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From International Socialist Review, Vol.29 No.2, March-April 1968, pp.35-49.
Transcribed & Marked up by Einde O’Callaghan for ETOL.
On May 23, 1944, John Maynard Keynes rose in the British House of Lords to defend the sweeping changes in international monetary policies just concluded by the allied capitalist powers in Bretton Woods, New Hampshire.
“Was it not I,” Keynes asked, “when many of today’s iconoclasts were still worshippers of the Calf, who wrote that ‘Gold is a barbarous relic’? Am I so faithless, so forgetful, so senile that, at the very moment of the triumph of these ideas, when with gathering momentum, Governments, Parliaments, banks, the Press, the public, and even economists have accepted the new doctrines, I go off to help forge new chains to hold us fast in the old dungeon? I trust, my Lords, that you will not believe it.”
Keynes had advocated the adoption of an international currency to take the place of gold in world trade. Although no such currency had been adopted at Bretton Woods, Keynes believed steps had been taken which released international capitalism from the gold standard for all practical purposes. There was no longer a fixed external gold exchange rate to which internal rates were tied. A nation’s domestic manipulation of interest rates would not necessarily affect the rate of exchange of its currency in the international market. This would free governments to follow Keynes’ advice to prevent depressions through deficit spending: The inflations which this might incur would not be internationalized.
The dollar had taken the place of gold. The United States was obliged to exchange gold for dollars. Dollars were “as good as gold” in international trade. Washington – with its huge gold reserves – had agreed to undertake the role of stabilizing international finance.
Keynes was under no illusion that the United States agreed to these policies solely out of altruism. The dollar would gain a privileged position among currencies; and this would enable a rapid expansion of US investment and trade.
“Here,” he argued, “we have a voluntary undertaking, genuinely offered in the spirit of a good neighbor and, I should add, of enlightened self-interest, not to allow a repetition of a chain of events which between the wars did more than any other single factor to destroy the world’s economic balance and to prepare a seed-bed for foul growths.”
Britain must concur with the new policies because
“In thus waging the war without counting the ultimate cost we – and we alone of the United Nations – have burdened ourselves with a weight of deferred indebtedness to other countries beneath which we shall stagger.”
What has happened in the decades since, and where is international capitalism heading today?
Almost a quarter of a century later, the central tenets of most bourgeois economists differ little from those Keynes expressed at the founding of the International Monetary Fund in 1944. A recent statement of these views appeared in an article entitled Three Reasons for Prosperity by Edwin L. Dale Jr. in the Nov. 7, 1967, New York Times Sunday magazine. Dale had just returned from the world monetary conference in Rio de Janeiro where steps were taken towards establishing an international currency of the type Keynes desired – SDRs, extending “Special Drawing Rights” to member nations on International Monetary Fund reserves.
The three reasons for a quarter of a century of capitalist prosperity, according to Dale, are the adoption of Keynesian policies to stimulate domestic growth, the expansion of world trade and the development of stable international finance: “Keynes showed that deficits – hitherto regarded as, by definition, inflationary and harmful – would not be inflationary if there were idle men, idle machines and idle savings in the economy, as there are in depression or even recession.” Governments would supply the missing purchasing power in periods of economic downturn. “And, of course, the result has been, quite simply, the ‘affluent society.’”
”The second direction of thrust of the men of vision of the early nineteen-forties was world trade.” Recognizing the importance of expanded world trade, the major powers negotiated a series of agreements to reduce tariff barriers beginning in Geneva in 1947 and 1948. This was GATT (General Agreements on Tariffs and Trade) which concluded its sixth major round of negotions in May, 1967, the “Kennedy Round.”
The result of GATT
“was an almost unbelievable expansion of world-trade. Now running at the rate of $200 billion a year, world exports have doubled in just the past eight years. This burgeoning of world trade has been an indispensable element in the prosperity of many nations and a major benefit to the prosperity of all of them.”
Thirdly, the modern era of prosperity rests on the reforms concluded at Bretton Woods.
“Stable exchange rates have been a major factor in the growth of trade, tourism and international investment The industrial nations have dismantled most of their exchange controls and, when their balance of payments has run into deficit, they have often turned to the Monetary Fund for help to bolster their reserves.”
Writers on economics like Dale recognize that three crucial interlocking elements of capitalist prosperity are domestic growth, international trade and international finance. Domestic growth provides a demand for goods which can be purchased at home and abroad. Open and expanded channels of trade stimulate domestic economies by providing foreign markets. And a stable system of international finance facilitates this process. If all is going well, an expanded world trade means that downturns in one nation can be softened by providing that nation with foreign markets.
“Thus,” remarks the 1967 GATT report on 1966 world trade, “the slight recession that occurred in the United States in 1960-61 did not substantially affect the level of economic activity in the European countries and Japan. Similarly, despite the vigorous American expansion in 1965 and 1966, there was an appreciable deceleration of economic growth in Europe in these two years while Japan experienced a recession in 1965 ... Peaks and troughs of economic activity have not coincided in the various industrial countries or areas.” [Emphasis added.]
The last sentence is key. Bourgeois economists do not deny the necessity of expansion for the various national economies nor even that expansion leads to overproduction (necessitating “inventory liquidation,” “layoffs,” “production cutback,” etc.) What they believe they have now achieved (at last!) is a “harmonized” world system in which such “recessions” cannot occur simultaneously. This being the case, many of the “New Economists” argue that the gold standard is an old fashioned fetish; protectionist measures are hangovers from the past.
“Accompanying and contributing to the Depression,” Dale writes, “was a state of chaos in the economic relations among nations. Country after country raised tariffs and obstacles against imports in the false belief that this would save jobs at home. Currencies were devalued in competitive fashion to win more exports, with the result of no gain for anyone. Nations imposed all sorts of controls over the use by their citizens of their money to purchase foreign currencies; exchange controls reinforced trade barriers choking off world trade.”
Three weeks after these words were printed, Britain devalued the pound. This provoked an unprecedented speculation hi gold which was followed in less than two months by Johnson’s restrictions on US investment, his appeal to cut down tourism, and his recommendation to remove the gold cover on the dollar. At the same time, West Germany erected “border taxes” against imports with special tax privileges for German exporters and Johnson declared he would ask Congress for similar measures to protect US trade. Jan. 8, the same Dale wrote an article for the New York Times in a somewhat different vein entitled Fight for the Dollar Is On, And the End Is Not in Sight.
What these fashionable bourgeois economic theories tend to obscure is that the mainspring of world capitalist development is precisely the “enlightened self-interest” of national capitalisms. Although this self-interest sometimes harmonizes with international development, the totality of its fundamental direction contradicts it. Only for a limited time can world capitalism as a whole expand in a fashion primarily consistent with the special interests of all capitalist nations. That has been the underlying dynamic of the postwar period.
But this expansion must reach a point where the latent contradictions emerge; and at that time world economics becomes dominated not so much by the temporary convergence of capitalist interests as by their antagonisms. Such a turn has been taking place in the last few years. Britain’s devaluation, the attack on the dollar and a marked slowdown in the growth of world trade are among its first signs. It foreshadows the eventuality dreaded by the GATT authors cited above: the occurrence of mutually reinforcing recessions concurrently among capitalist powers.
To the description of postwar capitalist reforms given by Dale, Marxists would add that there were concrete reasons for these reforms and that the subsequent evolution of world capitalism cannot be divorced from these reasons. In a brief analysis of this evolution, these three main factors would have to be taken into consideration: the overwhelming economic and military superiority of the United States, allowing its imperialist interests and aspirations to undergo an unprecedented expansion of investment and control; the correspondingly subordinate position of European and Japanese capitalisms bankrupted and devastated by the war; and the frightening specter world capitalism shared of potential revolutions unlocked by depression and world war now to be confronted by a combination of economic reforms and military repression. It is in the third category that the creation of the International Monetary Fund, GATT, the Marshall Plan and new policies of gradual inflation belong; but so do NATO, CENTO, and SEATO – the military occupation of an unstable Europe and the colonial peripheries of world imperialism.
The economic superiority of the United States following the second world war needs little recapitulation. In 1945, US gold reserves were over $20 billion and amounted to more than two-thirds of world reserves. The total gold and dollar deficit of European countries owed to the United States was over $8 billion in 1947, the year before Marshall Plan aid began. In the same year, European exports to North America were 14 per cent of their imports from North America. Under the Marshall Plan, Washington extended some $13 billion in direct state to state aid (1948-52) and to 1953, US gross national product was still more than twice as high as the combined GNPs of France, Germany, Italy, Belgium, Luxembourg, the Netherlands, Britain and Japan.
The American colossus towered over the war-wracked capitalisms of continental Europe, Japan and Britain. These nations were heavily indebted for the costs of the war to Washington. Except for Britain, much of their basic industry had been destroyed; again except for Britain, their working classes had been uprooted and dislocated. In all of the European countries workers were disorganized and misled by the Stalinist and Social Democratic bureaucracies which coupled their wartime policies of support to imperialism and suppression of revolution with postwar policies of reviving capitalism and, in some cases, taking political leadership of the capitalist states. Average hourly wages for these countries in 1950 compared to the United States stood at: United Kingdom, 26 per cent; Germany, 22 per cent; France, 21 per cent; Italy, 20 per cent; and Japan, 7 per cent.
The European arena was consequently most favorable for capitalist expansion: Immense destruction of capital values drastically lowered the organic composition of capital and increased the rate of potential profit. The dislocation of the labor market, high postwar unemployment and the population flux, primarily from East to West Germany, exerted a strong downward pressure on wages, again increasing the potential rate of profit. A European expansion, primed by US direct aid and investment, could be founded on the destruction caused by world war. And such an expansion coincided with the interests of world capitalism as a whole.
It is necessary to remember that the economic might of the United States in the immediate and later postwar period was not without its contradictory aspects. In comparison with Europe, there was far less change in the structure of capital. A capital spending boom was possible because industries had been run down by the war and the previous depression and the war itself had produced great technological advances, but this was not the same as building on ashes.
Consequently, the American economy swelled rapidly and already to 1949 it entered a recession caused by the classical contradictions of capital accumulation: near to full employment; rising labor costs; shrinking profit rates and overproduction.
Washington’s rulers recognized that the expansion of world trade was a necessity to prevent domestic recession. The creation of the International Monetary Fund, GATT, the Marshall Plan, cut both ways. It stabilized Europe but did so to provide needed outlets for US goods and investment. The European boom cannot be separated from the flooding of European markets with US capital goods and the great expansion of US investment and control.
The long postwar prosperity was founded on initially harmonized but fundamentally conflicting international interests. A statistical review of the main components of this prosperity – the expansion of domestic and world trade – elucidates these aspects. And it reveals that the strengths and weaknesses of the objective situations for various capitalist countries at the outset of the expansion were steadily altered as the expansion developed.
The period of 1953 to 1966 saw high domestic growth rates for all the capitalist powers, but for those European powers and Japan building on the destruction of war, they were higher and less interrupted by periodic overproduction cycles. In terms of real GNP, that is, gross national product at constant prices, the capitalist powers marked these average growth rates per year: United States (with decreases in 1954, 1957 and 1958 and no advance in 1956 and 1961), 2 per cent; United Kingdom (with no advance in 1956), 2.5 per cent; Italy, 4.5 per cent; France, 5 per cent; the Benelux nations (Belgium, Luxembourg, the Netherlands), 5.5 per cent; Germany, 6 per cent; and Japan, 9 per cent. [1]
The growth of world exports is even more revealing in showing the disparity between the United States and Britain on one hand and continental Europe and Japan on the other. Total world exports at current prices marked an average annual growth of 7 per cent between 1953 and 1966, reaching $181.4 billion in the latter year. Compared to total world-trade growth, the rates of the major powers were: United States (with decreases in 1954,1958 and 1959), 5 per cent; United Kingdom (with a decrease in 1958), 5 per cent; France (with a decrease in 1956), 8 per cent; the Benelux nations (with a decrease in 1958), 9 per cent; Germany, 12 per cent; and Japan, 17 per cent.
It should be noted that the share of total world trade of the major capitalist powers listed here increased over the postwar period as a percentage of total trade. That is, the major powers accounted for a greater share of world exports in 1966 (59 per cent) than they did in 1953 (51 per cent). The far reaching implications of this statistic are well-known to the peoples of the underdeveloped world: More and more, world trade is dominated by the imperialist powers to the detriment of the less-developed nations. And export prices of the “Third World” lag behind those of the “First World.”
In part, the discrepancies in growth rates between continental Europe and Japan, and the United States and Britain, are accounted for by the factors already mentioned. Europe and Japan not only had farther to go in rebuilding basic industry; they could begin at a higher level. Industries reconstructed following the war could take advantage of the technological discoveries in the computerization of world warfare. Bemoaning this fact in its issue following Wilson’s devaluation, The Economist remarked,
“When the pattern of world exchange rates was last fixed in 1949, America and Britain were the only two leading industrial nations whose economies were not still largely war-destroyed. It was obvious that in the next 18 years the war-destroyed countries would be strengthened economically relative to Britain and America; and some people will say that last weekend Britain, at least, recognized at last that the proper market recognition of this was that their relative exchange rates needed to be strengthened too.”
Statistics support the value of “war-destroyed” economies to capitalist expansion.
Within the world-trade category of manufacturing exports (excluding, in other words, agricultural, raw materials and basic fuel exports), the qualitative advance of Germany and Japan over Britain and the United States is remarkable indeed. Between 1953 and 1964, manufacturing production in constant prices increased at the following averages for these four nations: United States (with a decrease in 1955), 2.75 per cent; United Kingdom (with decreases in 1955, 1956 and no advances in 1961 and 1962), 3.5 per cent; Germany, 9 per cent; and Japan (with a decrease in 1958), 14 per cent.
But increases in exports of manufacturing goods at constant prices were: United States (with decreases in 1954, 1958, 1959 and 1961), 1.6 per cent; United Kingdom (with a decrease in 1958), 3.5 per cent; Germany, 16 per cent; and Japan, 20 per cent.
Nevertheless, the rapid advances in manufacturing production and exports of Germany and Japan cannot be wholly or perhaps even mainly attributed to structural advantages. Equally important, certainly for Germany and the European powers, was the development of the European Economic Community – EEC, or “Common Market,” which was founded in 1958 and whose internal tariff reductions became applicable beginning in 1959 and 1960.
The Common Market was the first major break in the harmonization of postwar trade development. It recognized that the productive capacities of the European powers had already expanded to the point where they burst the national boundaries among them. Tariffs in manufacturing goods were reduced between Germany, France, Italy, Belgium, Luxembourg and the Netherlands, immediately expanding the markets available to each. At the same time, provisions were made for the “importation” of labor from less-developed regions of Europe to the more advanced in order to supply the labor force that could be absorbed by the expanded industrial production. And to a certain extent these nations pooled technological information to compete with the productive monopolies of the United States.
Some of the important results of the Common Market formation can be indicated after eight years of development. In the first place, it permitted a large advance in trade between the EEC nations themselves coupled with a significant integration of the markets of the EEC powers. The jump in trade between the EEC nations is a major factor in the total growth of postwar trade. In 1953 the EEC share of total world exports was 19 per cent, leaping to 29 per cent in 1966. Corresponding figures for the United States are 21 per cent, falling to 17 per cent; United Kingdom, 10 per cent, falling to 8 per cent; Japan, 2 per cent, rising to 5 per cent.
The integration of Common Market trade is clearly illustrated in the following table from The Economist, May 14, 1966:
|
Table One |
|||
|---|---|---|---|
|
|
Exports to rest |
Exports to |
Exports to |
|
Belgium |
287 |
45.1 |
61.9 |
|
Netherlands |
268 |
41.6 |
55.7 |
|
France |
361 |
22.2 |
40.9 |
|
Italy |
473 |
23.6 |
40.2 |
|
Germany |
263 |
27.3 |
35.2 |
The establishment of the Common Market did not limit the exportation of member nations’ goods solely to EEC nations even though it allowed this to advance greatly. In terms of competition between major powers, the EEC nations have advanced in the penetration of markets outside of the EEC at a faster rate than foreign goods have been able to penetrate the EEC. For example, EEC exports to the United States grew at an average annual rate of 11 per cent between 1958 and 1965 while US exports to the EEC grew at a rate of 9 per cent. In 1956, US exports represented 16 percent of the world exports to the EEC, but fell to 11 percent by the first half of 1966. In the same period, the EEC exports rose from 11 to 16 per cent of the world exports to the US
This changing relationship of world-trade forces affected the United States monopoly on capital goods exports which appeared unchallengeable in the immediate postwar period. Capital goods exports still occupy a central place in US exports and have risen most rapidly in comparison to other US exports in the past decade. This had been a favorite point made by spokesmen for special-interest groups in this country opposed to liberalizing tariff barriers under the Kennedy Round. Testifying before the House Committee on Foreign Affairs, Apr. 5, 1967, O.R. Strackbein, chairman of the Nationwide Committee on Import-Export Policy, declared that whereas total US exports increased 30 per cent between 1957 and 1965, exports of capital goods increased 60 per cent Strackbein’s point is that the truth about the competitive weakness of such US industries as finished manufactures and textiles is disguised by the success of capital goods: “If machinery and chemical exports are excluded from our exports,” he declared, “these increased only 13.3 per cent from 1957 to 1965 or an average of less than 2 per cent per year.”
But even in capital goods, US imports have risen considerably faster than exports. According to Strackbein, imports of capital goods increased 172 per cent in the 1957-65 period. So far as Europe is concerned, GATT figures reveal that EEC exports of capital goods to North America increased 217 per cent between 1962 and 1966 while North American exports of capital goods to EEC nations increased only 86 per cent. Today the European powers internally supply most of their capital-goods needs. The EEC import of capital goods may be largely attributable to the purchase of US capital goods by foreign-based corporations. (Total EEC imports of capital goods in 1966 were $1.5 billion; US firms in the EEC spent $1.3 billion on new plant and equipment)
The growth of world trade and intra-EEC trade particularly spurred the rapid development of the Common Market powers and Japan. Whereas the total GNP of the United States stood at a ratio of 3.6 to 1 to the GNPs of these seven nations in 1953, the ratio in 1966 had been reduced to 2.2 to 1. In terms of real GNPs the drop would undoubtedly be greater because of the faster inflation rate in the United States than in the Common Market nations and Japan. Furthermore US export figures tend to be distorted in such comparisons because some part of US exports is always taken up by federally financed military aid and subsidized agricultural exports: The Jan. 27 New York Times reported that the US trade surplus for 1967 of $4.1 billion included “some $3.5 billion of exports financed through the ‘foreign aid and ‘Food for Peace’ programs. On pure commercial account, the surplus was well under $1 billion.”
Nevertheless, international competition between capitalist powers does not only take the form of direct trade. The monetary measures adopted in the early forties were equally intended to ease the penetration of US dollars into foreign capital markets. To a certain extent the growth of US direct investment abroad serves to offset its declining competitive position in trade. At the same time – and perhaps more importantly – it serves to integrate the US economy more closely with the world capitalist economy in the same way as the Common Market agreements integrated the European economies both with each other, and with the world-trade markets.
It is well-known that sales by US foreign-based firms have risen rapidly in comparison to US exports. O. R. Strackbein, in the House testimony cited earlier, declared that whereas US exports to Europe had increased only 52 per cent between 1957 and 1965, sales of US affiliates in Europe increased 197.2 per cent. A statement by the AFL-CIO executive council, Sept. 12, 1967, declared: “In 1965, foreign affiliates of US manufacturing firms increased their sales about 13 per cent to $42.2 billion, while US exports of manufactured products increased less than 5 per cent.” Harry Magdoff presented a paper on this question at the 1966 Socialist Scholars Conference (see Economic Aspects of US Imperialism, Monthly Review, Nov. 1966). Magdoff concluded that in 1964 sales of US controlled corporations abroad were 5.5 times exports; foreign plant and equipment expenditures were 17 per cent of the total US nonfinancial corporate expenditure; and foreign sources for earnings accounted for 22 per cent of domestic profit in non-financial corporations.
The dollar penetration of foreign markets brings with it a closer tying of the fate of the US economy to that of the rest of the world. This is above all true in relation to Europe. In 1950, US direct investment in Europe stood at $1.7 billion or 14.5 per cent of total direct investment abroad. According to The Economist, Dec. 17, 1966, this had risen to $13.9 billion or 28 per cent of the total in 1965.
The other side of this, of course, is the extended control of European markets by US corporations. According to the same article in The Economist, for example, US corporations controlled roughly 80 per cent of the German computer industry in 1965 and 40 per cent of German cars and petroleum. New investment of US dominated corporations accounted for about 10 per cent of new investment in the Common Market in 1966.
A turning point of postwar capitalist development came in 1967.
International Monetary Fund statistics for Jan. 1968 reveal that the rate of trade expansion slowed markedly in the first three quarters of last year and that this slowdown affected all capitalist trade – for the first time in the last two decades. The following chart shows the average annual export growth rates at current prices for 1953-66 and for the first three quarters of 1967 (extrapolated for the full year):
|
|
1953-1966 |
1967 |
|---|---|---|
|
World |
7% |
2% |
|
United States |
5 |
3 |
|
Japan |
17 |
3 |
|
EEC |
11 |
3 |
|
United Kingdom |
5 |
1 |
These figures support the analysis of postwar capitalist relations we have given. So long as the European capitalisms were expanding, they could absorb both goods and investment from the United States. The former relieved the periodic overproduction of US capital goods, the latter offset its falling rate of profit. The long boom in Europe consequently alleviated the cyclical downturns in the US economy.
But the invasion of Europe by US capital of necessity reproduced in Europe the contradictions it stemmed from hi the United States. The Marshall Plan, NATO occupational forces and US direct investment all served to stimulate the European economy and to encourage European dependence on the American market At the same time it revived European national capitalisms as entities with distinct and conflicting interests from those of Washimgton and New York. The ability of European markets to absorb US goods and investment was associated with steady and significant wage gains by European workers. Indicative figures were released last year by the US Labor department, summarized in Table Two below.
|
Table Two |
|||
|---|---|---|---|
|
|
Average Hourly Labor Costs |
||
|
1950 |
1958 |
1964 |
|
|
United States |
66 |
104 |
128 |
|
France |
43 |
121 |
191 |
|
Germany |
58 |
109 |
189 |
|
Japan |
63 |
103 |
191* |
|
United Kingdom |
61 |
106 |
149 |
|
*1963 |
|||
Starting from a terrifically disadvantaged position, European workers have made significantly greater relative wage gains than American workers. In Germany, real wages have doubled since 1958. But in the United States, real wages have risen at a markedly slower rate in the postwar decades than they did in the two decades prior to the war and have to fact been declining in the last two years. But the European wage gains decreased the rates of exploitation.
The development of a new technology – to some cases more advanced than to the United States – absorbed investments, but only to increase the organic composition of capital. Europe, ten or fifteen years later than the United States, inevitably reached the same contradictions of monopoly capitalism that had been besetting the United States since the end of the war. Since 1965, recessions have developed to Britain, Italy, France and Germany. The near concurrence of these recessions and their interconnectedness is significant.
The British recession was induced in 1965 because Britain faced balance of payments deficits resulting from unfavorable trade balances and because these deficits threaten the US dollar. London and New York planned to increase British unemployment in order to create a downward pressure on wages and to enable British industry to shift towards more competitive areas of investment. But this strategy failed to anticipate the subsequent downturns to France and Germany and the stagnation that developed in the United States. Dragged down by the resulting decline in world trade, the British recession has gone deeper than anticipated and its end is nowhere to sight
Italy went through an economic downturn to 1965-66 and is presently in somewhat of an upswing and the German recession in 1966 may be to the process of being alleviated. But the future of these upturns depends largely on the extent of the world economy’s ability or inability to absorb exports. The statistics cited above could prove ominous for both these nations.
However, the specific recessions and the world-trade slowdown are not so important as the fact that they reflect the beginning of a new period dominated by a different conjuncture in world capitalist development The former period was above all dominated by the relative subordination of European to US monopoly capital; the new period will be dominated by the struggle of European capital to free itself from this subordination. This opens a new stage of intensified inter-imperialist rivalry. At the least, it must result to the long-term slowdown of domestic and world-trade growth consequent on the chato-reaction subordination of international trade to the self-interest of national capitalisms: That is, precisely, the adoption of protectionist measures, “border taxes,” devaluations and restriction on investment and tourism.
The balance of payments deficits of the United States bring to the forefront of world attention the contradictions which were latent to the hegemony of US imperialism in 1944. They reflect on one hand the contradiction between the world extension of US military might and the inflationary effect of militarization on the American economy; and on the other hand, the contradiction between the world penetration of the dollar and the struggle of foreign bourgeoisies to free themselves from the consequent dependency of foreign economies on the American dollar. The billions of dollars that have poured out of the US since Lord Keynes assured his British audience that world trade could depend on the dollar have gone essentially to two purposes: the support of US military efforts and the extension of US investments.
The Vietnam war is the central precipitating factor of the dollar crisis. It can hardly be held an accident, after two decades of US military and economic domination to the underdeveloped world, that such a war would arise and that its consequences would be felt on monopoly capitalism. Nevertheless, it is the unflagging resistance of the Vietnamese peasant armies and the inability of the Pentagon to crush them that has stretched the dollar to the breaking point The war weakens the dollar both internationally and domestically.
Internationally, it necessitates an ever increasing expenditure of dollars in foreign markets both directly on military goods and indirectly in the support of US bases. Estimates that the total dollar outflow due to the war now average about $1 billion annually must surely be on the small side when the Japanese government itself re vealed the expenditure of $1 billion on Vietnam war goods alone, last year, aside from the support of the big bases to that country and Okinawa.
But more important than the gold deficit caused by the war is the domestic inflation of the doUar caused by deficit spending to finance the war. And here again, the Vietnam war cannot be separated from the postwar context of US militarization, the enormous expansion of the public and private debt resulting from the Keynesian policies of avoiding crises through deficit spending and the “gradual” inflation this has caused. The brunt of these policies must be carried by the American wage earner. Wall Street Journal economist Alfred Malabre Jr. reported May 31, 1967, that debt services for the average American family had grown from 11.4 per cent of after-tax to-come in 1949 to 22 per cent in 1966. In addition, Americans have had to pay steadily rising income and “social security” taxes while the dollar has declined 45 per cent in consumer purchasing value since 1945.
The domestic erosion of the value of the dollar also weakens its usefulness to foreign capitalisms and it gives them a lever to use against US investment. Thus the European “attack on the dollar” ‘amounts to something more than speculation on gold. By threatening to turn their dollars in for gold, when the United States “to a showdown” could not meet all short-term foreign claims on US gold reserves, the foreign capitalisms could force Washington to sell its foreign assets in order to raise gold. Outstanding dollar claims on gold exceed total US reserves by about 200 per cent. The attack on the dollar, in other words, threatens US investment itself.
As the European capitalisms become more and more burdened by overproduction they will look with greater interest towards their internal markets controlled by US corporations as a source for internal expansion. Exerting pressure on the US to raise foreign currencies is a preliminary attack on these internal markets. That such an attack is being made – in the long run risking US countermeasures which could precipitate a disastrous disruption of already shrinking trade relationships – shows how far internal contradictions have already proceeded towards the point of ultimate international collision.
In the concluding sentence of his article referred to at the outset of this article, Edwin Dale wrote: “With all our problems, it is reassuring to know that the world has better defenses than ever against a return to one of the worst plagues of our past: depressions, unemployment and misery.” His optimism is based on the unlikely continuation of previous conditions. The “defenses” Dale cited – expanding domestic economies, expanding world trade and stable international currencies, served to shield mankind from these miseries of capitalist economics only so long as the major capitalist economies themselves were expanding, almost in unison. The evidence presented here suggests that that long expansion is over. The long European boom, which largely sustained the expansion of world trade and investment, has slowed down. There has been a sharp drop in the rate of world-trade growth while the postwar US monopoly of trade has deteriorated considerably. The dollar has weakened domestically and internationally under the combined pressures of US military and economic expansion. There has been a sharp increase in inter-imperialist competition for markets and a resurgence of the restrictive measures on world trade supposedly buried at the end of the second world war. A turning point of such world historic importance does not take place overnight or all at once. What is important is to be aware of its implications and to be prepared for sudden shifts and turns that will result from it.
One of the striking “accomplishments” of postwar capitalism has clearly been the close interpenetration of national capitalisms within the world capitaliat system. It means that crises in one sector of the world economy, contrary to Keynes’ hopes, must be transmitted more quickly and penetrate more deeply into the others. If that interrelation has had a remedial effect in the past period it can only have a disruptive one in the future.
1. Unless otherwise noted, the statistics in this article are based on the standard references listed in the bibliography.
Unless otherwise noted, statistics in this article have been compiled from the following standard sources:
Special mention was made of these two studies:
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