Imperialism and the Liquidity Crisis

[p006] IMPERIALISM and the ‘LIQUIDITY CRISIS’ Paper read at a symposium convened by Sheffield University Marxist Society in October, 1965 by Peter Jeffries IN THIS PAPER, I want to tackle a discussion of the present crisis of imperialism from the point of view of an examination of the crisis in the world monetary system which has been the pre-occupa- tion of the financiers, economists and statesmen of the world for the last few years. We shall deal with the present monetary crisis to the extent that it provides an indication of the more basic problems besetting the world capitalist system. After deal- ing in general with some aspects of the present world monetary situation and relating these to the basic movements in the economic system, we shall say something about the present problems afflicting British imperialism. The present monetary arrangements between the leading capitalist powers are dominated by the Gold Exchange Standard. For much of the period between the wars, until the 1931 financial crisis, a system known as the Gold Standard was in operation. Under this system the currency of each country was governed by the amount of gold which it held in its Central Bank. Should it run into a balance of payments deficit there would be a drain away of gold to those countries which were running a payments surplus and the deficit countries would then be obliged to deflate the volume of cash and credit in their own banking system (bringing an increase in unemployment) to correspond to their loss of gold. Asa result, at least theoretically speaking, this contraction of credit and drop in wages (caused by the increased un- employment) would force prices down, including export prices, so that once more the external pay- ments of the’ country would be brought into balance. This was, in essence, the manner in which the Gold Standard was supposed to operate. The 1931 crash made its continuation impossible. In order to try and extricate themselves from the © crisis many capitalist countries, including Britain, resorted to unilateral devaluation, producing, as-a consequence, the disastrous ‘devaluation cycle’ of the 30s. The net effect of each country trying to open up markets for its exports by reducing the value of its currency was severely to check the’ growth of world trade and the recovery from the crash of 1931. If such occurrences were to be avoided in the post-war world—especially in the face of the challenge presented by the enlarged bloc of ‘Com- munist’ states—alternative arrangements had to be devised. The establishment of the International Monetary Fund as a result of the Bretton Woods talks in 1943 represented just this attempt. The agreements which were eventually reached were a reflection of the supreme power of US imperialism in the post-war period. Most currencies in com- parison with the dollar were extremely weak in that many of the commodities which were needed by these states could only be obtained from dollar sources. Two further problems made it necessary

[p007] IMPERIALISM and the ‘LIQUIDITY CRISIS’ Paper read at a symposium convened by Sheffield University Marxist Society in October, 1965 by Peter Jeffries IN THIS PAPER, I want to tackle a discussion of the present crisis of imperialism from the point of view of an examination of the crisis in the world monetary system which has been the pre-occupa- tion of the financiers, economists and statesmen of the world for the last few years. We shall deal with the present monetary crisis to the extent that it provides an indication of the more basic problems besetting the world capitalist system. After deal- ing in general with some aspects of the present world monetary situation and relating these to the basic movements in the economic system, we shall say something about the present problems afflicting British imperialism. The present monetary arrangements between the leading capitalist powers are dominated by the Gold Exchange Standard. For much of the period between the wars, until the 1931 financial crisis, a system known as the Gold Standard was in operation. Under this system the currency of each country was governed by the amount of gold which it held in its Central Bank. Should it run into a balance of payments deficit there would be a drain away of gold to those countries which were running a payments surplus and the deficit countries would then be obliged to deflate the volume of cash and credit in their own banking system (bringing an increase in unemployment) to correspond to their loss of gold. As a result, at least theoretically speaking, this contraction of credit and drop in wages (caused by the increased un- employment) would force prices down, including export prices, so that once more the external pay- ments of the’ country would be brought into balance. This was, in essence, the manner in which the Gold Standard was supposed to operate. The 1931 crash made its continuation impossible. In order to try and extricate themselves from the ~ crisis many capitalist countries, including Britain, resorted to unilateral devaluation, producing, as a consequence, the disastrous ‘devaluation cycle’ of the ’30s. The net effect of each country trying to open up markets for its exports by reducing the value of its currency was severely to check the growth of world trade and the recovery from the crash of 1931. If such occurrences were to be avoided in the post-war world—especially in the face of the challenge presented by the enlarged bloc of ‘Com- munist’ states—alternative arrangements had to be devised. The establishment of the International Monetary Fund as a result of the Bretton Woods talks in 1943 represented just this attempt. The agreements which were eventually reached were a reflection of the supreme power of US imperialism in the post-war period. Most currencies in com- parison with the dollar were extremely weak in that many of the commodities which were needed by these states could only be obtained from dollar sources. Two further problems made it necessary

[p008] to devise an international monetary market which was different from the old Gold Standard. In the first place, the quantity of gold in the world (which was, of course, largely deposited at Fort Knox) had grown at an insufficient pace to meet the expansion in world trade, and secondly the supply of gold was still further reduced in relation to the supply of world currency which, under the impact of the war years, had greatly inflated in volume. The system which replaced the Gold Standard was the Gold Exchange Standard. Under this system all currencies are linked together, not only through gold, but also to the dollar. At the basis of the arrangement is the undertaking of the US Treasury to exchange gold for dollars at the fixed rate of $35 per ounce of gold. In effect, the dollar, under these arrangements, replaced the role which had formerly been the prerogative of the pound, around which the pre-1914 Gold Standard had re- volved. Such a system, which involved the creation of the International Monetary Fund, the World Bank and other financial institutions, was the only one possible for imperialism in the conditions of the post-war world. Given the collapse of the old Gold Standard, US imperialism and the dollar had to bear the brunt of the attempt to restabilise im- perialism and its currency system in the post-war world. The alternative: that. payment for all sales and purchases of goods on the international market be made in the currency of the recipient country where possible. This would have required ail countries to hold stocks of all others’ currencies. But the weaknesses and instabilities of almost all other currencies except the dollar precluded this. The strength and dominance of US imperialism meant that it was the only currency which, on a world scale, was acceptable as a general ‘reserve’ unit. In consequence many states built up large dollar balances. Per cent of Total reserves reserves held as $ Austria 925 35 France 5,392 31 W. Germany 6,257 32 Italy 3,729 43 Netherlands 2.055 18 Norway 214 86 Portugal 780 32 Spain 1,010 39 Sweden 833 77 Switzerland 4,095 33 Turkey 140 26 Canada 4,020 14 Japan 3,023 87 (Figures in $ mn. as at 31.12.64) FOURTH INTERNATIONAL, JANUARY 1966 We can note, in passing, the wide variation in the extent to which these various states hold their reserves in the form of dollars as opposed to gold, but the fact that the majority of Common Market countries tend now to keep a low proportion of their reserves in dollars is an important factor which we shall deal with later. But it is clear that the willingness of most capi- talist countries to hold a high proportion of their reserves in dollars brings enormous advantage to U.S.imperialism. The fact that U.S. liabilities now total close on $30,000 million means in effect a loan of this size to the US. In other words, it means that countries who have earned surpluses with the USA by selling goods etc. in the States are not spending them but holding them in idle balances. This brings two important advantages to the USA. Firstly, it means that she can overcome any tem- porary balance of payments deficit which may result from the too-fast development of a boom in the US economy. Because of the privileged position of the dollar she can allow the deficit to pile up in the dollar holdings of other states. Second, and much more decisive from the point of view of the present disputes in the world monetary circles, this allows the US to acquire investments abroad, prin- cipally in Europe, which are, in effect, financed out of her balance of payments deficit. This is an important point which we shall expand later. One French economist has estimated, for example, that the cumulative payments deficit of the USA from 1951-63 totalled $30,000 million, but of this only $7,500 million was financed by means of a gold outflow from the States. This contrasts with Britain where every major imbalance has been more or less immediately corrected through internal defla- tion combined with a loss of gold. The dominance of the United States has allowed her to escape from these harsh rules which apply to the rest of the system. The stability of these arrangements which have been briefly described rested upon the confidence which was generally felt in the dollar; it was ‘as good as gold’ and its strength was reflected in the place which it occupied in the post-war reconstruc- tion of the world monetary system. The present crisis in the system, reflected in the many, often con- tradictory proposals to reform the present arrange- ments, is a reflection of the fact that this confi- dence in the basis of the system is rapidly falling away. This, in turn, is of course only a reflection of the growth in the US balance of payments deficit which has taken place in recent years, reaching a high peak of $3,000 million in 1964, when for the first time since the ’30s there was widespread talk

[p009] IMPERIALISM AND THE “LIQUIDITY CLASS’ of a devaluation of the dollar. At the moment the US gold reserves stand at around $15,000 million, compared to over $24,000 million in 1949 and over $23,000 million in 1952. This growing imbalance in the US payments system represents not so much the immediate weaknesses of US capitalism domesti- cally so much as the enormous burden which she has had to carry in relation to the whole of the imperialist system over the last 25 years. The balance of payments weakness stems from three main sources. In the first place it reflects the enormous outflow of US capital abroad, principally into Europe. Capital has gone abroad, especially to the Common Market countries, in order to avoid pressures on the rate of profit at home and in order to take advantage of the rich European market and the cheaper supplies of labour which were available. Secondly America has been respon- sible for large sums of money spent abroad in an attempt: to bring some degree of social stability to a post-war world which had been dislocated by the war and in which the dangers of communism and socialism had to be combatted. Finally, the U.S. has spent vast sums since the Korean war in the international struggle against communism. Whilst this might have brought an increase in the profit-making possibilities for a section of the U.S. capitalist class and at the same time sustained a fairly high level of employment and economic ex- pansion, externally it has meant a growing balance of payments deficit. The present crisis in the monetary system derives from these factors: the size of the cumulative deficit run up by the US since the war, allied to the per- sistent imbalance of British capitalism and the glaring weakness of the pound, mean that these com- bined deficits now threaten to outstrip the gold holdings of the USA. The present heated debates in the international financial circles centre around methods of preventing a run on this major reserve currency while at the same time ensuring an adequate volume of ‘liquid’ resources which are acceptable as means of international finance and trade. This, in essence, is the meaning of the ‘liquidity crisis’, The central dilemma for the imperialists is this: without a large balance of pay- ments deficit by both the USA and (to a lesser extent) Britain there will be both an inadequate supply and a ‘maldistribution’ of liquid resources. But at the same time, the size of these required deficits, especially in the case of USA, necessarily places a question mark against the dollar and reduces the willingness of other countries to hold their reserves in this form. This unwillingness is increased when, as we have already seen, the ability of the USA to run up a large deficit without the economic consequences which would follow for other capitalist countries confers great advantages on American capitalism. This is especially so in the case of her ability to finance foreign investment out of these deficits in the manner we have explained. In recent years opposition has been growing from the Common Market countries and particularly from France. This growing resentment at what amounts to the privileged position now enjoyed by the dollar has coincided and is closely connected with the sharp rise of US investment in European manufacturing industry. From the ’60s onwards U.S. capital pene- trated the European engineering, rubber, food, pharmaceutical and petrochemical industries, with a more recent move into the fields of automobiles, agriculture and food processing and petrol. There is now about $5 billién of US capital invested in the industries of the Common Market countries, especially in Western Germany and France. These investments are invariably in the most modern and technologically advanced sectors of European capi- talism. The great size and enormous financial re- sources of US firms means that they are nearly always in a position of dominance over their puny European rivals. The entire turnover of the French electronics industry, for example, is about 30 per cent of that of IBM and only 20 per cent of that of General Electric. The biggest French computer firm, Machines Bull, is in a hopelessly weak com- petitive position. General Motors, the largest US car producer, has an output four times as large as that of Volkswagen, Europe’s largest producer. The turnover of General Motors is in fact 10 per cent higher than the Dutch national income! These are only given as examples: in most cases the general position is one of several hundred small European firms competing against two or three US giants who are enormously better equipped, organised and managed. - This penetration of U.S. capital into Europe, which threatens, at the present rate of development, to turn the whole continent into some sort of appendage of the United States, is, of course, at the base of the political conflicts between Europe and America, especially between France and the United States. General de Gaulle now feels that too many French resources are in pawn to America, and his proposals for the reform of the world financial system are designed to end the privileged position of America. Before dealing with these proposals in more detail something must be said about the position of British imperialism and of the pound in the present arrangements.

[p010] In outline, this position is well known and need be only briefly touched upon at this juncture. British capitalism emerged from the war con- siderably weakened in relation to the other capi- talist powers, principally America. As a result of the war, for example, Britain was forced to sell £1,000 million of overseas investments and the gold reserves were depleted by £300-400 million. In addition £3,000 million extra in debts were in- curred as a result of borrowings to finance the -war effort. In the post-war situation the pound was unable to look the dollar in the face at the prevailing rate of exchange and in 1949 devaluation was forced upon the City of London, greatly under- mining its position as the leading financial centre in the world. But it was impossible, from the point of view of the capitalist system as a whole, to dis- pense completely with the role of the pound. Despite its relative and absolute decline it still remained the second most important currency in which a con- siderable volume of world trade and finance was conducted; the large sterling balances which had been built up in the hands of foreign Central Banks would have produced chaos had the pound been completely disposed of by America; finally, a factor of some importance was the great experience of the City of London as a centre for innumerable financial and commercial transactions with a net- work of world-wide contacts which had been established during the course of more than a century. BS As a result of these factors, the pound was given limited status as a’ reserve currency, though its ‘role was largely confined to the Sterling Area. In ‘a sense British imperialism, to the extent that the pound remained tied to the dollar, in fact acted as the ‘agent’ of US imperialism in this part of the world. Not that this role, as the financial centre of the Sterling Area did not bring advantages to the City of London. As the banking centre for the area Britain held the gold reserves for the whole area and as a result was able, in some years, to offset her own balance of payments deficits by drawing on the surpluses generated by other members of the area—Australia, for example. In addition, of course, the Sterling Area continued to provide something of a sheltered and privileged market for British exports and also a field for the profitable export of capital. In recent years, however, the importance- of the Sterling Area has diminished in both these respects as British firms have lost markets in these areas to German, Japanese and US firms and secondly as capital exports have tended to move to the more ‘advanced’ and ‘developed’ parts of the world economy. a FOURTH INTERNATIONAL, JANUARY 1966 Despite the advantages which the retention of the Sterling Area and the limited position of the pound as a reserve currency (i.e., a currency in which other countries were willing to hold their foreign exchange balances) British capitalism has declined steadily over the last 20 years. In many respects the role of the pound, even though it has provided a valuable source of income for the ruling class, has on the other hand held back the necessary reorganisation of British capitalism in its struggle to regain its place in the world. This contradiction is only a reflection, of course, of a real, historical, contradiction in the development of British imperialism in its relationship to the world economy. This crisis is marked in the declining proportion of world manufactured trade going to Britain (a drop from nearly 21 per cent as recently as 1953 down to under the current level of under 14 per cent); reflected in the loss of gold and dollar reserves which in September 1964 were down to a little over $2,500 mn., about one-third those of Western Germany and under one-sixth those of the United States, who, as we have seen, has herself experienced serious falls in recent years. Above all this decline can be perhaps most clearly seen in the enormous technological backwardness of much of British industry which in the main remains dominated by older industries which mark an earlier phase in the development of the capi- talist system. This decline now places an even more serious question mark against the continuation of an even limited role for sterling. The contradiction be- tween a capitalist country which is now undoubtedly the ‘weak link’ in the world chain and the role of the pound as a means of international trade and payments is too apparent to last for much longer. Despite this however the Americans cannot afford to drop the pound without having made the necessary institutional arrangements to cushion the blow which would undoubtedly result from the collapse of the pound as a result, for example, of devalution. This is the main reason for the massive credits which have been provided by Wall Street to prop up the Labour government since November 1964. The proposals which have come from France would mean not only the removal of the privileged position of the pound but also of that of the dollar. General de Gaulle has himself proposed the return to the pre-war Gold Standard and has threatened— a threat which to an extent he has, in fact, carried out—to convert all French holdings of dollars into gold as a means of putting pressure on the United States, who are already embarrassed by an external payments problem and a loss of gold. But a return

[p011] IMPERIALISM AND THE ‘LIQUIDITY CRISIS’ to gold along the lines of de Gaulle’s proposal is impossible. The volume of gold in the world is completely inadequate to finance the necessary volume of world trade and payments. This was one of the main reasons why it was abandoned in the °30s when the volume of world trade was, in any case, considerably lower than it is at the present time. Any large-scale increase in the volume of gold production could only be effected by a sharp increase in its price, which would mean a devalua- tion of the dollar, which the U.S. cannot accept. De Gaulle’s is an extreme proposal that was probably made to force the U.S. to take some steps to change the present arrangements. Other sug- gestions from economic experts have included pro- posals to strengthen the role of the IMF as a means of creating more liquidity, without, of course, disclosing who would control this ‘supra- national bank’. Others have proposed the creation of a new unit of currency for international purposes, again without any concrete indication of what relationship such a new currency would have to gold, the dollar and the pound. The basic fallacy of all these ‘schemes’ is that they fail to recognise that the present malaise of the monetary system is a product of the uneven development of the imperialist system since the war and is not a separate, technical problem which can ibe solved in isolation from these developments. The basic question still remains: without the existence of a large U.S. external deficit the amount of liquidity in the world will be inadequate to sustain the necessary rising level of trade on which each capitalist country is dependent for its survival. On the other hand, the size of this deficit is, in modern conditions, so large that it now threatens to outstrip the holdings of gold in Fort Knox. As such it produces instability in the world and opposition from the ruling classes of Europe who rightly fear growing U.S. economic and financial dominance throughout the Continent. These problems reflect objective contradictions in imperialism and cannot, we repeat, be reduced to the level of mere mathematical or technical problems which can be solved by world conferences of economists, financiers and statesmen. The needs of each individual nation state increasingly con- flict with the rational planning of the world’s resources on an international scale. Exactly how imperialism will attempt to tackle these problems is not at this stage clear. But it seems certain that the role of the pound as one of the two leading currencies must soon come to an end, its role almost certainly being taken over by the dollar. The last meeting of the IMF indicated that the U.S. is now seriously tackling its balance of payments deficit so that it will soon be in a position to put its weaker European allies in their proper place. There are indications that during the current year (1965) the balance of payments position will show considerable improvement compared to _ the $3,000 mn. deficit of 1964. But the balancing of America’s payments will have profound conse- quences for the whole imperialist system, not least of all the ex-colonial and colonial territories of the world of Asia, Africa and Latin America. In relation to these areas of the imperialist system two facts are clear. First that there has been no general improvement in the living stan- dards of the workers and peasants of these areas since the war; in fact, the pressure of population and the slow pace of economic accumulation has probably brought a decline in living standards. Secondly, to the extent that the imperialists decide to attempt to solve their present monetary prob- lems through a stabilisation of the present position of the dollar and the pound, the position of the colonial and ex-colonial countries will deteriorate even further. Despite all the propaganda about the ‘develop- ment decade’, the U.S. ‘Peace Corps’ and the Ministry of Overseas Development in Britain, the imperialist system offers no prospect of any increase in the standard of living of the world’s poor, concentrated in the Continents of Asia, Africa and Latin America. These areas remain tied securely to the imperialist world market, what- ever their claims to be ‘building socialism’, etc. Brazil, Costa Rica, Ecuador, Sudan, Burma, Ceylon, and Mauritius—the list is far from complete—are all more than 90 per cent dependent upon agricul- tural products for their export earnings. In nearly every case the progress of these countries depends upon the prices of one or two commodities: Brazil, cocoa and coffe$, 64 per cent Costa Rica, coffee and bananas, 80 per cent Ecuador, coffee, bananas and cocoa, 92 per cent Panama, bananas, 71 per cent Burma, rice, 69 per cent Ceylon, tea and rubber, 82 per cent Mauritius, sugar, 94.per cent Developments which are now widely appreciated in the industrial structure and technology of the metropolitan countries are having a serious effect upon this position. These developments are, briefly, (a) the growth of synthetic substitutes for many of the products which these areas formerly relied upon for their export earnings; fibres, rubber, the replacement of oil by natural gas, etc. In 1958,

[p012] for example, 12 million tons of natural wool -and cotton were produced and 2 million tons of natural rubber compared to a production of 2 million tons of man-made fibres and 1 million tons of synthetic rubber. By 1963 the production of man-made fibres had doubled to a level of 4 million tons (compared to a production of natural wool and cotton which stood at 14 million tons) and the production of synthetic rubber had more than doubled to a level of 2.5 million tons (compared to the production of natural rubber which remained stagnant at 2 million tons). Secondly, the developments of agricultural technology in the metropolitan countries means that the former markets of the underdeveloped world are more and more restricted. These changes are closely connected with the improvements in the chemicals and fertiliser industries which have made possible a sharp rise in agricultural product- ivity. Many of the countries listed above find themselves in a vicious circle: in order to combat falling prices on the world market they push up the production of their primary commodities, the net effect of which is to further reduce the prices which they can obtain. Since 1953 the terms of trade, ie. the terms on which exports are sold in relation to the price paid for imports, have moved against the so-called ‘backward’ countries by 5 per cent and moved in favour of the metropolitan coun- tries by a similar amount. Such movements have, in many cases, more than wiped out the so-called ‘aid’ which has flowed into these countries since the war. Many countries such as India now face a situation where they are forced to ask for increasing loans from the European and North American countries in order to service their existing debt obligations, quite apart from being able to raise more loans for new investments. As we have suggested, the present monetary crisis will worsen this, situation. The attempt by Britain and particularly the United States to bring their external payments into line will mean that in the first place their imports of goods from the underdeveloped world will be cut by means of tariff barriers, quota restrictions, and other means. In the second place it will mean a cut-back in the limited amounts of ‘aid’ which have hitherto been available for these areas. In fact, since 1961 the aid programme from the metropolitan countries has been frozen because of the balance of payments problems many of these countries were and are still facing. Despite the ‘Development Decade’ less is now being loaned to the states of Africa and Asia than during the ’50s. In any case, most of this aid is wiped out by the continuing decline in FOURTH INTERNATIONAL, JANUARY 1966 the prices of primary products in the world market. ‘Stabilising the dollar’ is a shorthand phrase which, in real terms, means poverty, starvation, misery, disease and early death for millions of peasants and workers throughout the world. So much for the revisionist theories about the ‘End of Empire’. One point must be re-emphasised which was made at the beginning of this paper. The problems in the existing financial and monetary structure— the ‘liquidity crisis’ are only a reflection of the basic economic problems of imperialism. These problems stem from the inability of the whole system to grow evenly in a planned all-round manner. Un- evenness of development is one of the basic and inescapable features of the imperialist system. In contemporary terms this relates very much to the present position of U.S. imperialism vis da vis the rest of the system. No country has ever had the same ‘specific weight’ as the U.S. has at the present time. The stability of the whole inter- national system increasingly rests upon stability in the United States. The present weakness of the dollar stems not so much from its relative or absolute decline (which is clearly the case with British capitalism and the pound) as from the great strains which the uneven growth of imperialism places upon it. Without the massive outpourings of military expenditure and ‘aid’ imperialism would be landed in a deep military and economic crisis: on the other hand such vast expenditures bring their own contradictions in terms of a growing imbalance in the U.S. payments which introduces new economic and political contradictions and tensions into the system. In a similar way the increasing penetration of capital into Europe is a function of the pressure upon profits which is a consequence of the development of the productive forces in the United States itself, especially in the field of automation. The export of capital is one attempt to overcome the contradictions inherent in this surge forward in the quality of the pro- ductive forces. The main purpose of this Symposium is to examine, from a Marxist point of view, the present economic and political crisis and make some com- parisons with the position in the 1930s. Finally, therefore, I shall make a few comments upon these matters, particularly in relation to the position of British capitalism. It is clear that from the ’30s Britain has con- tinued to decline as an economic power and there- fore as a political force in the imperialist system. This decline, in the present situation, now threatens to become absolute rather than merely relative. That is, the continuing decline of Britain

[p013] IMPERIALISM AND THE ‘LIQUIDITY CRISIS’ has, to an extent, been obscured in the period since the war by the absolute expansion of the capitalist system on a world scale. -The attempts to solve the present monetary problems which we have examined by stabilising the system (i.e., by slowing down the rate of growth) has serious reper- cussions for Britain. The remedies which have been used in the past by the British ruling class are no longer possible: it is this factor which pro- vides the base for the sharpness of the present struggle in Britain, and particularly the threatened legislation against the trades unions. This can be demonstrated if we examine the remedies which British imperialism used after the crash of 1931; these were, from the point of view of the ruling class, partially successful in over- coming the immediate problems. These solutions were based upon firstly, devaluation of the pound— i.e., the abandonment of the Gold Standard. This cheapened British exports, at least for a short period until the ‘devaluation cycle’ got under way. In present conditions devaluation of the pound would have a quite different significance. Following on from the devaluation of 1949 it would virtually spell the end for the City of London and for British capitalism more generally. In any case the decision about devaluation rests more in the hands of Wall Street than it does with London. If the pound is to go the United States will decide the timing, in accord with her own needs. Secondly, after 1931, Britain was able to mitigate the social effects of the crisis through the continuing exploitation of the Empire and Commonwealth: through, i.e., the system of ‘Imperial Preference’. The colonies were forced to buy British exports and to provide for the British ruling class with cheap imports. Once more the position of the Commonwealth is now quite different from the position of 30 years ago. As a viable economic and financial unit it is virtually dead. Markets have been lost in all the Commonwealth countries and the pound is increas- ingly unable to support the Sterling Area as a work- able currency unit. Thirdly, after 1931 a moderate phase of internal expansion was possible in Britain, particularly in the field of house building along Keynesian lines (although, of course, Keynes had still to work out his developments in economics in theoretical terms). The record of the present Labour government shows that internal expansion is impossible in view of the much weakened external position of British capitalism over the last 30 years. Any attempt at internal inflation inevit- ably means an immediate run on the pound, so weak are the present gold and dollar reserves. This, in its turn, calls for immediate action designed to cut back internal demand. This contradiction is at the basis of the ‘stop-go’ policy which has been the dominant feature of the last decade. Most important of all, however, from the point of view of a comparison of the two periods are the enormous development in the productive forces which modern science and technology now makes possible. Many of the so-called ‘new industries’— aircraft, motors, consumer durables, etc., provided some stimulus in the °30s for a climb out of the Great Depression. The present technological developments, enormously greater in their scope and their quality, will now play an opposite role. They occur, not in the depth of a depression, but at the end of a long phase of moderate capitalist expansion and boom which has brought, at least for the countries of Western Europe, North America and Japan, conditions of nearly full employment and rising wages. In these conditions, modern technology and science, represented above all in the possibilities opened up by automation, pro- vide the basis, should they remain privately owned and controlled, not for the expansion and re- invigoration of the capitalist system, but, on the contrary, the basis for its deepening crisis, if not total destruction. It is this leap forward in the productive forces, now a realisable possibility, which, when viewed against the present crisis in the world monetary and financial system of capitalism, provides the scientific and objective basis for the struggle for socialism and the fight by socialists for the pro- vision of a leadership for the working class as the only way out of the present impasse.

[p014] 10 FOURTH INTERNATIONAL, JANUARY 1966 MARXIST POLITICAL ECONOMY AND THE ‘SOCIALIST WORLD?’ by Michel Varga In the June, 1965 edition of ‘Les Temps Modernes’ there appeared an article written by Ernest Mandel: ‘The reform of Soviet planning and its implications’. Before examining: this more closely, we must begin by placing the author in a certain historical and political setting. One can understand his present position in the USSR far better, if one takes his position with regard to the revolution of 1956 and if one is aware of the political function which he fulfilled at that time. THE CENTRAL PROBLEM posed before the vanguard workers and the revolutionaries of Hungary was to achieve a link with the international working class. This link is not a question of a wish— whether vague or ardent—shown in messages, reso- lutions or appeals. It is very concrete and means above all the organic liaison between, on the one hand, the Bolshevik traditions enriched by the further experiences of the world working-class movement, and, on the other hand, the concrete struggle of the workers of the USSR, Eastern Europe and China. Stalinism represents a break from these traditions and, as such, counter-revolutionary opposition to the international working-class movement and its experiences, for Stalinism ‘has definitely gone over to the side of bourgeois order’. One of the most important manifestations of this break was—and is —the total suppressiun uf the pulitical and trade union working-class movement: in the countries oppressed by Stalinist dictatorship. With the liqui- dation of the Opposition and of the organised Trotskyists in the USSR, and through the coming to power of the Stalinists in Eastern Europe and China, the independent workers’ movement has ceased to exist there. The working class has thus been separated both from the traditions of Bolshevism and from the world proletariat, and consequently been thrown back into its pre-Marxist state. It is in this that the split consists concretely between the proletariat of the advanced capitalist countries and that of the USSR, Eastern Europe and China. In his study against the Pabloite revisionists (La Vérité, Nos. 530-531, September 1965), Stéphane Just posed, as a central problem to be resolved, the re-establishment of the international unity of the vroletariat, broken by the Stalinists. I am trying

[p015] 10 FOURTH INTERNATIONAL, JANUARY 1966 MARXIST POLITICAL ECONOMY AND THE ‘SOCIALIST WORLD’ by Michel Varga In the June, 1965 edition of ‘Les Temps Modernes’ there appeared an article written by Ernest Mandel: ‘The reform of Soviet planning and its implications’. Before examining this more closely, we must begin by placing the author in a certain historical and political setting. One can understand his present position in the USSR far better, if one takes his position with regard to the revolution of 1956 and if one is aware of the political function which he fulfilled at that time. THE CENTRAL PROBLEM posed before the vanguard workers and the revolutionaries of Hungary was to achieve a link with the international working class. This link is not a question of a wish— whether vague or ardent—shown in messages, reso- lutions or appeals. It is very concrete and means above all the organic liaison between, on the one hand, the Bolshevik traditions enriched by the further experiences of the world working-class movement, and, on the other hand, the concrete struggle of the workers of the USSR, Eastern Europe and China. Stalinism represents a break from these traditions and, as such, counter-revolutionary opposition to the international working-class movement and its experiences, for Stalinism ‘has definitely gone over to the side of bourgeois order’. One of the most important manifestations of this break was—and is —the total suppressivn of the pulitical and trade union working-class movement in the countries oppressed by Stalinist dictatorship. With the liqui- dation of the Opposition and of the organised Trotskyists in the USSR, and through the coming to power of the Stalinists in Eastern Europe and China, the independent workers’ movement has ceased to exist there. The working class has thus been separated both from the traditions of Bolshevism and from the world proletariat, and consequently been thrown back into its pre-Marxist state. It is in this that the split consists concretely between the proletariat of the advanced capitalist countries and that of the USSR, Eastern Europe and China. In his study against the Pabloite revisionists (La Vérité, Nos. 530-531, September 1965), Stéphane Just posed, as a central problem to be resolved, the re-establishment of the international unity of the vroletariat, broken by the Stalinists. I am trying