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.