[The following article was published in the September 22 issue of Rood, the Flemish-language weekly of the Revolutionary Workers League, Belgian section of the Fourth International. The translation is by Intercontinental Press.]
Currency speculation has been in the news for months now. The English pound and the French franc have been foremost victims of it. The pound has been falling constantly, and the French franc has been hard hit. The Belgian franc, also, has been repeatedly threatened. What is the source of this speculation?
Above all, the speculation reflects the the international monetary collapse of system, which has been a fact since the dollar ceased to be convertible into gold. But it is also one of the causes of this collapse. Its essential source is the general inflation of all currencies, and the different rates of inflation that characterize these currencies.
At the moment, the currencies are freefloating. That is, their rate of exchange is determined by the law of supply and demand. When a country has an inflation rate that is higher than the average, it is going to have a deficit in its balance of payments. That is to say, the supply of this currency on the money market exceeds the demand. Therefore, its rate of exchange will go down as against the more stable currencies.
But when a country has a level of inflation below the average, then it will tend to have a surplus in its balance of payments. The demand for this currency exceeds the supply. Its rate of exchange will therefore go up in relation to the other currencies.
Commercial transactions take place regularly on the world market involving exports and imports. At the same time, a number of noncommercial transactions take place that involve the transfer of currency from one country to another-the export of capital, repatriation of profits from capital invested in foreign countries; tourism; remissions from foreign workers to their families; payment for various services such as sea and air transport, insurance premiums, etc. Every capitalist company knows the amount of money it is going to have to transfer abroad in the months ahead. When it expects that a foreign currency is going to decline in value, it will try to delay the payments it has to make in this currency as long as possible. When it expects that a foreign currency is going to go up in value, it will make its payments as quickly as possible. These anticipatory movements sharpen the fluctuations in exchange rates.
At present, there are three categories of inflation rates in the imperialist countries:
A low inflation rate of 5% in Switzerland and the United States (although the inflation rate in the U.S. is again showing a tendency to exceed 5%).
An inflation rate of roughly 8 to 10% in the Benelux countries, Japan, Sweden, Austria, Denmark, Canada, and France (where the rate is moving above 10%).
An inflation rate of roughly 15% in Great Britain, Italy, and Spain.
In the capitalist jungle therefore, the speculators inevitably set their sights on a rise in the price of Swiss francs and German marks and on a decline in the English pound, the lira, and the French franc.
However, while speculation is the result of inflation, it also tends to reinforce inflation. In fact, a pronounced decline in a currency involves a general rise in the price of imported products. Over the last two decades, the internationalization of production in the capitalist countries has greatly increased. When the currency of a country declines in relation to those of
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New York Times countries from which it imports heavily, then higher prices will have to be paid for these products in terms of the national currency. This accentuates the rise of all prices on the domestic market and thus the increase in the cost of living.
It might seem at first glance that higher prices for imported products would result in import reductions favoring "national industry." Thus, you might think that the English pound and the Italian lira would encourage the export of English and Italian products, since these goods would be cheaper abroad. That is why the British and Italian bourgeoisies have already been accused of promoting the depreciation of "their" currencies so as to strengthen their competitive positions.
In reality, things do not happen so mechanically. First of all, some imported products cannot be substituted for, at least in the short run. These include certain raw materials and machines or other products that are the result of specialized production techniques. No one seriously considers reducing imports of petroleum or uranium when the price of such imports rises by 10% as a result of the depreciation of the French franc. You just have to pay more. And these higher prices further increase the inflationary trend in Great Britain, Italy, and France.
Secondly, if any country gains an advantage on the world market through lower export costs resulting from deprecia tion of its currency, this very quickly brings on protective and retaliatory measures from its leading competitors. The economic recession has sharpened the competitive struggle, which is turning into a trade war. Thus, recently the United States has informed Japan that it will not tolerate an invasion of its market by Japanese products as a result of the depreciation of the yen. It is going to tell the same thing to French, Italian, and British exporters (and in the near future to the Belgian and Dutch ones).
Finally, speculation is associated with capital flight. The balance of payments of a country is not necessarily the reflection of its trade balance. A high rate of inflation can very easily bring with it a deficit in the balance of trade (as has been the case, for example, in the U.S. and Canada). However, if the country question is seen as a "refuge" because of its greater political and social stability, then foreign capital may flow in in great quantities and restore the balance of payments. Thus, large amounts of capital have been leaving Italy, Spain, and France, and not just for Switzerland and West Germany but also for the U.S. (From Portugal the outflow of capital went primarily to Brazil.) Paradoxically, such a capital inflow does little to improve the competitive position of the country in question, unless it is invested productively and this results in an improvement of the average productivity of labor.
The rash of currency speculation testifies to a deepening of the crisis of the Common Market and further aggravates this. The Common Market in fact is only a customs agreement. That is, it is only a first step toward economic integration that in the long run may not survive the sharpening competitiveness in international trade. This threat arises from the longterm decline in the average rate of growth. Therefore, the champions of European capitalist integration advocate a currency union as the next step. This is supposed to be the basis for developing and maintaining a common economic and financial policy as well as a common political policy. That is, it is supposed to bring about a real supernational bourgeois state with an effective executive power.
A currency union-in one or more stages-would mean the fusion of the European currencies into one, a currency union with the pooled reserves of the nine countries. But as the spread between the inflation rates of the various member states of the Common Market widens, more and more of them are going to have serious deficits in their balance of payments. Therefore, the "rich" member states (among others, West Germany) more and more hesitate to put their reserves in a pool so that they can be drained by those partners with balance of payments deficits.
Against this background, the perspective of a fusion of the European currencies is fading. But there is now an attempt to find an intermediary solution, the tying together of the currencies of the richest member states so that they float together against other major currencies in the famous "snake." This is supposed to hasten the integration of these five countries, even while for the moment it means shoving the "poor relations" (Italy, Great Britain, Denmark, and Ireland) aside. But now we have seen that the French franc in its turn has had to leave the "snake." We may wonder how long it will be before it is the turn of the Belgian franc or the Dutch guilder. In this case, the "rich" member states would be reduced to West Germany alone. All the rest would be "poor relations." Thus, the hope for monetary unity is fading into the far future, unless the situation (and the German political orientation) changes spectacularly in the coming years.
As long as capitalism exists, economic crises and class struggle are inevitable. The capitalists who ceaselessly preach accommodation and halting the class struggle to the unions and the workers are in fact, through these arguments and soothing speeches, waging a relentless class struggle. Their aim is to swell their profits. In freezing wages, "restraining" demands, and preaching the need for "sobriety," the bosses and their political representatives claim to be defending "monetary stability" and the "general interest" (or the national interest). Actually, they are only defending their money bags.
It is utopian to hope for an "equal" restraint on wages, prices, and profits. Not one capitalist government has yet succeeded in imposing strict control over prices. On the other hand, control of wages
Deutscher Prize Won by
The Isaac Deutscher Memorial Prize for 1976 has been awarded to Professor Wlodzimierz Brus for his book Socialist Ownership and Political Systems (London: Routledge & Kegan Paul, 1975). The prize, first presented in 1969 to Martin Nicolaus, confers a monetary award of £100.
Brus taught at the Warsaw School of Planning and Statistics and at the University of Warsaw until his dismissal in 1968. His other works translated into English include The Market in a Socialist Economy and On the Economics and Politics of Socialism, also published by Routledge & Kegan Paul.
Professor
Brus will give the Isaac
Deutscher Memoral Lecture on the subject of "Polish October-Twenty Years After" at a time and place to be announced.
The next Deutscher Memorial Prize will be awarded in the fall of 1977. Works, whether published or in typescript, should be submitted by May 1, 1977, to: The Isaac Deutscher Memorial
Prize, c/o Lloyds
Bank, 68 Warwick Square, London SW1, England. This year's jury consisted of Perry is quite easy if the union leaders make a deal, and the workers let them get away with it. The result is predictable-a relative (or even absolute) decline in wages.
The British workers have learned about this process through painful experience, and it should be a lesson to the workers movement in all countries. In order "to break out of the so-called wage-price spiral, they agreed to limit their demands to a straight 4 or 5%, while inflation developed that exceeded that percentage. The upshot was a decrease in their buying power of more than 5% Was rising unemployment at least stemmed? No, by no means. There are now one and a half million persons out of work! Was inflation overcome? Absolutely not. Despite the modest 5% wage increases, inflation has risen to 15%. This is the fault of the currency speculators, the bleeding hearts complain. But where is it written that the workers, who have nothing to do with such things, are obliged to pay the costs of capitalist mismanagement and cheating. including currency speculation?
What is the moral of this tale? Unionists, batten down the hatches! Don't trade your gains for vague promises. Defend the jobs and wages of your comrades uncompromisingly. And fight to end the capitalist system. Otherwise you are going to be confronted more and more with "choosing" between the devil and the deep blue sea, between massive unemployment and falling wages. In fact, you will get unemployment and lower wages at one and the same time.
Wlodzimierz Brus
Anderson, E.H. Carr, Tamara Deutscher, Eric Hobsbawm, Monty Johnstone, Ralph Miliband, and John Westergaard.
East German Regime
Builds 900-Mile Wall
The Stalinist regime in East Germany is building a 900-mile-long barrier system along its border with West Germany. The barrier, which is about two-thirds completed, will run from the Baltic Sea in the north to Czechoslovakia in the south. Its cost is estimated at $415,000 per kilometer, or more than $622 million for the whole project.
The system is designed to prevent the East Germans who want to leave from doing so. It includes a nine-foot-high fence studded with antipersonnel mines, a ditch to prevent vehicles from being
• driven through the fence, a plowed strip of soft earth on which footprints or tireprints would be visible, and a system of watchtowers topped by machine guns.