From Bulletin of Marxist Studies, Vol. 1 No. 3, Winter 1968–69.
Scanned and prepared for the Marxist Internet Archive by Paul Flewers.
Minor spelling errors have been corrected without indication.
Marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
The problem of international liquidity [1] has been the grumbling appendix of imperialism for a number of years now, one that has been nagging and insistent. With the devaluation of the pound sterling last autumn it seemed to be in imminent danger of assuming unmanageable proportions. Therefore it is necessary to analyse what this means and the possible consequences.
A significant indication that this question was reaching crisis point was that in the year 1966 no new gold was added to world (that is, capitalist world) reserves. The January 1967 Economic Letter of the United States First National Bank pointed out that this was the first time in modern times that this had happened. All the new gold that came on to the market went into the hands of private speculators or was used for industrial purposes. The letter said ‘during the first nine months of 1966 official gold stock, as published, actually declined by some $50m, as compared with a gain of $250m in 1965’. From 1955 to 1964 the average growth of official gold stocks each year was in the order of $600m. Since 1966 official gold stocks have actually declined. [2] ‘The situation became dramatic when official stocks of gold after the devaluation of the pound lost over $3000m to private speculators.’ [3] The largest loser of gold has been, of course, the United States, which had $23,000m in gold reserves in 1957, but today this has sunk to $10,000m.
To understand the full significance of all this it is necessary to retrace our steps a little and examine how the present international monetary system came into being. Up to the early 1930s there operated in most countries what was known as the Gold Standard. This was the system whereby the amount of currency in circulation was in a ratio to the quantity of gold held, and gold was also used to settle outstanding international debts. Therefore when a country had a balance of payments deficit and it lost gold from its reserves there was supposed to be an automatic reduction in the amount of money in circulation, and ultimately there would be deflation, unemployment, decreased imports, etc. [4]
Because of the great slump in the early 1930s, 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 described as ‘beggar my neighbour policies’.
After the Second World War there was devised what is known as the Gold Exchange Standard. Under this system the only country whose money was directly related to gold was that of the US. [5] However, all currencies are now linked together via the dollar and gold. The US Treasury set the price for gold at $35 per ounce in 1934, and has not increased this price since. Therefore there is now a system where the rest of the capitalist world currencies are only indirectly linked with gold, and this for international purposes only, since exchange rates are quoted in dollars or gold. But for internal usage the limits put upon the quantity of money circulating by the old Gold Standard no longer obtain. An integral part of the Gold Exchange Standard is that the dollar and sterling have played the role of key or reserve currencies, in other words they were accorded a special status, but it should be noted that as far as sterling is concerned this has been by courtesy of the US.
Due to the greatly expanded world trade since the end of the Second World War there is no longer sufficient gold supplies to maintain an adequate reserve. World trade itself has grown at a staggering pace in the postwar period, more than trebling in the last 20 years, and more than doubling over the last 10. [6] Between 1950 and 1966 world trade increased at the rate of 7.5 per cent per annum, gold stocks by less than 1.5 per cent. This led to an extension of the use of the two key currencies, particularly of dollars, as reserves. Central banks have been willing to hold these two currencies as part of their reserve. Since both are on the Gold Exchange Standard this has meant that in theory both could be regarded as being as ‘good as gold’.
This was fine so long as both currencies were strong. But one of the major problems has been that sterling has not been strong. Given the high ratio of liabilities to reserves (running at approximately four to one since 1945, as against one to one before the war) it has meant that the British contribution to international liquidity has been declining, and an unstable element. Similarly the decline in US reserves has been matched by a rise in its liabilities to overseas creditors. In the period 1957–68 these liabilities rose from $10,000m to $33,000m. [7]
The Gold Exchange Standard was able to function quite well so long as all the capitalist countries outside the US were short of dollars. These were needed to buy goods and capital equipment which in the immediate postwar years only the US could supply. During this period dollars were eagerly sought after, and the US had a surplus on its balance of payments. The situation began to change in the mid-1950s when the boom in Western Europe and Japan really got into its stride. These areas began to build up large dollar balances, and the US found itself running into balance of payments difficulties. In some respects there is a similarity between the US’s and Britain’s problems, but they are more apparent than real. The US has a favourable balance of trade, that is, it is still selling more overseas that it imports, its balance of payments deficits arise from other sources. (There is some indication that the balance of trade may turn against the US this year.) The British problem is that along with some of the factors that relate to the US it also has an unfavourable balance of trade, that is, it imports more than it exports. This has been usual for Britain historically.
The deficit of the US has two aspects. On the one hand it is an expression of the increasing strength of its competitors. On the other hand it is an expression of its still great superiority in economic and technological terms. The US has still a favourable balance of trade as can be seen from the following.
Where does the deficit come from then? From two main sources, overseas investment and military expenditure overseas. In much the same way as Britain, the US has increased its overseas investments tremendously since 1945. The value of this investment has risen from $19 billion in 1955 to well over $50 billion in 1966. [10] The reason for this is not hard to find, it has been estimated that the rate of profit for overseas investment for US corporations is 15 per cent as compared with 10 per cent at home. Moreover, this capital export helps maintain sagging profit rates at home, that is, all things being equal, if the capital exported were to be invested at home it would further depress the existing rate of profit. Military and other US government overseas grants amounted to $3.4 billion in 1965, in the same year the net private overseas investment was $3.7 billion. In that year the US had a balance of payments deficit of $1.4 billion.
Similarly, Britain has increased the export of capital on a great scale since the end of the last war, the latest estimate puts it at £6,000m, and the latest total for British overseas investment is now estimated to be in the order of £11,500m. [11]
However, certain factors have to be noted about this. Investment income for 1950 was gross £271m, and net £159m. By 1961 these figures were £676m and £252m respectively. [12] This would seem to be a healthy trend. But net property income as a percentage of means of payments for imports declined from 14.0 per cent in 1950 to 6.0 per cent in 1961, that is, although the total amount has increased the specific weight of this item in the balance of payments has declined. (Historically the decline has been much greater, in 1913 this item accounted for 25 per cent.) [13] Another element has to be noted, this is the increase in the Government Account in the balance of payments figures; in 1950 this stood at £136m, by 1964 it had swollen to £439m. In this way both of the major imperialist powers have a common pattern, that is, rising foreign investment, rising overseas military expenditure, and continual balance of payments deficits. Military expenditure overseas has been a big factor in both cases. The British government deficit on current account, that is, the amount it spends overseas less any amount of income from such activities, rose from £67m in 1955 to £273m in 1966, there being some reduction in 1967 to £258m. [14]
Although there is no close correlation between capital exports and overseas military expenditure in the sense that the two items do not necessarily take place in the same countries, it is obvious that the intensity and extent of the colonial revolution since 1945 must account for a large part of overseas military expenditure. Therefore, it can be seen as a necessary cost in an overall way for the maintenance of overseas investments. This is why both the US and Britain have been putting pressure on their allies in recent years to share some of the cost involved.
I said earlier that the deficit of the US was an expression of its own superior economy and the relative strengthening of its capitalist competitors. This can be explained in this way. The large dollar reserves accumulated by Western European countries are an indication of their recovery from the prostration of the immediate postwar years and their increasing role as competitors. The contradiction arises because the dollar reserves are only one side of the coin, the other side is that these reserves represent a large penetration of US capital into Western Europe. In 1957 there was approximately $500m US investments in Western Germany, by 1965 this had risen to around $2400m. Since 1958 US investment in Western Europe as a whole has been over £10,000m, which represents more than a third of the total US overseas investment in that period. In Britain, in 1957 US investments stood at a little under $2000m, by 1965 this had risen to $5000m. [15] What has been taking place has been a massive invasion by US capital and the taking over of some dominant sectors in some industries. For instance, in Britain 80 per cent of the typewriter industry is owned by foreign-based companies, mainly US; 50 per cent of the British automobile industry is now controlled by US firms. In the field of computers, a key industry in the development of modern technology, the industry is becoming dominated by US giants such as IBM. In the field of electronics, US companies hold a dominating place in all Western Europe. One writer has put the position in these terms: ‘Fifteen years from now it is quite possible that the world’s third largest industrial power, just after the US and Russia, will not be Europe, but American industry in Europe.’ [16]
This invasion, and dominance, is one of the major questions at the heart of the ‘liquidity dispute’. The French have been the most vocal and persistent critics of the large American deficits, and until this year had been converting their dollars into gold. They were not the only ones, most of the other Western European countries have been doing the same, but without such fanfare. Hence the steady decline in US gold stocks. There are two aspects to this resistance to US capital inflow. Firstly, there is the fact that the Europeans have been largely paying for this themselves. Only 10 per cent of the $4000m invested by US firms in Europe in 1965 came from direct transfers from the US. [17] In other words by holding large amounts of dollars the West European countries help to finance the US balance of payments deficit and indirectly US investments in their own countries. The second aspect is the fear that vital parts of the economies will be completely subordinated to US interests. The problem here is that there is a fear that in the event of a general recession it will be European subsidiaries that will suffer cutbacks, rather than the US parent company; and also that research will more and more be concentrated in the US and Europeans will become even more dependent than they are today for technical advance. Given the fulfilment of the above projection it would mean the transformation of Western Europe from a position of relative vassalage to one of absolute dependence. De Gaulle’s ‘anti-Americanism’ is therefore far more than the whim of an old man. (In the same way the French attitude to British entry into the Common Market can be viewed not as something irrational but because they see Britain as the Trojan horse of US imperialism.)
The accumulation of gold has led to an intensification of the quest for a settlement of the liquidity problem. At the moment the large dollar balances that have accumulated in Europe and the rest of the capitalist world have helped to lubricate international trade. These dollar reserves also have the advantage of earning interest, since they are largely held in the form of short-term US government bills. The exchange of these into gold means that no interest is earned. Therefore the larger the amount of reserves held in gold the larger the amount of capital that is frozen and unremunerative.
At present the official gold price of $35 per ounce fixed in 1934 is one of the big disputes within the liquidity problem. The US was until recently willing to buy or sell gold at this price to any non-American citizen or government. However, since this is a fixed price it means that because of inflation the value of gold in real terms has declined over the years. In this situation where large holdings of dollars have accumulated with overseas creditors it has entailed a transfer of value to the US, that is, the longer you hold a dollar in a situation of rising prices the less you will be able to obtain for it. The French, and others, have been arguing that one solution to the present shortage of international liquidity would be to increase the price of gold, even suggesting $70 per ounce would be a proper price today. In effect this would mean a devaluation of the dollar and all other currencies in relation to gold. This the US has strongly resisted. One reason for this opposition is that at present the US dollar is probably over-valued in relation to other currencies [18] and any tampering with it would probably entail this being corrected to the further detriment of the US. Along with the suggested price increase for gold there has been great pressure put on the Americans to reduce their balance of payments deficit, since it is argued that these continual deficits have an inflationary effect upon the rest of the world economy. Of course behind these arguments is the dispute about power and US hegemony.
The uncertainty engendered by these discussions explains the disappearance of gold into private hoards, the speculators were hoping for a price increase and so make a ‘killing’ when they unloaded it back on to the market, or back to the US Treasury.
When sterling was devalued last November (1967) the pressure on the gold market became very great indeed. Therefore earlier this year there was a hurried compromise reached between the US and the other central banks of the capitalist world. This compromise in effect decided that there would be two prices for gold. The first was the old rate of $35 per ounce at which the central banks would buy and sell gold to each other, but not to private speculators; the second price would be a free-market price which would be determined by supply and demand on the world market. This decision helped to ease the situation somewhat, since the free-market price for gold rose above the fixed price and some of the speculators unloaded their gold taking a much more modest (but still considerable) profit than they had anticipated. However, most commentators agreed that this was only a temporary measure.
Alternative ideas for increasing liquidity have been circulating for a number of years now. One that both the US and Britain favoured seems to have won out in the end. This was that the International Monetary Fund should create new international reserve units which would be acceptable to all countries in the settlement of debts. The crucial problem of such a plan is who is to control the creation of this new unit, and how will it be distributed and on what terms.
The whole point in having reserves is to enable one to continue buying when one’s income is reduced, or when one wants to buy more than current income will allow. If the IMF is to control the use of such reserves it means that it will be able to dictate economic policy to those who wish to borrow. This in fact has been happening already, particularly with the underdeveloped countries. Since those who put most into the fund also get the most say, this has in effect meant that America has controlled the fund. On the one hand America has been following a policy of deficits for itself, paying its creditors with paper dollars; on the other hand it has, through the IMF, been forcing the small fry of the world (including Britain) to adopt deflationary policies when they run into balance of payments problems. Therefore the US has been getting the best of all possible worlds. Should a new international unit of money be created which has been cut off from its gold base the stage will be set for the complete domination by the US, and an orgy of inflation. This is what the other capitalist powers are afraid of.
However, the urgency of the situation was becoming evident some two years ago. The editorial of the Financial Times of 3 January 1967 said: ‘The pressure on gold supplies in general ... and the possibility that it may increase makes it even more urgently necessary to agree some means of stretching these supplies to support the continued growth of world trade.’ Further on, talking about the conflict between the US and France it said: ‘ ... it may be necessary to devise some compromise scheme in which composite units are created for use as a supplement to gold in international settlement.’ This compromise was in fact reached at a meeting of the IMF in September 1967. Then a scheme was agreed to create Special Drawing Rights (SDRs). SDRs have been said to be some kind of new international currency, and their creation was trumpeted as a solution to the liquidity problem. However, on closer examination their real value is much more limited. Member countries will be able to pay off external debts by transferring their claims on the Fund to other nations. In this way they are a form of overdraft to which they will be entitled to over and above their normal quotas, which depend upon their contributions to the Fund. Therefore the ability of the IMF to create SDRs will depend upon the amount of gold and national currencies it holds, in just the same way as any commercial bank is limited in the amount of overdrafts that it can grant by the amount of reserves it holds. In both cases there is a definite ratio. Even when SDRs become fully operative in 1969 they will only be creating new reserves at a rate of one to two billion dollars per year, while trade grows at the rate of seven billion dollars per year. Therefore the gap between reserves and needs will not be appreciably narrowed. [19]
There is one aspect of the problem that I have not yet dealt with, this is the question of the underdeveloped countries, that is, the colonial and semi-colonial world. Reading the general and financial press this aspect is rarely mentioned, nor is this surprising since control of international liquidity is an aspect of imperialist domination of these countries. On this aspect all the capitalist powers are united.
If the situation between the imperialist powers is contradictory, then the relationship between them collectively and the colonial world is doubly so. The problem is not only that the imperialist powers want to obtain raw materials and food products as cheaply as possible, but they also need to sell their exports to such countries as dearly as possible. Despite the fact that the largest increase in world trade since the end of the Second World War has been between the advanced countries, this does not mean that the trade between the ‘two worlds’ has declined; far from it, it also has increased. To attempt to overcome the problem of realisation of surplus value the imperialists will look more and more to the underdeveloped world. It is in the process of world trade that much of the exploitation of the colonial world takes place, even after formal independence has been granted:
Trade between industrialised and underdeveloped countries at ‘world market prices’ is not based upon an equal exchange of value, but on a constant transfer of value (surplus profit) from the underdeveloped to the industrialised countries, exactly in the same way as exchange between firms, some of which enjoy monopolies of technical know-how (and so produce at a level of productivity above the national average), transfer surplus profits to those firms on the national market of a capitalist country. [20]
In a crude way this can be seen from the balance of trade figures for the primary-producing countries over the years 1956 to 1967. [21]
|
Year |
|
Exports |
|
Imports |
|
Balance |
|---|---|---|---|---|---|---|
|
1956 |
7.15 |
7.64 |
−0.49 |
|||
|
1957 |
7.38 |
8.54 |
−1.16 |
|||
|
1958 |
7.03 |
8.09 |
−1.06 |
|||
|
1959 |
7.46 |
7.96 |
−0.50 |
|||
|
1960 |
7.87 |
8.89 |
−1.02 |
|||
|
1961 |
8.03 |
9.03 |
−1.00 |
|||
|
1962 |
8.41 |
9.19 |
−0.78 |
|||
|
1963 |
9.22 |
9.65 |
−0.43 |
|||
|
1964 |
10.08 |
10.73 |
−0.65 |
|||
|
1965 |
10.56 |
11.52 |
−0.96 |
|||
|
1966 |
11.27 |
12.07 |
−0.80 |
|||
|
1967 |
11.65 |
12.65 |
−1.00 |
Thus we can see for the whole period the primary-producing countries were in deficit, and since such countries have very little in the way of invisible earnings this is important. One point should be made, such countries as South Africa, Australia and New Zealand are included in this category. Also world prices have moved against primary-producers during this period, so that to obtain an equivalent amount of exchange more products would have to be exported. Henry Vallin, in the Summer 1966 issue of International Socialist Review, makes the point tellingly in relation to Nkrumah’s downfall:
... the real conspiracy that brought Nkrumah down was not the military one ... The real conspiracy was the catastrophic decline in the price of cocoa during the last seven years to nearly one-fifth of what it was in the late 1950s. From a peak of over $1,000 a ton in 1957–58, the price dropped to $504 in 1963–64 and down as low as $210 last summer ... [22]
This of course reveals one side of the picture, the transfer of surplus value to the imperialist powers and the unbalanced trade of the colonial countries. However, this itself presents a contradiction because the lower the income of these countries the less they are able to import. Ernest Mandel indicates how this is partially overcome:
... the adverse evolution of the terms of trade is no absolute check on the imports of manufactured goods by underdeveloped countries, so long as supplementary purchasing power can be found: a) in the revenue of the native ruling classes, exchanged for imported luxury goods (which might imply a drain of gold and silver, if the adverse trend of the terms of the trade creates balance of payments deficit); b) through the increase in the quantities of primary products produced and exported, which might offset the effects of the adverse movements of the terms of trade on balance of payments; c) through a development of capital exports by industrialised countries, which play the role of credit, enabling the underdeveloped countries to increase their imports of manufactured goods ... [23]
It is this last point that has special relevance here.
Referring back to the table of the primary-producing countries trade balances we can see why the provision of credit assumes such an important part of the question of international liquidity. Allowing for some effect from Mandel’s a) and recognising that the ultimate outcome of b) will probably be a further decline of income per unit, and possibly a decline in total income, the question of credit assumes an overwhelmingly predominant place not only for the underdeveloped countries but also for the imperialist powers. In this context it is interesting to note that immediately after the coup in Ghana European banks advanced a loan to the military regime, and the IMF moved in a little later with a larger loan. This had been previously refused to Nkrumah, for obvious reasons, but the imperialists were very anxious that the economy of Ghana should not grind to a halt, for this would imply a cessation of imports.
Total reserves of gold and foreign currencies for the industrial countries in 1955 stood at $37.50 billion, by 1966 they had risen to $49.72 billion. However, those of the primary-producing countries had only risen from $10.69 billion in 1955 to $13.98 billion in 1966. [24] Therefore as a whole world liquidity was becoming smaller in relation to the increased trade, and the primary-producing countries were actually slipping back, that is, although total reserves have risen their ratio to trade declined. From the point of view of the needs of the primary-producers they should have had access to more liquidity. Balogh explains this so:
Poor countries will probably have a greater need for holding reserves than richer ones, and this for two reasons. On the one hand, the instability of primary-products markets and the harvest is notorious, and they mostly depend on a few products of this type, which increases their risk. On the other hand their capacity to obtain credits on reasonable terms is much less than that of the richer countries. Unless purposive international institutional arrangements are made ... the limitations on the choice of policy (for example, the prohibition of direct control over imports and exports) imposes disproportionate burdens on poor countries. Their acceptance of such burdens is rational only if international arrangements are made to offset this burden by special grants or credit arrangements. [25]
However, from the point of view of the underdeveloped countries the suggested remedies are at best only palliatives that cannot basically alter their situation. Their poverty and slow development remains a function of imperialism just so long as that relationship exists. Loans can only be short-term measures, nor should the cost of them be ignored. But from the imperialists’ point of view the grants and loans are very profitable. The profitability of loans needs no explanation, both in terms of interest and induced exports. Grants need a word or so more. Seen from the point of view of the ‘national interest’ the grants of aid by the imperialist powers to underdeveloped countries seem to be very altruistic. However, seen from the point of view of the monopolists who are interested in exporting either consumer or capital goods, these grants to colonial countries are a permanent subsidy to the metropolitan exporters. In just the same way overseas military expenditure can be seen as a debit in the balance of payments account but as a gift to the monopolists. The point here is that the whole of the economy, via taxation, pays for aid and military expenditure whilst the monopolists make the profit. True enough that they also pay taxes but this is only a fraction of the cost of either of these two items, particularly in Britain where the incidence of taxation on consumption has risen far more than that on companies since the mid-1950s.
Another aspect of this question is that more and more developed countries who give aid are tying the loans, so that the recipient country is forced to buy from the donor. The US has recently been in conflict with the International Development Agency over making the quota that it subscribes to the Agency tied, and because of the balance of payments deficits it is encountering now insists on 95 per cent of its aid being tied.
At the moment it is difficult to hazard any prediction as to how the imperialist powers will resolve the related problems of international liquidity. Without the massive American deficits the situation would be catastrophic for the capitalist world there would be a tremendous contraction of international trade. Therefore the French suggestion of a return to the Gold Standard which implies a drastic reduction of international liquidity in present circumstances – can only be seen as an extreme bargaining position. No matter how much they twist and turn the West Europeans are caught in a dilemma that they will have to face up to; this is the fact that despite their improved financial position since the mid-1950s they are in no position as yet to have a direct confrontation with the US. The overwhelming technological and economic superiority of the US ensures its eventual domination in the financial sphere, even though it appears to be somewhat weakened at the moment; for as I have tried to indicate this apparent weakness flows from its basic strength. Moreover, since Congress has at last passed new tax increases this will take some steam out of the US economy, which in turn will affect its balance of payments.
The devaluation of sterling last November opened a phase in the postwar world financial structure. Steps are now being taken to end sterling’s role as a reserve currency. The Basle $2,000m credit that was arranged this September does in the words of The Times indicate ‘an epoch-making plan’. [26] In essence this plan is one that will allow Britain gradually to divest itself of the large sterling balances that are held as reserves by a number of countries. This loan will enable Britain to meet these obligations if need arises without undue strain on British reserves, of course the money will have to be repaid but over a period, so it gives time to put matters in order.
But with the gradual rundown of sterling as a reserve currency comes ever nearer the problem of expanding international liquidity. In some ways the international capitalists are in a cleft stick. On the one side it is argued that to put matters right both Britain and the US have to reduce deficits, on the other hand it is recognised that they cannot do this without some other form of international liquidity being found, for the removal of the deficits means a contraction of liquid funds. Given the fundamental irrationality of the present system, where international reserves are still tied to gold, and there is sufficient of this commodity to serve its dual function as a measure of value and an industrial material, it seems that the problem is almost insuperable. Moreover, if the Vietnam war is ended within the foreseeable future this will mean a further reduction in the US deficit and the predictable consequences. This will further strengthen US imperialism, since it will be better equipped to exert its economic superiority over its rivals. This liquidity question partially explains the reasons for the desire of the US to pull out of Vietnam. It is not only that it has been unable to defeat the NLF, but their very efforts to defend imperialist interests has actually led to a weakening of its own position vis à vis its imperialist rivals. This very exertion of tremendous military strength has paradoxically exposed the system to unforeseen strains, thereby exposing the limits to which Keynesian ‘solutions’ to capitalism’s problems can be pushed.
Those who advocate the creation of an international dollar issued by the IMF [27] fail to realise that such a dollar will merely be the US dollar with a different hat on. The creation of such a monetary unit, one that is divorced from a gold base, would lead to US imperialism getting a firmer grip than it has already, and further international inflation, and all things being equal it is always the poor who suffer more from inflation than the rich.
For the underdeveloped countries an increase in world liquidity may mean further loans and a little more ‘aid’, but this will only be to chain them more firmly to the imperialist system. And this implies their further slide into poverty.
The editors of Monthly Review wrote in December 1966 that ‘the United States balance of payments deficit is a powerful time-bomb ticking away in the financial engine-room of the world capitalist system. Unless the bomb is defused in good time a shattering explosion is inevitable ...’ It is to defuse this bomb that finance ministers scurry around the world. That the bomb is still ticking away we should be in no doubt, Malcolm Crawford writing in The Sunday Times of 29 September 1968 said that unless a solution was found ‘the chances are still that there will be one unholy explosion in the engine shed, and the existing monetary set-up will blow itself to pieces’. The apparent stability of world capitalism is today more threatened than at any time since the great crash of 1929. Not only does it have the ‘time-bomb’ ticking away, revolution reaches new heights each year. The end of an epoch for sterling, France May–June 1968, Vietnam, gold crises, all these things are interconnected. They are not separate phenomena but merely different facets of the same system, and that system is one of semi-permanent crisis.
20 October 1968
The new exchange controls introduced by the Treasury and the Bank of England in October, which prohibits sterling being used to provide credits for trade between non-sterling countries, is a further blow to world liquidity. When all such credits that are outstanding are repaid the reserves will improve by about £100m. However the actual loss to world liquidity will be much greater since trade credits are usually three or six months, that is, this £100m could have financed trade of between £200m to £400m in any one year. This measure, along with the Basle credits, is an indication of the changing role of sterling in the international economy. It also indicates the continuing instability of sterling, and indeed the international monetary system.
6 November 1968
Readers should clarify in their own minds the difference between a trade deficit and a balance of payments deficit. The trade balance is the difference between physical imports and exports. The balance of payments is made up from a number of items, of which the trade balance is only one item. Such items as invisible earnings, that is, insurance, shipping, etc., enter into balance of payments, also earnings from overseas investments, and capital account.
1. Liquidity can be described, briefly, as command over money or near money, that is, those assets that one’s creditors will accept in payment for a debt, or that one can easily turn into money. For instance if one holds a bill of exchange that is due to be paid to you in three days’ time this is much more a liquid asset than a bill that is not due to be paid for 12 months. In this sense international liquidity is the reserve of ‘money’ that is available in the capitalist world that is acceptable for international debt settlement. It is a very important element within the system, because it partially regulates the flow of trade.
2. Financial Times, 2 July 1968.
3. Dr F. Aschinger, economic adviser to the Swiss Bank Corporation, Financial Times, 2 July 1968.
4. See appendix for definitions.
5. There are moves afoot to dispense with this link now.
6. See The Sunday Times, 20 September 1968.
7. Financial Times, 2 July 1968.
8. Quoted by D. Michaels in Monthly Review, December 1966.
9. National Institute Economic Review, August 1968, Table 5, p. 22.
10. D. Michaels in Monthly Review, December 1966.
11. Bank of England report quoted in The Sunday Times, 19 September 1968.
12. See A.R. Conan, The Problem of Sterling (Macmillan, 1966).
13. M. Barrett-Brown, After Imperialism (Heinemann, 1963).
14. M. Panic, Britain’s Invisible Balance, Lloyds Bank Review, July 1968.
15. See Geoffrey Owen, Financial Times, 2 January 1967.
16. See extract from J.J. Servan-Schreiber, The American Challenge, The Times, 15 July 1968.
17. See extract from J.J. Servan-Schreiber, The American Challenge, The Times, 15 July 1968.
18. P.M. Oppenheimer, Economic Welfare and the Price of Gold, Westminster Bank Review, August 1968.
19. See Malcolm Crawford, The Sunday Times, 29 September 1968.
20. Ernest Mandel, Contemporary Imperialism, New Left Review, No. 25.
21. NIER, National Institute Economic Review, August 1968, Table 26.
22. International Socialist Review, Summer 1966, original emphasis.
23. Ernest Mandel, Contemporary Imperialism, New Left Review, No. 25.
24. NIER, National Institute Economic Review, November 1966 and August 1968, Table 29.
25. T. Balogh, Unequal Partners, Vol. 2 (Blackwell, 1963), pp. 243–44.
26. The Times, 9 September 1968.
27. For example, Paul Derrick, World Liquidity and the Price of Gold (City Labour Discussion Circle, 1968).
Last updated: 14 October 2014