Fictitious capital and permanent war

from “ La crisi del capitalismo – Il crollo di Wall Street”   Ed. Ist. Onorato Damen – Jun 2009.[IT]

Signals that U.S.A. have at this point turned down the street to economic recession are more and more evident. It is not the prophet of the moment who announces it , but it is undoubtedly confirmed by the last statistical data published by the Bush administration.

In the first trimester of 2007, for the first time after three decades, the U.S.A. recorded a growth rate of the gross national product definitely lower than that of the Eurozone countries. Indeed, while in the old continent countries the economic growth in these first months was on the average 2,5%, the American economy only grew poorly of 0,6%.

Even if technically we can’t yet define the existing American situation as a real recession, that is a negative growth, the remarkable slackening of the GNP growth put the U.S.A.  to much trouble, because of its peculiar economic structure, based on the continual home consumption growth. In other words, in these first months of 2007 the Eurozone was growing as much as four times the rusty American locomotive.

The reversal of growth trend in the two areas was very abrupt, since just last year, while the United States recorded in the first trimester a GNP increase of 5,6%, in the same period in the Euro countries the increase hardly reached 2%, with countries such as Italy where the growth was still smaller.

The pessimism about future predictions on the American economy arises not only from GNP small growth; there are also other pointers decidedly directing downwards. In particular, the real estate sector is in the middle of a speculative bubble risking to explode at any moment and consequently breaking to pieces the entire American banking and financial structure.

Indeed, the continual increase of real estate values has allowed the great banks and financial institutions to bring up their property, accumulating enormous profits in these last fifteen years. The same American consumers find themselves in the difficult situation of having got loans to buy a house, whose value could suddenly halve. In short, millions of Americans have got into debt, to make an example, for an amount of 200,000 dollars, getting a loan to buy a house, but now that house risks to halve its value.

The real estate market growth has contributed at the same time to feed the consumptions of those Americans, who now have got up to their necks in debt. Still in the first trimester of 2007, for the first time after decades, the investments in real estate fell down of 17%, clearly showing that the real estate value could get down at any moment, with all the consequences that such a collapse involves.

The circumstantial difficulties aggravate all those structural contradictions of the American economy, risking to take away or at least to reduce the U.S.A. imperialistic supremacy. If there will be an economic recession, it will drag in the crisis whirlpool the entire world economy, feeding in this way the boosts to war, which just derive from the modern imperialism dynamics.

A sea of debt

If we should paint a picture to depict symbolically the USA real condition, we would not have any difficulties to fill the painting up with an oceanic expanse representing the sea of debt that submerges the American economy. How is it possible that the greatest world imperialistic power, the empire, to use a term dear to Tony Negri and his numerous followers, is in fact drowning in the debts incurred in these last three decades? To understand this ostensible contradiction, that is being at the same time the world most indebted country and the first imperialistic power, means understanding the imperialism modern dynamics and the surplus parasitical appropriation mechanisms through fictitious capital production.

In the last three years the USA debt situation has greatly got worse. In this period both the commercial and the capital account deficit have exponentially increased. In the 2005 International Monetary Fund report on the state of the world economy, the last one till now available, we can read that the American economy has been able to maintain its growth only by an unprecedented borrowing from the rest of the world [1].

In 2006 the current account deficit was more than 900 billion dollars, reaching for the first time in the US history the 7% of the GNP. In order to finance this deficit, the USA have to import daily 5 billion dollars of capital. Since 2003, in just 2 years, the relation between the current account balance deficit and the GNP increased by no fewer than two percentage points. If we analyze in the medium and long term the American commercial balance data, we can notice that only at the end of the 1970’s, the USA, despite their then-economic crisis, were still in the black towards the rest of the world. It is with the election of Reagan that a new phase in the USA economic politics starts. The economic crisis which had affected the world economy, and particularly the American one, had imposed an intense industrial complex restructuring process. The aim of this restructuring was evidently to regain competitiveness in the markets and at the same time to feed the asphyctic capital accumulation process, made more and more difficult by the rate of profit fall. In this context the USA, thanks to the dollar dominating role in the International Monetary System, make a different choice from the great majority of the other industrialized countries [2].

Entire productive sectors, which in the past had represented a strategic component in the American economy, are in fact abandoned, since that restructuring process, necessary to give them a new lease of life in the international scenario, has not been started. The American bourgeoisie, firstly, aims exclusively at high technological content sectors, often connected to the military field; besides, to balance lower and lower rates of profit, it feeds the accumulation process through the expansion of the financial activity.

The capital liberalization, the creation of highly speculative new financial instruments, the privatization of entire economic sectors, have been functional to the strategic choice to turn the USA into a financial power unequalled in the world. In a few decades the USA have turned from the industrial country with the highest technological and production capacity, able to invade the world with its goods, into a big black hole, where capitals and goods flow together from all around the world. But if the USA constantly accumulate commercial deficits because of the American firms insufficient competitiveness, how does this deficit financing take place? The question may seem banal, but it helps us to understand the imperialistic mechanism put to use by the American bourgeoisie. The commercial balance deficit is compensated through the enormous capital amount coming from every corner of the world which is invested in New York Stock Exchange or in American Treasury Bills. To explain this process in a simpler way we can say that the USA get from the rest of the world not only goods, accumulating in this way enormous commercial deficits, but also the capitals necessary to pay those goods. As an unavoidable result of this economic politics, in the USA in the course of the years, besides a very big commercial deficit, a parallel deficit in the federal balance and an ever-growing foreign debt have been produced.
If we sum up the state, firm and family debts, the resulting amount is astronomic, that is over 30,000 billions of dollars, no less than three times the USA Gross National Product.

Imperialism and dollar
All that could happen only and exclusively thanks to the American imperialistic dominion, still nowadays made possible by the dollar role in the global economy and by its military system strength, able to intervene all around the planet in order to protect the American interests. The dollar leading role was  set forth by the famous Bretton Woods Agreement, dating back to 1944. When the war destiny seemed to turn in “democratic” powers’ favours, in the little American town, the USA, the UK and a few other countries organized a conference aiming at discussing the future international monetary system structure to use at the end of the war. During the discussion it was decided to approve the American delegate project which envisaged that the international monetary system would be based on the dollar. By means of those pacts, it was established that the dollar was the only currency convertible into gold, in a fixed proportion to 35 dollars per ounce of gold; secondly, the American currency confronted with all the other currencies according to a semi- rigid exchange ratio.

Just to give an example, Bretton Woods Agreement established that the dollar could exchange with the Italian lira in a 1 to 600 ratio and such an exchange ratio could fluctuate within a range of 2%. If the currency value diverted from the fixed parity, the banks had to intervene in order to restore the balance situation. As we can easily guess, it is thanks to this mechanism that the dollar has assumed the same function that the gold carried out in the past. There is a passage from the “gold standard”, a monetary system based on gold centrality, to the so-called “dollar standard”, based on American currency centrality. The decision to make the dollar thermometer currency in the international monetary system is caused by the fact that the American economy has a leading weight in the entire world economy. At the end of the 40’s the USA Gross National Product represented almost two third of the entire world economy, that’s why it was through and through logical that its currency would carry out the assigned function. Thanks to the Bretton Woods Agreement the dollar rises to the role of the most important currency in the international commercial transactions and in the creation of central bank monetary reserves in all western countries. [3]

The economic crisis of the very first 70’s overwhelmed the Bretton Woods Agreement; at first the dollar depreciated in comparison to gold and then it was declared unconvertible by the Nixon administration. In 1971 the fixed exchange era ended and the one of flexible exchanges began; all the currency values could freely fluctuate compared to the other currencies with no obligation for their central banks to intervene. If it was true that the exchanges were no more fixed by any pact and that the Federal Reserve hadn’t anymore the duty to convert the printed and circulating dollars into gold, the American currency still carried out the function of most important currency in the international monetary and financial context. Despite the American economy de-escalation in the international sphere one, the dollar by the time  represented only the 20% of the world GNP [4], just in virtue of the fact of being the most used currency in the international commercial exchanges, first of all in that of raw materials and particularly of oil, as well as of representing the main currency in the central bank monetary reserves, it maintained the role assigned to it by the 1944 pacts.

So the Bretton Woods Agreement breaking doesn’t mark the end of the dollar hegemony, indeed its central role was moreover exalted by the American economy financialization and indebtness. The financial activity expansion, the fictitious capital creation, the abnormal growth of the New York Stock Exchange index  reinforced the central role carried out by the dollar in the world scenario. An enormous capital amount on international scale, always looking for remunerations, was attracted by the dollar centripetal force and invested in highly speculative financial activities using the American currency. All this happened not because the rates of interest quoted in the USA were higher than the rest of the world, but for the function performed by the dollar in commercial exchanges and in the central bank monetary reserve creation. This process was self-fed by the dollar strength which, on the one hand allowed the USA to impose a real wealth drain on the rest of the world, and on the other hand to create the presupposes to call such an imperialistic domain into question by the new emerging powers.

Dollar, oil income and monetary reserves

One of the reasons that has allowed the dollar to keep its function of main currency in the international scenario, also after the Bretton Woods Agreement break, has been its use in raw material international commercial exchanges, particularly the oil one. This role has not been a choice of market free forces, as stated by economic liberalism, but the result of a strategic and farsighted choice for the American bourgeoisie’s interests. Without recalling here the pacts which marked the oil market history in the immediate aftermath of the Second World War, it is enough to remember the 1973 diplomatic events. Soon after the oil price dizzying rise, the OPEC countries had put forward the fearful proposal to invoice the crude oil using a currency basket which finally would have paved the way to replace the dollar in black gold transactions. The American diplomatic reply to this simple hypothesis was really tough: the president Nixon immediately sent his Secretary of the Treasury to Saudi Arabia to avoid that the prospected solution could take place. In return for keeping using the dollar, the Saudis and other OPEC countries obtained from the USA some advantages in capital investment conditions. In this way the petrodollar market started, that is the capitals earned from oil sale were subsequently invested in the USA.
The simple fact that the oil is sold on several international markets by using exclusively dollars, provides to the USA an enormous income. In fact the Federal Reserve may print an amount of paper money that won’t circulate in the American territory, but it will fulfil the dollars demand coming from the oil sale by greenback . Thanks to such a mechanism the USA have a double advantage: on the one hand they can print more banknotes in respect to the internal requirement without, nevertheless, causing inflation, on the other hand they can obtain from the rest of the world goods and/or capitals simply by printing dollars. In short, the USA have in their hands a control lever because  the amount of currency they can print, so obtaining in return goods and/or capitals from abroad, depends on the oil price, too. In fact, among certain parameters, the USA can establish a dollar valuation, not only through an interest rate increase, but also by changing the oil price on world markets. And this is what the United States have been doing systematically in these last thirty years, by means of their war actions in every corner of the planet where a single drop of oil spouts. A simple datum is enough to understand the amount of the American income springing from the fact that petroleum is traded in dollars: just the Russian crude oil exportations give the USA an income of not less than 88 billions of dollars per year; that’s the dollar seigniorage power. Just to refer to the concrete case, above mentioned, the Russians extract and sell oil and get money in exchange; other countries in order to buy the Russian oil have first to buy dollars from the United States and then give the relative dollars to Russian oil magnates. In this exchange, where they shouldn’t stick their nose, it is just the USA that earn the greatest profits, in the form of income, thanks to the simple fact that oil is traded in dollars, they print paper money and get in exchange from the rest of the world so many goods and capitals unequalled in the history of Capitalism.

Even though the United States  nowadays have to import oil for meeting the 70% of their requirements, their imperialistic interests in fixing oil price has not changed at all; only those who interpret the new imperialism dynamics as if they were the old and by this time stale colonial politics can think that the USA are interested in having a lower price. The USA are not at all interested in imposing oil price as lower as higher the crude oil amount they have to import is, because for the American capitalists, as well as for their competitors, the oil price represents a cost that will be transferred into the goods to produce. Now, since the oil price is the same for all the capitalists around the world, because the market is unified on international scale, the oil price affects in equal measure apart from its price in absolute terms. To be still more explicit, we can schematically affirm that if from an industrial point of view the oil price doesn’t affect the American firm competitiveness, from the point of view of oil income the possibility to fix a price higher than the one that would be fixed only according to the market forces gives the American Capitalism enormous advantages, both in  terms of oil income and in the capacity to draw capitals from abroad.

The dollar strength finds another fundamental support of its leading role in the central bank currency reserves. The simple reason to be used as main source of reserve by the central bank emphasized its role of reference currency in the international monetary context. In the years after the Bretton Wood pacts break, the most important world central banks kept on representing in dollars their reserves, contributing to feed the greenback valuation, despite its declared inconvertibility. The dollar is used in commercial exchanges and represents the currency in which the central bank reserves are expressed, but these are not to be seen as separated factors helping to sustain the American currency privilege, indeed they are considered as two factors that by interacting, guarantee the USA a high financial income. If the dollar represents the most important currency, as for currency reserves, it is mostly thanks to the role that it plays in the international exchanges.

The amount of dollars accumulated in the most important central bank currency reserves has increased with the foreign debt growth. In particular, Japan and China have in their respective central banks so many dollars that they could be a potential danger for the American currency stability and for its existing imperialistic function. In fact, if on the one hand the two countries own in their cashes so many dollars that they are forced not to give up them in order to avoid their currency valuation and the crisis of their exportations to the United States, on the other hand it is clear that the leading lever in the management of the monetary amount expressed in dollars isn’t any more in the USA’s hands, but it has partially moved to Tokyo and Beijing.

What could the USA do in order to oppose to a different composition of China and Japan’s monetary reserves and to avoid in this way a dollar devaluation on monetary markets? And at the same time, which risks do the USA run as regards the attempt of some oil producer countries to trade crude oil in different currencies rather than in dollars? And, above all, which could be the reaction of the American imperialism?

The economic roots of permanent war
Besides the mountain of debt submerging the USA, there are also other factors accelerating the American economy contradictions and problems. We are living a particularly complex historical era requiring a careful use of the critique of the political economy and of the historical materialism in order to understand how the contradictions of the world most important economy are going to cause a global crisis because of which the entire human race risks to slip into a world where poverty and wars could be more and more a constant of the modern Capitalism.
According to revolutionary Marxism  war is always the result of capital contradictions and economic crisis. Since the Capitalism represents the leading economic and social form on international scale, wars are fought in the name and on behalf of the capital interests. War is always a capital war, fought against proletariat interests. These statements of principles, obviously always true all the history of Capitalism long, don’t authorize us to propose again scholastically the theoretical elaborations carried out by the revolutionary movement during its centenary history. Just for instance, which of course represents only a first attempt of reflection on the subject, is Lenin’s theoretical schema, designed in the first years of the 20^th century, exploitable to explain the economic roots of war? According to the Russian revolutionary, war is imperialist because the big powers, with the economic crisis getting worse, are forced to resort to war with the purpose to conquer the necessary spaces where to export the capitals that don’t find an appropriate remuneration in homeland.
As Lenin properly pointed out, Imperialism is not a politics of the bourgeoisie but it is the result of the accumulation process forcing the capital to widen ceaselessly its reproductive basis.
The imperialistic war inserts itself dramatically into the capital cycle: expansion, crisis and war are the three different moments of each accumulation cycle which characterized the life of Capitalism in this imperialistic phase. Moreover, when it materializes, at last, by destroying surplus capitals, it enables the restoration of more advantageous economic and political conditions aiming at starting a new accumulation cycle on a wider and wider scale. That’s why it occurred again on world scale in simultaneity with the crisis of the first and second accumulation cycles: that is it, in turn, occurred  cyclically.
In the fictitious capital supremacy era, war has become a permanent factor since the reasons pushing the imperialistic powers to unleash conflicts to defend their class interests are permanent.
As we have tried to explain in all the first part of this short work, the American bourgeoisie grabs a very large part of income on international scale thanks to the role played by the dollar in the world economy.
This surplus displacement towards the USA is the tribute the other countries have to pay to the American imperialism and is a price becoming higher and higher as the economic crisis gets worse. In a context where the parasitical appropriation forms through fictitious capital production dominate and where also other imperialistic powers, such as Eurozone countries, try to place themselves on the same level of the United States, war has become a constant of the capital way of being.

Only by means of war the American imperialism can think to obstruct the enemy power rise and keep on extorting surplus from every corner of planet. The war boosts are fed on the one hand by the American imperialism to keep on living off its income, but also on the other hand by the other imperialistic spoilers (that is Europe, Russia, China and Japan) which would like to get a bigger and bigger part of the division.
War is not anymore fought to conquer areas where to export surplus financial capitals, just like it happened in the previous imperialistic phase, but it finds its main motor in the capacity to maintain the control of fictitious capital production.
The USA are the first imperialistic power and at the same time they import capitals. If we should use Lenin’s old schemas, according to which the imperialistic weight is measured in relation to the ability to export financial capital, the USA would result dominated rather than dominating.
War doesn’t represent anymore a moment in the economic cycle, as it happened when the imperialistic forms based exclusively on the exportation of financial capital dominated, but it has become a constant in the way Capitalism shows itself in the recent imperialistic phase, because the conservation of the control of the fictitious capital production needs constantly the use of force.
In a circumstance where the dollar supremacy is seriously threatened by the Euro affirmation as new reference currency in the international commercial exchanges and in the monetary reserves, and new powers are approaching the imperialistic battlefield, permanent war can just find new nourishment and enlarge its frontlines even in areas that have been spared up to now.

Lorenzo Procopio

Notes:
[1] Mentioned by Gian Paolo Caselli in the article published in Limes 1/2007 “It’s the economy, stupid! Why America can’t become an Empire”.
[2] It is the England of the Iron Lady M. Thatcher that ushers in the new phase called Neoliberalism. See also the interesting book by D. Harvey: “Short history of Neoliberalism – Il Saggiatore 2007 edition.
[3] Such a function was performed by the rouble in the Warsaw Pact countries.
[4] Datum related by Gian Paolo Caselli in the article published in Limes 1/2007 “It’s the economy, stupid! Why America can’t become an Empire”.