Floating To Nowhere — The currency chaos (1973)

From the August 1973 issue of the Socialist Standard

The cynic who said that the only lesson of history is that men never learn from history was knowingly exaggerating, but he also had it wrong, at least in regard to the history of capitalism. A few people have learned from past crises what kind of system it is and the economic laws on which it operates. And if the crisis is big enough memory of it will last for years among capitalists and workers alike as something they would like to avoid happening again.

However, two things undermine their fears in course of time. As, in the main, neither capitalists nor workers fully understand how capitalism works they are always ready to accept new quack remedies for capitalism’s ills. And governments, always with an eye on solving the immediate problem and winning the next election, will time and time again flout past experience and simply hope that something will turn up to save them. (The Daily Mail, 10th July, which solidly backs the Government over the currency crisis, frankly admits that the Tories are simply “gambling on prosperity”.)

An interesting case in point is the German Chancellor Willy Brandt. Like others of his generation he was for years committed to avoiding a recurrence of the great German inflation of the nineteen-twenties and similar events after the second world war, but has recently declared that he would "rather have inflation than unemployment”. He need only look up the records to see that he may get both. In the ’twenties, when inflation got out of hand, nearly 30 per cent, of the workers were unemployed.

Creating Weakness

Marx, the economist whom modern economists do not want to know, pointed out certain basic facts about capitalism. The capitalist, having acquired surplus value in the form of commodities, through the exploitation of his workers, needs to turn these commodities into money. Through long and hard experience it was appreciated that in the interests of capitalists as a whole there is great advantage in having it in a stable form — either gold or its equivalent, a paper currency convertible into gold at a fixed rate.

This was how the pound became a world-accepted currency in the nineteenth century, and the dollar in this century. The purpose of the gold link was to prevent the depreciation of the pound or the dollar, and consequent rise of prices, through the excess issue of an inconvertible currency. That is now all in the past. First the pound and then the dollar became inconvertible currencies issued in increasing quantities and losing their purchasing power month by month.

It is not speculators who make a currency "weak”, but its continuing loss of purchasing power which gives speculators their opportunity. And it is not only speculators. Capitalists all over the world who have sold goods for pounds or dollars do not want to hold them because their purchasing power goes on falling. The Chairman of the Arab countries’ Economic and Social Development Fund put the point in the course of a protest against the American Government’s refusal to allow dollars paid to the Arab countries for oil, to be converted into other currencies: "Why should we produce more and then be stuck with dollars we cannot make use of? It would be better to leave the oil underground.” (Financial Times, 10th July 1973).

Cheap Makes Dear

If of course the dollars were convertible into gold at $35 an ounce as they used to be, nobody would fear to hold dollars. At present the dollar and pound are described as “floating”. All this means is that instead of being devalued and immediately fixed at the lower level they were devalued and allowed to fluctuate about the lower level.

The pound was devalued in 1967 by the Wilson government and again in 1971 by the Heath Government — on the latter occasion with the enthusiastic support of Tories, Labour and the trade unions on the ground that it would make exports cheaper to foreign buyers and thus encourage production for export. The other side of the coin is that devaluation makes all imports correspondingly dearer. So the Labour Party and trade unions which protest against the higher prices of imported goods are protesting against the inevitable result of an action they approved of.

The governments and capitalists are becoming aware of the fact that while the depreciation of currencies may seem to be of short-term advantage, at least to exporters, the competitive depreciation of currencies such as the dollar and pound creates a chaotic situation which may make all international trading operations more difficult. This is leading some capitalists and economists to see that in the long run capitalism will have to re-learn the need to have stable currencies and that there is no better way than to restore gold convertibility at a fixed rate, in short the end of inflation.

And what does this offer to the workers? In nineteenth-century British capitalism there was no inflation. Prices in 1914 were actually slightly lower than in 1814. In between, prices rose moderately in booms and fell in depressions. And what the workers got was exploitation and poverty all the time, relieved somewhat in booms and worsened in depressions, with unemployment similarly.

Nobody has produced — or will produce — any policy which will change the nature of capitalism. Those who really do learn the lesson of history will concentrate on getting rid of capitalism.

Edgar Hardcastle