October 11, 2007 § Leave a comment

Henry Liu at Asian Times has written some of the most penetrating articles I have read in the last few years. He has a new article and I will work my way through it as I come to terms with it.

From Asia Times Online  Asian news and current affairs – PART I : A Structural Link. He mentions Reich’s new book and then (I am only bringing in selective paragraphs, so its good to go read the original.)

Reich’s Supercapitalism brings to mind Michael Hudson’s Super Imperialism: The Economic Strategy of American Empire (1972-2003). While Reich, a liberal turned neo-liberal, sees "supercapitalism" as the natural evolution of insatiable shareholder appetite for gain, a polite euphemism for greed, that cannot or should not be reined in by regulation, Hudson, a Marxist heterodox economist, sees "super imperialism" as the structural outcome of post-World War II superpower geopolitics, with state interests overwhelming free market forces, making regulation irrelevant. While Hudson is critical of "super imperialism" and thinks that it should be resisted by the weaker trading partners of the US, Reich gives the impression of being ambivalent about the inevitability, if not the benignity, of "supercapitalism".

The idea that Reich is a neo-libral now is a serious idea. Let’s se where it goes. I am sympathetic to the distinction and think it should be discussed. I am very frustrated by those whom I meet, mostly "progressive" business people,who  will not allow the issue, sticking with the received and reinforced opinion that capitalism is good for everyone. Liu continues

The structural link between capitalism and imperialism was first observed by John Atkinson Hobson (1858-1940), an English economist, who wrote in 1902 an insightful analysis of the economic basis of imperialism. Hobson provided a humanist critique of neoclassical economics, rejecting exclusively materialistic definitions of value.

This has at least two important ideas. First that there was a Hobson, and second that he played with a theory of vvalues larger than of just material goods. He continues:

With Albert Frederick Mummery (1855-1895), the great British mountaineer who was killed in 1895 by an avalanche while reconnoitering Nanga Parbat, an 8,000-meter Himalayan peak, Hobson wrote The Physiology of Industry (1889), which argued that an industrial economy requires government intervention to maintain stability, and developed the theory of over-saving that was given a glowing tribute by John Maynard Keynes three decades later.

We are getting a good history lesson- making connections with things we know, and showing that his has resources for thinking we have not been aware of. Now comes a statement of what I suspect will be the major thesis.

The need for governmental intervention to stabilize an expanding national industrial economy was the rationale for political imperialism. On the other side of the coin, protectionism was a governmental counter-intervention on the part of weak trading partners for resisting imperialist expansion of the dominant power. Historically, the processes of globalization have always been the result of active state policy and action, as opposed to the mere passive surrender of state sovereignty to market forces. Market forces cannot operate in a vacuum. They are governed by man-made rules. Globalized markets require the acceptance by local authorities of established rules of the dominant economy. Currency monopoly of course is the most fundamental trade restraint by one single dominant government.

The way capital operates through markets in the form of corporations requires laws, contracts, money and defense of "property rights." What Liu is doing is going a step further and tying that dynamic to the dynamics of empire through state action.

ene setting: Adam smith:

Adam Smith published Wealth of Nations in 1776, the year of US independence. By the time the constitution was framed 11 years later, the US founding fathers were deeply influenced by Smith’s ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as mercantilism, which was practiced by all the major powers of the time. It is necessary to bear in mind that Smith’s notion of the limitation of government action was exclusively related to mercantilist issues of trade restraint. Smith never advocated government tolerance of trade restraint, whether by big business monopolies or by other governments in the name of open markets.

In GardenWorld I look at Smith and his disdain for corporations. Skipping ahead..

So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods. The situation was similar to today’s oil producing countries where despite plentiful crude oil, refined petrochemical products such as gasoline and heating oil have to be imported.

Smith favored an opposite government policy toward promoting domestic economic production and free foreign trade for the weaker traders, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name). Laissez faire, notwithstanding its literal meaning of "leave alone", meant nothing of the sort. It meant an activist government policy to counteract mercantilism. Neo-liberal free-market economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government interference in trade affairs.

skipping more good history..

Hobson’s magnum opus, Imperialism, (1902), argues that imperialistic expansion is driven not by state hubris, known in US history as "manifest destiny", but by an innate quest for new markets and investment opportunities overseas for excess capital formed by over-saving at home for the benefit of the home state. Over-saving during the industrial age came from Richardo’s theory of the iron law of wages, according to which wages were kept perpetually at subsistence levels as a result of uneven market power between capital and labor. Today, job outsourcing that returns as low-price imports contributes to the iron law of wages in the US domestic economy. (See my article Organization of Labor Exporting Countries [OLEC]).

Hobson’s analysis of the phenology (study of life cycles) of capitalism was drawn upon by Lenin to formulate a theory of imperialism as an advanced stage of capitalism: "Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capitalism is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed." (Vladimir Ilyich Lenin, 1916, Imperialism, the Highest Stage of Capitalism, Chapter 7).

Bringing Lenin, Luxemburg, Marx back into the conversation is necessary if we are not to have to reinvent the well (of fortune). Now comes the strong strategic statement, one that is actually driving much thinking in the US and the world in this decade.

The congenital association between capitalism and imperialism requires practically all truly anti-imperialist movements the world over to be also anti-capitalist. To this day, most nationalist capitalists in emerging economies are unwitting neo-compradors for super imperialism. Neo-liberalism, in its attempts to break down all national boundaries to facilitate global trade denominated in fiat dollars, is the ideology of super imperialism.

Hudson, …advanced in his 1972 book the notion of 20th century super imperialism. Hudson updated Hobson’s idea of 19th century imperialism of state industrial policy seeking new markets to invest home-grown excess capital. To Hudson, super imperialism is a state financial strategy to export debt denominated in the state’s fiat currency as capital to the new financial colonies to finance the global expansion of a superpower empire. No necessity, or even intention, was entertained by the superpower of ever having to pay off these paper debts after the US dollar was taken off gold in 1971. …

Three causal developments allowed dollar hegemony to emerge over a span of two decades after 1973 and finally take hold in 1993. US fiscal deficits from overseas spending since the 1950s caused a massive drain in US gold holdings, forcing the US in 1971 to abandon the 1945 Bretton Woods regime of fixed exchange rate based on a gold-backed dollar. Under that international financial architecture, cross-border flow of funds was not considered necessary or desirable for promoting international trade or domestic development. The collapse of the 1945 Bretton Woods regime in 1971 was the initial development toward dollar hegemony.

The third development was the global deregulation of financial markets after the Cold War, making cross-border flow of funds routine, and a general relaxation of capital and foreign exchange control by most governments involved in international trade. This neo-liberal trade regime brought into existence a foreign exchange market in which free-floating exchange rates made computerized speculative attacks on weak currencies a regular occurrence. These three developments permitted the emergence of dollar hegemony after 1994 and helped the US win the Cold War with financial power derived from fiat money.

Super imperialism sought to extract real wealth from the colonies by paying for it with fiat dollars to sustain a balance of payments out of an imbalance in the exchange of commodities. Monetary imperialism under dollar hegemony exports debt denominated in fiat dollars through a permissive trade deficit with the new colonies, only to re-import the debt back to the US as capital account surplus to finance the US debt bubble.

The circular recycling of dollar-denominated debt was made operative by the dollar, a fiat currency that only the US can print at will, continuing as the world’s prime reserve currency for international trade and finance, backed by US geopolitical superpower. Dollars are accepted universally because oil is denominated in dollars and everyone needs oil and thus needs dollars to buy oil. Any nation that seeks to denominate key commodities, such as oil, in currencies other than the dollar will soon find itself invaded by the sole superpower. Thus the war on Iraq is not about oil, as former Federal Reserve chairman Alan Greenspan suggested recently. It is about keeping oil denominated in dollars to protect dollar hegemony. The difference is subtle but of essential importance.

Then comes a central conclusion I know Liu has written about extensively in Asian Times.

Since 1993, central banks of all trading nations around the world, with the exception of the US Federal Reserve, have been forced to hold more dollar reserves than they otherwise need to ward off the potential of sudden speculative attacks on their currencies in unregulated global financial markets. Thus "dollar hegemony" prevents the exporting nations, such as the Asian Tigers, from spending domestically the dollars they earn from the US trade deficit and forces them to fund the US capital account surplus, shipping real wealth to the US in exchange for the privilege of financing further growth of the US debt economy.



(more coming through the day)


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You are currently reading Supercapitalism at Reflections on GardenWorld Politics Douglass Carmichael.


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