Nixon and Bretton Woods

Capitalist breakdown and the revolutionary perspective of the Fourth International—Part 2

Nixon and Bretton Woods

By Nick Beams
6 October 2008


Published below is the second part of a report delivered on September 28 by Nick Beams to a public meeting in Sydney on the 70th anniversary of the founding of the Fourth International. Beams is a member of the WSWS International Editorial Board and National Secretary of the Socialist Equality Party (Australia). Part one was posted on October 4.

As the global financial crisis unfolds, we hear a new phrase with increasing frequency: the privatisation of profits and the socialisation of losses. This is not just a pithy summing up of what is taking place, but more broadly points to the fundamental political issues that are going to be fought out in the coming period.

The question immediately arises: in whose interest is the economic re-organisation of society going to be carried out? Why should society’s resources be deployed to rescue the tiny minority of fabulously wealthy, the beneficiaries of the financial system’s operations?

If there is to be the socialisation of losses—if the costs are to be borne by society as a whole—then why not the socialisation of profits as well? Or, to put it another way, why should not the entire banking and financial system be brought under public ownership, to be controlled and organised in the interests of society as a whole.

The rationale for the massive bailout operation is that without it, an economic collapse of truly unprecedented proportions would occur. The billionaire investor Warren Buffet, for example, warned of “the biggest meltdown in American history”.

So, it is argued, this is not really the bailing out of the super-rich, but the safeguarding of the economic interests of the people as a whole.

An article in the Wall Street Journal described the scene on Wednesday September 17, when the decision was made to push ahead with having the government take on its books the toxic assets in the financial system.

“Huddled in his office Wednesday with top advisers, Treasury Secretary Henry Paulson watched his financial-data terminal with alarm as one market after another began to go haywire. Investors were fleeing money-market mutual funds, long considered ultra-safe. The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Soon, consumers would panic” [Wall Street Journal September 20, 2008].

By Thursday September 18, a financial meltdown was underway.

But this only raises the issue we posed in an even sharper form. How much longer is it possible to continue with the present economic order? It is surely high time to put to an end a social and economic system whose very operations, based on the capitalist market and the relentless pursuit of profit, threatens to wreak economic devastation upon the people of the United States and the working class all over the world.

And if it is necessary that all available resources be mobilised to prevent a catastrophe, then surely it is doubly necessary that these resources be taken out of the hands of those who created the disaster in the first place, and be placed under the democratic control of the working class, whose labours—mental and manual—have created them.

The US financial crisis has surely shattered the market myths and mantras that have played such a central ideological role for the capitalist class over the past three decades.

Whenever the demand has been raised for improvements in social services, health, education, improved infrastructure, and the other requirements of modern life, the cry has gone up: big government is not the answer! Problems cannot be solved by throwing money at them! The resources are not available to meet such needs! User pays, not the provision of social services and facilities, is the only viable economic program for the future.

These shibboleths have been well and truly shattered, and the class interests they serve exposed. Big government? The sky is the limit, so far as protecting the interests of the financial plutocracy is concerned.

The historic decline of US capitalism

This crisis, however, has done much more than shatter the ideological foundations of the “free market” politics of the past three decades. It has made clear that the economic foundations upon which world capitalism has rested since its restabilisation after World War II, following almost four decades of political and economic upheaval, have reached a very advanced stage of disintegration.

If we review the twentieth century as a whole, and especially the past 60 years, it becomes clear that the chief objective factor in the survival of capitalism to this point has been the strength of US capitalism.

Our movement, the Fourth International, has exposed the crucial political role played by the old leaderships of the working class—the Stalinist Communist parties, the social-democratic and labour parties and the trade union leaderships, together with their apologists and defenders among the middle class radical groups—in sustaining the capitalist ruling classes.

The founding program of the Fourth International begins as follows: “The world situation as a whole is chiefly characterised by a historical crisis of the leadership of the proletariat. ... The objective perquisites for the proletarian revolution have not only ‘ripened’ they have begun to get somewhat rotten. Without a socialist revolution, in the next historical period at that, a catastrophe threatens the whole culture of mankind. The turn is now to the proletariat, i.e., chiefly to its revolutionary vanguard. The historical crisis of mankind is reduced to the crisis of revolutionary leadership.”

Those words remain as true today as when they were written 70 years ago. But what explains the survival of capitalism since then? Our movement was founded on the most profound appreciation of the role of the “subjective factor”—the role of revolutionary leadership in the historical process. And there is no question that capitalism has survived only because of the betrayals of the leaderships of the working class.

We are not, however, historical subjectivists. Revolutions only become possible under certain definite objective conditions, which are produced by the historical development of capitalism and the working-out of the contradictions within it.

There is no question that powerful objective processes made possible the survival of capitalism after World War II, following the revolutionary upheavals that both preceded and followed it. Chief among these factors has been the strength of US capitalism, which has provided the essential economic foundation for the stability of the global capitalist order in the past six decades.

That is why this crisis has such far-reaching and revolutionary implications: it signifies the historic decline, decay and disintegration of US capitalism. It means the opening of a new revolutionary epoch, for which both the Fourth International and the working class must prepare.

The ideological defenders of the capitalist order grasp almost instinctively, half-consciously, the significance of the role of American capitalism. This is the reason they insist that, despite the deepest crisis since the Great Depression, “the world has not ended”.

Let me illustrate this point by referring to a recent article by the associate editor and leading economics commentator for the Times newspaper in London, Anatole Kaletsky, published in the Australian on September 9. It was published two or three days after the unveiling of the $85 billion plan to bail out the two US mortgage giants, Freddie Mac and Fannie Mae.

Kaletsky began his article as follows: “Is this then, the ‘Big One’, the monster-sized upheaval, usually accompanied by some kind of government support, that normally marks the low point of every major financial crisis? In terms of scale there can be no question. The rescue of Fannie Mae and Freddie Mac ... is bigger by a factor of 10 than any previous government intervention undertaken in any financial market anywhere in the world.”

His conclusion was: “If this program is not sufficient to put the US economy and financial system back on its feet, it is hard to imagine anything else that could. Anyone betting against this package is, therefore, betting that the US economy is doomed to irreversible and inevitable decline. Such a bet has always been wrong in the past and is likely to be wrong again this time. Sunday’s probably was the Big One—and a US economic recovery is now assured.”

The least one can say is that Mr Kaletsky’s assurances were somewhat premature, given what took place over the subsequent two weeks. If the Fannie-Freddie bailout was 10 times bigger than anything undertaken anywhere before, then the present operation is at least 90 times that!

What is important here is not so much the prediction itself, but the reason it was so way off the mark. Mr Kaletsky has taken as a given the permanence of American capitalism and its global dominance. This has been so central to the economic and political framework of the past 60 years—a period that encompasses the lives of the vast majority of the present population, and, indeed, a considerable proportion of the people who have ever lived on this planet—that anything else is unimaginable. As always, thinking lags a long way behind objective historical processes.

The collapse of American capitalism—how could that be possible? Yet it is happening, and that signifies the opening of a new historical epoch, in which many old and seemingly permanent institutions in the spheres of both economics and politics are going to undergo unimaginable change. Out of this, new political relations and possibilities will arise.

Nixon and Bretton Woods

Before we leave Mr Kaletsky and his fellow pundits, we need to look into his remarks somewhat more, in order to clarify how we have arrived at this point. Kaletsky claims that any bet on the demise of the US would have been wrong in the past, and is wrong now.

Let us examine this question historically, starting with the Great Depression. How was that overcome? Not by the activities of the US government of Roosevelt and its New Deal in the 1930s. The measures that Roosevelt implemented failed, and by 1937-38 American capitalism was moving into a downturn as rapidly as it had in the collapse of 1932.

The demise of the New Deal measures led to certain far-reaching conclusions on the part of key sections of the American political elite. By the end of the 1930s, they had come to the understanding that the only way of overcoming the crisis was to remake the world economy.

The old divisions, the old empires and blocs had to be broken up in order to create the conditions for the revival of the world market, and the free flow of capital and goods, so essential for the expansion of US and world capitalism. That was the program on which, in the most fundamental sense, the US fought the war. As Leon Trotsky had explained in 1934: “US capitalism is up against the same problems that pushed Germany in 1914 on the path of war. The world is divided? It must be redivided. For Germany it was a question of ‘organising Europe.’ The United States must ‘organise’ the world.”

After the war, the betrayals of Stalinism in Europe, where the Communist parties joined capitalist governments in Italy and France, created the conditions for the US to establish its hegemony and reorganise world capitalism on new foundations. The Bretton Woods Agreement of 1944 established a new international monetary system and laid the foundation for an expansion of world trade. The Marshall Plan of 1947 reconstructed the European economies, and laid the foundations for the development of the more efficient American systems of assembly-line production in Europe. Together, these measures established the groundwork for the growth of the post-war capitalist economy.

This post-war restructuring under the hegemony of the US opened the way for a new capitalist upswing. It seemed that a golden age had dawned. The ideologists of the bourgeoisie, echoed by the social-democratic and labour politicians, as well as the trade union bureaucracies, proclaimed that the lessons of the Great Depression had been learned. It was possible, they insisted, to regulate the capitalist system. The Marxist doomsayers had been proved wrong: capitalism was not wracked by irresolvable contradictions at all.

History, however, was to rapidly demonstrate that such contradictions did, indeed exist, and that they were far from overcome. They manifested themselves in the increasing economic turbulence that began to develop in the 1960s. By the end of that decade, the US was running a growing balance of payments deficit, and in 1971, for the first time since before World War I, it suffered a balance of trade deficit.

Under the Bretton Woods monetary system, the values of the world’s major currencies were fixed in relation to the US dollar, which was, in turn, backed by gold, redeemable at $35 per ounce. But by the beginning of the 1970s, the amount of dollars circulating in the rest of the world vastly outweighed the gold stocks held in the US. The very expansion of international trade had undermined the monetary system upon which that expansion was based.

Action to preserve the Bretton Woods system would have required a reduction in US spending abroad, both on investment and on the military—war expenditure in Vietnam was at its height—and the imposition of recessionary conditions at home, neither of which the US administration was prepared to carry out. The other alternative was to devise a new system of international monetary relations that recognised the reduced relative economic power of the US, and the resurgence of Japan and Europe. That was ruled out as well.

The Nixon administration resolved to take another course, aimed at preserving the pre-eminence of the US. In August 1971, it removed the gold backing from the US dollar. In 1973, the system of fixed currency relationships was scrapped, and the following year, mechanisms that had been set in place to regulate the international movement of finance capital were scrapped.

To be continued