The Bloody Rise of the Dollar System
The current dollar-centered international monetary system is the result of a century of competition among the capitalist nations, especially the imperialist countries. The competition that led to the current dollar system was not only economic but also political and not least military. The military competition took the form of not one but two of the bloodiest wars in world history.
Relationship between economic, political and military competition
Although there is not a one-to-one relationship between political-military and economic competition among capitalist countries, political-military competition is ultimately rooted in economic competition. So in examining competition among capitalist countries, we first have to look at economic competition. What are the economic laws that govern competition and trade among different capitalist countries?
First, let’s review the laws that do not govern international trade under the capitalist system. Using the quantity theory of money and, at least implicitly, Say’s Law (1), the (bourgeois) economists picture competition among capitalist nations as a friendly game in which everybody emerges the winner. Within each country, according to the economists, “full employment” reigns.
According to the modern marginalist economists, under perfect competition (2) each “factor of production”—land represented by landowners, capital represented by capitalists, and labor represented by workers—gets back in rent on land, interest on capital, and the wages of labor precisely the value each creates. Our economists claim that as long as “perfect competition” exists, no “factor of production” can exploit another factor of production.
Similarly in world trade, every country benefits by “free trade.” According to the theory of comparative advantage, each country concentrates its production on what it is comparatively best at, not necessarily absolutely best at. According to this theory, even if a given country has a below-average level of labor productivity in every branch of production, there will always be some branch where it will enjoy a comparative advantage enabling it to prevail in international competition.
Therefore, if we are to believe the economists, countries that are deficient in modern productive forces benefit from international trade just as much as the countries that monopolize the world’s most advanced productive forces. The result, the economists claim, is the most efficient system of global production that the prevailing technical and natural conditions of production allow.
In his “General Theory of Employment, Interest and Money,” first published in 1936, John Maynard Keynes admitted that this picture of international harmony was false. Far from enjoying “full employment,” capitalist countries as a rule can produce far more commodities than they can possibly sell on their home markets.
This means that collectively the productive capacity of the capitalist countries has been greater than the available markets. The result has been periodic wars among the capitalist countries aimed at increasing their individual shares of the world market. Keynes admitted that the mercantilist view of the world (3), where each (capitalist) nation can only get rich at the expense of other nations, was closer to reality than the harmonistic theory of “comparative advantage,” where all nations grow rich together through free world trade. (4)
Keynes, however, claimed that this was true not because of the nature of the capitalist system but because of incorrect monetary and fiscal policies that the governments and central banks of the capitalist nations had followed. If only proper fiscal and monetary policies were followed in the future, the “full employment” within each country promised by the marginalist economists would finally become reality.
Once permanent “full employment” was achieved within each capitalist nation, world trade would then become the friendly game that the pre-Keynesian marginalists claimed it was. Britain, for example, could benefit if it exchanged some its manufactured items for tropical fruits that could not be grown in Britain’s climate.
It is only through world trade that the English can enjoy wines, oranges, mangoes and so on. Keynes believed that with the adoption of policies by capitalist governments that ensure permanent “full employment” within each capitalist country, wars over markets would end. Then, Keynes believed, international peace would reign among the capitalist countries just like class peace would prevail within them.
However, as we have seen throughout these posts and replies, Keynesian stabilization policies have completely failed to overcome the contradiction between a capitalist nation’s ability to produce and its ability to sell its entire potential commodity output at profitable prices. As a result, we are still living in a world where international trade is governed by laws that are closer to the world of the mercantilists than to the peaceful world of Ricardian comparative advantage.
Indeed, the “General Theory” had barely gone to press when the bloodiest inter-imperialist war in history broke out, a war in which the struggle for markets played no small part. (5)
If the law of comparative advantage does not operate in a capitalist economy, what does govern world trade among the capitalist countries? International trade is governed by the law of value, which operates on the world market just like it does on the home market. As Anwar Shaikh puts it, it is not comparative advantage but absolute advantage that governs world trade. (See, for example, his video lecture on “Theory and Ideology of Neo-Liberalism.”)
There are, however, two differences between trade within a national market and world trade. One difference is actually superficial. World trade involves the exchanges of different currencies, while with trade within a nation only a single currency is used. (6) Despite the claims of bourgeois economists to the contrary, this makes no essential difference.
A second, more important, difference is that within a nation labor power of a given skill has more or less the same value. Consequently, the price of labor power—wages—of a given type is more or less the same for every capitalist operating on the home market. This is not true on the world market.
Differences in the value of labor power within different countries
Marx explained that the value of labor power contains two elements: One is the basic biological minimum that is necessary to maintain and reproduce the working class. Second, there is a moral element that is added to the first part. This additional moral element is determined by historical factors and the class struggle unfolding within each particular capitalist nation.
For example, the United States began as a “white colony” of Britain. Land was easily stolen from the native inhabitants by the early European settlers armed with firepower that was developed in Asia and Europe. This firepower was unavailable to the Native American peoples because they had been isolated from Asia, Europe and Africa ever since their ancestors settled in what we now call the Americas more than 10 thousand years ago.
With so much cheap land available, “free labor power” was scarce in the North American colonies and the early United States. To a much greater extent than was the case in Europe, the balance of power on the North American labor market favored the sellers of labor power—the workers—over the buyers of labor power—the capitalists.
As a result, the moral element in the determination of the value of labor power was much larger in the United States than was the case in Europe, not to speak of Asia or Africa. Similar factors operated in other “white colonies” such as Canada and Australia. (7)
Keeping in mind that labor power has different values in different countries, let’s examine how the law of value operates in international trade. Each individual commodity has both an individual value—the amount of human labor that is used in producing it—and a social value—the amount of human labor that is socially necessary to produce it under the existing conditions of production. If more concrete labor is used to produce a given commodity of a given quality than it takes on average to produce such a commodity, this will mean that the concrete labor will represent a lesser amount of abstract human labor.
If, on the other hand, a given commodity is produced with less concrete labor than it takes on average to produce that commodity with a given quality under the existing conditions of production, this will mean that the commodity will represent a greater quantity of abstract human labor than the concrete labor that was actually used to produce it. Everything else remaining equal, the commodity producers that produce commodities of the same use value and quality with the least amount of labor will drive other commodity producers out of business. The individual value of their commodities then becomes the new lower social value of commodities.
How does this law apply to international trade?
The distinction between the individual value of a commodity and its social value can be extended to commodities produced in different countries with different productivities of labor. First, what determines the productivity of labor in different countries?
The productivity of labor within a country is determined by two factors: First, it is determined by the degree of development of forces of production. The more the forces of production are developed, the lesser amount of human labor it takes on average to produce a commodity of a given use value and quality. Second, the productivity of human labor is also determined by the natural conditions of production.
Suppose no international trade occurs in a given commodity. In that case, the social value of commodities will be determined on a purely national basis. Therefore, in the absence of international trade, commodities of the same use value and quality will have very different (social) values in different countries.
If at the other extreme, the world market is fully formed, commodities of the same use value and quality will have exactly the same social value in all countries—leaving aside transportation costs. In reality, many commodities are in a situation that is somewhere in between where its social value is determined on the national market and where it is determined globally. Therefore, it is possible to talk about the national values of many commodities.
The value of the money commodity—gold bullion—is determined on a global basis, since if any commodity is traded internationally it is the commodity or commodities that function as money. True, in times past in the wake of discoveries of new sources of cheap gold, gold for a time acquired a lower local value than it had on the world or even the national market. This happened, for example, after gold was discovered in California in 1848. But soon enough, the difference between the value of gold in California and the rest of the world market evened out.
The result was a moderate decline in the value of gold worldwide and the consequent tendency for prices expressed in weights of gold bullion to rise throughout the entire world market. Indeed, historical records indicate that commodity prices started to rise with the gold discoveries in California and Australia and continued to rise until the German-Austrian-U. S. crisis of 1873.
Because the different national currencies represent the same material use value—gold bullion—as well as the same social substance—abstract human labor that is directly social—they are mutually exchangeable with one another. We can always convert a price expressed in one national currency to a price expressed in another national currency. For example, suppose one British pound equals two U.S. dollars. Or what comes to exactly the same thing, a pound represents twice the quantity of gold bullion that a U.S. dollar does. In that case, a price of two British pounds represents exactly the same price as four U.S. dollars.
One of the ways a country with more developed productive forces can exploit a country with less productive forces is when the former country sells its commodities at prices that are above its nationally determined value but below the national value of the country with the less-developed productive forces.
The difference between the amount of abstract human labor that a commodity represents on the home market in the country with the more developed productive forces and the greater quantity of abstract human labor that it represents in the less-developed country becomes a source of super-profits.
Such super-profits tend to be temporary, since if the country with more developed productive forces can undersell the country with less developed productive forces in its own home market, the latter country will either be forced to increase its own productive forces and productivity of labor or it will abandon the production of the given commodity entirely. If the latter happens, the social value of the commodity that was formerly produced in a country with less developed productive forces will no longer have a national value but only a global value.
Since the law of comparative advantage does not operate under the capitalist system in either national—as the economists admit—or international trade, why aren’t countries with poorly developed forces of production and consequently low levels of labor productivity not driven out of the world market entirely? Can the country whose forces of production lag behind the countries with more developed forces of production ever prevail in the battle of competition?
Since prices of production on average more or less correspond to prices that directly express value, unless I indicate otherwise I will assume for sake of simplification that prices of production and prices that directly express value are identical. These are the assumptions that Marx makes throughout the first two volumes of “Capital.”
Remember, from the viewpoint of an industrial capitalist what counts is not the value of a commodity—what it costs society in terms of abstract human labor to produce a commodity of a given use value and quality—but what it costs that industrial capitalist personally—the labor both dead and living he actually has to pay for. If money wages were equal across the globe, the industrial capitalists with less-developed means of production would be driven from the market.
But as we explained above, this is still very far from the case. This is the key difference between trade on the national market and international trade. The individual industrial capitalists who win the battle of competition are not necessarily the ones who produce commodities of a given quality with the least quantity of labor but who produce commodities with the least quantity of paid labor.
Therefore, the industrial capitalists in less-developed countries can sometimes win the battle of competition if their lag in the development of labor productivity is compensated for by lower money wages. In this case, the industrial capitalists in the less-developed country will still obtain a lower mass and rate of profit when the profit is calculated in terms of global values as opposed to national values.
But if the difference in money wages is great enough, the capitalists in the less-developed country might still make a greater profit even in terms of global values than the capitalists producing in a country with more developed productive forces. In that case, it is the capitalists in the less-developed country that will still enjoy an absolute advantage in terms of paid labor—both living and dead—not just a comparative advantage.
Under these conditions, the full weight of the relatively low development of the productive forces in an oppressed country then falls entirely on the working class in the form of low money wages and living standards. National oppression in the form of poorly developed forces of production and class oppression then become intertwined.
There is one other case where countries with poorly developed productive forces can beat much more developed countries. This is where the natural conditions of production as opposed to the technically determined conditions of production play the decisive role in determining the productivity of human labor employed in producing the given type of commodity. Natural conditions of production tend to play the decisive role in determining the productivity of labor employed in primary commodities, such as minerals and hydrocarbons and in agriculture.
For example, fruits such as bananas, coconuts and mangoes require a tropical climate if they are to be grown economically. Citrus fruits do best in sub-tropical climates, while fruits like apples, peaches, cherries and pears require temperate climates where there is a certain amount of winter chilling. The cotton plant requires a subtropical to tropical climate where the growing season is long. This is why cotton was—and is—grown in the U.S. only in the deep south and parts of California but cannot be grown in the upper south or in the U.S. north, where the growing season is simply too short to allow the cotton plant to mature before it is killed by autumn frosts.
In the case of minerals and hydrocarbons, it is a question of where nature has put these raw materials. You cannot successfully drill for oil in places where there is no oil, nor mine copper, zinc, iron, gold and so on where these minerals were not deposited by the forces of nature in economical amounts. This is why the traditional international division of labor assigned to colonial, semi-colonial, or neo-colonial countries the production of primary commodities. For example, oil in Saudi Arabia, tin in Bolivia, bananas and coffee in Central and South America, and sugar in old Cuba.
Despite the low development of the productive forces in Saudi Arabia in most branches of production, oil can be produced more cheaply there than in any other country due to the natural conditions of production. Bolivia can produce tin cheaply, and Central American countries can produce bananas and coffee for the same reason that Saudi Arabia can produce the world’s cheapest oil—the superior natural conditions of production. It is not because of comparative advantage but absolute advantage that causes the world market to assign to Saudi Arabia the production of oil, Bolivia tin, and much of Central and South America bananas and coffee.
The countries with a lower overall level of development of productive forces therefore tend to specialize in one or a few primary commodities. At worst, this leads to monoculture and an overall slow development of the domestic market. In addition, these countries become hostage to the often dramatic price swings that primary commodities are subject to.
A sudden fall in the price of the primary commodity it exports can quickly drain the country of its money and plunge it into a deep economic crisis. In a few cases, like oil in Saudi Arabia, the one commodity where a country rules the world market is so critical to the world economy that it causes great amounts of money to flow into the country. This causes the domestic market of the country in question—for example, Saudi Arabia—to expand out of all proportion to the overall low level of its productive forces.
Such countries are exchanging raw materials for relatively large quantities of consumer commodities. This enables a large part of the population—especially when the overall population is small like is the case in Saudi Arabia and other Arab “oil kingdoms”—to enjoy a very high standard of living.
Different organic compositions of capital among different branches of production and its effect on world trade
Countries with poorly developed productive forces relative to the world market will tend to specialize in those branches of production that have a relatively low organic composition of capital. The operation of the equalization of the rate of profit transforms prices that directly express the value of commodities into prices of production that equalize the rate of profit among branches of production with different organic compositions of capital. As a result, the capitalists whose industries have an organic composition of capital that lags behind the average have to yield a portion of the surplus value that their workers produce to the capitalists whose industries have a higher-than-average organic composition of capital.
Therefore, even under conditions of “free competition,” and within a single national market, industries whose organic composition is inferior to the average prevailing in industry will engage in “unequal exchange” with industries whose organic composition of capital is superior. This is true not only on the national market but on the international market as well.
In highly automated industries—industries with a higher than average organic composition of capital—labor costs—the amount of money capital that must be transformed by the industrial capitalists into variable capital as opposed to constant capital—form a relatively low proportion of the total cost price. High wages—a low rate of surplus value—therefore is less harmful to the rate of profit of these capitalists than it is for those capitalists whose industries have a low organic composition.
Not surprisingly, as globalization proceeds an international division of labor emerges where technically advanced industries that have a high organic composition continue to be located in “high-wage” countries, while industries with a low organic composition of capital are more and more located in countries where wages are very low and the rate of surplus value is very high. The exploitation of industries with a low organic composition of capital by industries with a high organic composition becomes transformed into the exploitation of countries with poorly developed productive forces by countries that enjoy a monopoly of highly developed productive forces.
Changes in the relative productivity of labor in different countries and its effect on world trade
If a country is developing its average productivity of labor at a faster rate than its competitors, it will tend to run trade surpluses, and money from other countries will flow into it. This will cause its domestic market to grow faster than the world market as a whole. Over time, the home market of a country that is rapidly developing its productive forces relative to the world market will represent a greater portion of the world market. Present-day China is an example of this.
Contrary to the assumptions of the (bourgeois) economists, the ability of the world market to grow is not determined by the physical ability of the trading countries to increase their total commodity production—Say’s Law—but rather is determined in the final analysis by the rate of growth of the quantity of money material—gold bullion. However, an individual country can increase its commodity output for a limited period of time at a rate faster than the overall growth of the world market if it captures markets from the capitalists of other countries.
Taken to its mathematical limits, a country whose productivity of labor is growing faster than the world market average would eventually conquer the entire world market. At that point, the rate of increase of its commodity production across the global industrial cycle would fall to the rate of growth of the world market as a whole.
Obeying the mathematical laws of exponential functions, the smaller a country’s share of global production, the longer the period will be when it is able to increase its national commodity output at a rate that is greater than the overall rate of growth of global commodity production. When a country is in the process of doing this, its industrial capitalists and the foreign industrial capitalists that invest in the country will build new factories with the latest technology.
In contrast, a country that developed rapidly in an earlier period will have many older factories and machines that the industrial capitalists will not be able to replace without incurring major losses. Its very richness in productive capital will accelerate the decline in its relative—not absolute—labor productivity compared to “newer” capitalist countries.
These economic laws give rise to the law of uneven development among countries engaged in capitalist production. Therefore, countries develop at different rates at any given point in time, and develop at different rates relative to one another at different times. If the law of uneven developments works in favor of a given country in one historical period, the same law will inevitably work against it in the succeeding historical period.
In his pamphlet “Imperialism, the Highest Stage of Capitalism,” written in the heat of World War I, V. I. Lenin, the soon-to-be leader of the Russian Revolution, based the inevitability of war among the imperialist countries on the law of uneven development.
As a rule, it is the imperialist countries with the most powerful productive forces that prevail in inter-imperialist wars. However, since the productive forces of the imperialist countries and indeed the capitalist countries in general develop according to the law of uneven development, those capitalist countries with the most powerful productive forces in one period—such as Britain in the middle of the 19th century—will not have the most powerful productive forces in the following period.
For example, while the law of uneven development had worked in Britain’s favor until the mid-19th century, it has worked against it ever since.
The rise of the American empire
In the middle of the 19th century, Britain, which had by far the most powerful productive forces in the world, naturally dominated politically and militarily the mid-19th century world. Britannia would not have ruled the waves—and politically ruled much of the world—if it had not ruled the markets of the world. However, in the latter part of the 19th century, the productive forces of certain other countries—especially Germany and above all the United States, obeying the law of uneven development—began to develop at far more rapid rates than those of Britain.
By the early years of the 20th century, the existing military and political relationships—the domination of the world by Britain—no longer corresponded to the global distribution of the productive forces. The political and military balance of forces were, as they as a rule do, lagging behind the economic balance of forces. Two world wars were necessary to bring the distribution of military and political power into correspondence with the distribution of the productive forces once again.
Lenin’s “Imperialism” was written during the transition between British domination of the capitalist world and the era of the American world empire. Lenin explained that it was the uneven development of the different capitalist nations that made wars among them—like World War I—inevitable. Just like crises temporarily resolve the contradiction between the drive of capital to develop production without limit and the much slower rate of expansion of the markets, so wars temporarily resolve the contradictions between the relative development of the productive forces in different nations and the existing distribution of political power.
Changes in world imperialism since Lenin’s time
When Lenin wrote his famous pamphlet “Imperialism” in 1916, the world consisted of a handful of independent imperialist countries—the United States, Great Britain, France, Germany, Japan and pre-revolutionary Russia (8)—being the most important—on one side, and a large number of colonial and semi-colonial countries, where the great majority of humanity lived, on the other.
In contrast, since 1945 world capitalism has been politically and militarily dominated by the world empire centered on the United States. In addition to the United States, there are a number of imperialist satellite countries—for example, Great Britain (the former leading power), Germany, France, Japan and so on. As in Lenin’s time, these now satellite imperialist countries continue to extract super-profits from the oppressed countries—though most of the latter are no longer formally colonized.
As was the case in the days of Lenin when the now satellite imperialist countries enjoyed much more political and military independence, the capitalists of these imperialist countries use super-profits to support a large “middle class,” including the labor aristocracy. These middle-class layers consist less and less of small businesspeople and small farmers or peasants—the traditional petty-bourgeoisie—and more salaried white collar workers, sometimes called the “new middle class.”
Members of the new middle class depend partially on selling their labor power—usually for salaries. However, unlike the proletariat proper they have accumulated substantial savings in stocks and bonds as well as equity in their homes—though a lot of the home equity in the imperialist countries has been wiped out since the crisis of 2007-09.
It is not only white collar office workers, who are partially “de-proletarianized” by widespread petty land ownership—ownership of the land under their houses—and significant savings in the form of interest-yielding bank accounts, ownership of stocks and bonds and so on, but also the best-paid factory workers. However, the progressive shift of industrial production from the imperialist countries to low-wage countries means that the overwhelming majority of factory workers who are exploited by capital worldwide remain proletarians in the full sense of the word—defined as people who have no source of income except what they receive from the sale of their labor power.
On the other hand, the partially de-proletarianized factory workers of the imperialist countries, especially those in the United States, are increasingly being expelled from the sphere of production, or are being forced to agree to radically lower wages and are being reduced once again to a purely proletarian status. These trends have been greatly accelerated by the crisis of 2007-09 and its aftermath.
While cyclical downturns like the 2007-09 crisis accelerate these trends, the trend itself reflects the progressive shift of material production from the imperialist countries to the historically oppressed countries where the the value of labor power is lower and consequently the rate of surplus value is far higher. In addition to raising the rate of surplus value, the shift of production from high-wage to low-wage countries makes it economical for capital to use more variable capital and less constant capital, in this way postponing or moderating the long-term tendency discovered by Marx for the rate of profit to decline as a consequence of the rising organic composition of capital.
As was the case with the “old” middle class of small business owners and peasants-farmers, the new middle class is layered. At its highest level, it grades into small money capitalists—people who if they wish can live entirely off dividends and interest at a “middle-class level,” and at its lowest level it grades into the proletariat, which depends entirely on wages.
Like the situation in Lenin’s time, the various imperialist countries continue to compete with one another economically, but politically and militarily they are completely subordinate to the United States. This subordination is enforced through a number of institutions such as NATO, the United Nations Security Council, the World Trade Organization, the International Monetary Fund and the World Bank. It is also enforced through the global domination of the U.S. dollar as the main means of payment on the world market.
Kautsky’s theory of ‘super-imperialism’
During World War I, Karl Kautsky, the foremost expert on Marxism in the years after Engels’ death in 1895, speculated about the rise of a “super-imperialism” in which the various imperialist countries would come to a peaceful agreement to exploit the world jointly. Lenin strongly denounced Kautsky’s “super-imperialist theory.” First, it was truly criminal to speculate about a possible future “peaceful” phase of world imperialism when it was the job of the international workers’ movement to transform the world war into a world socialist revolution.
But how about the post-1945 American empire? Doesn’t the American empire represent just the kind of peaceful agreement among the capitalists of the imperialist countries that Kautsky foresaw? In fact, it doesn’t.
First, Kautsky looked forward to a “peaceful” agreement among the capitalists to exploit the world jointly. But the American empire did not arise out of a peaceful agreement among the capitalists. It arose out of two world wars that cost the lives of tens of millions of workers and other working people. And since 1945, the threat of force continues to play no small role in holding the American world empire together.
It is no accident that the U.S. spends as much on the military as the rest of the world combined. Nor is it an accident that the U.S. continues to occupy Germany and Japan more than 65 years after World War II ended. In fact, it is precisely because the tendency for war among the imperialist countries is so deeply rooted, that imperialism has an objective need to have an all powerful “world policeman”—a global dictator—to hold this tendency towards war among themselves in check.
Objectively, the capitalist world could not have continued to have a world war every 20 years or so even if military technology had remained frozen at the levels of World War I. But of course, military technology has not remained at the World War I level any more than industrial technology has. By the second half the 20th century, the means of destruction had already become so powerful that if they were fully used in a new world war, civilization would not be able to survive. (9)
Just like economic competition leads to the centralization of capital and economic monopoly, political and military competition leads to political and military centralization—political monopoly backed up by military monopoly. It was precisely such military competition growing out of political competition rooted in economic competition that led to the centralization of military and political power in the hands of the the country with the then most powerfully developed productive forces, the United States. This is what we call the “American empire,” or simply the “the Empire” for short as the Cubans do.
The law of uneven development undermines the American empire
Since the middle of the 20th century, the law of uneven development that previously worked in America’s favor has been working against it. In the sphere of material production—which according to Marx’s historical materialism is ultimately decisive—the U.S. has been steadily losing ground to its capitalist rivals.
Increasingly, the world means of production are located outside the United States, though political and military power continue to be overwhelmingly centralized in the United States. In the long run, this situation cannot go on. The relative weakening of the U.S. Empire is currently reflected in the sphere of international finance, specifically in the growing irrationality of the dollar-based international monetary system.
It makes less and less sense to continue to use the national currency of an economically declining nation—the United States—as the world currency. Yet the end of the dollar system means the end of the American Empire. And the end of the American Empire—the end of the U.S. role as world dictator—implies a new era of inter-imperialist wars that civilization may not be able to survive unless the world capitalist system is replaced by a world socialist system that ends the exploitation of class by class within individual countries as well as the exploitation of one country by another country.
Change of plans
I had originally intended to write a reply on the crisis of the dollar system next month. I still intend to do this. However, as I previously explained, I was shifting from a bi-weekly to a monthly schedule with these posts and replies unless a major change in the economic or political situation mandated a shift back to a bi-weekly schedule.
The sudden rise of the Occupy Wall Street movement, which has been spreading like wildfire from city to city in the United States over the last few weeks, represents for this month at least such a change in the political situation. This movement has targeted especially bank capital, and in cities with Federal Reserve Banks, the occupations have tended to be located at those banks. Since most of the participants in the new movement are young, a very good sign, I can’t help but wonder how many really understand exactly what a U.S. Federal Reserve Bank is. The same could be said for many participants from older generations.
I have decided, therefore, to produce in two weeks a special post on the nature of the U.S. central banking system, the role of the U.S. Treasury, Federal Reserve Board, and the 12 Federal Reserve Banks, many of which have now become targets of the occupation movement. This will enable us to examine the dollar system from a slightly different angle. I hope to publish the new special post on the structure and nature of the U.S.—and actually the world—central banking system in two weeks.
After that, the plan is for now to resume the monthly schedule though further developments both economic and political could modify this once again.
1 The quantity theory of money implies the “neutrality” of money, which in turn implies Say’s Law. The quantity theory of money is essential for the claim of the (bourgeois) economists that comparative rather than absolute advantage governs international trade among capitalist nations. If the quantity theory of money falls, so does Say’s Law and comparative advantage.
2 Anwar Shaikh points out that the marginalist concept of “perfect competition” not only doesn’t describe competition under modern imperialism, it doesn’t even describe the cutthroat nature of competition in the pre-monopoly age of “free competition” out of which monopoly capitalism and imperialism emerged.
3 The mercantilists believed that the nation should aim at increasing the quantity of gold and silver—money—as much as possible. According to the mercantilists, the more money there was in a country the more capitalist prosperity there would be. The mercantilists’ view of money was the opposite of the “neutrality of money” views of the believers in the quantity theory of money, which holds that the amount of money in a country only affects purely nominal prices and wages and has nothing to do with the degree of capitalist prosperity or wealth the country enjoys.
The mercantilist theory does not see international competition as a purely zero-sum game, since the quantity of money—gold, and in the mercantilists’ day, silver as well—increases with the production of additional gold and silver bullion. But the mercantilists’ view that the nation should do all it can to discourage imports and encourage exports in order to run a balance of payments surplus that increases the quantity of money within the nation implies that the interests of each individual capitalist nation are contradictory. A gain by one nation is a loss by another. The mercantilists’ theory implies that war over markets will inevitably develop among the competing capitalist nations.
This mercantilist theory of world trade is in sharp contrast with the harmonistic theory of comparative advantage first developed by David Ricardo and adopted by the marginalists, which holds that all nations have common interests in free trade. The marginalists, who unlike Ricardo, also claimed that the social classes within a country have the same interests, were eager to integrate the theory of comparative advantage into the emerging marginalist, or “neo-classical” as it is sometime called, theory.
4 In his “General Theory,” Keynes has an entire section on the mercantilists where he acknowledges their insights, which he finds superior to the Ricardian comparative advantage theory of world trade. In more ways than one, the mercantilist theories anticipate Keynes’s own views, as Keynes himself acknowledges.
5 Unlike World War I, World War II was not a purely inter-imperialist war. The war between Nazi Germany and the Soviet Union, which lay at the heart of the war, was a war between the socialist system that was then under construction in the Soviet Union and the monopoly capitalist economy of Nazi Germany.
Germany went to war with the Soviet Union for two reasons: One was its desire to destroy the Soviet Union as a socialist state. The war between capitalist Nazi Germany and the socialist Soviet Union was therefore in essence a class war.
The second reason was the desire of the Nazis to obtain cheap raw materials and above all cheap labor so that German big business could earn super-profits. The German fascists, who often spoke with brutal frankness, talked openly about enslaving the “racially inferior” Slavic populations of the Soviet Union. In addition, the Nazis hoped to transform a section of the German “surplus population” into colonial-settler “pioneer farmers” on the pattern of the American West in the 19th century. Indeed, the young Hitler was greatly influenced by the German writer Karl May, who wrote novels about the American West even though he had never actually visited the United States.
Hitler was actually aiming at transforming Germany into a second America that would then fight it out with the United States—the first America—in a final struggle for world domination, perhaps in a World War III. The German dictator was hoping that Britain and the U.S. would go along with his plans to transform the Soviet Union into a German colony because they, too, as capitalist powers would benefit from the destruction of the Soviet Union.
Some members of the British ruling class were indeed tempted by this “offer” from Germany’s fascist dictator. But U.S. President Franklin D. Roosevelt was determined that there would only be one “America” that would exercise a dictatorship over the capitalist world including the other imperialist countries as well as the colonial and semi-colonial countries.
In addition to the war between Nazi Germany and the USSR and the war between the imperialist countries of the United States and Britain—with France playing both sides—on one hand and Germany, Japan and Italy on the other, World War II also included the war between China, which was still in the very early stages of its capitalist development, and imperialist Japan. China was then an oppressed semi-colonial country that the Japanese imperialists were attempting to transform into a Japanese colony.
China’s attempts to defend what was left of its independence against imperialist Japan was historically progressive. Indeed, the failure of the Japanese effort to colonize China opened the way for the great Chinese Revolution of 1949 and the rise of modern and increasingly industrialized China that the revolution made possible. We would be living in a very different world if China, the most populous nation on earth, was a Japanese colony!
The same analysis can be applied to the war between Japan and Vietnam and the other Indochinese countries.
6 Some bourgeois economists applying the theory of comparative advantage bemoan the European euro system because according to their theories it prevents the law of comparative advantage from operating within Europe and instead imposes absolute advantage. For comparative advantage to operate under the capitalist system, our modern economists believe, nations must have separate currencies.
7 During the 19th century, there were essentially two types of colonies. In one type, the native population was small and retained a tribal-clan-communistic type of social organization. The natives were hard to enslave because they were resistant to the very idea of working for another person—something unknown within their social organization. On the other hand, their population was small and could be easily overwhelmed and largely exterminated by the European white settlers. Such “white colonies” are often called “colonial-settler states.”
The other type of colony was represented by India. Before the English colonization, India had an ancient civilization—much older than Britain’s civilization—that had long been divided into classes and well as castes. Its mode of production supported a very large population—which in the future once independence was regained would strongly support the rapid development of native capitalism. The white colonists, therefore, couldn’t exterminate or marginalize the native population in the way they had done in United States, Canada and Australia. Instead, they aimed to squeeze as much surplus value out of the native population as they could.
A peculiar feature of the Zionist movement and the state of Israel it bred is its attempt to consolidate a “white colony” in modern Arab Palestine by the colonists attempting to drive out the native Arab population rather than exploit it in the manner of the British in India. However, the Palestinian Arabs, who actually form a part of the much larger modern Arab nation, cannot be disposed of by a few million European Jewish settlers, plus a few more million Jews that were squeezed out of the Arab world when Israel was created, in the same way that early American “pioneers” could “dispose” of the “Red Indians.”
As a result, Israel, far from developing as the independent modern Jewish nation that the early Zionists promised the persecuted Jews of Europe, has instead ended up a widely hated “white colony” of the United States incapable of any independent development.
8 Taken as a whole, the development of the productive forces in the czarist Russian Empire in 1914 did not really justify calling it an imperialist country. However, Russia did have one advantage over far more developed imperialist countries like Germany. That advantage was a much higher degree of political centralization. A single government ruled over a much larger number of people within the Russian Empire than was the case with the German government in Berlin.
Despite this advantage and the consequent large size of the Czar’s army, the advantages of Germany’s high degree of industrialization prevailed despite the paralyzing impact of the British and French blockade on German industry. Germany won practically every major battle it fought against Russia.
9 If all the nuclear weapons that now exist were exploded—not to speak of those that could be built by present-day industry and technology—civilization as we know it would be wiped out. In addition, there are other horrible forms of weapons. Biological and maybe chemical weapons might also be able to wipe out modern civilization even without the use of nuclear weapons.