(Introductory Note (August 2000): The following article was written in Fall 1976 and published in Spring 1977 in the short-lived (and little-mourned) journal Strategy. It is conceptually superseded by the text “Remaking of the American Working Class”, insofar as its writing preceded my discovery of Marx’s “Unpublished 6th Chapter” of vol. 1 of Capital, and the rethinking of the history of capitalism implied by the distinction between “extensive” and “intensive” accumulation. Nevertheless, I am making it available today because it contains empirical material on the post-1945 period not fully incorporated into “Remaking”.)

I. Rise and Fall of the Bretton Woods System, l944-1971/1973

The unilateral dissolution of the Bretton Woods system of international exchange rates by the then-U.S. President Nixon in August, l971, was the closing act of a drama which began with the unilateral creation of that system by the U.S. in the closing phases of World War II. If certain misguided observers wished to hallucinate in this event a return of an era of ãinter-imperialist rivalryä, they only signaled their general incomprehension of the era which had just ended and a fortiori their incomprehension of the era that was then opening. The demise of the ãAmerican Empireä whose ascendancy and decline constitutes the history of twentieth-century capitalism, is not the demise of a single capitalist power to the advantage of others; it is the demise of the global capitalist system. An understanding of this demise, however, requires a brief survey of the process by which it unraveled. In 1913, Rosa Luxemburg and her followers analyzed the 1907-1913 world economic stagnation as the signal that the capitalist system had reached the limits of its ãpeacefulä expansion, and that further development of capitalist production could occur only at the expense of one or more of the existing capitalist powers. This analysis was confirmed one year later with the beginning of the First World War, a war fought precisely for the redivision of the areas conquered by the imperialist powers in the 1870-1914 colonial expansion. The capitalist system, as a global system, had entered the ãinfernal cycleä of depression-war-reconstruction through which it has passed twice and which it is today entering for the third time. The system had become decadent: incapable of further development of the global productive forces. The world war which inaugurated the era of capitalist decadence was terminated by the first successful working-class revolution in history and by working-class insurrections throughout Europe and Asia. If the World War was nominally ãwonä by the powers of the Entente, it was in fact won by the United States alone, which by 1918  held $12 billion in inter-Allied war debts and the sole reserves in the world capable of financing the reconstruction of the continent. If the British and French empires remained nominally intact as looting preserves of those countries international economic hegemony was indisputably in the hands of the United States. It was the United States which, through extensive transfusions of credit, financed the 1921-1929 reconstruction of Europe, until renewed collapse of the American capital markets once again plunged the world into a depression leading directly to the Second World War and the consolidation of the world under U.S. hegemony. That hegemony was institutionalized in the 1944 conference in Bretton Woods, N.H., in a system of fixed-exchange rates calculated against an overvalued and gold-based dollar. The postwar economy, in the phase of global reconstruction which came to an end in 1967-68, and which immediately registered that end in the seismic convulsions of the international monetary system of that year, was based on an unprecedented expansion of credit centered in the U.S. capital markets and above all in the operation of the printing presses of the U.S. Treasury. The Bretton Woods system had established a world triangle of trade whereby Western Europe and Japan imported that portion of raw materials not directly consumed by the U.S. and re-exported them in finished form to the American market in exchange for ever-growing surpluses of dollars accumulating in the central banks of the world over two decades. This multi-tiered system of looting of the raw materials and labor power of the Third World and of Western Europe by the U.S. was the basis of the entire postwar capitalist expansion, whose social cost was a planetary retrogression of a depths which statistics can only dimly illuminate. The system ãâworkedä as long as the accumulation of paper provided by the U.S. Treasury in the central banks of Europe and Japan did not prove excessively burdensome for the domestic economies of those countries. The chronic balance-of-payments deficits run by the U.S. from 1950 to 1972, financed against an overvalued dollar, were tolerated because the American domestic market constituted a major outlet for the products of the surplus nations, and because a bankruptcy of the dollar and the U.S. capital markets, and the subsequent collapse of world trade would immediately bring the rest of the capitalist world into the abyss. As long as the dollar remains the international reserve currency, the capitalist world is in thrall to the internal economic viability of the U.S. economy, the policy decisions of the New York capital market and the Federal Reserve System. The question of the U.S. trade balances, whether positive or negative, was purely secondary as long as the rest of the world was compelled to accept in payment for goods and services a dollar whose overvalued nature by itself constituted a permanent drain on the labor power of their respective economies. The pace of the world economy was ultimately locked into step with the health or sickness of the American domestic economy, and the humble visits in quick succession of the heads of state of Britain, France, Germany and Japan to the U.S. in 1975 to plead with Ford and Rockefeller to reflate is yet another phenomenon flowing from this arrangement. The domestic U.S. economy over the post-war period was run on essentially the same basis. The restructuring of the Federal government apparatus in the Roosevelt period (which was in turn an extension of the statist-militarist management of the economy introduced by Wilson during World War I, a development which Luxemburg characterized with her usual prescience as the dominant trend of the decadent phase of capitalism) was a pure product of the metamorphosis of the state in the era of capitalist decay. The phenomenon of ãdeficit spendingä ushered in as the basis of fiscal policy in 1933 by itself never solved, and never could have solved the Depression, which after a modest recovery during the 1934-37 period, imploded  once again in 1937-38. It was not excessive borrowing by the state alone which provides the key to the ãKeynesian revolutionä and the nature of the post-war period; one half of the equation is still missing. It was only the massive production and deployment of armaments in the Second World War, and the subsequent reorganization of a world system of looting, which provided the actual wealth whereby the American state could over an extended period finance a permanently expanding public debt and serve as the linchpin for the entire domestic U.S. capital market. The Keynesian  revolution was nothing but the systematic application at the level of the state of a practice which had been a tendency of capitalism from its inception: the financing of an arithmetic expansion of real production through a geometric expansion of money credit. This ãdeficit spendingä, which was also the practice of the state in the mercantilist era (that is, in the ascendant phase of capitalism) could be subsidized in the long run only through the infusion into the nation in question÷just as in the 18th century÷of a segment of unpaid or undervalued social wealth extracted from another sector. This wealth was provided over more than two decades by the Bretton Woods system described above. Nonetheless, the dissolution of sets of economic relationships does not proceed mechanically like the winding-down of a clock. While capitalist crises of the kind we are facing are indeed inevitable for reasons we shall make clear, their timing and their configuration are, within certain parameters, decisively shaped by the political actions of the contending social forces. There is no insoluble economic crisis for capitalism as long as the political power of the capitalist class remains intact, and the development of the crisis prior to and after 1971 was eminently conditioned by precisely such political factors. In view of this interaction of politics and economics, it is possible, but not necessary, that this crisis take the classical appearances of past capitalist collapses: massive devaluation of all paper values, collapse of production, and massive unemployment. The developments of the global system since 1914, and particularly since 1933, are such that the process of collapse has been and can be institutionalized, and all the more successfully to the extent that the working class and its allies are willing to accept the consequences of collapse passively. It is precisely at the point when the working class intervenes, either to resist austerity or to pose its own alternative to the crisis, that the combined economic and political apparatus of the capitalist class is mobilized for repression, and the ãmanaged depressionä can be discarded for a classical bust. The case of Germany in the interwar period offers a particularly illuminating case study of the dynamic which is at work in the world economy as a whole today. German capitalism, as the last important industrial capitalism to emerge in Western Europe prior to World War I, was for a complex of reasons denied access to the colonial sphere which was so important for propping up the less-productive capitalisms of Britain and France. German aims in World War I were nothing more or less than the re-division of the world then accessible to capitalist looting procedures. The war was financed internally by the massive sale of government bonds, in no small part to the middle and working-class populations. Payment of the matured bonds was absolutely dependent upon the new sources of wealth which would have been opened up by a German victory. When this victory was denied, the entire financing of the war effectively bankrupted the German state. It was not, however, until after the German proletariat had been defeated in the l9l8-192l period that the German capitalist class could move toward its solution to this problem, the nightmare inflation of 1923. The decision to dispossess the small bondholders and to wipe out the savings of the German middle and working classes, while liquidating all corporate debt in the process, was possible only after the proletarian surge of the immediate postwar period had been contained in the streets and factories. At that point it became safe, and indispensable, to turn on the printing presses and depreciate the currency to one four-billionths of its 1914 value. In short, capitalist paper values are not merely certificates of wealth; they are social relations of production,     and simultaneously social relations of force, mediated by certificates of wealth.(1) (footnotes at end of sections) In order to understand the successive contractions of production (1969-71, 1973-75 and the new phase beginning in all probability in 1977-78) (it actually started in 1980-LG) which have marked the general crisis of capitalism to date, it is necessary to understand the postwar era of capitalist expansion which proceeded it. While the symptoms of crisis were there, for those who knew how to read them, in the incipient problems besetting the U.S. dollar in the late fifties, 1968 was the watershed year in the history of postwar capitalism. It was in 1968 that a qualitative intensification of the international monetary crisis coincided with the return of overt class struggle in the advanced capitalist sector, most notably with the May-June general strike in France. This three-way interaction of the political and economic intervention of the working class with monetary crisis and the rhythm of of actual production is the sine qua non for a grasp of the crisis in its totality. The center of the 1945-69 capitalist expansion was the U.S. economy, just as the epicenter of the post-1969 breakdown has been the U.S. sector. If we characterize the U.S. economy in that twenty-five year period as a military-welfare economy, it is because its development is inconceivable without the massive agency of the state as the purchaser of arms and as a public works employer, with an expenditure which by the mid-70âs had come to constitute over 40% of total GNP.(2) Without a permanent arms economy and an effective public works program employing a considerable portion of the workforce, the postwar era as it unfolded would have been unthinkable. This economy, in the U.S. alone (to say nothing of its international consequences) was hardly free from internal turmoil. Recessions rocked the postwar capitalist expansion no less than four times (l948-49, 1954-55, 1957-58, 1960-61) prior to 1969, and were ended each time by a renewal of arms production and the demand for U.S. capital abroad in the areas where expansion was still occurring. What characterized the U.S. economy, and increasingly the world capitalist economy as a whole, was the stagnation or actual regression of productive investment. 1-This political content, while apparently latent for extended periods of capitalist prosperity, of the capitalist valuations of wealth becomes in periods of crisis patently obvious, and make a mockery of any excessively mathematical models or projections of capitalist economic activity. 2-The U.S. GNP in 1975 was $1,499.0  millions in current dollars; government expenditure for the same year was $313.4  billion at the Federal level, with an additional  $270 billion at the state and local levels. (United Nations Statistical Yearbook, 1976)

II. The Mechanism of Crisis: Capitalism Ascendant and Decadent

To understand the atrophy of productive investment in the decadent era of capitalism  is to penetrate to the center of the mechanism of capitalist crisis. It is to understand capital as a self-contradictory dynamic which is simultaneously compelled to expand and periodically contract in order to survive as capital. The manifestation by which capitalist crisis announces itself in actual practice, as opposed to the academic fantasyland of various neo-Keynesian ãMarxistsä (cf. Joan Robinson, Sweezy, Kalecki et al. ) is through a systemic liquidity crisis: a shortage of cash on hand. The crisis takes this form because the mode of production is regulated by the interplay of two irreconcilable processes: a process of self-expanding (capitalistâs) value, or valorization process, and a process of the expanded reproduction of society as a whole. In the ascendant phase of capitalism, these two processes, while often interrupted by periodic collapse, nonetheless coincided in a simultaneous expansion of capitalist valorization and  in the expansion of the global productive forces. Each depression was followed by a renewed phase of expansion of both the valorization process and the reproduction process. In the decadent era of capitalism, when the system begins to cannibalize itself, the self-expansion of the valorization process can only occur simultaneously with the regression of the process of social reproduction. Capitalist crisis, in either phase, is nonetheless an expression of the fact that society has become too  productive; too productive, that is, to continue in its capitalist form. It survives as capitalism only by a concerted destruction of productive forces. The inability of pro-capitalist economists to grasp this process, moreover, resides in their false understanding of wealth. The increase of wealth which occurs in a phase of capitalist prosperity becomes a problem for the system because it begins to undermine the very capitalist accountingof wealth. A capitalist crisis, whether it takes the form of a depression or a war, is essentially a massive inventory liquidation in which a mass of existing capital and labor power is destroyed in order to make the resumption of production within a capitalist context once again possible. The origins of the problem are located precisely within the most progressive aspect of capitalism: technological progress and the increase of the productivity of labor. As technology advances, in a single branch of production or in industry as a whole, it cheapens the current cost of all commodities, including the current cost of those commodities called ãcapital goodsä: machinery, plant and so forth. Hence an antagonism develops between the current cost of the reproduction of the existing technological plant and the historical cost at which it must be paid off. What is initially an advantage for the individual capitalist investor, repeated anarchically throughout the different sectors of production (i.e. equalization of profit) becomes over time a drag on the further expansion of the system as a whole in the form of an increment  x  of the total fixed capital assets which are overvalued in current reproductive terms. The increasing productivity of labor achieved through competition tends to decrease the prices of commodities at the very moment that the entire technological plant is exacting ever higher historical costs of repayment, costs reflecting outmoded and superceded levels of productivity. This is the direct domination of living labor and production by dead labor: the past labor of society, embodied in overvalued machinery, autonomizes itself and demands in payment a portion of the social product in excess of its current cost of reproduction. The ãfalling rate of profit so misconstrued by ostensible ãMarxistsä is expressed for capitalism in precisely this antagonism. The way in which this phenomenon, which is an expression of the fundamental contradiction of the capitalist mode of production, manifests itself in actual practice is more complicated. The capitalist class as a whole attempts to solve it by passing along the historical costs of its prematurely retired or underproductive fixed capital in the form of higher prices, thereby resisting the actual   deflationary impact of increased productivity. The result of such a procedure, if the entire planet were composed of workers and capitalists, if equal exchange prevailed universally, and if there were no credit system, would be the famous ãbuy backä problem bandied about by certain pseudo-Marxists. In actual practice, however, capitalism temporarily solves this problem in two deeply inter-related ways: through the extension of credit, and through a process of primitive accumulation, whereby a certain segment of wealth is brought into the system from a non-capitalist source (e.g. imperialism, pauperization of intermediate classes) or, when such sources are not available, through the establishment of non-capitalist (i.e. unequal exchange) relations between capital and labor within the system itself (fascism). Primitive accumulation, far from being a transient aspect of early capitalism, is in fact a necessary component of any conceivable capitalist system, because the element ãxä of overvalued fixed capital must be subsidized through an input into the system which is not compensated at its reproductive value. In the early phase of capitalism, this ãunpaid labor timeä was extorted from the looting of the colonial populations and the destruction of the European peasantry. In modern capitalism, it has taken the form of a more systematic looting of the human and natural resources of the planet through imperialism, war and fascism(1), including pushing wages below the reproductive costs of the working class. The other necessary side of actual capitalist practice which masks the fundamental antagonism between the actual capacity of the existing productive forces and their historically-determined overvaluation is the massive extension of credit. On the side of the capitalist class, the credit system has been used to prop up masses of overvalued fixed capital, keeping firms solvent as their capital plant decays or is actively cannibalized (e.g. Penn Central), and by extending credit to potential buyers in anticipation of future ability to pay. The overall effect of this long-term strategy is to constantly expand the gap, which has its initial expression in technodepreciated fixed capital but which rapidly, through the credit system, extends to the whole of society, between the ãtotal capitalistä representation of wealth and the actual existing wealth in the social reproduction process. As long as the gap can be subsidized by primitive accumulation, the process can continue. The proliferation of credit, not only in the form of bank loans but in every conceivable kind of capitalist title to wealth (stocks, bonds, letters of credit, property titles, etc.) produces an ever greater mass of ãprofitä which has no counterpart in actual social wealth, and to the extent that this profit is realized in its metamorphosis into actual consumption or real investment manifests an ever-growing inability of the societyâs paper representation of wealth to realize itself in corresponding actual wealth. In a word, inflation. Of course, the capitalist class has no serious appreciation of this problem, because it is at best only dimly aware of the disparity between paper representations of wealth and real wealth, except in periods of extreme crisis. The capitalists react by merely fueling the problem through the further extension of credit and the intensification of exploitation and of primitive accumulation. An ever-growing mass of paper attempts to assert its claim to a share of actual production, until finally the disparity becomes too great and at some point in the process, the chain of payments is interrupted and the entire edifice collapses. A debt-strapped industrial plant confronts a debt-strapped array of possible consumers, overseen by a credit system itself strained to the limit. At the first break in the chain, a liquidity crisis ensues, and cash payment for past production becomes the foremost exigency at every link. image002 The response of the capitalists to this interruption of the cash flow, which the day before had occurred against an apparently. healthy balance sheet, is to begin to seek immediate cash wherever it is to be found, and first of all through a panicked liquidation of inventory. (It was the specter of such a massive inventory liquidation which haunted the advanced capitalist sector, and particularly the U.S., in late 1974 and early 1975. The convergence of runaway inflation, plummeting production and consumption, and a severe credit crunch signaled the 1974-75 conjuncture as the dress rehearsal for the probable definitive collapse which will occur in the 1977-78 period.) The fatal reversal of the previous inflationary trend begins, and prices move into a downward spiral of increasing velocity. When the deflationary crash is over, what had previously been masked as a tendency deep within the system has become materialized in actual fact: a vast array of cheapened commodities offer themselves at or below current cost on the market, to pay off the debt-ridden historical values of the means of production. While an important part of these means of production are quickly auctioned off at similarly deflated prices, nonetheless the problem of the system as a whole is to restart production against the disproportion between the over-valued fixed capital assets and the current deflated prices of commodities. (The capitalist economist of the interwar period Irving Fischer correctly called this phenomenon a ãdebt-deflationä crisis.) Historically, in the ascendant phase of capitalism, this occurred by allowing the economy to deflate to a point beneath reproductive costs and by simultaneously expanding the global system into new areas where the primitive accumulation process could subsidize the resumption of production at the heart of the system. image004 In the modern period, however, the system has expanded to its historical limits. Hence the ãinventory liquidationä which in the nineteenth century constituted essentially a deflationary collapse of paper values (without for a moment forgetting the painful effects on the working population of extended unemployment and starvation wages) was followed by a new, real expansion of the productive forces. The capital which was destroyed was largely capital in its paper forms, along with the commodities which simply rotted in warehouses. In the decadent phase of capitalism, as an expression that the system has reached its historical limits, it has been actual constant and variable capital which had to be destroyed, and first of all in the two massive ãinventory liquidationsä known as World War I and World War II. In the absence of viable new sources of primitive accumulation, the existing capital plant and labor power of society are the sole possible sources of wealth in this self-cannibalization of the system. It is productivity which capitalism ultimately must destroy in order to salvage the valorization process without which it would not be capitalism. Hence the twentieth century has been characterized by the cycle refereed to earlier of downturn or depression, followed by world war, followed by a new period of ãreconstructionä in which the reproductive capacity of society mere1y returns to previous levels and begins the cycle anew. Fascism appears as the domestic political form for the achievement of internal primitive accumulation; expansionist warfare is the foreign policy expression of the same necessity of the system. Fascism and world war are the two inevitable and interrelated tendencies of capitalism in its decadent phase. Based on this admittedly rapid elaboration of the fundamental mechanism of capitalist crisis, it now becomes possible to illuminate the actual events of the contemporary era in the full theoretical framework they require. 1-To our knowledge, only two theoreticians since Marx have contributed to an understanding of the permanence of primitive accumulation as a feature of capitalism: Rosa Luxemburg (Accumulation of Capital, 1913), and in the contemporary period, L. Marcus (Dialectical Economics, 1975).

III. The Nature of the Postwar Capitalist Expansion

The U.S. and global expansion after 1945 was based on the extension of credit by the private capital markets of the U.S. and by direct credits from the U.S. government itself. If the U.S. economy, functioning at or near full capacity during World War II under an unprecedented expansion of public debt, were not to relapse into depression, then Europe would have to buy the output of an economy reconverted for peacetime production. The Marshall Plan was nothing other than such an extension of credit for the purpose of selling to Europe the means of its reconstruction and incurring the permanent tutelage of the Western European bloc, stripped of all internal credit and much productive capital by six years of war. Through the mechanisms of the international monetary system created at Bretton Woods, large trade surpluses of U.S. goods, financed by U.S. loans denominated in overvalued dollars, accumulated in Western Europe and Japan. Simultaneously, for twenty-three consecutive years beginning in 1950, the U.S. ran a negative balance of payments through massive capital outflow and through the maintenance of a worldwide military encirclement of the Soviet bloc. The goods and services of Western Europe and Japan were being drained both through ãunequal exchangeä in trade built into the international monetary system and, beginning in the late 1950âs, through the accumulation of unusable surplus dollars against those goods and services. Hence if the U.S. economy enjoyed a period of expansion relatively free of inflation from the mid-1950âs through 1965, it was only through the intensified export of inflation abroad via the mechanism of trade. In spite of this arrangement, the U.S. economy moved into recession in 1948-49, from which it was saved by the advent of the Korean War, and again in 1953-54, from which it emerged in the last, brief ãconversionä to peacetime production. The results of this development were not long in making themselves felt, and in 1957-58 a third postwar recession occurred, from which productive investment in the U.S. itself never recovered.(l) image006 There began the massive movement of U.S. capital abroad, and first of all to Canada and Western Europe.1 The sole serious expansion of fixed-capital investment after the 1957-58 recession was the investment boom of the mid-1960s connected with the Vietnam war. The U.S. balance of payments began to rapidly deteriorate, with the additional burden of indirect and direct investment added to the maintenance of the worldwide military apparatus, and in response the various Western European trading partners could only draw on the dwindling gold reserves of the U.S. It was also in the late 1950s that the accumulation of U.S. dollars abroad gave birth to the so-called Eurodollar market, which became a supranational and unregulated capital market reflecting the growing inconvertibility of the U.S. balance-of-payments deficit. The drain of European resources toward the United States as the reconstruction process was completed could only express itself in domestic inflation in the European economies, and in 1964-66, for example, the West German government was forced to take deflationary measures in order to stop a strong inflationary impulse, resulting directly in the German recession of 1966-67 and growing signals that the postwar expansion was coming to an end. 1-U.S. direct investment abroad moved from $11.8 billion in 1950 to $19.4 billion in 1955, showing thereafter the following upward trend: 1958-$27.4 billion; 1961-$34.7 billion; 1965-$49.5 billion; 1967-$59.5 billion; 1970: $78.2 billion. (Historical Statistics of the U.S.) A contrast of these figures with those on domestic U.S. investment  gives a first approximation of this process of disinvestment in the U.S. economy which has now (i.e. in 1976) held sway over twenty years, and which is the actual backdrop of what certain ignoramuses have called the ãpost-industrialä society.

IV. De-Stabilization of U.S. Hegemony, l968-7l

The Vietnam war seriously accelerated all these trends. The decision of the U.S. government to attempt to finance the war through expanded deficit spending instead of immediate austerity was effectively a decision to have Europe and Japan pay for the war. The diversion to war production of an increasing portion of the U.S. economy not only required increased imports of European and Japanese goods for domestic consumption, aggravating the surplus of dollars accumulating abroad, but introduced a new factor which brought the developing monetary crisis to an initial turning point: domestic inflation in the U.S., which was further devaluing already inflated U.S. dollars held abroad. By late 1967, with armaments production fully underway, the dwindling U.S. gold supply was rapidly approaching the 25% minimum reserve requirement. Beneath that point, the United States government, the linchpin of the entire capitalist monetary system, would be effectively bankrupt. At the same time Britain, suffering from the strains of preserving the pound as a second international reserve currency without the vast network of inputs which kept the U.S. economy afloat, was forced to undertake the first serious devaluation of a major currency since the immediate postwar period. Similarly, West Germany, after the recession introduced by Erhardâs tight money policy in 1964-66, was only beginning to reverse its downfall in output (admittedly minute in contrast with what was coming). It was at this time, and more concertedly in 1968, that the postwar allies of the U.S. began to resist their subordination to the difficulties of the dollar. Most notable in this effort were the criticisms of the Gaullist regime in France, which for traditional foreign policy reasons related to Franceâs own position as an intermediate power, aimed at an independent Europe free of super-power domination, under Franco-German or if necessary exclusive French leadership. Under the impact of increasing American investment in the French economy (the most dramatic single event being the acquisition of the French computer firm Honeywell-Bull by  G.E. in 1964) DeGaulle began to denounce the American racket represented by an overvalued dollar, accumulating Eurodollars, a U.S. war economy powered by this institutionalized looting of the worldâs real goods and services, and the dwindling liquidity of the U.S. government itself. DeGaulle did not hesitate to link this pillage of Western Europe to the U.S. adventure in Southeast Asia Thus DeGaulle in 1963 vetoed British membership in the Common Market, denouncing the British as the American Trojan Horse in Europe; he further requested in 1966 the withdrawal of all U.S. military forces from French soil, and in the 1966-68 period, in collaboration with his economic advisor Jacques Rueff, proposed a reform of the international monetary system based on a re-introduction of the gold standard. While DeGaulleâs international stance was undermined by the general strike of May-June 1968, in which the stability of the franc disappeared and DeGaulleâs successor, Pompidou, was forced to have recourse to the IMF and ultimately devalue the franc in Fall 1969, the French verbiage about the U.S. domination of Europe was the most strident example of a trend which in the 1968-71 period attempted to halt the U.S. export of its economic instability. This resistance took the form of an aggressive Japanese and German export drive into the U.S. domestic markets, which by 1970 had seriouslyâ cut into traditional strongholds such as the automobile and electronics industries, and in pressures, though never as explicit as DeGaulleâs, on the U.S. to settle its domestic economic turmoil.(1) The dollar crisis which had been accumulating through the decade prior to 1968 came to a head in March of that year when the 25% minimum gold backing of the dollar was reached, international trading in dollars was suspended, and international money markets closed down for emergency negotiations between the major capitalist governments. A policy blunder by the U.S. at this point could have provoked a global monetary panic and immediate depression then and there; as it was, the U.S. merely announced its de facto  bankruptcy by the ãsuspensionä of gold convertibility and through the creation of the two-tiered gold market, whereby governments would intervene to keep the market price of gold at :,$35 per ounce to discourage a growing flight into metals (2) The combined phenomena of the chronic U.S. balance-of-payments deficit, the mobilization of the U.S. domestic economy for war production, the accumulation of rapidly depreciating dollars abroad, the end of the gold backing of the dollar and finally, the serious expansion of the U.S. government deficit was creating international havoc. The political developments of 1968, moreover, did not fail to express, in largely unconscious fashion, the attainments of the limits of the postwar expansion, and in turn accelerated the monetary crisis itself: May-June 1968 in France, in which the working class reappeared in force to announce the return of open class warfare just as the system based on the suppression of such warfare was announcing its bankruptcy; the Tet offensive in Vietnam; and finally, a mass struck ferment which registered its effects in a dozen countries by the end of the year. The election of Nixon to the U.S. Presidency at the end of 1968 added a wild card to this situation insofar as Nixon was committed, in his first two years in office, to a strongly deflationary policy, most immediately expressed in tight credit and money, and to a desire to balance the Federal budget. The harvest of this particular maneuver, however, was not long in coming, as the U.S. entered a recession in the spring of 1969, the stock market fell by 30%.  In the spring of 1970, the bankruptcies of the Penn Central, Lockheed and a massive domestic credit crunch, forced American corporations into the Eurodollar markets on a large scale for the first time, illuminating the underlying situation in the rudest possible fashion. This unprecedented 1969-70 liquidity squeeze, and the obligation of the Nixon administration to fully reverse itself in order to bail out bankrupt corporations with credit transfusions from the Fed, revealed an aspect of the crisis which hitherto had gone unappreciated by the multitude: the role of the state, not merely as the abstract creditor of last resort, but as the direct guarantor of the liquidity of an increasing number of heavily indebted and gutted corporations, of which the Penn Central was only the most obvious case. The monetary and credit interventions of the state are the ultimate prop of the total overvalued fixed capital plant of the private sector, and the limit to such state subsidy of bankruptcy is its own liquidity. The vacillations of Nixon, from his early monetarist stance and his reliance on the quackery of Friedmanâs ãChicago Boysä for almost two years until he discovered himself to be a ãKeynesianä in the wake of August, 1971, were not merely political maneuvers (although they were also. that), but they reflected the Scylla and Charybdis of capitalist credit policy in a period of breakdown crisis, between the need to apply the monetary brakes to rapidly expanding inflation, and the immediate dangers to the credit system and hence to the liquidity of the debt-strapped system as a whole which such measures engender. The 1969-71 recession, (in itself nothing compared with later phases of contraction) forced Nixon and the capitalist class to recognize the dangerous game they were  playing, and above all the necessity of managing a depression once it was recognized as inevitable. In 1969-71, the international capitalist class became aware above all of the possibility of setting off the depression too soon through actual policy errors of timing, and conversely of the possibility of engineering the depression so that it could occur on the most favorable possible political terrain. Here again the spheres of ãpoliticsä and ãeconomicsä converge when the combined policy tools of the capitalist state emerge as the direct handles by which the bourgeoisie can attempt to manage the general unfolding of a crisis, however little it grasps the underlying forces at work. Nixonâs decision to reflate the economy in early 1971 was undoubtedly part of his strategy for re-election, and the subsequent havoc introduced by such a vigorous expansion of the money supply and easing of credit, combined with a Federal deficit on the order of $35 billion, merely rekindled the fires which the 1968-70 austerity had sought to extinguish. When the U.S. appeared well on its way to posting a (theretofore) record balance-of-payments deficit and inflation took off in the domestic economy, the international monetary crisis re-emerged in force, and in May 1971 the countries of the EEC were obliged to float their currencies jointly against the dollar, after their central banks had depleted important foreign currency reserves in maintaining exchange rates within reasonable bounds. Most clearly, the ability and desire of the European central banks to perform this service was limited, and the system of fixed rates had to be scrapped. 1-Aside from articulating the orientation of the nationally-based fraction of French capitalism, DeGaulleâs ãanti-Americanä posture was in part for a broader domestic and international consumption. American investments in French industry, for example, increased following the departure of U.S. military personnel in 1967. Furthermore, this rhetoric underwent a steep deflation after the mass-strike upsurge of May 1968. The Gaullist regimeâs room for maneuver existed within the framework of a world-wide capitalist expansion. Since the departure of Jacques Chirac from the government of Giscard dâEstaing in August, 1976, this movement and its rhetoric have returned in force in a period of collapse, achieving reunification with the French extreme-right forces which had never forgiven DeGaulle for Algerian independence. Hence a Gaullist figure like Alexandre Sanguinetti can write, in the midst of a manifesto for a Gaullist resurgence which retains much of the old rhetoric, that ãWhat.. (various Ministers of Finance of the interwar period). .were lacking was a capacity to master finance, to master the economy, and an ability to guide them through economic crises. 1929 was the  overwhelming proof. In this regard, I am going to say something sacrilegious: I think that the world has known only one man who solved the problem, a certain Hjalmar Schacht who, alas, was in the service of Hitler, but who seems to me to have found solutions which the others did not envisage.ä A. Sanguinetti, Une nouvelle resistance, Paris, 1976, p. 82. The Chirac movement, armed with such theoreticians, thus combines at a fairly advanced stage the plebiscitary Bonapartism and sweeping austerity program which characterize fascism. 2-The de-monetization of gold is a fundamental aspect of U.S. policy in this depression. The permanent balance-of-payments deficits of the postwar period had completely undermined the U.S. monopoly of the worldâs gold supply at the end of World War II. As the dollar proved, beginning in the 1957-58 period, to be no more immune to the laws which have governed currencies throughout capitalist history, the desire of the U.S. government to retain its privileged position at the center of the world economy required a continued imposition of the dollar as the international reserve currency, whatever the price. The U.S. government recognizes that it is the willingness of the rest of the world to accept its paper which makes its hegemony possible, and that a shift into gold  as the basis of an international monetary unit, in view of the drain of gold from Ft. Knox, could only be at the expense of the U.S. Hence in the 1968-70 period the U.S. developed and implemented through the IMF the Special Drawing Right (SDR) as the paper suppression of gold, to be held in the same fashion as gold by central banks as part of their reserves. SDRs constituted roughly 5% of all international reserves by the end of 1974. It is of course understandable that countries like France, which had acquired a large share of the gold formerly held by the U.S. in exchange for a fair amount of its industry, had other thoughts on the matter. The desire of the U.S. is to rid the world economy once and for all of the ãold fetishä, gold; other countries. recognizing that in times of the autonomization of paper values such fetishes move to the center stage as the repository of value, have reason to doubt that the International Monetary Fund,  which issues SDRs,  will reverse that superstition.

V. Nixon’s Counter-Offensive, 1971-73

Nixonâs speech of Aug. 15, 1971, was the American response to European and Japanese pressures for the reform of the international monetary system. By officially severing the dollar from gold convertibility (although this had been achieved in de facto fashion in March 1968) and raising the official price of gold to $42.22 per ounce, allowing the dollar to float and slapping a 10% import tax on most foreign goods, Nixon achieved, at least for U.S. domestic purposes, an effective 32% devaluation of the dollar against its major foreign competitors, the mark and the yen. He simultaneously devalued at a single stroke the estimated $61 billion in the vaults of various foreign central banks (Insert August 2000: total outstanding U.S. debt held abroad today is estimated at $1.5 trillion), as well as all dollar-denominated international debts. The jingoist chorus for tariffs against EEC and Japanese goods which had made itself heard in 1970-71 was effectively silenced without the imposition of a single tariff. Nixon was essentially announcing to the world that, with or without Bretton Woods, the world economy would accept the tutelage of the dollar, the liquidity requirements of U.S. industry, the exported costs of American wars, and the fluctuation of the Federal Reserve Bankâs interest and discount rates, or accept immediate depression. image008 The measures taken by Nixon to reflate the U.S. economy in the wake of August 1971 did achieve his re-election, and started the so-called ãNixon boomä of 1971-73. It also achieved record levels of inflation in the U.S. economy itself, with the subsequent renewed aggravation of the fixed exchange rates of the December 1971 ãSmithsonian Agreementä which began to collapse in February 1973 as the West German central bank spent $6 billion of its dollar reserves (which it admittedly had in abundance) to preserve the parity of the dollar. To no avail. The last attempt at fixed international exchange rates was scrapped, and the world economy entered the era of floating rates which will undoubtedly prevail into the final downturn of production and trade. Whereas throughout the postwar period, the conjunctures of the various national economies remained somewhat localized, though all organized around the expansion and capital outflows of the U.S. sector, the 1971-73 ãNixon boomä and the resulting global inflation placed the world economy in direct lockstep. The takeoff of food prices in the spring of 1973 simultaneously with the breakup of the Smithsonian Agreement, was the next overt signal that the situation was slipping out of control. The combined blows which the EEC and Japanese economies had suffered at the hands of the Nixon administration began to take their inflationary toll directly in those sectors. In early 1973, just as Nixon was announcing the ãYear of Europeä, the German monetary authorities undertook stringent domestic credit policies, resulting in a wave of ãPenn Centralä-style bankruptcies in the German construction industry that summer, policies which prevailed until June, l974, when the Herstatt collapse almost closed the European money markets. The final coup de grace in the U.S. counter-offensive against the EEC and Japan was the oil crisis of October, 1973. The quadrupling of the price of oil had the immediate effect of bringing Japan, Italy and Britain to their knees, and putting considerable strain on the stronger German and French economies as well. The U.S. economy was the least hard hit in reality, and if for no other reason its relative advantage against the other major industrial countries was an additional contribution to the reaffirmation of the hegemony which had been tarnished by the 1968-71 events. The effects of the oil crisis were felt almost immediately throughout Europe, where real production peaked in October, 1973. The rise of interest rates to record levels reinforced the liquidity squeeze on industry, and every country rushed to conclude bilateral deals with various OPEC nations to shore up its balance of trade and its access to oil. Simultaneously, Britain and Italy were forced to have recourse to the IMFâs oil facility, and the ability of U.S.-controlled international credit institutions to dictate direct policy to EEC governments, to the extent that it had been shaken, was firmly re-established. In August, l974, as Italy stood on the brink of default of its foreign debts, Germany and the rest of the EEC had no difficulty in extracting the domestic austerity terms they wanted for a $2 billion loan.

VI.  World Reflation and Managed Depression, 1973-76

The fall in the volume of world trade between October 1974 and March 1975 was of the order of 20%. The rate of trade collapse in export-dependent economies, such as West Germany, was nearly 40%.  By May, 1975, when the Ford administration announced a reflation program based upon  the (then) largest Federal deficit in peacetime history, it was clear that without a concerted international policy of reflation, led by the U.S., the ãexport-ledä boom (which in reality meant exports to the U.S.) which everyone was confidently announcing for domestic audiences, could not materialize. By the fall of 1975, the U.S., Japan, West Germany and France were reflating, and once again the specter of liquidity crisis was raised over the international financial markets. With the public sector everywhere going to the markets on an unprecedented scale, the ability of corporations to use those markets for the investment indispensable to recovery was called into question. A new liquidity squeeze similar to the U.S. credit crunch of 1969-70 or the tight money market in Germany in 1973-74 seemed possible on a world scale. This situation was averted, however, for the simple reason that there was no private investment occurring anywhere in the advanced capitalist sector. image010 An additional problem emerged in this context which similarly raised questions about the future of the system: just as governments were borrowing massively at historical record interest rates (cf. above), the contraction of production and employment was draining their tax base and hence their ability to amortize their expanding debt. The solvency of the state is the final link in the chain of capitalist liquidity. To the extent that the state can cover the debts of private corp orations, as the U.S. government did in the case of Penn Central, or as  the  West German  central bank authorities have quietly done with dozens of threatened banks since the Herstatt collapse, or as the British and French governments have done in providing bankrupt corporations with subsidies or nationalizing them outright to assume their debt structures, actual massive bankruptcy of the classical variety can be averted. But as the state debt increases, public debt service becomes a serious problem and its ability to further act as the lender of last resort is called into question. The stateâs costs are increasing just as its tax base is eroding. When the point of no return is reached, the state will have no choice except to print fiat money to liquidate the debt structure of the economy (and with it, production) through uncontrolled inflation, or to attempt a controlled deflation in which the bankruptcies are simply re-financed and allowed to collapse slowly.  The oscillations of the governments of the advanced capitalist sector have moved between these two poles without yet reaching either extreme. But as long as, in the words of one bourgeois analyst, the ãproblem is the excess of debt, and the solution is the expansion of debtä, the attempts to regulate the crisis through monetary and credit policy will continue because the fundamental problem cannot be attacked by a capitalist government. Precisely at this point, however, the political balance of forces, determined above all by the response of the working class to the crisis, become paramount. The real question to be answered concerning the global downturn of 1973-75 was not why it occurred, for it was clearly the product of the whole previous period, but on the contrary why it was not worse. The major factors preventing an immediate, definitive collapse of world trade were the following: a) the remaining liquidity of the system, due primarily to the virtual cessation of capital goods investment. For the first time since World War II, liquidity ratios of non-financial corporations in the U.S. (roughly, the ratio of cash on hand to total outstanding debt) actually improved in 1975, as the combination of inflation and the halt of investment allowed firms to retire debt and repair liquidity which had reached historical lows in the previous period. Combined with this phenomenon, and in fact a direct complement of the precipitous drop in fixed capital purchases, was the ability of the state, primarily in the U.S., France, Germany and Japan, to launch reflationary programs without excessive printing of fiat money or bankrupting the private capital markets. b) a geometric expansion of trade between the advanced capitalist sector as a whole and the nations of OPEC (Organization of Petroleum-Exporting Countries) and the Comecon bloc.  The total expansion of these two channels of trade accounted for 10% of U.S. and 8% of EEC exports, as compared with 6 and 7.5% in the 1970-73 period. Inseparable from this shift in trade patterns was the sale of unprecedented amounts of weaponry to both OPEC and non-OPEC nations of the Third World.(1) image012 c) The key to the ãsuccessä of the 1975 reflation, however, lay neither in expanded trade with OPEC and Comecon nor in the slightly improved debt structure of industry. It was rather in the combined, unprecedented rollback of working-class living standards and actual social reproduction, represented in the serious reduction of the wage bill made possible through mass unemployment, speed-up and rationalization of the employed workforce, and the intensified looting of existing capital plant which is the underside of the cessation of capital investment. d) Intensified looting of the non-OPEC Third World. The fourfold rise in the price of oil in Fall 1973 destroyed the fragile economic positions of those Third World countries which had no similar commodity exports to cover the additional costs. This situation was compensated to some extent by the rise in the rise in the price of all raw materials through the 1973-74 period but, beginning with the collapse of industrial output in the advanced sector and the subsequent fall in the demand for raw materials, the prices of many of these commodities went through the bottom. The result was to place the countries of the ãFourth Worldä in a position of tremendous deficit, a deficit which could be covered only by the large infusion of credit from banks in the U.S. and Western Europe which feared an outright default on their previous loans to these countries. image014 The inability of many countries to finance adequate imports of food in the wake of the oil price hike pushed them to the brink, and mass starvation was set in motion or intensified in the Upper Volta, Ethiopia, Bangladesh, India and Indonesia, and millions more people pushed below minimal nutritional levels throughout the Third World. The extent of this misery, which appears in the capitalist press primarily in speculations about the ãability to payä of various countries applying for food relief, is an additional ãnon-quantitativeä aspect  of the crisis which in fact props up the continuing solvency of the system on a world scale.  The shantytowns of Dacca, Djakarta or Lima appear,in the abstractions of the valorization process,as shaky balance sheets in various suites of the City of London and lower Manhattan. e) Petro-dollar recycling and OPEC investment in the advanced sector. In the 1973-74 period, the specter of international monetary chaos and unbearable strains on the international banking system was raised by the proliferation of overnight deposits of billions of ãPetrodollars in the banks of New York, London, and Frankfurt. With the acquisition of large minority shares in major corporations of the advanced sector by Iran (Krupp Steel, 1974), Kuwait (Mercedes Benz, 1975) and most recently by Libya (FIAT, December 1976), the OPEC strategy shifted to a long-term investment in stability in the advanced capitalist sector. What has emerged in the 1974-76 period is a tendency by OPEC nations, and most importantly by Saudi Arabia, away from overnight deposits in Euro-bank accounts to long-term investment in Western production. In 1974, combined OPEC bank deposits and money market placements were $39.8 billion, compared to $17.1 billion in long-term investments; in 1975, with the contraction of world oil consumption and the intensification of domestic investment (e.g. Iran), this proportion was reduced to $13.2 and $18.9 billion respectively, showing both a serious reduction in surplus and a reversal of emphasis. OPECâs windfall increase in oil receipts in 1974, while solving the problem which the initial price increase had posed, namely the depreciation of revenues through U.S. inflation, was merely reposed on a higher level for the biggest oil producers (Iran, Saudi Arabia) when the question of the placement of funds had to be confronted. The increasing tendency to invest in ongoing production indicates a desire, particularly by the Saudis, to preserve the value of their assets by bolstering the Western economies, whose collapse would render the value of their 24-hour bank deposits immediately worthless. (2) image016 1-Advanced sector sales of arms to nations of the Middle East were $h.l billion and $3.0 billion in 1973 and l97~ respectively, compared to $285 million in 1965. Arms sales to Latin America were $~76 and $~o8 million for the same period. ÎSince October, 1973, Western European nations in particular have been scrambling for~ arms deals with OPEC countries to assure their oil supplies. As part of its general commitment to Third World development, France recently sold $1.2 billion in Mirage bombers to Egypt, and  secured other contracts from the Arab Organization for Industrialization (AOI), a state arms corporation backed by Egypt, Saudi Arabia, the UAE and Qatar. (Financial Times, 1/12/77) 2- The Saudi Arabian oil minister Yemani, in a January interview with the German news weekly Der Snegel, made this explicit, pointing out the Saudisâ desire to maintain conservative governments in power in Western Europe and raising the specter of a renewed oil boycott if there were any leftward lurch in the politics of any Western European country.

VII. Working-Class Counter-Attack: Futility of Traditional “Militant” Resistance

In no important capitalist country, since the intensification of the crisis in the post-1973 period, has the working class succeeded in rolling back capitalist austerity. Only in Britain, before the Labour Party could be rushed in to fill the breach, did the minersâ strikes of 1972 and 1974 temporarily  paralyze government plans for a stabilization based on wage-gouging. Since the advent of the Labour Government in February, 1974, however, to achieve precisely such a stabilization (and, needless to say, ãcriticallyä supported by the virtual entirety of the British left) the British trade union bureaucracies have mobilized their membership for ãsocial contractä  wage cuts, and the government budget cuts carried out under the surveillance of the International Monetary Fund only confirm that such periods of ãequal sacrificeä are in fact a bottomless downward spiral of working-class living standards. The events in Argentina in the 1975-76 period, however specific the local perameters of the crisis appear, are in fact a paradigm for what successive nations of the advanced sector, with Britain and Italy now at the forefront of attention, will undergo in the next few years. It hardly matters that these countriesâ international credit can be propped up for a period through credit transfusions on a scale unavailable to Argentina; that is merely a question of scale, and of the international political calculations of the consequences of a collapse in such a country. Because of the political stalemate in Argentina over the 1973-75 period between the left and right wings of the corporatist movement led by the Bonapartist demagogue Juan Peron over the best method for imposing austerity on the Argentine working class, and the subsequent inability of Peronism to hold the labor movement in check, the Argentine economy in mid-summer 1975 presented some relatively simple coefficients of a universal nature: chronic balance-of-payments deficits, runaway inflation on the order of 75-100% per year, a deteriorating currency, $10 billion in external debts, and an organized labor movement that was attempting, not without short-term success, to keep up with inflation. The restoration of Argentinaâs international credit and currency, in such a situation, could be reduced to a very simple exigency, yet one which would kick out the last props from the Peronist ãexperimentä of the previous period: i.e smash the labor movement. To the severe austerity program announced by Isabel Peronâ s government in July, 1975, the Argentine working class responded in August with a general strike that won across-the-board 50-100% wage increases. By the end of 1975, because the labor movement in no way presented a real alternative to capitalist rule, inflation had reached 200-300% levels, a massive capital flight was on, and the military coup of March, 1976, was virtually a foregone conclusion. That, without much essential variation, is the paradigm for the capitalist world as a whole in the relatively near future.(1) While not characterized by the same dimension of ãLatin Americanä inflation, the situations today in Italy and in Great Britain do not differ qualitatively from that which resulted in the Argentine debacle. With greater recourse to international reserves, with a certain greater latitude for institutionalized austerity, Britain and Italy nonetheless present similar scenarios: inflation on the order of 25% per year, deteriorating currencies and terms of trade, external debts of $45 and $19 billion respectively, etc. The inert strength of the organized labor movements in these countries From this vantage point, then, it is clear that traditional notions of working-class  ãmilitancyä must be completely discarded under depression conditions. For the Argentine, Italian and British situations are each in their own way perfect illustrations  of the limits  of mere ãmilitancyä, whether expressed in the wildcat strikes, the factory or housing occupations, the resistance to service cutbacks or the general wage increases (won by unionized labor)in the 1968-77 period, or expressed in the general strike debacles of 1919-20 (Italy) or 1926 (Britain) respectively. If the working class, at a certain point in the crisis when the capitalist class cannot concede anything more, is not prepared to go beyond mere protest, however vehement, at its deteriorating conditions, the result will always be what happened in Chile in 1973 or in Argentina in 1976. At a certain stage in its development, the ãeconomicä  crisis becomes a pre-eminently political crisis, reduced in its essence to the rather unequivocal question of who cohtrols the state, and the working class movement which is not prepared at that moment to call the bluff of the capitalist class, and take over, is finished. From this vantage point, one can appropriately judge the mindless behavior of various ãleftistä groups in Britain and Italy, of which the various British Trotskyist groups are the best example, who at  this late date continue to merely tail the various ãmilitantä expressions of the British working class, when they do not actually fall in behind Labour Government calls for import controls to save jobs, and without for a moment calling for a clean break with the British Labour Party and the corporatist austerity economy it is in the process of implementing, an austerity whose success is due in part to the alibis furnished by various left-wing militant groups for whom ãpolitics  consists of maneuvering around this or that grouping of Left Labourites. In the 1968-76 period, one working class after another entered the scene in the advanced capitalist sector in a fashion unprecedented in the postwar period. In Britain, it must be said in all fairness, the struggle on the shop floor was a relentless one extending over two decades. But with France in May-June 1968, and with Italy in Fall 1969, the U.S. strike wave of 1970-71 and the British labor actions of 1971-72, the end of the postwar era was announced just as clearly in the social activity of the working class as it had been in the international monetary crises; more precisely, the working-class revolt made manifest the true social nature of such monetary  crises. This period of renewed working-class militancy, however, was seriously modified in the 1973-76 period, and its focus altered significantly. Whereas the 1968-73 class struggles were characterized by disputes over management prerogatives on the shop floor and working conditions as much as by struggles over direct wages, the specter of global depression began in late 1973 to force these struggles, no less militant in countries like Britain or Italy, (and more recently, in Portugal and Spain) onto the terrain of wages and job security. The capitalist response to the crisis, in countries where political conditions permitted it, was to use the crisis for extensive rationalization; hence, in the West German ãrecoveryä, the economy almost reached pre-recession levels of output by early 1976 without significantly reducing unemployment. Similar measures were implemented in France and in Japan, and hence in countries where unemployment had never surpassed l% during the postwar period, a permanent rate of at least 5% became the immediate solution to the previous ãredundanciesä accumulated in previous times. For the working class, there is no way out of this vicious circle of deterioration. The mere threat of a British seamensâ strike in October, 1976, was sufficient to drive down the pound another five cents in the international money market; similarly, the disbursing of the IMFâs emergency $3.9 billion loan to Britain will undoubtedly be ãreviewedä if any sector of the British labor movement crosses the line of ãequal sacrificeä and the social contractä, as appears increasingly likely to occur in 1977. At the point where the combined forces of a $45 billion external debt, chronic trade deficits and a worthless currency permit no more space for negotiation, there is no  ãtransitional struggleä possible for the working-class movement. The British capitalist economy henceforth stands or falls on nothing other than the good graces of the public and private agencies of international finance. In such a context, the traditional militancy of the British rank-and-file labor movement is living,literally, on borrowed time. The ãleftistsä who glorify the perennial paralysis of British Leyland by wildcats or the fiascos of various ãworker controlledä bankruptcy boondoggles (e.g. Triumph Motorcycle Works) are doing nothing but underwriting an aimless militancy completely inadequate to the dimensions of the crisis. The combativity expressed in such local situations must be transformed into a much more comprehensive attack on the entire social system, or it can only nourish÷temporarily÷the worst kind of illusions. In Italy, the situation is no different. The pathetic attempt of the Italian Communist Party (PCI) to co-manage austerity with the Andreotti government will fail at the first revolt of the working class against that austerity, and already the strikes of November 1976 do not augur well for Berlinguer, his friends, and their ministerial appetites.  As in Britain, the so-called ãextreme-leftä in Italy contents itself for the most part with being the loyal opposition of the loyal opposition: whispering in the ear of the Tribune Group of the BLP, tailing the dispersed rank-and-file militancy of the PCI base in Italy. If ãsocialism in one countryä was an absurdity fifty years ago, it is all the more so today.  If the working-class movements of Britain and Italy break from their respective austerity regimes, they can only move to a direct seizure of power in which they will have to confront the combined forces of all major capitalist powers with a perspective for global revolution, or disappear. The first steps of a workersâ government in power in an advanced industrial country such as Britain or Italy must necessarily aim at taking the lead in destroying the U.S.-dominated world system of trade. The repudiation of the external indebtedness of such a country would of course by itself destroy the Euro-dollar and U.S. capital markets, and would come as a powerful impetus to the the various Third World countries, with at least $150 billion in foreign debt (much of it short-term) to follow its lead. (We do not for a moment suppose that the advanced capitalist sector as a whole would be standing immobile throughout such a development, but it is nonetheless necessary to sketch the broad outlines of the necessary policy measures to be taken.) The tasks of the workersâ government in question would then be, in addition to the obvious export of revolution throughout the advanced capitalist sector, the re-constitution of world production on the basis of a transitional triangle of trade between itself and any other advanced sector countries which, for whatever reasons, would join it, the Comecon bloc and the viable Third World countries. Through such a strategy, the workersâ government in question could offset to some extent the measures of retribution organized by the U.S. and its remaining allies, and could immediately challenge the U.S. for world leadership on that basis. Unlike the early history of the Soviet Union, isolated in trade by capitalist blockade and for the most part boycotted politically until the Popular Front era made it fashionable, the first workersâ government in the advanced capitalist sector will have a potentially powerful bloc of Third World and Comecon trading partners to turn to, who for their own reasons (however alien to socialist revolution) will have an interest in escaping from the direct stranglehold of the dollar-based world economy. Hence, despite the uneven tempo of crisis and class struggle in the various advanced capitalist countries, a revolutionary perspective in any single country must of necessity understand itself in a global strategy for expanded world trade and must orient itself, in day-to-day struggle, around such a program. The working class of each country (e.g Argentina, Portugal) has shown, if only by default, that the absence of a global strategy operates as an immediate political factor in any given national sector. In the 1974-75 upsurge in Portugal, the working class knew that it could not hope to hold power in that country by itself; hence its awareness of the international situation operated directly in the unfolding of events in Portugal. Even more than in the revolutionary cycle of 1917-23, the capitalist system is today a deeply interdependent whole, and is organized as such, and the merely national framework, already inadequate then, is paralyzing today. 1-The junta of General Videla which seized power on 24 March 1976, presenting itself as the ãcivilizedä alternative to the Pinochet regime in Chile in matters of repression and the restoration of order, has conducted a repression which in many ways pales the Chilean experience. After forcing the organized labor movement underground, and unleashing para-military death squads against the remnants of the underground Ejercito Revolucionano Popular (ERP), the Videla regime then turned its attention to even liberal and relatively apolitical elements of the Argentine intelligentsia and technical elite. Not content to ban the works of Marx and Freud, the junta outlawed all scientific works  using the words ãmatterä, ãmaterialä etc. (Nouvel Observateur, 2/28-3/6/77) It has further arrested scores of scientists, technicians and psychiatrists. The regime thus far has failed, however, to contain the working class itself, which after the miserable capitulation of the Peronist trade unions through 1973-75, has conducted exemplary and often highly effective resistance to the military. Slowdowns, wildcats, and periodic shutdowns of public utilities have thus far prevented the regime from imposing its full ãBrazilianizationä program on the working class. (Le Monde Dip1omatigue, January 1977). Just as the 1928 collapse of the Chilean economy announced the world depression of 1929, the barbarization of Brazil, Uruguay, Chile and Argentina (the last three since 1973 alone) holds up at the extremities of the system the retrogressionism which is now stalking the center, with Italy and Spain the obvious immediate targets for tactics perfected in Rio de Janeiro and in Buenos Aires. VIII. The Capitalist Strategy: Managed Depression, Fascism, World War The global capitalist system, as we have described it above, has been trapped in a downward spiral of contracted production, interspersed with inflation-fed upturns of no long-term significance, since 1969-71, and the mechanisms with which it has confronted the crisis have developed over ~ore than six decades of the decadence of the system. The  capitalist states of the advanced sector, headed by the U.S., West Germany and Japan, must attempt to organize a contraction of production, managing the increasingly uncontrolled proliferation of domestic and international debt, between the poles of inflationary expansion and deflationary contraction described above.  While the primitive accumulation of Third World resources internationally and the slashing of the workIng classâ real income domestically are being adequately policed, the U.S.-dominated world system must nonetheless maintain its military capabilities for an eventual armed confrontation with the Eastern bloc, or portions thereof. There is simply nowhere else for the system to expand. Thus the U.S. and allied powers can be expected in the immediate future to proceed with the conversion of their economies from the military-welfare state as developed in the U.S. in the 1933-73 period, to a purer form of militarized economy without welfare. The sole basis upon which a militarized economy can be organized will be through the renewed expansion of state credit, first of all to pay for the military budget itself, but also to mobilize the necessary resources and civilian labor required. This will occur after the bankruptcy rate has simply wiped out the indebtedness of the weaker sections of capital, as in the 1929-33 period in Germany. If, as is already the case in the advanced sector, the solvency of the state itself is problematic, it will have to resort to forms of credit such as the infamous ãMefo-billä used by the Nazi regime to finance armaments production between 1933-38.(1) The Special Drawing Right, or ãpaper goldä, issued by the International Monetary Fund is the most advanced form of such a device to date, and is a centerpiece of the international economic strategy of the U.S.-dominated IMF. Through a controlled expansion of capitalist paper based on a contraction of real production, with a complete cessation of productive investment and plant maintenance coupled with speedup and wage cuts, the international capitalist class may for a time preserve profit margins and other paper indicators of expansion.(2) Nonetheless, just as in the Schachtian ãeconomic miracleä of 1933-36, such an organization of the economy, with deeply depressed actual production, can only be hyper-inflationary. At some point, the proliferation of paper described in Section II will require conversion into actual wealth, or else a collapse, either through hyper-inflation followed by precipitous deflation, or simply through direct deflation, will be inevitable. Hence the conversion into fixed assets, through forcible expansion, will be the only way forward. Whatever mixture of state credit expansion, war production, intensification of primitive accumulation and contraction of real production the global system ultimately attempts, the future of the working population in such a system can only be an ongoing process of deterioration. ãReformismä in such a context is not only impossible; in the mobilization of the working classâs will to resist in hopeless local militancy, it can only be profoundly demoralizing and reactionary. 1-Mefo-bills, named for the semi-private Metallforschungsgesellschaft m.b.H., founded by the Reichsbank and four armaments producers in 1933, used a capital base of BM 100,000 to issue RM 12 billion in credit, a leverage of 1200:1. This method of credit expansion had a certain inflationary impact on the German economy. 2-Even factions of the U.S. business community have been taken aback by Carterâs lack of interest in promoting investment; Business Week (1/31/77), for example, in an article entitled ãCarterâs push for labor-intensive growthä, reports that ã(Carterâs) deep-seated pessimism over the ability of government to stimulate investment would seem to dictate a policy of attempting to reduce the cost of using labor rather than of capital.ä  Business Week has briefly stated the essence of capitalist strategy in this period.

IX. How the Working Class Must Respond to the Crisis

In a  situation in which the reformist militancy of the pre-19â73 period no longer works, the American working class has suffered an almost uninterrupted series of defeats over the past three years. The U.S. is in fact the sole major capitalist countrv in which the wages of the employed sector of the workforce  ( as a whole )  did not keep up  with inflation in the l973-75 period, and where working-class living standards have been either stagnant or declining since roughly 1965. Of the major industrial strikes in the past three years, only the Spring 1976 Teamstersâ strike and the bitter strike of the United Rubber Workersâ in Summer 1976 can be said to have reversed in any way the tendency toward austerity. In the next wave of layoffs from an impending downturn of production, however, these gains will be revealed as nothing but illusory. At the other end of the spectrum, the rout of public employees from New York to San Francisco has been total, to say nothing of the precipitous decline of the purchasing power of the unorganized work force, the unemployed, welfare and other fixed-income populations. In the transformation of the military-welfare economy into a war economy without phrases, it is the existence, not the rate of payment, of the public service sector that is the issue, as the ãsolutionä to the New York fiscal crisis revealed so plainly. This general pattern of the bare maintenance of the income level of the unionized-workforce combined with the general decline of the other strata of the working population (along with various petty bourgeois and middle strata) has prevailed for the most part throughout the advanced capitalist sector in 1973-76. In the next downturn of production, however, all sectors of the workforce are going to confront public and private employers on the verge of bankruptcy whose room for maneuver will be zero. At that point, the impossibility of mere trade union forms of resistance, already patent in the 1973-76 period, will reveal the inability of isolated trade unions to prevent even serious wage cuts. The task of revolutionary socialists in such a situation is therefore, as in all periods, to achieve the unity of the class as a whole. However, the possibility of such unity as a programmatic necessity becomes much more tangible in a period of general contraction. The only alternative to a class-wide response are passive acceptance of wage gouging or a militancy without perspectives which can lead only to disaster in the relatively short term. The key to the kind of intervention necessary is revolutionary program. Such a program, in effect, can be nothing else than a comprehensive statement of the necessary first acts of a workersâ government in power. What must be made clear is the necessity of the working class to prepare itself to manage society and production. This cannot be achieved through nice phrases about ãworking-class control of productionä, but must be given as much concrete content, in terms of actual productive necessities, as possible in the period prior to the seizure of power. The actual content of a true workersâ democracy is precisely the creation of an advanced stratum of workers who, in collaboration with a revolutionary intelligentsia, know what to do with the productive apparatus once it has been wrenched from the capitalist class. Further, in keeping with the international perspective outlined above, the concrete discussion of socialist production can become a tangible force directly in the ongoing parochial struggles which will necessarily persist until a qualitative rupture in the class occurs. With bankruptcy increasingly threatening the entire system, any advance of the working class must necessarily address itself to the crisis in its entirety. The New York City fiscal crisis is an excellent illustration of this problem. Either the city was to repudiate or reschedule its massive debts, or suffer an immediate precipitous drop in its social services and living standard. The slightest self-defense of the municipal employees and the general population had of necessity to call into question the repayment of these debts, whose repudiation would have brought down the entire U.S. credit system just as effectively as  a similar step by a Third World country (and the debt of New York City is bigger than that of most Third World countries). Unlike in periods of expansion, where the ultimate balance of forces are less clearly defined, in a crisis of contracted reproduction the obvious next step of any specific sector of the labor movement requires a struggle at the level of the totality. Mere repudiation of the cityâs debts by a general strike would have only forced the question at a higher level: the source of future financing. Here, the question of the creation of an alternative international source of credit becomes an immediate practical issue. The municipal workers of New York were confronting, and continue to confront, nothing other than the institutional concentration of the global system. To merely pose the question of day-to-day struggle in these terms is to qualitatively alter the entire framework in which the organized labor movement and other strata of workers understand their situation, and necessarily forces the working class to begin to take responsibility for global production, which is the only meaning socialist revolution can have. image018 But agitation and propaganda about the nature of the crisis and the global nature of the immediate steps necessary to remedy it are meaningless without political organization. The major organizational expression of this kind of intervention must be a classwide body consisting of employed and unemployed workers together with the welfare population and pro-working class allies (technicians, intellectuals, students). Organizing efforts such as the Unemployed Councils created by the American Workersâ Party in Toledo, Ohio, in 1933-34, which played an enormous role in the famous Auto-Lite strike by mobilizing thousands of unemployed workers to transform the losing strike of a small, beleaguered U.A.W. local, or certain organizing drives of the I.W.W. in an earlier periods, are the better-known approximations  of our own strategic conception. While the actual form of the intervention of such an organization will be determined by the ebbs and flows of the immediate tactical situation, the center of its activity must clearly focus around strike support and the attempt to transform losing, defensive struggles of isolated sectors of the workforce into offensive struggles for expanded reproduction. (It is of course only around such a program that other strata of the working class can be mobilized to support such struggles.) The mass strike process which will announce the reversal of the current rout of the labor movement, together with the expanding intervention of the classwide organization of the most advanced workers, is the ãschoolä in which the programmatic necessities of a working-class takeover of production as a whole are proliferated and assimilated by growing numbers of workers. Out of the class-wide institutions in turn evolves a political vanguard of workers, intellectuals, technicians and other social strata which function Îas the general staffä of the movement. What is indispensable, whatever the ultimate form of the crisis in which the working class actually comes to power, is the creation of the broadest possible strata of workers who are competent in the question of program, and beyond those strata, the recognition in the larger layers of the population that such a program and such strata exist as the sole alternative to further deterioration under capitalist rule.