(Excerpts from talk pointing to a culprit - can you pick out who it might be? - CL)
Let me review what the U.S. strategy is, and what’s led to major changes over time. Dollar supremacy was established after World War I by America’s creditor position. Something very novel happened after. In every previous war, for instance the Napoleonic wars and the earlier wars England had been involved with, the allies had forgiven all of their mutual debts at the end of the war. There was something that the British called “shared sacrifice”, and the idea was “We’re going to have a clean slate after the war.”
This idea goes all the way back to Babylonia in the second millennium BC. Throughout history there was a debt cancellation. There was no carryover of war debts after victory was achieved, because the idea was that if you leave war debts in place, that’s going to bankrupt the allies that you had during the war. It’s also going to bankrupt the defeated countries, and leave them no choice except to fight back.
The laws of Hammurabi showed this. His whole dynasty showed this. My book on Forgive Them Their Debts is a whole history of debt cancellations. But the United States broke this practice after WWI and said: “The debts have to be paid.” The amazing thing is that Europe went along with it. It had a pro-creditor ideology. It believed in the sanctity of debt, and was not going to question that because there was a guiding assumption – which is erroneous – that all debts somehow can be paid if only countries will either devalue or transform their economy, or impose austerity..........
The basic principle of American foreign policy is that no other country can tell us what to do. We can tell other countries what to do, but they cannot tell us what to do. So we will not join any agreement in which we don’t have a veto power that gives us control of the World Bank and the International Monetary Fund, or the veto power in the United Nations and any international organization that the United States will join. So the question is: how could this supremacy be established all over again as World War II came to a close?
In 1944 and 1945, America made plans for the postwar economy. Its guiding logic was that: “In order to have full employment in the United States we have to have an export-based industry. Now that we’ve destroyed Germany and Japan our major enemy is the United Kingdom.” It became very clear that America’s enemy immediately on the ending of World War II was not Russia or the Soviet Union, but England. It developed a strategy that was designed to essentially bankrupt England with the 1946 British Loan, to force England to accept to end Imperial Preference, to break up its empire, to make it free the about 10 billion pounds Sterling, to be used for spending not in England as blocked currency as the British Board of Trade expected, but in the United States. So England was stripped of all of the blocked currency, stripped of the currency area, stripped of its exclusive Sterling Area, and thereby the empire that became absorbed into the Dollar Area.........
The United States also arranged the World Bank and the International Monetary Fund to favor the U.S. economy. In the World Bank it would only make foreign currency loans to other countries. It sent out missions to foreign countries to say “What does the country need?” and almost every mission said “What Latin America, Africa and the Near East need is not foreign currency. They need domestic currency for agricultural development.” You had a latifundia problem in Latin America. The United Nations came out with two wonderful reports on the need for land reform throughout the Third World in order to grow domestic food. But the World Bank was set against other countries becoming food independent. The most important heads of the World Bank were former Secretaries of Defense like McNamara and John McCloy. You can look through who the heads were. The Americans said that any foreign country wanting to grow its own food instead of depending on U.S. grain exports was counted as an Act of War and would be overthrown. That was the explicit reason why the United States established military dictatorships and client oligarchies in Latin America.
The World Bank did promote plantation agriculture but the plantation agriculture was for tropical export crops to compete with other exporting countries, to lower the price of export crops, of tropical crops that could not be grown in the United States. These countries were not supposed to grow their own food supply.
The World Bank became a huge market for American firms to build dams etc. I was told that the World Bank person in charge of designing dams had been a chronic bed-wetter as a child, sort of acting it all out. It also got countries into debt, and once countries were in debt they were forced into the International Monetary Fund, which said basically” “In order to pay your debts, you have to engage in a vicious class war against labor”. You have to lower wages because it’s the only variable in world trade. There’s a common world trade [price] in raw materials: All countries pay the same price for copper, machinery, and other materials. There’s a common world price for oil; there’s a common world price for capital goods. The one variable in foreign trade is the price of labor. So the IMF said, “You’ve got to prevent unionization, you’ve got to prevent any kind of pro-labor reform. Your only way of paying debts is to polarize your economy and impoverish your labor force.”.......
Ironically what’s changing all this is the United States’ cold war against Russia and China. The United States has begun to impose sanctions on the Russian and other post-Soviet economies, and on China. This is driving them into a position where their only defense is to do what Britain could not do in 1945L to create an alternative economic order with its own rules. So for the last five years or so China, Russia and other countries are discussing how to de-dollarize their economy........
What China and Russia found out very quickly is what initially seemed to be an economic rivalry between America and China and other countries was not really an anti-China rivalry as such. It’s a conflict of economic systems. The conflict is between neoliberalism – a financialized world order that wants to privatize all infrastructure and create monopoly rents for transportation, education, healthcare, like what occurs in the United States – and having these basic investments in the public domain, to be subsidized and their services provided at minimum cost. The question at issue is what kind of economy the world is going to have. Will it be a neoliberal economy, a privatized economy – Reaganized, Thatcherized and financialized, organized by central planning in Wall Street – or is the government going to plan?
China and Russia do not want a centrally planned economy anywhere near as centralized as the United States is promoting with Wall Street. In the United States the center of economic planning has been shifted from Washington to Wall Street financial institutions. Banks create credit not to create new means of production, not to build new factories and plant and equipment, but essentially to extend credit against assets already in place. Eighty percent of bank loans in the United States and in England are mortgage loans for real estate, against real estate that’s already in place. I think three percent of mortgage loans are for new construction as long as these loans are already collateralized with promises to buy apartments etc.
So the question is what kind of financial system are you going to have to back up a central banking system and credit creation? Is credit going to be a public infrastructure enterprise as it is in China, where the banks of China are able to decide who is going to get the loans. A public bank is not going to make corporate takeover loans or loans to corporate raiders. It’s going to make loans to actually increase the tangible economy, not to take it over and turn public infrastructure – the education system, healthcare, transportation and communications – into rent extraction.......
The question is: how do you create an international financial system designed to promote prosperity, not austerity? The Bretton Woods is for austerity for everybody except the United States, which will have a free ride forever. The question that I’m involved with in the work I’m doing in China and with other countries is how to create a system based on prosperity instead of austerity, with mutual support between creditors and debtors, without the kind of financial antagonism that has been built in to the international financial system ever since World War I. Financial reform involves tax reform as well: how do we end up taxing economic rent instead of letting the rentiers take over society. That is what classical economics is all about: how do we revive it?.........
The 19th century was really the golden age of industrial capitalism. Countries wanted to invest to make a profit. They didn’t want to invest in dismantling an existing industry, because there wasn’t much industry to dismantle. They wanted to make profit by creating industry. There was a lot of investment in infrastructure, and it almost always lost money. For instance, there was recently a criticism of China saying, “Doesn’t China know that the Panama Canal went bankrupt again and again, and that all the investments in canals and the railroads all went broke again and again?” Of course China knows that. The idea is that you make investment not to make a profit on basic large infrastructure. The 19th century was basically inter-state lending, inter-governmental lending, public sector lending. That’s where the money was made. The late 20th century was one of financialization, dismantling the industry that was already in place, not lending to create industry to make a profit. It’s asset-stripping, not profit-seeking
Full text: https://www.unz.com/mhudson/changes-in-superimperialism/
