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Money, Money, Money
by
Stan Goff
[This is the second installment of Stan Goff's report on the simmering Persian Peril. Where Part One set out a history of modern Iran in its relations with Western imperial powers, the current piece explains the petrodollar system that underlies our ugly situation in the Middle East and the world. As Catherine Austin Fitts says, nothing will really change until we change the way money works. "Petrodollar," "fiat currency," "speculative attack," "balance of trade" --- these are the lexicographical little friends whom we need by our sides if we are to make it out of the propaganda labyrinth. Goff's essay explains just why the world puts up with the American bully. It isn't just the horrible weapons of death; it's the horrible weapon of debt: in this ongoing American dream, "we" do the borrowing - and everyone else does the owing. -JAH]
Rosa Luxemburg and Geography
"Imperialism is the expression of the political accumulation of capital in its competitive struggle for what remains still open of the non-capitalist environment."
-Rosa Luxemburg, "The Accumulation of Capital," 1913
Rosa Luxemburg, as unfortunately happens all too often with notable women in history, has been badly overlooked. She is remembered mostly as a leftist leader in Poland and Germany who was the victim of political assassination, and for her sharp debates with Lenin. But in her 470 page opus, The Accumulation of Capital, she made a significant contribution to the theoretical understanding of imperialism, one that has been incorporated into world system theory and into feminist critiques of political economy.
Luxemburg said that "capitalism," an economic system based on the self-expansion of monetary value for a propertied class, has never functioned nor can it ever function without external, non-capitalist inputs. The expansion of British capitalism, for example, could not have happened without colonization and exploitation of more "primitive" economies, or without direct military plunder of colonized people and resources. The same applies to American capitalism that was built up first using non-waged (slave) labor, and military expansion into indigenous lands.
Marx himself recognized this as an essential dynamic for the build-up of modern capitalism in Volume I of Capital, where he stated:
The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins, signalised the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief momenta of primitive accumulation. On their heels treads the commercial war of the European nations, with the globe for a theatre. It begins with the revolt of the Netherlands from Spain, assumes giant dimensions in England's Anti-Jacobin War, and is still going on in the opium wars against China, &c."
Luxemburg's point is that this reliance on "primitive accumulation" is a constant within developed capitalism and that it is magnified as capitalism generalizes into various forms of imperialism.
Even today, this is demonstrably true. Because geography has divided the industrial capitalist centers from the subjugated peripheries, we can easily delude ourselves that our bustling, SUV-infested highways, our shopping malls crammed with luxury commodities, and our shiny grocery warehouses bursting with food are natural features of a superior social system. We do not see the exhausted legions of foreigners - many living in pre-industrial, pre-capitalist societies - or their exhausted lands, which make this licentiousness possible.
But now we have arrived in a historical moment where one key and irreplaceable resource, a resource that forms the energetic foundation of the global system, has opened a window on the international interdependence - petroleum.
Maria Mies paraphrased Luxemburg's analysis in her own 1986 work, Patriarchy and Accumulation on a World Scale - Women in the International Division of Labor, this way:
[Luxemburg] had come to the conclusion that Marx's model of accumulation was based on the assumption that capitalism was a closed system where there were only wage laborers and capitalists. [She] showed that historically such a system had never existed, that capitalism had always needed what she called 'non-capitalist milieux and strata' for the extension of labour force, resources, and above all the extension of markets. These non-capitalist milieux and strata were initially the peasants and artisans with their 'natural economy,' later the colonies. Colonialism for Rosa Luxemburg is therefore not only the last stage of capitalism [as Lenin claimed], but its constant necessary condition. In other words, without colonies capital accumulation or extended reproduction of capital would come to a stop.
Robert Biel in The New Imperialism - Crisis and Contradictions in North/South Relations (2000) said that "the general problem raised by Luxemburg's contribution to imperialism theory [is the question,] is capital accumulation renewing itself or merely exhausting its own basis?"
Peak oil is a dramatic answer to this question, and it is central to the occupation of Iraq and the saber-rattling at Iran, no matter how many sophisticates attempt to portray petroleum as secondary or passé.
When we speak of capital in this way, we are talking about money. So it seems important at this juncture to examine money itself, because what we don't think about with regard to money may contain the key to a number of riddles.
What is money? When you think about it, this is not easy to answer. We know it when we see it, but do we really know how it works? Why do people accept it as a universal equivalent of exchange? Are all moneys really universal? What does it really represent?
On the international exchange today, I can get around 11.4 pesos for one US dollar. So if I go to Wal-Mart down the road to pick up a DVD of "Jaws" for $9.44, that's $10.13 with tax, why won't they accept 116 Mexican pesos? Not only will they not accept it, my bank won't take them either. But when I was in Xalapa, Mexico three years ago, I had no problem getting Mexican merchants and bankers to accept or exchange dollars on the spot. What's up with that?
The first time I was in Haiti, I could get 15 gourdes for one US dollar. That same dollar now gets me about 48 gourdes. This may seem like a great deal, except that many things in Haiti are being shipped there from the US - especially the main food, rice. For Haitians, this is a disaster, because prices went up without pay going up, and now they have to pay 48 gourdes for a dollar's worth of rice instead of 15 gourdes.
On the other hand, if I were to exchange US dollars for Euros today, I'd get fewer Euros than I did two years ago.
There are two points to be made here. (1) The value of money is not fixed. It fluctuates. (2) Some money is more 'universal' than others.
If a hypothetical country lives in a bubble, isolated from all other countries, in a 'money economy', this country has a central bank that is run by the government. That central bank says how much money to print, controls interests rates, and so on. Many bankers like to talk about a "free" market, but they know that this is complete horseshit, because without a regulated market a lot of bad things happen…. really fast. And who decides what passes for legitimate money, after all? The government needs to begin by making that decision, then controlling the supply of money by exercising a monopoly over the printing presses. If not, they have no means of collecting taxes… unless they want to start accepting chickens, sacks of flour, wool sweaters, free haircuts, and such.
In this fictional isolated country, the central bank tries to measure the total value of all commodities circulating in the economy and to maintain around the same value in circulating money with a little extra to extend credit for something called "growth."
If the central bank prints too much money, then prices go up (inflation). This might not seem like a big deal if wages go up, too. But lenders (banks, loan-sharking companies, etc.) have an issue with this, because it eats into the buying power of the interest they collect on debts.
If the government prints too little money, prices fall (deflation), which sounds like a good deal until you think about owing money. If you owe $10,000 in debts, and suddenly $10,000 buys twice as much as it did before you incurred the debts, your debts represent a greater liability against your buying power. In the United States right now, with the average household debt at nearly $20,000, this would be seriously bad news. It wouldn't bother me much because I had someone do the numbers for me recently, and my net worth is minus $15. I can eat that without much pain. But a lot of people, when they look at their debt liabilities, have much scarier minuses. It's scary, because with deflation, wages drop through the floor, people get laid off by the zillions, but all those debts still stand at the same numerical value.
The problem is there is no such fictional Bubble-Country. We live in a world with a lot of countries that are grossly unequal.
Here's my point about printing money. There is one country right now that prints all the money it wants to, and everyone else in the world will accept this money for all the stuff they make, even though they know damned well it's not fair. It's the United States.
The standard of living that is being maintained right now in the United States is being maintained because we can print all that money and because other countries are forced to accept it regardless of how few commodities we actually produce. The main commodity we produce is… dollars. Other countries produce things to get dollars. (See US Dollar Hegemony has got to go, by Henry C. K. Liu, "Asia Times," April 11, 2002, at http://www.atimes.com/global-econ/DD11Dj01.html.) It's a scam of the first order, and if it quits functioning, the dollar will fall to its "natural" market value, and all you Visa shoppers and home mortgage equity borrowers will be joining the legions of the depressingly destitute in a modern-day version of the Dust Bowl migrations.
So how does this work? Why does the US dollar continue to soar around like a turkey buzzard on an Appalachian updraft, instead of falling to the ground like a homesick brick the way the market says it's supposed to when you are running the printing presses at the velocity of a meth lab?
Okay, I'll get to that.
Let's return for a moment to what money is. It used to be any damn thing people would accept as a universal exchange equivalent - but an actual thing. Pretty shells, or pastry dough, or gold… it doesn't matter. People just have to agree to accept it for a lot of other things. Gold and silver were faves. But came paper money (more portable, for one thing), that supposedly you could cash in at the central bank for silver or gold, which made it sort of a government check against precious metal.
Then we slipped into 'monetary faith' by degrees, when money was only partly redeemable for gold, then in 1971, in the US, for reasons I'll touch on later, they said to hell with it, we'll just issue paper without the gold backing. Well, by then people were used to it, and everyone had a stake in the stuff being accepted, and paper "fiat" money (that means without anything behind it but faith in the system) stuck. Nowadays, you don't even need to handle paper. You can send virtual money around with computers. So, okay, what is this "money," really?
It's an entitlement. It's a claim on someone else. But on what exactly? This is where radical political economists can help us out. They say it's an entitlement to your energy - your work-energy, that is. Money is an entitlement to someone else's labor.
We don't see it that way, because when I buy the "Jaws" DVD I don't head over to Wal-Mart thinking I'm going to use this money to lay claim to the expended energy of the people who work in the DVD factory or the residuals due to the people who worked to make the movie or to the truck driver that delivered the DVD's, etc., etc., etc. Nobody does that. We just go buy the DVD. But the monetary value of that DVD is based on all the energy that was expended to get it to the rack at Wal-Mart. Since we don't SEE the work being done, from rendering silicon for chips to packing those little plastic containers into cardboard boxes, we tend not to think about it, so we also fail to think about money being this claim, this entitlement.
Think about it. No one gave you the money. You had to go someplace you didn't want to be for eight hours every day, put up with some dim-witted boss's bullshit, and deal with people you wouldn't give the time of day otherwise, just to get paid the money. That money claimed you. It entitled the boss to your energy and time.
This is the whole system, really. People who have the inside skinny on accumulating money (by owning everything) then assert their "claims" by working the shit out of all the rest of us so they can have wild cocaine orgies, buy yachts, collect million dollar horses, or ride around in limos… different things float their boats, but you get the picture. They play, and we serve. Because we "need" the money.
Yet there is a dimension to all this that goes beyond the rich and the not-so-rich in one place. It's the geographical dimension.
There is an international division that is even sharper than what most of us in the industrialized metropolis ever realize.
Just like Rosa Luxemburg said, there are a few rich countries that suck the labor and resources out of a lot of poor countries. But the rich countries can't get away with this unless at least most of their own population is complacent. So to get this political complacency, they allow key fractions of their own working people to have some nice things… a ranch house, a line of credit to buy that useless, gas-guzzling SUV, cheese sticks in individual wrappers, liquor, televisions, and DVDs.
The worst of these rich countries is the United States, where statistics show that we are on average the most wasteful, expensive individuals in the world. We have plenty of poor people, but on average we use more land per capita to feed ourselves, consume more water per capita, burn up more fossil fuel, make more trash, and consume more non-essential luxury crap than any society in history. It has made many of us soft and stupid, which is why we don't realize that…
We couldn't do that right now if we didn't have monetary printing presses and the most expensive, unwieldy, and lethal military on the planet. And the two - the printing press and the military - are inseparable. Lose one, and the whole party comes to a screeching halt.
I'll come back to that, too.
One country's currency can now change its value relative to other currencies on any given day, which has led to gambling on the price of money.
When I was in El Salvador in 1985, the official exchange rate was 4 colones to $1 US. But the rate in the street - the black market - changed almost hourly. Rich Salvadorans could not use colones to pay their big international debts. They had to have dollars, the recognized international currency. So ever so often there would be a bidding war for dollars that spilled into the street where the mini-mafiosi had hundreds of money-exchangers. When that happened, if you got out there fast (Bring your firearm!), you might get a temporary rate of ten or eleven to one, so you could cash out $5,000 for 50,000 colones, then go to the bank that same day and get $12,500. That's a sort of microscopic version of currency speculation on the world market. Good deal, huh? But it doesn't last. Eventually, the banks get wind and the official rate has to be changed to reflect the reality of this "speculative" market. The colone (or any other currency, take your pick) gets "devalued."
Now let's pump up this scenario. Let's say you are a huge securities account of pooled funds from a lot of ultra-rich bastards who can lord it over mere bank directors. You can mobilize as much credit in one day as, say, the GDP of California. Let's also say that you don't like Country X because they haven't gone along with your program.
Country X's currency is the gimcrack. It exchanges for ten to the dollar. Your giant account -called a hedge fund - pulls together $10-12 billion through its credit resources and uses intermediaries to begin buying up gimcracks. With so many gimcracks being bought up, the gimcracks begin to exchange more dear, first at nine to one, then at eight to one, right up to five to one.
The herd mentality takes over in the Big Casino, and everyone wants to get in on the action - kind of like everyone did during the dot-com boom right before they all lost their asses.
Meanwhile, these intermediaries that have been intentionally heating up the market for gimcracks on behalf of the hedge fund… they start cashing out. They cash out fast, turning gimcracks into dollars as quick as they can, at five to one (remember, they bought in at ten and nine)… then six to one… because when people see how many are being sold, the herd stampedes the other way… then eight to one… by now the hedge fund is out, richer by a fair piece, but the gimcrack is in stampede-over-the-cliff mode, and won't hit bottom until it is at twenty to one, meaning the entire Country X just suffered a 50% devaluation. If you were making 10 gimcracks an hour in your local sweatshop yesterday, you are making 10 gimcracks an hour today… except every price in the country is being jacked up 50% to protect the merchants' bottom line.
This is called a speculative attack. It is what caused the 1998 "Asian meltdown." Not bad management. Not cronyism. Not loose loan policies. It was done on purpose, by the Clinton administration, on the orders of Commerce Secretary Robert Rubin, and carried out by giant hedge funds from the finance-capital sector of the USA. Among the attackers was George Soros, the favorite of many liberal NGOs in the US, and a key supporter of the Kerry campaign. If you'd like to read about it, pick up Peter Gowan's The Globalization Gamble - The Dollar-Wall Street Regime and its Consequences, at http://www.gre.ac.uk/~fa03/iwgvt/files/9-gowan.rtf . Gowan explained how these hedge funds became "weapons of US statecraft."
Hedge Funds… is a euphemism: these are speculator organizations for making money through the buying and selling of securities on their own account to exploit price movements over time and price differences between markets. The biggest of these hedge funds are not marginal speculators… they are not banks but partnerships, often registered offshore for tax-dodging purposes. The biggest of the banks then lend huge sums of money to what are, in effect, their creations [the hedge funds], in order that the hedge funds can play the markets with truly enormous resources. This scale of resources is vitally important because it enables the speculator to shift prices in the market in the direction he wants the prices to move in through the sheer scale of funds…
There is no doubt whatever that the hedge funds were the driving force of the attack first on the Thai baht, then on other regional currencies and the Hong Kong stock market. The first hedge fund assault on the baht occurred in May 1997, one month after the Clinton administration launched its campaign demanding that Thailand and Indonesia open their financial sectors fully to US financial operators…
The Asian crisis began in Thailand in July 1997. The next economy to fall was Indonesia. But the really decisive financial crisis was that [of] South Korea. It was the South Korean crisis which ended the temporary stabilization of Indonesia and which finally brought complete collapse there. And the South Korean crisis was responsible for plunging the whole region into slump.
(Gowan also noted that during the Reagan administration, since the US was running a trade deficit, the expansion of the military, especially new military hardware, "meant that the US state was acting as a surrogate export market for the industrial sector." This is at least part of the calculation of our present-day neocons for preserving the wealth of their industrial-capital cronies in a time of indeterminate war.)
How does a country protect itself from such a speculative attack? That's a very good question. What they do is have the central bank hold enough assets denominated in the most internationally recognized currency (the US dollar), so in an emergency, they can use those dollars to buy up their own currency and pull it out of the line of fire of the speculators. A significant portion of any country's reserve currency needs to be denominated in dollars, then, as a shield against this kind of assault.
So most countries' central banks have collected the most available dollar-denominated asset they can get their hands on - treasury bills. These are like Savings Bonds. They are a loan to the US government, which the US government will pay back with a variable interest rate after maturity. So in effect, the reserve currency in most central banks in the world to protect the local currency from an attack is US dollars. Every country, therefore, now has a vested interest in ensuring that there is no speculative run on the dollar - even if by market standards it deserves to be dumped like a dirty diaper - because devaluation of the dollar would knock the stuffing out of their very own currency reserves.
That's some catch, that Catch-22.
Not only that, the US engineered it all the way back in the early 70s, while it was abandoning the gold-backing and the fixed currency exchange rates that had prevented speculative attacks (Gee!). This was made possible by American arrangements for the major oil producing nations to invest all their surplus money in dollar-denominated assets too, and thereby ensure that everyone around the world who had to pay for oil had to pay in… dollars. One of the key factors in the thinking of the Saudis, Kuwaitis, United Arab Emirates, et al., was that there was only one country around who could guarantee (and successfully monopolize) the military security of the major sea lanes leading out of the Persian Gulf.
Guess who?
Here's the big problem. There are now so many countries holding so many US treasury bonds that the US is categorically not capable of paying them all off. That's right, boys and girls. If everyone we owe money to called in their debts, Uncle Sam would be bankrupt. So no one is going to do that, because if Uncle Sam goes bankrupt, what will happen to all those treasury notes in our central banks? The US can now borrow from as many people as it wants, and the debt turns into further security against anyone calling in the debts.
Michael Hudson, the financial historian who authored Super Imperialism - The Origin and Fundamentals of U.S. World Dominance, explained in a 2003 interview:
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.
Meanwhile, people still have to have dollars to pay their international debts. Where do you get dollars? From the United States, of course. So the treasury note system has other countries locked in at the central banks, and the need to pay off bigger and bigger external debts - in dollars - forces the majority to convert their entire economies away from local development - like the old import substitution industrialization (ISI) strategy - into export commodity platforms oriented to the US. "The US makes dollars; everyone else makes things to get dollars."
The two pillars of the US imperial edifice are monetary and military. And the development of this unique ability was closely related to the unique geographical position of the United States, outside the lethal circumference of European wars.
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