Submitted by Noa Rodman on February 26, 2017


Notwithstanding the obvious symptoms of an imminent derangement of the capitalist monetary system, which became visible at the end of the 1950s and early 1960s, the US ruling circles kept to their former policy of economic and political expansion. They also called the tune in international financial and economic organisations. The main thesis they employed to justify the need for further maintaining the existing dollar-based monetary system was resolved to the point that the expansion of international trade demanded an increase in liquid assets. From this the conclusion was drawn that it was necessary to put more dollars into world circulation. Attempts were made to demonstrate the direct quantitative link between the world commodity turnover and the world gold and foreign exchange reserves. R. Triffin in his Gold and Dollar Crisis presented long columns of figures showing the correlation between monetary reserves and import since 1913, trying to deduce some regularities. But, as was to be expected, nothing came of it. World commodity turnover is too diverse and the means of mutual settlements, from cash to the deferred payment and clearings are too varied to allow of the establishment of any definite quantitative relationship between world imports and liquid assets as they are understood by contemporary Western economists. The so-called international liquid assets in 1961 amounted to about $ 62,300 million and world imports (cif) to $ 124,500 million.1 Consequently, the ratio between international liquid assets and world imports was 1:2. In 1968 international liquid assets amounted to about $ 76,300 million, while world imports rose to $223,300 million; consequently, the ratio became 1:3.

During this period the sum of world liquid assets increased by about 22.6 per cent, while world imports rose by 79.3 per cent. Consequently, the slower growth rates in world liquid assets did not prevent a considerable expansion in world imports. The world gold stock which was part of the liquid assets was more than ever in no definite quantitative relation to world imports. In 1961 the world gold stock amounted to $41,100 million, in 1965 it increased to $ 43,200 million and in 1968 (end of September) decreased to $40,600 million.2

As world money, gold functions as a universal means of payment, a universal purchasing medium. At present gold discharges its function as a means of payment chiefly during settlements of international balances. The days when merchants paid in gold for goods purchased at international fairs, or during bilateral commercial transactions are a thing of the distant past. Therefore, it is hardly proper to place the gold stock in some kind of direct relation to world imports. Nevertheless, the role of gold in the capitalist world has not diminished. As formerly, it embodies the absolute social materialisation of wealth, which cannot be said about dollars. Dollars in the form of bank notes, bills of exchange, and so on, are no more than liquid liabilities of the United States to countries which for one reason or another keep them in their reserves. In contrast to gold, which is world money because of its intrinsic value, dollar liquid liabilities, like any credit money, begin their path as a means of payment and complete it in one and the same bank. And if American financial circles like to compare the United Stales to a bank in relation to the rest of the capitalist world, they also ought to draw the appropriate conclusion as regards their liabilities or dollar assets held in other countries in dollar accounts belonging to foreigners. The sum of these liabilities in 1960 was quite imposing.

Table 11
International Liquidity Position of the United States (million dollars)3
1938 1949 1952 1957 1958 1959 October 1960
I. Gross assets 15.2 28.1 27.1 27.8 25.9 26.3 25.9
A. Gold .... 14.6 24.6 23.3 22.9 20.6 19.5 18.4
B. Foreign exchange .... 0.6 2.2 0.8 2.8 8.2 1.0 2.8
C. IMF quota 11. 11.7 2.2 2.8 16.6 2.5 2.8
Gross liabilities . ... 17.6 2.6 4.1 21.6 3.3 4.1 23.5
A. Foreign countries ..... 2.2 6.4 9 9 14.9 15.6 17.7 19.2
1. Official . . . 3.1 4.9 7.9 8.7 9.1 10.3
2. Banks .... J2.9 2.4 1.7 3.5
3. Others . . . 2.2 3.5 2.4 4.7 2.4 5.2 2.3
4. Bonds and notes ..... 0.4 0.9 1.2 1.0 1.5 1.4
B. International 1.8 1.9 1.7 2.0 3.8 4.4
III. Net Assets
A. I-II .... 13.0 19.9 15.3 11.2 8.2 4.7 2.3
B. IA-IIA . . . 12.4 18.2 13.4 8.0 5.0 1.8 –0.8

Source: R. Triffin, "International Monetary Position of the United States", in The Dollar in Crisis, 1961, pp. 228-29.

Table 11 conclusively shows that the main thing in the monetary relations of the United States with other countries was that its liquid liabilities in dollars, mainly treasury bills and bank notes and dollar accounts in foreign banks, gradually exceeded the sum of the national gold stock. While in 1949 the gold reserves exceeded all the liquid liabilities of the United States to foreign states by $ 18,200 million, in October 1960 these liabilities topped the gold stock by $800 million. The gap between the gold stock and US liquid liabilities increased very swiftly after the war in Korea.

During the Korean War the United States for the first time began to cover military spending abroad on a wide scale through the issue of Federal Reserve notes, short-term Treasury bills and other liabilities. This easy way of covering the war expenditure abroad not by gold but by its national currency, dollars, suited the US ruling circles and they continued with it in the second half of the 1950s. They used the same method when rendering the much-publicised American ``aid'' to other countries. This made it possible to picture US financial policy as sacrifices made to save capitalism from the postwar financial and economic breakdown.

But it is a fact that these ``sacrifices'', as shown in Table 8, did not prevent the United States from increasing direct investment and long-term assets abroad from $26,600 million in 1949 to $62,400 million in 1960–almost 2.5 time?. The credit expansion and the policy of investment, through the issue of credit money and other liabilities upset the equilibrium between the current assets of the government, gold reserves included, and short-term liabilities, including Federal Reserve notes. This created an exceptional situation: the creditor country, whose long-term capital often dominated the important industries of other capitalist countries, found itself in an extremely difficult position, being unable to repay its short-term liabilities.

There is nothing surprising in all that, however. In this case American monopoly capital utilised the issue by I he state of credit money (we refer not only to the US Treasury but also the Federal Reserve System, which performs the function of the country's central state bank) for capturing important positions in the economies of other countries.

It cannot be claimed that the financial agencies of the United States acted fully in contravention of the financial policy of the central banks of other countries. The point is that under the gold exchange standard, in contrast to the gold standard per se, central banks issue notes covered not only by outstanding debts or commercial bills and gold but also by foreign exchange, foreign liabilities. Banks in other countries, receiving dollars through one channel or another, were in no hurry to exchange them for American gold. Leaving them on their balances as security for their bank notes put into circulation, they used them in the American money market, deposited them, buying Treasury bills, and so on. Thus, the sum of the unpaid accounts of US financial agencies snowballed: the gap between their liquid liabilities and the American gold stock continued to widen.

Monopoly corporations enjoyed the advantages accruing from the policy of dollar expansion, while the US government had to foot the bill for the whole cast of this policy.

Debts of a state in other countries, too, often directly or indirectly help to enrich the capitalist monopolies. In the given case the situation in the USA was complicated by the fact that in the early 1960s the Administration was faced with the difficult task of redeeming foreign liabilities, while private capital continued to flow out to other countries.

In his message to Congress in January 1961 President Kennedy had to state not without anxiety: "It is true that, since 1958, the gap between the dollars we spend or invest abroad and the dollars returned to us has substantially widened. This over-all deficit in our balance of payments increased by nearly $ 11,000,000,000 in the last three years– and holders of dollars abroad converted them to gold in such a quantity as to cause a total outflow of nearly $5,000,000,000 of gold from our reserve.''4

This official admission by the President that all was not well in the United States' financial relations with other countries clearly revealed the advent of the monetary crisis. In the circumstances it inevitably had to develop from the crisis of the dollar into a general crisis of the monetary system, which entailed the strongest jolts to capitalism in the second half of the century. The ruling circles of the United States and other capitalist countries naturally could not remain'passive onlookers.

President" Kennedy's message to Congress which paid great attention to monetary problems opened up a new phase ,in the search for a way out. Not only official government agencies and officials whose duty it was to handle these matters but also many economists in universities, colleges, banks and corporations joined in tackling the problems.

What was the policy of the United States, i.e., the policy of President Kennedy himself and his closest associates? The Kennedy Administration undertook actively to defend the dollar. Striving to gain ``understanding'' and "support" of the governments of other capitalist countries, Washington advanced its programme for defending the dollar. It called for persuading NATO allies to assume a considerable part of the expenditure on joint military measures, requesting the principal trading partners of the United States to refrain from restrictions with regard to American exports. The intention was announced of reducing the expenditure of the US armed forces abroad and foreign military ``aid''.

As for support by the governments of other countries in defending the dollar, on the whole the hopes were not justified. The Federal Republic of Germany agreed to repay in advance small sums owed to the United States and Japan consented to begin payment over 15 years of $ 490 million for food aid during the years of occupation.

Notwithstanding a policy of economy in the spending of foreign exchange along military and other channels, the result was insignificant and unstable, which US Secretary of the Treasury Dillon was compelled to admit at a meeting of the Boards of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund on October 1, 1963. According to Dillon, the deficit in the US balance of payments was reduced in 1962 to 32,200 million as compared with $2,400 million in 1961 and $ 3,900 million in 1960. But the deficit "grew markedly larger during the first half of 1963".5

That is why the Kennedy Administration from the very outset concentrated effort on expanding exports so as to increase the favourable trade balance and reduce the deficit of the balance of payments. Special attention was paid to the fight against the tariff and trade barriers of the European Common Market, which hampered American exports to Western Europe. Such a connection between the policy of defending the dollar and attempts to stimulate American exports was part of the general line of the Kennedy Administration; it sought, without introducing changes in the existing international monetary system, to reinforce within it the position of the American dollar by increasing the favourable trade balance. It was assumed that this would make it possible to achieve an equilibrium in the balance of payments even if a high level of US capital exports abroad were maintained. This was the premise from which President Kennedy proceeded when he introduced in Congress the Trade Expansion Bill early in 1962. To stimulate American exports, the bill provided that the President be empowered to reduce custom duties by mutual agreement with other countries.

In his message to Congress on this question (of January 25, 1962) Kennedy expounded a big programme which could promote the unification of the West. The concept ``West'' implied Western Europe and chiefly the countries of the Common Market. "Free movement of trade between America and the Common Market would bolster the economy of the entire free world (meaning the capitalist world.– A.S.), stimulating each nation to do most what it does best.''6 In other words, the purpose was to compel countries to specialise and to trade more. In this light the monocultural pattern of colonial countries could be regarded as the ideal of development.

While the President and US officials cloaked the pressure en Western Europe and especially on the EEC in florid language, business circles expressed their intentions without beating about the bush. The US Chamber of Commerce, for example, in a special bulletin issued under a characteristic title The Impact of the Common Market on the American Economy, stated: "In its action and reaction to the Common Market, the United States must consider its world-wide interests and commitments, including Japan and the less-developed countries not associated with the growing European Economic Community.''7 The concept of "world-wide interests" included the striving of the United States to preserve the postwar monetary system and expand American exports in world trade.

The purpose of Kennedy's entire external economic policy consisted in stopping the process of fencing off the European Economic Community from the world market by a common external tariff because this also led to monetary and financial isolation, to undermining the dollar in the postwar monetary system. Dean Rusk, the then Secretary of State, trying to prove the need for close economic contact between the EEC and the United Stales in a speech made on February 21, 1962, referred to the fact that "two immense trading areas, two common markets, so to speak: the common market of the United States and the common market of Europe" exist "on the two sides of the Atlantic".8 What remained to be done was to unite them on the basis of reciprocal tariff concessions so as to gain a mutually greater advantage. Judging by the fact that not only Rusk and Under-Secretary Ball but also many other officials spoke on the need for integrating the "free world", that is, of uniting capitalism in defence of the dollar in order to repulse the oncoming monetary crisis, such unification was lacking and it was not achieved.

Objective factors weakened the dollar and the monetary system of capitalism as a whole. The ruling circles of the United States and other countries were faced with the need to make decisions and they decided to preserve the postwar monetary financial system at all costs. This was the purpose of Kennedy's foreign and internal policy which amounted to defence of the dollar.

In addition to applying the Trade Expansion Act designed to increase American exports, President Kennedy sought to restore confidence in the dollar by purely financial measures. He tried to stop the exchange of dollars for American gold by foreign dollar holders. This could not be achieved without the help of the governments of other countries. That is why as early as 1961 understanding was reached, via diplomatic channels and through personal contacts of officials, on collective efforts to maintain the price of gold at the established official level. The so-called Gold Pool was formalised. Through it the central banks of the Pool member countries began to coordinate their efforts to maintain the price of gold at the fixed level. The Bank of England, empowered to act as the chief agent of the Gold Pool, had to regulate the demand for gold and, in case of a big demand, to satisfy it without allowing a panic. The inevitable losses of gold were compensated by the United States to the extent of 50 per cent and the other half was distributed between other members of the Gold Pool–Britain, France, the Federal Republic of Germany, Italy, Belgium, the Netherlands and Switzerland, although the latter was not affiliated with the International Monetary Fund. Thus, through the Gold Pool the United States undoubtedly eased the pressure of foreign dollar holders on the American gold reserves. During the next few years the American policy of defending the dollar largely rested on the Gold Pool. This meant that its members spent a part of their gold reserves on supporting the American dollar.

Under the influence of the monetary and financial crisis the Organisation for Economic Co-operation and Development (OEGD) was set up. It came to be known as the "Masters' club". Formally, the OECD, as it were, was a successor to the Organisation of European Economic Go-operation (OEEC), which was set up during the Marshall Plan period. But in its aims the OECD was a different organisation, although it included the selfsame West European countries. Besides West European countries, it was joined by the United States, Canada, Australia and Japan (since 1964), which had not belonged to the OEEC. Thus, the OECD became an intercontinental organisation formally set up on December 14, 1960, as a result of a convention signed by its participants in Paris.

The main aims of the OECD were "to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy".9 The subsequent development of this organisation has shown that "financial stability" and ensuring the ``liberalisation'' of the international movement of capital and monetary questions hold the central place in its activity. Through it the US ruling circles are trying to pool the efforts of the principal capitalist countries in combating the monetary crisis and to preserve freedom of action for American capital.

Among the measures of international significance mention should be made of the Group of Ten (United States, Britain, France, FRG, Italy, Japan, Canada, Netherlands, Belgium and Sweden), set up on Washington's initiative; these ten big capitalist countries have reached an understanding, through the International Monetary Fund, in case of emergencies when the stability of the monetary system is upset, to furnish credit to those who are in a difficult position owing to a balance-of-payments deficit. The total sum of such credits could be brought up to $ 6,000 million. What was envisaged was the exchange by the central banks of national currencies at parity, with the commitment, upon the expiration of a definite period, to perform a reverse operation.

This is really a loan to a country in need of foreign exchange, which offers the creditors its national currency as security. If upon the expiration of a definite period there is no improvement in the balance of payments, as was the case with Britain in 1964-1965, the operation has to be repeated. All these manipulations with reciprocal loans merely attested to the mounting financial difficulties of capitalism. The Group of Ten thus, as it were, assumed patronage over the IMF. Actually, it was this group, as we shall see later on, that was tackling the most important problems as they arose during the development of the crisis in capitalism's monetary system in subsequent years.

A number of measures taken in 1961 somewhat improved the US balance of payments, and the Government hastened to utilise this result for pacifying public opinion.

On September 20, 1962, President Kennedy, speaking in Washington before participants in the joint session of the Boards of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund, stated: "We in the United States feel no need to be self-conscious in discussing the dollar. It is not only our national currency–it is an international currency. It plays a key role in the day-to-day functioning of the free world's financial framework. It is the most effective substitute for gold in the international payments system10 .''

Thus, President Kennedy, addressing a forum of international financiers, came out in open support of the postwar monetary system of capitalism based on the dollar. This was also in line with his practical policy of defending the dollar. The President reported that in 1962 a decrease in the balance-of-payments deficit was expected, namely, $ 1,500 million, as compared with $ 2,500 million in the preceding year, and hastened to assure the audience that the dollar itself was strong. In conclusion, he voiced the opinion that the United States could remove the balance-ofpayments deficit overnight if this were its aim. For this, in his opinion, it would only be necessary to recall the troops from abroad, reduce aid and raise custom tariffs on imports. "But," he drew the conclusion, "the basic strength of the dollar makes such actions as unnecessary as they are unwise.''11 The President alluded to the danger of a "shortage of dollars" for the capitalist world.

We are far from suspecting the late President of not believing himself in what he was saying. No, apparently, such a notion of the strength of the dollar and the possibility of swiftly coping with the situation was widespread in the United States at that time. But public opinion at large did not take into account the serious economic changes, not in favour of the United States, which occurred at the beginning of the 1960s.

What alarmed American economists most was the obvious lag of the annual growth rate of industrial output and the increment of the gross national product: both were less than half that in the EEC countries and did not even reach those of Britain.

A considerable part of American capital in various forms was invested abroad but not within the country. Moreover, a substantial part of the profits on US capital abroad was not repatriated but was added to the investments. In other words, the investment of American capital abroad on the whole had a slowing-down effect on economic growth rates of the United States itself in the 1950s.

As for the US balance of payments, the deficit caused by big military spending abroad was mounting further because of the so-called portfolio investments of American capital in foreign loans, securities and deposits in foreign banks. Such portfolio investments of American capital not only increased the balance-of-payments deficit but, together with deposits in dollars on the accounts of foreign holders, were the cause of general inflation and high prices. Thus, there were weighty reasons for changing the investment policy of the United States.

It was this path that President Kennedy took after two years in office had convinced him that more radical measures than the mere stimulation of exports were required to eliminate the country's balance-of-payments deficit and defend the dollar. That is why, without relaxing his efforts to expand exports and even intensify them through collective negotiations with US trading partners (known as the Kennedy Round), the President put forward in 1963 another programme for normalising finances and economic growth.

Outwardly this programme seemed to affect only the United States but in fact it concerned the entire monetary and financial system of capitalism. In his presidential message of July 18, 1963, Kennedy asked Congress to introduce a tax (called the Interest Equalisation Tax) on the profits of American capital outflowing abroad in the form of portfolio investments. The introduction of this tax was linked with a substantial reduction of the federal income tax on private persons and corporations. The Interest Equalisation Tax on capital going abroad was of great importance to the country's monetary and financial policy. Its main purpose was to stop the outflow of American capital in undesirable forms of portfolio investments (the question of direct investments in foreign industry was not raised), to achieve a balance-of-payments equilibrium and thereby strengthen the position of the dollar in international payments. President Kennedy, just like his advisers, believed in the efficacy of these measures. He believed that the US dollar, as hitherto, would play the principal role in the capitalist monetary system.

Shortly before his tragic death, speaking at the joint meeting of the Directors of the International Bank for Reconstruction and Development and the International Monetary Fund in Washington on September 30, 1963, he assured international financiers: "We are determined–and I believe in your interest as well as our own–to maintain the firm relationship of gold and the dollar at the present price of $ 35 an ounce, and I can assure you we will do just that.''12

On November 22,1963, President Kennedy was assassinated, but his policy of defending the dollar and maintaining the postwar monetary system of capitalism remained. It was continued, at least for two years, by his successor Lyndon Johnson. A bitter struggle between different groups of US finance capital was fought around this policy and particularly during the passage of the bill on the Interest Equalisation Tax for which there were special reasons.

  • 1Monthly Bulletin of Statistics, April 1969, pp. 110-114.
  • 2Ibid.
  • 3(I almost certainly did not correctly copy the data of this table - note by NR.)
  • 4Vital Speeches of the Day, February 15, 1961, p. 258.
  • 5The Department of State Bulletin, October 21, 1963, p. 616.
  • 6The Department of State Bulletin, No. 1185,March 12, 1962, p. 404.
  • 7The Department of State Bulletin, No. 1181, February 12, 1962, p. 232.
  • 8The Impact of the Common Market on the American Economy, The Chamber of Commerce of the United States, Washington, 1962,p. 4.
  • 9The Flow of Financial Resources to Countries in the Course of Economic Development in 1960, Paris, 1962, p. 4.
  • 10Vital Speeches of the Day, October 15, 1962, p. 7.
  • 11Vital Speeches of the Day, p, 7.
  • 12The Department of State Bulletin, October 21, 1963, p. 612.