Super Imperialism. The Economic Strategy of American Empire. Third Edition
This edition of Super Imperialism is the finalized version of the
analysis that I first published in the wake of President Nixon severing the dollar’s link to gold in August 1971. Closing the gold window had been imminent since the London Gold Pool was disbanded in 1968 in response to the U.S. overseas military spending thal had pushed the balance of payments into steadily deepening deficit since the Korean War ( 1950-51 ).
I handed in the manuscript to Holt, Rinel1art and Winston early in 1972. By the time it was published in September, the international financial system had been radically tra·nsformed by the cw·rency upheavals that followed the ending of the conversion of dollars into gold in August 1971, devaluation of the dollar by 10 percent, and America’s imposition of import quotas and tariff surcharges at home while demanding that European and Asian countries open their own markets to U.S. farm exports, permit continued U.S. financial takeover of their industry, and above all not force cutbacks in U.S. Cold War spending.
Earlier in 1971 the Institute for Policy Studies in Washington had obtained a copy of the Pentagon Papers, and invited me down for a series of meetings to review them. What struck me was the absence of any discussion of the balance-of-payments costs of the war in Southeast Asia. I had published statistics that showed military spending to be single-handedly responsible for pushing the balance of payments into deficit. Headlines each month focused on General de Gaulle cashing in his surplt1s dollars for gold. Germany was doi11g the same thing, although less vocally.
The Pentagon had mobilized a full-time desk to counter the warni11gs about the war’s balance-of-payments costs voiced by the (‘Columbia Group,” composed of Terence McCarthy (my mentor) and Seymour Melman at Columbia University’s School of Industrial Engineering, and me.
I had worked for Arthur Andersen in 1968-69 to create an accounting format to separate the balance of payments on government operations from private-sector trade and investment. The statistics showed that the entire U.S. payments deficit occurred on the government’s account – specifically the military sector, not foreign aid. U.S. private-sector trade and investment
had remained in balance from the 1950s through the 1960s. 1
I was told that Robert McNamara himself had pressured Arthur Andersen not to publish my report, so the firm had no prospects for developing .my accounting format. I took my analysis to NYU’s Institute of Finance, which quickly published it, illustrated with the chartwork that Arthur Andersen had prepared and kindly given me.
In due course the New York Federal Reserve published a review of the Institute of Finance’s various monographs, singling out my report to comment that it was unbelievable that war spending alone ,vas responsible for the U.S. balance-of-payments deficit. But one of my New School graduate students who worked for the bank gave me an internal review of my analysis that found it correct, despite the Fed’s public denials.
Politicians in charge of national statistics encourage popular misunderstanding, but my statistical analysis tells a different story from what is widely believed. A few years ago I sought to update my calculations on the impact of U.S. military spending and foreign aid on the balance of payments. But the Commerce Department had changed Table 5 of its balance-of-payments report, dealing with foreign aid and other government programs, in a way that no longer reveals the extent to which foreign aid programs generate a transfer of dollars from foreign countries to the United States. I phoned the statistical division responsible for collecting these statistics, and in due course reached the technician responsible for the numbers. “We used to publish that data,” he explained, “but some joker published a report showing that the United States actually made money off the countries we were aiding. It caused such a stir that we changed the accounting format so that nobody can embarrass us like that again.”
I realized that I was the joker who was responsible for the present-day statistical concealment. But in the years in which I wrote Super Imperialism, Congress was glad to defend its foreign aid program precisely because its tied exports and credit did not cause an actual payments outflow, but helped U.S. exporters, bankers and bondholders.
Part of the problem is that the balance of payments is not taught in the academic curriculum. Theories of international trade and payments describe supposedly automatic equilibrium processes promoting world convergence and economic equality. Left out of account is the political diplomacy that counteracts this happy picture. As Yogi Berra supposedly said: “In tl1eory, theory and practice are the same. In practice, they’re different.”
Histories of international trade theory exclude the 18th-century mercantilists who openly explained that the afro was to draw all the world’s gold, skilled labor and capital into their nation – Britain, France or Austria. That aim characterizes U.S. economic diplomacy in today’s ,-vorld. Yet no economist or world diplomat in the 1940s or 1950s anticipated that America’s federal budget deficit since the 1970s would be financed by China and Japan, Europe and Third World countries instead of by American taxpayers and bondholders. Balance-of-payments deficits were supposed to be financed by governments running a budget surplus to impose austerity, not serving to finance government budget deficits.
Since 1971 the U.S. Treasury-bill standard has freed the U.S. economy from having to do what other debtor countries must do when they run payments deficits: raise their interest rates and impose austerity to restore balance in their international payments. The United States alone has been free to pursue domestic expansion and foreign diplomacy without having. to worry about the balance-of-payments consequences.
As Treasury Secretary John Connally said in September 1971, a month after the U.S. “vent off gold, its payments deficit was the world’s problem. To America it was a means of funding its Cold War spending with other nation’s credit, drawn on without constraint. While not hesitating to impose austerity on Third World and other debtor countries, America itself is the world’s largest debtor economy and its officials demand the right to act uniquely without financial constraint.
To emphasize how America’s novel financial way of exploiting the world is achieved via the international monetary system, I originally wanted to entitle my book Monetary Imperialism. That focus is reflected in the title of the 2018 German translation published by Klett-Cotta: Finanzimperium. My basic theme is that foreign central banks no longer are able to hold America to account by cashing in their surplus dollars for gold or for appropriation of U.S. assets. As America’s balance-of-payments deficit widens, foreign central banks simply add the surplus dollars to their reserves, mainly in the form of U.S. Treasury IOUs. Other countries’ monetary assets a1·e thus America’s monetary debt.
This foreign official saving finances the U.S. domestic budget deficit in the proces’s of funding the U.S. international deficit.
In diametric contrast to the dollar shortage that underlay the postWorld War II economic order, the post-1971 world has suffered a chro11ic dollar glut for half a century now. Foreign countries have felt unable to resist this inflow without risking a world economic breakdown. So they have accepted more and more dollars, making them yet more hesitant to reject the Dollar Standard’s free lunch. As a re.sult, America’s military and related Cold War balance-of-payments deficit has become the foundation for world central bank reserves and hence of today1s world monetary system.
Instead of undercutting American econo1nic power, the U.S. deficit has siphoned off other countries’ surpluses, exploiting them financially -as a debtor, not as a creditor as in times past. This unique American strategy is still not broadly understood, mainly because it seems so at odds ,,vi.th most peoples’ ideas of what is fair and equitable. And of course, it is not in American interests for it to be Mdely understood.
Complaints about how unfair the international financial system was becoming did indeed break out into the open at the S.mithsonian Conference in 1971. The world’s major powers protested against U.S. demands that they manage their exchange rates, tariffs and trade quotas specifically to enable the United States to improve its balance of payme11ts by $15 to $20 billion annually, at the expense of their own producers and domestic policy aims. Today that amount seems modest, but it was unprecedented at the time. Foreign central bankers tried in vain to impose constraints on U.S. military spending and foreign investment. But they made no attempt to act together, and U.S. demands for international financial arrangement have now come to be accepted as the norm.
Although ending the era in which the United States dominated financial diplomacy by its creditor position and gold stock, the Treasury-bill standard gave Washington a new international power. This was largely unanticipated, however. A fear of the unknown developed over what the aftermath of America’s rejection of gold would bring. Ironically, publication of my book helped U.S. officials understand how to perfect their post-gold strategy.
A few weeks after its publication I was invited to address the annual meeting of Drexel-Burnham to outline how the new Treasury-bill standard of world finance enthroned U.S. debt as the main international monetary asset. Her111an Kahn was the meeting’s other invited speaker. When I had finished, he got up and said, “You’ve showu how the United States has run rings around Britain and every other empire-building nation in history. We’ve pulled off the greatest rip-off ever achieved.” He told me that the book had sold very well in Washington and hired me on the spot to join him as the Hudson Institute’s economist.
It turned out that U.S. foreign policy agencies were the main customers, using it as a training manual, and the Defense Department almost immediately gave the Institute an $85,000 contract for me to explain just how the Treasury-bill standard was putting creditor nations on the hook for financing the U.S. economy and its overseas military presence. I was driven to the FBI office in Ossining, New York, to apply for a Top Secret security clearance, and soon went to Washington for briefings with generals and diplomats.
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