At the end of May a conference to solve world economic problems was held at Williamsburg, Virginia, attended by representatives of four European countries, America, Canada and Japan. It was one of a regular series of such conferences, the next to be in Britain in 1984.
Verdicts on the conference ranged from the self-congratulatory official statement — “Our discussions give us new confidence for recovery" — to the Financial Times — “Two Cheers for Williamsburg" to “Playacting" (Liberal/SDP Alliance) and “Fiasco", "Catastrophe for the whole world" (Labour Party). Margaret Thatcher claimed that the conference decisions were an endorsement of the policy of her own government.
In the agreed statement of aims the conference declared itself in favour of reducing inflation, interest rates, unemployment, government spending and budget deficits; encouraging investment and aid to poorer countries; stabilising foreign exchange rates; getting rid of trade barriers, conserving energy and developing alternatives to oil.
The Times (31 May) reported that in the private discussions the European leaders, especially Mitterrand, were highly critical of America for its current budget deficit of £125 billion which, they said, is the cause of high interest rates in America and prevents interest rates from falling in other countries. Mitterrand. before the conference met, had been pressing for a world monetary conference like that at Bretton Woods at the end of the last war, which set up the International Monetary Fund and the World Bank. He did not get his way but the conference did agree to consider a high level international monetary conference at some unspecified time in the future.
The International Monetary Fund and the World Bank have a particular relevance to the present situation because it was the declared aim of those institutions to expand international trade, keep unemployment down, increase production, raise living standards, encourage investment and make exchange rates stable — all problems which the Williamsburg conference found itself once again considering nearly forty years after Bretton Woods. And Bretton Woods was not the first. Some twenty years earlier, after the first world war, a series of international monetary conferences took place also dealing with inflation, unemployment, falling production, trade barriers and unstable foreign exchange rates. There was a link between those conferences and Bretton Woods, in that the economist J.M. Keynes played a part in both.
And earlier still, in the 19th century, a number of inter-government conferences took place to deal with monetary problems, including the stabilising of exchange rates by setting up the gold standard in most of the industrialised countries. This did not prevent the Great Depression in the last quarter of the century, during which the British government set up a series of committees of enquiry to try to discover why the depression and heavy unemployment had happened and how they could be avoided in future.
Capitalist economists have always taken the view that stable exchange rates arc desirable in the general capitalist interest. A British company importing from abroad wants to know that the American dollars or German marks it pays will cost a known and unchanging number of pounds. The British company exporting to foreign countries likewise wants to know that it will receive a known and unchanging number of pounds. But, as in all such questions, there are sectional conflicts of interest. While not wanting constantly changing exchange rates. British exporters have an interest in the pound being fixed at a low rate against foreign currencies because, for a given number of dollars or marks for which their exports are sold, they receive a larger number of pounds. Conversely, British importers have an interest in the pound being fixed at a high rate because these imports will cost them fewer pounds.
The gold standard was a method of stabilising the exchange rates between all countries on the gold standard, as each of the national currencies was legally fixed at an unchanging weight of gold. (The British pound at about a quarter of an ounce of gold.) In the years 1900 to 1914, for example, the exchange rates between the pound, the dollar and the German mark (all being gold standard currencies), were completely stable, showing only minute fluctuations. The gold standard also brought comparative stability of prices because all the gold standard currencies were tied to gold. It did not prevent changes of prices due to other factors, such as the rise of prices in booms and fall of prices in depressions. The gold standard ruled out anything like the multiplication of average prices by about eighteen that has occurred in Britain since 1938.
It is here that we see the outstanding difference between the Bretton Woods agreements after World War Two on the one hand and the gold standard agreements of the 19th century and the international monetary conferences after World War One. Capitalism's major problem, as the Bretton Woods conference saw it, was not inflation and prices but unemployment and depression. It was the beginning of “The Age of Keynes" who had shown them, as they thought, how they could for ever get rid of both, and maintain a state of permanent boom and low unemployment.
For many years events seemed to support their trust in the Keynesian doctrine, though in fact low post-war unemployment happened for other reasons. Then came the day of reckoning, the present world depression, in which it is not a question of having to deal with inflation or deal with unemployment, but having to deal with both together.
Robert Skidclsky, Professor of International Studies at Warwick University, told their sad story in The Times (4 June):
In the last ten years things have gone terribly wrong. The talisman has failed: economics — and economics — are in a mess. There is scarcely a government of a major country in the world which would now call itself Keynesian. The charge against Keynes is that in putting out one fire, unemployment, he started another one, inflation, which in the opinion of many economists was bound to bring back unemployment too.
Those economists have one thing wrong. It is not inflation which brings about unemployment and depression, or deflation, or the gold standard, or Keynesian doctrine or anti-Keynesian doctrine, but capitalism itself. That is the way capitalism operates, with the cycle of alternate periods of expansion and boom and periods of depression and heavy unemployment.
There was one set of economic doctrines not present at any of the international conferences of the past hundred years — that of Karl Marx. Indeed it was specifically claimed by the Keynesians that Keynes had destroyed Marxian economics for ever. This has led some economists to wonder, now that the Keynesian doctrine has failed them, if perhaps they can find in Marx the real way to maintain capitalism in permanent boom. They won’t find it. Marx’s conclusion was that capitalism can only operate in accordance with its own structure and economic laws and that the way out is to abolish capitalism and establish socialism.
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