4

4. MONETARY AND FINANCIAL PROBLEMS AT THE IMPERIALIST STAGE

World capitalism entered the epoch of imperialism having relatively stable monetary and financial relations between the leading capitalist countries, relations based on the gold standard. Only a few economically backward countries like China, Iran, Afghanistan and Abyssinia, based their money circulation on silver.

The relative stability of currency circulation facilitated the export of capital and the development of international credit relations, which was one of the principal features of finance capital and the domination of imperialism. The export of capital both in the money and the commodity form was stimulated by the rapidly mounting construction of railways, which required a tremendous investment of capital and heavy industrial output (rails, rolling stock and equipment). Notwithstanding the customs barriers and other forms of the competitive struggle between the monopolies and among the major capitalist countries, world trade was expanding. The growing role of cartels, trusts and gigantic banks created the illusion that monopolisation in the sphere of production and circulation was capable of eliminating competition.

The development of international banking in the first decade of the 20th century made it possible to extend the use in international settlements of credit money–bank notes, drafts, promissory notes, cheques and cashless settlements by transferring sums from one current account to another in corresponding banks of different countries. All this furnished grounds for the revisionist theories about the conversion of the chaotic capitalist economy into an organised one under the aegis of the biggest monopolies. Fashionable concepts of organised capitalism, ultra-imperialism, appeared. The authors of these concepts, which proceeded from the possibility of eliminating competition by the monopolies, naturally called for a revision of the Marxist doctrine of the law of value and money. R. Hilferding, a leader of German Social-Democracy who wrote the book Finance Capital published in 1910, was especially outspoken in this respect. Paying tribute to the nominalist theory of paper money circulation, he put forward a concept meeting the far-fetched theory of organised capitalism–ultra-imperialism.

Evaluating the tendency towards cartelisation, which was under way at that time, Hilferding wrote that this process could lead to a situation when "together with the anarchy of production the objective semblance vanishes, the commodity as materialised value vanishes, and consequently money, too. The cartel distributes the products.... The circulation of money," he concluded, "ceased to be necessary, and the incessant cycle of money found its end in regulated society".1

And all this, according to the author of Finance Capital, was to be achieved under organised capitalism.

Yet in Hilferding's time the entire system of international monetary circulation was based on the gold standard. Notwithstanding the enhanced role of banks and various types of credit money, the need for gold as world money rose. Gold invariably preserved its role in international payments. Capitalist countries tried not only to keep their gold stock but to extend it as much as possible. The biggest part of the world reserves of monetary gold was concentrated in the United States, France, Russia, Britain, Germany and AustriaHungary–the principal capitalist countries at that time. Some capitalist countries were concentrating gold in expectation of military conflicts. Germany, which began financial preparation for aggression very early, was particularly active in this respect.

Benjamin Anderson, an American bourgeois economist, wrote on this score: "In order to take gold out of the hands of the people and carry it to the reserves of the Reichsbank, fifty- and twenty-mark bank notes were issued to take the place of the gold in circulation. German agents regularly appeared as bidders for gold in the London auction rooms."2 While the accumulation of gold was the purpose of financial policy in expectation of war, it objectively reflected the existence of free money capital and was caused by the need for the capitalist countries to have gold security for the growing stock of bank notes in circulation. The accumulation of gold in gold-producing countries, e.g., Russia, was facilitated by the increase in its production. In other countries this was promoted by a favourable balance of payments.

The world gold stock as of December 31, 1913, i.e., less than a year before the outbreak of the First World War, was estimated at 20,600 tons. It is important to note that the gold reserves were mainly concentrated among the six leading powers of those days: the United States, Russia, France, Great Britain, Germany and Austria-Hungary; they held 68-69 per cent of the world stock of monetary gold.

Table 1

Gold Reserves at the End of 1913 (million dollars)
Centralised gold Gold in circulation Total

United States ....... 1,279.2 611.5 1,890.7
Russia .......... 868.7 254.2 1,122.9
France ......... 678.7 723.6 1,402.3
Britain .......... 564.0 370.0 934.0
Germany ......... 340.6 655.1 995.7
Austria-Hungary ..... 257.5 44.0 301.5
Total ........... 3,988.7 2,658.4 6,647.1

Source: F. I. Mikhalevsky, Zoloto v period mirovykh voin (Gold in the Period of the World Wars), Moscow, 1945, p. 15.

The table shows that the United States had the biggest gold reserves among future First World War belligerents.

London, however, was the world's undisputed financial centre, although New York, Berlin, Vienna, Paris and Amsterdam were also of great importance. It was the gold standard that enabled other centres of world trade to play a significant part. The accumulation of foreign exchange instead of gold was displayed as a tendency only in some economically underdeveloped countries or in countries dependent on the metropolitan states, e.g., India. Professor Benjamin Anderson, who lived through the prewar period and the First World War, wrote in 1949: "In 1913 men trusted the promises of governments and governments trusted one another to a degree that is difficult to understand today.''3 He holds that war came as a surprise and a blow not only to the American people but also to the well-informed Europeans.

Possibly the First World War came as a ``surprise'' to the American people, but this was hardly the case as regards wellinformed Europeans. Be that as it may, about a month prior to the outbreak of the war the stock exchanges in different countries, those highly sensitive barometers of the socioeconomic climate, clearly pointed to the coming storm.

Thus, immediately after the assassination of the Austrian Crown Prince in Sarajevo on June 28, 1914 securities, especially state bonds, were sold wholesale on the Vienna stock exchange. In July a fever was racking the stock exchanges in the most important cities of the world. On July 23, a real panic broke out at the exchanges in Paris and Berlin and soon swept through London and New York as well. On July 27 the Vienna stock exchange was closed and the next day Austria declared war on Serbia. The tidal wave of panic engulfed the exchanges of Berlin, Toronto and Madrid. The St. Petersburg stock exchange was closed on July 30, two days before Germany declared war on Bussia: on August 4, 1914 Britain declared war on Germany and the First World War began.

As was shown earlier, on the eve of the war all the great powers had considerable gold reserves. World economic exchanges proceeded smoothly on (he basis of the gold standard and, therefore, it is important to ascertain, at least in general outline, what were the direct causes of the complications in this sphere.

Prior to the First World War London was the world's financial centre; foreign trade transactions, redemption of credits, especially bills of exchange discounted by British banks, were effected there in sterling on a large scale.

As the period of redeeming bills drew nearer the demand for pounds rose, but after the outbreak of the war it became increasingly harder to get them. The discount of new bills became more difficult. This was felt at once, at the initial stage of the war. The sterling rate rose from $ 4.86 to almost $ 7.00.

Military operations by the German navy on the sea routes presented a grave danger to world trade. The shipment of gold for international settlements became risky. This point could, incidentally, serve as some justification for those who were in no hurry to pay with gold for their liabilities. Anyway, gold transactions via London were abruptly curtailed. Foreign trade was also reorganised. The share of manufactured goods and raw materials for civil industries decreased in international trade, while shipments of strategic materials and foodstuffs for the enormous number of people under arms mounted.

The First World War made crystal-clear the fallacy of the theories about the advent of the era of organised capitalism.

In his work Imperialism as the Highest Stage of Capitalism, written at the height of the war in 1916, Lenin stated: " Monopoly under capitalism can never completely, and for a very long period of time, eliminate competition in the world market (and this, by the by, is one of the reasons why the theory of ultraimperialism is so absurd).''4

But the war which strained to the utmost the economy and finances of all the belligerents was perhaps the strongest factor which compelled all capitalist countries to intensify statemonopoly tendencies in the economy. The state was becoming not only the political instrument of the monopolies but also the mechanism of their competitive struggle. It was this struggle that ultimately led to the first imperialist war on a world scale.

But before world war broke out it might have seemed to some people that finance capital had found a way for the organised elimination of capitalist anarchic competition, if not in the economy as a whole, at least in world currency circulation.

A tendency towards the coalescence of banking by the leading monopolies with government financial institutions emerged prior to the First World War. The central banks of issue began to operate in closer contact with the state treasuries. These contacts were particularly extended in the issue of media of circulation and government securities. The apparatus and methods of financing war by robbing the working people through inflation was thus being practically prepared.

The banks became the agencies which ensured the placing of internal government loans. The latter assumed the form of interest-bearing bonds and other securities. State liabilities served as security for the issue of bank notes by the central banks.

The bank notes were handed over to the treasury for circulation every time the state had to cover its budget expenditure. In this case the bank notes represented liabilities of the bank payable to the holder issued instead of liabilities of the treasury of the bank. If such bank notes, as was the case before the war, were secured by gold in a definite ratio to their quantity in circulation and were freely exchanged by the bank (and the entire quantity of bank notes in circulation cannot in practice be presented for exchange), the bank notes preserved the nature of credit money. But if this condition was absent and the quantity of bank notes in circulation, as happened during the war, increased to a degree precluding their exchange for gold, such notes turned into ordinary fiat money.

Prior to the First World War bank notes in circulation preserved their function as credit money. The central banks of issue themselves engaged widely in discounting bills concentrated in the holdings of private banks. This was the main means of putting bank notes into circulation. From this it followed that the entire system of private banks was interested in the normal functioning of the central bank of the particular country. This interest of private banks and capitalist corporations in the normal functioning of central banks dictated the closest contact between the central bank and the treasury, on the one band, and between central and private banks and corporations, on the other. This was the path followed by the development of finance capital in industrially developed countries, especially the United States.

The Federal Reserve System of banks was organised in the United States shortly before the First World War. During the war this system began to perform issue functions which in other countries are handled by central banks. Together with US Treasury the Federal Reserve System actually implemented the monetary and financial policy of the government in the interest of American finance capital.

The essence of the Federal Reserve System boils down to the point that the country's numerous banks have a centralised organisation capable of solving the most important questions of monetary and financial policy, discharging functions of issue, and so on. At the same time these banks preserve independence in purely banking affairs in the localities. After the 1913 Act the country was divided into 12 large regions in which regional Reserve Banks were set up. Local banks were the shareholders of the regional Reserve Banks.

The Federal Reserve System is headed by a Board of Governors approved by the President. This board, naturally, consists of persons who are trusted representatives of the US financial oligarchy. The Board of Governors of the Federal Reserve System is headed by a Chairman whose functions, in general, correspond to those of the heads of central banks of issue in other capitalist countries.

As for the directors of the regional Reserve Banks, twothirds of them are elected by the shareholder banks and onethird is appointed by the Board of Governors of the Federal Reserve System. Such a selection of the leading officials of the Federal Reserve System ensures the best defence of the interests of US monopoly capital. The issue of bank notes called Federal Reserve notes, in denominations of $ 5 and higher, and of other securities is one of the principal functions of the Federal Reserve System.

The issue of Federal Reserve notes under the 1913 Act had to be secured fully by reliable bills of exchange which bank members of the Reserve System discounted in regional Reserve Ranks. The Federal Reserve notes issued above the sum fully secured by reliable bills of exchange, under the original law, had to be secured by gold to an extent of not less than 40 per cent. Federal Reserve notes were to become the main form of credit money in the United States, but alongside them, notes of regional Reserve Ranks, fully ensured by liabilities of local member banks and also treasury notes and coins, were allowed to circulate.

The Federal Reserve System actually started to function in the United States a month after the First World War began, when the regional Reserve Ranks were set up in September 1914. Therefore, it could not play an essential part at the beginning of the war. When in expectation of the war US European creditors in the summer of 1914 began intensively to withdraw deposits from American banks and to export gold, the share of the American dollar sharply dropped in international payments.

But as the war disrupted European exports in world markets and American exports increased, including the shipment of US strategic materials to embattled Europe, the surplus in the US balance of trade mounted. This process is reflected in Table 2 which shows the trend of US foreign trade (million dollars).

Table 2 US Foreign Trade During the First World War

Year US exports US imports Balance of trade surplus
1913 2,483.9 1,792.5 691.4
1914 2,113.7 1,789.4 324.3
1915 3,554.7 1,778.5 1,776.2
1916 5,482.6 2,391.6 3,091.0
1917 2,164.8 965.5 1,199.3 January-April.

Source: Benjamin Anderson, Economics and the Public Welfare N. Y., 1949, p. 21.

In 1916, as can be seen in Table 2, US exports reached almost $ 5,500 million, or double the prewar level. Although imports simultaneously rose, the trade balance surplus multiplied several times.

The United States joined the war against Germany on the 6th of April 1917. This, naturally, changed the pattern of trade but the favourable balance remained. In 1916 and 1917 it amounted to about $ 3,000 million annually. Arthur Nussbaum, an American bourgeois economist, wrote that the USA, whose external liabilities had exceeded its assets abroad by at least $3,700 million, was swiftly changing from a debtor into a creditor.5 Commercial credits to allies were granted on a large scale. On the other hand, it was necessary to make settlements in gold with neutral countries from which strategic materials were imported. The United States became, as it were, the financial centre of the allies fighting against Germany. It was the Federal Reserve System that played a big part in providing financial resources for the war.

It is not surprising that Anderson, assessing the role of the Federal Reserve System during the First World War, wrote that "it is difficult indeed, to see how we could have handled the financial problems of the war without it".6

Table 3 Principal Assets and Liabilities of the Federal Reserve System During the War (million dollars)

On 26 November 1915 On 22 December 1916 On 25 October 1918

Gold reserves . 492 1 728 4 2 045.1
Cash ........... 529.4 734.5 2,098.2
Bills discounted: government war bonds all other ....... 1,092.4
Bills bought in open market .......... 327 9 323 0 453.7
US Government long-term 161.8 124.6 398.6
US Government short-term securities ........ 129.2 435.0 282.5
Total earning assets .... Liabilities ........ 892.0 111.7 222.2 322.1 2,295.1
Paid capital 548 5 557.7 80.3
Government deposits . . Reserve Member banks' deposits ..... 15.0 398.0 29.5 648.8 78.2 1,683.5
Other deposits .... Federal Reserve notes in circulation ....... 165.3 275.0 117.0 2,508.0

Source: B. Anderson, op. cit., p. 31.

The disorganising impact of the First World War on capitalism as a whole above all felt in the world currency circulation. It could not be otherwise because no belligerent imperialist country, except the United States, possessed financial resources sufficient to cover the astronomical military expenditure and maintain money circulation in a definite equilibrium. That is why during the First World War, as has always been the case in periods of big socio-economic upheavals such as wars and revolutionary crises, money circulation was disorganised. The war greatly undermined international trade and currency circulation as well.

The war once again demonstrated the correctness of the Marxist understanding of gold's function as world money because only it preserved this function unchanged. That is why the belligerent countries, renouncing the gold standard by refusing to exchange bank notes for gold in internal money circulation, tried to mobilise the national stock of gold for its possible use as world money. In turn, the private hoarding of gold sharply mounted, constituting the reverse side of the medal, the inflational derangement of national money circulation. Bank notes secured by treasury bills were issued on a large scale, which was tantamount to the issue of paper money of mandatory circulation by the treasury itself. Such money became the dominant category in internal money circulation.

The belligerent countries, however, could not get along without foreign trade, especially the import of strategic materials. Hence their desire to maintain the exchange rate of their currency in international payments with the help of gold.

Since the increasing imports could not be paid for or covered by exports, the belligerent countries had increasingly to rely on their deposits in foreign banks and the stock of monetary gold. Those countries which had substantial investments abroad and gold reserves, like Britain and France, quite successfully maintained the rate of their currencies at a more or less satisfactory level, although considerably below parity (five-six per cent below parity at the New York exchange).

Russia was in a worse position. Since she had no big investments abroad, the rate of the Russian ruble, more than any other currency, depended on a favourable balance of trade. But the First World War affected Russia's exports more than those of other countries. While other countries in their overseas trade faced war dangers on the seas, Russia lost the possibility of sending its cargoes beyond the bounds of the Black and Baltic seas. The country's strategic position undermined exports, and this, in turn, affected the rate of the ruble in international payments, reducing it by half as compared with its parity.

Russia's financial weakness was also displayed by the fact that she had great difficulty in obtaining foreign loans even on onerous terms.

A big divergence between the internal position of a currency and its exchange rate in international markets was displayed in all countries more than ever before during the war. The purchasing power of national currency in internal money circulation was often below its purchasing power at the rate outside the country. One and the same currency, as it were, seemed to split: while in internal circulation, owing to inflation, it appeared in the form of fiat paper money, in foreign settlements it assumed various forms of credit money– drafts, cheques, various promissory notes, liabilities and so on, backed by exports, securities, or, lastly, by gold. This dual role of national currencies during the war also affected postwar currency circulation.

The postwar disorder in national currencies lasted for about five years after the war, but by no means owing to the shortage of gold necessary for stabilising internal money circulation. With the abolition of the gold monetary standard internal money circulation was divorced from the gold basis. It turned into paper money circulation subject to various degrees of inflation.

Towards the end of the First World War most of the belligerents still had a quite considerable stock of gold, although some of the prewar reserves were re pumped into neutral countries and the belligerents whose territory was not directly affected by the war and exports did not substantially suffer from the war and gained in some respects (exports of strategic-materials and the like). The United States and Japan could be regarded as such countries.

Table 4 gives an idea of the distribution of the gold reserves after the First World War.

Table 4 Gold Reserves of the Principal Capitalist Countries at the End of 1918

United States France . . . Britain . . . Germany . . Spain .... (million dollars) 2,657.9 Japan...... 225.6 664.0 Argentina .... 304.5 521.0 Holland..... 278.1 538.9 Italy...... 203.4 429.5 Canada..... 129.8

Source: F. I. Mikhalevsky, op. cit., p. 64.

In terms of actual gold stock after the war, the United States stood out among other countries even more than before the war, as is shown by Table 4. Its gold reserves exceeded those of Russia, France, Britain, Germany and Italy combined. Other countries too steeply increased their gold reserves: Spain 4.6 times; Holland 4 times; Japan almost twice. In a number of countries whose stock also considerably rose it did not, however, exceed $ 100 million. Thus, Switzerland's gold stock increased from $ 32.5 million to $80.4 million during the war; Sweden's, from $ 27.4 million to $76.5 million and Denmark's, from $19.7 million to $52.2 million.

Though the United States greatly surpassed other countries in its gold stock, it may be noted that on the whole the war brought about a more even distribution of gold among the belligerent and non-belligerent capitalist countries. In view of this situation the capitalist countries could have normalised internal money circulation on the basis of the gold standard and brought the international monetary system into balance. But this did not happen immediately after the war. The partial deflationary measures were aimed rather at curbing than eliminating inflation, which followed from the new conditions capitalism faced at that time.

The Great October Socialist Revolution in Russia struck a staggering blow at the formerly integral capitalist system. The belligerent countries were saddled with foreign and internal debts which could not be settled in the usual way. Small wonder that the ruling circles of the capitalist countries deliberately tried to preserve inflation as long as possible as the most effective source of budget revenue under certain conditions, as one of the mass indirect taxes whose brunt is borne by the working people, especially industrial workers. Inflation was regarded as a means of stimulating industrial production and exports with the object of improving the trade and payments balance and the financial position of the capitalist monopolies in general.

Quite a few supporters of so-called controlled inflation in internal circulation as a method for keeping business going with the help of the constant pressure of the inflationary indirect tax on consumption appeared among bourgeois economists after [the First World War. Mention must be made of John Maynard Keynes, who this time was opposed to what he regarded as hasty measures for stabilising currency. He criticised Churchill's policy at the beginning of the 1920s designed to support the exchange rate of the pound sterling. "For we know as a fact," he wrote, "that the value of sterling money abroad has been raised by ten per cent, whilst its purchasing power over British labour is unchanged. This alteration in the external value of sterling money has been the deliberate act of the Government and the Chancellor of the Exchequer, and the present troubles of our export industries are the inevitable (and predictable) consequences of it.''7

But Keynes saw the adverse aspect of raising the rate of sterling not only in export difficulties. He held that thereby "we increase the real burden of the National Debt by some £750,000,000 (thus wiping out the benefit of all our laborious contributions to the Sinking Fund since the war)".8

Keynes favoured a low exchange rate of the pound because this would stimulate British exports and, consequently, improve the balance of trade and at the same time ease the redemption of the public debt. In other words, he sought in the insufficient stability of currency a good way of eliminating the consequences of the war and making "laborious contributions to the Sinking Fund since the war''.

But Keynes had no monopoly of such ``wisdom''. Other countries which had suffered from the First World War tried to utilise the same method for achieving the same ends. Thus, the prewar competition of capitalist countries in the world markets was supplemented after the First World War by new methods of monetary and financial struggle with the help of inflation within capitalist countries and lowering the foreign exchange rates of currencies or currency dumping. This is one of the essential symptoms of the decay and general crisis of capitalism.

It cannot be said, however, that this policy was applied without any hesitation by the ruling circles of all capitalist countries. While the financial bourgeoisie of a country had a class interest in such a policy, its individual groups who invested big capital in government and other public (municipal) bonds and other securities with a fixed income, were interested in getting this income in full-value currency. This contradiction was displayed both within individual countries and between creditor and debtor countries.

The United States became the principal creditor country after the First World War. It was naturally interested in stabilisation-as the primary condition for normal credit relations. Such stability demanded a guarantee of the repayment of debts at a firm exchange rate of currencies or in gold.

Therefore, in their financial policy capitalist countries manoeuvred between preserving an inflationary situation within the country and maintaining the rate of their currency al a definite level in international payments. The latter demanded gold cover. But this cover did not signify a return to the gold standard in its classical form of (he unhampered exchange of bank notes for gold.

The maintenance of the rale of a currency through monetary operations in the open foreign market began lo be widely practised early in the 1920s. These operations, the purchase or the sale of one's currency, were aimed at regulating the supply and demand, which led lo the desired alteration of the rate of exchange. But to engage in such operations not only gold but also foreign exchange or even broader foreign liquid assets were required. Such maintenance of currency rates with the help of gold and stable liquid assets came to be known as the gold exchange standard.

The gold exchange standard was acceptable to the United States because it enabled debtor countries to repay their debt to the United States on state and private liabilities punctually.

The monetary and financial policy of the United States was aimed at the deflation and stabilisation of West European national currencies, and primarily the German mark. This was the aim of American financial policy since the first days after the war, but its application began only after the revolutionary movement in Western Europe had been crushed. It was concretely embodied in what was called the Dawes Plan, so named after the American banker who headed the committee of financial experts which handled currency, financial and reparation questions. The Dawes Plan was adopted on August 16, 1924 at the London conference of the victorious powers. In effect it was the first claim of US imperialism to a directly dominant role in the monetary and financial affairs of the capitalist world.

What was the crux of the matter? The victorious powers which had fought against Germany could repay their debts to the United States arid American financial corporations only if they received reparations from Germany in accordance with the Treaty of Versailles. For this it was essential to stabilise the revenue sources in Germany herself and her disorganised money circulation.9 The Dawes Plan was designed expressly for this purpose.

Under this plan, Germany received a loan of 800 million gold marks (in round figures about $ 200 million) which was to be used as gold backing of the issue of bank notes in circulation. It was expected that stabilisation of money circulation would create the basis for economic stabilisation and the influx of foreign capital. To make certain that the "shot in the arm" given Germany in the form of a gold loan was effective, the United States insisted on a temporary postponement of reparation payments. In anticipation of this move, France had occupied the Ruhr as early as January 1923 under the slogan: "The Boches must pay!" For our purposes we are interested not in reparation payments but in the policy of stabilising money circulation, which the United States wanted to achieve in Europe. The operation of the Dawes Plan did in fact lead to measures which to varying degrees helped to stabilise national currencies.

Keynes' opposition to Churchill's financial policy in Britain shows that these deflationary measures did not meet with general approval. Like Keynes, many saw in prolonging moderate inflation the main instrument for stimulating exports and easing the burden of the wartime public debt. Nor was there any unanimity of opinion among the monopoly bourgeoisie itself.

As is the case of any period of big economic changes, the contradictions between the stratum of creditors and of debtors on questions of financial policy became most acute among the bourgeoisie. The dividing line between them was deflation and inflation. But the inflational instability of money circulation and the desire to preserve a low rate of national currency remained the dominant factor in the general financial policy of most capitalist countries up to the outbreak of the world crisis at the end of the 1920s and early 1930s.

While, on the one hand, inflation served as a means for stimulating exports, on the other, it caused anti-inflation tariff restrictions in importing countries, which ultimately impeded the expansion of foreign trade. This was also noted at the World Economic Conference held in 1927 because the relative stabilisation of capitalism was accompanied by an intensification of capitalism's organic vices and contradictions. This was particularly felt in the world monetary system.

Since the monetary system did not return to the old basis of the gold standard (meaning the securing of bank notes by gold clearly demonstrated by the exchange of bank notes for gold) and the gold exchange standard came into use, there was no need to hand over monetary gold into private hands. To maintain the rate of a currency, the necessary operations, including those involving gold, were conducted abroad by national banks or treasuries. That is why disposal of the gold reserves increasingly became an exclusively governmental function.

It goes without saying that government operations with gold and foreign exchange can be conducted only on a large scale and, consequently, any operations in gold were carried out primarily in bullion (the gold bullion standard).

The use of bullion as such in international settlements, in contrast to its use in coins in internal circulation, has always been practised. Marx drew attention to this point emphasising that gold thus changes its national uniform, as it were. "The different national uniforms worn at home by gold and silver as coins, and doffed again in the market of the world," Karl Marx wrote, "indicate the separation between the internal or national spheres of the circulation of commodities, and their universal sphere.

``The only difference, therefore, between coin and bullion is one of shape, and gold can at any time pass from one form to the other.''10

Since in the 1920s full-value metallic money in coins (bullion or small change is not considered in this case) ceased to circulate, naturally gold remained only in the form of bullion in international settlements. The new actual change in the function of gold as world money was that gold stopped ensuring internal money circulation (and connecting the latter with the money circulation of other countries through gold parity) and only maintained the external exchange rates of national currencies.

In other words, gold began to ensure liquid assets and foreign exchange in relations between states. From this it is possible to differentiate in effect two kinds of gold standard: the gold standard which ensures money circulation in general (internal and external) and the gold standard which ensures the external exchange rate of a national currency–the gold exchange standard.

Jacques Rueff, the prominent theoretician and proponent of the gold standard, a member of the French Academy who was an adviser to General de Gaulle when he was President, adheres to this viewpoint. In one of his articles on problems of the international monetary system he wrote: "The gold standard was used throughout the world until 1922 and then from 1933 to 1940. A contrary system is the 'gold exchange standard'–as it existed in a number of European countries between 1922 and 1930, then again starting in 1945.''11

Rueff does not single out the gold bullion standard as a special economic category. On the other hand, he in general outline sets the correct periodisation of the use of the gold and gold exchange standards.

Indeed, the separation of internal money circulation from external currency circulation in capitalist countries which began during the First World War was fully completed in 1922. Since then and up to the world crisis at the end of the 1920s and early 1930s, capitalist states, widely utilising the gold exchange standard for maintaining the rates of their currencies in international payments, widely employed inflational and credit stimulation for the recovery and development of their economies. This served as the basis for the socalled relative stabilisation of capitalism (1924-1929) and prepared the ground for an unparalleled economic crisis. It may be said that only a few years after the war, approximately at the beginning of 1924, monetary relations between capitalist countries became relatively stable and the gold exchange standard became dominant in the leading capitalist states.

Capitalism's relative stabilisation lasted for about five years. In the course of it the United States, exploiting its position as a creditor country, tried to reinforce the position of the dollar in international payments. This was done with comparative ease because, being a creditor, the USA had a favourable trade balance and the biggest gold reserves among the other principal capitalist countries. At the same time the US ruling element pursued a very rigid policy of protecting the home market against the importation of goods from countries with a depreciated currency. This was done chiefly through high tariffs.

The high American duties on imports impeded the development of world trade. They compelled other countries to pay for American credits not by the export of goods, but by the export of gold, by giving US capital participation in the industry of European countries, and so on. Naturally this was often done against the wishes of the European capitalists. Since it was impossible to pay in gold, capitalist companies gave American investors a considerable part of their shares and other securities. All this offered US capital substantial advantages in international currency circulation and credit.

It is not surprising that, during the period of capitalism's relative stabilisation in the 1920s, other big capitalist countries, too, even if they did not fully eliminate inflation in internal money circulation, began in one way or another to maintain the rates of their currencies in international payments close to parity. Britain, for example, tried to rally together round the pound the countries dependent on her. This, by the way, was Churchill's financial policy attacked by Keynes.

After the weakening of sterling in international payments, Churchill wanted to consolidate its position and to keep the countries of the British Empire within the orbit of the City.

Keynes counted on the inflational stimulation of exports and the easing of Britain's public debt by maintaining a lower rate of the pound. Ultimately both wanted to protect the interests of British finance capital. The whole point was how to combine both objectives without infringing the interests of individual groups of finance capital.

In contrast to the US monetary and financial policy, backed by high customs barriers, Britain's policy followed the line of expanding trade preferences in commerce with the countries of the sterling area, especially the dominions. But the position of the pound remained unstable, which prevented the British ruling circles from fully utilising the benefits of the relative stabilisation, as the United States did. The Dawes Plan tied Britain to the financial policy of the United States.

The desire to implant American capital in the industry of European countries represented the quintessence of US monetary and financial policy of the Dawes Plan period. Describing the financial policy of the United States after it entered the First World War and in the postwar period Benjamin Anderson wrote: "In World War I, between April 1917 and December 30, 1918, we expanded bank deposits by $5.8 billion, and bank loans and investments by $ 7 billion. This was enough.

``In the period from June of 1922 to April 11, 1928, we expanded bank credit by $ 13.5 billion in deposits, and by $ 14.5 billion in loans and investments. This generated our immense boom, our wide stock market, and our stock market crash of 1929.''12 This undoubtedly is a correct general evaluation of US financial policy in the 1920s which accelerated and intensified the world economic crisis of 1929-1933.

A characteristic feature of the period of capitalism's relative stabilisation was likewise the increased tendency towards forming and consolidating economic blocs and currency," areas, which, on the one hand, added to the financial, economic and foreign trade difficulties of capitalism and, on the other, created the preconditions for new military conflicts and a new world war.

The foundations of the sterling area were laid in Britain. Imperialist Japan was creating a ``co-prosperity'' sphere in East Asia. This served as a cover for the usual colonial policy backed by Japan's armed forces.

Out to gain a dominating position in the world monetary and credit system, Washington zealously guarded the Latin American countries from an invasion of capital from other imperialist states.

France tried to consolidate her positions in her African colonies with the help of trade and financial measures.

Germany, in a similar way and quite successfully, especially with the help of clearing settlements was tying the economically weaker countries of Eastern Europe and the Middle East to the chariot of her finance capital.

The possibility of a more or less complete break with the world market, autarky, was theoretically conceivable within the bounds of such blocs.

The tendency of the world capitalist market to split into individual economic blocs, in turn, adversely affected the stability of the world monetary system. From the socioeconomic angle this was nothing but the exertions of world imperialism to insure itself against the disintegration of the obsolete colonial system. In these conditions the gold exchange standard helped to eliminate artificial partitions in the world capitalist economy, to smooth over market fluctuations of prices and to maintain world trade and credit relations. The world economic crisis of 1929-1933 shattered capitalism's relative stabilisation.

• 1Rudolf Hilferding, Das Finanzkapital, Wien, 1910, S. 295.
• 2Benjamin Anderson, Economics and the Public Welfare, New York, 1949, p. 8.
• 3Benjamin Anderson, op. cit., p. 4.
• 4V. I. Lenin, Collected Works, Vol. 22, p. 276.
• 5See Arthur Nussbaum, A History of the Dollar, N. Y., 1957, pp. 162, 163.
• 6Benjamin Anderson, op. cit., p. 44.
• 7] John Maynard Keynes, The Economic Consequences of Mr. Churchill, London, 1925, pp. 5, 6.
• 8John Maynard Keynes, op. cit., p. 11.
• 9To what extent money circulation in Germany was disrupted can be seen from the fact that in 1924 the rate of the German mark in New York was expressed in astronomical figures–4,009,000,000,000 for one dollar.
• 10Karl Marx, Capital, Vol. I, p. 125.
• 11The Wall Street Journal, June 5, 1969.
• 12Benjamin Anderson, "The Road Back to Full Employment", Financing American Prosperity, A Symposium of Economists. New York, 1945, p. 45.