Ernest Mandel

The Dollar Crisis

Source: From World Outlook, Paris and New York City, 12 April 1968, Vol. 6, No. 14.
Translated: by World Outlook.
Transcrition & Marked-up: by David Walters for the Marxists’ Internet Archive, 2009.
Public Domain: Creative Commons Common Deed. You can freely copy, distribute and display this work; as well as make derivative and commercial works. Please credit “Marxists Internet Archive” as your source, include the url to this work, and note any of the transcribers, editors & proofreaders above.

Will the dollar follow the pound? Many capitalists both big and little asked themselves this question worriedly in the aftermath of the English devaluation. A couple of weeks ago this worry turned into panic. As a result there was a run on gold, and the central banks of the main capitalist countries had to do something. They instituted a dual “market” in gold – one market for central banks, in which gold continues to be valued at $35 an ounce; and a private or free market in which its price is to be established by the law of supply and demand.

The apparent parallel between the pound and the dollar should not deceive us, however – the position of American capitalism is fundamentally different from that of British capitalism.

In Great Britain, the pound sterling’s international function as a reserve currency was in contradiction to the country’s economic decline. Although British industry no longer plays anything but a secondary role in the world economy, the British bourgeoisie stubbornly insists on hanging onto “the good old pound.” Nonetheless, sooner or later the pound will cease to serve as a reserve currency, and the sooner this readjustment is made, the better it will be for the British workers. (Their livelihood has just been brutally cut by $1,200,000,000 to comply with the demands of the international bankers.)

In the United States, on the other hand, the dollar’s international role matches the economic power of American imperialism. If for two decades central banks, private banks, and capitalist enterprises have competed for dollars, it is because these dollars represented and still represent a means of purchasing a practically unlimited range of commodities – both consumer goods and machinery. The dollar’s function as a reserve currency corresponds to the balance-of-trade deficits which most capitalist countries have with the United States.

If tomorrow the United States had to practice a rigorous deflationary policy, or had to devalue the dollar, this would again strike panic in the other capitalist countries. They would risk losses in three respects. First their sales to the United States would drop and as a result the economic situation of their countries would take a turn for the worse. Secondly, American exports to Europe and Japan would rise and competition would become increasingly stiffer. Finally, the threat of a new dollar shortage would arise and this would precipitate endless difficulties in trade and finance. What is the source of the sudden lack of confidence in the dollar? It certainly does not lie in American private capital exports because these are in balance with the repatriation of capital dividends to the United States.

”The-Americans-who-are-buying-‘our’-factories-with-the-paper-dollars-they-are-sending-us” is a Gaullist myth. In reality the American monopolies are buying up the European factories with the capital which the European banks advance as loans. And these banks loan them this capital because the American monopolies are richer, more solid, make higher profits, and offer more security than the European monopolies. What must be challenged is the whole logic of the capitalist system, not Wall Street’s diabolical use of the dollar.

The lack of confidence in the dollar has been created by the persistent deficit in the American balance of payments which arises from US government expenditures abroad Hidden behind this discreet rubric are two dramatic operations: financing the Vietnam war; granting military aid to reactionary and dictatorial regimes in many countries (from the military dictatorship in Indonesia to General Mobutu’s military dictatorship in the Congo-Kinshasa and from the regime in Seoul to the one in La Paz).

It is these dollars that account for the constant flow of gold from the United States; it is these dollars that created the recent panic. One need only pose this problem to recognize the impasse in which the international bourgeoisie finds itself.

For, these dollars are not being spent for narrowly “American” aims; they are being spent to maintain the whole world imperialist system, which is more and more shaken. The real answer to the gold crisis would be to say: ‘Americans, dissolve your Atlantic pact, SEATO, and your assistance pact with Japan! Liquidate your overseas bases. Bring your soldiers home.”

But the international bourgeoisie does not dare give this answer; first of all, because it would risk rapidly provoking that worldwide dollar shortage which I have just spoken about; and, secondly, because it would risk leaving world capitalism defenseless against the rising tide of anticapitalist forces throughout the world.

In urging Washington to reestablish its balance of payments, not by eliminating its unproductive foreign spending but by balancing the budget in the United States, the international bourgeoisie would like to force the American workers to pay the full cost of the Vietnam war. Washington, however, is not particularly entranced by this idea because the opposition to the Vietnam war is already very great. It would like to prevent this opposition from spreading too much among the working class. So, the American answer was, “Pay part yourselves.” And the agreement on a dual market in gold does, in fact, imply that the European capitalists will pay part of the costs of this dirty war.

The dual market is only a temporary measure. The free market is precipitating a rise in the price of gold. It is hoped that this increase will bring gold back on the market held in the form of savings (more than a billion dollars a year over the last years). In this way the price would become stabilized and another panic would be avoided.

But two conditions are necessary for this system to function perfectly. First of all, it is necessary that the two markets be completely separate, that is, that no central bank buy gold at $35 an ounce in Washington for resale later at $kO an ounce (or tomorrow at still higher prices) on the free market. But for many small poor countries the temptation is sure to prove too much. Thus there will be lapses. Let us not forget either that American monopolies control some of these countries. For these monopolies, patriotism does not exist, no profits are too small to be overlooked: and they can make sure and substantial profits by trafficking in gold.

Secondly those holding gold must be sure that the American government will not, despite everything, jump the price to $50 or even more. As long as they retain this hope, gold will not be released. And as long as it is not released the price on the free market will threaten to rise apace – that is, speculation will continue and the pressure for devaluing the dollar will grow.

The Americans can “break” the price on the free market by throwing on it a great quantity of gold, that is, by officially demonetizing gold. But they hesitate to take such a step in the absence of complete solidarity among the central banks of all the imperialist powers. Such solidarity is chimerical, however, in the capitalist system where competition reigns. In these conditions, the plans to create a world currency detached from gold have slight chance of success. This means that the monetary crisis will persist, or more precisely that it will last as long as the capitalist system endures.

Last updated on 29.12.2011