From Bretton Woods to World Inflation
26. Collapse of a System
November 21, 1967
The devaluation of the British pound from $2.80 to $2.40 is not only another declaration of bankruptcy by Great Britain; it is another revelation of the bankruptcy of the international money system concocted at Bretton Woods, N.H., in 1944.
The argument put forward by the sponsors of that system was that if would promote international trade and domestic prosperity by stabilizing the values of national currencies and maintaining fixed and dependable exchange ratios between them. All that was necessary, they blandly explained, was to make one key currency—the American dollar—directly convertible into gold. All the others could simply be tied to each other by being tied to the dollar. Then every currency would support all the others, and everything would be just dandy.
What has been the result? The British pound, which had already been devalued from $4.86 to $4.03 when it entered the International Monetary Fund, was devalued again, in September, 1949, from $4.03 to $2.80. That action touched off 25 more devaluations of other currencies within a single week.
Since the fund opened for business, in fact, there is hardly one of its hundred or more member currencies, with the exception of the dollar, that has not been devalued at least once. Even before Nov. 18 every currency, without exception, bought less than it did when the fund started. The new devaluation of the pound to $2.40 has already touched off a series of more devaluation of other currencies. Not until at least several months from now will we know how seriously the world monetary edifice has been shaken.
And yet throughout the last 20 years we have been hearing and reading from official sources nothing but endlessly repeated statements about how “successfully” the fund system has been functioning. Only this fall the fund members triumphantly announced a new gimmick, “special drawing rights,” to make the system still more successful. These special drawing rights are nothing more than a new form of paper money or paper credit designed to make possible a further uniform international inflation and monetary depreciation that will not show up in the quoted exchange values of individual currencies.
At least an open devaluation of an individual currency, like that of the pound to $2.40, lets us see just who is being swindled and by how much. The first losers are the central banks, private banks and firms and individuals all over the world who trusted the British government’s solemn pledges that the pound would not again be devalued.
Maybe some of the “new economists” (though I doubt it) will at last begin asking themselves whether the international gold standard may have had some advantages that they could have overlooked.
Another bankruptcy that the new devaluation emphasizes is the welfare state. Prime Minister Harold Wilson fatuously blames “the speculators,” but the real cause of the pound’s new downfall is the attempt of Britain to live beyond its means—the cradle-to-grave security, the deficits of the socialized industries, all financed by budget deficits and the printing of more money.
Of course, the devaluation of the pound will bring tremendous pressure on the dollar. The Johnson Administration’s ability and will to deal with this are more than questionable. The President has reaffirmed “unequivocally the commitment of the United States to buy and sell gold at the existing price of $35 an ounce.” This is all very well as far as it goes. But if this commitment is to be kept, the government will have to slash billions off the Great Society welfare spending and stop the swelling deficit and the constant increase in the paper money supply.
Mr. Johnson has still given no sign that he seriously means to do anything in this direction.
2Reprinted by permission of the Los Angeles Times Syndicate.
