Super Imperialism. Michael Hudson
the U.S. Treasury bill standard. Since 1971 it has freed the U.S. economy from having to do what American diplomats insist that other debtor countries do when they run payments deficits: impose austerity to restore balance in its international payments. The United States alone has been free to pursue domestic expansion and foreign diplomacy with hardly a worry about the balance-of-payments consequences. Imposing austerity on debtor countries, America as the world’s largest debtor economy acts uniquely without financial constraint. For that reason I originally wanted to entitle my book Monetary Imperialism so as to emphasize this new financial character of America’s way of exploiting the world via the international monetary system itself.
I had published my analysis of the U.S. balance of payments (updated here in Chapter 8) in New York University’s Institute of Finance Bulletin in March 1970. One of my students gave me an internal New York Federal Reserve review of my analysis that found it correct even while their economists publicly denounced my findings that the war alone was responsible for the crisis, not foreign aid or private investment. The balance of payments was becoming a highly political topic.
A few years ago I sought to update my breakdown of the balance of payments to update the impact of U.S. military spending and foreign aid. But the Commerce Department’s Table 5 from its balance of payments data had been changed in such a way it no longer reveals the extent to which foreign aid generates a transfer of dollars from foreign countries to the United States, as it did in the 1960s and 1970s. I telephoned 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 had been responsible for the present-day statistical concealment, and that it would take a Congressional request to get the Commerce and State Departments to replicate the analysis that still was being made public in the years in which I wrote Super Imperialism.
The book sold especially well in Washington. I was told that U.S. agencies were the main customers, using it in effect as a training manual on how to turn the payments deficit into an economically aggressive lever to exploit other countries via their central banks. It was translated into Spanish, Russian and Japanese almost immediately, but I was informed that U.S. diplomatic pressure on Japan led the publisher to withdraw the book (after having already paid for the translation rights) so as not to offend American sensibilities.
The book received a wider review in the business press than in academic journals. A few weeks after the U.S. publication I was invited to address the annual meeting of Drexel-Burnham to outline how the new Treasury bill standard of world finance had replaced the gold exchange standard. Herman Kahn was the meeting’s other invited speaker. When I had finished, he got up and said, “You’ve shown 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 hired me on the spot to join him as the Hudson Institute’s economist.
I was happy enough to leave my professorship in international economics at the New School for Social Research. My professional background had been on Wall Street as balance-of-payments economist for the Chase Manhattan Bank and Arthur Andersen. My research along these lines was too political to fit comfortably into the academic economics curriculum, but at the Hudson Institute I set to work tracing how America was turning its payments deficit into an unprecedented element of strength rather than weakness.
At the American Political Science Association’s annual meeting in New Orleans in September 1972, the month the book was published, I gave a speech on “Intergovernmental Imperialism vs. Private-Sector Imperialism” outlining how the Treasury bill standard had turned the traditional rules of international finance on their head. This paper forms the new introduction to this book.
I also have expanded the first chapter into what now are three chapters in order put today’s economic behavior in perspective to see the degree to which World War I was the watershed signaling the ascendancy of inter-governmental capital, that is, foreign official debt. This debt has a dynamic that overrides the usual political ideologies. Intergovernmental debts first were catalyzed in the 1920s by the breakdown of world payments and trade in the wake of Inter-Ally war debts and German reparations, a breakdown that resulted mainly from the absence of a responsible government policy on the part of the United States.
Had the U.S. Government been interested in dominating the world economy and its diplomacy at that time, as it sought to do after World War II, it could have done so while maintaining the semblance of business as usual. Instead, it pursued an essentially isolationist policy, looking within rather than involving itself directly in foreign affairs. America’s major foreign policy was crudely to demand payment of its World War I arms loans to its allies, while erecting tariff barriers that prevented these debts from being paid in the form of higher exports to the United States. The parallel with today’s Third World debts in the face of rising non-tariff barriers against Third World exports is clear enough.
U.S. private investment seemed prepared to pick up the slack, but could not bridge the payments gap imposed by the enormous weight of official debt service demanded by American nationalists. The U.S. Government refused to take the mantel of world financial leadership from Britain, and the result was a world economic breakdown whose fate was sealed in 1933 at the London Economic Conference. Modest attempts at internationalism gave way to renewed nationalist pressures which culminated in World War II.
In the years following the war the U.S. Government took a much more active role in directing the world economy. Espousing laissez-faire rhetoric, it moved deftly to shape the environment in which world market forces operated so as to promote international dependency on the United States.
I looked forward to adding these additional chapters to the paperback edition, but Holt Rinehart was not doing well enough to reprint much of anything as its owner, CBS, drastically cut its staff in an attempt to sell the company along with other CBS holdings. So I was given a reversion of the book’s rights. In mid-1973 the Beacon Press in Boston offered to bring out a paperback version, but told me that their publication of The Pentagon Papers had brought down the wrathful power of government harassment, consuming their resources in heavy legal costs. They had no money to add any material to the book, as the additions that I had made to nearly every chapter would have entailed resetting the type. I chose to hold out until another offer was made that would include the expansions I had written.
In the meantime Harper & Row proposed that I write a sequel, Global Fracture: The Economic Strategy of American Empire (1977). That book’s second chapter summarized the characteristics of the Treasury bill standard as an exploitative financial device enabling the United States to run cost-free payments deficits ad infinitum.
The rewritten manuscript of Super Imperialism’s second edition lay on my shelf for nearly thirty years. Periodically I discussed reprinting it, but the issue did not become pressing until 1999. Protest finally was arising against the failure of the World Bank and IMF, or more accurately – and what amounted to the same thing – their success at promoting an exploitative U.S.-centered diplomacy. It had begun to be acknowledged that the international financial system had been shunted onto a destructive path causing chronic balance-of-payments crises throughout the world. I found it appropriate to publish this revised edition of my book so as to relate present-day critiques to the fatal errors that were built into the World Bank and IMF at their inception. The new edition therefore is an augmented study of U.S. financial diplomacy, originally published when the character of America’s response to its changing place in the world was just becoming apparent.
A number of trends that were merely implicit in 1972 have since become explicit. First has been the U.S. Treasury’s ability to run up an international debt of over $600 billion, using the balance-of-payments deficit to finance not only its widening trade deficit but its federal budget deficit as well. To the extent that these Treasury IOUs are being built into the world’s monetary base they will not have to be repaid, but are to be rolled over indefinitely. This feature