on the large property-owner”. So successful did he expect this onslaught to be that he wrote that after it there would not be enough rich people around to own private industry which would therefore have to be nationalised. Under his plan all wealth owned by individuals above a certain level was to be confiscated and used to pay off the national debt. He wrote:

 Confiscation means simply the seizure, by authority, of private property, and would thus be a perfectly fair description of what was taking place.

No doubt Roy Jenkins and his colleagues are praying that this old pamphlet does not reach the hands of “the gnomes of Zurich”. For such talk could easily set off another run on the pound. But perhaps the foreign bankers are, like us, a little sceptical. After all seventeen years is a long time. Anyway, we look forward to next April’s budget and its fiscal onslaught on the rich. We don’t think.

The Sinking Pound (2016)

The Cooking the Books column from the November 2016 issue of the Socialist Standard

‘Hard Brexit fears push sterling to a fresh low’ read the headline in the Times (7 October) reporting that the pound had fallen to its lowest level against the dollar for 31 years. Others are suggesting that it could eventually fall, ironically, to £1 = 1 Euro.

Until 1973 most of the world’s currencies were tied to a fixed rate with the US dollar and so also to each other. If a country wanted to change this it had to get the agreement of the IMF. Governments tried to avoid such a formal devaluation as this was regarded as a recognition that they could not control the part of the capitalist economy they presided over as they had claimed in order to get elected.

Such devaluations reflected a situation where a country’s exports were doing badly, generally because their prices were uncompetitive due to a higher than average rate of inflation. This resulted in more capitalist firms wanting to sell the country’s currency than to buy it (to pay for its exports). Governments tried to hold the fixed rate by using their reserves of other currencies to buy their own currency. When this couldn’t be kept up, they had no alternative but to seek the permission of the IMF to devalue, i.e., to lower its exchange rate with the US dollar and so with other currencies too.

When the Labour government was forced to devalue the pound in November 1967 the Prime Minister, Harold Wilson, famously declared that ‘it does not mean that the pound here in Britain, in your pocket or your purse or in the bank, has been devalued.’

This was technically true but disingenuous as, while a pound would still buy a pound’s worth of goods in Britain, one effect of devaluation is to raise the price of imported goods. As many of these are consumer goods or enter into their production, the effect is that ‘the pound in your pocket’ will eventually come to buy less than before the devaluation.

Nowadays, with floating exchange rates, governments don’t need to formally change the exchange rate of their currency. They can just let market forces decide what the exchange rate is by the demand for it. Because a falling exchange rate increases the price of imported goods governments do not necessarily always want this, so they still intervene in the currency market to try to keep the rate from falling.

On the other hand, when they want to try to increase exports, they let it fall. In fact, now that under WTO rules tariffs can’t be used as a weapon of economic competition, letting a country’s exchange rate fall has become a replacement. The euro, which in effect established a fixed rate of exchange between the currencies of the member-countries all renamed “euro”, is in part an attempt to prevent this kind of economic competition. One reason Britain stayed out was to be able to continue to use this weapon.

The current fall in the value of the pound was exacerbated  by a rousing patriotic declaration by the Prime Minister at the Tory Party Conference that, with Brexit, Britain was to become an independent, sovereign nation again. To which the currency markets gave a decisive ‘that’s what you think’, illustrating yet again that no country can escape from the operation of the economic laws of world capitalism as well as reflecting the speculators’  assumption that, if Britain leaves the single market as well as the EU, British exports are likely to suffer.

International money chaos (1980)

The Briefing Column from the November 1980 issue of the Socialist Standard

A currency unit is always in the end the name for a specific amount of gold (or silver). At one time—when paper currency was convertible on demand into a fixed amount of gold—this was obvious but has now become obscured in the system of “managed currencies’’ which grew up between the wars. In nearly all countries today the currency—the actual medium of circulation—is not gold nor even a paper currency convertible into gold but inconvertible paper notes and coins. Such a currency is said to be “managed” because the amount of it in circulation depends entirely on political decisions.

Before the era of managed currencies the link between a currency and gold was always clear. A law defined the meaning of the name of the currency (pound, mark, franc) in terms of a certain amount of gold (or silver, or both). This is no longer the case but the pound and other currencies continue to represent in economic reality a certain amount of gold. Gold is still today the money-commodity, the only real money, even though it has been replaced as the medium of circulation by paper and metallic tokens.

With a managed currency a government institution (Ministry of Finance, Central Bank) has to decide how much is put into circulation. The amount of currency needed to maintain a stable price level, however, is fixed by economic factors outside of government control, such as the total amount of buying and selling transactions, debts to be settled, velocity of circulation of the currency. The government is of course free to issue more (or less) than this amount, but if it issues more then the currency will depreciate.

The effect will be the same as if, under the old system, the government had passed a law re-defining the meaning of the word pound in terms of a lesser amount of gold—which is equivalent to increasing the prices of all goods expressed in the currency unit. This—overissuing an inconvertible paper currency—is what has caused the inflationary price rises which have gone on continuously in Britain since the beginning of the last world war. Inflation (properly understood as inflating, or overissuing, the currency) means that the currency has come to be defined in terms of lesser and lesser amounts of gold.

A managed currency only has a circulation within the borders of the state which manages it. No state can enforce the use of its paper currency outside its borders, though people there may choose to accept it. Paper currencies, however, can still be exchanged with each other. What determines their rate of exchange?

What we have said about the paper pound being the name for a certain amount of gold applies equally to the other paper currencies. The paper mark and the paper franc are also names for amounts of gold, though different amounts of course. In fact up until the end of 1971 the currencies of the member states of the International Monetary Fund were declared to the Fund in terms of weights of gold. Thus if the French franc was defined as 3gm of gold and the English pound as 39gm, then the rate of exchange between francs and pounds was £1 = 13 francs. The Member states of the IMF were supposed to maintain a more or less fixed rate of exchange between their currencies and those of the other members.

Had it not been for the inflationary policies pursued by all states this would have proved a relatively easy task. But in fact all states inflated their currencies, though not to an equal extent, so that the parities declared to the IMF came to no longer correspond to the economic reality. Those countries which had inflated their currencies more than average were sooner or later compelled to declare to the IMF that their currency should now be officially regarded as representing a lesser amount of gold. This devaluation meant that the exchange rate with other currencies had altered: their currency would now exchange for a lesser amount of all other currencies. On the other hand those countries which had a below average inflation were compelled to up-value their currency, known as revaluation, as happened a number of times to the D-mark and the Swiss Franc.

A devaluation then was a recognition on the international level of a currency depreciation that had already occurred internally. This was why Wilson was in a sense right when he declared in his famous 1967 statement that devaluation left unchanged the value of the pounds in our pockets. It did, because the depreciation had already taken place before! (As the Wilson government continued the policy of currency inflation, the pounds in our pockets did in fact continue to shrink, but because of the continuing inflation of the currency rather than because of the devaluation).

At the end of 1971 the IMF system of fixed parities, with periodic devaluations and revaluations as necessary, broke down. Instead countries just let their currencies float. What this means is that an internal depreciation of a currency resulting from its inflation is now immediately reflected in its rate of exchange with other currencies instead of building up towards an eventual devaluation.

Some countries link their currencies to others, agreeing that they will not let their currencies fall or rise above or below a certain margin compared with the other currencies in the system. One such system was the famous “snake” of European currencies, of which Britain was a member for a short while. The European Monetary System (EMS) is another such system.

For such systems to work each of the states involved has to have more or less the same rate of inflation. For if one state had a greater rate of inflation than the others, then its currency would tend to fall below the lower limit and in order to maintain itself in the system it would have to use up its reserves to buy its own currency so as to maintain its price (exchange rate with the others). The EMS does provide for the establishment of a special fund to help states in difficulty but its clear aim is to try to keep inflation rates down to the German level.

The last Labour government, presumably anxious to have a free hand to continue inflating the pound as it wished, refused to give an undertaking to keep inflation down that much and so Britain didn’t join. The present Conservative government has announced its intention to join, but is waiting for the time when (if!) the rate of inflation in Britain is at a more internationally acceptable level.

All these “systems” in the end are just makeshifts since none of them openly recognise that the only real money in the world today remains gold. Capitalists are more realistic—which explains the rise in the price of gold, and why it likely to keep on rising: nobody wants to be left holding worthless paper money as the international monetary system staggers from crisis to crisis.

Adam Buick

Running Commentary: Ice-cold death (1985)

The Running Commentary column from the March 1985 issue of the Socialist Standard

Ice-cold death

Each winter, in this land of microchips and nuclear power stations, people die a primitive death through the cold. Sometimes this is caused by hypothermia, the reduction of the body's heat below a critical level. Others die of pneumonia or suffer strokes and heart attacks as the blood pressure is forced rapidly upwards by the cold.

According to the Sunday Times of 27 January, during three weeks in this year's cold spell, over a thousand people had to be treated in hospital for hypothermia. A consultant who has made a special study of the problem tells a grim story: about nine thousand deaths a year from straightforward hypothermia and several times that figure for deaths from diseases induced by the cold.

Of course this could all be avoided if only people like pensioners heated their homes properly, except that they, of all people, know how the expense of this would be an added stress in their everyday struggle to make ends meet.

There is, to be sure, an extra state allowance which can be paid to them when there is "exceptionally severe weather". This condition is officially defined according to temperature readings taken in different points and the level required to activate the extra allowance varies from point to point.

For example, when the bureaucrats in control of benefits for East Anglia, Essex and some parts of Bedfordshire were satisfied that the thermometer was reading -2.8°C at Honnington they allowed the payments. The rest of Bedfordshire was not so lucky: although they were just as cold they were covered by a different measuring point.

People who are forced to survive on a pension or some other state allowance are those who once depended on a wage. All their working life they have suffered the indignity of hawking their working abilities to an employer. When they are deemed no longer employable they face the even deeper degradation of scraping by — or not. as the case so often is — on niggardly state handouts. Provided, of course, they are able to navigate their way through the labyrinth of bureaucratic controls and checkpoints.

This is not a problem of age or of climate but of social class. Rich people are never rushed into intensive care through hypothermia. Cold weather need not be a problem; it is capitalism's social relationships which turn it into a killer. It should be abolished. Not the weather: capitalism.

Sailors’ tales

As if they don't already have enough to worry about, the unemployed now have to contend with the pound's falling exchange rate against the dollar and the rise in interest rates.

The dollar exchange rate was one of the earliest crises for British trade after the war. If only, we were told, we could get back to the good old days when the pound was worth about four dollars all would be well. The rate was then fixed by the Treasury; devaluation, when it came, was seen as the failure of the Labour government's wild political theories.

Since then many other alleged causes of he crises have held the stage for a while. We have heard about the Balance of Payments, the Gnomes of Zurich selling sterling short, inflation . . .  Each time, the workers have been told that they could cure the problem by tightening their belts, working harder, keeping wage rises small.

Whoever is Chancellor has assured us that he has been in charge, sensitively manoeuvring the financial controls to bring the situation into balance. Now we have Nigel Lawson, who described the interest rates panic of January as a storm which blew up largely through events outside his control and which would eventually blow itself out. "Meanwhile", he said, "we have battened down the hatches and the ship remains on course."

There is a familiar ring to these confident words. Nautical and meteorological metaphors have always been very popular with devious politicians. Harold Wilson described one of his government's crises as being "blown off course". Jim Callaghan greeted a brief respite with the advice "Steady as she goes". The message is that the troubles are temporary; if we put our trust in the captain and the crew the ship will soon arrive safely in port.

Both Labour and Tory governments have wrestled unsuccessfully with the same problems. Both have used the same empty excuses, the same comforting turns of phrase, to hide their impotence. Clearly, the matter goes beyond which particular capitalist party is in power and the workers have to think about taking over the ship for themselves.

Modern times

"I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labour, and that the necessity of debating their price with the capitalist is inherent in their condition of having to sell themselves as commodities . . . The general tendency of capitalist production is not to raise, but to sink the average standard of wages."

This quotation from the very end of Marx's pamphlet Value, Price and Profit, given initially as an address to the General Council of the International Working Men's Association in 1865, has a very modern ring. The women cleaners who work for Exclusive Cleaning Services on the army base at Deepcut in Surrey had their hourly rate cut from £1.71 to £1.60 in November last year. Then, in December, they found that their wages for the month embodied a further cut of 5 per cent to £1.52 without warning.

It is presumably on the grounds of this contractual issue of warning that they have sought the help of a solicitor. This is probably what has also caused the resignation of the firm's director for that region and the restoration of the hourly rate to £1.60. Only four of the fifty cleaners are reported to be in a trade union; but even if they all were, as long as Exclusive act within the letter of capitalist law, they cannot offer much resistance to wage cuts in the present economic climate.