THE BALANCE OF PAYMENTS CRISES

. BY JACOB MORRIS

The recurring balance of payment crises of the United States

and Britain are symptoms of a crisis of the international capi-
talist monetary system. They are also symptoms of a crisis of
American hegemony over that system. Since this monetary
hegemony is a bulwark of United States imperialist domination
of world capitalism, the balance of payment crises are signs
of strain and weakness in the structure of United States im-
perialism.
The most striking feature of the crises is the big loss of
gold reserves by the United States and Britain to other capi-
talist countries. These lossesspring from persistently unfavorable
balances in international payments-that is, from persistently
spending and investing abroad more dollars and pounds than
are acquired in selling and collecting investment income abroad.
As a result, dollars, to take the main case, have tended to ac-
cumulate in large quantities in foreign central banks. These
banks have then proceeded to cash in part or all of their
swelling dollar increments for gold.
Now American hegemony over the international money
system rests on the premise that when foreigners acquire
United States paper money (or United States bank deposits)
they will look on these assets as being "as good as gold." The
premise implies that there will be no compelling incentive for
foreigners to cash in dollar holdings for gold. As long as this is
so, it is possible for the United States government and United
States banks to create and use "good-as-gold" international
money, almost at will. Implicit in this arrangement, therefore,
is the almost unlimited power of United States Big Business
to make financial and economic penetrations of every part of
the capitalist world.
Jacob Morris writes frequently for Science & Society. His paper,
"Marx as a Monetary Theorist," will appear in the special Das Kapital
centenary issue of Science & Society scheduled for Fall 1967.

25
 MONTHLY REVIEW DECEMBER 1966

Foreign governments and central banks are now show-

ing an increasing reluctance to hold United States money, and
an increasing preference for gold. This is a heavy blow against
United States domination of the international money system;
consequently it is also a heavy blow at the whole United States
imperialist position. In this context, gold-child of labor and
earth, and stateless citizen of the world-represents the econom-
ic independence of nations. By contrast, the unlaboriously
created paper dollar represents economic dependency on the
United States and subordination to its interests.
An important feature to note is that the loss of United
States gold reserves to foreign countries takes place in a con-
text of impending shrinkage of the grand total of monetary
gold reserves of the capitalist world. This shrinkage, in turn,
stems from the increasing intensity of private hoarding of gold
bullion.
Private gold hoarders are shrewd and cynical people who,
as a group, have done very well for themselves in the last fifty
years. But hoarded gold earns no interest and pays no dividends.
At a time when the interest yield on short-term money obliga-
tions is 5 percent or more, and good bonds can be bought to
yield in the 6 percent range, gold hoarding doesn't seem to
make much sense. It does make sense, however, if chances
are pretty good that within the next five years or so a 50
percent devaluation of the dollar will double the dollar value of
the gold hoards.
This is about how the hoarders figure, and with good
reason. They see that all capitalist countries are caught up in
an inflationary process. This process appears to be a built-in
feature of monopoly capitalism. True, in some capitalist coun-
tries it can still be accurately described as a process of "creep-
.ing inflation." In the hypocritical economic double-talk of gov-
ernment officials, this is described as "reasonable price stability."
Only galloping inflation draws the condemnation of "price
instability."
The gold hoarders, who are all unconscious dialectical
materialists, reason that the quantitative cumulation of creep-
ing inflation will, sooner or later, produce a qualitative change
-a leap over the barrier and on to the race course of gallop-

26
 THE BALANCE OF PAYMENTS CRISES

ing inflation. History tells them that such inflations invariably

wind up in sharp devaluations of currencies and in very sub-
stantial increases of official government prices for gold bullion.
Apart from the cynical speculations of gold hoarders, it is
a fact that with all prices in the capitalist world rising steadily,
the dollar cost of production of new gold is also rising. But the
official price paid for gold by all capitalist governments whose
currency is linked to the dollar is fixed at $35 per ounce.
Caught in the cost-price squeeze, gold production is declining
in all gold-producing countries except South Africa, where
some new mine fields are still being opened. However industrial
uses and private hoarding now absorb all the new gold produc-
tion of the capitalist world. In fact gold hoarding has begun
to eat into the existing accumulations of central bank gold
reserves. In the first quarter of 1966, according to the New
York Times of June 9th, the London gold pool, operated on
behalf of the American, British, and several other governments,
sold more gold than the newly mined gold that it bought.
In these circumstances the obvious remedy seems to be to
increase the official price of gold, that is, devalue the dollar
and its linked currencies. But this would be a tremendous blow
to the prestige of the United States dollar. It would greatly
undermine, and probably destroy, the United States hegemony
over the international capitalist money system.
In the words of Robert Roosa, former Under Secretary
of the Treasury:

The act of repudiation and the subsequent spreading of dis-

trust in dollar obligations would surely lead many monetary
authorities to convert the dollars still held in their monetary re-
serves into gold ... the United States would very likely soon be
left with no more gold, at the new inflated price, than it had held
before the price change occurred. Quite probably, its remaining
holdings, even valued at the new higher gold price, would be
far less.*

What Roosa is saying is that devaluation would put the

United States in the position of a bank which has closed its
* Robert V. Roosa, Monetary Reform For the World Economy, New
York, 1965, pp. 18, 19.

27
 MONTHLY REVIEW DECEMBER 1966

doors and paid off its depositors at the rate of 50 cents on the
dollar. When it reopens its doors to start in business again, it
will have a much smaller working capital than before and a
badly tarnished reputation to boot. Its financial and economic
power in the community will have been sharply reduced. In
short, devaluation of the dollar would greatly impair the pres-
tige and power of the United States Establishment. In particu-
lar, it would greatly curtail its power to penetrate the economies
of other countries.
The cures which the United States government offers for
both the balance of payment sickness and the gold hoarding
sickness are contained in the book by Roosa to which we have
just referred. First it proposes the creation of a "new reserve
asset" to supplement gold as a means of settling international
payment deficits. This "new reserve asset" would be produced
by a fancy juggling of the books down at the International
Monetary Fund. The Fund would, in effect, receive large
packages of plain old American green paper dollars and convert
them by the magic of accounting into International Monetary
Fund Units. These IMF Units would be the "new reserve
asset." Other nations would also be able to obtain IMF Units
through deposits of their own paper with the IMF. The biggest
quota, of course, would be assigned to the United States and
naturally the proposed quota rules would give the United
States the lion's share of the grand total.
Along with this proposal for the "new reserve asset" comes
another that all capitalist governments join the United States
and Britain in participating in the London gold pool which
buys and sells gold at $35 per ounce. This reinforcement of the
existing gold price, on top of the creation of a "new reserve
asset" calculated to stop the drain of United States gold reserves,
is supposed to profoundly discourage all the world's private
gold hoarders. They would be expected to give up the ghost,
dishoarding billions in gold bullion as they expired.
It appears to us that the clear objective of the United
States proposals is to produce an effective downgrading of gold
as international reserve money and the final and complete en-
thronement of the dollar. This would remove the existing
barriers to a tidal wave of United States financial and economic

28
 THE BALANCE OF' PAYMENTS CRises

penetration of every corner of the capitalist world. Incidentally,

it would also remove most of the barriers to a world-wide
capitalist inflationary orgy.
Of course the true objectives of United States policy must
be concealed. In a recent report, the Bank for International
Settlements, referring to the operation of the "new reserve
asset," opines that this "necessarily means moving to a more
managed system." This, it says, "requires more active financial
cooperation, less scope for individualistic and inconsistent poli-
cies, greater emphasis on multilateral surveillance (of each
other) and more assured accommodation of policy measures to
international balance." (New York Times, June 14, 1966.)
Translated into plain English, this eyewash tells us that the
European junior partners of the United States hope that in
manufacturing and using the "new reserve asset" the United
States would act with some restraint and with some regard for
their interests.
This brief analysis would be hopelessly incomplete with-
out a discussion of the specific problem of curbing the drain of
United States gold reserves within the context of the existing
international monetary system. The causes of the drain are
common knowledge. They may be specified as: (1) The finan-
cial drain of the Vietnam war plus other forms of assistance
to the military puppet governments dependent on United States
imperialism; (2) the hyper-activity of United States-based in-
ternational corporations in penetrating the economies of foreign
countries via lavish expenditures and investments of dollars;
(3) the similar hyper-activity of United States financial centers
which lend dollars copiously to foreign governments and cor-
porations; and (4) the uncooperative behavior of France and
other capitalist countries which cash in increments of United
States dollar assets for gold.
The activities which have produced the drain on United
States gold reserves seem to stem so strongly from the basic
character of United States monopoly capitalism that they could
not be stopped short of a metamorphosis of the American im-
perialist tiger into a tabby cat. Nevertheless it is conceivable
that the Vietnam war will end one day, that de Gaulle's suc-
cessor will be more cooperative, and that the United States

29
MONTHLY REVIEW DECEMBER 1966

financial penetration of foreign countries may be slowed down,

as in fact has occurred recently. It is therefore conceivable
that the drain on United States gold reserves will, one day,
come to an end.
But this would only mean that the United States balance
of payment crisis will be replaced by a whole new series of
balance of payment crises affecting other capitalist nations.
For the forces at work are constrained by a framework of fun-
damental contradiction. This comprises a conflict between the
inherent inflationary tendencies of monopoly capitalism, which
shrinks gold reserves, and the urgent need of its present inter-
national monetary system (in which gold and the dollar reign
as joint monarchs) for expanding gold reserves.
The development of this contradiction must sooner or later
disrupt or transform the present international monetary system
in one way or another. If it results in the dethronement of the
dollar, this would imply the outbreak of trade, currency, and
tariff wars between the United States and its former depend-
ents. If it results in the dethronement of gold, and the triumph
of the paper dollar, this would imply a brief, inflation-powered,
resurgence of the capitalist world's economic Pax Americana.
There is an influential French monetary school which be-
lieves that the devaluation of the dollar, and the establishment
of unquestioned primacy for gold, will cure all the ills of the
international monetary system. We regard this view as utopian
and not unlike the notion that free competition is the panacea
for all the ills of international capitalism. On the contrary, we
believe that a viable international monetary system needs the
leadership and support, the hegemony, of a strong nation with
a "good-as-gold" currency and a powerful banking system.
Without such leadership and support, the independent nations
would be constantly modifying the gold values of their cur-
rencies and keeping international trade and finance in a per-
petually unsettled state. Unfortunately for the capitalist friends
of the United States, it is impossible for them to have the
benefits of its hegemony without the disadvantages of its im-
perialist domination.
In summary, it is monopoly capitalism and its twin off-
springs, imperialism and inflation, which make it impossible

30
 THE BALANCE OF PAYMENTS CRISES

to maintain a well functioning international monetary system

-one that is free of balance of payment crises. Only a commu-
nity of free socialist nations could establish and maintain such
a system.

~~~~~~~,,~~
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