Editorial: The American Loan and the Gold Standard (1946)

Editorial from the February 1946 issue of the Socialist Standard

Much ado about very little

Most people are frankly mystified about the intricate details of currency, banking, credit and international trade and consequently do not understand the issues involved in the controversy about the American loan and the gold standard. This includes many of the politicians who speak on the subject so that those who support one side or the other frequently cannot even agree about the facts let alone the desirability of taking one or the other course of action. The members of the Labour Party and the Conservative Party are divided among themselves. Even those in both parties who supported the American loan arrangements admit that they do so with great misgivings and without any assurance that things will work out as planned. Many who support the loan would like to join Lord Beaverbrook’s group in opposition but cannot convince themselves that his case for the British Empire to stand as a unit more or less independent of U.S.A. is practicable. They therefore take the view that no other course is open than to accept the loan and with it the conditions laid down by American capitalism. The Manchester Guardian puts it thus:—

   "The plain case in favour of the American loan is that we cannot do without it. We have got into a position . . . from which we cannot escape without hardships which would rend the political fabric of this country. . . . The idea that we cap turn down the American offer because we are shocked at the conditions they have extorted is simply childish." (12 Dec., 1945.) 

The immediate factors that determined the offer and the acceptance of the loan of £1,100,000,000, to be repaid at 2 per cent. over fifty years beginning in 1952, are the following. On the one side British Capitalists, during the war, lost the bulk of their export trade and foreign investments (the latter had to be realised to pay for imported food and war supplies) and are now so denuded of certain goods that they must get a loan from U.S.A. in order to pay for needed imports, pending the turnover to full-time peace production and the export not merely of the pre-war volumes of goods but a greatly increased volume. On the other side the loan was offered not on philanthropic grounds but because American industry is producing at such a rate that big business is already scared at the thought of the slump that will occur if markets cannot be found. Much of the loan will be used to buy American goods for shipment to the British Empire and the Continent. As The Times says, "The current objectives of the United States are not disguised. Like greyhounds in the slips their salesmen are ready. . . . American productive capacity has been much multiplied by the war. When civilian demand replaces military, there will be surpluses—and the prospect of considerable unemployment. The accepted solution is to employ the workers and dispose of the surpluses on oversea orders.' (Times, 7 Dec., 1945.)

Apart from repayment of the loan and payment of interest the American authorities imposed other conditions, in particular that the pound sterling shall remain at the present exchange rate with the dollar (4.03 dollars to the pound) and that the British Government shall enter into world banking and trading arrangements proposed by the U.S.A., the declared object of which is to get all the Powers to agree to establish "freer trade relations" unfettered by tariffs and preferences, import restrictions. State subsidies. State trading cartels and other types of trade barriers—in short, to make the world a vast market open for American exports.

The attempt to keep the paper pound at a fixed relationship to the dollar is a roundabout way of keeping it at a fixed relationship to gold, though the Labour defenders of the agreement point to the provisions which will enable the British Government to alter the relationship in certain circumstances, i.e., to fix it at, say, 3 dollars to the pound. Because of this “escape clause" the Labour Party maintains that it is not committed to being "on the gold standard." The difference is, however, only one of degree and of form. Before 1914 and from 1925 to 1931 the sovereign was by law fixed at a certain weight of gold, and corresponding to that relationship it was worth 4.86 dollars. Under present arrangements the paper pound, in effect, is equivalent to a smaller amount of gold than before 1914 and also the way is made easier to reduce that amount still more, within the limits of the agreement with U.S.A.; in other words the present arrangements are more elastic than before 1911 and the relationship between the pound and gold is altered.

The controversy about the amount of gold to which the paper pound (or the currency of any other country) should be related largely represents the rivalry of different sections of the capitalist class. A British firm engaged on the production for export of articles made out of home-produced raw materials has an interest in reducing the gold equivalent. This is because the foreign buyer, e.g., an American who at the old rate had to pay 20 dollars for £5 can at a reduced rate get £5 for, say, 16 dollars. This encourages exports from Britain; but at the same time it discourages imports to Britain. The British importer of foreign raw materials or finished products has an opposite interest, since he must now pay more paper pounds than before for an article costing 20 dollars.

It should, however, be noticed firstly that the effect of any change in the relationship of the paper pound to gold or to the dollar is only temporary since costs and prices adjust themselves; secondly, it helps one capitalist group at the expense of another without increasing total production even in the country concerned; and thirdly, all countries can play the same game—as for example, the recent devaluation of the French franc.

Overriding all these purely currency questions, which are of secondary importance; is the major fact that there is no solution—short of abolishing capitalism—for the endless crises and depressions, unemployment and trade rivalries of the system. Those who take the superficial view can state what looks like a convincing case whichever side they support in the controversy. The Labour Party, which opposes having the pound rigidly fixed to gold by Act of Parliament, can point to the poverty, unemployment and trade depressions that existed before 1914 and between 1925 and 1931. This, they say, proves that the rigid gold standard is bad. Likewise their opponents can point to exactly the same evils that existed after 1931. Both are right in saying that the evils exist, because they always and necessarily will under capitalism, whether adherence to the gold standard is rigid or elastic, at one ratio to gold or to a higher or lower ratio. They are also both wrong in thinking that currency factors are the cause of the evils or that, the evils can be remedied by currency manipulation. The Times, for example, holds out the hope that international agreement may lead to “ the restoration of the system of world trade which prevailed in the heyday of British free trade a generation ago." (Times, 7 Dec.) That "heyday" was, for the workers, a time of poverty, insecurity and unemployment just like the subsequent period. All through the 19th century, when the gold standard was said to be functioning well, crises and working class misery were in evidence. The "over-production" of capitalism, meaning the production of vast quantities of goods for which the workers lacked purchasing power is a result of the private ownership of the means of production and the resulting fact that the goods produced belong to the capitalist class and that class can and does curtail production when the goods cannot be disposed of at a profit.

One point, for the benefit of those who cherish the illusion that the gold standard has ceased to exist, is the recent heavy buying of shares in gold mining companies. The City Editor of the Daily Telegraph (24 Dec.) commenting on this, writes : 

  ". . .  the acceptance of Bretton Woods has removed any nervousness there may have been as to the status of gold in post-war international monetary arrangements. The metal remains the world standard of value, and those who produce it will be marketing a universally acceptable commodity."

In conclusion, it is a safe forecast that the agreements with U.S.A. will not work well for the working class. Nor would any alternative arrangement within the capitalist system. W. J. Bryan's declaration that mankind is crucified on a cross of gold, a flamboyant fallacy that still finds credence in Labour circles, should be re-written: the working class are crucified on a cross of capitalism; which is just as true though the cross now bears the Labour Party label, " Nationalisation.”