By John “alters
Lis The troklen of international liquidity (1) has been the grumbling appendix of imperialienm for a number of years how, one thet has been nercing and ingistent. In the coming year it would seem that this pre iam will become acute. Therefore it is necessary that ase Merxiets we #otuld aralyse and understand what thie will mean both to capitalist society and particularly to the working oleass. in important indication that this question is reaching oriais point was the fact that in the year 1966 no new gold was added to world (i.e. capitalist world) reserves, The January Eoonomic Letter of the U.S. Firat National Bank pointed out that this was the Tiret ocession in modern times that this had happened. Al] the new gold that came on to the market went inte private hands, and only one third of this for industrial use. The letter said ",..: during the first mine months of 1966 official gold atocke, ae published, actually declined by some #50m., as compared with a gain of P250m. in 1965." And although the decline in U.S. gold holding wes not so Tearge in 1965, it still continued te lose gold and ite stock is now down to the level of 1958, To understand the full signifitence it-ia mecessary to retrace cur steps a little and examine how the present international monotary system came into being. Up to the early 1930's there operated in mest cauntriea what waa knowm os the Gold Standard, Thie wes the seyatem whereby the amount of currency in cireulation was in & ratio to 6 quantity of gold, and gold was alec used to settle international debta. Therefore when a country had a balance of payments deficit and it lost gold from ita reserves there was auppoged to be an automatic reduction in the amount of money in circulation, and ultimately there would ‘be deflation. (2) Hecause of the great slump in the early thirties, Britain and nearly all other capitalist countries went off the gold standard and there ensued a period of floating exchange rates and devaluations in a period which was dominated by what Joan Robinson has aptly deseribed as “beggar my neighbour policies”. after the second world war there wae devised what ie known as the Gold Exchange Stendard. Under thie system the only country where money was directly related to gold was that of the United States. (3) Wowever,
L}. Liquidity can be briefly deacribed as command over money or near money, is@. those aesete that one's ereditora will accept in payment for a debt, or one can easily turn into money. For instance if one holds a bill that is due to be paid in three deye time, this ie# a mich more liquid asset than say a bill that is not due to be paid for twelve monthe. In this sense international liquidity is the reserve of 'money' that is available in the capitalist rorld. It ia @ very important element within the syatem, as it helps the flow of world trad. 2). See Appendix. 3). By lew there mist be 25 per cent gold backing for the notes in circulation.
all currencies are now linked. torether via the dollar end gold. ‘The U.d. treasury has set the ories for gold at a5 rer ounce, and has not increased thie since the 1940's. Therefore there is now a system where the rest of capitalist world currencies are only indirectly linked with gold, and thie for international purposes only, sinoé exchange rates are quoted in dollars. But for internal usage the limits put upon the quantities of money by the old Gold Standard mo longer obtain. in intezral pert of the Gold Exchange system is that the Dollar and Stelling play the rele of key currencies, in other worda they are accorled a special atatus, but it should be noted that as far as eterling goes thia role has been strictly by courtesy of the U.5, treasury.
Ime. ta the greatly expanded world trade since the end of World War Two there is no longer sufficient gold aupply to maintain adequate reaerves and liouidity. Between 1950 and 1966 world trade rose by Te per eent per annum, gold stocks by less than 14 per cent par annum. This has led to the Dollar and Sterling being used as key or reserve currencies. Central banks have been willing to hold these two key currencies a8 part of their reserves. dGince both are on the gold exchange atenderd thia hes meant thet in theory that they could be regarded as being as food as gold.
This was fine so long as both currencies were strong. But one of the major problema has been that aterling has not bean strong. Giyen the high ratio of lisbilities to reserves (running at approximately 4 = ] since 1945) it has meant that Britein has not been able to aubstantially contribute to world liquidity.
The Gold Exchange Standard was able to function guite well eo long as all the capitalist countries outeide of the 0.9, were short of dollars. These were needed to buy goods and cepital acuinment which in the immediate post-war years only the 0.5. could supply. During thia period Dollars ware eagerly sought after, and the 0.5. had 4 surplus in balance of payments. The situation began to change in the mid-fifties when the boom in Weatern lurope and Japan really got into its stride. Those areas began to build up large Dollar balances, anl the 0.8. found itself running inte balance of paymenta deficite.. In some respecte there if a similarity between the U.S's and Britain's oreblene, but they are pore apparent than real. The U.5, has a favrourahls balance of trade, isa. itis still selling more abroad than it imports, ita balance of payments deficita arias from other sources, The British problem is that along with some of the factors that relate to the U.S. it also hag an unfavourable balance of trade, i.e@. it importa more then it exports. This has been usual historically.
The deficit of tha U.5. has two aepeqcta. On tha one hand it ia an expression of the inereasing strength of ita competitors, On the other hand it is an expression of the etill great superiority of the 0.5. economic and technological strength over thease competitors. The 0.5. still has a favourable ‘trade belance as can be seen from the following-
Exports of goods f 16 billion 195e (1)
" fd e604 1985
Imports of goode a 14 " 1948
n pe a, 1965 Where does the deficit come from then? From two eourtes, overseas investment and military aid. In much the same way as Britain, the U.4. har ineressed ite ovarsess inveetmenta tremendously since 1945. Tha valr= of thia investment hae risen from #19 billion in 1955 to well over $50 billion in 1966. (2) The reason for this ie not hard to fini, it has been estimated that the rate of profit on overseas investment for the 0.5. sorporetiona is 15 per cent as compared with 10 per cent at héme., Woréovrer this caepitel export helps to maintain the sagging profit rate at home. Military and other U.5. Government overseas srante amounted to e344 billion in 1965, in the same year the net private overseas investment was 22.7 billion. In that year the U,5,. had a balance of payments deficit of #1.4 billion.
Similarly, Britain has increased the export of capital om a great scale since the end of the last wer, tha letest setinate pute 1t at £6,00m. in this period. However, certain factore have to be noted about thie. Investment income for 1950 was, gross, £2Tln. and net £159m. By 1961 these figures were £676m. and £252m,. reepectively. This it would seem wae a healthy trend.{%} But net oroperty income as a per centage of meane of payment for imports declined from 14 per cent in 1950 to 6 per cent in 1961, i.e. elthdotgh the total amount has rapidly intreased the specifin weight é@f this item in the. balance of payments has declined drastically. (Historically the decline has been even preater, in 1914 this item aseoumted for “25 per cent). Another element that hae to be noted is the risa in the Government Agcocunt,.in the balance of payments figurea; in 1950 thie atood et £136m, by 1964 it had swollen to £439m. In this way both of the major imparialiat powers have A common pattern, i.e. rising foreign investment, rising military expenditure, snd continue] balance of payments deficita. Although there is na close correlation batween capital expérte and oversese military axpencditure in the Benge that the two iteme do not necesparily take place in the samé countries, it ia obricaue that the intensity and extent of the colonial revolution since 1945 mat socount for the rige in military expenditure. Therefore, it sat ba Seen OH A necessary cost = in an overall way = for the meintendnce of oversess investmenta. This is why beth the U.o. and Britain have bean putting the pressure on their sllies recently to ehare some of the: cost involved in military axpenditure, 6.46. both are talking of cutting troops in Weetern Germany.
il I gaid esrlier that the deficit of the J.5. was an expreseion of its own euperior economy and the relative etrengthening of ita oapitalist. compatitors. Thia can be seen in this way. The lerge dollar ee oe ee ee ee ee ee ee ee ee ee ee (1) Quoted by D. Michsels in ‘Monthly Review’ Dec, 1966. (2) ibid, (3) see AR. Conan "the Problem of Sterling’ p13. % Barratt=-Brown ‘After [pperieiten' pm. cyt.
recerves accumilated by Western Eurapean countries are an indication of their recovery from tha proetration of the immediate postewer years and their inereasing role ss competitors. The contradiction arises becsuse the dollar reserves are only one pide of the coin, the other is that these reservea represent a largs penetration of U.5. capital into jestern Europe. In 1957 there was: approximately #500. U.o, investment in jeatern Germany, by 1965 this had risen to approximately p2,400m, Frievica, Italy, Holland, Belgium ete. have a]11 seen incrgases of a git_ler order. In Britain, in 1957 0.5. investment stood at a little under #7,000m. by 1965 this had risen to 25,000, (1). What has been taking plece hes bean & massive invasion by American capitel and the taking over of dominant sections of a number of industries, Por ingtance in Britain 80 per cent of the typevriter industry is owned by foreign based companies, mainly U.5,., and as ia well known, 50 per cant of the British automobile. industry 4a now controlled by U.5. firms, In the field of computore, 4 key industry for the development of modern technology, the industry is becoming dominated by the U.S. gianta such as IBM
This invasion, and dominance, ih one of the major cnestions at the heart.of the 'Lisuidity dismote!. The French haye- been the most voosl and perpistant oritica of the large American deficitea, and here been converting their dollar surpluses into gold over the last few years, However, they have not been the tcnly ones, most of the other European countries have been converting an increasing part of their dollar surpluses into gold, hance the decline in 0.5, pold stocks. There is a fear that vitel parte of the economies will be completely subordinated to U.S. interesata., The problem here is two fold, firetly the'e is a fear that in the event of recessions it will be the Huropean subsidiaries that will suffer the cut backs, rether than the 7.35. parent companies; secondly that research will more and more be toncentrated in the U.3. and that the Duropean countries will becoma even more dependent on the 0.5. Tor technical sdvance. Ghat this would meen would be tha transformation of Western Europe from the position @ relative yassalage to one of absolute dependence, Te Gaulle's ‘anti-imericaniom' therefore ie far more than the whime of an old man. (2). [Fowever, it would seem that the U.o, has outflanked tha Prenchs, Wecent reports indicate thet the French Government has had te modify ite attitude te now U.8, invest-= ment. In recent years the French Government has been blogking mich of the attempted U.S. investaent-in the -coimtiry, and trying te gat ite Gommon Market partmere to do the same. However, they ecem to heave been unsuceesetul in -their attempts, with the consequence that they have been faced with a prospect of the U.5. firme intervening in the Prenoh market from Germany, Italy, ate. This pesed a problem -for-them,. Sinoe it seemed that they couldn't keep the Americans out of the French market anyway, (becsuse of the Comaxn Market) wouldn't it be better te have them inside France where at leset they would not orgate direct balance of payments problems. This seens to have heopaned and in 1966 there seeme to have been a new poliey Introduced by the new finsnee minister Micheal Tebre. (1) See Geoffrey Owen,Financial Times 2. 1. 67. (24 In the same way the French attitude to British entry into the Common Market-oan be viewed. De tGanlle regards Britein ae the Trojan Horse of U.S. inperislisn.
Far from solving the problems of international liquidity, thia move ie likely to intensify the guest for 4 sattlemnt. At the mament the large dollar reserves that heve been accumulated in Furope have helped to lubricate international trade. These reserves also have the advantage of sarning interest, since they are largely held in the form of short=term 0.5. Government bille. ‘The exchange of these into g@old mens that they do not earn interest. Therefore the larger the amount Of reserves that ie held-in gold the larger the amecunt of capital that is frozen and unrecnative. At preeeant gold has a price of #35 per ounce, thig was fixed in 1934. Thia is one of the big disuptes over the liquidity problem. The U.S. Government is willing to buy and sell gold at this price to any non-imerican citizen or Government. However, sines this ie a fixed price 1+ means that because of inflation the value of gold in real terme has declined over the years. In this situation where large holdings of dollars heve been held by overseas creditors it hse enteined a tranefer of value to the United States, The French, and othore, hare bean arguing thet one solution for the present shortage of international liquidity would be to increase the price of gold, eugzesting that #70 per ounce would be ne#rer the true value today. In effect this would mean a devaluation of the dollar. This the U.8. ia atrongly resisting. Along with the sugrested price increase for @old, there has heen greet pressure put upon the Americans to reduce their belance of paymenta deficit,gince it argued that these continual deficits have an inflationary effect upon the world economy and inside the U.S. as well. of couras benind those argumenta lie the feara of 0.5. hegemony. This uncertainty explaine the disappearance of fold into private honrds, the speculators are hoping for @ price increase and ao make & 'killing' when. they unload it back onto the market, <Alte:native ideas for increasing linuidity heave been circulating for a number of yeare now, The one that Britain and the 0.5. séem te favour’is that the International Monetary Pund should creste a new international reserve unit which would be aeceptable to all countries in the settlement of debts. The orucial problem with such «a plan is who is te éentrol thia creation of a new unit. And how will it be distributed end on what terma, The whole point in having reserves ia to enable one to continue buying when ones income is reduced, or when one wante to buy pore. than one's current income will allow. If the I-M.FP. is to control tha use of such reserves it means that it will be able to dictate economic policy te those who wish to borrow. Thie in fact hea been happening already particularly with the underdeveloped countries. Since those who put thea most into the Fund also get the moat say, thie has in effect meant that America has controlled the fund. On the one hand America has been following a policy of deficits for iteel?, paying ita creditors with paper dollars: on the other it hae, though the I.M.F., been foreing the amall fry of the world {including Britain) to adept defletionary policles when thay have ran into balance of paymentea problema, Therefore it (the 0.5.) has been getting the best of both worlds, Shoulé a new international unit of money be created which hoa been out off from ite @old base the stage will ba set for the complete domination ty the U.5, and an orgy of inflation, This is wheat the cther capitalist powers are
are Biraid of. But the urreancy of the situation ia bocoming olear. The Financial Times editorial of January 3rd said "The pressure on gold Supmlies in fenerahl... atid the possibility that it: pay inérease makes it even more urgently necessary to apret on aome meane of stretching these supplies te support the continued growth of world trade.” -ur= ther on talking of the conflict between the U.8. and France it said "werlt may be neceseary to devise &@ compromise scheme in which oompoaite units are created for use @a a supnlement to gold in international Betilement."
Ett
There is one sapect.of the problem that I have not deslt> with yet, and that ia the question of the underdeveloped countries. Heading the feaneral and financial press this question only rarely gete 8 mantion, nor ie thia surpvriging eines thea control of inte rmationsal Lignidity ta an-sapect of imperialist dominestion of the colonial and ex=-colonial countries. On this aspect all the capitalist powers are united.
Tf the situation between the imperiflist powers ia contradictory then the relationship between them and the colonial world is doubly ec. The problem is tot only that the imperialist powers want to obtain raw materiale and food producta as cheaply as vorsible, but they aleo need to Bell their exports to such countries As dearly sa: possible. Tesanite the fact that the largest increases in world trade since the end cf the war has been between advanced countries, thie doas not mean thet the trade between the ‘two worlds! has declined, far from it. To attempt te overcome the problem of the realization ef surpluses value the imperialist powers will look more and more to the underdereloted world. It is in the process of world trade that the exploitation of the colonial world tekes place by the imperieliata, even after formal independence hae been eranted. "Trade between industrislized end underdeveloped countriea at ‘world market prices! is not based on an aquel-exchange of value, bit-oon a constant tranefer cf value (aurzlus profit) from the underdeveloped ta the industrial countries, exactly in the same way as exchanges between firms, some of which enjoy monopolies of technicel knoxhow (and ec produce at « level above the national average), transfer surplus profit to those firms on the national market of a crpitealiet country.” (1).
ina Crude way thie-can-be sean from the balance of trade figures for primary producing countries. over the years 1957 to 1965.
Exnorts Imperte Balance in i billion.
157 Taa8 Boa -1.16
1958 7.0% 6.09 =1,06
1959 7.46 7296 “0.50
1960 TeBT 6,89 =1.02
1961 8,03 9,03 =1,.00
1962 A.h1 $.19 -0.74
1965 9,22 9,65 =0.45
1964 10.08 10.69 =0.61
1965 10.57 11.41 -0,.58
(from table 26 p. 80 “eonomic Review, Nov. 1966)
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