by Michael Hudson
Writer, Dandelion Salad
February 28, 2023
Geopolitical Economy Report on Feb 24, 2023
Economists Radhika Desai and Michael Hudson explain the end of the British empire’s sterling area with the rise of the US dollar system, its central role in imperialism, and why it ultimately failed to accomplish Washington’s hegemonic goals.
Radhika Desai: First of all, without an empire, the dollar could not export capital to the rest of the world. It did a little bit after the Marshall Plan, but the Marshall Plan itself is totally hyped up. It was not really necessary for European recovery which was largely done under its own steam.
And what’s more, the Marshall Plan credit that was given to Europe also came with multiple strings attached, including strings that made this aid not particularly helpful to Europe.
But nevertheless the US could not export much capital.
So essentially what the US started doing was eventually — when this period of export of capital was over — essentially it started supplying the world with liquidity by running deficits.
So this is the opposite — Britain was the creditor nation of the world when it ran this gold-sterling system, and it could do that thanks to her empire. Without an empire, the US could only run the dollar system by running deficits, by becoming increasingly indebted to the world.
Michael Hudson: And the other thing that doesn’t exist in this, saying that balance of payments equilibrium is all trade — they then say that all trade is a result of labor asking for [higher] wages. And the way to run a deficit is to institute a class war against labor. You want to fight the labor unions, you want to lower wage levels to enable countries to have achieved balance.
Well what they mean by “balance” is obviously to finance this US-centered, military order, because the dollars that countries who are accumulating — when they weren’t asking for gold — were loans to the US Treasury by buying Treasury Bills that financed not only the domestic budget deficit — that was largely military — but also the balance of payments deficit.
So the entire stability between 1951 and 1971, for 20 years, was provided by military spending as the United States put military bases all over the rest of the world.
So what achieved balance was military — the military deficit. Not trade adjustment. Not investment adjustment. All of this is left out.
Trade theory does not have room for the gunboats. And if you look at the balance of payments for the last 800 years, it’s all about the gunboats. That’s the amazing thing.
And what we’re focusing on is the politics. International exchange rates and relations are not a function of “free market” arrangements. They are a function of intergovernmental debt — not so much private [debt] — and military spending. And governments paying their foreign currency by selling off their infrastructure.
Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of A Philosophy for a Fair Society (2022), The Destiny of Civilization (2022), …and forgive them their debts (2018), J is for Junk Economics (2017), Killing the Host (2015), The Bubble and Beyond (2012), Super Imperialism: The Economic Strategy of American Empire (1968 & 2003 & 3rd Edition 2021), Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (1992 & 2009) and The Myth of Aid (1971), amongst many others. He can be reached via his website Michael Hudson, firstname.lastname@example.org. Originally published Feb. 27, 2023.
From the archives:
Michael Hudson and Radhika Desai: Since Money is Political
Michael Hudson, Radhika Desai and Danny Haiphong: The Economics of the Ukraine Proxy War
Michael Hudson and Radhika Desai: What Causes Inflation?
The World Bank — Underneath The Rhetoric, The Usual Right-Wing Prescriptions, by Pete Dolack
Finian Cunningham and Pepe Escobar: Ukraine War is Desperate Bid by US to Preserve Hegemony and Prevent Multipolar World
Michael Hudson and Radhika Desai: Multipolarity and the Decline of US Hegemony
Central Banks Are A Symptom, Capitalism Is The Cause, by Pete Dolack
Michael Hudson: The World Bank Has Always Been An Arm Of The U.S Military
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