GOLDEN DAYS OF WORLD CAPITALISM ARE GONE FOREVER
By Ernest Germain
On Thursday, February 4, General de Gaulle made a proposal that created a minor sensation in the stock exchanges and editorial staffs of the big daily papers throughout the world. He suggested that the United States, Great Britain, Canada, Australia, West Gere many, Japan, Italy, Belgium, Holland, Switzerland, Sweden -- that is, the main imperialist centers -- should go back to the gold standard. And a few days later, on Saturday, February 13, he topped this proposal by a unilateral decision to put France back on the gold standard; i.e., to make up its deficit in the balance of payments: with all capitalist countries in gold and only gold.
“Most bourgeois economists and the main central banks of the capitalist world didn't take de Gaulle's proposal very seriously. In fact, only Pravda declared with a straight face that it sounded "reasonable. ~
Under the gold standard, any debt which one country finds itself owing another as a result of current exchanges (in goods, tourist trade, capital imports and exports, etc.) must be paid in gold. Any deficit in the current balance of payments leads, therefore, to an outflow of gold. But the same system also means that ~ currency must be exchangeable in gold. An outflow of gold therefore automatically involves a reduction in: the existing volume of money inside the country. Bourgeois economists and capitalist governments have known since 1929 --~ they learned it the hard way! -- that to reduce the volume of money circulation means reducing the volume of aggregate demand for goods and services in a country; i.e., reducing the volume of employment, income and production -- that is, precipitating a depression.
To demand going back to the old standard means in fact to demand going back to the laissez-faire economy of liberal capitalism in which market forces adjust supply and demand in the long run... through the mechanism of prices, in which the inflow and outflow of gold distributes: gold reserves among the different. countries in the long run more or less in proportion to their productive capacity or wealth. These "adjustments" are brought about automatically. This is what admirers of the gold standard like Jacques Rueff, de Gaulle's adviser in monetary matters, consider to be so excellent.
However, the adjustments are not brought about ina "gradual," harmonious way, but through sharp breaks and discontinuities in the system. Before demand "read justs" to a new level of supply, the phenomenon called "overproduction" appears. And before the outflow
of gold "readjusts" the balance of payments, the phenomenon known as "deflation" occurs. Both have the unfortunate tendency of creating more and more unemployment, Sharper and sharper cuts in production, and greater and greater social crises in a world where capitalism has ceased to expand as a global system, where it finds itself instead in continual struggle with revolutions, workers states and masses of people who openly challenge the merits of the system and who want to replace it with a system in which conscious planning takes the place of the "blind mants cane" of the market forces.
Because of this, there is not the slightest chance that de Gaulle's proposal will be taken up. It would be suicide for capitalism to return to a rigid system of money and credit controlled automatically by the supply of gold. Such a system could lead only. to a major depression. .
Those who advocate returning to the gold standard score a good point when they argue that the present monetary system leads to increasing inflation. This is completely correct. But increas-~ ing inflation is the only means Oy which a capitalist economy can convert grave depressions into "minor" recessions. What capitalist government in the United States, for instance, would risk having fifteen or twenty million unemployed for the sake of "fighting in- — flation" or "going back to the gold standard™?
There are many supplementary reasons showing how irrational it would be to return to the classic gold standard in the present world situation. The two main gold-producing countries are South Africa and the Soviet Union. To return to the gold standard would mean opening the most delicately complex and explosive segment of the present world capitalist economy -- the international monetary system -- to the manipulations of Hendryk Verwoerd and Brezhnev- Kosygin, none of whom are exactly respected figures in banking circles. Consequently de Gaulle's proposal strikes the average bourgeois economist or capitalist politician as nothing but a joke of the sick variety.
For many years the annual increase in gold production has lagged behind the increase in the volume of world trade and world production of manufactured goods. Even a sharp increase in the price of gold, say doubling or tripling it, would not fundamentally change that situation, although it would represent a handsome gift of many billions of dollars to the Soviet Union which could then double or triple purchases in the capitalist countries on the basis of current gold production. A permanent crisis of international liquidity would ensue, bringing great unhappiness throughout the capitalist world ~- with the exception of the hoarders of gold. Indeed Rueff's (and de Gsulle's) wisdom in this field comes closer to the prejudices of the classical French peasant (who finds it a comfort to sleep on a mattress in which a few pieces of gold are hidden) than to the views of academic economists, let alone Marxist economic science (notwithstanding Pravdats approving comments).
But if de Gaulle's proposal has no chance whatsoever of be-~ing accepted, it has nonetheless caused great uneasiness and worry among central banks, especially in New York and London, And if it hasn't brought about much of a rise in the price of South African gold ‘mine stocks and bonds, it has certainly increased the general's nuisance value in the eyes * of the rather nervous and harassed John= son administration.
For it is a fact that the present monetary system of the capitalist world -- the so-called "gold exchange standard" -~ is at present experiencing a severe crisis. Under this system, a central bank can cover its currency in either of two ways: in gold or in certain "privileged" currencies like dollars and pounds, This means that when the USA owes money to another country (shows a deficit in its balance of payments with that country), it need not make up the balance in gold; it can pay in-dollars. But this also means that the dollars accumulating in central (and private) banks everywhere in the world "because they are as good as gold," must be exchangeable for gold at any time at the American central bank, the Federal Reserve System,
The "gold exchange standard" could function perfectly well as long as all capitalist countries outside the USA were dollar hungry due to the shortage of goods and capital in the postwar period which only the USA could supply, and as long as these countries had adverse balances of payment with the USA. But these "golden days" of the dollar empire, following the "golden days" of unmanipulated currencies governed solely by market forces are gone forever. They came to an end in the middle fifties when the great boom in Western Europe and Japan started, when these areas began to build up large dollar balances, and when the USA found itself running into a continual deficit in its balance of payments, thereby opening up the flow of gold from Fort Knox in their direction.
The deficit in the American balance of payments is a ‘complex phenomenon. At one and the same time it expresses both the increasing strength of the competitors of the U.S. and the still great super Tory of the U.S. over these competitors. For the final cause
this deficit in the balance of payments is the increasing export of U.S. capital to other countries where the rate of profit is higher than in the U.S. due to the fact that the organic composition of capital remains lower (i.e., automation is less advanced) and the rate of exploitation of labor higher (i.e., wages are lower),
The export of American capital to thé Common Market countries constituted America's "secret. weapon," with which Wall Street neutralized the advantages which the European capitalists sought to gain for themselves by building up this preference zone for their goods. As a matter of fact, what de Gaulle is really aiming sat is to stop this continual flow of American capital into Burope which has now reached the point where key plants in most European countries have already been taken over by American monopolies. (On the European continent
every significant capitalist company in the vital computer~production. sector is controlled by U.S. interests.)
. Because of the export of U.S. capital and the constant oute flow of gold from the USA, the balance between the remaining stock. of gold at Fort Knox and the current deficits favoring other countries has become quite delicate, In fact, total U.S. obligations to private and public institutions in other countries are higher today than the total gold stock in the U.S. This means that if all foreign central and private banks’ were at-.one and. the same time to demand payment, and payment in gold only, not dollars, the U.S. would lose all its gold and the dollar would collapse.
Of course, this will not happen. Most of the central banks involved must defend currencies bound as tightly to the dollar and its fate as their capitalism is to U.S. capitalism and its prosperity. But it would be sufficient for some creditors to demand payment in gold instead of dollars to have a quite undue influence on the present very unstable balance on which the dollar sits. And since de Gaulle's France holds precisely this position of a minor creditor, it is able to that degree to make a nuisance of itself, blackmailing Washington into paying ransom in fields as distant as the Multilateral Force, nuclear secrets and the setting up of a "NATO directorate."
The dollar is vulnerable not only because of the current deficit in the U.S. balance of payments. In fact, under the “gold exchange standard," this deficit is merely a way of spreading credit inflation from the U. S. to other capitalist countries, thereby "exporting" American "prosperity," including its shaky foundation of increasing indebtedness, ,
The dollar is also vulnerable because of the constant erosion of its purchasing power in the U.S. itself. Inflation in the U.S. is not "imported" through the gold exchange standard; it is rooted in the huge volume of public debt and unproductive expenses (twentyfive years of uninterrupted "boom" based on military expenditures! ) as well as in a staggering amount of private indebtedness. To des-— troy these roots would mean destroying the very factor which up to ~ now has prevented a new depression of. the 1929 type.
Thus President Johnson recently solemnly pledged that if the threat of a new recession appears in 1965, he will immediately make new tax cuts; i.e., increase government "deficit financing" and "deficit spending" (fancy names for inflation).
To impose the gold standard would have the effect of suppressing the deficit in the balance of payments and rooting up domestic inflation. But the price would be the utter ruination of American and world capitalism today. That's why the world capitalist structure can't afford to return to a "stable" currency and the "golden" days of its youth, Those days are gone forever,
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