The End of Bretton Woods: A Contemporary Analysis

The article below is a translation of a piece first published in Italian by the Internationalist Communist Party (PCInt) in their journal Prometeo, 16/17 (Third Series), in 1971. As such it is an analysis made long before the ICT came into existence and at the very time when the Nixon administration was tearing up the fundamental basis of the USA’s own post-war settlement – the link of the dollar to gold. The article clearly sees that this signals the opening of the crisis at the end of the cycle of accumulation which began in the wake of the Second World War. For the working class the post-war boom period was already giving way to rising unemployment and inflation. Reading it today we would expect to find that much of what is written would have been superseded by history but in fact the opposite is the case. In fact the author draws a clear picture, on the one hand of a United States stumbling to react to economic forces beyond its control and of a working class suddenly having to face up to growing unemployment and a rapidly rising cost of living. In 1971 nobody could have foreseen how world capitalism, particularly the United States, would manage to find ways of prolonging the crisis without a cataclysmic showdown. What we do know is that the crisis that emerged in 1971-3 has not gone away, despite the unprecedented extent of state intervention in the economy. Contemporary capitalism’s increasing reliance on speculation and financial profiteering while investment in the production of new value stagnates is testimony to the continuing crisis. It still has not been resolved, either by a massive devaluation of capital, or by the working class taking its own road to the only civilised solution: a global community of freely associated producers.

The Crisis of the United States

Before starting the economic analysis based mainly on data, let's try to define the fundamental characteristics of the current crisis. These underlying theses will return and feature in almost the entire article and for the most significant data we will expressly refer to this premise, noting how the current situation is faithfully traced back to it.

Analysing the situation, we can say that capitalism has long since entered a phase of "permanent crisis".(1) The same recurring data occurs for almost all the advanced capitalist countries where the situation has become pathological and the remedies implemented only serve to mitigate this perennial crisis which then returns to explode with greater force.

But how does the "permanent crisis" differ from other crises? And what are its fundamental traits?

We have seen (see note) that the "permanent crisis" does not imply the end of cycles, which is an inherent part of the capitalist structure itself, but it means that the "knock-on effects", the general tendency of the capitalist economy, is downward and increasingly bringing capitalism closer towards its final collapse.

In this historical moment the high organic composition of capital and the high degree of technical proficiency achieved have lowered and reduced the profit margins of the capitalists who, nevertheless and only by means of very high rates of exploitation, have managed to obtain considerable profits. Yet all this has led to inflation which asphyxiates the domestic markets of the capitalist countries which by now are no longer able to completely absorb production, thus causing overproduction, especially agricultural, to reach particularly high levels. Here, in order to have greater profits, the capitalists prefer to destroy part of the product and re-sell the remainder at higher prices.

All this takes the capitalist economy down the road of stagflation (i.e. of stagnation and inflation at the same time) so that while production remains stagnant, prices skyrocket, and in this way the capitalists try to obtain surplus profits. However, in doing so they run into problems of realisation: the absence of sufficient demand to absorb the product, and with this we return to inflation of the markets and the circle thus closes and no escape is possible. For this reason, enormous problems of accumulation are created for the capitalist economy, since for capitalism to survive it is not enough that a certain amount of surplus value is produced but it must be realised, and above all reinvested, to bring new profits; otherwise there is a steady fall in the rate of profit. The imperialist countries therefore try to procure super-profits by exporting capital, investing in underdeveloped countries, which they say is providing aid, but where wages are lower and where, due to the lower organic composition of capital, profit margins are higher.(2) The markets of the so-called socialist countries also function as reservoirs of profits and surplus value.

These are the main characteristics of the "permanent crisis" and are particularly obvious at this moment, testifying to the inability of capitalism to resolve its contradictions, and highlighting the need that every capitalist country has to export its crisis, and make somewhere else bear the burden, thus helping to increasingly undermine the entire capitalist system as a whole.

Moreover, at this moment the fragile and precarious world equilibrium has been definitively broken. Each country is aware that the situation is now rapidly deteriorating and is trying to deflect the crisis from itself.

An examination of the situation tells us that today, more than ever, there is a need for a world party that knows how to bring a revolutionary outcome to this crisis that otherwise capitalism will solve, almost certainly, with a war perpetrating its domination of oppression and exploitation for yet another time period.

Having established this premise, let's begin to examine this situation in a concrete way. The current crisis is of a structural nature, but since the Italian and world press have focused on the monetary crisis, it therefore seems logical to give a brief general picture of the monetary situation.

The current monetary system is based on the 1944 Bretton Woods Accords and is called the "gold standard of exchange". This system is based on the convertibility of all currencies into dollars and the direct convertibility of dollars into gold, at a gold price of $35 an ounce; this relationship is obviously fiduciary and is based on the convertibility of dollars into gold.

But the growing deficit in the American balance of payments, due to the American attempt to maintain both economic and political dominance in the world with its numerous wars (such as Vietnam, the Middle East conflict, and the expansionist policy involving domination like that of NATO) has undermined the strength of the dollar which has become a suspect currency. In fact the gold reserves of the United States have fallen from $22.8 billion in 1950 to $17.81 billion in 1960, to about $10 billion today.(3)

At this moment America has lost its competitiveness on world markets, and in order to try to restore it, it demands that all other nations foot the bill; now they are arguing over the price. One of the conditions requested was the revaluation of the main European currencies as well as the yen, but the revaluations requested by the International Monetary Fund, which is very close to the American point of view, and the actual revaluations on the money markets controlled by the various Central Banks, which therefore represent the revaluations proposed by Europe and Japan, are for the moment very distant from each other.

Currency Re-evaluations Predicted by the IMF / / Market Re-evaluations (31 August)
Yen 17% 5.3 %
Mark 14% 8%
Franc 8% 4%
Lira 6% 2.5 %
Sterling 7% 2.7 %

The monetary remedies proposed as a solution bring nothing new onto the world stage,(4) and are simply a reflection of the economic crisis in which capitalism is struggling.

The American monetary situation is also serious because the United States has long since lost its first place in favour of Germany as the country with the largest monetary reserves, and now Japan is also considerably nearer. All this brings considerable difficulties to the American policy of being the dominant power in the world. Once the economic situation is added to this, we get the complete picture.

We have said that the crisis has an instrumental character, so let's examine the economic situation of the countries most permeated by this crisis and, first of all, the American situation itself. Let us remember first of all that the American crisis cannot, as has been said by various parties, have been determined by the workers' struggles of recent times since the cost of labour index in the USA, which is closely linked to the greater or lesser combativeness of the workers — taking 1954 as the base of 100 — in 1970 was 122. Thus, in 16 years there has been an increase of 22%, equivalent to approximately 1.3% per year. Incidentally, in Italy from 1967 to 1971 the cost of labour rose by about 54%.

Compared to this low increase in labour costs, inflation has risen considerably. In America consumer prices, with 1967 equal to 100, have increased by 21.8% or approximately 7% per year. Meanwhile investments remain stagnant, even with a slight decrease, falling from $80 billion in 1969 to $77.8bn currently, a decrease of 2.7%. This confirms the position expressed at the beginning of this article and explains the pathology of the current situation of capitalism.

We can briefly summarise the crisis situation of the American economy with some figures: unemployment stands at 6.2%, overall the number of unemployed is over 5 million, 14.5 million workers are laid off, 25 million are classified as ‘poor’.

The industrial production index declined from 111.5 at the beginning of 1969 to 102 at the beginning of 1970 and to 105 today.

The trade balance is in deficit for the first time since 1893 and has gone from around $7 billion in assets in 1963 to $745 million in current liabilities.

The balance of payments was negative in 1970 by $10.7 billion and by $11.3 billion in the first six months of 1971, thus creating a record deficit.

The American market is now saturated and in the agricultural sector this is particularly evident. As regards maize, current production is 52,995,381 tons; domestic consumption is 27,406,392 tons; the export of 19,773,312 tons makes a total of 47,179,704 tons; thus, compared to the total, there is already an overproduction of 5,815,680 tons. However, if we add to these 29,732,661 tons placed in reserve or deposited in the State's grain coffers, we get an overproduction of 35,548,346 tons per year.

The situation is no different for wheat where overproduction amounts to 45,435,000 tons and the same can be said for rice, as well as for other cereals and other agricultural products.(5)

The Nixon plan aims to make the other Western countries which are in competition with the United States, in practice the EEC and Japan, pay the cost of the American crisis. The asking price was $13 billion to be added to the US balance of payments. It now appears that this price has shrunk to $11 billion. Given that the US balance of payments is currently in deficit to the tune of $11.3 billion, this is equivalent to asking $22.3 billion from other countries. This price is due to be paid by revaluing the currencies of all other competing countries and decreasing exports to the United States.

In addition, the Nixon government is trying to re-stimulate domestic demand on an overloaded home market. By eliminating the 7% consumption tax on the purchase of cars it has released about $7 billion for consumption; the $50 federal income tax exemption will release about $2 billion, but that $9 billion is very little compared to gross national product (GNP) of which it doesn't even account for 1%.

Possibly more important to the American economy will be the economic agreements which will follow from Nixon’s trip to China(6), and from which the American capitalists could make more profits. But where would these profits be reinvested? An increase in American domestic production would require the home market to expand. The answer will then be: “export industries”, forgetting that the US economy remains a predominantly closed economy(7) where exports are just over 4% of GNP, where the home market is more important than foreign markets and which lacks a wide base of medium and small industries dedicated exclusively to export as, for example, in Italy, whose economy is notoriously open. Secondly, in order to export goods, the US must obtain the currency revaluations it asks of other countries, thus making its commodities competitive on world markets; in this case the crisis would shift to other countries which would have to react by closing themselves off to American goods, making the crisis more and more chronic. As you can easily see, the characteristics of the "permanent crisis" are perfectly reflected in the current American situation.

The Economies of Competing Countries


The main competitor of the United States today is Japan which has a constantly expanding, mainly open economy, which invades international markets with its goods.

The "miracle" of the Japanese economy is due, first, to a very high rate of exploitation. Taking 1965 as a base of 100, labour productivity rose in 1970 to 188.3, an increase of 88.3% in five years. Second, is the index of a high rate of production.

Again, taking 1965 as the base, production more than doubled with a 121% increase in five years. Alongside all this there was a very low wage rate, although in the last four years real wages have increased by 39.5%, a rate very similar to that of the other capitalist countries, thus re-awakening workers’ militancy in Japan. To date industrial profit rates in Japan are estimated to be 12-13% with GNP over 60,000 billion yen, of which almost half is due to public investment. In order not to lose its competitiveness on world markets, Japan has been increasingly opposed to revaluation of the yen(8) and on 4 June it launched an eight-point plan which removed non-tariff barriers to international trade, eliminated export tax reliefs and a commitment was made to liberalise the inflow and outflow of capital. But all this was not enough for the United States. By its 10% surcharge, the US seeks to impose a large and massive revaluation of the yen on Japan. The fact that it is so large is explained by the extent of the devaluation of the dollar against gold which is about 25% (the price of gold in dollars on the free market has gone from $35 per ounce of the official parity to $44). Consumer price inflation in Japan is significant. From the 1965 base of 100 it has steadily risen to 130.2 by 1970. However, wholesale price rises have been very contained, with the export price index rising from 100 in 1965 to the current 110.1, and it is believed that the 1971 increase will be only 1.2%. This testifies once again to the definition of the Japanese economy as mainly geared to exporting. It means that the Nixon surcharge has hit hard as 31% of Japanese foreign trade, equal to $5.983 billion, goes to the United States.

In Japan the total labour force is also a very high percentage of the population. In fact in 1970 out of a population of 102,747,000 the workforce was 50,400,000 of which 8,990,000 were employed in agriculture; unemployment was 1.14% with 570,000 unemployed, this is excluding the underemployed and according to official statistics.

To give an exact measure of Japanese competitiveness, let us examine the balance of payments and the trade balance. A balance of payments surplus of ¥2058 billion in 1963 to a surplus of ¥4839 billion in 1970; the trade balance went from a deficit of ¥166 billion in 1963 to a surplus of ¥4019 billion in 1970.

What will happen to the Japanese economy now? Both the revaluation and the surcharge affect it deeply and it is thus easy to predict that the consequent obstruction to Japanese exports will lead Japan into a serious crisis, further reducing the stability of the fragile capitalist equilibrium.

The EEC Countries

Let us now examine the economic situation of some of the countries of the EEC, the other major competitor of the United States. The European economy is closely linked to the American economy and is now suffering the repercussions. First of all, we specify that the union between the six countries of the EEC did not lead, and could not lead, to the complete economic integration of the adhering countries. The economic policies of the six remain very distant from each other and are far from ensuring a certain stability for the European Economic Community. This contrast is more striking if we consider France and Germany, which coexist for sheer convenience.

Later we will examine the German and Italian economies with a very brief reference to the French and British situations which, in any case, fit into the picture we traced at the beginning of the "permanent crisis". We also recall that the measures taken by the United States are affected by the fact that 87% of EEC exports go to the United States, amounting to $5.785 billion.

Let’s very briefly examine the French situation. If the franc were revalued, the French economy would return to the very low level of 1969 when the French franc was devalued by 11.1%; moreover, the current stagnation of French production testifies to the seriousness of the economic situation, especially since it is combined with a considerable rate of inflation.

On the other hand Germany, alongside Japan, has broken the world economic equilibrium and the United States is expecting a significant economic revaluation from it.

The German economy is the leading economy within the EEC. Let’s start with a brief overview of how it looked prior to the American measures using 1962 as a base. The cost of living index was 128.9 with an increase in 1970 of 4.5%; industrial production overall rose 159 with an increase of 5.1% over 1970; the industrial price index rose to 112, with an increase of 5 over 1970, (we also note the small increase in export prices for Germany in 9 years); orders to industry were 185 with an increase of 0.5% over 1970; the retail sales index was 156.1 with an increase of 10.7% over 1970; the number of unemployed was 206,000 against 198,000 in 1970 with an unemployment rate of 0.7%; job vacancies were 701,000 against 835,000 in 1970; monthly German exports stood at 12.9 billion marks of which 9 billion were directed to the United States; imports 11 billion marks with a surplus of 1.9 billion marks. This data shows how serious the situation is for the German economy after the US surcharge.

To summarise:

Variation to date March 1962 = 100 / / Variation in 1970
Cost of living 128.9 +4.5
Industrial production 159 +5.1
Retail Sales 156.1 +10.7
Orders to industry 185 +0.5
Industrial prices 112 +5.1

Let's see what the economic situation looks like after the American measures.

Gross national product has decreased in real value by 1.5% and is expected to fall globally as well. The cost of borrowing is now 11% and the cost of living has gone up by 6%. Orders to the steel industry, renowned as the leading industry in the capitalist economy, fell by 12%.

German exports to the United States underwent a de facto revaluation of 25-27%. In the automotive sector this revaluation is even more pronounced and is around 35-37%. If we consider that cars constitute most of German exports to the United States, this figure takes on its true dimension. Furthermore, the German economy has also been hit by a revaluation of 12-15% against its European partners.

In sum, the German and Japanese economies, with their high rates of development, accounted for the lion's share of world markets. Moreover, Germany’s holding of $16.5 billion meant it now also controlled the largest world monetary reserves. Thus the traditional American economic dominance has been severely undermined. It can therefore be said that Nixon, in order to try to heal the American economy and to maintain it dominance in the world, has implemented his "new economic policy" which has nothing to do with that of Lenin, apart from the name.

Again, before dealing with the Italian situation, we will mention Britain in the context of the premise of "permanent crisis" which had anticipated Nixon's measures. Britain has not imposed any surcharge as it doesn’t have the position of strength from which the Americans can deal. All this demonstrates once again how the present situation came about. Recently Chancellor of the Exchequer Barber admitted that the decline in investment, the decline in economic activity with contraction in production, had been much greater than the British government had expected.

The British economic plan, like the American one, provided for a reduction of sales tax and significant incentives for industry as well as tax relief for 1971/72 of £1,100,000,000. There was also the voluntary reduction(!) of inflation which dropped from an annual rate of increase of 9% to only 5%.

Now let’s look at the Italian situation which is of particular interest to us.

Italy had a trade deficit of Lire 625.2 billion in 1971 against 714.7 in 1970. The balance of payments showed a surplus of L373 billion against the deficit of L359.8 in 1970.

Despite the positive balance of payments, the Italian industrial situation does not appear so rosy.

Average daily industrial production fell by 7.7% compared to July 1970 and by 3.4% compared to the first half of 1970.

Let’s examine some sectors in particular (1966=100):

Sector June 1970 / / June 1971 / / 1970 to 1971
Textiles 118 103.1 -11.9
Machinery 142.6 132.8 -9.8
Means of transport 134 123 -11.0

In July 1970 prices and the cost of living increased: consumer prices by 4.9%, wholesale prices by 5.3%, the cost of living by 5.3%.

By 1 August 1970 the rise in consumer prices was clear. Hams and cured meats increased by 16-18%, cheeses increased by 20%, milk by 11%, fruit and vegetables by 15% (it should be noted that while consumer prices increased, wholesale prices decreased by 1% due to agricultural overproduction), the price of clothing items increased by 20-30%. These figures continue to deteriorate sharply.

We also note that the Italian public debt amounts to L14,500 billion, equivalent to 24.9 of national income and, moreover, that tax revenues were L636 billion or 9.14% lower than expected in the first seven months of 1971, so presumably even the illusory and demagogic reforms(9) are unlikely to be implemented due to lack of funds.

The IGE also brought in L53,402,000,000 less than expected. We can see that the situation is not easy for Italian industries, and especially for exporting ones, by noting that only in the last few months 118 companies have asked for rescue intervention to avoid the bankruptcy of the GEPI Finance Act (IRI, IMl laws, etc.).(10)

Let's now look at the situation of the workforce in Italy.

The workforce is 19,593,000 of which 566,000 (2.9%) are unemployed and 297,000 (1.5%) are underemployed, with total unemployment at 1.1%.

This is the official data. But if we examine the situation more closely by taking only one sector, for example the industrial sector for which we have data, we note that out of a total of 8,284,000 employed there are 7,297,000 full-time workers; that 829,000 are ‘part-time’ temporary workers (with less than 32 working hours per week) and 159,000 unemployed, giving a total of 987,000 units, and suggesting a wider percentage of unemployment or underemployment equal to about 11%. We should point out that these figures are also from ministerial sources and probably lower than reality, because the latest data released by the press bring the total unemployed to almost 2 million. The official data excludes temporarily laid off workers who would significantly increase the total, and who in recent times have increased so much that the authorities prefer to keep silent about their number. Let's extract some significant data from the ISTAT survey:

The phenomenon of fewer hours worked in 1971 is macroscopically reflected in the data of the wages supplementation scheme. Already this year, at the end of September, the hours of non-work paid from the Cassa's "piggy bank" are about 158​​ million (expected to be 250 million by December). Thus there is a good chance of beating the 1965 record (280 million), when hundreds of thousands of workers were marginalised.(11)

We conclude this article crammed up to the hilt with data, which is, however, necessary, by outlining an overview of the prospects that this situation of crisis opens up for the revolutionary movement. There is no doubt that, as with all crises, the solution to this one, unless there is a revolutionary outcome, will be war and if there is no strong world communist party this will, once again, heal capitalism’s lacerating wounds. Today, more than ever, is the time for the union of the internationalists, who are and remain the only force capable of giving an authentically revolutionary outlet to the current situation, because the hour of the struggle against capitalism is closer.


Prometeo no.16/17 (1971)

Sources for data:

  • Bulletin of the Federal Reserve
  • American Agricultural Yearbook
  • Japanese Annual Statistics
  • Mondo Economico
  • Successo


(1) The "permanent crisis" does not imply the loss of the cyclical nature of the capitalist economy, since it is precisely through cyclical crises that capital destroys and recreates itself by temporarily gaining new vigour, but it implies that the capitalist economy has embarked on the downward slope in the accumulation process due to the fall in the rate of profit, making the need for war more and more necessary in order to give capital renewed strength.

(2) In underdeveloped countries production is not carried out by exploiting the most advanced technical reserves, there is therefore a greater use of labour power than capital, therefore the capital employed thanks to the mass of surplus value produced by the workers can receive very high rates of profit compared to the rates of the advanced countries. In this regard, we quote Marx's thought "What is valid in a country for different and successive degrees of development, is also valid for different contemporary and coexisting degrees of development in different countries". In a poorly developed country where the average [rate of profit, trans.] is formed by the primary accumulation of capital, the general profit rate will be 66.75%, while it will be 20% in a country which has reached a much higher degree of development.

(3) American gold reserves must cover at least 25% of domestic circulation, and the minimum limit is $10 billion.

(4) The most important of the proposed remedies are Special Drawing Rights, the so-called gold-paper. In practice, this means that instead of having currencies anchored to gold, the availability of monetary withdrawals will depend on a country’s level of contribution to the IMF, all therefore based on relations of force and economic power.

(5) The data on agricultural overproduction are rounded to the ton for maize, the approximation for wheat is somewhat greater.

(6) Already, some American industries export to the Chinese market, including General Motors.

(7) In order to change its economic structure, for example from closed to open, a capitalist country needs either a deep and general crisis that destroys most of its productive means or a war that produces the same result; then the economy is rebuilt on the basis of the new model.

(8) The revaluation of a currency implies that the goods exported by the country that made the revaluation will become more expensive on the world market — and that the goods of other countries will become cheaper, causing a contraction in the exports of the currency of that country.

(9) Capitalism will never be able to give real structural reforms, but not only that, it usually fails to even give the reforms it needs, in order not to break the unity of the bourgeois front. Thus the reforms are mediated by the contrast between the advanced and the backward bourgeois sectors.

(10) GEPI is the acronym of the Società per la Gestione e Partecipazione Industriale which was set up by the laws referred to here in 1971 to bail out firms and entities that were in financial trouble especially in the state sector. IRI and IMI were the main organs of Italian state finance set up under Fascism but carried on under the Republic. GEPI’s main aim was to save jobs by saving the firms that provided them.

(11) The Cassa is short for Cassa d’Integrazione which was a fund which paid workers in most (but not all) industries who were not actually sacked but laid off in rota thus keeping the numbers of technically unemployed down.

Monday, September 13, 2021