ON August 15 1971, the then president of the United States, Richard Nixon ended the gold backing for the US dollar, which up till then was being treated as being as good as gold.
Between the Bretton Woods Conference of 1944 and August 15 1971 the dollar was exchangeable for gold at a rate of $35 an ounce, the $35 being calculated as the cost of mining and refining that quantity of gold. The price of gold was thus directly related to the quantity of labour needed to produce it.
It was on this basis that the postwar reconstruction, after the massive destruction of the productive forces during the Second World War, began and continued up to 1971.
During that period, any Central Bank could return its dollar holding to the Federal Reserve Bank of the US and get an ounce of gold for every $35 it returned.
The system was undone by the need of the US ruling class to print huge quantities of paper dollars to finance the Korean and Vietnam wars, which culminated in a run on the dollar. This was because the situation had been reached, where if the major banks returned their huge dollar holdings to the US they could not be paid in gold, and the US would be bankrupted.
The removal of the gold backing for the dollar ushered in the period of floating currencies, and with it a massive inflation.
The price of oil and many basic commodities trebled in the wake of the 1973 Yom Kippur war, when Israel was forced out of the Sinai peninsula by a surprise Egyptian counter-attack, and then capitalism broke at its weakest link, when the Heath government in the UK was forced to decree a three-day week, instituting a massive fall in production.
Now in the wake of the defeat of Anglo-US imperialism in the Iraq war, we have witnessed another colossal inflationary surge, with gold now breaking through the $1,000 an ounce barrier, oil reaching $107 dollars a barrel, and the prices of basic food stuffs wheat, rice, etc breaking records on a daily basis.
The war whose strategic aim was to gain the ownership of Iraq’s oil and gas resources so as to lower the price of oil to $10 a barrel, has achieved the exact opposite, a roaring inflation in all basic commodity prices, and the exposure of the qualitative indebtedness of the banks, who believed that credit could be expanded indefinitely, and that their integrity would never be tested.
Well now it is not only being tested, it has been proven that the emperor has no clothes, and the entire banking system is trembling.
All those, like Gordon Brown who believed that gold had no value, that it was just a symbol, are paying for their ignorance which saw them selling off half of the UK’s gold reserves for a pittance.
For now, all those who are holding paper promises to pay are thirsting after cash, while growing numbers are seeking to turn their dollar and pound sterling notes into gold, recognising it as the only money.
The desperate antics of the central banks who have put $200 billion at the disposal of the international banks, and have accepted the banks discredited mortgage holdings as collateral, only serves to accentuate the crisis as the law of value makes itself felt with massive force.
All of the fruits of the abandonment of the Bretton Woods Agreement are now coming home with a rush.
There is only one way that value can be put back into the capitalist system, and that is through a massive destruction of the productive forces through a savage destruction of the Welfare State, slump and new wars.
Today’s crisis is qualitatively deeper than the crisis that erupted in the mid-1970s. The working class is the most important part of the productive forces. Its future and the future of humankind can only be secured through the overthrow of the capitalist order with a socialist revolution, and the replacement of the anarchy of capitalist production with a planned socialist economy producing to satisfy people’s needs.
The development of socialist production will see the ending of class society and a continuous lessening of class antagonisms creating the conditions for the withering away of the state. Then, humanity’s pre-history will have ended and its real history will have begun.