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Henry Judd

What Devaluation Means to British

(26 September 1949)

From Labor Action, Vol. 13 No. 39, 26 September 1949, p. 2.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The devaluation of the British pound sterling announced by Sir Stafford Cripps is bound to have a serious effect on the British people. Let us try to see how devaluation will work.

Last week the pound was worth $4.03 – that is, it cost that much to buy one British pound. On the European black market and in New York, it was worth only $2.90 or thereabouts. Now its official rate is only $2.80, a 30 per cent drop.

Question: Who was anxious to devalue the pound, and why?

Answer: American government representatives and economists were anxious for this devaluation. They said that England must export more goods, to help close up the gap between its exports and imports. But they claimed this could not be done because English prices were too high. Devaluation makes it possible for foreign lands to purchase British goods for fewer dollars – that is, British prices will go down and thereby (presumably) exports will go up. A British car which sold for 1,000 pounds ($4,000) before devaluation will still be priced at 1,000 pounds, but this will actually mean only $2,800 now. The argument that devaluation will stimulate export sales in the dollar market by lowering prices is the principal weapon of the pro-devaluationists – needless to say, the Americans.

Question: But are there other effects of a not so beneficial nature? What will happen in England itself?

Answer: Devaluation in and of itself will not have any automatic effect. It will, however, set into motion a whole series of factors which can have serious effects upon the British people. These factors (which Cripps and the Americans naturally do not emphasize) may be listed as follows:

  1. British imports will automatically become more expensive, since it will cost more pounds to buy American goods – which are, naturally, priced in dollars. The effect on imports will be the exact opposite of the effect on exports, and tend to largely cancel out the gains mentioned above. Britain will be forced to cut its imports (now more expensive), and this in turn would lower British living standards.

Boosts Cost of Living

  1. It is assumed that dollar prices will tend to drop (as they have for the past year), and therefore the cost of imports will drop. But will it be equivalent to the 30 per cent devaluation of the pound? There is no reason to believe this. Dollars gained by export trade will increase, it is true, but this gain will quickly be drained away to the higher cost for imports. The imbalance will remain substantially the same. And suppose that export trade does not increase as much as expected? The net result will be that Britain will be worse off than before. Who will guarantee this increase in exports, particularly since America refuses to lower tariff barriers and other nations retain theirs?
  2. Devaluation will seriously disturb the home market in England. Devaluation without an increase in production at home will make matters worse since exports can not be increased without a productivity increase. Domestic prices rise (it is estimated they will increase at least 5 to 10 per cent). Why? Because the cost of food, raw materials and other imports will increase – as explained above – and this will naturally add to production costs. As usual, the cost increase will be passed along to the consumer.
  3. But won’t wages increase? If they do, this will start the famous price-wage spiral and automatically defeat the whole aim of the devaluation! That is, it will send British prices up again, whereas the whole alleged purpose of devaluation is to lower British prices. Therefore, the devaluation measure will find the British government seeking to freeze current wages and thus defeat this inflationary trend. Prices will be going up wages will remain stationary and the result will be: lower and more austere British living standards.

The only possible conclusion is that devaluation is an effort on the part of American capitalism to make the British masses pay a large share of the price required to keep British economy alive. It is thus reactionary in all respects, and must be fought off by the entire British labor movement. Devaluation means the British people pay.

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