Editorial: Russia also juggles with finance (1948)

Editorial from the January 1948 issue of the Socialist Standard

The more the Communists proclaim how different everything is in Russia the more events disclose how much that country resembles the other Capitalist States. The latest example is the decision of the Russian Government to issue a new currency in place of the old, thus doing what Belgium did in 1944 and what rumour says the British Government has been contemplating for some time past.

The Russian Government’s scheme, though rather complicated in detail, is simple enough in its broad intention. Wherever there is rationing and the sale of rationed goods at controlled prices a “black market” is bound to arise as those with enough money try to supplement their rations and get scarce high-priced luxuries. Russia was no exception though the “free” market in that country was officially recognised and anyone rich enough could buy what was offered at the enormous prices ruling there. The government’s scheme is to abolish rationing, reduce the prices of a few foodstuffs while raising the prices of other goods so that the new price level as a whole is raised to a point somewhere between the present low “rationed” prices and the present very high “free”market prices. At the same time they aim at a drastic reduction of the amount of money available to be spent, by the simple device of giving fewer new rouble notes in exchange for the old ones. If you have 100 roubles in cash in your pocket or at home you get only 10 in exchange. If you have 10,000 roubles deposited in a savings bank you get the full rate for the first 3,000 and two-thirds for the remaining 7,000 roubles. We can illustrate the effect by putting 10,000 roubles into pounds at the rate of exchange (32 to the pound) allowed to foreign diplomats in Russia. It means that a. man with £312 in a savings bank will find it reduced to £240. If his £312 was invested in a State Loan (except the most recent loan in 1947) he will have it cut to one-third of its value, £104. Wages are not being reduced but the workers, in addition to losing some of their cash and savings will be hit by the higher prices.

Of course the Daily Worker had to rush in and say what a fine thing it all is—”a step forward,” “a triumph for the Socialist economic system,” but the article (published on December 16th) indicated a certain amount of uneasiness. The writer, Mr. Andrew Rothstein, had to admit that “everyone will inevitably be affected to some extent because the new prices must lie somewhere between the ‘rationed’ and ‘off-rationed’ prices.”

Some other interesting points are thrown up by the new policy and by the Daily Worker comment on it. Just as Sir Stafford Cripps, at a time when prices are rising, tells the workers it will soon be all right because harder work will increase supplies and bring down prices, so the Daily Worker says “the existence of ample supplies . . . will soon more than compensate for the temporary difficulties.” This is printed in the “Worker” alongside the reproduction of a Russian “plenty to eat” poster which tells how much meat, fats, sugar, etc., etc. will be produced “in the five-year plan to be completed in 1950.”

During the war when news came out of Russia about the rouble-millionaires the Communists hastened to explain that this was a good thing and natural to a “socialist” country, and that we should note that it was all earned money and there were no speculators able to accumulate fortunes by speculation and black market operations as in Britain and U.S.A. Now we learn that the new policy is designed to hit “speculators, who amassed considerable sums ” and were, able to “buy up stocks, create artificial shortages and lower the purchasing power of the rouble.” (Daily Worker, 16/12/47).

It should be observed incidentally that the new policy, while reducing the big fortunes, does not by any means wipe them out. The speculator or other wealthy person with 1,000,000 roubles in State loans will still possess 333,000 roubles of investments and will, of course, gain to the extent that he can now buy goods at much lower prices than he formerly had to pay in the “free” market, prices which ranged up to ten and fifteen times pre-war prices. (Manchester Guardian, 15/12/47).

One wonders, too, how the Communists are going to wriggle out of their claim that the Russian Government, unlike other governments, does not descend to slick tricks in its dealings with workers’ savings. It is going to be very difficult to square what has just been done, with the claim made in 1946 that “money put into the State loan is, of course, absolutely secure” and that holders of bonds “can redeem them at their nominal value at any time within the 20-year period.” (Article by S. Grigoryev in Soviet News, published by the Soviet Embassy in London, 16/5/46.)

Readers of the Daily Worker (15/12/47) who read that “the new rouble of full value will be much stronger that the old,” will perhaps recall how the Communists jeered at the late Lord Snowden when he defended the economy cuts of 1931 on the ground that they would enable the pound to be strengthened and “look the world in the face.”

Doubtless one of the reasons for the new policy in Russia is to back up the campaign to capture the support of the European workers by pointing out that the West European governments, notwithstanding loans from U.S.A., are behind Russia in abolishing rationing. If the British Communists try to push the same policy over here they will be in the same position as those Conservatives who press for the abolition of controls and who argue that it would be better for the workers in the long run even though it would mean higher prices immediately. The truth is that for the workers it would be merely a choice of evils and so far, judging by results of by-elections, the majority of workers prefer the evil of rationing that they have got used to and are not enamoured of the Conservative alternative.

Socialists, of course, are not in favour of Capitalism anyway, whether with or without controls.

Letter From Europe: Mitterrand clamps down (1982)

The Letter From Europe Column from the August 1982 issue of the Socialist Standard

It had to happen sooner or later. The attempt by Mitterrand's PS/PC government to revive the economy and reduce unemployment in France by giving people more money to spend—increasing “popular consumption" as it was called—just couldn't last. Since capitalism is a system which cannot be controlled or manipulated by governments and since most of the money to finance the social reforms in question came straight off the printing press, what happened was inevitable: the general price level in France rose, and at a rate faster than in other countries, leading to a fall-off in exports and a record balance of payments deficit which in turn made a devaluation of the franc inevitable. The effect on employment, on the other hand, was minimal: sales of consumer goods picked up for a while but the number of unemployed continued to grow, by nearly 16 per cent since Mitterrand came to power, passing the 2 million mark in October.

Exactly a year ago the Socialist Standard, analysing the economic policy of the then brand new PS/PC government, wrote:

It will fail completely and within a year or so they will be faced with growing working class discontent over persisting unemployment and rising prices which they will not be able to satisfy, since the continuing crisis will force them to recognise that under capitalism priority must be given to profits and profit-making rather than to social reforms and popular consumption. The crunch will then come and they will be forced, like all governments of capitalism sooner or later, to take openly anti-working class measures. 

As a matter of fact the crunch has come sooner rather than later, less than a year after the PS/PC government took office at the end of June 1981. On 12 June this year the French franc was devalued within the European Monetary System, for the second time in less than 9 months in fact, since Mitterrand had already been forced to devalue last October too. The October devaluation had been accompanied by rather timid price controls and mere appeals for some wage moderation. This time it was different. The government has adopted the following measures:

• a legally-imposed wage freeze lasting till the end of October, the only exception being the rise in the minimum wage due on 1 July; a legally-imposed price freeze also until the end of October but with some important exceptions such as oil, gas, electricity and imported goods;
• an increase in contributions to the health service accompanied by a cut in some benefits;
• a similar operation of increased contributions for less benefits regarding the unemployment insurance scheme.

The Minister of Finance, Jacques Delors, has already announced that austerity will not finish at the end of October but will continue. in the form of a restrictive “incomes policy", at least until the end of 1983; in other words, for at least 18 months in all.

Delors has also made no attempt to disguise the fact that the living standards of workers will have fallen by the end of October. He has publicly admitted that, while wages will be completely frozen, prices will rise by at least 2.8 per cent during this period. This will happen not only because prices are much harder to control than wages, but also because a number of exceptions to the so-called "prices freeze” are being allowed, particularly oil products (petrol, heating oil. paraffin) and imported goods. Since one effect of the devaluation will precisely be to increase the prices of imported goods, it is evident how large a loophole this latter will be.

So the government has now done a complete U-turn. The aim is now not to increase popular consumption but to reduce it! The Prime Minister, Pierre Mauroy, had already forewarned, even before the devaluation. that wages were soon going to come under direct attack from the government when he told a PS meeting on 21 May: 

Excessive nominal increases in incomes and wages maintain inflation and deprive our economy of the means to create jobs. The government has decided to act and we will shortly have occasion to talk about this again (Republicain Lorrain, 22 May).

It is clear from this that the government accepts the old. mistaken theory that it is wage increases that cause inflation. In fact, wages only increase in a period of inflation because inflation—an overissue of an inconvertible currency—inevitably leads to a rise in the general price level; wages, the price of labour power, merely rise in line with all other prices. Wage and salary earners are the victims not the cause of inflation.

The government's hope is that its austerity package will bring price rises—currently running at an annual rate of 14 per cent— down to an average of 10 per cent over the 12 months of 1982. This means of course that for the remaining months of the year the rate will have to fall well below 10 per cent. But unless they limit the amount of inconvertible paper money in circulation to what the level of economic activity requires—and there is no evidence whatsoever that this is their intention—then the pressure for prices to go on rising will continue.

If the currency is being overissued, then freezing wages and prices can’t stop prices rising. Certainly this can work for a limited period, just as a dam can stop a river flowing . . . for a limited period. Thus it is possible that the government could achieve a short term success but in the long run they will fail. Eventually, and sooner rather than later, the dam will burst and prices—including wages—will resume their upward trend. Delors is in fact very worried about what is going to happen after the legal wage and price freeze is over and this is why he is hoping to persuade the unions to moderate their wage demands over a longer period.

The union leaders, or some of them, may be prepared to go along with this. French union leaders are also politically involved and may well be prepared to betray their members’ interests to help a government they support just as British union leaders have done when Labour has been in power.

Indeed, just like Labour governments in Britain, the PS/PC government in France hopes to exploit its links with the unions to keep wages down and is publicly boasting that it will be better able to get the unions to co-operate in this than the opposition parties. And it is true that when the previous "right wing’’ government decided in September 1976 to block prices for 3 months it didn't dare block wages as well, as the present "left wing" government has done, limiting itself simply to asking employers not to offer excessive wage increases. But even this brought trade unionists out on to the streets proclaiming "No to Austerity". History shows that allegedly "socialist” governments in all countries are better able to impose austerity on workers than openly capitalist ones. (A case could even be made out for saying that this is their role within capitalism.) What is happening in France today is a further confirmation of this rule.

Two further points must however be made. First, in a period of high unemployment real wages (what wages can buy) will tend to be under pressure anyway for purely economic reasons, irrespective of government policy or of whether the union leaders betray their members or not. Second, if inflation of the currency continues, then nominal money wages will go on rising, once again irrespective of what governments and union leaders may or may not do. But government action to try, in the one case, to reinforce downward pressures on real wages and, in the other, to try to counter the upward pressures on nominal wages clearly reveals that all governments are forced to run capitalism in the only way it can be — against the interests of the wage and salary earning majority. A sustained policy of increasing “popular consumption” under capitalism must sooner or later restrict popular consumption to protect profits.

Actually, as we pointed out in the article last August, Delors did not have such a simplistic solution to the economic crisis as the PCF, the CGT trade union and some of his PC colleagues — that economic activity could he revived by giving people more money to spend. He realised that the French economy was part of the world economy and that a revival in France could not be sustained without a revival in the world capitalist economy. But he too was naive in believing, without any reasonable grounds for doing so, that this world revival would occur within a year and that therefore the French government could safely "reflate” its economy (print more money to finance government spending) in anticipation. In June last year he declared that "the reflation measures already taken by the government . . . are a limited anticipation of the recovery of the world economy which the experts foresee for the end of this year or the beginning of next (The Times, 24 June 1981).

The end of 1981 came, but there was no world recovery. The months of 1982 passed, still no world recovery. The "experts” began to creep back into their holes. Meanwhile, as a direct result of the government's spending financed by the printing press, the rate of inflation remained higher in France than in other countries. . . leading eventually to the devaluation of 12 June and the current austerity measures.

When Prime Minister Pierre Mauroy announced the devaluation he could only remark pathetically that his government had done what it could "but the international recovery was not at the rendez-vous”. It takes two to make a rendez-vous and the PS/ PC government has found out the hard way that governments are in no position to impose a rendez vous on the capitalist economy. Capitalism is a world system which operates according to its own economic laws, going through its regular boom-slump. boom-slump cycles, irrespective of what governments may or may not do. It is true however that, while governments can do nothing to bring about a recovery before it would normally occur, they can. as Marx pointed out. make things worse by mistaken monetary policies, as the present French government just seems to have done. Mauroy would have been better to have employed some other metaphor: "we took a risk and we lost" or "we took a leap in the dark and fell flat on our faces". Or even Harold Wilson's "we were blown off course”!

This utter failure of the PS/PC government in France is yet another confirmation of our contention that capitalism can never be made to work in the interests of the wage and salary earning majority. It is a profit-making system based on the exploitation of wage-labour and can only function as such, whatever the political colour the government may happen to have. Any party which takes on the responsibility for governing under capitalism is sooner or later forced, whether it originally intended to or not, to respect the economic logic of capitalism which decrees that profits must come before wages, that the consumption of the wage and salary earning class must be limited so as to allow profits to be made.

Mitterrand's failure is proof that reformism is a futile waste of time. Since the Labour Party’s economic policy resembles very closely that pursued by Mitterrand until 12 June, there's a lesson here for workers in Britain too.

Adam Buick (Luxemburg)

Cooking the Books: Trumponomics (2024)

The Cooking the Books column from the September 2024 issue of the Socialist Standard

‘On the campaign trail, Trump has floated a ten-per-cent tariff on all imported goods, and a sixty-per-cent levy on those from China’ (New Yorker, 15 July). He also wants to devalue the dollar vis-à-vis other currencies. In an interview with Bloomberg Business he ‘called the strong dollar “a big currency problem” and “a tremendous burden on our companies”’ (Times, 29 July). Tariffs and dollar devaluation, that seems to be what his plan to Make American Capitalism Great Again amounts to.

The capitalist class in any country is not a monolithic bloc when it comes to commercial matters. There are differences between those whose business is exports, those who face competition from imports, those who import raw materials and parts, those who neither export nor require imported materials. What Trump has in mind would affect these groups differently.

A 10 percent tariff on all imports would benefit some US manufacturing companies by protecting them from outside competition. But this would mean an increase (not necessarily proportionate but what the market will bear) in the price of their products. Insofar as these are consumed by workers this would exert an upward pressure on wages, which would affect all capitalist employers even those involved in neither exports nor imports. It would also risk, in fact provoke, retaliation by the other country or trading bloc, which would affect exporters, who in the US mainly produce food for humans and animals.

When in 2018 his administration put a 25 percent tariff on imported steel and 10 percent on aluminium, the EU retaliated with tariffs amounting to nearly $3 billion on US imports. China reacted too. As the New Yorker noted, ‘when Trump imposed tariffs on some Chinese goods in 2018, Beijing retaliated with levies on American imports which hurt American farmers and manufacturers’, adding:

‘If a new Trump Administration introduced universal tariffs, many other countries would face enormous domestic pressure to respond with similar measures. In the worst-case scenario, Trump’s policies could lead to an all-out trade war’.

A world-wide trade war in fact, since Japan, India, Brazil and others would join in as well as China and the EU.

A fall in the value of the dollar compared to other currencies would make US exports cheaper and so be welcomed by exporters. But it would also make imports more expensive and so be unpopular with companies that rely on them, whether to sell or to use to produce something else. Because the dollar is the world’s reserve currency, held by states and companies to settle their international transactions not only with the US but also with each other, a fall in its value would have worldwide repercussions.

It would reduce the value of the reserves held by other states and companies. These are mainly held in the form of US Treasury bills and bonds; in other words, is money lent to the US government and which allows the US to run a trade deficit but also to finance its huge military budget. Making the dollar weaker might benefit US exporters but could make borrowing from abroad more difficult. Some US capitalists disagree with Trump’s approach and the matter (in which workers have no interest) will be settled at the ballot box in November.

Trump may act the boor (and be one) but he is essentially a businessman and wants to use the same sort of tactics — involving bluffs and deals — against US capitalism’s economic rivals that competing capitalist companies apply against each other. States do this anyway but generally more diplomatically. A Trump administration would make it clear for everyone to see that economic rivalry between states is about supporting their companies in the competitive struggle for profits.

What Shall We Do About the Falling Pound? (1976)

From the June 1976 issue of the Socialist Standard

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

Finance and Industry: Devaluation of the Pound? (1960)

The Finance and Industry Column from the October 1960 issue of the Socialist Standard

Devaluation of the Pound?

In the early days of capitalism the business men and economists invented the theory that if each capitalist got on with the business of selling goods and making profits production and distribution would flow smoothly and all would be well for everybody, including the workers. Like all such theories it was no more than their attempt to justify their profit-making activities against the critics and it became increasingly difficult to defend in face of the evidence that the flow was never smooth and at intervals was chaotically otherwise.

Then grew up the idea, from the same quarters, that with more study and the accumulation of facts and figures, capitalists and governments could foresee trends and avert unwanted developments. This, too, has proved to be a myth and a case in point is the frequency with which governments find themselves induced to vary the values of their currencies because of international trade difficulties. The point is that these revaluations are never the result of free choice. The pound has been devalued several times and now another devaluation is being discussed. The pound was once worth 4.86 dollars, then it was reduced to 4 dollars, and then, in 1949, despite the repeated denials of the British government, it was suddenly dropped to 2.8. And in the nineteen thirties Roosevelt cut the dollar to about half its gold content.

Now, Mr. C. L. Day, writing in the London and Cambridge Bulletin (supplement to the Times Review of Industry, September, 1960) gloomily forecasts the possibility that the low level of British exports will have to be met either by policies which will increase unemployment or by devaluing the pound.

The City Editor of the Daily Mail (7/9/60) concedes that Mr. Day may be right in his forecast because he "has an excellent record in this respect." but can derive no happiness from the prospect.

It may well be. But surely we can try a little harder and suffer a little more to preserve the value of our currency before we shrug our shoulders and admit defeat by devaluing the pound again—about the best way of making sure that nobody ever wants to hold pounds any more.

And, of course, the assumption that such a move would solve anything by giving a boost to exports depends on what other countries do; if world trade becomes stagnant they may all be doing the same, including the U.S.A. One forecast we can safely make is about the attitude of the government and employers if a devaluation is decided upon sometime: they will be urging the workers not to press for higher wages. In 1949 when the Labour Government took that step they knew that the effect would be to raise the cost of imports and raise the cost of living and Sir Stafford Cripps, Chancellor of the Exchequer, made his famous or infamous declaration that workers must not ask for more pay to meet higher prices.

Speaking in the House of of Commons on September 27, 1949, he said:—

"Especially and specifically there can, in our view, be no justification for any section of workers trying to recoup themselves for any increase in the cost of living due to the altered exchange rate. That is a general burden spread over all and must be accepted as a very real and essential contribution towards the avoidance of vast unemployment."

Fortunately the workers did not take much notice of his appeal: if it happens again they should in their own interest take no notice at all.

The Oil Industry 

Ever since Malthus there have been “experts” telling us that at some time in the future world resources will not be sufficient for the needs of a bigger world population, but none of them have been able to show that world resources have been insufficient in the past or present, or explain why capitalism has all along failed to meet the reasonable needs of the vast mass of the population. It is not nature, or lack of efficiency in production that is responsible, but the structure of the social system, which in industry after industry periodically produces too much for the market and too little for the needs of those who have not the money to buy. At present world markets are glutted with too much coal and too much oil, millions of tons of unsold coal, oil refineries working below capacity and tonnage of idle tankers running into hundreds of thousands.

The City Editor of the Sunday Times (21/8/60), Mr. William Rees-Mogg, tells how the oil situation came about. It is the old story of capitalists absorbed in their own problem of producing to make profit irrespective of what is happening elsewhere, of governments determined to promote their own oil industries no matter what the effect on markets, and planners making forward plans in the dark. Mr. Rees-Mogg lists four specific reasons:

"The first is that the Suez crisis concealed from the industry the fact that it had reached a stage of over-investment. At what should have been the top of the investment cycle another great wave of investment was added on. The second reason, and a most important one, is that the American oil companies looked abroad for oil to supply their home market: then the cuts on imports forced them to try to sell abroad what they had found abroad. During the 1950s it also happened that local nationalist feeling made each country want its own refinery; as a result there are too many refineries. Finally, nature was generous and oil exploration, particularly in North and West Africa, found enormous new fields.”

About the planners he writes;

The result is that there is more oil, more coal and more electricity at lower cost than anyone foresaw. As recently as 1956 the standard view, taken, for instance, in the Hartley Commission Report, was that there would be a general fuel shortage lasting as far ahead as could be foreseen. That has already been proved false.

Russia too!

In the early days Russian economists used to maintain that in that country self-sufficiency was the aim and production was planned for the needs of Russian industry only. Now Russian trade departments are busy scouring the markets of the world for outlets for surplus commodities, from motor cars to oil. A special correspondent of the Times (8/9/60), who holds the view that the trade drive is only partly political in its aims, quotes from a recent Russian novel what he accepts as a picture of what has happened:

"A Russian novel which has just appeared devotes a chapter to the embarrassment of local officials in the Volga oilfields who are faced with an unexpected abundance of oil for which insufficient outlets exist. This presents a new problem for Soviet planners. By long tradition, they are conditioned to urge the industrial chiefs on the spot to increase output to the maximum extent, rewarding them generously with bonuses for “overfulfilling the plan.”

The planners now appear to suffer from overfilled storage tanks, and measures must be taken to check the flow, which has consistently exceeded expectation. For example, the oil plan for 1960, as laid down in 1956, envisaged an output of 134m. tons, but production in 1960 is, in fact, likely to exceed 144m. tons. If these output figures are indeed unexpectedly high, they must have outrun the growth in refining and storage capacity, and it is reasonable to suppose that the foreign trade agencies of the U.S.S.R are under heavy pressure to dispose of extra quantities of Soviet oil abroad, additional to amounts which were originally earmarked for export. "

A sideline on this is provided by Mr. Stephen Parkinson, who recently led a delegation of British business men to Russia on behalf of the Institute of Directors. Writing in the Director (August, I960) he reports that the Russian officials they met “could not resist talking about greater trade possibilities and making one or two acid comments about their failure to sell Soviet oil to Britain’’—the British government has so far turned a cold eye on Russian offers to sell oil here well below the prices of the British and American companies.

Mr. Parkinson also had something to say about the Russian sense of humour which he finds is rather like the British. He tells of Russian officials he met: “Nor were they backward in pointing to what they considered to be the advantages of Socialism over capitalism, but it was all done with good humour and often to lighten the tedium of a long meeting.”

If Russian officials say, and Mr. Parkinson accepts, that Russian State capitalism is Socialism, it is funnier than any of them think.

Edgar Hardcastle

What went wrong? (1983)

From the October 1983 issue of the Socialist Standard

When the Labour Party won the 1945 general election they declared their confidence in their ability to solve the problems of British capitalism, the main plank in their programme being the nationalisation of coal, steel, the railways, the Bank of England and other industries. They promised full employment, stable prices, expanding production and a rising standard of living but soon came into difficulties and adopted the first of the post-war incomes policies. Prices rose sharply, the export of British manufactures lost ground and in 1949 they sought another remedy in devaluing the pound from $4.00 to $2.80. It did not save them and in 1951 the Tories came to power and remained in office until 1964, declared by the Labour Party to be Thirteen Wasted Years.

At the 1963 Labour Party conference, Harold Wilson announced a new cure-all — the technological revolution — spelled out in the Party's 1964 election programme, Let's Go With Labour For The New Britain:

The world wants it and would welcome it. The British people want it, deserve it, and urgently need it.

A new Britain — mobilising the resources of technology under a national plan; harnessing our national wealth in brains, our genius for scientific invention and medical discovery; reversing the decline of thirteen years; affording a new opportunity to equal, and if possible, surpass, the roaring progress of other western powers, while Tory Britain has moved sideways, backwards but seldom forwards.

The country needs fresh and virile leadership. Labour is ready. Poised to bring its plans into instant operation. Impatient to apply the New Thinking that will end the chaos and sterility.

After much consultation with industry and the unions, and collection of information, this heady stuff was embodied in a government publication, the National Plan, running to nearly 500 pages, all of it summarised in a Labour Party pamphlet Target 1970. The trade union leader Prank Cousins was appointed Minister of Technology. According to Target 1970 there was to be a 25 per cent growth in the national income, wages were to rise by 20 per cent, houses would be built at the rate of 500,000 a year, the output of manufactured goods was to go up by about 25 per cent and 800,000 new jobs were to be created. Steel output was to go up from 25,820,000 tons in 1964 to 30,750,000 tons in 1970 (National Plan p. 142).

In 1965, after a year in office, George Brown spoke optimistically at the Party Conference about the National Plan for which he had been responsible:

Even though we are not yet on sound ground, it has been an incredible change in the situation. The prospects now compared with what they were last October, the situation now compared with what it was last October. are almost unbelievably different. (Conference Report, p. 222.)

His excuse for difficulties that had arisen or might arise was that though the Labour government knew the previous Tory government had left a mess behind them, it was much more than they had thought. The Tories had not only left a mess but had concealed from their successors how great it was: “We did not know the full capacity of our predecessors for deception." In 1968, after four years in office, the Labour Party published A Dictionary of Achievement, prefaced with the claim: “Since Labour came to power in 1964, the whole country has been experiencing a quiet revolution. In almost every aspect of government, a ferment of new ideas has been at work". It gave details about aspects of the Plan that had been put into operation but almost nothing about the results.

As it turned out, when 1970 arrived (and the Labour government lost the election) most of the planned targets had not been reached, growth in national production was only 17 per cent against the planned 25 per cent. Wages had indeed gone up but prices had risen not by 35 per cent. The rise in real wages was under 10 per cent. (There was of course nothing in the Plan about putting up prices.) Instead of the 500,000 new houses a year the average number completed in the period 1965-1970 was under 400,000 a year. In 1970 it was 364,000, actually below the number in 1964. The growth in national production under the Plan was less than in preceding years under the Tories and it has continued to grow more slowly under later Labour and Tory governments.

Exports of manufactured goods continued to lose ground in world markets and to remedy it there was another devaluation of the pound from $2.80 to $2.40. (Nothing about this, either, in the Plan). When Labour lost office in June 1970 unemployment was nearly 200,000 higher than when they took power in October 1964.

So why did it all go wrong? Basically it is because the Labour planners do not understand how capitalism operates. They fail to realise that the quantity of goods that a company or industry can go on producing is not determined simply by its productive capacity but by the quantity that can be sold at a profit — that is by market conditions generally. And market conditions cannot be controlled, or even forecast, with any certainty. The quantity that can be sold at a profit not only depends on the completely uncontrolled and unpredictable state of world markets but also the sales of one industry are dependent on what is happening in other industries. It only needs a few industries — steel, motor cars, shipbuilding, textiles — to overproduce for their particular markets and consequently to cut back their investment and output, for other industries to be adversely affected.

In drafting the Plan the Labour government approached companies and organisations asking them to estimate future demand and their capacity to increase production up to the expected level. But how could they know? There are dozens of governmental and private organisations engaged in forecasting. Did any of them in say 1979 forecast that by 1983 there would be over three million unemployed? Or did any of them foresee that in the early 1970s the oil exporting countries would band together to use their monopoly to double and treble oil prices? In anticipation of a growing demand for steel Labour (and Tory) governments doubled the output of the British Steel Corporation, only to find that the world market for steel had slumped and they had to cut production down again.

Because the Labour Government’s National Plan was “national”, it had to be constructed by combining the separate plans of each industry and company and trying to adjust these to the comprehensive whole. This assumes that the companies themselves know what is going to happen. What success did the steel, motor car and shipbuilding industries have at peering into the future? None at all. The fallacies of planning were exposed by Frank S. McFadzean, a managing director of the Royal Dutch Shell group. The group was asked among other things to tell the Labour government in 1964 what would be its future investment in oil tankers, how much it would be and where it would be. It was impossible to answer the question:

Its investment decisions are influenced by the investment decisions of others — British, Norwegian. Swedish, Dutch and Chinese shipowners for example. If these latter decide to charter at low rates Shell may build no tankers at all. (Article on a volume of McFadzean’s lectures. Financial Times 6 April 1969.)

McFadzean was in an exceptionally good poisition to expose the futility of the National Plan because Shell has for years spent millions of pounds on its own attempts to foretell the future of the market for oil and other products of the group. This was his verdict:

Except in the very short period ahead, we are not really very impressed by the detailed results shown by our plans. It will be the sheerest fluke if ever we achieve them. Looking back to 1962 and what we then prognosticated . . .  we were wrong on many counts.

We were wrong on volumes, we were wrong on prices, we were particularly wide of the mark on our estimates of the demand for and price of naptha, we were wrong on our cost projections, we were wrong on the level of investment which we would need to make. We did not fully foresee the increase in the size of tankers, we did not foresee the extent of Libya’s crude oil production; we did not foresee the dominant role that natural gas would play in Holland. . . we did not foresee the closure of the Suez Canal.

If Shell with all their experience could not plan ahead with confidence for one industry what hope was there or is there that a government could do it for a combination of all the industries?

Capitalism is inherently unstable and its periodic descent into depressions is inevitable, as shown by the experience of a couple of centuries. From 1945 to the mid-1970s the Labour and Tory leaders all believed that they had found a way to maintain boom conditions and full employment indefinitely by the use of the fallacious doctrines of J. M. Keynes. With the leadership of Thatcher most of the Tories have now abandoned Keynes and adopted the equally spurious doctrine of monetarism and the “free market”, which are just as incapable as the Keynesian doctrines of maintaining boom conditions and full employment.

Capitalism goes its own way, in accordance with its structure and its own economic laws, with its inevitable cycle of expansion and contraction. Capitalists expand investment and production when it is profitable to do so. and contract both when it is not profitable. Neither National Plans nor free market forces alter the essential conditions under which capitalism operates.

Edgar Hardcastle

50 Years Ago: Floating to nowhere – the currency chaos (2023)

The 50 Years Ago column from the August 2023 issue of the Socialist Standard

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.

(From the article 'Floating To Nowhere — the currency chaos' by Edgar Hardcastle, Socialist Standard, August 1973)

Letter: Do High Prices Prevent Unemployment? (1957)

Letter to the Editors from the August 1957 issue of the Socialist Standard

We have received the following letter. Our reply follows:

Editorial Committee.

Welwyn Garden City, Herts.

The propaganda of the Labour Party is to the effect of trying to bring down the Tory Government because of rising prices and the Tories' election promises. The Labour Party say that if returned to power, then their policy would reduce the cost of living and the workers would be better off.

Article “Mystery of Rising Prices" says “a fall in prices might mean a really big rise in unemployment, which would lose them votes"; can this be explained more fully, please.

Yours faithfully,

Thos. W. Creswick.

Reply

As we have seen Labour Governments at work, it is not necessary to wonder what they would be likely to do about prices for in 1945 they promised to keep prices down, but during their six years of office retail prices rose by over 30 per cent.

It is erroneous to assume that the workers would gain from a fall and lose by a rise of prices: it depends on whether conditions are relatively favourable for resisting wage decreases or pressing for wage increases (i.e., whether there is little unemployment), and whether the workers take full advantage of those conditions. Sometimes wages have risen more than prices (as during the past few years); sometimes wages have risen less than prices (as between 1947 and 1951); sometimes when prices have fallen wages have fallen less than the fall of prices, and sometimes they have fallen more than the fall of prices.

Our correspondent is wrong in thinking that the article from which he quotes asserted that “a fall in prices might mean a really big rise in unemployment” The article said that that thought is in the minds of Labour and Tory governments: it is what they think, not what we think.

Their belief about low prices and high prices making for high and low unemployment probably owes its existence as much as anything to confused memories of prices and unemployment between the wars, when falling prices and heavy unemployment existed together. The idea grew in their minds that falling prices are the cause of unemployment and, therefore, high prices must be a way to keep unemployment at a low level. So during all the succeeding years when governments have argued the need to keep prices down, they have had the uneasy feeling that if they really did this (or worse still if they reduced prices) they might be increasing unemployment or even starting a trade depression.

Current opinion on the question of a steady price level can be seen from an article by Mr. Alan Day in the Observer (23/6/57) dealing with prices and unemployment in U.S.A. He wrote: “It seems justifiable to think that price stability in a free enterprise economy can be combined only with levels of unemployment which are politically unacceptable.” In other words, you can have very low unemployment and rising prices or a steady price level but with heavier unemployment, and that will lose the government votes. Lord Brand had the same idea in mind when be challenged Mr. Harold Wilson, M.P., to say whether he would still be in favour of measures to stop inflation “if it involved an appreciably higher level of unemployment here for the time being than that which has ruled since 1946—say three per cent. instead of, as now, between one per cent, and one and a-half per cent . . (Letter to Times, 5/7/57.)

The above statements are concerned with the supposed effects of keeping prices level. Much more alarming views are held as to what would be the effect of actually reducing prices. As a Daily Mail editorial (12/7/57) said: “Better to have inflation and everyone at work than deflation and 3,000,000 unemployed.”

Muddled Thinking

It is, however, an example of muddled thinking. It treats two quite different causes of general rise and fall of prices as if they were the same. The first is the result of manipulating the currency When the pound sterling was freely convertible into gold and was by law fixed at a certain weight of gold, the Government, by altering the law, could have reduced the amount of gold in the pound (the sovereign) and thus could have increased prices; or could have increased the amount of gold in the coin and thus could have lowered prices With a currency that is not convertible a government could increase or decrease the number of notes in circulation and similarly raise or lower the price level.

After the first world war many governments inflated their currency and thus raised prices (sometimes to an enormous extent), and later on withdrew or cancelled the note issue and replaced it by a smaller issue of a new currency, and thus lowered prices again. Russia carried out the latter operation in 1947 and Germany in 1948. The German Government withdrew and largely cancelled a Reichsmark issue estimated to have been as much as 100,000 million and replaced it with D marks to the amount of under 11,000 million; with consequent reduction of high black market prices to normal market prices at lower levels.

Continuously for nearly 20 years the British Government has followed the opposite policy, of excessively increasing the note issue. The other kind of general rise or fall in the price level that concerns us here is that which operates in booms and slumps. At the start of a boom keen competition among the capitalists to secure materials needed for expanding production sends up prices, while during a slump the holders of commodities are glad to turn them into money at heavily reduced prices. But booms and slumps do not occur because of currency changes, and there is no evidence that price movements through currency changes have any material influence on the course of booms and slumps, though they may have a temporary stimulating or depressing effect while adjustment takes place.

When capitalism is set on an expanding course currency changes may interrupt it, but will not hold it back; and when, through serious disproportion of production and dislocation of markets, capitalist production is contracting, currency changes will not reverse the tide.

After the first world war the British pound had fallen in relation to the dollar from 4.86 dollars to about 3¼  dollars. By stages to April 1925, it was brought back to its original level in relation to gold and the dollar. Although it was the Labour Party’s official view that “a precipitate return” to the gold standard “may aggravate the existing grave condition of unemployment and trade depression” (Labour Year Book, 1926, p. 160), this did not happen. The amount of unemployment which in the three years before 1925 had averaged 12.1 per cent. was actually a little lower (11 per cent) in the three years after 1925. And when the world-wide slump came in 1930 all countries were involved, irrespective of the changes they had made in their note issues and the price levels they happened to have.

Experience since 1945 likewise fails to support the popular belief that inflation and rising prices are responsible for low unemployment. Britain, with a big rise of retail prices (about 50 per cent. since 1948), has had continuously low unemployment, but Italy, with a price rise of about 30 per cent., has had continuous heavy unemployment, at a percentage at least five times as high as in Britain. In Germany, where prices have risen much less since 1948 (about 15 per cent.), unemployment, which was at first very heavy, has been declining, at first slowly, but later on quite rapidly.

The evidence points to the conclusion that there is no truth in the belief that rising prices (through continual gentle doses of inflation) have been responsible for the low unemployment in this country since the war, and that there is no truth in the hope of those who hold this belief that continuing the same policy will prevent further crises and depressions.

In conclusion, it need only be added that deflation and a falling price level would not benefit the workers unless and to the extent that conditions enabled them to resist wage reductions and that they made use of whatever opportunity offered.

Edgar Hardcastle

Notes by the Way: Fallen Idol Department (1957)

The Notes by the Way Column from the January 1957 issue of the Socialist Standard 

Fallen Idol Department

Every crisis stimulates a brisk trade in fallen idols and models of new supermen. The cynical commentators, shedding a few crocodile tears as they hurry away the clay feet and big heads to the junk yard or the House of Lords, get on with the fascinating task of telling the public who will clean up the mess and lead them on and on and up and up to new crises. It is only a short while since the Tories were congratulating themselves on having got rid of the old war-horse, Churchill, and replacing him with the glamorous, virile, vote winning Eden. Now, if the Press reports are to be believed, they only don’t get rid of Eden because they can’t find anyone who even looks a likely candidate for supermanship. One commentator, Mr. Alistair Forbes, of the Sunday Dispatch (who was early in the demand to shelve Churchill and put in Eden) now does not know which way to turn. In his Column on December 9, he says that Eden only remains leader because, though considered “the worst Prime Minister we could now have”—except Gaitskell—the Tories can’t find a successor.

 “Sir Anthony no doubt hopes that the usual Tory difficulties about finding someone who can be all things to all Tories, if not all men, will keep him in office. Certainly many Tories must feel that if only Mr. Jo Grimond was a Conservative and not a Liberal, their troubles would be over.”

And before Labourites break out into derisive laughter about these troubles of the Tories they might recall that it is only a few years ago that many of them were wishing Eden would join the Labour Party.

Is it Inflation?

The answer, according to the “experts,” is yes, or no, or maybe. The Daily Telegraph had an editorial with the title “ Not Inflation.” (8/12/56).

Next day the City Editor of the Sunday Dispatch, writing under the heading, “Inflation Prospect Brings in Buyers,” explained why Stock Exchange prices had risen smartly:—

  "No doubt it was the realisation that we are at the beginning of another period of inflation which persuaded some of the big institutional buyers to come into the market” 

On the same day (December 9), another City Editor (Empire News) plumped for inflation, but the City Editor of the Sunday Times was cautiously non-committal. Under the heading "Inflation or Deflation” he posed the question “Are we in for a period of renewed inflation or deflation?” He quoted the opinion of the Chancellor of the Exchequer that “inflation was still the greatest danger,” but asked “ Is he right?”

His one really definite commitment was that the recent rumours of a further devaluation of the pound were "nonsense.” We shall see; remembering that while no Government absolutely has to devalue its currency—it is merely a choice of methods for dealing with a problem —the temptation to do so may prove irresistible as it did for the Labour Government in 1949. Faced with trade union pressure for higher wages on the one side and increased foreign trade competition on the other, the present Government, like Attlee’s in 1949, may decide for devaluation. It would solve nothing permanently, but it would give a fillip to exports and at the same time cause the cost of living to rise gradually and let wages rise with it.

In the meantime the Government goes on increasing the currency with another £50 million issue early in December. The Financial Times (7/12/56) expected that a further £50 million would be authorised before Xmas, which would constitute a highest ever, at £2,000 million, some four times the pre-war level.

Nehru’s Cyprus and Hungary

Nehru won’t discuss independence with the Naga tribesmen of Assam for the same reason that the British Government won’t discuss with Makarios the independence of Cyprus—they are two areas of great strategic importance and in both areas the resistance has proved more obstinate than was expected. From Delhi the Times reports:—

 "Mr. B. N. Datar, of the Home Ministry, replying to questions in Parliament, claimed that the movement for full independence in the Naga Hills district was 'fizzing out,' but he said that road convoys and outposts were still being sniped at, patrols ambushed, headmen and other loyal villagers kidnapped, and food and money extorted.. . . Some 686 malcontents had been killed since the beginning of operations and a further 146 were presumed killed.”—(Times, December 8, 1956.)

Nehru’s admirers have been embarrassed by his reluctance to condemn the Russian invasion of Hungary and his refusal to support a United Nation’s proposal for internationally supervised elections in that country. He has good reason for this attitude since the Russian excuse that they were asked to intervene by the Hungarian puppet government, is identical with the way Indian troops occupied large areas of Kashmir as a preliminary to the declaration that Kashmir is now part of India. As the Economist reports "to agitate in favour of Pakistan is to be guilty of sedition. A number of the leaders' of the opposition Plebiscite Front are under arrest. Above all, Sheikh Abdulla himself remains! in jail, where he has been for three years without trial.” (Economist, November 24,1956).

Now the Pakistani Foreign Minister accuses Nehru of wanting "to establish a brown imperialism.” (Daily Telegraph, December 8, 1956). Of course Pakistan wants Kashmir itself and thinks a Plebiscite would lead to that result. Nehru, having pledged himself to a Plebiscite, now repudiates it

Nehru has denied the charge that his preaching of principles that he won’t practice can be described as a “Holier than Thou ” attitude. One wonders why.

And what about Tito?

Some of the muddle-heads who, tired of Stalin worship, transferred their affections to that “good Democrat and Socialist Tito.” Now a Belgrade lawyer has been sentenced to three years’ hard labour “on a charge of spreading hostile propaganda by criticising the Yugoslav regime. The prosecutor in the district court . . . said that Djordjevic had declared, while in a barber’s shop in February, 1955, that there was no freedom in Yugoslavia now, but there had been before the war.” (Manchester Guardian, December 8, 1956).

That’ll teach him that there is freedom under Tito! 

The Black Inquisition and the Red

Cardinal Mindszenfy, Catholic Cardinal in Hungary, who was kept in jail for seven years, described to the Daily Mail (December 8) how he was tortured to make him confess to his "Communist” jailers. .

"For 29 full days it lasted—29 days and nights without sleep. The naked bulb in his cell was kept burning. When he collapsed from exhaustion he was promptly revived so that he would be deprived of even the rest of lost consciousness.”

A few days earlier two Americans, who had been in Spain checking up on the brutality of the Government of that Catholic gentleman Franco, reported in the People (2/12/56)), about a worker they called Eugenio.

“When he was taken to the Direccion General de Seguridad—Spain’s equivalent to Gestapo H.Q.—no specific charge was laid against him. Eugenio described this underground hell. Many of the cells measure only three feet by three feet. It is impossible to lie down. Eugenio spent weeks in one of them curled up like a dog.”

Are you Hungarian and under 18 ?

Last August when the Hungarian Government was making its first experiments with letting M.P.’s voice public criticisms of the way things were run, a woman deputy drew attention to the practice in textile factories of making young people under 18 work at night. The responsible Minister did not deny the charge that the law was being broken but said that workers under 18 could only be gradually exempted from night work. He made the point that a number of workers, including expectant mothers, had already been exempted and it would appear that he was defending the employment of some young workers at night on the ground of the difficulty of replacing them if the law were enforced fully and at once.

If there happen to be any Hungarian refugees under age 18 who find employment on British railways they may find that in one respect things are just the same as at home.

The following is from the Manchester Guardian (December 8, 1956):

“The British Transport Commission was fined a total of £92 on 23 summonses, and ordered to pay 10 guineas costs at Bristol yesterday for employing fifteen junior railway firemen, aged under 18, on night work. It was convicted of five similar offences in March, when it was fined £10.

“Mr. P. C. Wreay, prosecuting, said that the evidence showed “a deliberate and continuous flouting” of the law. It was admitted that there were considerable staffing difficulties.

“Mr. M. Corkery, for the Commission, said that it was deeply concerned about the matter. .In spite of difficulties, it was doing everything possible to avoid using young men on night work.”

Edgar Hardcastle

Finance and Industry: Russian Gold Policy (1960)

The Finance and Industry Column from the April 1960 issue of the Socialist Standard

Russian Gold Policy.

From time to time writers in financial journals speculate about the amount of gold produced in Russian mines and stored away in their equivalent of the American Fort Knox. They also wonder why the Russian Government sometimes appears as seller of gold in world bullion markets but for the most part seems reluctant to let it go. One suggestion has been that Russian costs of producing gold are very high and that they are holding it back in the hope (shared also by South African gold producers) that some day the American Government will raise its buying price for gold from the present 35 Dollars an ounce to perhaps 50 Dollars.

Mr. Paul Einzig in a letter to The Times (7/7/59) asked for more evidence about Russian high costs of production of gold, and pointed out that in any event gold used by the Russian Government to buy goods abroad is being used more profitably than when it is hidden away in Russian bank vaults. His conclusion was that the Russian Government “is determined to hoard a large gold stock for the sake of the economic and political power the possession of such a reserve entails.”

It is certainly true that if the Russian authorities have hopes of building up the Rouble to be a world currency, as universally acceptable as the Dollar, they will need gold on a scale comparable to the reserves in U.S.A. Gold is still the indispensable basis of Capitalist international trade, universally acceptable and of great importance in war to obtain materials from abroad.

As to the amount of gold produced in Russia, it is generally accepted that Russia is second only to South Africa. As long ago as 1937 an official Russian government publication (U.S.S.R. in Construction) claimed that output had increased four and a half times in the previous six years. It was, they said, needed “ to build up Socialism.”

In 1934 Stalin told the Communist Party Congress:

We shall use money for a long time to come, right up to the time when the first stage of Communism, i.e., the Socialist stage of development, has been completed.

Much earlier still, Stalin’s predecessor, Lenin, had improved on Sir Thomas More’s 16th Century notion of using gold to pave the streets, by saying that when they conquered power on a world scale they would use gold “for making public lavatories in the streets of the great cities of the world.” Such statements must seem very remote today to Russia’s army of gold miners.

And Russian Diamonds.

Russia also has a prosperous and expanding diamond industry. Not so long ago the great South African diamond group, De Beers Diamond Corporation, was reported to be worried over the prospect “That the mounting Soviet production would be sold abroad cheaper than the De Beers gems and industrial stones.” (Daily Mail, 19/1/60.)

As the Soviet News Agency Tass had reported that Russian diamond production was being enormously increased this threat was not one to be treated lightly, but in January came the news that Russia had linked up with De Beers and in future “All Russia’s diamonds sold to the West will be marketed through the London offices of the Diamond Corporation.” (Daily Mail, 19/1/60.) This was indeed good news for South African and other diamond interests.

De Beer’s already controlled nine-tenths of world sales of diamonds and the link up with Russia had the effect of sending up De Beer’s shares on the Stock Exchange.

Diamonds were firm with De Beers sparkling on the news that it has signed a marketing agreement with Russia. (Evening Standard, 19/1/60.)

Making the Pound Honest.

While the Russian Government may be preparing to make the Rouble into a world currency one problem of British capitalism is to prevent the paper pound from slipping any further than it has already. In 1925 it was equivalent to 4.86 dollars. Since then it has declined first to 4 and then to 2.8 dollars, and the Dollar itself has had its gold content reduced to about half.

Probably nobody expects the pound to recover lost ground, but certainly the Government and the Opposition are now united in holding that it should not be allowed to drop further: which is quite a change from the Labour Party’s attitude in the nineteen thirties. Then they welcomed it as a supposed release from the tyranny of the bankers.

The last time there was a risk of further devaluation, in 1957, Mr. Richard Crossman, Labour M.P., wrote:

Mr. Gaitskell and his Shadow Chancellor, Mr. Harold Wilson, are just as determined as Mr. Thomeycroft to save the pound. (Daily Mirror, 24/9/57.)

It would be a pity to forget that the British Communist Party was also worried about British capitalism’s pound. In a Daily Worker article, “The only way to Make an Honest Pound,” J. R. Campbell urged expanded production and wrote of this country:

It is being left behind in the race to increase productive capacity—a fact that is more likely to undermine the pound than any other thing. (Daily Worker, 16/10/57.)

Traps for the Small Investor.

The passage of time brings strange reversals of attitude in political parties concerned with running capitalism. At one time, when the Labour Party was planning wholesale nationalisation, it would not have occurred to a Labour newspaper to advise its readers to buy ordinary shares in companies. They might have been advised to put their savings into a Savings Bank, or to buy some Government security. But since then many small investors who had the misfortune to put their savings into 2½ per cent. Treasury Stock when Dalton was Labour Chancellor of the Exchequer have seen the price fall from £100 to £45; and the Government has again declined to do anything about it.

So now the belief is spreading that small investors would do better to buy company shares, either directly or through Unit Trusts, and Reynolds News (6/3/60) suggests that co-operative societies and trade unions should form their own unit trusts for investment in ordinary shares.

The writer in Reynolds News (“Scorpio”) thinks this would enable workers to share in the rising profits of industry. If he thinks that profits only rise and never fall he had better think again, but even if it were true, how will this remedy the problem he sets out to solve, that in this country “one-third of the population has no measurable property; one person in every 100 owns nearly as much as the other 99 ”?

Another echo of far off days comes in an article by W. J. Brown, who years ago was a Labour M.P. always in a hurry to get the Party’s programme put into operation. Then the Labour Party believed in “soaking the rich ” and supported a steeply rising tax on incomes. Now Mr. Brown, who long ago left the Labour Party, is campaigning for the abolition of Surtax, or, failing abolition, at least the raising of the level of which it is payable, from £2,000 a year to £8,000.

Edgar Hardcastle

Finance and Industry: The New Pound Note (1960)

The Finance and Industry Column from the May 1960 issue of the Socialist Standard

The New Pound Note

Several newspapers have commented on the continuation in the new pound note of the meaningless words “Bank of England Promise to pay the Bearer on Demand the sum of one pound,’’ and have wondered why it has not been dropped. Not that it was always meaningless. When gold coins circulated as currency, before 1914, the promise meant, by law, that the holder of a £5 Bank of England note (there were no £1 notes) could demand gold coin for it over the bank counter. And that meant that the purchasing power of the note was always the same as that of the legally defined weight of gold contained in the coins. If the law had remained unchanged and if the promise still had meaning the holder of a pound note could demand from the Bank a sovereign, or gold pound, the present price of which in the gold market is over 60s.

The fall in the value of the note corresponds to the combined effect of the pound having been reduced from 4.86 American dollars to 2.8 dollars, and the gold content of the dollar having been reduced by nearly half in 1934; so that the pound note represents only about a third of the gold it represented in 1914. This has been brought about by the inflation of the currency. Yet all that the Radcliffe Committee on the Monetary System had to say in its report last year was:

  The authorities have explained to us in evidence that they do not regard the supply of bank notes as being the only, nor nowadays the only important, supply of money . . . bank notes are in effect the small change of the monetary system. (Para. 348.)

“Small change” is an odd term to apply to an increase in the note issue by about £1,670 million, from the £530 million of 1938 to the present £2,200 million.

And when the Committee added that “the government’s function in issuing notes is simply the passive one of ensuring that sufficient notes are available for the practical convenience of the public,” they might have recalled that historically every government that has helped to pay its way by the printing press has made the same plea and disowned responsibility for the effect in raising prices.

Cinema Tax

When the Chancellor of the Exchequer announced the abolition of the cinema tax the Cinematograph Exhibitor’s Association said there was no chance of a reduction in seat prices “because it had always been part of the industry’s case in pressing for abolition that it needed the money.” (The Guardian, 5/4/60.)

Apparently the tobacco firms also “need the money” because they are putting up prices by the amount of the extra 2d. duty on 20 cigarettes.

Angry newspaper readers have written many letters of protest at the “unfairness” of it all.

In fact, the eventual outcome will not depend on what the interests think they need, but on what they can get away with; the economists call it “what the market will bear.” If competition is keen enough they will all have second thoughts.

The taxation experts who advise the Chancellor of the Exchequer look at it differently. If an industry is doing very well there is room for the government to skim off some of their excess profit. That was the situation in 1916 when entertainment duty was first levied. Now that the industry has fallen on hard times, taxation revenue declines and the point could be reached that it would be hardly worth the expense of collection.

More about Russian Gold

The Guardian (8/4/60) published an informative article by Mr. Victor Zorza reviewing developments in the Russian gold-mining industry since the changeover from dependence on the compulsory labour of political and other prisoners to the growing introduction of workers attracted by prospects of higher wages and a share in their finds. Some former prisoners have been freed though still confined to the gold mine areas. He quotes estimates by non-Russian “experts” ranging from an output almost equal to South Africa’s to a figure about half that amount and expresses the opinion that output must have fallen greatly with the decline of prison labour, though the introduction of up-to-date industrial techniques of mining may be expected to raise it again. His own view is that Russia may not possess the big gold reserves sometimes assumed to exist, and that the big sales of Russian gold in world markets in recent years may be not far below total output.

Fifty years ago under the Czar’s government gold prospectors instead of selling the gold to the government at the fixed price often smuggled it into Japan where they got the much higher world price. Things have not changed. Prospectors are still supposed to sell to the government, but Zorza reproduces from the Russian press accounts of gold mine prospectors of today smuggling the gold out of Siberia to Moscow and making a handsome gain. One miner awaiting trial is alleged to have got away with half a ton, worth over £200,000 in the world market. And just to remind us of the similarities of Capitalism east and west of the Iron Curtain the same issue of The Guardian publishes news of one of the series of cases from Pakistan of people (including airline stewards) charged with smuggling gold across the frontier.

By-Product of Automation

Automation, because it involves huge expenditure on expensive plant, gives the employers an additional motive for going over to shift working, so that the plant is not lying idle for a large part of the 24 hours. The T.U.C. report Automation and the Trade Unions noted this: — 

  “In order to obtain the greatest possible use of expensive plant and equipment, it is not unlikely that the growth of automation will be accompanied by efforts to extend shift working.”

For many years trade unions tried to resist shift and night work and nobody can pretend that from the workers' standpoint it is not a worsening of conditions. The March issue of the T.U.C. monthly, Labour, summarises a report on the problems that arise when shift work is introduced:

  Domestic life of the family is suddenly upset; feeding and sleeping arrangements are disturbed and leisure time curtailed. The strain on a wife in such circumstances is “considerable,” says the report, particularly if a shift rota system involves a succession of changes.

Along with the difficulty of the workers trying to sleep in the daytime in a noisy home, there is the problem of getting meals at awkward hours and the problem of finding transport to and from work.

One of the attractions of automation noted by the government booklet Automation in Perspective is that ”automation lowers cost and can help to keep British goods competitive in price with those of other countries’’—and the other countries will of course be doing the same in order to keep competitive with British prices. As far as the extension of shift working is concerned it introduces a new concept of capitalist society, living worse to keep down with the foreign Joneses.

Edgar Hardcastle