Before 1939 all schoolchildren, including the ragged and undernourished, had shown to them the vast pink-tinted areas on the map of the world that were “ours”. Every child knew also the price of the American dollar in English pounds. Immutably, there were four dollars to a pound. A dollar was five shillings; the English half-crown piece was called, in popular slang, “half-a-dollar”.
No doubt this recollection helps to produce a sense of calamity over the fall in the price of the pound. In June 1972, before the pound was "floated’ by the British government, the exchange rate was $2.60. This year it has gone below two dollars to about $1.80; on 14th May it was $1.8275. The use of the words “weakening” and "strengthening” implies further that these figures are the index of a frightful disease, caused — of course — by the sloth and greed of the working class, and remediable only by a prolonged fast. All of this is untrue. The progressive fall in the pound since the war has been the result solely of policies pursued by Labour and Conservative governments alike. As to how much difference it makes, workers should ask if they were better off when the pound was “strong” and the map was spread with pink.
Prices at a Stroke
A drop in the exchange rate has the same effect as devaluation of the pound. Devaluation was carried out officially, as part of economic policies, by Labour governments in 1949 and 1967. The 1949 devaluation from $4.03 to $2.80 was in fact proportionally greater than the total fall since. At the time, Conservative spokesmen said any more devaluation would reduce the status of sterling “to that of one of the untrustworthy currencies of Europe or South America” and “indeed there would be nothing for this country to look forward to” (David Eccles and Oliver Stanley, House of Sommons, September 1949). Nevertheless, the Conservatives’ floating of the pound in 1972 was done in the knowledge that it could only move downwards, and the result was a further devaluation.
The necessity for devaluation by governments is caused by rising prices. If prices go up markedly in Britain it means that British exports also become dearer and therefore less competitive in world markets; while ether countries’ goods are rendered relatively cheaper, so that imports increase. The result is an adverse balance of payments. In 1948 the dollar deficit ranged from £93 million to £147 million a quarter, and in the quarter before the decision to devalue it was £157 million.
The aim of devaluation is to move towards a reversal of the position. The prices of British commodities abroad are immediately reduced, and foreign ones are made dearer in Britain: exports increase, imports decrease. However, the simplicity of this is countered in several ways. First, because it is a nationalist solution in a world of international competition, ether countries take similar steps. Second, it means that more goods are sold abroad but at lower prices. As Anthony Bambridge wrote in The Observer on 9th May: “Equally, although our exports are much cheaper and more attractive in world markets, we have to sell many more Marks and Spencer pullovers for every ton of iron ore we import.”
Third, the higher price of imports means further general price rises in Britain. It is calculated that every 1 per cent, drop in the exchange rate between the pound and the dollar adds 0.25 per cent, to retail prices in the shops, which gives an addition since the beginning of this year of 2½p. in the pound. Thus, rising prices are by no means cured by devaluation. A company report in The Times on 10th May observed this:
Mr. Tapscott [chairman of Lesney Products] voices a timely warning for exporters about the “dangerous drug” of cheap sterling. As a result of the new collapse in the pound, he declares, it will not be long before the company is paying much more for its imported raw materials and a further twist to the spiral of inflation is begun.
The additional fall of the pound in recent months has not been directly due to government action, of course. The price on the foreign exchange market is affected by companies’ efforts to anticipate developments and secure advantages in trading. The “loss of confidence” in the pound resulted chiefly from commercial selling by firms buying foreign currency for future import orders, and holding it for as long as possible in hopes of a profitable exchange. In this situation, news of the policies of the British government and other governments causes further ups and downs on the exchange market.
Paper Promises
Fundamentally, the depreciation of the pound is due to inflation. Because of the over-issue of paper currency, the amount of gold represented by a pound note has been reduced. This is the sole cause of the massive rises in prices since the war. Before the adoption of Keynesian policies by the governing parties, the issue of paper money was strictly controlled and prices remained stable apart from normal fluctuations. In the last thirty years this long-standing practice has been discarded. Governments have financed their expenditure by borrowing from the Bank of England and allowing more notes to be printed to maintain bank reserves of cash. The result is continuing depreciation of the currency, and inflation: which in turn has led to the devaluation of the pound, whether by government action or “loss of confidence”.
In a recent speech Sir Geoffrey Howe, the Tories’ “shadow Chancellor of the Exchequer”, appeared to know the answer: "Strict control of the money supply had to be an essential foundation of economic policy” (The Times, 13th May). However, he said the control would be restored gradually, and linked with a reduction in public spending and a wages policy. In effect, the Conservatives would follow those aims as far as capitalism allowed. The reducing of public — i.e. government — expenditure is an obvious necessity for dealing with inflation, but to contemplate it puts the Conservatives in the same dilemma as Labour: it means the cutting of education and other services, and the risk of losing electoral support.
Workers should beware of the statements made about inflation and the pound. Don’t accept the glib assumption that “the country” is the people as a whole, that the problems of “Britain” are theirs to overcome. These are the problems of capitalist commerce, whose vision of prosperity is limited to itself just as much as its cries of plight seek to embody everyone. Don’t accept either that inflation prices are caused by “excessive” wage increases. Wages are prices, produced and conditioned by the same factors as the prices of all other commodities.
Still more important, workers should not swallow the idea that if the pound were made strong and inflation overcome they would be far better off. A “strong” pound means a balance of payments surplus and the exchange rate restored to a level of former years, with British goods selling abroad not only plentifully but at higher prices. Imports would be cheaper, and the cost of living relatively lower. Given those circumstances, is it seriously imagined that the capitalist class and its governments would declare the time come for high living? On the contrary, if inflation is halted the present period will provide a myth of the awful consequences of letting workers have wage increases, and a standing argument against such profligacy in the future.
Workers and Wages
One of the purposes of the devaluation of the pound in 1949 was to avoid major struggles over wages between employers and workers. Though it had appealed for belt-tightening, the Labour government hardly dared to try to force down working-class living standards when the wartime and post-war “austerity” period had still not ended. The alternative was to cheapen prices abroad drastically, and hope that this would fill order-books and restore profitability for British manufacturers. In 1976, while the fall in the pound is having the same cheapening effect, the workers are having their wages held down too. Insofar as reductions in government expenditure are made, these can involve additional cuts in living standards, since subsidies and welfare service take the place of additions to wages.
The tragedy is that it is all for nothing. The economic crises of capitalism are not exceptional dire occasions, but its normal working. With or without inflation, and whatever the standing of the pound, the position of the workers is the same. Throughout the decades when there was no inflation and the map was pink, there were high unemployment and low living standards (the Daily Express in the nineteen-thirties advocated some inflation as a means of improving things). There is really no way out of the problems of the capitalist system — except to abolish it and have Socialism.
Robert Barltrop
That's the June 1976 issue of the Socialist Standard done and dusted.
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