----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Thursday, April 24, 2003 12:34 PM
Subject: [A-List] US imperialism: Michael Hudson interview
Thanks to Lou Proyect for bringing
this to light. I've just got hold of a
copy, and plan to get started on it soon. Maybe we could have some kind of
list discussion based around it, if enough people agree to join in.
-----
Duck, Duck, Goose:
Financing the War, Financing the World
By STANDARD SHAEFER
Counterpunch, April 23 2003
(Interview with Michael Hudson, author of Super Imperialism, Pluto Press,
2003)
Now that even the LA Times has begun to show a modicum of willingness to
discuss US foreign policy in terms of a potential imperialism, it has become
clear that those on the right have avoided this debate so far only by
sticking to the strictest, most out-dated notion of empire. The left,
however, for too long has been satisfied with talking about cultural
imperialism and corporate exploitation, both of which are serious problems.
Recently, however, the left has often clumsily explained the economic
motives for the war in terms of big oil, sheer greed and more ephemerally as
a desire to weaken the euro. This is all likely, but it also reveals the
degree to which the left's understanding of finance is outdated. This is not
their fault, however. Not only do university economics departments remain
dominated by the ersatz laissez faire notions of the Chicago School, but so
are US Government, the World Bank, the IMF, the WTO and the European central
banks. The result has been the censorship of those few economists willing to
point out that the US is very much the center of imperialism, unwilling to
engage in the "free trade" or laissez faire that it promotes abroad.
Only recently, when World Bank head and Nobel Prize winner Joseph Stiglitz
resigned in order to speak out against the sister institution of the IMF did
this get serious attention. But Stiglitz remains defensive of the World Bank
itself and continues to believe its goals despite no evidence that anything
good has come from it, overlooking its complicity in promoting structural
adjustments that have proved ecologically destructive and
<http://www.counterpunch.org/SUPERIMPERIAL.jpg>
entirely in the American
financial interests. The real expose was published over thirty years earlier
despite an active campaign to keep the story out of the press, out of the
university and out of the government.
Shortly after the US was forced off the gold standard, a young economist by
the name of Michael Hudson received a grant to study the effect of the
demonetarization of gold. His report was made not only to the US government,
but also to Wall Street firms such as his former employers, the Chase
Manhattan Bank and Arthur Andersen. The problem was that despite his
phrasing the situation in the most critical terms, his report revealed that
the US was on inadvertently on the verge of the greatest boondoggle of all
times.
Hudson himself describes resistance to his message in a new preface to the
recently reprinted ground-breaking book Super Imperialism: The Origin and
Fundamentals of US World Dominance. Hudson's is an infuriating story, only
partially available in this volume, involving at least two incidents where
university board members and economic professors threatened to resign if his
books on trade policy were published. The US Treasury Department even went
so far as to alter the way it reports statistic on the balance of payments
impact of the u.s. government to prevent further study into how the US
government actually made money on its "aid" programs. More important, prof.
Hudson explains how the US managed to use its debtor status to exploit the
world.
By going off the gold standard at precise moment that it did, the United
States obliged the world's central banks to finance the U.S.
balance-of-payments deficit by using their surplus dollars to buy U.S.
Treasury bonds, whose volume quickly exceeded America's ability or intention
to pay. All the dollars that end up in European, Asian, and Eastern central
banks as result of American's excessive import-imbalance, have no place to
go but the U.S. Treasury. Because of the restrictions placed on the central
banks_ there is no place else for this money to go_these countries were
forced to buy US treasuries or else accept the worthlessness of the dollars
received through trade.
Like most people, I understood economic imperialism as an open game. Any
corporation could invest in another country and extract profits, but
apparently this is only one level. 'Super' imperialism occurs and can only
occur between the U. S. government and the foreign central banks. To
understand this further, I decided to speak to Michael Hudson directly.
Standard Schaefer: How aware was the Nixon administration of the balance of
payments issue? Did they realize that it would actually increase US economic
dominance?
Michael Hudson: The Nixon people didn't realize. I got an $80,000 grant from
the Hudson Institute to explain it to them. The Nixon people said, "Oh gee.
That's great". Then they turned my analysis of imperialism into a "How To"
book. I had written it as a "How Not To" book, but the nation doing the
exploitation was more interested in learning how the system worked than were
the countries being exploited. I started to consult for Canada, Mexico and
other countries. Canada had been accommodating toward the World Bank and
IMF, but when they realized the extent to which these organizations were
rigged to further the balance of payments problem, they felt exploited.
SS: Do you believe the neo-conservatives advising Bush at the moment are
more aware of "benefits" of this balance of payments issue, what you call
the US treasury standard?
MH: They know it's a rip off, yes. And they absolutely want it to continue.
Being Chicago School monetarists, they think that America's financial free
ride should be built into the world economy as if it were perfectly natural
for the rest of the world to adjust its economies to help the U.S. economy.
But among sovereign regional blocs this kind of subservience can only be
transitory.
SS: What is the role of militarism at this stage? Can perpetual war be seen
as a sort of imperial Works Progress Administration that jumpstarts the
domestic economy? At what point does the cycle collapse and can it do so
internally_or as you've suggested, does it only stop when Asia, Europe, and
the East finally refuse to buy US treasuries?
MH: The US Treasury-bill standard finances the military, but doesn't need
imperial war to succeed. So far it's being accepted voluntarily, as other
countries have not yet figured out how to extricate themselves from a system
that is bleeding them more and more.
To date they haven't tried very hard to create an alternative, but now the
system could backfire, as Bush's aggressive diplomacy is prompting Europe,
Russia and China to stand up for their own self-interest. And that's what
they need to do. They didn't stand up for their self-interest when the World
Bank and IMF were formed, but now they have to do so.
People are now beginning to raise the question of whether countries really
need their central banks, which are essentially lobbyists for the Washington
Consensus, as are the World Bank and the IMF. They follow the Chicago School
in lobbying for high rates and a large cushion of unemployed so as to
maximize financial power relative to labor and the products it produces.
Financial exploitation now exceeds the old-fashioned exploitation of labor
by actually employing it, albeit for low wages.
Central banks are staffed by Chicago School monetarists, and are allowed to
take only a 3% deficit whereas in the US it is limitless. Europe and Asia
should abandon the false start with their central banks and should rely on
their Treasuries, which are Keynesian or could be Keynesian. The national
Treasuries should set up a credit system with bonds and IOUs based on euros
and other currencies.
SS: Okay, but isn't it most likely that the whole thing ends in a crisis,
one more devastating to the US than the "Asian Flu"? What would this crisis
look like?
MH: There will be a crisis when Europe, Asia and Latin America finally break
away. The U.S. has said it can't pay back its dollar debts and doesn't
intend to. As an alternative, it has proposed "funding the US dollar
overhang" into the world monetary system. Other countries would get IMF
credit equal to their dollar holdings, but these holdings no longer would be
US Treasury obligations. The US would wipe its debt to foreign central banks
off the hook. This would mean that it would have got all the
balance-of-payments deficits for the past 32 years for free, with no quid
pro quo.
The US has been proposing this for 30 years whenever Europe raises the issue
of payment for its dollar holdings. American diplomats have said that they
won't allow central banks to use their dollars to buy US corporations, for
instance. When OPEC countries proposed this after 1973, the US Treasury
reportedly informed them that this would be considered an act of war. As for
Europe, it never has pushed its own self-interest in the World Bank or the
IMF.
SS: How does is this related to the economic bubble?
MH: Since Europe and Asia have financed most of the US Treasury's budget
deficits in recent decades, Americans haven't had to do this. As a result,
their bond market has been freed from government bond issues, so US
investors have been able to put their money into the stock market and real
estate, for better or worse. As these markets rose during the 1980s and
'90s, they attracted foreign private-sector dollars into the US market. This
helped finance the bubble.
Meanwhile, America's federal budget deficits can go on without limit,
precisely because of the balance of payment deficit. The larger the payments
deficit, the more dollars end up in the hands of foreign central banks, to
be recycled into the purchase of US Treasury securities. This means that the
US government's deficit - including the military spending in Iraq, by the
way - is financed by foreign governments. This will continue despite the
fact the debt already has grown greater than the ability to pay, until these
countries finally break away from the system.
As for the bubble economy, pensions and Social Security will go first. The
US can't afford to bail them out and still plan the giveaways to the
wealthiest 10 percent of the population who are the net creditors to the
bottom 90 percent. Pension obligations were expected to absorb only 5 or 10
percent of production costs, but now they are absorbing nearly all the
reported profits, and threaten to eat into the money available to repay the
banks and bondholders. The big investors want to be paid, and this means
taking money that was earmarked for employees.
The only question is whether the US government will bail out the individual
wealthy investors. The working motto in such cases is that big fish always
eat little fish. Breughel had a great etching on this topic.
The states and the municipalities will go next. They are among the little
fish. Bush's tax cuts have slashed their tax receipts. Cutting taxes for New
York City and most other localities is causing layoffs and widening
unemployment, just the opposite from what Bush's economists claim to be the
case. Today's mode of supply side economics will lead to shrinking markets,
shrinking employment and intensify the financial squeeze on California and
other states, as well as cities throughout the country.
SS: Are there people in Washington who recognize this inter-relation?
MH: There are people in Washington that see this. But they tend not to speak
up, because most economists or others who see what's happening - and write
about it or otherwise draw attention to it - are fired or blacklisted for
not being team players. There's a kind of censorship that happens if you're
not a Chicago monetarist. When the University of Toronto accepted one my
books for publication and the economics department there heard about it,
there were threats that faculty members would resign if they published my
book and that the editor of the University of Toronto press would be fired
if he went ahead with it.
SS: You're kidding.
MH: No. The Chicago School's monetarists are intolerant and censorial. About
the only alternative is the University of Missouri at Kansas City which has
a heterodox economics department that teaches an alternative to monetarism.
That's where I have my current professorship.
SS: They're not Marxists?
MH: Marxists are not so much concerned with finance these days. You have to
work for some of the large financial institutions to get a working knowledge
of the balance of payments deficit and the flow of funds. Their principles
are counter-intuitive. Even when one reads and understands the words that
describe them, it's necessary to wire up the brain to think in terms of how
international financial markets actually operate.
The recent investigations and prosecutions of New York Attorney General
Eliot Spitzer have shown that the largest financial institutions have
operated much like criminal enterprises, from Citibank/Travellers and
Merrill-Lynch on down. They've come under indictment, but when the problem
is so widespread they've decided that the only reasonable response is to
begin enforcing a new set of rules, and let bygones be bygones. The bygones
in this case have netted them billions of dollars, which they will be
allowed to keep. The small investors who've been cheated will not get much
after attorney's fees are paid.
All this seems to be the result of repealing the Glass-Steagall Act. It was
forecast to occur just in the way it has, but the political campaign
contributions by the large financial institutions won the day, backed up by
the Junk Economics being turned out by the Chicago Boys.
The reason why Harvey Pitt was forced out as the head of the <S.E.C>. was
that his inaction led to the state prosecutors as the only people willing to
take the lead in dealing with insider dealing, fixed markets, crony
capitalism and similar corruption. The best writer to expose this type of
operation is Tom Naylor, who wrote Wages of Crime and Hot Money.
But reformers are up against Chicago School economists who have been
endorsed because their anti-government theories are so self-serving to
economic groups that don't want to be regulated at all. The important thing
is that "free enterprise" has only been able to be imposed at gunpoint. In
fact, as Milton Friedman himself observed, only a socialist government can
impose his kind of economics, without sunk costs, with "pure" markets. To
work properly, everyone who doesn't believe in free enterprise has to be
isolated, which means in practice that free enterprise only works in a
police state.
Take the case of Arnold Harberger, the University of Chicago professor who
was brought down to Chile right after the military junta overthrew its
elected president. The first thing that the Chicago Boys did upon
overthrowing the government was to close every economics department in the
country, except for the Catholic University where the Chicago Boys had a
stranglehold of true believers. In the late 1980s, a decade later when
Harvard brought Harberger over with the thought of installing him as head of
the HIID (Harvard Institute for International Development), the students
rioted, accusing Harberger (who is married to a Chilean) of sitting in his
hotel room with a list of academic economists opposing the Chicago Boys and
their free enterprise evangelism fingering the ones who should be murdered.
Harberger denied that he ever fingered anyone to get killed, but what is
known is that there followed a wave of arrests, killings and disappearances.
The Chicago Boys held up Pinochet's Chile as a model - one to be emulated,
not shunned. Yet their first wave of privatizations collapsed in a wave of
corruption, and their privatization of social security became a new way of
exploiting labor, via forced savings that were channeled into the stock
market. Insiders gained and the middle class, which had been stronger in
Chile than in any other Latin American country, lost out.
The moral is that free enterprise economics only works when you have
authoritarian control to suppress opposition seeking to place economic
relations in a broader social context.
The point I want to make is that the economists who call themselves free
enterprise actually are defenders of the financial industry and the
sacrifice of economies to pay their debts, regardless of how wastefully
these have been entered into. Their idea of the market means that the
"market" should adjust itself to debt claims growing exponentially, in
excess of the economy's ability to pay. The consequence is a transfer of
property. This is how privatization should be seen. To the Chicago Boys, it
is all part of the adjustment process.
SS: Am I correct in thinking that the US Treasury-bill standard you describe
in Super Imperialism and the sequel Global Fracture victimizes the taxpayers
IN the EU, Japan, etc., more than older forms of imperialism? Is what makes
this imperialism "super" the fact that it exploits not just workers in poor
countries, but all workers everywhere?
MH: That's true, but my point is somewhat different. The older theories of
imperialism saw private corporations running the system to profit, so that
profits by global companies were the measure of how much imperialism was
occurring. My point is that the largest form of exploitation, quantitatively
speaking, now occurs among governments. Another word for Super Imperialism
would be Inter-Governmental imperialism. The United States exploits the rest
of the world above all via foreign central banks accumulating dollars.
As for your other points, imperialism always has exploited mainly the rich
countries, for the same reason that Willy Sutton is said to have robbed
banks: That's where the money is. The richest nations are the ones with the
most economic surplus to appropriate. That is done not via the repatriation
of profits, but by the Treasury-bill standard and the free ride that it
gives the United States.
---------------------------------
Michael Hudson is the Distinguished Professor of Economics at the University
of Missouri (Kansas City) and has published widely on U.S. financial
dominance. He also consults with various foreign governments regarding the
need to set up an alternative center of finance to the U.S. Treasury. He
first attracted my attention during the recent war with Iraq when he was on
KPFK in Los Angeles explaining how this system has forced other governments,
in effect, to pay for our wars since Vietnam.
Whether or not there are more U.S. military adventures in the Middle East,
it seems crucial to expose to the world not only the lives lost, not only
the private profits being made, but also how the U.S. Government has managed
to fund these wars at everyone else's expense. At the moment, it seems these
wars only send more dollars abroad_both in IMF, World Bank loans, but also
in U.S. humanitarian "aid" and military personnel expenditures. Thus, the
dollar surplus abroad only creates more demand for U.S. Treasuries and more
foreign dependence on the continuing existence of the U.S. Empire.
----- Original Message -----
From: jenyang
To: a-list@lists.econ.utah.edu
Sent: Monday, June 02, 2003 12:18 PM
Subject: [A-List] Michael Hudson: Super imperialism
At the begining of what I hope will be
an informative and useful
debate on the underpinnings of U.S. hegemony, I'd like to thank Michael
and Sabri for providing the opportunity to be part of this discussion on
the A-List.
In this first post in the discussion of Michael Hudson's `Super
Imperialism: the origins and fundamentals of U.S. global dominance,' I
will try to give a brief synopsis Hudson's thesis, highlighting its
strengths as well as those points where I differ with Hudsons, largely
over matters of emphasis and interpretation.
In the second week, I'd like to begin the more detailed discussion of
the book on a chapter-by-chapter basis, begining with Chapter 1, the
Origins of Intergovernmental Debt, 1917-21.
I look forward to a productive exchange on the A-List over the coming
summer.
J.Enyang
*********
In his preface to the second edition of `Super Imperialism' Michael
Hudson reminds us that the US economy currently faces a growing
balance-of-payments deficit, amounting at the time of writing to some
3-400 billion USD and that the U.S. currency is depreciating
significantly in value, particularly against the Euro. The
U.S. Treasury Secretary at the time Hudson was writing the preface to
his second edition in 2002, far from seeing this ballooning deficit
and falling currency as a problem, declared that he was not concerned
and that the situation `did not not call for any action, least of all
on the part of the US.'
Economists tell us that nations and states which -- in conventional
terms -- live beyond their means by running up unsustainable trade and
fiscal deficits will eventually be forced to `adjust', a process that
involves restricting domestic consumption by raising interest rates,
reducing (non-military) spending and currency devaluations -- the
theory being that these measures allow them to rebuild their economies
and finances on the `secure foundations' of export led growth and
their comparative advantages as opposed to the debt financed growth
and consumption which, as the theorists would have it, led to the
unsustainable deficits in the first place.
While the consequences of adjustment are open to debate, there is
little question that most states in the global system do in fact operate
under the perpetual threat of some degree of externally enforced
adjustment. On the weakest actors in the global system, adjustment
is enforced by some more or less brutal combination of capital flight,
pressure by international creditors, usually through the Bretton Woods
institutions or the governments of the Europe, North America and Japan,
through such bodies as the Paris Club
(
http://www.clubdeparis.org/en/index.php ).
On more powerful states in Asia and for the larger members of the
European Union, pressure to adjust traditionally comes by such means
as `reviews' by credit agencies, whose hallowed decisions, the
credit ratings, are based on supposedly neutral technical criteria.
That the techocrats and institutions responsible for drawing up and
selecting the criteria are usually based in North America and more or
less embedded in its financial structures, is not generally considered
sufficiently important to be remarked upon.
Given the near universal pressure on states to adjust their
domestic economies the demands of international creditors, financial
institutions and speculators, or face capital flight, precipitous
devaluation and financial crises, we might well ask what lies behind
the nonchalance of the US Treasury faced with the its own ballooning
balance-of-payments and fiscal deficits. This question becomes
especially sticky if we consider that the US Treasury and Wall Street
rarely miss an opportunity to impose adjustment, whether through the
Bretton Woods institutions, credit agencies, speculators, political
pressure or some combination of each, on any other state deemed to
have violated the strictures of the Washington Consensus.
Some economists, like Stephen Roach of Morgan Stanley have issued
increasingly dire warnings about the `ever-widening disparities in the
world's external accounts,' stating that the US which `squandering
its already depleted national saving' will not only be `unable to
continue to finance an ever-widening expansion of its military
superiority' but will probably face an adjustment process of sorts
when `prices of dollar-denominated assets compared to those of
non-dollar-denominated assets' fall drastically, as they inevitably
will soon. Roach anticipates `a 20% drop in real exchange rates and
nearly double that in nominal terms, higher real interest rates, reduced
growth in domestic demand, and faster growth overseas.' These
conclusions of Roach are quoted with approval by Immanuel Wallerstein
who uses them to support his thesis that the chronic fiscal and trade
deficits are a sign that US hegemony is in irreversible relative
decline: `the market is not all-powerful, but it is not helpless
either. When the dollar collapses, and it will collapse, everything
will change geopolitically. . . . [America] will be a vastly different
U.S. once the dollar collapses. The U.S. will no longer be able to
live far beyond its means, to consume at the rest of the world's
expense. Americans may begin to feel what countries in the Third World
feel when faced by IMF-imposed structural readjustment - a sharp
downward thrust of their standard of living.'
(http://fbc.binghamton.edu/113en.htm
) Wallerstein adds that the
fiscal recklesness and the `macho militarism' of the present
U.S. administration, far from strengthening the U.S. position, will
further undermine it economically, exacerbating its
balance-of-payments problem and accelerating its as from its position
as the dominant power in the global system.
Michael Hudson's thesis on the other hand is that far from being an an
aberration which might be subject to the normal technical corrective
measures anticipated by writers like Roach and Wallerstein, US trade
and fiscal defits are been built into the very system of international
trade and finance since the late 1960's: `Rather than the American
debtor position being an element of weakness, Americas seeming
weakness has become the foundation of the world's monetary and
financial system' and `to change this system in a way adverse to the
United States would bring down the system's creditors to America,' the
largest of whom are Europe, Japan and China. Against its creditors,
`the US has learned to apply a new, unprecedented form of coercion. It
dared the rest of the world to call its bluff and plunge the
international economy into monetary crisis.'
Since the early 1970's the US debtor strategy of financial domination
has operated according to the following brief sketch: since most
international transactions are denominated in U.S. dollars, the
chronic U.S. trade deficit necessitates a flood of U.S. dollars into
Europe and Asia, the regions with the largest balance-of-payments
surpluses. The central banks in these regions are obliged to purchase
these dollars, as `failure to absorb these dollars would lead the
dollar's value to fall vis-a-vis foreign currencies, as the supply of
dollars greatly exceeded the demand.' The hands of the European and
Asian central banks ar forced by the fact that `a depreciating dollar
would have provided U.S. exporters with a competive devaluation, and
and also would have reduced the domestic currency value of foreign
dollar holdings.' The foreign hoards of U.S. dollars are then recycled
by the respective central banks who invest them in U.S. treasury
securities, thereby `financing simultaneously the U.S. balance of
payments deficit and the domestic federal budget deficit.'
Thus, where nations had historically been obliged `to raise interest
rates to attract foreign capital to finance their deficits, in
America's case it was the balance-of-payments deficit that supplied
the `foreign' capital, as foreign central banks recycled their dollar
outflows -- that is, their own dollar inflows -- into U.S. treasury
securities.' The virtuous spiral (virtuous from the point of the
U.S. that is) continued as lower interest rates spurred yet further
capital outflows to Europe and Asia. Part of this outflow is
attributable to the dollars spent as `investment' by U.S. corporations
in the process of acquiring key productive sectors of the Asian and
European economies.
Since 1972, the U.S. payments deficit has been `wielded as an
increasingly conscious and deliberately exploitative financial lever.'
Hudson calls this U.S. strategy a `new state capitalist form of
imperialism,' distinguished by the fact that `it is the state itself
that is syphoning off economic surpluses' and that `central banks
are the vehicle for balance-of-payments exploitation via today's
currency standard, not private firms.' Under this system, the central
bank which issues the key-currency (that is U.S. dollars today) has
the unique ability to create its own credit to buy up the assets and
exports of foreign financial satellites.
Hudson shows that the sustainability of U.S. hegemony and its
financial aspects like the function of the U.S. dollar as
international key-currency through which the U.S. finances
simultaneously its balance-of-payments and fiscal deficits, cannot be
regarded as technical questions in the sphere of `pure economics' and
its `corrective measures' in the sense that Roach and, to a lesser
degree, Wallerstein seem to argue. The political dimension to this
reality, exposed by Hudson, is that the industrial powers in
Europe and Asia nor the third world bloc have barely made the
`feeblest of attempts' to break out of their subservience to
Washington or their dependency on the trade and financial structures
through which the U.S. appropriates their respective surpluses.
However, while Hudson attributes this to a political failure on the
part of the Europeans and the Japanese particularly, one might also
hightlight the success of the U.S. strategy in building after WWII a
deep and enduring network of international class alliances with
capitalist elites in the defeated Axis powers and with the comprador
classes and clients in the periphery. Indeed, as Hudson notes in his
2002 preface to the second edition, `no serious alternative is now
being proposed to the the American-centred financial sysetm and the
debt deflation its monetarist policies are imposing on debtor
economies outside of the United States'.
Hudson makes a contrast between the modern `state capitalist form of
imperialism' represented by U.S. hegemony and the forms of imperialism
analysed by John Hobson and Vladimir Lenin during the belle epoque of
European capitalism prior to WWI. While the earlier European model of
imperialism was `characterised by the drives of private finance
capital,' the forms of domination and exploitation that have been
perfected under the Washington consensus cannot be seen as simply an
extension of the drives of U.S. private capital since U.S. policy `has
been shaped by overriding concerns for world power (euphemised as
national security) and economic advantage quite apart from the profit
motives of private investors.' According to Hudson, the U.S. sits atop
a pyramidal exploitative structure whose imperatives are not those of
U.S. private capital so much as those of the U.S. state.
Expanding on these differences, Hudson states that `the early system
[described by Lenin and Hobson] was supposed to grow stronger and
stronger until it culminated in armed conflict, [it] economically
developed the periphery in the process.' In contrast, the windfall of
America's free financial ride have not been invested in productive
capital that yields future profits; the U.S. has `pursued the less
productive policy of maintaining an imperial military and bureaucratic
superstructure that imposes dependency rather than self sufficiency on
its client countries' and the fruits of U.S. exploitation, rather than
being invested in new capital formation are being `dissipated in
military and civilian consumption and in a financial and real estate
bubble.'
While I find Hudson's analysis of the curcuits of international
finance to be sound, and his description of the manipulation of these
circuits as a pillar of U.S. global hegemony to be convincing, there
is reason to take issue with his description of the Washington
consensus as a `new state capitalist form of imperialism' that marks
an historic break with the older European forms of imperialism driven
by the imperatives of private capital as described by Lenin and
Hobson. Further, while Hudson's observation that U.S. hegemony imposes
economic dependency on its clients is well supported, one might take
issue with the view that either European imperialism was historically
more benign in the sense that it `developed the peripheries'.
Hudson is undoubtedly correct to see the U.S. state and its
institutions as playing a central part in the global political
economy. It is questionable however whether the political and economic
imperialism in which the U.S. state has played such a key role in
building, can be separated from the interests of U.S. private capital
to the degree which Hudson suggests. Indeed, from my own reading of
Hudson it seems that U.S. private capital finds itself singularly
advantaged by the privileged position of the U.S. state in the global
system. To cite but one example: `When Truman insisted in March 1946
that ``World trade must be restored -- and it must be restored to
private enterprise,'' this was a way of saying that its regulation must
be taken away from foreign governments that might be tempted to try to
recover their prewar power at the expense of U.S. exporters and
investors' (Hudson, p.10); thus where Hudson argues that `the
intrusion of the U.S. government into the global marketplace
was often aimed at promoting the interests of U.S. corporations, the
underlying motive was the perception that the regulated activities of
these companies promoted U.S. national interests, above all the
geopolitical interests of Cold War diplomacy with regard to the
balance of payments,' one could again note that the Cold War
diplomacy of the U.S. government was in large part aimed at ensuring
-- in the words of Truman -- that foreign governments did not `try to
recover their prewar power at the expense of U.S. exporters and
investors.' To make this more immediate, nobody is surprised today
when the contracts for Iraqi `reconstruction' are granted to
U.S. corporations like Brechtel and Halliburton or that these
corporations have representatives at the highest levels in the
U.S. state. Nor was anyone particularly surprised that the Secretary
of the Treasury (and de-facto head of the World Bank and IMF) in the
1990's was a Goldman-Sachs banker.
It is my view, in otherwords, the central role of the U.S. state
notwithstanding, the relationship between the imperatives of
U.S. capital and the policies of the U.S. is probably far more
symbiotic than Hudson makes allows in his book.
Turning to the historic role of European imperialism, Hudson writes:
`In the nineteenth century Britain took on the position of world
banker in no small measure to provide its colonies and dependencies
with the credit necessary to sustian the specialisation of production
by British industry' (Hudson p. 4) and `Britiain governed its empire
not only through its position as world banker, but because as world
banker it took responsibility for insuring an equitable payments
mechanism that worked on long-understood lines that were deemed to be
equitable to its users' (Hudson, p. 386). How well is Hudson's rather
benign view of the British state as world banker borne out?
Giovanni Arrighi (New Left Review, Mar-Apr 2003) draws a close
connection between Britain's adherence to the gold standard and its
extraction of tribute from the Indian Subcontinent:
Britain's Indian empire was crucial in two main respects. First,
militarily: in Lord Salisbury's words, `India was an English barrack
in the Oriental seas from which we may draw any number of troops
without paying for them.' Funded entirely by the Indian taxpayer,
these forces were organised in an European-style colonial army and
used regularly in the endless series of wars through which Britain
opened up Asia and Africa to Western trade, investment and
influence. They were `the iron fist in the velvet glove of Victorian
expansionism . . . . the major coercive force behind the
internationalisation of industrial capitalism.'
Second, and equally important, the infamous Home Charges and the
bank of England's control over India's foreign-exchange reserves
jointly turned india into the `pivot' of Britain's financial and
commercial supremacy. India's balance-of-payments deficit with
Britain, and surplus with all other countries, enabled Britain to
settle its deficit on the current account with the rest of the
world. Without India's forcible contribution to the balance of
payments of imperial Britain, it would have been impossible for the
latter `to use the income from her overseas investment abroad, and
to give back to the international monetary system the liquidity she
absorbed as investment income.' Moreover, Indian monetary reserves
`provided a large masse de manoeuvre which British monetary
authorities could use to supplement their own reserves and to keep
London the centre of the international monetary system'.
(Arrighi, p.45).
On the a similar theme, Hudson criticises the U.S. government for its
shortsighted and rigid administration of intergovermental debts owed
to it by Europe as result of arms purchases and reconstruction loans
during and after WWI.
An enlightened imperialism would have sought to turn other
countries into economic satellites of the United States. But the
United States did not want European exports, nor were its investors
particularly interested in Europe after its own stock markets
out-performed those of Europe. (Hudson p.5)
Instead, of acting as ursurer to Europe in the inter-war period,
destabilising the European economies, Hudson implies that it might
have chosen to act as it did after WWII when it gave reconstruction
loans to Europe and Japan while allowing them to re-pay these loans
through exports of manufactures to the U.S. The problem with this
scenario, is that Hudson does not make clear the contradictory nature
and effects of U.S. strategy post WWII and during the cold war; by
successfuly rebuilding European and Japanes industrial bases, in large
measure to avert foment and revolution these regions, the U.S. was at
the same time building economic rivals, contributing to the twin
problems of global overcapacity that began to plague the capitalist
economies in the late 1960's and of the U.S. balance-of-payments
deficits that forced the U.S. into choice of abandoning either its
preeminent global position or the gold standard (see Brenner, The Boom
and the Bubble, and Peter Gowan, The Global Gamble).
Differences like the above, over matters of emphasis and
interpretation like this aside, Hudson's book is an exemplary piece of
detailed scholarship and an invaluable resource adding greatly to our
understanding of the historical evolution and current juncture of
U.S. imperialism and world capitialism.
\end{document}
----- Original Message -----
From: bon moun
To: a-list@lists.econ.utah.edu
Sent: Monday, June 02, 2003 1:43 PM
Subject: RE: [A-List] Michael Hudson: Super imperialism
"Hudson is undoubtedly correct to see
the U.S. state and its
institutions as playing a central part in the global political economy.
It is questionable however whether the political and economic
imperialism in which the U.S. state has played such a key role in
building, can be separated from the interests of U.S. private capital to
the degree which Hudson suggests."
[Though it seems certain that the current trajectory of US policy is one
that is counter-intuitive to even the medium-term interests of US
capital. There is little doubt that private capital and the state must
exist in a dialectical relation to one another, even as they did during
the Hitlerian build-up prior to WWII, but still one where the interests
of the state, insofar as they existed in tension with the interests of
private capital, were privileged. The character of an ever more
directly-parasitic form of US capital accumulation has been one that
simultaneously privileged the financial pole of US capital, at the
direct expense of its productive pole (with the exception of
combined-defense/energy industries that are now effectively part of the
state apparatus in a new form of military Keynesianism), which has
accelerated the parasitic-character growth of US capital and
fundamentally weakened it. -SG]
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Monday, June 02, 2003 4:21 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
John Enyang writes:
Michael Hudson's thesis on the other hand is that far from being an an
aberration which might be subject to the normal technical corrective
measures anticipated by writers like Roach and Wallerstein, US trade
and fiscal defits are been built into the very system of international
trade and finance since the late 1960's: `Rather than the American
debtor position being an element of weakness, Americas seeming
weakness has become the foundation of the world's monetary and
financial system' and `to change this system in a way adverse to the
United States would bring down the system's creditors to America,' the
largest of whom are Europe, Japan and China. Against its creditors,
`the US has learned to apply a new, unprecedented form of coercion. It
dared the rest of the world to call its bluff and plunge the
international economy into monetary crisis.'
------
"If you owe the bank $100, that's your problem. If you owe the bank $100
million, that's the bank's problem." - J. Paul Getty
------
According to Hudson, the U.S. sits atop
a pyramidal exploitative structure whose imperatives are not those of
U.S. private capital so much as those of the U.S. state.
-----
MK: Is it not because of the unparalleled concentration of capital in the US
that the regulatory powers of the US state are, consequently, enhanced to
such an extent that they are likewise unparalleled? I think Stan is right on
this -- whatever jockeying for position there might be between Washington
and Wall Street, both also benefit from the other in terms of international
leverage. Leonard Seabrooke, in "US Power in International Finance: The
Victory of Dividends" (Palgrave 2001) describes this relationship as one of
"interactive embeddedness", combining competition and cooperation, and
thereby determining state capacity. Seabrooke describes the US state's
regulatory policies as combining "international passivity and national
activism" -- not a very elegant or transparent way of highlighting the US
state's active promotion of laissez faire finance globally in terms of
rhetoric and ideology whilst imposing more and more of the US regulatory
framework upon other states whether through persuasion, threat of capital
flight, IMF pressure or ratings agencies' reviews.
Additionally, another book tackling a similar theme but going further back
in the evolution of US imperialism is Cyrus Veeser's "A World Safe for
Capitalism: Dollar Diplomacy and America's Rise to Global Power" (Columbia
UP, 2002) which details the US intervention in the Dominican Republic in
1904 and Theodore Roosevelt's corollary to the Monroe Doctrine which was the
rationalisation of that intervention. Dominican President Ulises Heureaux,
in attempting to "modernise" (i.e. capitalistically develop) the economy
turned to US financiers in effort to unseat prior European domination. The
"San Domingo Improvement Company", founded by a bunch of political fixers
within the New York establishment and with close ties to especially the
administration of Grover Cleveland, was tasked with the job of securing a
favourable development path amenable to Heureaux and especially the US. In
addition, the SDIC acted as the US state's official representative in
Dominica right up until the 1904 invasion, when the internal situation had
deteriorated so badly and US interests were no longer being served
adequately. In other words, it is because of the failure of a US private
sector venture that the US state intervenes, to reorder the situation and
put in place circumstances amenable to future private sector investors. That
the state extracts rents from the supposed beneficiaries of its security
measures can also be read as an indication of the purpose of such security,
i.e., that it is not somehow separate from the interests of private sector
interests, but is in fact intrinsic to them. The private sector interests
doubly benefit because not only do they get a safer investment environment,
but those to be exploited are the ones who get to pay for it.
This is illuminated by Hudson in his reference to the post-WW2 debates
within the US involving laissez faire ideologues like Jacob Viner, who
opposed "state intervention" in principle, but who could countenance an
internationally interventionist US state on the assumption that it would be
acting to ensure that other states followed laissez faire policies. This was
exactly the sort of rationalisation employed by the likes of William Simon
and Arthur Burns 30 years later when dictating terms to the Callaghan
government in Britain. According to Burns the British government was
"profligate", quite unlike that of the US (obviously!). Of course Hudson
blows that myth clean away. Nevertheless, the power of the "American"
ideology is acute in this respect, given the self-endowed mission that
successive generations of sincere, well-meaning racist imperialists have
sought to impose upon the rest of the world in the name of "freedom",
conceptualised, conveniently enough, in accordance with the interests of US
private capital. And the beauty of a "globalised " world in which finance
capital is freer to roam than ever before is that most of it gravitates
towards the metropolis, and in particular the heart of the metropolis, i.e.,
the US, whose global regulatory powers are thereby enhanced further as
larger proportions of capital dispersed throughout the world seek to enjoy
the same "advantages" as their competitors in the US. Thus national and
regional regulatory frameworks are altered or simply dispensed with in
favour of locally applied US analogues.
John goes on the highlight points which find echoes in the writings of other
contemporary commentators like Chalmers Johnson, whose "Blowback" thesis
includes the point, reiterated by Hudson, that US Cold War policies included
the building up of eventual economic rivals which contributed to the
hollowing out of US manufacturing alongside those of US finance capital.
While there is much more to comment on, and hopefully others will step in to
contribute on this, there is a small inaccuracy I would like to correct.
According to Hudson, US entry into the First World War was opposed by
Republican intellectuals with a closer affinity to Germany as a rising
industrial power eager to supplant the pre-eminent Britain, rather than with
a pre-eminent Britain looking to maintain its global hegemony. Whatever
"Republican intellectuals" (p. 3) that might have taken this position
(Robert LaFollette might be more accurately characterised in this way)
Thorstein Veblen and Charles Beard most certainly did not. Beard supported
US entry into the war on the grounds that it would pave the way for the
downfall of the Hohenzollern monarchy and therefore bring about the rise of
a workers' republic in Germany. Beard himself later recognised the
misguidedness of this early form of "humanitarian intervention" (for more
details see Clyde W. Barrow, "More than a Historian: The Political and
Economic Thought of Charles A. Beard" (Transaction Publishers, 2000).
Meanwhile Veblen, contrary to Hamiltonian protectionists concerned to
support US economic development behind tariff walls, was an advocate of free
trade inasmuch as it defused the threat of inter-imperialist war (not unlike
Viner's position 25 years later) with the proviso that the US was just as
prone to warmongering as any other "predatory, dynastic state".
Additionally, Veblen took up a position within the Wilson administration, in
the Food Administration, in February 1918 until the end of the war, advising
on food prices. He had already published "Imperial Germany and the
Industrial Revolution" in 1915, where he analysed German economic and
political development as leading inexorably to a militaristic conclusion. It
should be remembered also that this was published at a time when there was
no indication of US entry into the war -- Wilson had yet to win the 1916
election on the slogan, "He kept us out of war". Thus Veblen's analysis was
dispassionate, in contrast to other progressive intellectuals' agitation for
US entry -- another notable alongside Beard was John Dewey, who also lived
to regret his enthusiasm for war, despite deploring the German state
ideology which elevated the state to the highest expression of human
achievement. Both Beard and Dewey opposed US intervention in WW2 as a result
of having felt duped the first time around.
Thanks to John for getting the discussion started.
Michael Keaney
----- Original Message -----
From: jenyang
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 03, 2003 10:31 AM
Subject: Re: [A-List] Michael Hudson: Super imperialism
On Mon, 2 Jun 2003, Michael Keaney wrote:
>
> John goes on the highlight points which find echoes in the writings of other
> contemporary commentators like Chalmers Johnson, whose "Blowback" thesis
> includes the point, reiterated by Hudson, that US Cold War policies included
> the building up of eventual economic rivals which contributed to the
> hollowing out of US manufacturing alongside those of US finance capital.
>
Michael,
My understanding is that Chalmers Johnson's "blowback" thesis revolves
around critique of particular matters of policy and what Johnson regards
as bad or wrong decisions by various U.S. administrations.
The contradictions highlighted by Hudson and Brenner on the other hand
seem to me to refer to somewhat deeper and more fundamental processes.
Here's a crude summary of my own.
In as much as the second world war gave the U.S. economy a huge boost and
was the main factor in overcoming the depression of the 1930's, the end of
the war threatened if not a return to the depression and social strife
round the world, then at least greatly reduced for U.S. capital at home
and abroad:
One aim common to all groups in the United States was to avoid a
postwar depression caused by a reduction in public spending. The
consensus in 1945 was that 60 million jobs were needed for full
employment. In the absence of effective demand sufficient to create
these jobs, and of finaces to underwrite their related corporate
investment, a leftward shift might occur in American politics. This
explains the national interest in full employment, despite its
effects on unit labour costs and competitive pricing of U.S.
products.
It was agreed that American access to foreign markets was a
precondition for full employment in the United States. The most
obvious market was devastated Europe in its reconstruction phase.
(Hudson, p142)
So while America would depend on its exports to European and Asian states
to avoid another prolonged slump, Europe and Asia were in no condition to
finance these exports on their own (and were threatening to go red
besides). The only solution available to American policy makers at the
time was to finance simultaneously the reconstruction of Asian and
European capitalism and the prosperity of the domestic U.S. economy
through dollar loans to these nations, which (unlike the inter ally war
debts from WWI) were to be repaid by exports of European and Japanese
manufactures to the U.S.
Along with the stimulus provided by military Keynsianism (the Korean war
provided a big boost to Japanese industry in particular), this U.S. policy
of "enlightened imperialism" towards Europe and Japan, was largely
responsible for the long expansion that lasted to the mid 1960's. However,
the very conditions which made for the success of this strategy created
the foundations for the stagnation of capitalism in the 1970's and 1980's:
U.S. multinational corporations and international bank, aiming to
expand overseas, needed profitable outlets for their foreign direct
investment. Domestically based manufacturers, needing to increase
exports, required fast-growing overseas demand for their goods. An
imperial U.S. state, bent on "containing communism" and keeping the
world safe for free enterprise, sought economic success for its allies
and competitors as the foundation for the political consolidation of
the post-war capitalist order . . . All these forces thus depended
upon the economic dynamism of Europe and Japan for the realisation of
their own goals. (Brenner, The Boom and the Bubble pp 14-15).
In Brenner's words, up to the 1960's, uneven development (his term for the
process where laggards in capitalist development seek to and eventually
succeed in catching up with the economic leaders) provided "a symbiosis,
if a highly conflictual one, of leader and followers, . . . of hegemon
and hegemonised." (Brenner p. 15).
This positive sum game turned into a zero or even negative sum game as
soon as the laggards Germany and Japan overtook the leader in the key
non-military industries (Arrighi, New Left Review Apr-May 03). The very
success of U.S. post-war strategy in other words, presaged increased
competition and reduced rates of profitability not only for American
capitalism (which ended being hollowed out in the 1980's) but also for
its European and Asian competitors begining around 1968. Coincidentally or
not, this period also marked the begining of the transition from the U.S.
"enlightened imperialism" to the more brazen and parasitic forms that
begun to take form with Nixon's abandonment of the gold standard and his
imposition of the treasury bill standard on U.S. competitors/allies.
One might would say the U.S. enlightened imperialism could only end up
hoised on the petard of its own success.
Anyway, the difference with the "blowback" thesis of Johnson is that the
U.S. could well have chosen not to fund the Hekmatyar and bin Ladens in
the 1980's. The decision eventually taken to fund these groups reflected
in otherwords, a policy choice (albeit one that had unintended and mixed
consequences) rather than an imperative forced on the U.S. government and
capital by objective conditions. On the other hand, the juncture in 1945
threatened a return to a global economic slump with unknown consequences
for the future of capitalism, virtually forcing upon the U.S. the adoption
of some form of "enlightened imperialism" towards Europe and Japan (as
Hudson notes).
Incidentally, my apologies for typos and strange syntax which appear too
often in my posts. Part (not all) of the problem is that i have to use
here a UNIX based text editor -- adequate for programming or mathematical
typesetting but not much else.
J.Enyang
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 03, 2003 4:38 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
John writes:
My understanding is that Chalmers Johnson's "blowback" thesis revolves
around critique of particular matters of policy and what Johnson regards
as bad or wrong decisions by various U.S. administrations.
The contradictions highlighted by Hudson and Brenner on the other hand
seem to me to refer to somewhat deeper and more fundamental processes.
------
That's my reading of Johnson, John, and precisely why his very good
empirical analysis needs the sort of theoretical framework that is capable
of handling the deeper and more fundamental processes that are the subject
of "Super Imperialism".
You continue:
Anyway, the difference with the "blowback" thesis of Johnson is that the
U.S. could well have chosen not to fund the Hekmatyar and bin Ladens in
the 1980's. The decision eventually taken to fund these groups reflected
in otherwords, a policy choice (albeit one that had unintended and mixed
consequences) rather than an imperative forced on the U.S. government and
capital by objective conditions. On the other hand, the juncture in 1945
threatened a return to a global economic slump with unknown consequences
for the future of capitalism, virtually forcing upon the U.S. the adoption
of some form of "enlightened imperialism" towards Europe and Japan (as
Hudson notes).
------
Hudson himself notes that the construction of the military-industrial
complex during the 1950s, while useful as a means of consolidating and
building on the US economic lead, had the unintended consequence of creating
a monster that required incessant feeding and was, as Hudson puts it,
responsible for the US balance of payments deficit that enables the US to
exercise economic leverage over all other countries unfortunate enough to
have been "integrated into the global economy", as Stanley Fischer so
neutrally puts it.
"The United States, the only nation capable of financing a worldwide
military program, began to sink into the mire that had bankrupted every
European power that experimented with colonialism. America's Cold War
strategists failed to perceive that whereas private investment tends to be
flexible in cutting its losses, being committed to relatively autonomous
projects on the basis of securing a satisfactory rate of return year after
year, this is not the case with government spending programs, especially in
the case of national security programs that create vested interests. Such
programs are by no means as readily reversible as those of private industry,
for military spending abroad, once initiated, tends to take on a momentum of
its own. The government cannot simply say that national security programs
have become economically disadvantageous and therefore must be curtailed.
That would imply they were pursued in the first place only because they were
economically remunerative -- something involving the sacrifice of human
lives for the narrow motives of economic gain, even if national gain. What
began as pretense became a new reality." (Hudson, p. 14)
In a way this is a variant of the blowback thesis, in that certain decisions
have unintended consequences which blow back on those who originated the
decision. But the above, like Johnson, is focused on the state as an
autonomous actor rather than as a semi-autonomous agent of key elements of
private capital. If Hudson is correct, then the funding of the anti-Soviet
Afghan opposition was simply foreign policy. However, if a more conventional
Marxist explanation is correct, then it is incumbent upon those proferring
such an explanation to identify the economic reasons for that funding.
Michael Keaney
----- Original Message -----
From: jenyang
To: a-list@lists.econ.utah.edu
Sent: Saturday, June 07, 2003 2:19 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Michael,
As I said before, I feel that Michael H. in Superimperialism gave too much
weight to the state as an autonomous actor. For example, in the passage
you cite above, the contrast between the "flexibility of business in
cutting its losses, being committed to . . . . projects on the basis of of
securing a satisfactory rate of return year after year" with the
inflexible government spending programs, especially military related ones,
which, "once initiated take on a momentum of their own" is correct, but
in my view, understates the extent to which these government spending
programs have been relied upon by both the government and private capital
to insulate the U.S. economy from the traditional business cycle -- that
is to help secure for capital a "satisfactory rate of return year after
year." Indeed, seen this way, point of view of most sectors of capital,
the very "inflexibility" of the the state subsided military programs are
regarded as positive boon.
In any event, empirical evidence would seem to support the case that a
military keynsianism (unlike universal health insurance, say) and the
pursuit by the state of full spectrum dominance etc over potential rivals
and the semi-colonial countries are something that all sectors of U.S.
capital -- not just the immediate beneficiaries, like military contractors
-- are agreed upon. (When did we last hear personifications of capital
demanding austerity at the department of defence?)
Of the U.S. efforts to undermine and destroy attempts by third world or
other states to delink from the U.S. centred global economy, we can say
they express more than policy -- rather they reflect the fact that that
economic development in the south must be directed, not towards domestic
needs but towards the those of of northern capital accumulation (something
for which Michael H. provides ample evidence). In this sense, the U.S.
efforts to destroy states like Afghanistan, and the Soviet Union (along
with the associated military buildups) are the result of deeply entrenched
tendencies within capitalism -- not of crude dollar and cents calculations
by bureaucrats and corporations (which would be more of a caricature than
an explanation).
But, without questioning the objective of destroying the PDPA or turning
Afghanistan into a "failed state," it would have been possible in theory
for the U.S. policy makers to have chosen a different means to the end
from the one they eventually settled on (see for example the article
posted by James Daly on Soros' activities in Eastern Europe). Seen in this
way, the funding of the Mujahedin came down to policy.
J.Enyang
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 04, 2003 12:35 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
I wrote:
If Hudson is correct, then the funding of the anti-Soviet
Afghan opposition was simply foreign policy. However, if a more conventional
Marxist explanation is correct, then it is incumbent upon those proferring
such an explanation to identify the economic reasons for that funding.
-----
I was called away before I could get to the punchline, although I was hoping
someone else might add their own.
While there are always tendencies within states for policies and agendas to
develop autonomously, i.e., independently of any specific capital fraction's
programme, there are constraints beyond which such developments are
structurally unsustainable. A good example of this would be Jacques Delors'
efforts to institutionalise social democracy within the European Commission
and thereby the EU state apparatus. This failed because there was no social
base capable of supporting such an effort, given that most labour
aristocracies were (and still are) firmly embedded within national
structures/mindsets and, in the case of Britain, still wedded to an
antiquated social chauvinism that wilfully refuses to recognise the reality
of US imperialism as the key influence on a Britain nominally independent
(of Europe, as the "debate" is crassly framed in the UK by key British
opinion-formers like Rupert Murdoch and Conrad Black). Similarly, Gerhard
Schröder's failure to construct a more robust defence of German independence
against neo-liberalism is as much a reflection of the failure of the German
left to exert sufficient pressure to enable the opportunist Schröder to take
a more progressive nationalist line. Instead he has begun, finally, to
capitulate to the demands of the formidable forces arrayed against him, and
which will hound him out of office very likely within the next year.
Re US imperialism and the quasi-autonomy of the state, can the US state
follow policies indefinitely without the support of key fractions of US
capital? This is the implication of Hudson's argument and it is one that I
have difficulty supporting. Sure there is a gigantic military-industrial
complex that must be fed, and, more generally, an ever greater behemoth
state apparatus; but that behemoth feeds what Hudson correctly calls (in
Veblenian fashion) "vested interests" but which are mostly private. The
military itself is an exception, although the revolving door between the
Pentagon and the private sector is another factor that should be considered.
As is an aspect of privatisation highlighted by Chalmers Johnson in
"Blowback", where he discusses the increasing use of private security
contractors by the Pentagon in the name of circumventing Freedom of
Information legislation thereby enabling greater secrecy of operations in
the name of commercial confidentiality, and representing the further
expansion of the sphere of capital.
Capitalist fractions, with a few minor exceptions, could be expected to
support a general opposition to social systems predicated on the eradication
of capitalist social relations, like the Soviet one. Supporting the Afghan
rebels was a part of that policy, and promised to roll back Soviet influence
whilst opening up a new frontier of capitalist expansion. The US state was
the instrument of this and under the guise of "national security"
quasi-autonomously developed the strategies geared to achieving this end --
but if sufficiently influential fractions of capital had been able to profit
from dealing with the Soviet Union, how long would such a policy have
lasted? Sure, the American ideology is important and is another aspect of
the superstructure developing a life of its own, within constraints. But
sooner or later these constraints assert themselves and, at bottom, we are
back to the interests of capital.
So far, in reading this very interesting and informative book, I concur with
Hudson's indictment of the US as imperialist and applaud his analysis of the
financial means by which its hegemony has evolved over the last century;
however, the Weberian approach of Leonard Seabrooke is nearer the truth in
its identification of the simultaneously cooperative and competitive
relationship of Washington and Wall Street. However, Seabrooke gets plenty
else wrong and is useful largely for empirical data rather than
theoretically-grounded exposition.
Michael Keaney
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 04, 2003 2:25 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Thanks to Michael, Sabri and John for
what promises to be a very
important seminar. Could I ask a novice's question? Many sources seem
to have taken up the theme of euro-dollar rivalry as alternative
oil-currencies as a reason for the invasion of Iraq. Some of them
seemed to be alluding to Michael Hudson's thesis. It does seem to
promise an explanation for the staggering difference between the US's
attitude to its own debt and to that of other states. What is the
standing of Michael's thesis among bourgeois academic economists? John
points out that Wallerstein's position is radically different -- are
there many left intellectuals who agree with Hudson? Has he made much
headway among political journalists?
I am a non-economist, but have a philosophical background, so I was
interested when Michael wrote (he later added to it) "If Hudson is
correct, then the funding of the anti-Soviet Afghan opposition was
simply foreign policy. However, if a more conventional Marxist
explanation is correct, then it is incumbent upon those proferring
such an explanation to identify the economic reasons for that
funding".
I thought that philosophically the ("conventional") interpretation of
Marxism as economic (or as technological) determinism with a base/
superstructure forces/ relations paradigm was totally outdated, its
last gasp being Gerry Cohen (* Karl Marx's Theory of History: a
Defence *), who received the coup de grace from Derek Sayer (* The
Violence of Abstraction *). I thought Marxists had long (for as much
as three decades) felt free to say unproblematically that the US was
not in Vietnam for economic reasons, as the French rubber planters
were originally, but for the defence of the capitalist system and the
defeat of communism in the region -- and ultimately globally (losing
the battle, but eventually winning the "war"). Does the first dualism
need to be replaced with a second -- Economy and State? Isn't
imperialism inextricably politicoeconomic/ military?
Michael's additional paragraphs seem to be making the point of the
mutual interdependence of state and economy, but does he think talk of
"the simultaneously cooperative and competitive relationship of
Washington and Wall Street" poses a problem for Marxism?
James Daly
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 04, 2003 2:40 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Make that sociopoliticoeconomic/ military (!) -- JD
----- Original Message -----
From: "James Daly" <james.irldaly@ntlworld.com>
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 04, 2003 3:29 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
James writes:
Michael's additional paragraphs seem to be making the point of the mutual
interdependence of state and economy, but does he think talk of "the
simultaneously cooperative and competitive relationship of Washington and
Wall Street" poses a problem for Marxism?
------
I don't think so, because the state itself is a product of the
contradictions of capitalism, having to legislate between competing capitals
whilst ensuring the maintenance of a capitalist hegemonic order over the
working class (to use the basic Marxist class demarcation). It gets more
complicated when, as many began to during the 1970s, you incorporate new
classes or social strata, usually filed under "petty bourgeoisie". My main
influence here is Nicos Poulantzas's "Classes in Contemporary Capitalism",
published in English in 1975, so probably a little out of date but
nevertheless exemplary in approach (imho).
With respect to Wall Street, right now we are seeing in graphic terms the
simultaneously competitive/cooperative relationship between Wall St and
Washington, as the former tries to atone for the drastic loss of legitimacy
and credibility resulting from the excesses of the 1990s, where investors
were evidently ripped off in a gigantic, systemic scam. The capitalists need
their legitimation and that of the system as a whole restored in order to
function as capitalists, hence the general, sudden acceptance of the "need"
for regulation, a sharp about-turn following the triumph of Phil Gramm et al
in their repeal of the Glass-Steagall Act as late as 1999, for example. Of
course Sarbanes-Oxley went too far for some, but such was the damage done to
the credibility of the system as a whole that, in the competition between
state and capital, the state had the upper hand simply because capital had
so disgraced itself. But in "having the upper hand" that meant that the
state's efforts to legislate for capital, in keeping with its dual role as a
facilitator and legitimator of accumulation, prevailed over the strong
desire of capital for unfettered accumulation. It does not mean that the
state was, in the fashion of Weberian-style theorists of civil society,
acting as a neutral or even anti-capitalist arbiter of the law. The state
was saving the system, not junking it.
This accords with my general view of state-capital relations, that usually
the state's interventions are the result of failed strategies on the part of
capital. Hudson argues implicitly and explicitly (with respect to theories
of imperialism) that the US state operates with a far greater degree of
autonomy than I would have considered likely prior to reading his book.
Which is to say that I may yet be convinced by the argument of the book and
the resultant discussion here on the list, but for now I remain more
convinced about the state's ultimately subordinate role to the prerogatives
of capital. Fusing the two, as Hudson does, as part of a theory of a "new
kind of state capitalism/imperialism" is unsatisfactory because it elevates
the state to a status typical of the mistaken (in my view) classical liberal
dichotomy of state versus capital/civil society, a view peddled over the
years by the likes of Herbert Spencer, William Graham Sumner, Friedrich von
Hayek and more recently the legion of advisers/apologists for the looting
and destruction that has accompanied the demise of the Soviet bloc. There
you get the deeply ironic spectacle of Vaclav Havel doing all that he can to
dismantle state power only to replace a local monolith with a much greater,
global one, via his enthusiastic integration of the Czech Republic into all
the anti-Warsaw Pact institutions that are now part of the architecture of
the "Super Imperialism" that Hudson exposes in his book. And while Hudson is
himself correct to point out the overweening nature of US state power, I
would argue that this power is itself *ultimately* subservient to the
dictates of US capital, which relies on that power to achieve those ends
otherwise unachievable (e.g. Haim Saban's efforts to break into the German
television market with the help of the US State Dept). I have been careful
to qualify this view by agreeing that states do possess a degree of
autonomy -- but this is subject to ever changing constraints which reassert
themselves, sometimes violently, when, to use another old metaphor, the
superstructure becomes too disconnected from the base. Hudson, on the other
hand, appears to share with the classical liberal alarmists the view that it
is the state, ultimately, which is the enemy of liberty, and that, together
with capital, we ought to unite against it. Throughout my reading of this
book so far I've thought over and over just how much in common the book's
arguments have with the sort of position represented here by Anne W.,
because it is the state that has been elevated to the status of chief bogey,
rather than the system itself that Marxists believe is responsible
ultimately for the state's purpose and function.
Michael Keaney
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 04, 2003 3:36 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Dear discussants,
I am grateful for your discussion, partly because it shows how I might have
made my points clearer.
I should make it clear at the outset that I believe that the old
private-enterprise imperialism is alive and kicking. It never went away. When
I emphasized the imperialism of inter-governmental capital my point was to
show that QUANTITATIVELY, this new QUALITATIVE form of U.S. exploitation is
even larger, as measured statistically in dollar terms, than the more familiar
corporate imperialism.
I also am glad to agree that the private-sector imperialism does indeed
underdevelop its victims. When I spoke about the "old" Hobson-Lenin
imperialism being well understood, I was referring to the theory of
imperialism as it stood prior to World War I. Marx himself, in his (1846?)
speech to the Chartists, said that he believed that free trade at least would
break down the barriers that kept precapitalist economies in rural idiocy. The
initial idea was that foreign investment would replicate industrial capitalism
abroad, not create a new, hybrid kind of "combined development" that would
warp "capital recipients."
So I don't really see any argument with the points being made so far on this
list. There is indeed a symbiosis, which has grown stronger rather than weaker
between the government and the leading corporations, especially now that they
have used campaign contributions to gain control of the electoral process. The
Cheney-Halliburton and Bush-Enron connections are only the most recent glaring
examples. ITT in Chile and other examples could be added.
What I tried to do in Super Imperialism was to trace America's exploitation
via the dollar standard as a distinct line of development, not claim that it
had replaced private-enterprise imperialism.
By the way, the Republican intellectuals I referred to as opposing US entry
into World War I and who emphasized the German approach to economics were
headed by the protectionist Simon Patten at the Wharton School in
Philadelphia. He was soon isolated there, along with his student Scott
Nearing. (I describe this trend in my 1976 book on Economics and Technology in
19th-century American Thought: The Neglected American Economists.)
Regarding the query by James Daly about whether my ideas are accepted in the
mainstream, I can only say that they WERE accepted on Wall Street. Immediately
as a result of Super-Imperialism I became the highest-priced economist of the
1970s, going from $3,500 to $6,500 per day over a two-year period, and being
hired by Herman Kahn at the Hudson Institute specifically to explain to the
government just how monetary imperialism worked and just how America was
getting a free ride. I was brought to the White House for discussions with the
Treasury, to the military college in Pennsylvania, and had many meetings with
major CEOs. I was hired by the Canadian Government to advise it on how to
extricate it from the system, and published Canada in the New Monetary Order
in 1978. I then became chief economic consultant for UNITAR, advisor to a
number of governments. So from that point of view the thesis was accepted.
The left was another matter - at least if you consider people like Robert
Heilbroner to be the left simply because he proclaimed himself to be a
Marxist. He forbade me to discuss debt cancellation or financial issues or
rent theory in the curriculum, saying that this was "confusing" students at
the Graduate Faculty of the New School for Social Research, into thinking that
there was "more than one kind of exploitation." I left the New School in 1972,
just before Super Imperialism was published, when some friends of mine at
Drexel Burnham introduced me to Herman Kahn and suggested to both of us that I
should go to work there.
The Monthly Review crowd also never really accepted my approach, and most of
the left ignored my writings. However, the Russians quoted the book quite
widely, in almost every report on international finance, and I was the first
American invited down to Granada after its revolution. A former KGB visited
me in 1992 and said that he was indeed sorry that Stalin had killed Trotsky
and not behaved very well to my father and me, and invited me back for an
annual speech before the Duma, which we dubbed the "Leon Trotsky memorial
speech" on how Russia might stay free of World Bank-IMF pressures. (Obviously,
not successfully.) On one occasion I brought my colleague Ramsey Clark along.
Regarding the euro-dollar rivalry, this is difficult without a
euro-denominated VEHICLE to exist, in the form of budget deficits - which are
blocked by the essentially monetarist character of the Euro, which cripples it
a priori from rivaling the dollar. I have recently published my critique of
this in "The Cartalist/Monetarist Debate in Historical Perspective," in Edward
Nell and Stephanie Bell eds., The State, The Market and The Euro (Edward Elgar,
2003).
Michael Hudson
----- Original Message -----
From: jenyang
To: a-list@lists.econ.utah.edu
Sent: Saturday, June 07, 2003 2:19 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Michael,
As I said before, I feel that Michael H. in Superimperialism gave too much
weight to the state as an autonomous actor. For example, in the passage
you cite above, the contrast between the "flexibility of business in
cutting its losses, being committed to . . . . projects on the basis of of
securing a satisfactory rate of return year after year" with the
inflexible government spending programs, especially military related ones,
which, "once initiated take on a momentum of their own" is correct, but
in my view, understates the extent to which these government spending
programs have been relied upon by both the government and private capital
to insulate the U.S. economy from the traditional business cycle -- that
is to help secure for capital a "satisfactory rate of return year after
year." Indeed, seen this way, point of view of most sectors of capital,
the very "inflexibility" of the the state subsided military programs are
regarded as positive boon.
In any event, empirical evidence would seem to support the case that a
military keynsianism (unlike universal health insurance, say) and the
pursuit by the state of full spectrum dominance etc over potential rivals
and the semi-colonial countries are something that all sectors of U.S.
capital -- not just the immediate beneficiaries, like military contractors
-- are agreed upon. (When did we last hear personifications of capital
demanding austerity at the department of defence?)
Of the U.S. efforts to undermine and destroy attempts by third world or
other states to delink from the U.S. centred global economy, we can say
they express more than policy -- rather they reflect the fact that that
economic development in the south must be directed, not towards domestic
needs but towards the those of of northern capital accumulation (something
for which Michael H. provides ample evidence). In this sense, the U.S.
efforts to destroy states like Afghanistan, and the Soviet Union (along
with the associated military buildups) are the result of deeply entrenched
tendencies within capitalism -- not of crude dollar and cents calculations
by bureaucrats and corporations (which would be more of a caricature than
an explanation).
But, without questioning the objective of destroying the PDPA or turning
Afghanistan into a "failed state," it would have been possible in theory
for the U.S. policy makers to have chosen a different means to the end
from the one they eventually settled on (see for example the article
posted by James Daly on Soros' activities in Eastern Europe). Seen in this
way, the funding of the Mujahedin came down to policy.
J.Enyang
----- Original Message -----
From: enyang@math.uic.edu
To: a-list@lists.econ.utah.edu
Sent: Friday, June 13, 2003 5:58 AM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Dear All,
Sorry this is running behind schedule.
John Enyang
****************
Michael Hudson's chapter on the origins of intergovernmental debt traces the
rise of the U.S. Treasury as the dominant force in international finance in
the aftermath of the First World War and examines the ways in which the U.S.
Treasury used thus newly acquired financial leverage to the detriment of its
former partners in war.
The origins of U.S. financial claims against the European Allies are traced by
Michael Hudson to the depletion of the financial resources of the European
allies by the war effort, a financial diminution which became increasingly
serious immediately before the U.S. became a partner to Britain and France in
1917. Prior to the U.S entry to the war, Europe had financed its purchases
arms from U.S. suppliers through government obligations held by private U.S.
lenders and by liquidating the American holdings of European investors. But
by1917, Europe could barely continue to pay for further purchases of American
arms in cash, or to provide the collateral to secure further commercial loans
from American banks (p.40). Indeed, the U.S. was finally forced to became an
active belligerent in the European war when it became apparent that by staying
out longer, "the U.S. risked a possible financial collapse as American bankers
and exporters found themselves holding uncollectible loans to Britain and its
allies" (p.2).
When the U.S. did declare war on Germany, one of the first acts of Congress
was to provide European allies with USD 3 billion in government funds allowing
them to finance further purchases of U.S. arms. It being nearly a full year
before the American forces would be ready to be deployed on French
battlefields, these loans, one Treasury bulletin reasoned "were being made to
the Allies to enable them to do the fighting which otherwise the American army
would have to do at much expense, not only of men, but of money - money that
would never be returned to America, and lives that could never be restored."
(p.40).
Where earlier wars, like the U.S. war of independence, supported by France,
had hitherto been conducted on a subsidy basis, there were initially mixed
signals sent to the European Allies and to France in particular, about the
obligations they would be entering into in accepting material support from the
United States. U.S. politicians made references to support that France had
provided the American colonies in their war against the British and couched
the U.S. support for the French in terms of repayment for the earlier French
support. Where President Wilson stated in address to Congress in 1917, "We
have no selfish ends to serve, we desire no conquest, no dominion, we seek no
indemnities for ourselves, no material compensation for the sacrifices we
shall freely make," (p. 52) U.S. Government representatives initially
suggested that their European partners need "not to worry about the conditions
of repayment, which would be settled after victory was won, implicitly on
nominal terms" (p. 43). The U.S. "also encouraged France to carry out its arms
financing through U.S. Government channels, implying that this support would
ultimately be equivalent to a gift" (p. 43).
To the extent that the European war had created new outlets for American
industrial and farm produce, not just its armaments, victory and the end of
the war left Europe neither willing nor able to buy American agricultural
produce at their previous inflated wartime prices and created a potential
crisis for U.S producers. Faced with a potential collapse in prices and
demand, the U.S. government which "was already scrapping thousands of
automobiles and motor trucks in order not to bring the automobile industry
into ruin," provided Europe with a further series of post-armistice "relief
and reconstruction" loans, thereby allowing it to continue to function as an
outlet for U.S. producers, saving them from the looming crisis: "Our
manufacturers have enormous stocks . . . in hand ready for delivery. While we
can protect our assurances given producers in many commodities, the most acute
situation is in products which are perishable and must be exported . . . If
there should be no remedy to this situation we shall have a debacle in the
American markets and with the advances of several hundred million dollars now
outstanding from the banks to the the pork industry, we shall not only be
precipitated into a financial crisis but shall betray the American farmer who
has engaged himself to these ends. The surplus is so large that there can be
no absorption of it in the United States, and, being perishable, it shall go
to waste" (U.S. food administration to President Wilson, p. 45.)
In the years immediately following war, the European allies found themselves
in hock to the U.S. Government whose claims included arms debts to the tune of
some USD 28 billion. The claims against the Allies had their mirror image in
the German reparations which stood at USD 60 billion in 1923 (p. 40). These
debts "were to finance the war's destruction of resources, not their creation"
and had "no counterpart in productive resources or in visibly expanding taxing
capacity". Unlike "private investments, [the intergovernmental claims] were
not secured by productive assets as collateral, nor was their size at all
related to the the Allies' or Germany's ability to pay out of current national
income and foreign trade". (p. 40). As Hudson shows, the unprecedented scale
of the support the U.S. provided its partners during and immediately following
the war, and the manner in which the U.S. would come to treat these claims,
effectively using them as financial leverage against the European states,
would become a defining feature of the inter-war years.
By making a distinction between itself as an Associate "without territorial or
colonialist ambitions" on the one hand, and the European Allies on the other,
the U.S. was able in first instance to justify providing support to its
European parters in war on the basis of loans rather than of subsidies. In the
second instance this distinction would leave the door open to the U.S.
Government's subsequent shift from the earlier ambiguous statements made about
the nature of the financial support the Europeans would be receive when the
U.S. first entered the war, to the later uncompromising demands for full
repayment which U.S. would present European negotiators after the end of the
war. Foreign Affairs expressed the connection between the U.S. status as an
Associate rather than a full Ally and the decision to provide Europe with
loans rather than subsidies in these terms: "If her loans had had a relation
to subsidy, she would naturally have been interested in the apportionment of
the spoils of victory, it is of the essence of subsidy that the subsidiser
shall be the principal artificer of the rearrangement . . . . America's
interest in the war was to secure her sovereign position from an aggressor,
and these secured, the apportionment of the spoils became a matter for the
Allies to settle, while the United States negotiated a separate treaty of
peace with Germany. The Treaty of Berlin is the final evidence of the lack of
alliance of the United States with her former associates in war". (p.44).
By 1921, U.S. policy on its claims against Europe had hardened to the point
where Congress, in setting down terms of reference for the Foreign War Debt
Commission, made two stipulation: "first that debts should be refunded with
twenty-five years and that 4.5 per cent should be the lowest limit of the rate
of interest; and secondly . . . that no connection with any debts arising out
of the war could possibly be created by the agreements which were to be
concluded between America and her debtors" (p. 47). The latter clauses were
designed to reject the implication that the onerous demands for reparations
made on Germany by the European allies were themselves a reflection of the
U.S. claims against the allies. Further, President Wilson treated the Anglo-
French suggestions that the U.S. claims against Europe be forgiven
as "amounting to a proposal that the United States surrender its claims in
order that their net collection from Germany might be greater" (p. 47). In a
letter to the British Prime Minister, Wilson declared that "The United States
fails to perceive the logic in a suggestion in effect either that the United
States shall pay part of Germany's reparations or that it shall make a
gratuity to the Allied Governments to induce them to fix such obligations at
an amount within Germany's capacity to pay" (p. 47).
While adopting a hardline towards the debts owed by its former European
partners in war, the U.S. simultaneously denied Europe the opportunity to meet
the claims against them by opening its domestic markets to their exports.
Rather, it raised protective tariffs against European exports, when American
economists all along upbraided the Allies for their refusal to enable Germany
to make its reparations payments by exporting products to the allied powers
(p. 48). The end result of these seemingly contradictory U.S. policies was
that "Germany was bled white after all, because European Allies fixed its
reparations at far above the sum that it could conceivably pay" (p. 49).
The British economists Keynes correctly foresaw the eventual outcome of U.S.
handling of its claims against the European Allies: "The debt system is
fragile and it has only survived because this burden is represented by real
assets and is bound up with the property system generally, and because the
sums already lent are not unduly large in relation to those which it is still
hoped to borrow" (p. 44). Keynes saw that neither Germany nor the Allied
powers would meet their obligations out of their current output and incomes
and the result "would be a breakdown of world investment and trade" and "a new
era of world hostility aggravated by defaults on international investments,
specifically on intergovernmental claims" (p. 44).
According to Hudson, besides the destabilisation of the hitherto European and
British centred world economy, the most significant outcome of U.S. policy
toward Europe was the supplanting in the international arena of private
capital by governmental capital. Hudson makes the case that private finance
capital which was the driving force behind the "old" forms of European
imperialism and its national rivalries as analysed by Lenin and Hobson, was
effectively crowded out by the massive growth of U.S. Government finance in
the form of Inter-Ally War Debt. "The emergence of the United States as the
overwhelming wold creditor was at its very origin a governmental function. It
was not the product of private investment abroad of surpluses earned through
foreign trade, nor the result of the self-expansion of private overseas
investment through reemployment in foreign ventures of earnings and internally
generated cash flow." Though such reinvestment did occur, it remained "small
in comparison with the advances made by the U.S. Government during the war to
its allies and, after the war, for relief and reconstruction" (p. 53). In the
classical form of European imperialism, "governments either seized territory
[in underdeveloped areas rich in natural resources] to secure the expansion of
private interests of their nationals . . . . and to exclude the capitalists of
other nations from them, or entered into special agreements with the rulers of
such areas to produce identical results" actions by the state could be seen as
an expression of the goals of private capital. On the other hand, the "great
surge of U.S. investments overseas was by government, not private investors"
(p. 53) and "private industrial and financial interests in the United States
would have been best served by government non-intervention in the European war
and in European reconstruction" since an "exhausted Europe, prostrated by an
indefinitely prolonged war, would have exposed the whole continent to
domination by U.S. finance capital, whose resources would have been generated
in part by continued sales of arms on a commercial basis to the belligerents."
Hudson therefore regards the intervention of the U.S. Government in the war as
a positive hindrance to the potential expansion of U.S. private capital, where
government inaction would have greatly enlarged the areas open to private U.S.
finance capital, both in Europe and the colonial areas.
Furthermore, U.S. private finance capital during the 1920's, found itself
operating under a number of "voluntary regulations" imposed on it by the U.S.
Treasury as it sought to subordinate the international activities of Wall
Street to the government's own goals, these being primarily to secure full
repayment of the enormous Arms and Reconstruction loans owed by Europe.
According to Hudson, the subordination by the U.S. government, of private
capital and the national bourgeoisie to a national political purpose defined
by the government prefigured, in a far more benign form, the relations between
capital and state that would arise under European fascism in the 1930's. Faced
with this "usurpation of power" by the U.S. government, domestic and
international finance capital offered no resistance - on the contrary,
the "world financial order came to rest on the dominant role in world finance,
not only able to be played but actually played by the government of the United
States."
Hudson is undoubtedly correct in his observation that the inter-war years were
marked by the rise of the U.S. Government to the dominant place in world
financial affairs, a preponderance which still exists today, albeit on
somewhat more unstable foundations. U.S. handling of its European debts during
the inter-war years greatly weakened the financial and trade structures of the
hitherto European and British centred world economy, and aggravated the social
and political crises which led to the rise of European fascism. The U.S.
policies during the inter war years thus effectively accelerated the decline
of Europe and hastened the shift of power to North America. It seems moot
however whether Hudson is correct to state that the interests of U.S. private
capital were hindered or damaged by U.S. Government policy. One weakness in
his argument here is the reliance on various assumptions about the course of
events had the U.S. Government not in fact intervened in the European war. It
is not clear that a Europe exhausted by an indefinitely prolonged war would
have in fact been open to domination by U.S. capital. For one thing, Hudson
does not factor into his argument the observation that U.S. interests in the
early decades of the twentieth century lay in a weakened and diminished
Europe, not a Europe thrown into social chaos and revolutionary turmoil by
war -- as Tsarist Russia was. Beyond the financial measures which it did use
to prop up Britain, France and Germany, America at this point probably lacked
both the military means and the political will to singlehandedly guarantee
against a total breakdown of the political and social structures that might
have occurred in the case of an "indefinitely prolonged war". As things did
turn out however, there is little doubt that U.S. policies greatly
strengthened its own position to the detriment of the European states and
capital, and laid the foundation of the subsequent U.S. global dominance.
-------------------------------------------------
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----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 11:44 AM
Subject: Re: [A-List] Michael Hudson: Super imperialism
John Enyang wrote:
Dear All,
Sorry this is running behind schedule.
****************
Thanks to John for his splendid efforts in keeping this very important
online seminar running. Perhaps the timing is a little unfortunate -- the
academics among us are swamped with exam papers and the like, while the rest
of us are away or preparing to be so. Also, some of you might be
experiencing difficulty in securing a copy of the book, which seems to have
sold out in paperback form at one time or another in most of the online
stores over the past few weeks. If so, then, today at least, there are
copies available at the following outlets:
Pluto Press's own online store:
https://secure.metronet.co.uk/pluto/cgi-bin/web_store/web_store.cgi?sc_query
_subject=Economics
Amazon UK's site:
http://www.amazon.co.uk/exec/obidos/ASIN/0745319890/qid=1056360343/sr=1-1/re
f=sr_1_0_1/202-3415859-0147020
(in addition there are linked sites offering the book at lower than list
price)
Amazon's US site:
http://www.amazon.com/exec/obidos/tg/detail/-/0745319890/qid=1056360456/sr=1
-1/ref=sr_1_1/002-2406081-7187220?v=glance&s=books
Barnes & Noble:
http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?userid=2U4MB03Y1
T&isbn=0745319890&itm=2
And John Smith::
http://www.johnsmith.co.uk/jswelcome.htm
In addition, perhaps the earlier chapters are of less interest to listers
than the later ones that cover more recent events. On this point I strongly
recommend that listers should examine what Hudson has to say in these, as it
is crucial to his argument concerning his theory of imperialism.
I'll respond to John's latest comments later.
Michael Keaney
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 2:52 PM
Subject: Re: [A-List] Michael Hudson: Super imperialism
Unlike the introduction, the chapters
are copiously referenced, which, at
the very least, satisfies my curious mind when I wish to see established
more solid foundations for what appear to be counter-intuitive claims, most
especially concerning the origin of the US state's policy initiatives.
Marxists and other left-leaning types will share a broad conviction that the
state, ultimately, serves the interests of the capitalist class. Debates
usually hot up concerning the extent of autonomy enjoyed by the state in its
relations with that class. Hudson is arguing that the US state, independent
of private interests, embarked upon a deliberate course during the
presidency of Woodrow Wilson, designed to catapult that state into something
like a primus inter pares with its European imperialist counterparts.
Chapter 1 is fascinating inasmuch as it excavates a lot of old literature
concerning the economic consequences of the peace, placing Keynes in a wider
context of debate encompassing the Council on Foreign Relations, future
"Iron Chancellor" Philip Snowden and Lloyd George. Hudson's account is also
revisionist in that it supersedes the sort of history I was taught at
school -- that it was the inordinate greed of Britain and France that
ensured the economic devastation of Germany in the 1920s and the rise of
fascism thereafter. According to Hudson, it was in fact the US, by turning
the screws on its wartime allies, insisting upon timely repayment of debts
accumulating interest at commercial rates, that forced Britain and France to
do the same to Germany in order that they could pay the US. In addition,
Germany's efforts to pay reparations were further obstructed by the US's
trade protectionism, thereby preventing it and Britain and France from
earning sufficient dollar assets with which to repay loans to the US.
While in no way letting European imperialism off the hook, Hudson's account
does provide an interesting counterpoint to the conventional wisdom on which
I was reared. It also suggests that it is in the conduct of the first world
war and its aftermath by the US that the "imperialist chain" of domination
and dependence, conceptualised by Nicos Poulantzas, was established. More
learned students of imperialism than I will, I hope, be able to comment on
this.
Writing any book of history is problematic in terms of periodisation and in
determining the boundaries of the book -- when does this particular history
start? In this case there are questions I would like to see answered in
greater detail. Perhaps out of necessity they are not treated by Hudson, but
they deserve to be. Hudson assembles a case based on circumstantial evidence
that the US state deliberately planned to bring its imperialist competitors
to order via financial means, and unprecedently so. It was the "assumption
of lending power by a single national government [that] proved as
revolutionary as the Bolshevik revolution" (p. 56). Instead of private
sector imperatives dictating US state policy, the latter determined the
former. "Without this perception one cannot comprehend the seemingly
contradictory and apparently self-defeating policies pursued by the United
States toward its World War I allies and during the years that followed. Nor
can a foundation be laid for understanding the financial-imperial policies
of the United States after World War II until one has grasped the
power-seeking context within which the United States conducted itself in the
interwar period with respect to German reparations and the Inter-Ally war
debts" (p.57).
Hudson makes an especially eye-catching claim, particularly so in the
current political situation:
"The overwhelmingly governmental nature of U.S. international finance
capital, initiated during the war, was further emphasized when the war
ended. What was being experienced was the earliest manifestation of what was
to evolve in other countries, though in far cruder form, into National
Socialism. Germany under Hitler, Italy under Mussolini and Spain under
Franco subordinated the individual interests of their separate capitalist
groupings to a national political purpose without injuring these interests,
but subjecting them to more or less effective regulation depending upon the
character of the regime. Precisely this, but in far more benign fashion, was
implicit in assumption of the role of the nation's and the world's main
credit functions by the government of the United States" (p. 56).
This provides useful perspective on Bertram Gross's "Friendly Fascism" book
of 1980, in addition to the much more recent warnings about the overweening
police state inclinations of the Bush administration. And when you think
about all that has happened since Woodrow Wilson: the red scare,
Saccho-Vanzetti, Taft-Hartley, McCarthyism, AFL-CIO support for imperialism,
etc., it adds further perspective to Lou Proyect's comments, written as part
of a different discussion:
Fascism is not about "planning". It is about the wholesale destruction of
trade unions and socialist parties in order to maximize the power of
corporations and pave the way for wars of conquest.
See
http://www.columbia.edu/~lnp3/msg31963.html
While Hudson refers to the Federal Reserve from time to time, in connection
with policies designed and implemented to serve perceived US ends, no
mention is made of its origins, and whether these would have any bearing on
the apparent strategy of the Wilson administration and its successors. Given
the continuities underlying the apparent ruptures that changes in
presidential administration often obscure (certainly the case with Clinton
and Bush), we would have to go further back into history to satisfactorily
deal with the emergent need for a Federal Reserve system. But it seems
appropriate that it should have been established on Wilson's watch. The
questions I ask are as follows:
1) Was the establishment of the Federal Reserve integral to the success of
the strategy apparently being pursued by the US Treasury under Wilson and
succeeding administrations?
2) To what extent did this strategy pre-date Wilson (i.e. were the
administrations of Taft, Roosevelt and McKinley responsible for laying the
groundwork, and consciously so)?
3) Is there any further documentary evidence to suggest that this strategy
was being consciously followed by Wilson? Or, to put it another way, when,
in its evolutionary development, did it become recognisable in the form that
Hudson alleges it to be in "Super Imperialism"?
There is an important ideological aspect to this also, accentuated by
Wilson's own tendency for moral grandiliquence grafted onto to the ever more
dangerous salvationalist ideology that buttresses US power, and never more
so than now. Wilson's apparent refusal to countenance the traditional means
of financial support would fit well with a stern presbyterian moralism
concerning financial matters -- the sort of rationale espoused by Margaret
Thatcher in the earlier days of her premiership. Some indication of how
important this was in swaying originally contrary opinions in US political
elites would be useful.
Michael Keaney
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 10:12 AM
Subject: Re: [A-List] Michael Hudson's Super Imperialism
Michael Hudson writes:
The reason that the process has not created a collapse so far is that the
United States made it clear ever since the 1970s in discussions over IMF
Special Drawing Rights ("paper gold") that it has no intention of paying its
foreign debt. Foreign central banks are invited to keep their claims on the
US Treasury as money to settle balances among themselves, but the US won't
treat this as a debt. Hence, the nominal US official debt is largely
fictitious.
Fictions can go on forever, as long as nobody will call the US bluff and
actually try to use their central bank Treasury bills to buy a US company,
US real estate or other real asset.
Governments rejecting US dollars don't seem to stay in office long, or
experience assassinations or regime change. In this respect the US won't
face a debt problem, but the rest of the world will have to confront the US
free lunch.
-----
Does the above have anything to do with the economic malaise that has beset
Japan since c.1990? Remember that prior to that, Japan the economic
powerhouse that people like Lester Thurow were holding up as the model of
sound economic policy and performance was beginning to flex its muscles, not
only through manufacturing superior quality goods, but by purchasing US
corporations, most notably Sony's acquisition of Columbia and Matsushita's
takeover of Universal.
Meanwhile:
This comment explains why I included the first three chapters of my
Super-Imperialism on America's creditor stance before 1950. It provides a
counterpoint to the post-1950 period, where the US has used its debtor power
as aggressively as it used its creditor power in earlier times. Today, in
fact, it uses a creditor strategy vis-à-vis third world countries and other
debtor countries, while using a debtor strategy vis-à-vis Europe and Asia.
-----
The inclusion of pre-1950 detail is fundamental to your argument imho, not
least because of your assertions regarding the existence of a clear strategy
on the part of the Wilson administration to redress the balance of
imperialism following the end of the first world war. Once the flurry of
euro-related interest abates I hope that you can offer some answers to the
questions I posted yesterday:
See
http://lists.econ.utah.edu/pipermail/a-list/2003-June/026665.html
With respect to the final question re ideology, you refer on page 1 to
another book you wrote, "Economics and Technology in 19th century American
Thought", published in 1975. If Wilson's administration was crucial in
formulating and implementing this new imperialism, then, given his own
personality, there can be little question that the "messianic ethic" to
which you refer was crucial in terms of legitimating an otherwise naked
imperialist power-grab.
Incidentally, it's worth checking Thorstein Veblen's review of JM Keynes
"Economic Consequences of the Peace", published in 1920. In addition to some
nice turns of phrase (e.g., the war victors and treaty negotiators as a
"hidden Conclave of political hucksters") it's also good in adding to the
context already provided in chapter 1, as well as offering some interesting
critique of Keynes, whom Veblen obviously regarded highly, but whose
approach was typical of "the attitude of men accustomed to take political
documents at their face value".
See
http://www.socsci.mcmaster.ca/~econ/ugcm/3ll3/keynes/vebrev
Michael Keaney
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 3:10 PM
Subject: [A-List] Michael Hudson's Super-imperialism
I wish to thank Michael for taking up
points in my first post in his
first reply. I did not know he would be replying, otherwise I would
have attempted to spell out better the question about the euro which
was on my mind at the time. My concern was that many journalists -- I
downloaded their articles at the time, but it seems not competently or
successfully, so I cannot quote them, though I continue to search --
argued what seemed to be Michael H.'s case about contemporary dollar
imperialism through debt, and in my (I repeat, non-economist) mind
they became conflated with the argument that a dominant reason for the
US's going to war was that Iraq was changing over from the dollar to
the euro for oil payments, and that other oil producing countries were
likely to do the same. I would be very grateful for any contribution
Michael would like to make in this area.
I have been reading Super-imperialism with great interest, catching
glimpses of the tip of the iceberg through the fog. I think Michael K.
is right, both that the part we are all most interested in comes at
the end, but that the account of the war and interwar years lays the
foundation. As John puts it
"U.S. handling of its European debts during the inter-war years
greatly weakened the financial and trade structures of the hitherto
European and British centred world economy, and aggravated the social
and political crises which led to the rise of European fascism".
It did not give Weimar social democracy a chance, and it was probably
intended not to. So it can be seen as being at the origin of all the
horrors of the 20th century.
I would like to thank Michael K. for encouraging the study of
Michael's impressive work. On a first reading I found it very
enlightening on a great range of areas. It seems to me it should be
the basis of all leftwing historical geopolitical thinking.
If we are allowed some deregulated spontaneity in the seminar, I would
like to ask if Michael H. thinks that the present escalating US debt
can be sustained without collapse in the world economy?
James Daly
----- Original Message -----
From: WRC92@aol.com
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 3:37 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism
BTW, I concur with Mr. Daly's
questions, as these two issues are foremost on my mind...
<<in my (I repeat, non-economist) mind they became conflated with the argument
that a dominant reason for the US's going to war was that Iraq was changing
over from the dollar to the euro for oil payments, and that other oil
producing countries were likely to do the same. I would be very grateful for
any contribution Michael would like to make in this area.>>
My question is thus: Could a multiple reserve currency/ fractional reserve
commodity system be phased-in an attempt to mitgate the following issue that
Mr. Daly addressed with regard to the dollar's role in US debt...
<<If we are allowed some deregulated spontaneity in the seminar, I would like
to ask if Michael H. thinks that the present escalating US debt can be
sustained without collapse in the world economy?>>
Any comments/eloboration would be greatly appreciated.
-William
(AMD: this is William R. Clarke)
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 5:08 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism
Dear James,
You ask whether the US debt can be sustained without a collapse in the world
economy. If there is a collapse, it must take the form of a political break,
and this still is not on the horizon, remarkable as it may appear. (I'm hoping
to help fan the flames of discontent over this issue.)
The reason that the process has not created a collapse so far is that the
United States made it clear ever since the 1970s in discussions over IMF
Special Drawing Rights ("paper gold") that it has no intention of paying its
foreign debt. Foreign central banks are invited to keep their claims on the US
Treasury as money to settle balances among themselves, but the US won't treat
this as a debt. Hence, the nominal US official debt is largely fictitious.
Fictions can go on forever, as long as nobody will call the US bluff and
actually try to use their central bank Treasury bills to buy a US company, US
real estate or other real asset.
Governments rejecting US dollars don't seem to stay in office long, or
experience assassinations or regime change. In this respect the US won't face
a debt problem, but the rest of the world will have to confront the US free
lunch.
Most other debt, of course, can't be paid, simply because of the mathematics
of compound interest. Most third world debt represents the annual interest
accruals of loans long past taken out and squandered to subsidize capital
flight by supporting the currency. In effect, governments borrow the interest
each year. I've plotted curves for most countries, including the United
States, for the debt they had in 1945, and plotted the curve of increase at 5
and 6%. This covers most countries and they fall within this range.
At the end of this geometric growth is all the gold in the world, so of course
the debt is not sustainable. As Adam Smith said in the Wealth of Nations, no
nation has ever paid off its debt.
A second reason why the debts can't be paid concerns the rate of interest. And
this is a problem that affects the US domestic financial market as well as
global markets.
More and more debt has been added on by lowering the rate of interest, so that
a given flow of debt service has been able to carry a larger and larger
inverted pyramid of debt.
This is what has inflated the bubble economy. However, there is an inner
contradiction here, and that concerns pension funds. As the rate of interest
falls, it is necessary to invest more and more in bonds in order to provide a
given defined benefit. As rates fall to zero, the pension fund - presaving to
pay pension - must approach infinity to generate the required returns.
This is prompting corporations all over the world to switch from defined
benefits to defined pay-in plans. Employees have no idea of what they'll get
when they retire.
The classic switch is the "South Sea Bubble strategy." Holders of government
obligations - including Social Security contributors - will be asked to switch
their legal claims for stipulated interest or rentier payments to undefined
equity. In the 1710s England could hold out the promise of the great growth
industry of its day, the slave trade. Today I suppose it's the dot.com and
information technology bubble (no, that's gone bust already), maybe outer
space. Once bondholders and Social Security claimants and pensioners switch
into stocks, the vast shift of money into the stock market will inflate its
prices. Then, these prices can be permitted to collapse, wiping out their
claims. It will all be blamed on "the madness of crowds," as if the government
had not orchestrated public opinion to fan the flames of get-rich-quick bubble
financing.
This comment explains why I included the first three chapters of my
Super-Imperialism on America's creditor stance before 1950. It provides a
counterpoint to the post-1950 period, where the US has used its debtor power
as aggressively as it used its creditor power in earlier times. Today, in
fact, it uses a creditor strategy vis-à-vis third world countries and other
debtor countries, while using a debtor strategy vis-à-vis Europe and Asia.
My point is that from this financially macroeconomic standpoint, an
international creditor position has a logic all its own. This logic is
independent from the role of governments in representing the interests of
their private corporations. Of course they do this too. But the
corporation-and-profit motivation for imperialism is largely microeconomic in
character as compared to the international creditor/debtor motivation on the
macroeconomic financial level. I am trying to distinguish between the
different motivations and techniques or tactics of imperialism in order to get
a more rounded picture. This should be viewed as adding a layer to the
analysis, not as replacing the familiar old-style imperialism.
Michael Hudson
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 3:35 PM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
This is one of the sources I mentioned
in my post -- JD
----- Original Message ----- From: "Hans G. Ehrbar"
<ehrbar@lists.econ.utah.edu>
To: <a-list@lists.econ.utah.edu>;
<marxism@lists.panix.com>
Sent: Sunday, February 09, 2003 6:30 PM
Subject: [A-List] Euro Currency War: Implications for Anti-War
Movement
In the last two days, two web sites have been publicized on various
mailing lists which give a credible explanation of the motives behind
the impending assault on Iraq:
http://www.rupe-india.org/34/behind.html
http://ratical.org/ratville/CAH/RRiraqWar.html
One of the main arguments on these two web sites is that the main goal
of the war is to prevent the Euro from becoming a threat to the
dollar. After some initial scepticism the idea seems to be catching
on. What are the implications of the analysis on these two web sites?
(1) One of the unspoken mottos of the anti-war movement has been that
the movement is really saving the capitalists from themselves. People
did not think that it was in the US ruling class's own best interest
to go to war in Iraq. Dave MrReynolds said on Louis Proyect's marxism
list that "Bush is out of control, obsessed", and Lou Paulsen said, if
I remember right, that Bush cannot go back because his re-election is
at stake. (I am quoting all this from memory.) Some commentators
said it only helps the oil businesses which Bush is connected to, not
all US capitalists. This is not the right analysis. The two links
above argue convincingly that the strategy is rational in its own sick
sense. What Bush is trying to achieve is indeed good and necessary
for continuing the privileged position of the US in the world system.
If Bush were to succeed with his plans, this would ensure continued
prosperity for the US in the next 10 to 15 years, although it would
make the eventual awakening even more devastating.
(2) The problem with this strategy however is that it is not going to
succeed. It is far too ambitious, it is clearly imperial overreach.
The plans for this were worked out during the nineties, and they
failed to factor in two recent developments:
(a) The power of the internet. The ruling clique thought they could
pull a fast one on the US and international public, as with the Gulf
of Tonkin incident for the Vietnam War and the incubator babies for
the first Gulf War, or when they claimed bombing the Chinese embassy
in Belgrade was an accident.
(b) Bush's lack of grace as national and international leader has
always helped to focus the scattered opposition against him.
(3) But now there is no going back. The USA cannot go back to its
image of benign hegemon. The goodwill all over the world which was
built up over many decades has been spent by Bush in a few months.
Bush's provocations already caused the withdrawal of $200 billion of
Saudi Arabian investment, and it is inevitable that the anti-American
sentiment will motivate investors and governments all over the world
to diversify their currency holdings into the Euro. Bush's
irresponsible budget policies and his tax cuts are undermining the
confidence in the dollar as well. Although academic economists try to
downplay the implications of this, this will make a whole house of
cards come tumbling down. Capitalism itself will survive, but the end
of economic US hegemony is approaching much faster than anyone had
expected.
(4) The US is still the overwhelming military power, and its only
chance is to use this to the fullest. They will sweep into Iraq,
while Sharon will expel the Palestinians from the West Bank, and they
are prepared to seize Saudi Oil fields, etc. They know that there
will a world wide public outcry, this outcry is already underway.
Their hope is that this outcry will subside again in the light of a
continued US-led prosperity in the industrialized nations.
(5) What does this mean for the anti-war activists? Don't say that
the Bush strategy is irrational. We must explain this strategy and we
must argue that its success is not in the interest of the people, not
even those living in the USA. I.e., in contrast to the slogan "Win
without war" we must say: "We don't want any part of this, even if it
would be achievable without war, or only with short and 'clean'
military interventions." This is called an "Achilles heel critique"
(Bhaskar, Dialectic, 1994): we must criticise the opponent where he
seems strongest. Only then will we be able to do the right thing in a
situation which has the potential to become World War III.
Hans G. Ehrbar
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 3:46 PM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
another of the sources I mentioned -- James D.
----- Original Message -----
From: James Daly
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 3:53 PM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
sorry -- another of the sources I
mentioned -- I hope it is not too
far off the subject of the seminar -- James D.
----- Original Message ----- From: "James Daly"
<james.irldaly@ntlworld.com>
To: <a-list@lists.econ.utah.edu>
Sent:
Thursday, April 24, 2003 1:15 PM Subject: Euro/dollar motive
This account of the Euro/dollar rivalry seems helpful to an economics
illiterate like me. I hope I'm not duplicating.
Geoffrey Heard is a Melbourne, Australia, writer on the environment,
sustainability and human rights. . .
Iraq War: It is between Dollar & Euro
Summary: Why is George Bush so hell bent on war with Iraq? Why does
his administration reject every positive Iraqi move? It all makes
sense when you consider the economic implications for the USA of not
going to war with Iraq. The war in Iraq is actually the US and Europe
going head to head on economic leadership of the world.
America's Bush administration has been caught in outright lies, gross
exaggerations and incredible inaccuracies as it trotted out its
litany of paper thin excuses for making war on Iraq. Along with its
two supporters, Britain and Australia, it has shifted its ground and
reversed its position with a barefaced contempt for its audience. It
has manipulated information, deceived by commission and omission and
frantically "bought" UN votes with billion dollar bribes.
Faced with the failure of gaining UN Security Council support for
invading Iraq, the USA has threatened to invade without authorisation.
It would act in breach of the UN's very constitution to allegedly
enforced UN resolutions.
It is plain bizarre. Where does this desperation for war come from?
There are many things driving President Bush and his administration to
invade Iraq, unseat Saddam Hussein and take over the country. But the
biggest one is hidden and very, very simple. It is about the currency
used to trade oil and consequently, who will dominate the world
economically, in the foreseeable future -- the USA or the European
Union.
Iraq is a European Union beachhead in that confrontation. America had
a monopoly on the oil trade, with the US dollar being the fiat
currency, but Iraq broke ranks in late 1999, started to trade oil in
the EU's euros, and profited. If America invades Iraq and takes over,
it will hurl the EU and its euro back into the sea and make America's
position as the dominant economic power in the world all but
impregnable.
It is the biggest grab for world power in modern times.
America's allies in the invasion, Britain and Australia, are betting
America will win and that they will get some trickle-down benefits
for jumping on to the US bandwagon.
France and Germany are the spearhead of the European force -- Russia
would like to go European but possibly can still be bought off.
Presumably, China would like to see the Europeans build a share of
international trade currency ownership at this point while it
continues to grow its international trading presence to the point
where it, too, can share the leadership rewards.
DEBATE BUILDING ON THE INTERNET
Oddly, little or nothing is appearing in the general media about this
issue, although key people are becoming aware of it -- note the
recent slide in the value of the US dollar. Are traders afraid of war?
They are more likely to be afraid there will not be war.
But despite the silence in the general media, a major world discussion
is developing around this issue, particularly on the Internet. Among
the many articles: Henry Liu, in the 'Asia Times' last June, it has
been a hot topic on the Feasta forum, an Irish-based group exploring
sustainable economics, and W. Clark's "The Real Reasons for the
Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of
the Unspoken Truth" has been published by the 'Sierra
Times','Indymedia.org', and 'ratical.org'.
This debate is not about whether America would suffer fromlosing the
US dollar monopoly on oil trading -- that is a given -- rather it is
about exactly how hard the USA would be hit. The smart money seems to
be saying the impact would be in the range from severe to
catastrophic. The USA could collapse economically.
OIL DOLLARS
The key to it all is the fiat currency for trading oil.
Under an OPEC agreement, all oil has been traded in US dollars since
1971 (after the dropping of the gold standard) which makes the US
dollar the de facto major international trading currency. If other
nations have to hoard dollars to buy oil, then they want to use that
hoard for other trading too. This fact gives America a huge trading
advantage and helps make it the dominant economy in the world.
As an economic bloc, the European Union is the only challenger to the
USA's economic position, and it created the euro to challenge the
dollar in international markets. However, the EU is not yet united
behind the euro -- there is a lot of jingoistic national politics
involved, not least in Britain -- and in any case, so long as nations
throughout the world must hoard dollars to buy oil, the euro can make
only very limited inroads into the dollar's dominance.
In 1999, Iraq, with the world's second largest oil reserves, switched
to trading its oil in euros. American analysts fell about laughing;
Iraq had just made a mistake that was going to beggar the nation. But
two years on, alarm bells were sounding; the euro was rising against
the dollar, Iraq had given itself a huge economic free kick by
switching.
Iran started thinking about switching too; Venezuela, the 4th largest
oil producer, began looking at it and has been cutting out the dollar
by bartering oil with several nations including America's bete noir,
Cuba. Russia is seeking to ramp up oil production with Europe (trading
in euros) an obvious market.
The greenback's grip on oil trading and consequently on world trade in
general, was under serious threat. If America did not stamp on this
immediately, this economic brushfire could rapidly be fanned into a
wildfire capable of consuming the US's economy and its dominance of
world trade.
HOW DOES THE US GET ITS DOLLAR ADVANTAGE?
Imagine this: you are deep in debt but every day you write cheques for
millions of dollars you don't have -- another luxury car, a holiday
home at the beach, the world trip of a lifetime.
Your cheques should be worthless but they keep buying stuff because
those cheques you write never reach the bank! You have an agreement
with the owners of one thing everyone wants, call it petrol/gas, that
they will accept only your cheques as payment. This means everyone
must hoard your cheques so they can buy petrol/gas. Since they have to
keep a stock of your cheques, they use them to buy other stuff too.
You write a cheque to buy a TV, the TV shop owner swaps your cheque
for petrol/gas, that seller buys some vegetables at the fruit shop,
the fruiterer passes it on to buy bread, the baker buys some flour
with it, and on it goes, round and round -- but never back to the
bank.
You have a debt on your books, but so long as your cheque never
reaches the bank, you don't have to pay. In effect, you have received
your TV free.
This is the position the USA has enjoyed for 30 years -- it has been
getting a free world trade ride for all that time. It has been
receiving a huge subsidy from everyone else in the world. As it debt
has been growing, it has printed more money (written more cheques) to
keep trading. No wonder it is an economic powerhouse!
Then one day, one petrol seller says he is going to accept another
person's cheques, a couple of others think that might be a good idea.
If this spreads, people are going to stop hoarding your cheques and
they will come flying home to the bank. Since you don't have enough in
the bank to cover all the cheques, very nasty stuff is going to hit
the fan!
But you are big, tough and very aggressive. You don't scare the other
guy who can write cheques, he's pretty big too, but given a
'legitimate' excuse, you can beat the tripes out of the lone gas
seller and scare him and his mates into submission.
And that, in a nutshell, is what the USA is doing right now with Iraq.
AMERICA'S PRECARIOUS ECONOMIC POSITION
America is so eager to attack Iraq now because of the speed with which
the euro fire could spread. If Iran, Venezuela and Russia join Iraq
and sell large quantities of oil for euros, the euro would have the
leverage it needs to become a powerful force in general international
trade. Other nations would have to start swapping some of their
dollars for euros.
The dollars the USA has printed, the 'cheques' it has written, would
start to fly home, stripping away the illusion of value behind them.
The USA's real economic condition is about as bad as it could be; it
is the most debt-ridden nation on earth, owing about US$12,000 for
every single one of it's 280 million men, women and children. It is
worse than the position of Indonesia when it imploded economically a
few years ago, or more recently, that of Argentina.
Even if OPEC did not switch to euros wholesale (and that would make a
very nice non-oil profit for the OPEC countries, including minimising
the various contrived debts America has forced on some of them), the
US's difficulties would build. Even if only a small part of the oil
trade went euro, that would do two things immediately
* Increase the attractiveness to EU members of joining the 'eurozone',
which in turn would make the euro stronger and make it more attractive
to oil nations as a trading currency and to other nations as a general
trading currency.
* Start the US dollars flying home demanding value when there isn't
enough in the bank to cover them.
* The markets would over-react as usual and in no time, the US
dollar's value would be spiralling down.
THE US SOLUTION
America's response to the euro threat was predictable. It has come out
fighting.
It aims to achieve four primary things by going to war with Iraq
* Safeguard the American economy by returning Iraq to trading oil in
US dollars, so the greenback is once again the exclusive oil currency.
* Send a very clear message to any other oil producers just what will
happen to them if they do not stay in the dollar circle. Iran has
already received one message -- remember how puzzled you were that in
the midst of moderation and secularization, Iran was named as a member
of the axis of evil?
* Place the second largest reserves of oil in the world under direct
American control.
* Provide a secular, subject state where the US can maintain a huge
force perhaps with nominal elements from allies such as Britain and
Australia) to dominate the Middle East and its vital oil. This would
enable the US to avoid using what it sees as the unreliable Turkey,
the politically impossible Israel and surely the next state in its
sights, Saudi Arabia, the birthplace of al Qaeda and a hotbed of
anti-American sentiment.
* Severe setback the European Union and its euro, the only trading
bloc and currency strong enough to attack the USA's dominance of world
trade through the dollar.
* Provide cover for the US to run a covert operation to overturn the
democratically elected government of Venezuela and replace it with an
America-friendly military supported junta -- and put Venezuala's oil
into American hands.
Locking the world back into dollar oil trading would consolidate
America's current position and make it all but impregnable as the
dominant world power -- economically and militarily. A splintered
Europe (the US is working hard to split Europe; Britain was easy,but
other Europeans have offered support in terms of UN votes) and its
euro would suffer a serious setback and might take decades to recover.
It is the boldest grab for absolute power the world has seen in modern
times. America is hardly likely to allow the possible slaughter of a
few hundred thousand Iraqis stand between it and world domination.
President Bush did promise to protect the American way of life. This
is what he meant.
JUSTIFYING WAR
Obviously, the US could not simply invade Iraq, so it began casting
around for a 'legitimate' reason to attack. That search has been one
of increasing desperation as each rationalization has crumbled. First
Iraq was a threat because of alleged links to al Qaeda; then it was
proposed Iraq might supply al Qaeda with weapons; then Iraq's military
threat to its neighbours was raised; then the need to deliver Iraqis
from Saddam Hussein's horrendously inhumane rule; finally there is the
question of compliance with UN weapons inspection.
The USA's justifications for invading Iraq are looking less impressive
by the day. The US's statements that it would invade Iraq unilaterally
without UN support and in defiance of the UN make a total nonsense of
any American claim that it is concerned about the world body's
strength and standing.
The UN weapons inspectors have come up with minimal infringements of
the UN weapons limitations -- the final one being low tech rockets
which exceed the range allowed by about 20 percent. But there is no
sign of the so-called weapons of mass destruction
(WMD) the US has so confidently asserted are to be found. Colin Powell
named a certain north Iraqi village as a threat. It was not. He later
admitted it was the wrong village.
'Newsweek' (24/2) has reported that while Bush officials have been
trumpeting the fact that key Iraqi defector, Lt. Gen. Hussein Kamel,
told the US in 1995 that Iraq had manufactured tonnes of nerve gas and
anthrax (Colin Powell's 5 February presentation to the UN was just one
example)they neglected to mention that Kamel had also told the US that
these weapons had been destroyed.
Parts of the US and particularly the British secret 'evidence' have
been shown to come from a student's masters thesis.
America's expressed concern about the Iraqi people's human rights and
the country's lack of democracy are simply not supported by the USA's
history of intervention in other states nor by its current actions.
Think Guatemala, the Congo, Chile and Nicaragua as examples of a much
larger pool of US actions to tear down legitimate, democratically
elected governments and replace them with war, disruption, starvation,
poverty, corruption, dictatorships, torture, rape and murder for its
own economic ends. The most recent, Afghanistan, is not looking good;
in fact that reinstalled a murderous group of warlords which America
had earlier installed, then deposed, in favour of the now hated
Taliban.
Saddam Hussein was just as repressive, corrupt and murderous 15 years
ago when he used chemical weapons, supplied by the US, against the
Kurds. The current US Secretary for Defence, Donald Rumsfeld, so
vehement against Iraq now, was on hand personally to turn aside
condemnation of Iraq and blame Iran. At that time, of course, the US
thought Saddam Hussein was their man -- they were using him against
the perceived threat of Iran's Islamic fundamentalism.
Right now, as 'The Independent' writer, Robert Fisk, has noted, the
US's efforts to buy Algeria's UN vote includes promises of re-arming
the military which has a decade long history of repression, torture,
rape and murder Saddam Hussein himself would envy. It is estimated
200,000 people have died, and countless others been left maimed by
the activities of these monsters. What price the US's humanitarian
concerns for Iraqis? (Of course, the French are also wooing Algeria,
their former north African territory, for all they are worth, but at
least they are not pretending to be driven by humanitarian concerns.)
Indonesia is another nation with a vote and influence as the largest
Muslim nation in the world. Its repressive, murderous military is
regaining strength on the back of the US's so-called anti-terror
campaign and is receiving promises of open and covert support --
including intelligence sharing.
AND VENEZUELA
While the world's attention is focused on Iraq, America is both openly
and covertly supporting the "coup of the rich" in Venezuela, which
grabbed power briefly in April last year before being intimidated by
massive public displays of support by the poor for
democratically-elected President Chavez Frias. The coup leaders
continue to use their control of the private media, much of industry
and the ear of the American Government and its oily intimates to
cause disruption and disturbance.
Venezuela's state-owned oil resources would make rich pickings for
American oil companies and provide the US with an important oil source
in its own backyard.
Many writers have noted the contradiction between America's alleged
desire to establish democracy in Iraq while at the same time, actively
undermining the democratically-elected government in Venezuela. Above
the line, America rushed to recognise the coup last April; more
recently, President Bush has called for "early elections", ignoring
the fact that President Chavez Frias has won three elections and two
referendums and, in any case, early elections would be
unconstitutional.
One element of the USA's covert action against Venezuela is the
behaviour of American trans-national businesses, which have locked out
employees in support of "national strike" action. Imagine them doing
that in the USA! There is no question that a covert operation is in
process to overturn the legitimate Venezuelan government. Uruguayan
congressman, Jose Nayardi, made it public when he revealed that the
Bush administration had asked for Uruguay's support for Venezuelan
white collar executives and trade union activists "to break down
levels of intransigence within the Chavez Frias administration". The
process, he noted, was a shocking reminder of the CIA's 1973
intervention in Chile which saw General Pinochet lead his military
coup to take over President Allende's democratically elected
government in a bloodbath.
President Chavez Frias is desperately clinging to government, but with
the might of the USA aligned with his opponents, how long can he last?
THE COST OF WAR
Some have claimed that an American invasion of Iraq would cost so many
billions of dollars that oil returns would never justify such an
action.
But when the invasion is placed in the context of the protection of
the entire US economy for now and into the future, the balance of the
argument changes. Further, there are three other vital factors First,
America will be asking others to help pay for the war because it is
protecting their interests. Japan and Saudi Arabia made serious
contributions to the cost of the 1991 Gulf war.
Second -- in reality, war will cost the USA very little -- or at
least, very little over and above normal expenditure. This war is
already paid for! All the munitions and equipment have been bought and
paid for. The USA would have to spend hardly a cent on new hardware to
prosecute this war -- the expenditure will come later when munitions
and equipment have to be replaced after the war. But munitions,
hardware and so on are being replaced all the time -- contracts are
out. Some contracts will simply be brought forward and some others
will be ramped up a bit, but spread over a few years, the cost will
not be great. And what is the real extra cost of an army at war
compared with maintaining the standing army around the world, running
exercises and so on? It is there, but it is a relatively small sum.
Third -- lots of the extra costs involved in the war are dollars spent
outside America, not least in the purchase of fuel. Guess how America
will pay for these? By printing dollars it is going to war to protect.
The same happens when production begins to replace hardware.
components, minerals, etc. are bought in with dollars that go overseas
and exploit America's trading advantage.
The cost of war is not nearly as big as it is made out to be. The cost
of not going to war would be horrendous for the USA -- unless there
were another way of protecting the greenback's world trade dominance.
AMERICA'S TWO ACTIVE ALLIES
Why are Australia and Britain supporting America in its transparent
Iraqi war ploy?
Australia, of course, has significant US dollar reserves and trades
widely in dollars and extensively with America. A fall in the US
dollar would reduce Australia's debt, perhaps, but would do nothing
for the Australian dollar's value against other currencies. John
Howard, the Prime Minister, has long cherished the dream of a free
trade agreement with the USA in the hope that Australia can jump on
the back of the free ride America gets in trade through the dollar's
position as the major trading medium. That would look much less
attractive if the euro took over a significant part of the oil trade.
Britain has yet to adopt the euro. If the US takes over Iraq and
blocks the euro's incursion into oil trading, Tony Blair will have
given his French and German counterparts a bloody nose, and gained
more room to manoeuvre on the issue -- perhaps years more room.
Britain would be in a position to demand a better deal from its EU
partners for entering the "eurozone" if the new currency could not
make the huge value gains guaranteed by a significant role in world
oil trading. It might even be in a position to withdraw from Europe
and link with America against continental Europe.
On the other hand, if the US cannot maintain the oil trade dollar
monopoly, the euro will rapidly go from strength to strength, and
Britain could be left begging to be allowed into the club.
THE OPPOSITION
Some of the reasons for opposition to the American plan are obvious --
America is already the strongest nation on earth and dominates world
trade through its dollar. If it had control of the Iraqi oil and a
base for its forces in the Middle East, it would not add to, but would
multiply its power.
The oil-producing nations, particularly the Arab ones, can see the
writing on the wall and are quaking in their boots.
France and Germany are the EU leaders with the vision of a resurgent,
united Europe taking its rightful place in the world and using its
euro currency as a world trading reserve currency and thus gaining
some of the free ride the United States enjoys now. They are the ones
who initiated the euro oil trade with Iraq.
Russia is in deep economic trouble and knows it will get worse the day
America starts exploiting its take-over of Afghanistan by running a
pipeline southwards via Afghanistan from the giant southern Caspian
oil fields. Currently, that oil is piped northwards -- where Russia
has control.
Russia is in the process of ramping up oil production with the
possibility of trading some of it for euros and selling some to the US
itself. Russia already has enough problems with the fact that oil is
traded in US dollars; if the US has control of Iraqi oil, it could
distort the market to Russia's enormous disadvantage. In addition,
Russia has interests in Iraqi oil; an American take over could see
them lost. Already on its knees, Russia could be beggared before a
mile of the Afghanistan pipeline is laid.
ANOTHER SOLUTION?
The scenario clarifies the seriousness of America's position and
explains its frantic drive for war. It also suggests that solutions
other than war are possible.
Could America agree to share the trading goodies by allowing Europe to
have a negotiated part of it? Not very likely, but it is just possible
Europe can stare down the USA and force such an outcome. Time will
tell. What about Europe taking the statesmanlike, humanitarian and
long view, and withdrawing, leaving the oil to the US, with
appropriate safeguards for ordinary Iraqis and democracy in Venezuela?
Europe might then be forced to adopt a smarter approach -- perhaps
accelerating the development of alternative energy technologies which
would reduce the EU's reliance on oil for energy and produce goods it
could trade for euros -- shifting the world trade balance.
Now that would be a very positive outcome for everyone.
. . . .
By Geoffrey Heard is a Melbourne, Australia, writer on the
environment, sustainability and human rights. . .
. .
P.S. Anyone is free to circulate this document provided it is complete
and in its current form with attribution and no payment is asked. It
is prohibited to reproduce this document or any part of it for
commercial gain without the prior permission of the author. For such
permission, contact the author at
gheard@surf.net.au.
SOME REFERENCES AND FURTHER INFORMATION
http://www.ratical.org/ratville/CAH/RRiraqWar.html
'The Real Reasons
for the Upcoming War With Iraq:
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 5:21 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear James and
William,
There is a problem with the euro asserting itself as a rival to the US dollar.
Instead of being run by national Treasuries, European countries are run by
central banks, which act on behalf of their commercial banking and financial
sectors, not "national interest." More to the point, the European Central Bank
(ECB) has arbitrarily limited the size of the deficits that member governments
can run. (Henry Liu has written extensively on this for the Asia Times. His
articles also can be found in a discussion group that I helped organize in
1998, Gang8, of which Henry is a member.)
This means that Europe doesn't have enough debt to act as a VEHICLE for
foreign reserves! As long as the US is the only country permitted to run a
federal budget deficit and balance-of-payments deficit without limit, the
dollar will reign supreme.
The US Government knows this. Hence, the Iraq war was NOT fought out of fear
that the dollar would be dethroned. It was good old-fashioned imperialism -
grabbing the oil supplies, grabbing the military territory surrounding key
areas (with Iran being the key to control of that part of the world),
dismantling the shreds of the USSR and breaking them irreversibly away from
Russia, and surrounding China. Secondarily, the objective was to show any
country that if it didn't knuckle under to US demands, it would be destroyed
like Iraq. The entire intention was to destroy Iraq as an object lesson,
something like the Romans lining up enemies and decimating them, that is,
killing every tenth man. Demonstration effect is what these guys are after as
well as specific geopolitics.
Michael Hudson
----- Original Message -----
From: WRC92@aol.com
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 6:20 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear Michael,
Thank you for your prompt response. I am reading your excellent book, and I
have a few questions for you:
<<<This means that Europe doesn't have enough debt to act as a VEHICLE for
foreign reserves! As long as the US is the only country permitted to run a
federal budget deficit and balance-of-payments deficit without limit, the
dollar will reign supreme.>>>
Yes, while it is true that the ECB has arbitrary debt limits that preclude it
from being able to operate limitless reserves, if the euro became an
alternative oil transaction currency, the EU could follow the path of the US
with its balance of payments (not that they'd want to scap their artifical
levels, but that they could). How?
Well, it would appear as long as global/world demand for oil increases with
its population growth/industrial needs its energy supply will grow as well,
and the country that prints the fiat currency (or oil backed currency) can do
so without limit, as the US has done since 1974 when OPEC [Saudi] agreed to
denominate oil in the dollar only. There is not drop off in demand for such a
resource. Based on the former intel folks I have talked to, the Iraq war was
in part an oil currecny war.
Indeed, Hugo Chavez is swiching to the euro, and the CIA appears rather
interested in dethroning him (they failed last year), but the low-level
operations are still continuing. Here's two recent articles on this issue:
'Venezuelan move to replace US$ with the €uro upsetting Washington more than
Saddam's €uro conversion last November'
http://www.vheadline.com/readnews.asp?id=8613
VHeadline.com editor & publisher Roy S. Carson writes: A move by Venezuelan
President Hugo Chavez Frias to replace the US$ with the €uro is seen as
upsetting Washington more than when Iraq's Saddam Hussein started using the €uro
for oil transactions last November ... precipitating the US-led action to
invade Iraq. Beltway bullies are now said to be angered by Venezuela's
decision to barter oil with thirteen other Latin American countries, dealing
moves to dollarize South America currencies. Intelligence reports say that
while the US was able to pull the wool over the international community and
ally with Britain's Blair to bulldoze action against former Iran War ally
Hussein, the situation with Venezuela is proving more difficult."
...and....
'Switch to euro may lead to global insecurity' (June 18, 2003)
http://www.malaysiakini.com/letters/200306180034650.php
"The recent move by the Venezuelan president Hugo Chavez to replace the US
dollar with the euro has generated as much anger as when former Iraqi
President Saddam Hussein chose to exchange oil for the Euro last November,
thereby sealing his fate."
...and the same may treatment for Iraq may apply to Iran who moved the
majority of their reserves to euros last year, and US troops seem to be going
near Nigeria this summer after some news reports from Nigeria about oil priced
in euros. Indonesia may switch too, and it appears that Iran is waitng to see
what Indonesia does. The US has the least amount of "influence" in Indonesia
so I expect them to redenominate this year.
Please correct me if I am wrong, but my understanding is that since 1974 the
US dollar is in a large sense an oil-backed currency. It theoretically
purchases between 1.5 and 1.9 gallons of crude oil ($22-28 OPEC price range,
42 gallon production barrel). This gives it a unique "storage of wealth."
Hence, if 4 or 5 OPEC countries, representing 30% of the world's oil
production were to switch to pricing/accepting euros for oil, that would have
an adverse effect as various central banks would have to flush dollars and
pruchase euros to pay next month's "power bill" so to speak.
With that in mind, I would sincerelt appreciate if you could answer two
questions:
1) Can you critique the following 3 paragraghs from a short essay I wrote last
month re this subject. Fyi, I am not an economist, just a lowly MBA holder
like Bush...;-)
[in part based on Dr. David Spiro's book, ‘The Hidden Hand of American
Hegemony: Petrodollar Recycling and International Markets,’ Cornell University
Press, (1999)]
"The valuation of the U.S. dollar was rather shaky after August 1971 when the
Nixon had to “de-link” the dollar from the $35 per oz. “gold standard.”
According to Dr. David Spiro’s research on this issue, in 1973-74 the Nixon
administration sought to alleviate this situation by negotiating assurances
from King Saud of Saudi Arabia to price oil in dollars only, and to invest
their surplus oil proceeds in U.S. Treasury Bills. [4] In return the U.S.
would protect the Saudi regime. These unique agreements were intially hidden
from Congress, and created the phenomenon known as “petrodollar recycling.”
The U.S. prints hundreds of billions of fiat dollars, which U.S. consumers
provide to other nations via trade when we purchase their imported goods.
Hundreds of billions of these dollars then become petrodollars when used by
nations to purchase oil/energy from OPEC producers. Depending upon the price
of oil, approximately $600 to $800 billion petrodollars are annually
‘re-cycled’ from OPEC sales and invested back into the U.S. via Treasury Bills
or other dollar-denominated assets.
The fact that all buyers of oil must first buy dollars to pay for the oil
supports the U.S. dollar as the world’s reserve currency, and eliminates our
currency risk for oil. Oil priced in “petrodollars” and the dollar as the
world’s reserve currency has supported the value of our currency which by
normal economic logic, given America’s trillions of dollars in trade deficits
over the past decade, should have much less purchasing power than it currently
possesses. An enlarged E.U. and a strong euro are challenging this
arrangement.
However, as long as the dollar remains the monopoly oil transaction currency,
its “storage of wealth” is theoretically derived from the simple fact that it
purchases between 1.5 and 1.9 gallons of crude oil. (Using OPEC price range
of $22-$28 per barrel, and 42 gallons in a production barrel). No other hard
currency in the world can be used to directly purchase the most valuable
commodity in the world – oil. This unique geo-political agreement with Saudi
Arabia's/OPEC's surplus revenue cycle has worked to our favor for the past 30
years by eliminating any fluctuation (currency risk) in our oil purchases in
relation to the dollar’s valuation, raising the entire asset value of all
dollar denominated assets/properties, and facilitating the Federal Reserve in
creating a truly massive debt and credit expansion (or `credit bubble' in the
view of some economists). In effect, global oil consumption via OPEC
“petrodollar recycling” provides a subsidy to the U.S. economy."
...2) Please critque the following recommendations/suggestions re a
dollar/euro reserve currency arragement at parity value, and a dual OPEC
transaction currency option...(or do you have other innovative ideas that
could used to facilitate these issues?)
"What is needed is a multilateral meeting of the G-7 nations to reform the
international monetary system. Given that future wars will become more likely
over oil and the currency of oil, the author advocates that the global
monetary system be reformed without delay. This would include the dollar and
euro designated as equal international reserve currencies, and placed within
an exchange band along with a dual-OPEC oil transaction currency standard.
Additionally, the G-7 nations should also explore a future third reserve
currency option regarding a yen/yuan bloc for East Asia. A compromise on the
euro/oil issues via a multilateral treaty with a gradual phase-in of a
dual-OPEC transaction currency standard could minimize economic dislocations
within the U.S. While these multilateral reforms may lower our
over-consumption of energy and reduce our ability to project a massive global
military presence, the benefits would include improving the quality of our
lives and that of our children by reducing animosity towards the U.S. while we
rebuild our alliances with the E.U. and the world community. Creating
balanced domestic fiscal polices along with global monetary reform is in the
long-term national security interest of the United States. Hopefully these
proposed monetary reforms could mitigate future armed or economic warfare over
oil, ultimately fostering a more stable, safer, and prosperous global economy
in the 21st century."
If you would like to reply to my email as opposed to this forum, that would be
fine:
wrc92@aol.com
Thanks!!
-William
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Monday, June 23, 2003 6:51 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear William,
Europe could follow the US path only by running a balance-of-payments deficit
in which other countries would hold their international monetary reserves -
without constraint.
But right now, Europe is running a balance-of-payments SURPLUS. Thus, in
addition to national financial accounting (the budget surplus or deficit), one
needs to factor in balance-of-payments accounting. This usually is
counter-intuitive for people who have not worked in the field and programmed
their brain to process an inside-out kind of economic thinking.
Few politicians understand this (or other economic matters, for that matter).
They react ad hoc. The US has managed to do this by always ignoring what
foreign countries want and just doing what politicians want to do in the short
run. This is not how Europeans or Asians are schooled, and it is really a
contrast in political cultures.
I repeat that the oil war was NOT part of a currency war. There's no real
opposition to the US dollar as yet.
As long as Venezuela's debts are dollarized, by the way, it doesn't matter
much what it keeps its reserves in. the US would be much more worried if
Venezuela enforced the clauses in its debt contracts and sued to repudiate its
foreign debt by making use of New York's "fraudulent conveyance" act, wiping
out its debts legally.
The US isn't an oil-backed currency (although as long as OPEC holds dollars,
this creates a demand for dollars that offsets the US balance-of-payments
deficit). It's a military-backed currency, and hence politically backed as an
extension of America's military power. Regarding oil and the balance of
payments, the entire "dollar area" must be viewed as a unit, and your comments
that oil prices support the dollar's value are correct.
Also, it's an ideologically backed currency, through its control of the
British Labour Party which time and again has sold out to America on bad terms
and then tried to drag continental Europe along.
Your quote from Spiro is accurate. Herman Kahn brought me down to meet with
the Sec. of the Treasury to discuss the balance of payments, and he told me
he'd told Saudi Arabia that NOT to keep their reserves in the form of US
Treasury bonds would be treated as an act of war. I'm sure he must have told
at least selected Congressmen the same thing, as this was quite open at the
time. I discuss all this in my sequel to Super-Imperialism, Global Fracture:
The New International Economic Order (Harper & Row, 1978). It's been out of
print for many years.
Regarding your last paragraph, I agree with you. That's the fair way of doing
things.
But life isn't fair.
This isn't only America's fault. It simply pushes its self-interest to the
limit. Often its diplomats expect Europe and Asia to push back, so as to
arrive at the equitable arrangement between the dollar, the euro and the yen/yuan
that you propose. But nobody's pushing back. And so we have today's
arrangements.
Perhaps we can raise their consciousness as to what a rip-off is occurring.
Michael Hudson
----- Original Message -----
From: Sabri Oncu
To: ALIST
Sent: Tuesday, June 24, 2003 12:52 AM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
Michael H:
> The US isn't an oil-backed currency (although as long
> as OPEC holds dollars, this creates a demand for dollars
> that offsets the US balance-of-payments deficit). It's a
> military-backed currency, and hence politically backed as
> an extension of America's military power.
Dear Michael,
It also seems to me that the US dollar is a military-backed
currency and agree with your observation that "Governments
rejecting US dollars don't seem to stay in office long, or
experience assassinations or regime change."
But doesn't this mean also that the attack on Iraq (and
previously on Yugoslavia) had something to do with the protection
of the US dollar hegemony? I am not claiming that the main
objective of the Iraq war was "to prevent the Euro from becoming
a threat to the dollar" but shouldn't it be unfair to dismiss
that the possibility of euro becoming a threat in the future also
played some role?
Also, what do you think about recent reports that Indonesia is
considering the use of the euro for Indonesia's foreign-exchange
reserves? Isn't (Wouldn't) this (be) a call for punishment by
Indonesia, if Indonesia really means what it says? Do you think
they are serious or is this just a bluff of some kind?
As I recall, there were also some attempts to build an Asian
currency, although they did not go anywhere. As long as no body
is capable of challenging the US militarily, no body has the
ability to pose a serious threat to the US dollar but how long do
you think that could last?
By the way, after much difficulty with Amazon, I received a copy
of your book from Barnes and Noble a few days ago and it looks
very interesting after skimming it through very quickly. I wish
we were able to time this seminar differently so that I could
participate in the discussions but unfortunately I will be away
from the internet for about six weeks starting from this Friday.
I will have your book with me though and hope to finish reading
it by the time I am back.
Best,
Sabri
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 2:32 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear Sabri,
Earlier today, William wrote me off-list with almost the same questions.
So I guess they follow from the line of analysis we're developing.
Your concerns about the euro threatening the dollar are, in my view,
overdrawn.
Suppose that the oil countries DID shift into euros. This would, as you
point out, force up the euro's exchange rate against the dollar.
The US wouldn't mind a bit. This would help exporters.
European exporters would scream -- their currency was being priced out
of the market.
The dilemma is all spelled out in the final two chapters of Super
Imperialism. Europeans would GET OPEC currency, and then decide to buy
Treasury bills with these dollars THEMSELVES, so as to hold down the euro's
exchange rates.
The only REAL response is to have two rates -- a trade rate and a
capital movement rate. That's the REAL way to counter things. And that isn't
even being discussed!
I hope this helps.
Michael
----- Original Message -----
From: bon moun
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 2:45 AM
Subject: RE: [A-List] Michael Hudson's Super-imperialism (euro)
<snip>the Iraq war was NOT fought out
of fear that the dollar would be
dethroned. It was good old-fashioned imperialism - grabbing the oil
supplies, grabbing the military territory surrounding key areas (with
Iran being the key to control of that part of the world), dismantling
the shreds of the USSR and breaking them irreversibly away from Russia,
and surrounding China. Secondarily, the objective was to show any
country that if it didn't knuckle under to US demands, it would be
destroyed like Iraq. The entire intention was to destroy Iraq as an
object lesson, something like the Romans lining up enemies and
decimating them, that is, killing every tenth man. Demonstration effect
is what these guys are after as well as specific geopolitics. <snip>
If this is their motivation, they may be the only ones in the world,
aside from some feint-hearted metropolitan pacifists, who believe it.
While your point about a limitless balance of payments deficit is well
taken, their ability to get away with that is not merely the dollar but
the petrodollar. I concur with you 100% that this is becoming ever more
an inescapably military regime. But the very idea that this junta can
continue to project military force until it encircles the world
(effectively) is hallucinatory. The Afghans and Iraqis are beginning to
undermine the 'demonstration' pretty substantially with some patience, a
lot of initiative, and a little audacity. The currency battles are
surface forms, IMO, of a deep inter-regional conflict in an era of
increasingly rarified peripheral resources and tolerance. They are also
a symptom of a profound energy crisis affecting the metropoles, wherein
control over those energy supplies has become a form of
military-economic leverage for the US to (attempt to) use against the
various regional efforts to break out. It is the whacked-out hubris of
the neocons that is alarming sectors now in the US ruling class, who can
still count, and know that this global military adventure is a kind of
mindless Wagnerian overreach. My bet is that the administration will go
down in flames next year. There are already hints of their
class-brethren sharpening their knives. I think the 'realists' are just
as deluded as the current crop of Rambo-wannabes, though probably less
apt to start a nuclear conflict - which is a real concern. BTW, I have
thusfar been unable to obtain your book, which I am very keen to read.
But I'll try to follow up on some of the leads here. Thanks for this
discussion. Today alone has reminded me why I was on a-list in the
first place. It also makes me feel yet another stab of grief about the
comrade who is not here for this.
I'll be talking with military family members in Fayetteville, NC (the
town where Ft Bragg is) tomorrow night. Discontent and suspicion are
beginning to bubble there. These are the folks who can strip away the
fig leaf of legitimacy from these gangsters.
Best
Stan
----- Original Message -----
From: Sabri Oncu
To: ALIST
Sent: Tuesday, June 24, 2003 3:00 AM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
> Your concerns about the euro
threatening the dollar are,
> in my view, overdrawn.
Dear Michael,
I guess I was not clear. I don't have concerns about the euro
threatening the dollar, at least, not at the current time. As we
agree, the US dollar is backed by the US military power and at
the current time there is no body who can challenge it. However,
this does not mean that no body will be able to challenge the US
militarily forever. If the US loses its military superiority one
day, how will it manage to maintain the hegemony of its currency?
> Suppose that the oil countries DID shift into euros.
> This would, as you point out, force up the euro's
> exchange rate against the dollar.
>
> The US wouldn't mind a bit. This would help exporters.
> European exporters would scream -- their currency was being
> priced out of the market.
But wouldn't this have a negative impact on the portfolio
investments into the US? It would be a suicide for foreign
holders of US securities to sell all of what they hold since that
may lead to a systemic collapse and they know it and might not be
able to do that because of the military might of the US but they
may hold their portfolio investments back, as seems to be
happening right now. In this case, wouldn't it be difficult, if
not impossible, for the US to finance its already huge current
account deficit?
Anyway! I need to leave this place so I better stop here.
Best,
Sabri
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 11:47 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Michael Hudson writes:
The US isn't an oil-backed currency (although as long as OPEC holds dollars,
this creates a demand for dollars that offsets the US balance-of-payments
deficit). It's a military-backed currency, and hence politically backed as
an extension of America's military power. Regarding oil and the balance of
payments, the entire "dollar area" must be viewed as a unit, and your
comments that oil prices support the dollar's value are correct.
Also, it's an ideologically backed currency, through its control of the
British Labour Party which time and again has sold out to America on bad
terms and then tried to drag continental Europe along.
-----
In no way do I disagree with this, but I would like to know what,
specifically, you have in mind when saying this. US penetration of the
Labour Party and UK labour movement has been often discussed here. There is
an ample literature on the personalities and processes involved in the
subversion of the British left by the CIA in partnership with and parallel
to the efforts of the domestic secret state. What are your views on the
reasons for why the Labour Party should have been so servile so
consistently?
Elsewhere you write:
Your quote from Spiro is accurate. Herman Kahn brought me down to meet with
the Sec. of the Treasury to discuss the balance of payments, and he told me
he'd told Saudi Arabia that NOT to keep their reserves in the form of US
Treasury bonds would be treated as an act of war. I'm sure he must have told
at least selected Congressmen the same thing, as this was quite open at the
time. I discuss all this in my sequel to Super-Imperialism, Global Fracture:
The New International Economic Order (Harper & Row, 1978). It's been out of
print for many years.
------
I've already suggested to Pluto that they should consider republishing this.
Do you have any intention to revise it, or would it be suitable for
reprinting as is?
Michael Keaney
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 3:29 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear Michael,
Global Fracture can be reprinted as is, save for a few typos (about 12).
My mentor, Terence McCarthy, a British-Irish Communist in the 1930s that came
to America to be the most influential financial analyst on Wall Street - and
the first translator of Marx's Theories of Surplus Value into English - came
to the conclusion that Harold Wilson must have been a paid agent of the US.
Japan is a case in point. The US has promoted politicians on whom it holds
abundant blackmail files.
On the other hand, there are well-meaning fools that really believe that
Britain is SO weak that it MUST rely on the United States for aid, or go
under.
Ditto Germany. I remember when I first met Helmut Schmidt in New York. Because
I was introduced by the president of Volkswagen-US, he assumed that he had to
wear his US hat and told me how loyal he was to US plans, in Vietnam and
elsewhere. I hardly could believe my ears. He was like a puppy dog sucking up
and then masturbating against my leg.
Harold Wilson had much the same
quality.
Michael Hudson
----- Original Message -----
From: WRC92@aol.com
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 4:03 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Michael wrote:
"Suppose that the oil countries DID shift into euros. This would, as you point
out, force up the euro's exchange rate against the dollar.
The US wouldn't mind a bit. This would help exporters. European exporters
would scream -- their currency was being priced out of the market.
The dilemma is all spelled out in the final two chapters of Super Imperialism.
Europeans would GET OPEC currency, and then decide to buy Treasury bills with
these dollars THEMSELVES, so as to hold down the euro's exchange rates.
The only REAL response is to have two rates -- a trade rate and a capital
movement rate. That's the REAL way to counter things. And that isn't even
being discussed!"
----------------
I'm still trying to reconcile that concept, but it seems to me that the dollar
must maintian a relatively appreciated position to earn/uphold it's reserve
currency status (not to mention the Japanese economy). If the euro replaces
the dollar as OPEC's transaction standard, wouldn't that call into question
it's "reserve status" in a larger sense. IMF/World Bank debt would still be
denominated in dollars, but the central banks would have to hold euros to pay
their monthly 'oil/energy bill,' etc.
Is Michael saying that no appropriate vehicle exists for OPEC to place it's
surplus "petroeuros" in the ECB/EU strucuture, and hence the EU would still
buy US Treasuries? However, once a currency is priced in the most valuable
commodity - oil - with it's insatiable demand curve (or until until the 'peak
oil' occurs..), that currency should ultimately and quickly become the "de
facto" reserve currency, right? I'm missing something here, but the below
article seems to more accurately reflect my perceptions of what lies ahead. I
am confused about Michael's comments...(I like his "military backed" analogy),
but oil is the *fundamental* commodity for all industrial soceities, and as
such this issue of a potential collective or partial OPEC switch to the euro
seems to suggest a realignment of reserve currencies. (BTW, of the 11 OPEC
members, three or four plus Russia and Norway could redenominate to the euro
in the next few years - IMO)
-William
----------------
http://www.zmag.org/content/showarticle.cfm?SectionID=10&ItemID=
803
Dollar Crisis and American Empire by Jeffrey Sommers
America has postponed the day of reckoning since the dollar crisis of the
early 1970s when the soaring cost of killing Vietnamese in order to "save
them," along with other expenses of empire, became too high. The tab only rose
when the US matched this imperial project with efforts to buy off its own poor
through social spending designed to quell the democractic surge and rising
expectations that followed World War II. The world balked at America's
spending and central banks began cashing in dollars for the promised gold the
American currency was backed by.
So the US ditched the dollar-gold standard in exchange for a purely fiat paper
dollar standard.
The US managed a fantastic wealth transfer from the rest of the world to
itself with this ploy. America barely managed to escape the run on its
dollars, and the upsurge of democracy at home and abroad in the 1970s. But,
the empire did strike back. The US jujitsued the crisis to its advantage by
using a combination of experimentation, opportunism and planning. Rather than
being sunk by high oil prices in the 1970s, the US Treasury Department turned
this challenge to its advantage. It had no choice. By cutting a deal with the
Saudis for weapons and secure investments for their oil wealth, the Saudis
gave America a monopoly: the paper dollar was elevated to the world's currency
of choice. This was not the market at work, but realpolitik statecraft to
ensure dollar dominance, even though it would no longer be backed by gold. The
nations of the world would have to pay dollars for Saudi oil and have to pay
the US real goods for these paper dollars. The Saudis, in turn, and then other
oi
l producers, would put their oil wealth in US banks and T-bills. The US
further benefited by lending out this money to other nations and reaped huge
interest payments ever since from the world's poor countries.
Since the 1970s the US has merely prints dollars and T-bills and gets oil,
minerals, manufactured goods, etc., in return. The only problem with this
virtuous circle of paper for real goods is that at some point the rest of the
world might refuse to play along and the dollar could collapse.
We are seeing the early signs of just that. The euro was designed to cut in on
America's action, and Europe's gamble appears to be working. Indeed, one of
Saddam Hussein's cardinal sins was pricing oil in euros instead of dollars,
for which if other oil producers followed suit would have been a major blow to
the US. More menacingly, on Monday, Malaysian Prime Minister Mahathir Mohamad
declared that in principle oil should be priced in euros. Iran too has made
such noises in the past, but has cooled this rhetoric in light of recent US
moves in Iraq and saber rattling directed at North Korea and Syria. Moreover,
the Chinese, and other nations, are now hedging their bets by holding more of
their currency reserves in euros, and not just dollars. That fiat money has to
be paid for in real goods, and the less dollars nations held, the smaller the
subsidy the US gets.
Rather than Weberian work ethics and other simple nostrums and bromides used
to explain the "success" of the American economy in the 1990s--and even still
today among a few Strangelovian types who declare the same even after the huge
equity market losses of the new millennium--the dollar-standard racket allows
the US to float a half-trillion dollar a year trade deficit with other
countries, which the rest of the world pays for! Figure something like a
global subsidy of 4k per year to every American. But of course, in this
welfare scheme the goods are not distributed equally. The rich take the lion's
share, while the rest can content themselves with inexpensive electronic toys
and cheap consumer goodies that the global economy delivers to Americans as a
substitute for quality health-care, education, or decent housing.
There is a major restructuring ahead on the horizon.
Indeed, it is already visible. So far the US has covered its prolifigate
spending, in part, through the interest payments it extracts from the rest of
the world, even though many poor nations have now already paid in interest
many times the original amount of the principle on their loans. The Japanese
pay for some of it by saving money and having it then invested in US T-bills.
The Europeans, especially the Germans, who have also kept the US afloat by
buying its government bonds, pay for another portion. And then the Chinese
also help fill the gap by holding massive dollar reserves. Yet, all these
states have their own problems and might need the resources they currently use
to prop up the US economy and to pay for its massive deficit spending.
If this happens America's own leaders might administer conditionality,
austerity, and the countless poisons dispensed to the rest of the world the
past thirty years--largely with disastrous results--to the US with renewed
vigor. To be sure, you can count on court intellectuals and pundits to tell us
its all for the best and blame the victims for any ills that befall them. The
elite brain trust at the US Treasury, and among the country clubs populated by
American manufactures, have warned since the 1970s that American workers
needed to get used to a lower living standards. Of course, this same public
has also had to get used to the top 1% of the population ascending to heights
of wealth and excess not scene since the Gilded Age and the 1920s. As usual,
there would be increased socialism for the elite and capitalism for the rest.
Under this program the numbers of hours average Americans work has
dramatically risen--surpassing even the Japanese. They made most Americans
work harder and longer for less pay and benefits, and eliminated job security
for good measure. Yet, up to now, Americans have only been gently going down
hill in their decline. With a deflationary spiral and the collapse of the
dollar standard, they will fall off a cliff as the global subsidy to the US is
withdrawn if global investors lose confidence in the dollar.
The one out for the US might be to continue threatening Japan, Germany, and
the Saudis with destruction of their US assets if they withdraw T-bill
investments, or if the euro is advanced too far as an alternative currency to
the US.
Yet, if global investors and central bank managers panic or if their own
internal economic crises require them to pull out of US investments, Americans
are in deep trouble.
This would be disastrous not only for Americans, of whom you can be sure
capital would export as much of this crisis as possible onto the backs of
average people in the US, but also for the rest of the world. An America in
economic crisis would place the world in even greater danger of American
military adventures by a government seeking both diversions from its domestic
ills while it also sought means to shore up its empire.
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 4:19 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear William,
The article you sent was a good one. But yes, I do indeed mean what you asked
whether I meant: "No appropriate vehicle exists for OPEC to place it's surplus
"petroeuros" in the ECB/EU strucuture, and hence the EU would still buy US
Treasuries"
You need to follow the flow of funds to trace what happens. The PRICING of oil
in one currency or another is merely incidental. It goes up and down according
to market forces.
It is the CENTRAL BANK OR NATIONAL RESERVES that count. Suppose OPEC keeps its
reserves in the bonds of European governments - German, French and other euro
bonds?
OPEC receipts in euros will be kept in euros. OPEC receipts in dollars will be
turned into euros.
This will force up the euro - and hence squeeze European industrial exporters,
favoring US exporters. It is the equivalent effect of a beggar-my-neighbor
devaluation of the dollar.
Again, when you get to the last two chapters of Super-Imperialism you will see
this very dilemma expressed clearly as far back as 1971-72 by U.S. financial
strategists.
Michael Hudson
----- Original Message -----
From: WRC92@aol.com
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 12:20 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Michael,
Thank you for your thoughts, and I am going to read those final 2 chapters in
your book - hopefullt tonight(!)
I have another question about oil and currency that most people don't discuss.
The US has *zero* currency risk for oil purchases in that GLOBAL oil
production/sales is denominated in dollars. Theoretically, the dollar could
devalue to 10 cents to the euro, or 10 euros to the dollar, and the US
consumer would not be affected from a purely "energy purchasing perspective."
A gallon of gasoline, a unit of natural gas, etc would still be the same
relative price it is today if the dollar remains the monopoly currency (with
no currency risk with regard to the dollar's valuation).
One of the reasons the EU wants oil denominated in euros is precisely for this
reason. Back in the fall of 2000, when the euro was weak (82 cents to the
dollar) and dollar still strong, the minor oil fluctuation wrecked havic in
Euroland. Many countries such as France and Germany experinced such high
petrol prices that transportation nearly came to a standstill. They do NOT
like their currency risk for the most valuable commodity on earth - oil.
Check out this pics/articles for instance...
'Europe's fuel blockades tighten' (Sept 14, 2000)
http://www.cnn.com/2000/WORLD/europe/09/14/fuel.protests.02/
'German Truckers Fume Over Fuel Prices' (Sept 26, 2000)
http://www.cbsnews.com/stories/2000/09/15/world/main233748.shtml
What I want to so this summer is compare the relatively small uptick in US
fuel prices that fall (2000) to the relatively *large* increases for fuel in
the Euro currency area. The Europeans hate a strong dollar and weak euro
scenario for precisely this situation, and all industrial societies are
subjected to this fluctation with the exception of the US - our
"oil/energy/survival" bill is stable - and cheap - no matter what the
valuation of the dollar relative is to a basket of international currencies.
What people don't realize is that re-domination of OPEC oil pricing and
subsequent devaluation of the US dollar would help stablize the EU oil bill,
but prove potentially catastrophic to our energy excessive consumption. How
does $100+ sound to fill up that Ford Expedition? How does your monthly
heating bill going from $100 to $300 sound? (if you use heating oil). These
could be *permanent* increases, not a temporary issue. Do you see why I am
concerned about this?
Please lend me your thoughts on the issue of currency risk and the fundamental
issue of the dollar vs. euro OPEC war that is silently taking place. Lastly,
I could be wrong, but I think that manufacturing is now only 6% of the US
economy (that's what I read somewhere recently), whereas Europe still has 24%
of its economy in manufacturing. If we want to export products, we need the
yuan/renimbi to devalue, not the euro. Afterall, everything I buy is made in
China. It blows my mind when I here we are going to start exporting more to
the EU based on the euro's higher valuation? Yes, we like those German BMWs
and French wine is good too, but what exactly *do we* export to the EU? What
exactly do the Europeans want to buy from us save a few Dell computers and
perhaps some food stuff? Perhaps a couple of Boeings jets?- but I've read the
EU airlines are now insisting on paying in euros for such contracts?! So,
Airbus seems to be doing ok.
Anyhow, you're thoughts on oil/currency risk would be appreciated. I'm still
learning, but it seems nobody wants to talk about the fundamental energy
issue...
-William
----- Original Message -----
From: Xenon Zi-Neng Yuan
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 12:54 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
> I'm still learning, but it seems nobody wants to talk about the
> fundamental energy issue... -William
i'm sensing this as well, although i wouldn't say "nobody" is talking about
it. i believe this was central to much of mark jones' analyses. perhaps
some are still turned off by the supposedly malthusian implications of the
"peak oil" phenomenon. of course we shouldn't draw the same political
conclusions as the malthusians, but at the same time i think we shouldn't
ignore what seem to be a set of real material obstacles that lie ahead.
----- Original Message -----
From: Sabri Oncu
To: ALIST
Sent: Wednesday, June 25, 2003 1:43 AM
Subject: [A-List] Michael Hudson's Super-imperialism (euro)
Dear William,
Because I don't get indiviual mails, I follow the list from the
website and consequenly, don't get to read any of you posts.
They look like this:
http://lists.econ.utah.edu/pipermail/a-list/2003-June/026709.html
Could you send yur posts in the plain text format?
Best,
Sabri
----- Original Message -----
From: WRC92@aol.com
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 3:42 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Sabri,
Sure, I hope this helps...(the following are today's exchanges with Mr.
Hudson, my most recent post is the bottom one)
-William
………………
----- Original Message -----
From: annewilliamson
To: a-list@lists.econ.utah.edu
Sent: Tuesday, June 24, 2003 2:02 PM
Subject: Spam Alert: Re: [A-List] Michael Hudson's Super-imperialism (euro)
On 6-23-03 Michael Hudson wrote:
The only REAL response is to have two rates -- a trade rate and a capital movement rate. That's the REAL way to counter things. And that isn't even being discussed!
***************************************
Two rates would only provide increased opportunity for speculation and arbitrage. But I agree that there's a lot that's not even being discussed, esp. the monetary governor nature has provided. -A.
Copyright © 2003 by Antal E. Fekete June 10, 2003
STOP GREENSPAN FROM PLUNGING AMERICA INTO A DEPRESSION
Open letter to
Congressman Ron Paul,
member of the Joint Economic Committee
Antal E. Fekete
Professor Emeritus
Memorial University of Newfoundland
St. Johns, Newfoundland, CANADA A1C 5S7
e-mail: aefekete@hotmail.com
To the Honorable Ron Paul
U.S. House of Representatives
Washington, D.C.
June 10, 2003
Dear Dr. Paul:
I have been a student of monetary science for almost fifty years and I am greatly disturbed by the explosive and malignant growth of bond speculation which I attribute directly to the inept monetary policy of the Federal Reserve.
One-sided bond speculation fully explains collapsing interest rates and burgeoning depression in Japan for the past ten to twelve years. Before 1971, when the world was on the gold exchange standard and interest rates were relatively stable, there was no bond speculation. None whatsoever. Moreover, the amount of long positions in bonds was limited by the amount of issues outstanding. This was changed drastically (although without much fanfare) in 1971 when the world embraced fiat money. (Or was it fiat money that embraced the world?) Now interest rates can move in and out of double digits, or even fall to zero. More ominously, the amount of long position in bonds is no longer limited by the amount of issues outstanding (large as it may be). Derivatives have removed that limit. Speculators can now pyramid in pursuit of higher bond prices. At last count the size of the derivatives market was $140 trillion. Let’s assume that the total of interest-related derivatives is $100 trillion in ‘notional terms’. This means that speculators have paid premiums to benefit from a rise in the value of $100 trillion worth of bonds (never mind that the total value of all the outstanding issues is a small fraction of that incredible sum). Therefore speculators stand to rake in $1 trillion in profits every time bond prices increase an average of 1 percent due to a drop in interest rates. Nor are these profits ‘notional’: they are payable in cold cash.
The next domino, after Japan, is the United States. Contrary to conventional wisdom, a falling interest rate structure is no boon to the economy. A low and stable interest rate structure is. All thoughtful economists would agree that lower prices with stable interest rates (as obtain under a gold standard) are no threat. On the contrary: they are a welcome fruit of increased efficiency. It is the combination of falling interest rates and falling prices that is deadly: if prolonged, they could lead to depression.
The Federal Reserve has been conducting unreformed Keynesian monetary policy for the past decades, but it has now reached the end of the rope as the federal funds rate was pushed down almost to zero. At the May 21, 2003, hearing of the Joint Economic Committee, Mr. Greenspan testified as follows.
Senator Robert F. Bennett (Chairman): Last November when you were here we discussed the downward pressure on prices, and options available to the Federal Reserve to combat it. Yet some still seem to believe that low short-term interest rates limit the potency of monetary policy... Could you explain how the Fed could address unwelcome downward pressures on prices through the purchase of long-term Treasury securities?
Mr. Greenspan: As I and a number of my colleagues have stated recently, we have chosen to act solely in overnight funds, essentially addressing the reserve balances of the banks. Should it turn out that, for reasons which we don’t expect, but we certainly are concerned may happen, the pressures on the short-term markets drive the federal funds rate down close to zero, that does not mean that the Federal Reserve is out of business on the issue of further easing and expansion of the monetary base. We can, indeed, as you point out, move out on the yield-curve because, as you are well aware, even though short-term rates are slightly over 1 percent, longer term rates are up significantly above that. And we do have the capability, should that be necessary, of clearly moving out on the yield-curve, essentially moving longer-term rates down and in the process expanding the monetary base and the degree of monetary stimulus. And since there is such a significant amount of potential in that longer-term maturity structure, we see no credible possibility that we will, at any point, run out of monetary ammunition to address problems of deflation or anything similar to that which disrupts our economy.
The testimony of Mr. Greenspan reveals that the Federal Reserve has no creditable plan to combat deflation. The plan it has is a colossal mistake that could very well plunge America headlong into deep depression. The bubble of speculative long positions in bonds is so huge that it can no longer be safely deflated. Now the Federal Reserve is gearing up to climb the yield-curve in order to expand the monetary base and stimulate demand. But this is to pour oil on raging fire. The Federal Reserve can create as much new money as it wants, but will have no control over it once it has entered circulation. It is up to the speculators. This is how they read the message: "Hey, here is another godsend. The old boy has pulled out all the stops, there is no more risk in pyramiding bond derivatives! You had better believe it! Just watch the price-indicators. Every time one falls, or demand weakens, Greenspan & Co. is going to buy bonds. Forestall them, how we will! We buy first. Profits guaranteed, courtesy of the Fed. Thank you kindly, Mr. Greenspan!"
There was always political pressure on the Federal Reserve Board to reduce interest rates. But as shown by the volumes of the Federal Reserve Bulletin for the years 1950-1970, the Board was always very clear on the point that the reduction of interest rates (other than the federal funds rate) is not within the Board’s power. If Mr. Greenspan now promises to work the miracle that his predecessors were frank enough to call impossible, it is because he, like the Sorcerer’s Apprentice, relies on others to do the job for him, namely, on the speculators. The explosive growth in bond speculation is explained by the greatly reduced risks involved. Now, given Mr. Greenspan’s testimony, the remaining risk is being taken out as well. But he won’t be able to control speculators once he has allowed them free rein. Mr. Greenspan will, like the Sorcerer’s Apprentice, be swept away by the tide he has fomented.
The consequences are terrifying. The pact Mr. Greenspan has made with the devil is a most dangerous kind. Further drop in interest rates would, albeit with a time lag, cause a fall in prices, and falling prices would cause interest rates to fall further, spelling deflationary spiral for the country.
I respectfully submit that the Joint Economic Committee, in search for an answer to Senator Bennett’s query, may wish to hear the testimony of independent witnesses as well. Mr. Greenspan’s testimony is self serving, and it shrouds the extreme danger implicit in his counter-productive plan. There are opposing views that may be worthy of the attention of your Committee. I take the liberty of enclosing a brief representing those views.
I remain,
Your most obedient servant,
Antal E. Fekete
Professor Emeritus
Enclosure
DEFLATION UNDER FIAT MONEY
According to Mr. Greenspan almost no economists believed that you could create deflation with fiat currencies because, by definition, the ultimate supply of those currencies comes from the government. This brief represents the view of those very few economists he refers to, never before carefully spelled out in detail.
Genesis of the long wave inflation-deflation cycle
In the Keynesian view, the gold standard is "contractionist" or "deflation-prone". The truth is the exact opposite. The gold standard is the flywheel regulator of the economy: it makes for stability. It was precisely the sabotaging of the gold standard by the banks and the government that started the inflation-deflation long-wave cycle. With the connivance of the government, banks expanded credit beyond the limits set by their gold reserves. When they could no longer pay their sight liabilities, the government came to their rescue by declaring a "bank holiday". Worse still, a double standard was introduced in the application of contract law. While every other firm was liable to be liquidated by its creditors in case it failed to deliver on its contracts, banks were given a privilege. They were exempted. Nay, they were rewarded for breaking their contract with their creditors. Their dishonored promissory notes were elevated to the status of money, at first temporarily, then permanently. This perverted system of incentives did not fail to have consequences.
The immediate effect was inflation. This was a sellers’ market and the new cash caused prices to rise. Higher prices caused interest rates to rise as well. Lenders demanded compensation for their expected losses in the form of an "inflation premium" to be added to the going rate of interest. As interest is a major cost for the producers, higher interest rates in turn caused further price rises.
The Spiral
In this way an inflationary spiral was set into motion: higher prices causing higher interest rates causing higher prices, and so on. Sooner or later the spiral would run its course and come to an end. When growing stockpiles remained unsold, there was panic. Retrenchment, alias deflation, started in earnest. Prices fell. Lenders were forced to drop the inflation premium. Interest rates fell. This was now a buyers’ market. Producers were squeezed by competition, and they had to cut prices further. Thus a deflationary spiral was set into motion: lower prices causing lower interest rates causing lower prices, and so on.
Oscillating money flows
The inflation-deflation cycle can be visualized as a money-flow oscillating back-and-forth between the bond market and the commodity market. In the inflationary phase money flows from the former to the latter. Prices are bid up. Bondholders sell their bonds. The tide in the commodity market is coupled with an ebb in the bond market. After the panic the flow is turned around. It now flows from the commodity market to the bond market. Bondholders buy their bonds back. Commodities are sold at fire-sale prices. Consumers hold back their purchases awaiting still lower prices.
Note that organized speculation has hardly any role in all this as long as the gold standard remains intact. Bond speculation is ruled out: interest rates are relatively stable under a gold standard and, as a result, there is not enough variation in the bond price to make speculation profitable. Commodity speculation exists only insofar as it addresses risks created by nature, to the exclusion of risks created by man. As a consequence, the inflation-deflation cycle is relatively moderate.
Destabilizing speculation
Everything changes drastically with the advent of fiat currency. In addition to stabilizing speculation (addressing risks created by nature) we now have to face destabilizing speculation (addressing risks created by man). This is what Keynesians have "forgotten" to take into account. None of the risks in the foreign exchange and bond markets is created by nature. These risks have all been created by man, in particular by the government, through the instrumentality of overthrowing the gold standard and imposing fiat currency. In the battle of wits more often than not it is the nimble speculator who outsmarts the clumsy central banker and other hired hands of the government.
The consequences of destabilizing speculation are enormous. Limits on the amplitude of price moves have been removed. Worse still, the natural limit on the total commitments in the bond market has also been removed: speculators can now amass long (or short) positions in bonds in any amount, regardless of the combined value of all outstanding issues. It is this fact that is at the heart of the problem of the explosive and malignant growth of bond speculation which has by now brought the total commitments of speculators to $ 140 trillion in the derivatives markets, a figure that boggles the mind. The total value of bonds outstanding falls far short of the notional value of derivatives on bonds. This is as though speculators are allowed to hold futures contracts calling for delivery of wheat before the next crop in the amount several times greater than wheat in all the barns, freight cars, and elevators of the world combined!
Where the risks are man-made, speculation is not a zero-sum game. The total gains of successful speculators are not equal to the total losses of unsuccessful ones. Speculators in bonds and derivatives make money not by resisting the formation of price-trends (as they would in the commodity market under a gold standard). They make money by inducing and riding price trends. They congregate on the same side of the market, whether long or short, and create exorbitant price swings before they move in for the kill. The profits of bond speculators are at the expense of society at large. They come out of the hides of innocent people.
The Ratchet
The deflationary spiral changed its character under the regime of fiat currency. While it had its benign aspects before the gold standard was overthrown such as correcting the excesses of credit expansion, it has become totally malignant after. Speculation and bonds constitute an explosive mix which will, sooner or later, cause economic disaster. Oscillating money-flows get out of control. The process replicates the operation of a runaway vibrator, except the wave length is measured in years or decades, rather than seconds.
Ratchet is the name for the phenomenon that rising prices pull up interest rates and rising interest rates pull up prices (creating inflationary spiral). This is ratchet-up. But you can ratchet-down as well: falling prices pull down interest rates and falling interest rates pull down prices (creating deflationary spiral). Under the regime of fiat currency these ratchets are irresistible as they are powered and amplified by speculation.
Ratchet-up is uncontroversial and is accepted by most economist. It is ratchet-down the validity of which has been called into question. Critics say that falling interest rates need not cause falling prices, and they cite our current experience: falling interest rates have not produced a major fall in the price level. In fact, people in every walk of life complain about unwarranted price hikes. However, the jury is still out on this. Prices did drop in the 1980's when sugar fell from 70 cents a pound, silver from $45 an ounce, and crude oil from $40 a barrel. During the 1990's prices of computers and communication equipment have come down dramatically. Ford has recently reported that the company has lost its pricing-power, something it could formerly take for granted. Senator Bennett and Chairman Greenspan would not polemicize about downward pressure on prices and potential deflation if they were a mere figment of the imagination.
The reluctance of the mind to admit that the principle of ratchet-down is a valid one is due to the sway Quantity Theory of Money holds over economics. Under the regime of fiat currency ratchet-down appears as an oxymoron. People think that prices can only go up because the quantity of money in circulation is never reduced but always increased. However, the Quantity Theory is a very crude device. It presents a linear model that is valid only as a first approximation. New money can flow not only to the commodity market, but also to the stock, bond, and real-estate market. For a clue as to which one it will, we must study the behavior of speculators. In today’s complex world we need a non-linear model such as the theory of oscillating money-flows. Without it we remain blind to the fact that Mr. Greenspan’s anti-deflationary plan is counter-productive.
Falling interest rates squeeze profits
To understand the mechanism of ratchet-down consider the fact that falling interest rates squeeze profits. Conventional wisdom would suggest otherwise: lower interest rates are salubrious to business. However, we must distinguish between a low interest-rate structure and a falling one. Only the former is salubrious, the latter can be lethal. Falling interest rates reveal that past investments in physical capital have been made at too high a rate in view of lower rates now available. The difference of the two hits the profit margin, and hits it badly. There is no way to get around this if you want to keep your books straight. Falling interest rates make the cost of servicing debt on past investments soar. The present value of debt rises. As it does, the cost of liquidating liability rises as well. If you want to retire a loan of $1,000 taken out at 6% after the rate has fallen to 3%, then you have to come up with $2,000. As a consequence the value of capital falls. Firms with zero debt are not exempt either. Their capital is also decimated since its replacement can now be financed at lower rates. This should be reflected by writing down capital. Relaxed accounting standards do, however, allow firms to get away without reporting capital losses in the balance sheet. But a loss is a loss, admitted or not. Ignoring it won’t eliminate it but will expose the firm to the danger of "sudden death". Like any other loss (such as physical destruction of plant and equipment during war, for example), capital loss should be charged against future earnings. If it isn’t, the firm is reporting phantom profits. Creditors will not let themselves be hoodwinked. Long before capital is reduced to zero they will cut off debtors, forcing them into liquidation.
Some of my critics argue that companies refinance their debts to their advantage. Well, some debts may be refinanced, some may not. As things are, more and more lenders are reluctant to comply with requests to refinance. At any rate, debt that has been paid off cannot be refinanced. Yet paid-up capital should be written down in the same manner as capital financed by debt, since it was also subject to losses if it had been put in place when interest rates were higher. Most of the losses plaguing companies are of this variety. For example, several airlines (regardless whether well or badly managed) got blown out of the sky as falling interest rates wiped out their capital.
If you bought a house yesterday only to find out today that comparable houses have been reduced in price by half, then you have suffered a capital loss. No amount of sophistry can make the loss disappear. Nor does it make a difference whether you financed your purchase, or whether you paid cash. The situation is the same with plant and equipment owned by corporations.
Other critics say that falling interest rates drive real estate prices higher, especially that of homes, because buyers don’t care how high the price is as long as the monthly payments fall within their budgets. Thus falling interest rates do not squeeze profits in the housing industry. However, this is a rather short-sighted view of deflation, leaving growing unemployment and escalating consumer debt out of the picture. And what about the scenario that the housing bubble may burst, too, as it probably will?
Another frequent criticism maintains, while confirming that losses occur in the liability column as a result of falling interest rates, that these are offset by gains in the asset column. Not only do falling interest rates increase the present value of debt, causing losses, they increase the present value of future earnings, too, leading to capital gains. Capital losses are compensated by capital gains - something, my critics say, I have overlooked. The trouble with this argument is that it ignores the accounting rule that prohibits putting values on assets higher than historic costs, regardless of any anticipated increase in future earnings. As the proverb says: "there is many a slip between cup and lip". Unforeseen liquidation of the enterprise would reduce all future earnings to zero. Why did Swissair fall out of the sky if it could capitalize its higher future earnings due to lower interest rates? Because it couldn’t: by the time it would collect them it was no longer flying. The (upright) accountant has no choice. He must charge the increased cost of liquidation to the liability column - without making any allowance for increased future earnings in the asset column. Net worth must be written down.
As profits are squeezed, firms are forced to retrench. They reduce inventory, causing prices to fall. Falling prices squeeze profits further. Some firms may be able to reduce labor costs through wage-cuts. Most will lay off workers. Either way, payrolls shrink, making demand weaken. This will reinforce the fall in prices. Many firms see their capital melt away and have to fold, in spite of low interest rates. You have to have capital in order to borrow. This is the mechanism whereby falling interest rates cause prices to fall.
To recapitulate: falling interest rates cause a blanket decrease in the net worth of the entire productive sector while the wide-spread capital losses go unreported. Instead, phantom profits are paid out, undermining capital further. Such is the true explanation of the wholesale failure of firms. In a depression collapsing demand is secondary; the primary effect is collapsing production due to fatal weakening of the capital structure, caused by falling interest rates.
The Linkage
Linkage is the name for the phenomenon that the price level and the rate of interest, apart from leads and lags, move in the same direction. Just as when a man is walking his dog on a leash: while it is possible for either one to get ahead of the other by a few steps from time to time, it is not possible for them to move in opposite directions for any great length of time. Linkage (also known as economic resonance) was recognized by several distinguished economists such as Knuth Wicksell, Wilhelm Roepke, Gottfried Haberler, Irving Fisher, and others. Apparently, Keynes himself recognized it under the name "Gibson’s paradox". Economists who studied the phenomenon also agree that there is a causal relation between rising (falling) prices and rising (falling) interest rates.
But as far as the relation between rising (falling) interest rates and rising (falling) prices are concerned, they found linkage "puzzling". Fisher went as far as saying that "it seems impossible to interpret this as representing a relationship with any rational basis". He attributed the phenomenon to freak coincidence. In 1947 Gilbert E. Jackson in a little-known paper The Rate of Interest pointed out that causality works in both directions. He plotted the price level and the rate of interest in the same coordinate system with the horizontal axis representing time. The inflationary spiral appeared as a rising, and the deflationary as a falling trend of the curves. Inflationary and deflationary spirals alternated. Sometimes the price level led and the rate of interest lagged, at other times the rate of interest led and the price level lagged.
Jackson was writing at a time the country was still on the gold exchange standard, before the advent of the fiat dollar. We can augment his reasoning as follows. Speculation amplifies the oscillation of money-flows greatly. In 1971 the advent of the fiat dollar gave impetus to prices to rise. Speculators, ready to move in for the kill, kept buying commodities and hedged themselves by shorting the bond market. Commodity prices rose while bond prices fell. But this is the same to say that the rise in the price level caused interest rates to rise as well. The converse is also true. Rising interest rates, that is, falling bond prices, cause prices to rise as well. Speculators keep selling bonds and hedge themselves by establishing long positions in the commodity market. The inflationary spiral is on and assumes formidable dimensions.
When panic occurred in 1980, speculators switched allegiance. They closed out their short positions in the bond market and their long positions in the commodity market. They kept on buying bonds and hedged themselves with short positions in the commodity market. The speculative money-flow reversed. The deflationary spiral is definitely on, and we still don’t know where it will end.
Monetary policy: contra-cyclical or counter-productive?
The so-called contra-cyclical monetary policy invented by Keynes has been the guiding star of the Fed. Following the Keynesian prescription the Greenspan Fed is trying to contain weakening demand and falling prices through open market purchases of bonds, if need be, by climbing the yield curve. Contra-cyclical monetary policy backfires in the case of the deflationary spiral. To forestall the Fed speculators go long in bonds and hedge their exposure by going short in commodities. The Fed is helpless: it cannot stem the rising tide of money flowing to the bond market. As far as bond prices are concerned the sky is the limit. Interest rates in the United States will plunge to zero, as they have in Japan. Mr. Greenspan, like the Sorcerer’s Apprentice, can make speculators charge, but has no idea how to stop them when enough is enough.
Incidentally, contra-cyclical monetary policy backfires in the case of the inflationary spiral as well. There the Fed’s concern is rising interest rates getting out of hand. To rein them in and turn them back it resorts to open market purchases of bonds. Speculators correctly perceive that the new money so created will flow to the commodity market, reducing the risks of speculating. They go long and hedge their exposure by going short in the bond market. Once again, the Fed is helpless: it cannot stem the rising tide of money flowing to the commodity market.
To recapitulate, in a deflationary spiral the Fed combats weakening prices, causing the rate of interest to fall - which leads to still more weakness in prices. In an inflationary spiral it combats the high rate of interest, causing prices to rise - which leads to still higher interest rates. In either case, the contra-cyclical policy is counter-productive. For example, during the 1947-1980 inflationary spiral the rate of interest rose five-fold and the price level rose ten-fold in the United States, in spite (because?) of constant and vigorous contra-cyclical intervention of the Fed. In the present deflationary cycle that started in 1980 long term interest rates as measured by the yield on the 30-year Treasury bond have fallen by three-quarter (from 16 to 4 percent). So far apart from the initial fall in 1980 prices haven’t fallen much, and some may have risen. But remember, Mr. Greenspan has just given the green light to speculators. Nobody knows how low prices will go by the time Mr. Greenspan and his speculators are through.
To recapitulate, the long-wave economic cycle is caused by huge money-flows oscillating back-and-forth between the bond and commodity markets, amplified by speculation and reinforced by the mindless and inept contra-cyclical monetary policy of the Fed.
Compulsive currency devaluations
Keynes was so obsessed with the idea of gold hoarding that he missed the key point that hoarding other goods, inevitable under the regime of fiat currency, is infinitely more menacing. Keynes is the prophet of anti-gold agitation. He preached that if the gold coin were taken away from "man’s greedy palms", then there would be no economic contraction, no deflation. This was a monumental mistake, the kind only a doctrinaire can make. The Fed, blindly following the prophet, has brought the country to the brink of depression, fiat money notwithstanding. Gold is the philosopher’s stone: in its presence hoarding is directed into its proper channels but, without it, the world becomes a plaything in the hands of speculators.
The deflationary spiral that started in 1980 has not run its course yet. Some liquidation of inventories has taken place, some producers have been eliminated. The worst may still lie ahead. Politicians and central bankers around the world congratulate each other upon their success of "squeezing inflationary expectations out of the system". They are unaware that, right now, they are fostering deflationary expectations. Otherwise they would not be tempting speculators so recklessly with reduced risks.
Mr. Greenspan has done nothing to neutralize the causes of world-wide deflation. The international monetary system is still the same rudderless ship it was in 1971, and it is still exposed to the same monetary storms, except for the direction of the gale that has changed course from inflationary to deflationary. This will lead to competitive devaluation of the fiat currencies of the world. The dollar has just been devalued, if not de jure then de facto. Other countries cannot afford to be priced out of the American market, and they will have to debase their currencies as well. Compulsive currency debasement is the hallmark of world depression. We know how ruinous that course is from the earlier episode in the 1930's. Yet the prospect of it is staring us in the face right now.
What is to be done?
The only road to stabilization and the removal of the threat of depression is through putting speculation into its proper place and confining speculators to fields where they can do no harm while they may do some good. Gold money eliminates foreign exchange and bond speculation not through the barrel of the gun but through the persuasion of reason. It confines speculation to the commodity market where supply is controlled by nature, not by governments or central banks.
The significance of the gold standard is not to be seen in its ability to stabilize prices, which is neither possible nor desirable. It is, rather, to be seen in its ability to stabilize interest rates at the lowest level that is still consonant with the state of the economy. The stabilization of interest and foreign exchange rates will then impart as much stability to the price level (and to all other important economic indicators) as is compatible with progress.
The solution is: open the U.S. Mint to the free and unlimited coinage of gold. Double standard in contract law should be abolished, together with bank privileges. Banks that cannot pay their sight obligations in gold coin should be allowed to fail. Nobody will miss them. Letting the saver withdraw gold coins (that is, bank reserves) whenever the rate of interest falls to a level that he considers unacceptable represents no danger, indeed, it would nip malevolent speculation in the bud. Benign bond/gold arbitrage would replace malignant bond/commodity speculation. Since the former is self-limiting and the latter is self-aggravating, economic stability would be restored. Time has come to conclude, for once and all, that the wild experiment with fiat currencies has failed, and failed completely. It should be terminated forthwith before it causes further damage to the economy.
The alternative is to continue the experiment. Naturally, Mr. Greenspan is in favor of that course. The consequences are too horrible to contemplate: unemployment more devastating than that of the 1930's, wholesale bankruptcies of productive enterprise, competitive currency debasement, collapse of the international monetary system, construction of unscalable protective tariff walls, world war in which governments are hoping to find the escape route from economic chaos.
NOTE ON RUNAWAY VIBRATION
The phenomenon of vibration is studied in physics. The most common varieties are even vibration (oscillation) and damped vibration, according as the amplitude remains constant or it is decreasing exponentially. But there is also a third variety, not as well known, called runaway vibration, where the amplitude is increasing exponentially. The collapse of the Tacoma suspension bridge in the State of Washington in 1940 was an example. Gusting winds caused the bridge to vibrate at one of its harmonic frequencies. The increasing amplitude of the runaway vibration ultimately caused the suspension cables to snap, and the whole structure was plunged into the river. The event has been preserved on film - it must be seen to be believed.
In general, the small parcels of energy represented by each thrust would get
dissipated harmlessly through damping. In the case of resonance, however, not
only are they not dissipated, they are allowed to be built up to a formidable
force capable of causing huge destruction.
Resonance in economics, no less than in bridge design, is a problem to reckon with. I have discussed linkage in my talk Kondratieff Revisited. The price level and the rate of interest move together up or down, as they resonate with huge oscillating speculative money flows to and fro between the bond and commodity markets. Bond speculators try to maximize their profits. For them the problem is correct timing: they want to be the first to switch positions when the expected turn of the flow of money materializes. This is just the point where the runaway vibrator starts spinning out of control. As soon as speculators find that point, the oscillating speculative money-flows will become too big and too destructive for anybody to control, and they will drown the economy.
References
The Rate of Interest, address by Gilbert E. Jackson at the Annual Meeting of the Dominion Mortgage and Investments Association in Waterloo, Ontario, Canada, on May 29, 1947. Reprinted in: Bulletin #132 (1947) by Melchior Palyi (archived in the Library of the University of Chicago).
History of Economic Analysis by Joseph A. Schumpeter, 1954, New York: Oxford University Press
Deflation: Retrospect and Prospect by Antal E. Fekete, Monograph #45, April, 1986, Committee for Monetary Research and Education, 10012 Greenwood Court, Charlotte, NC 28215
Note: My more recent writings on the subject of deflation are archived on the website: www.goldisfreedom.com
Copyright 1999, 2002 Le Metropole Cafe. All rights reserved.
----- Original Message -----
From: Xenon Zi-Neng Yuan
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 4:21 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
At 09:42 PM 6/24/2003 -0400, you
wrote:
>Sabri, Sure, I hope this helps...(the following are today's exchanges with
>Mr. Hudson, my most recent post is the bottom one) -William
http://lists.econ.utah.edu/pipermail/a-list/2003-June/026714.html
i don't think it's working. i myself have also been wanting to tell you
that your message formatting is a bit screwy (no paragraph breaks, for
example). you're using AOL, right? i believe they have an option
somewhere to format all your outgoing email as plain text. anyone else
here use AOL that might be able to suggest something?
xzy
----- Original Message -----
From: Mine Doyran
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 5:40 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Peter Gowan has written extensively
about U.S. imperialism and intra-core
relations since the 1970s. Anybody interested in this debate should take a
look at:
http://www.unl.ac.uk/ukrainecentre/WSS/ws-9.html
Gowan discusses how the U.S has progressed towards an "Empire System" to
reassert its dominance over the rest of the core. Gowan lists 5 major
strategies that allowed the U.S. to extend its empire in the 1990s (p.17) :
1) "Preventing other core power from gaining regional geostrategic autonomy"
2) "Preventing European Political Unity" (by trying to build an inner core
within the EU; U.K. versus Franco-German alliance)
3) Preventing Pacific Regional Political -Economy (by opposing the formation
of ASEAN)
4) "Maintaining international monetary and financial leverage"
5) "Gaining strategic control over the international division of labor"
Gowan's article can be found at
http://www.unl.ac.uk/ukrainecentre/WSS/ws-9.html
The article addresses some of the weaknesses in world systems theory
(Wallerstein/Chase-Dunn, etc). Can somebody trace the year of this piece? It
is not mentioned on the web site. I need to put this in my dissertation
references.
Although a very good account of U.S. imperial strategy, the article is a lit
bit far fetched. As evident in the difficulties facing U.S. economy, it is
becoming increasingly harder for the U.S. to assert its dominance withouth
burderns coming home.
To give a direction to the current discussion, I think that any account of
U.S. super-imperialism should be framed not only interms of America's
ability to deflect burdens onto others, but also in terms of the limits (or
sustainability) of America's free riding.
Gowan's account is a good starting point, like Hudson's, but if it wants to
keep the Marxist (or even classical realist) emphasis on power, it should
also focus on the limits of imperialism. How broader social coalition does
the U.S. need to keep things going? Is this effective in the long run? Can
the U.S. reconcile military dominance with economic stability? which systems
are more stable? balance of power or hegemony? etc.
On oil issues, David Spiro's book _Hidden Hand of American Hegemony_ is an
excellent acoount of U.S. petro-dollar recyling in 1974 and onwards (and how
the U.S. government deployed American banks as recyling mechanisms to send
surplus dollars back to the U.S.)
regards.
**************************************************
Mine A. Doyran
Ph.D. Candidate, ABD
Department of Political Science
Nelson A. Rockefeller College of Public Affairs and Policy
University at Albany, S.U.N.Y.
135 Western Avenue, Milne Hall
Albany, NY 12222
mine.doyran@verizon.net
***************************************************
"Frequently the only possible answer is a critique of the
question and the only solution is to negate the question."
Grundrisse, "The Chapter on Money"
****************************************************
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 10:49 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Michael Hudson writes:
My mentor, Terence McCarthy, a British-Irish Communist in the 1930s that
came to America to be the most influential financial analyst on Wall
Street - and the first translator of Marx's Theories of Surplus Value into
English - came to the conclusion that Harold Wilson must have been a paid
agent of the US.
Japan is a case in point. The US has promoted politicians on whom it holds
abundant blackmail files.
-----
It would be a rich irony if that were the case, given all the paranoia
surrounding Wilson and his entourage within MI5 and the CIA's
counter-subversion division led by Angleton. However I doubt it --
fear-inspired servility, pitiful as it might be, is not the same as paid up
service. Clive Ponting ("Breach of Promise") has exposed the sort of
intimidation that LBJ subjected Wilson to as a result of the latter's
refusal to send troops to Vietnam and parallel efforts to cut back military
expenditures propping up the remnants of empire during the 1960s (the "east
of Suez" policy). Wilson was promised a balance of payments crisis if he did
withdraw the Royal Navy from east of Suez, since that would look like overt
criticism of US policy. That Wilson got a balance of payments crisis in 1967
anyway was possibly LBJ making good his promise, in addition to the
anti-Wilson machinations going on within the Bank of England and City of
London at this time (see Stephen Dorril & Robin Ramsay, "Smear: Wilson and
the Secret State", Grafton, 1991).
The one Wilson-era cabinet minister who does seem to have been a paid agent
of the US was foreign secretary Michael Stewart. I remember reading
(possibly in Dorril & Ramsay's book) that Wilson and others were regularly
frustrated by how often supposedly confidential cabinet discussion was
evidently known by their US counterparts. The finger pointed squarely at
Stewart.
Given the disappointment that many on the left felt with regard to Wilson's
performance as prime minister, it is not surprising that they regarded him
as betraying the hopes of the working class. And they allowed this
bitterness towards the person to cloud their judgment, if not obscure
completely their recognition, of the structural configuration that Wilson
faced. Paul Foot is a classic case in point, although he has recognised, to
some extent, that this left bitterness was exploited by the right as part of
a concerted campaign of destabilisation conducted because of the widespread
belief in right wing circles that Wilson was a KGB agent.
As for Schmidt, the circumstances of his rise to power would advertise the
need for caution with a US flexing its muscles diplomatically and
financially under Nixon/Kissinger. Whatever his servility when you met him,
Kenneth O. Morgan (in his biography of James Callaghan) and Mark D. Harmon
(in "The British Labour Government and the 1976 IMF Crisis", Macmillan 1997)
both record Schmidt's effort to help Callaghan out of the crisis in 1976 by
offering to instruct the Bundesbank to intervene in support of sterling. The
US Treasury team led by William Simon slapped him down.
Your comments regarding the Europeans' consistent inability to mount at
least a token opposition to US bullying, much to the amazement of the US
bullies themselves, rings truer than the idea that Wilson and/or Schmidt
were paid agents. It's more likely that, like so many before and after, they
tried to reconcile their dread of US power with their own desire to retain
domestic power and work within whatever limits they found themselves subject
to. This was especially the case for social democratic governments, and
doubly so for pre-Blair Labour governments in Britain, which had to contend
with formidable domestic saboteurs in addition to US interference.
Michael Keaney
----- Original Message -----
From: Hudsonmi@aol.com
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 1:52 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Dear Michael,
What I meant to say was that Wilson behaved AS IF he were an agent. The Wilson
watchers began to note his wildly pro-US views already in 1945 when he was, I
think, with the Board of Trade. Already at that time he acted as an American
toady.
Probably you're right - it was simply trying to side with the bully, thinking
that this was Britain's only hope of success, for better or worse. This is how
Britain behaved all during World War II, and even Keynes couldn't get a better
deal than he got and ultimately knuckled under. But Wilson did so in a much
more "C'mon gang!" way than did Keynes.
Michael Hudson
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 2:27 PM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
Michael Hudson writes:
What I meant to say was that Wilson behaved AS IF he were an agent. The
Wilson watchers began to note his wildly pro-US views already in 1945 when
he was, I think, with the Board of Trade. Already at that time he acted as
an American toady.
Probably you're right - it was simply trying to side with the bully,
thinking that this was Britain's only hope of success, for better or worse.
This is how Britain behaved all during World War II, and even Keynes
couldn't get a better deal than he got and ultimately knuckled under. But
Wilson did so in a much more "C'mon gang!" way than did Keynes.
-----
UK secret state suspicion of Wilson began during his tenure as "President of
the Board of Trade". It was Wilson's frequent trips to the USSR that excited
interest in his possible entrapment by the KGB, an interest fanned to
preposterous proportions by defector Anatoly Golitsyn in the 1960s (leading
MI5 chief Martin Furnival-Jones to keep a file on "Henry Worthington" locked
in his office safe). The accusation of the rightwingers seeking to bring
Wilson down was always that, with regard to trading with the Soviets and
political détente, he would have been proclaiming "C'mon gang", much to the
disgust of the British uppercrust of the day. This disgust was amplified
when most of Wilson's business friends and backers were expatriate European
Jews (e.g. Joseph Kagan, a Lithuanian) who traded with the Soviet bloc.
Attlee's Foreign Secretary, Ernest Bevin, was a ferocious anti-communist and
anti-semite, which meant that for all his trade union background he had
plenty in common with the UK establishment. Wilson did not carry these
prejudices -- he was a pragmatist, and ultimately conservative with respect
to "Britain". His ministerial resignation in 1950, in protest at NHS charges
levied to pay for the cost of the Korean war, earned him a leftwing
"Bevanite" tag, but I think it would be unfair even to compare him with the
social chauvinist Aneurin Bevan. Instead he was concerned ultimately with
British economic decline and strove to reverse it via technological
modernisation and industrial restructuring, meanwhile trying to engineer the
Europe realignment that has bedevilled successive prime ministers from
Harold Macmillan to Edward Heath. Blair's ascension is a restoration of that
tradition, thanks to what I consider to be the ascendancy and ultimate
victory of the europhile fraction of British state and capital, which
thanked Thatcher very much for her smashing of the labour movement and
kicked her out when she threatened to damage Britain's European prospects.
John Major tried to redirect policy Europewards but could not carry his
party with him.
Wilson, like Heath and Macmillan, was a corporatist. His inevitable
compromises alienated the labour movement to his left whilst infuriating the
right, who saw him as a dangerous revolutionary (!) He was really a Tory --
someone whose conception of the national interest involved greater economic
redistribution to secure the social harmony necessary to support industrial
modernisation that would finance the even greater economic redistribution.
He was certainly no threat to the UK's political constitution. In that
respect there was much less difference between him and Heath (author of the
1930s Keynesian tract, "The Middle Way"), than there was between Heath and
Thatcher, whose "modernisation" of Britain was so effective because (a) she
recognised what needed to be done with respect to changing the status quo
(i.e., reconfigure the state while strengthening its repressive apparatus in
order to smash the labour movement via deindustrialisation), and (b) she had
the assistance of both the British establishment and the US.
I would be interested in further examples of Wilson's "C'mon gang"
behaviour.
Michael Keaney
----- Original Message -----
From: Michael Keaney
To: a-list@lists.econ.utah.edu
Sent: Wednesday, June 25, 2003 1:12 PM
Subject: [A-List] Michael Hudson's Super Imperialism
Yesterday I asked:
Does the above have anything to do with the economic malaise that has beset
Japan since c.1990? Remember that prior to that, Japan the economic
powerhouse that people like Lester Thurow were holding up as the model of
sound economic policy and performance was beginning to flex its muscles, not
only through manufacturing superior quality goods, but by purchasing US
corporations, most notably Sony's acquisition of Columbia and Matsushita's
takeover of Universal.
-----
Moody's cuts Sony rating over profit concerns
By Bayan Rahman in Tokyo
FT.com: June 25 2003
Sony's troubles deepened on Wednesday when Moody's cut the Japanese consumer
electronics and games maker's credit rating, citing concern over how long
Sony would take to generate strong profits and cash flow again.
Moody's Investors Service, the credit rating agency, cut Sony's long-term
debt rating to A1, with a negative outlook, from Aa3 following a review that
began on May 1.
This is the first time in at least 17 years that Moody's has downgraded
Sony.
The downgrade means Sony is trailing rival Matsushita Electric Industrial,
the company behind the Panasonic brand, which still has an Aa3 rating.
Moddy's decision to downgrade reflects growing unease about Sony's ability
to recover. The company surprised investors in April by posting a loss in
the final quarter of last fiscal year and missing its full-year profit
forecast.
Since then the company has tried to reassure investors by announcing a new
restructuring just as its last four-year restructuring came to an end, and
unveiling new product prototypes. The group is withdrawing from non-core
businesses and increasing investment in semiconductors.
Strong competition and deflationary pressure have hit Sony's core business
of electronics products over the past few years. Sony has been able to
maintain a price premium because of its strong branding but that is now
changing as electronics move from analogue to digital, Moody's warned.
"A horizontal business model enabled by digitisation of audiovisual (AV)
products, where value added shifts from assembling finished goods to
(software and) content and key components, has caused prices for AV products
to erode so fast that even Sony's branding does not allow it to continue
enjoying profitability over an extensive period of time seen during the era
of analogue products," Moody's said.
Sony has a line-up of products, from mobile phones to digital televisions,
that would take advantage of the broadband era, but broadband networks have
not materialised to the extent imagined, another reason for lower profits in
Sony's electronics products.
Moody's said Sony's new A1 rating had a negative outlook because Sony's
strategy of focusing on key devices, such as semiconductors, and
restructuring might not make a significant impact on profits for some time.
"These measures will exert some impact, but it may take longer than expected
for them to significantly improve profitability because the broadband
network environment and the implementation of Sony's new focus on key
devices may not completely materialize in the short term," Moody's said.
The rating cut affects Sony's long-term unsecured senior debt. The
company's
Prime-1 short-term rating is unchanged.
----- Original Message -----
From: jenyang
To: a-list@lists.econ.utah.edu
Sent: Thursday, June 26, 2003 9:22 AM
Subject: Re: [A-List] Michael Hudson's Super-imperialism (euro)
On Tue, 24 Jun 2003
Hudsonmi@aol.com
wrote:
>
> Japan is a case in point. The US has promoted politicians on whom it
> holds abundant blackmail files.
> On the other hand, there are well-meaning fools that really believe that
> Britain is SO weak that it MUST rely on the United States for aid, or go
under.
> Ditto Germany. I remember when I first met Helmut Schmidt in New York.
> Because I was introduced by the president of Volkswagen-US, he assumed that
he
> had to wear his US hat and told me how loyal he was to US plans, in Vietnam
and
> elsewhere. I hardly could believe my ears. He was like a puppy dog sucking
up
> and then masturbating against my leg.
> Harold Wilson had much the same quality.
>
To Michael Hudson's comment on Japan, we probably should add that the U.S.
occupation (1945-52) took great care in reconstituting the Japanese
bureacratic and political elite to protect U.S. interests in East Asia.
The occupation can be broken down into roughly two phases. First was the
"democratic" phase under which the war-renouncing constitution was
drafted, and the Zaibatsu (pre-war financial-industrial groups like
Mitsubishi who had a large part in the the war) were broken up, universal
suffrage introduced and political and social rights of minorities (such as
the buraku) and the popular classes given formal legal recognition.
By 1947 U.S. policy in Japan switched from undermining the social and
political base of Japanese elites who had just lost their contest with the
U.S. for dominance in East Asia, to reconstituting them on terms
favourable to U.S. hegemony in the region. No doubt a significant cause of
this change of heart was the weakness of Nationalist China and the
possibility of victory of Mao's PLA.
The second phase of the occupation came to be called the "reverse course".
During this period the Zaibatsu were reconsolidated and important figures
behind the war rehabitated politically. These interests, with U.S.
blessing or sponsorship, came together in 1953 to form Jiminto (the
Liberal Democratic Party) which has governed Japan more or less
continuously since the 1950's. Thus a feature of the Japanese state since
WWII has been that the military, bureacratic and political elite has been
deeply penetrated by U.S. making it basically impossible, short of a major
political crisis, to break with the U.S. clientism.
J.Enyang
michael-hudson.com