MONTHLY REVIEW DECEMBER 1966

United States, it is quite likely that the true beneficiaries would

be not European capitalists but the world revolution and the
socialist countries. And that, we may be sure, is an outcome
which even the most nationalistic of European bourgeoisies will
shun as conscientiously as the devil shuns holy water.
The moral of this story, if there may be said to be one,
is that socialists and revolutionaries can never count on capital-
ists to fight their battles for them. The defeats which have been
inflicted on United States imperialism in the period since the
Second World War-most notably in China and Cuba and
Vietnam-have all been the work of the revolutionary people,
not of any kind of capitalists. Sooner or later the same will
have to be true of Europe-and of the United States too.
(November 11, 1966)

THE GROWING FINANCIAL CRISIS

IN THE CAPITALIST WORLD

BY DAVID MICHAELS

This article has three main purposes: (1) to demonstrate

that there is a growing financial crisis in the capitalist world
-a crisis based on the titanic power struggle now taking place
among the major capitalist powers; particularly between the
United States and Western Europe; (2) to demonstrate that
this crisis cannot be resolved unilaterally by the United States,
despite its enormous economic power; and (3) to suggest some
of the possible results and outcomes of this crisis.
David Michaels is the pen name of an economist working in New
York.

10
 CRISIS IN THE CAPITALIST WORLD

In the interest of laying bare the main outlines of our

analysis and conclusions, much of the argument is presented
in summary form, and leans overwhelmingly on economic data.
Nevertheless, while little space is devoted to explicitly "political"
analysis, the bald thesis developed here rests on numerous
summary judgments about the balance of political and econom-
ic forces in the capitalist world. We leave to others the task of
developing the specifics of these complex and changing rela-
tionships.

The Nature of the Crisis

The basic manifestation of the developing world capitalist
crisis is the well publicized gold outflow from the United
States: gold reserves of this country have declined every year
for the last nine, from $23 billion in 1957 to about $13 billion
at present.
In turn, this gold outflow is attributable to the equally
well publicized United States balance of payments deficit. Such
a deficit occurs when the United States as a whole (including
its government, corporations, and citizens) spends more money
abroad (on imports, foreign investment, military aid, etc.) than
the rest of the world spends in the United States. This deficit
is a debt to foreigners which can be met in either of two
ways: by foreigners' taking gold from the United States or by
their accepting and holding dollars (or what is virtually the
same, short-term debt readily convertible into dollars). During
the 1958-1965 period the United States balance of payments
deficit totalled about $25 billion, of which 40 percent was
settled by gold shipments and 60 percent by foreign acceptance
of dollars.
The unusual facet of our international payments problem
is that, unlike the case of the British, at the same time as we
have an overall deficit, we have a strong trade surplus; in
recent years we have usually exported at least $3 billion worth
more of goods than we have imported. Why then the pay-
ments deficit?
In a formal accounting sense the answer is that this deficit
results from the trade surplus being smaller than the dollar

II
MONTHLY REVIEW DECEMBER 1966

outflow required to pay for increasing United States private

foreign investment, for overseas military expenditures and for-
eign aid programs, for tourism, etc. (see Table 1). In a fun-
damental causal sense it is this writer's belief that the real
"villain" has been the unprecedented growth of Vnited States
private direct foreign investment in the last decade-the book
value of this investment has increased from $19 billion in 1955
to well over $50 billion today.

TABLE I

VNITED STATES BALANCE OF PAYMENTS: 1964, 1965

($ Billion)
CREDIT DEBIT
1964 1965 1964 1965
Exports (Goods & Services) __37.0 39.0
less Imports (" ") __ 28.5 32.0
Balance ( " ") 8.5 7.0
less V.S. Gov. Grants
and Capital Outflow (Net) __ 3.6 3.4
less V.S. Private Capital
Outflow (Net)
a. Direct Investment 2.4 3.4
b. Other (Primarily Bank
Loans) 4.1 0.3

c. Total (a + b) _ 6.5 3.7

less All Other
Transactions (Net) _ 1.2 1.3
Balance of Payments Deficit 2.8 1.4

Source: Federal Reserue Bulletin, September, 1966.

Thus, if we look at the other major debit items on our

international payments sheet, the largest of these-foreign mili-
tary and economic aid-results primarily from an attempt to
stabilize the underdeveloped areas in which one third of this
Vnited States investment is more or less precariously situated.
Again, a significant part of the travel deficit represents the

12
 CRISIS IN THE CAPITALIST WORLD

costs of American businessmen traveling to and from these

investments.
Let us take a closer look at this foreign investment to see
why it is the nub of the problem. In the first place, the oil
fields of the Middle East and Venezuela, auto and chemical
plants in Europe, rubber plantations in Africa, etc., are often
enormously profitable, and the real rate of profit on foreign
investment probably averages at least 15 percent per year after
taxes, compared to 10 percent on domestic investment. Second,
much of the foreign investment takes the form of United States
machinery and capital equipment, and as such provides an
important export market for our manufacturers. Third, this
role of an outlet for United States capital is particularly im-
portant to an economy like ours which has strong tendencies to
generate excess capacity at home.
But it is not only the magnitude and profitability of foreign
investment which are significant. In our opinion an equally
important root of the growing financial crisis is the changing
geographical direction of this investment flow. Owing to the
weakness of Western Europe in the early postwar period, the
United States was able to use its power and dollars to take
away most of the overseas economic empires of Western
Europe. In later years Great Britain, which never really re-
covered from the economic effects of the war, has for all
practical purposes become an economic satellite of the United
States. Continental Western Europe, on the other hand, has
regained domestic prosperity and international financial power,
without yet being able to translate this into real economic
power. In the meanwhile, the United States has been boldly
using its dollars to gain control of an increasing share of the
real resources of Western Europe: total American investment
in Europe as a whole has climbed dramatically from under
$2 billion in 1950, to $6 billion in 1960, and to over $15
billion today. Newsweek, in an article on "The U. S. Business
Stake in Europe" (March 8, 1965), eloquently sketched this
process and some of its implications as follows:

The ebb and flow of history can be measured in money-in

the sweeping tid~,of capital that surge from wealthy nations to

13
 MONTHLY REVIEW DECEMBER 1966

poorer ones in search of industries to build, resources to develop,

markets to nourish, and profits to bring back. Such a tide once
flowed from Europe to the United States, and the wealth it helped
create has become the wonder and the envy of the world.
But the tide has turned. The Old World, shattered by years
of war, was restored to economic health with the aid of the New;
now, emerging into full prosperity, it is the irresistible seedbed for
money from America.
To American businessmen, this adds up to the greatest op-
portunity since America itself. In a short fifteen years, they have
poured nearly $10 billion into Europe-building factories and
refineries, buying companies, setting up sales organizations, and
changing the face of the Continent. . . . The French have a word
for it: "Coca-colonization." ... Americanization or not, many
Europeans are seriously worried by the flood of dollars and the
growing power of U.S. companies in Europe's economy.... As
Maurice Faure, chief opposition spokesman in the French Assem-
bly has warned: "With or without a payments deficit, the Amer-
ican economy is capable of dominating the Western world."
And the underlying pressures behind the flood of dollars re-
main as steady as the pull of the moon on the oceans: the capital
shortage in Europe and the wealth of the U.S., the growth of the
European markets, and, above all, the fixed conviction of the
U.S. businessman that failure to grow means stagnation and
decline.

While the United States has been building its real invest-
ment in Western Europe, the latter has been playing a Midas-
like role. The total hoard of gold and dollars in Western
Europe (excluding Great Britain) has now passed the $30-bil-
lion mark; during the 1958-1965 period gold holdings in-
creased by $13 billion, while dollar holdings rose by only $3
billion. It is well known that France has been noisily piling
up gold ($3.7 billion); it is less well known that other
European countries have been more quietly doing the same:
West Germany, $4.4 billion; Benelux countries, $3.3 billion;
Switzerland, $3.0 billion; and Italy $2.4 billion (gold holdings
at the end of 1965).
Clearly these facts and figures reflect a situation which is
unacceptable to any self-respecting capitalist class. Within the
world capitalist system the aim of every capitalist and capitalist
group is to make as much money as possible. However, the
essence of capitalism is not the hoarding of gold or money

14
 CRISIS IN THE CAPITALIST WORLD

(especially some other country's money) but the use of money

to control physical resources (labor, raw materials, factories,
technology) in order to make more money. European capitalists
are threatened not only by the sheer volume of United States
investment but also by its penetration into the strategic growth
sectors of the economy where future profits appear most
promising. The previously cited Newsweek article contains a
round-up of the situation which is very revealing on both counts
(and appropriately subtitled "Dollars: Needed but Unloved"):

France: In the vanguard of European opposition. . . . Still,

American companies have opened 500 new operations there in
the past two years.... U. S. firms now control almost the whole
electronics industry, 90 percent of the production of synthetic
rubber, 65 percent of petroleum distribution, 65 percent of farm
machinery production. Even a few of the subcontractors for Presi-
dent de Gaulle's top-secret force de frappe are U. S. subsidiari~
Italy: American investment has soared 50 percent in the past
three years, to $800 million; of Italy's 100 largest companies, ten
are now U. S. controlled .... General Electric last summer bought
Olivetti's computer division for about $15 million.
West Germany: Among the Common Market countries, Ger-
many leads in U. S. investment with $2.3 billion .... And there
is a steady flow of mergers and acquisitions enlarging the U. S.
dollar stake. One of Germany's most prominent bankers com-
plains: "The rate at which the Americans have been gobbling up
small European companies is positively indecent."
Benelux: It's hard to travel more than a few miles in Belgium
without passing an American plant; together, Belgium and Hol-
land have the highest per capita U. S. investment in Europe, with
about $1 billion spread among a population of 19 million.

Further sterile hoarding by Europeans, combined with in-

creasing United States economic penetration, would lead to the
demise of the native European capitalist qua capitalist. Ulti-
mately he would be reduced to the comprador role typically
played by native "capitalists" in underdeveloped countries.
Since the European capitalist class has a long history and
memory of being "top dog," and now has great financial power,
we believe it must and will soon make a stand and fight.
Against this background we can appreciate the significance
of the fact that the Western European countries have shown

15
MONTHLY REVIEW DECEMBER 1966

an increasing reluctance to hold the dollars generated by the

continuing United States deficits. Instead, as already noted,
they have been rapidly accumulating gold, of which the United
States has a limited and declining supply. The real connection
between gold, the dollar, and economic power is at present
most clearly articulated by France. Thus, the Wall Street ] our-
nal carried the following revealing story:

President de Gaulle's government is determined to keep

France from becoming an economic colony of the U. S., Charles
de Chambrun, French foreign trade secretary, said.
Mr. Chambrun told the Associated Press that this concern
helps explain French stockpiling of American gold, close bargain-
ing in the Common Market and the fruitlessness of the latest
round of tariff negotiations.
"We could permit a much larger American presence in our
economy as the Germans are doing, and it would be easy political-
ly. There would be more jobs and faster growth," he said. .
"But to be politically responsible to the generations to come,
we have to see that these generations have the weapons to defend
themselves-economic weapons," he continued.
"If we did nothing, in a few years we would have the same
problems as Latin America has.
"The idea has taken hold in American financial circles that
the way to take care of the United States' favorable balance of
trade with France is to export capital. This is a policy whereby
we could become a medium developed country in the future. This
explains our attitude on gold. We don't want to take America's
gold, we just want to stop the overabundance of American capital
in France." (Wall Street [ournal, February 24, 1966, emphasis
added.)

In the final section of this article we discuss the possibility

that the European countries may use their gold hoard in far
more aggressive ways if the United States does not solve its
balance of payments problem. But first, we must briefly exam-
ine the likelihood of a resolution of this growing crisis by uni-
lateral United States action.

Can the U. S. End the Payments Deficit?

From the United States viewpoint the least painful way
of solving its payments deficit would be by increasing its trade

16
 CRISIS IN THE CAPITALIST WORLD

surplus-indeed, if the surplus could be increased by raising

exports such a solution would be positively pleasant, since more
exports mean more jobs and profits at home. Hence, much
government effort has gone into attempting to stimulate ex-
ports through providing better marketing information, more ex-
port loans, etc. And there is no question but that exports
of goods have risen relatively rapidly in recent years, from
about $16 billion in 1958 to $26 billion in 1965.
In evaluating prospects for continued rapid growth in
exports, several things must be borne in mind. First, past growth
has been partly propelled by rising United States investment
overseas, and continued growth of the latter will contribute
directly to worsening the payments deficit. Second, past growth
has been aided both by increasing the levels of foreign aid and
by forcing recipients of this aid to "buy American." Since
the amount of foreign aid has now leveled off and is close
to 90 percent tied to exports, little stimulus is likely from this
sector. Third, all evidence indicates that as productive capacity
grows overseas, particularly in Europe, world markets are be-
coming increasingly competitive. Finally, rising prices and
shortages in a United States economy heated up by massive
expenditures for the war in Southeast Asia tend to make ex-
ports both less competitive and less available.
Imports too have been growing rapidly, from under $14
billion in 1958 to over $21 billion in 1965. Moreover, in boom
times imports tend to grow proportionately faster than domestic
production, so that at present the likelihood is an accelerating
level of imports. All things considered, in the next few years
it would seem highly unlikely that the trade surplus could
increase by the large amount necessary to eliminate the pay-
ments deficit; recent data indeed show a decline in the surplus,
from $7.0 billion in 1964, to $5.3 billion in 1965, to a $4.1-
billion annual rate in the first half of 1966. The only thing
which might significantly change this conclusion would be a
major recession in the United States which would choke off
imports. Such a "solution"-deliberately provoking a reces-
sion in order to eliminate a deficit in the international balance
of payments-is being tried by the British at this time, and is
not beyond the realm of possibility for the United States. How-

17
MONTHLY REVIEW DECEMBER 1966

ever, it should not be overlooked that such a solution might

trigger a serious flight of capital from this country, and thus
do more harm than good to the country's balance of payments.
The prospects for solving the payments deficit by reducing
the government's foreign commitments also seem dim. As noted
above, close to 90 percent of United States foreign aid outlays
are directly tied to exports, so that even complete elimination of
the program would cut less than $.5 billion from the deficit.
The ending of the Vietnam war would undoubtedly be more
significant, since the direct balance of payments costs of the
war alone have been recently estimated at $1 billion annually;
while the indirect costs, including the inflationary effects on the
trade surplus, are large but unknown. It seems clear, however,
that the war has done no more than exacerbate the long-stand-
ing payments problem; and in any case, since an end to the
war is not in sight (and even if it were, there is always the
possibility of other wars), military events are unlikely to ameli-
orate the situation in the next few years: their main role will
lie in their effect on the rate of growth of the payments
deficit, rather than in changing the deficit into surplus.
This leaves the final major source of the deficit, private
foreign investment. Within this area, the most important sector
is long-term direct investment-if there were no additions to
this already enormous overseas investment, the balance of pay-
ments deficit would be eliminated overnight. But, as noted in
the first section, this investment is the juiciest and most attrac-
tive kind for American corporations, and in our opinion will
not be constrained in a decisive way in the near future. For
one thing, since dollar outflows for investment purposes usually
return to the United States in the form of profits, export sales,
etc., within two to three years, such a step would be partly
self-defeating. Moreover, a pile-up of capital at home might
trigger off a major downturn internally, or cause a liquidity
squeeze abroad.
Support for our assertion that the United States will fail
to fundamentally limit its overseas investment or solve its pay-
ment deficit can be seen from a report in the Wall Street
Journal of October 18th that "The Johnson Administration's
efforts to limit the corporate capital outflow to foreign coun-

18
 CRISIS IN THE CAPITALIST WORLD

tries will remain on a voluntary basis next year, a Commerce

Department aide hinted." (Emphasis added.) It appears that
the reason for retaining a voluntary program is the "good
performance" of American companies-not, however, in re-
straining their booming investment programs, but in financing
a greater part of these programs with reinvested profits or
loans from foreigners as opposed to dollars shipped directly
from the United States.
Any belief that this solution will be acceptable to European
capitalists seems to us naive in the extreme. It mistakes the
very nature of the payments crisis, which reflects a struggle
over the extent of United States control in Europe and else-
where through real investment, rather than a problem of the
birthplace of the money actually used in obtaining this Amer-
ican-controlled investment. In short, the balance of payments
crisis is a money problem based on a real economic (and poli-
tical) power problem, not on another money problem. As
such, it is much more difficult of solution, and no solution is
likely to be satisfactory to both sides in the power struggle.
In sum, the heart of the problem is that the United States
is vastly overcommitted abroad-especially relative to the de-
sires and interests of its increasingly strong "ally," Continental
Europe. The combination of accelerating overseas investment
plus large expenditures for military bases and foreign aid is
probably too much for the United States to handle. When we
add to these efforts the major military expenditures in South-
east Asia, the conclusion is undoubtedly true.
Yet, the United States seems unwilling and/or unable to
retrench sufficiently to end its balance of payment deficit.
Part of this unwillingness undoubtedly stems from that ego-
mania of the world's richest country commented upon by
Senator Fulbright: "America is showing some signs of that
fatal presumption, that overextension of power and mission,
which brought ruin to ancient Athens, to Napoleonic France
and to Nazi Germany." In the international financial arena,
this fatal presumption takes the form of the belief that all
sovereign countries should and will accept the dollar as the
unique currency which is "as good as gold." Our leaders seem

19
MONTHLY REVIEW DECEMBER 1966

to have forgotten an even older American business slogan:

"In God 'Ale Trust, All Others Cash."

Where Will the Crisis Leard?

Whatever the specific resolution of the financial crisis, one
thing seems certain: it will involve an enormous economic set-
back for the United States. No less an authority than Treasury
Secretary Fowler stated in 1965: "I am so confident that the
American business-financial community is going to make this
particular program work that I refuse to contemplate the awful
prospects of failure." (Emphasis added.)
We can only speculate on the possible results of failure
to end the payments deficit. A minority American view (ap-
propriately labeled "the new nationalism" by the London The
Economist) holds that the payments deficit is a blessing to the
world and that everyone should be delighted to accumulate
dollars:
The dollar is the world's standard of value. . .. An annual
growth in Europe's dollar-holdings averaging, perhaps, $1.5 to $2
billion a year or perhaps more for a long time is normal expan-
sion for a bank the size of the United States with a fast-growing
world as its body of customers. (Emile Despres, Charles P. Kindle-
berger, and Walter S. Salant. "The Dollar and World Liquidity,"
The Economist, February 5, 1966. Emphasis added.)
As we have already indicated, however, it is extremely
unlikely that European capitalists will accept this passive role
as customers for UncIe Sam as world banker and investor.
If we are right that Europeans will not be willing to play
this role-an unwillingness which will be indicated by a con-
tinued gold outflow from the United States-it is theoretically
possible for Washington to resort to a range of drastic and un-
conventional measures. But unfortunately for the United States,
all of these would likely call forth European retaliation which
would largely nullify them. For example, the United States
might raise tariffs to keep out imports; but the Europeans
could do the same, and since we now have a favorable trade
balance with Europe we would be likely to end up in a worse
position.
Again, the United States might try to shift the burden

20
 CRISIS IN THE CAPITALIST WORLD

of the problem overseas by a system of "exchange controls"

--e.g. by forcing Europeans to keep their dollar earnings with-
in the United States, or even by letting its gold hoard run
down to nothing, thereby also forcing foreigners to hold dol-
lars. One difficulty with such radical measures is that they
would gravely damage the delicate fabric of international finan-
cial relations. Moreover, since they effectively involve forceable
freezing of property-is anything less involved when a sovereign
country cannot exercise control over its assets in another coun-
try?-these measures would invite European "seizure" of United
States investment in Europe. And, perhaps of overriding sig-
nificance, such measures would encourage the underdeveloped
countries to do likewise. Why should Brazilians struggle to pay
their debts to the United States when the latter is effectively
refusing to meet its obligations to others? Or, why should Chile
allow huge dollar profits from its copper mines to flow to the
United States? Why not insist that the United States take
Chilean pesos as payment? Clearly, the prospects of such a
world would be terrifying to the United States.
One final possibility, while admittedly only providing a
short-term respite rather than a long-run solution, might yet be
forced upon the United States-devaluation of the dollar in
terms of gold (for example, raising the price of one ounce of
gold from the present $35 to $70). Since such a devaluation
of the dollar would effectively reduce United States export
prices by one-half, hence threatening havoc with world trade,
it is likely that all countries would have to devalue their cur-
rency in terms of gold by the same percentage as the United
States. After this no currency would have changed in value
relative to any other currency, but gold would be worth more
in relation to all currencies. This would serve the purpose of
stretching the United States supply of gold (and every other
country's) available for meeting foreign dollar claims on the
gold. This plan has been proposed by a French economist,
Jacques Rueff, and in our opinion may yet become the aim of
European capitalists because it would enable them to reap
windfall profits from their huge gold hoards. These profits
could be used for buying out United States investment in
Europe and elsewhere.
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 MONTHLY REVIEW DECEMBER 1966

Examination of some actual numbers and reasonable pro-

jections will help to make clear both the enormity and im-
mediacy of the international financial crisis and the likely in-
creasing attractiveness to Europeans of a Rueff Plan solution
to the crisis. At the end of 1965 official holdings of gold
(those of governments and central banks) were distributed as
follows: United States, $14 billion; Western Europe (exclud-
ing Great Britain), $20 billion; and the rest of the (non-Com-
munist) world, $10 billion. Given this distribution, it seems
clear that there would be no great benefit to Europe in forcing
a world devaluation at this time. An across-the-board increase
in the price of gold of 100 percent, for example, would simply
make the European gold stock worth $40 billion and that of
the U. S. $28 billion, yielding an improvement for the Euro-
peans vis-a-vis the Americans of only $6 billion. At the same
time, the total European short-term dollar claims on the United
States in 1965 were only $9 billion, which is not enough to
force a devaluation on the United States by demanding gold
for dollars.
If we project hypothetical but realistic estimates for four
years later, based on the trends of the 1958-1965 period, then
the picture becomes very different. By 1969 the European of-
ficial gold hoard would be $30 billion, the rest of the world
excluding the United States would hold about $9 billion; by
deduction from a projected world official stock of $45 billion,
this would leave the United States with only $6 billion in gold.
(See Table 2 on facing page.)
Given this situation (or one close to it) Europe would
have both the means and enormous motivation to attempt to
force a world-wide devaluation. The means would be estimated
European short-term dollar claims of $10 billion, an amount
greater than the projected resources of the United States to
meet these claims ($6 billion in gold). The motivation would
lie in the greatly increased differential between European and
United States gold hoards which would have risen from $6
billion in 1965 to $24 billion in 1969. If the price of gold were
then doubled, the value of the European gold hoard minus that
of the United States would also double to $48 billion. These
"windfall profits" of $24 billion accruing to European capitalists

22
 CRISIS IN THE CAPITALIST WORLD

from forcing a devaluation would be more than sufficient to

"buy back" total projected United States investment in Europe
in 1969. Moreover, the total European gold stock, which after
devaluation in 1969 would be worth $60 billion, could be used
to buyout a large part of the projected $45 billion in United
States foreign investment outside Europe. (These data on of-
ficial gold holdings understate the benefits to Europe of a forced
devaluation, because a large part of estimated world private
gold holdings of $20 billion is owned by Europeans, while
American citizens are legally prohibited from such hoarding.)

TABLE 2
EFFECT OF UNIVERSAL DEVALUATION OF 50%
IN 1969 (PROJECTED DATA)
($ billion)
DOLLAR VALUE OF U. S.
GOLD Foreign
Before After Short-term Investment
Devaluation Devaluation $ Claims (Direct)
Western Europe
(except U. K.) 30 60 10 20
United States 6 12
Rest of world
(except Communist
countries) 9 18 * 45
World total
(except Communist
countries) 45 90 * 65

* Not Projected

It should be emphasized that the above numbers are not

meant to be forecasts; they are simply projections suggestive of
the forces underlying recent trends. Specifically, no great weight
should be placed on the year 1969; it might be better to think
in terms of the years 1968-1970, with the crisis being expected
to come to a head sometime during that period. Many im-
ponderables will determine the exact timing, e.g. the rate of

23
MONTHLY REVIEW DECEMBER 1966

growth of expenditure in Southeast Asia, the date and extent

of a likely future devaluation of the British pound. And it is
important to keep in mind that it is particularly difficult to
forecast the exact course of financial crises, since by their very
nature they usually involve waves of panic and blind fear. It
is even possible, though not likely, that the present tight money
situation at home, which is being partly promoted to aid the
balance of payments, may create a sufficiently grave domestic
financial crisis to make a universal devaluation solution more
attractive to the United States in the relatively near future.
Finally, no attempt has been made here to answer some
of the complex institutional questions posed by this hypothetical
possible solution. For example, what mechanism would serve
to make the European countries act in concert to force a devalu-
ation? Even if devaluation were forced, how could United
States companies with overseas investments be coerced into
relinquishing them to European capital?
At a more general level, if we assume that the United
States fails to solve its balance of payments problem within the
next few years, the crucial question is whether the financial
struggle between the United States and Europe (which clearly
has its political and military concomitants) can really be solved
in such a peaceful and orderly manner. A weak nation like
Britain has been forced to disgorge most of its empire without
even a struggle. But the United States is still at the peak of its
power and would certainly be extremely reluctant to part with
its hard-won network of investments. Is there not a possibility
that the severity of this struggle between Europe and the
United States would so shake and damage the financial struc-
ture of the capitalist world as to cause a major world-wide
depression? And, since even forced devaluation would provide
no more than a short-run palliative, might not such a crisis
develop a few years later anyway?
A breakdown of this nature is, in our opinion, a very real
possibility. Needless to say, the implications would be enormous,
and it might well be the decisive world development of the
next decade.

24