W O R i D The Political Devaluation
O U T 7. O O K of Lyndon B. Johnson
Vol.5, No.39 December 1, 1967 Devaluation of Pound
Shakes Capitalist World
Pentagon Plans for
“One, Two, Many Detroits”
Sato’s Pilgrimage
to Washington
Johnson's New Weapon
- “Wired for Sound”
Fulbright Sees Threat
of “Tyranny or Disaster”
Yugoslavs Debate
How to Meet Poverty
Soviet Press Features
Venezuelan “Authority”
Against the Cubans SENATOR J. WILLIAM FULBRIGHT regrets voting for Tonkin Bay resolution which Johnson used to escalate U.S. military aggression in Vietnam. He now advocates that Congress be more circumspect in future. [See article page 972]
50¢
DEVALUATION OF THE POUND SHAKES THE CAPITALIST WORLD
By Joseph Hansen
The decision of Harold Wilson's cabinet November 16, which was announced two days later, to devalue the pound from $2.80 to $2.40, or 14.3 percent, shook the financial structure of the entire capitalist world.
To save the pound from complete collapse, extraordinary measures were required by the international Mafia of bankers and the governments under their control. They were worried, too, over a chain reaction that might bowl over the dollar, which "now...stands exposed," as The New York Times put it November 20.
Even worse possibilities were visualized. The same New York voice of the powerful Eastern sector of the American capitalist class was patently fearful of inept measures that might be undertaken by the Johnson administration. "Unfortunately," the paper declared editorially November 23, "Washington appears bent on firing off all of its available weapons in one overwhelming barrage. If it acts too drastically to enforce more expensive credit, an increase in taxes and slashes in spending, there is a real risk and perhaps more than a risk that it will check the present moderate upturn and, at the same time, provoke a dangerous recession in world trade."
On the first day the New York Stock Exchange opened after the devaluation of the pound (Monday, November 20), the scene came close to pandemonium. Wall Street brokerage houses, according to one financial reporter, "bombarded their customers...with bulletins adding up to two words of advice: 'Don't panic.'"
But “panic," was precisely the ward used by Time magazine (November 24) to describe the situation in the money markets “around the world" on the preceding Friday, while Newsweek (November 27) used the same word to describe what had happened in the “financial world."
Emergency cabinet meetings were held in a number of countries when the rumors about devaluating the pound were confirmed; and within five days no less than seventeen countries had followed suit, devaluing their currencies.
As an indication of the unforeseen consequences that could be touched off, in Singapore rioting broke out.
However much the capitalist statesmen and their pundits sought to allay alarm or to at least focus attention solely on the troubles faced by Britain and especially by Harold Wilson and the Labour party, the fact remained that the devaluation of the pound served to bare many harsh realities about the state of the capitalist system as a whole today.
First of all, it demonstrated how tightly interconnected the system is on an international scale. What happens in one capitalist center affects all the other capitalist centers -- and drastically and immediately. Even the cushion of a time lag of a few months or weeks is gone. We have reached the epoch of builtin international crises that can be fired off instantly.
Secondly, Britain's crisis, with its swift domino effect, revealed how unstable the system as a whole is. Despite the billions of dollars expended since the end of World War II in shoring up capitalism in Europe, despite the unprecedented prosperity in the U.S., Europe and Japan, despite the absence of a big depression since the thirties, despite all the propaganda and all the boasting about the strength and superiority of capitalism, it is clearly a very rickety structure, near collapse at any number of points.
Thirdly, it should be noted in particular that not even the strongest capitalist power, the one holding up all the others ~- the United States -- is exempt from the effects of what happens elsewhere. This was clear from the heavy pressure on the dollar, the quickness with which Washington took emergency measures (on November 19 -- a Sunday! -- the Federal Reserve System increased the discount rate from 4 percent to 4.5 percent), and the nervousness, if not actual panic, observ-— able in the highest circles in Manhattan and Washington.
Fourthly, the devaluation of the pound demonstrated, in a way hardly anyone could miss, how illusory it is to believe that capitalism has succeeded in overcoming its internal contradictions.
Men disposing of billions of dollars and the resources of entire continents were bedeviled by the way the international contradictions suddenly came to a head in a financial crisis. Even if they had succeeded in overcoming this crisis, none of them were prepared to say that they had won more than a temporary respite. And they will count themselves lucky if their efforts do not set off a still worse sequence of events.
As for the contradictions of capitalism on a national scale, here an embarrassment of riches was provided by the
crisis. The capitalist pundits themselves filled their communications media with elaborate explanations of the contradic-— tions afflicting Britain, the classic country of capitalism.
Particularly instructive were the admissions on why British capitalism, whether under the Tory masters or their Labour servants, has had to follow a "stop and go" policy since the end of World War II. If a boom sets in, there is too much buying abroad and this leads to a worsening payments deficit and a loss of foreign exchange reserves. To check this, the brakes are put on the economy; it is Slowed down. This retrieves the situation on the deficit front but with highly unfortunate other consequences: slowed down expansion of the economy, delayed renovation of equipment, a decline in the rate of increase of productivity, a rise in unemployment and a growth in social unrest. When the danger point is reached, the brakes are released, the government foot comes down on the throttle and the economy again leaps ahead. A very jerky ride for all concerned.
In this explanation there are some significant omissions that deserve to at least be indicated.
For instance, it is hinted that Britain is suffering from its imperialist past but the nature of the illness is described only in a partial way. Britain is unable to compete on the world market, we are told, because its industrial plant has not been modernized. Thus it can't meet competition and "earn" its way by selling the commodities produced in its "workshop." Unable to sell, it lacks sufficient sources of foreign exchange to make up its payments deficit.
Without going back to the days when Britain maintained control of its markets and sources of cheap raw materials through the deployment of military force and colonial conquest, the British ruling class met this problem through enormous investments and holdings abroad that brought in a steady flow of dividends.
The British ruling class lost the bulk of these holdings during the first and second world wars. A big part of the holdings and investments were lost to the American capitalist class. Roosevelt, for instance, refused to grant substantial aid to Britain at the beginning of World War II until British investors let go of their holdings in the U.S.
Instead of the position of banker for the world -- with the customary emoluments which the position offers -- Britain now stands among the paupers; and, of course, pays through the nose for the privilege. Together with devaluation, the
government increased bank rates from 6%
percent to 8 percent.
In view of the risks involved in
dealing with this ragged former banker,
the bankers of other countries are, natu-
rally, entitled to just compensation. The
former banker for the world understands
this to perfection; and knows just as
well that it is not through paying out
high interest rates that you rise to the
position of being banker or recover your
position once you begin slipping.
In a different way, the colonial
revolution following World War II slashed
deeply into the life lines of empire lead-
ing to London.
The victory of the Soviet Union in
World War II with the subsequent toppling
of the capitalist regimes in Eastern
Europe and in China further injured and
circumscribed imperialist Britain as it
did the other main capitalist centers.
The colonial revolution and the
rise of the Soviet Union to the rank of
a first-rate power shut off any possi-
bility of Britain recovering its previous
standing by expanding in that direction.
The victory of the U.S. at the expense of
both its enemies and its allies in World
War II cut off any hope of expanding and
recovering at the expense of the other
capitalist powers.
British capitalism has thus landed
in an impasse from which there is no hope
of escape.
The Tory policy was to seek to ad-
vance by wringing concessions and sacri-
fices from the working class. They could
not do this to a sufficient degree to
make it work. How could they hope to
achieve more than the German capitalists
using the whip of fascism? or the Japa-
nese capitalists with a huge untapped
labor reserve and "thought control" laws?
or the American capitalists, untouched
by the ravages of war, able to mobilize
the resources of several continents and
with a long background of constant mod-
ernization of their industrial plant?
Harold Wilson inherited the Tory
policy; and, utilizing the prestige and
standing of the Labour party among the
British workers, sought to apply that
policy in a way completely beyond the
capacity of the Tories.
For three years, under the banner
of "saving the pound," Wilson wrung bit-
ter sacrifices from the British workers.
To no avail. The reward they received was
devaluation of the pound; i.e., a new
deep slash in their standard of living,
for devaluation means a swift rise in
prices in Britain, including the prices
of basic necessities.
Writing from London November 19, Anthony Lewis of The New York Times reported, "Prices of imported products and those made with imports began going up immediately today. Bakers warned that they too would have to raise prices.
“Bakers warned that they would have to raise prices soon because much of their wheat is imported. The major oil companies predicted a rise in gasoline prices, and iron-ore costs went up for the British steel industry."
As Leon Trotsky pointed out in the Transition Program: "Neither monetary inflation nor stabilization can serve as slogans for the proletariat because these are but two ends of the same stick.”
For the British workers, and this means the overwhelming majority of the people in Britain, only one road offers a realistic way out -- that is to institute planning from top to bottom.
This would signify pruning away at once a series of costs that are rarely mentioned even partially in the bourgeois press. These include the cost of maintaining a layer of parasites ranging from stockholders to bankers and landlords; the cost of maintaining a swollen state bureaucracy, and a huge military apparatus that is highly efficient in pouring pounds down the drain whether it be in small colonial wars or in developing a
nuclear arsenal.
Aside from cutting off such unpro-
ductive expenditures and a whole series
of items assotiated with them, the ex-
propriation of the means of production
in Britain and the introduction of social-
ist planning would make it possible to
tie in the British economy with the work-
ers states that already have planned econ-
omies. Such a combination would open up
completely new perspectives for all the
participants.
The British workers turned in this
direction by class instinct. That is why
they voted in the Labour party, giving it
a mandate to proceed along the road to
socialism and reaffirming that mandate
in the last election.
Wilson betrayed that mandate. As a
result, the Tories and even the Liberals
were strengthened and the Labour party
now faces a crisis of its own as is evi-
dent from the recent by-elections.
This crisis will deepen as the
consequences of devaluation of the pound
begin to bite into the family budget.
The British workers give every sign that
they do not intend to listen to the new
exhortations to make further sacrifices
for the sake of preserving a capitalist
economy that should have been scrapped
long ago and replaced by modern social-
ist planning.
FULBRIGHT COMMITTEE SEES U.S. THREATENED WITH "TYRANNY OR DISASTER"
The U.S. Senate Foreign Relations Committee declared November 21 that the “near-absolute power" of the American president to commit the nation to war