Super Imperialism. Michael Hudson
even one of overall U.S. long-term interests, but one of parochial interests putting their local objectives ahead of foreign policy.
America embarks on a Cold War that pushes its balance of payments into deficit
As matters turned out, the line of least resistance to circumvent this domestic obstacle was to provide Congress with an anti-Communist national security hook on which to drape postwar foreign spending programs. Dollars were provided not simply to bribe foreign governments into enacting Open Door policies, but to help them fight Communism which might threaten the United States if not nipped in the bud. This red specter was what had turned the tide on the British Loan, and it carried Marshall Aid through Congress, along with most subsequent aid lending down through the present day. Congress would not appropriate funds to finance a quasi-idealistic worldwide transition to laissez-faire, but it would provide money to contain Communist expansion, conveniently defined as being virtually synonymous with spreading poverty nurturing seedbeds of anti-Americanism.
The U.S. Government hoped to keep its fellow capitalist countries solvent. U.S. diplomats remembered the 1930s well enough to recognize that economies threatened with balance-of-payments insolvency would move to insulate themselves, foreclosing U.S. trade and investment opportunities accordingly. As the Council of Foreign Relations observed in 1947:
In public and Congressional debate, the Administration’s case centered on two themes: the role of the [British] loan in world recovery, and the direct benefits to the country from this Agreement. American self-interest was established as the motivation . . . The Administration made a persuasive argument by pointing out what would happen without the loan. Britain would be forced to restrict imports, make bilateral trade bargains, and discriminate against American goods. . . . With the loan, things could be made to move in the other direction.6
Former U.S. Ambassador to Britain Joseph Kennedy was among the first to urge U.S. credits for that nation, “largely to combat communism.” He even urged an outright gift, on the ground that Britain was for all practical purposes broke.
Tension with Russia helped the loan, playing a considerable part in offsetting political objections and doubts of the loan’s economic soundness. Anti-Soviet sentiment had risen throughout the country, since Winston Churchill, speaking at Fulton [Missouri] on March 5 [1946], had proposed a “fraternal association” of English-speaking nations to check Russia . . . Now . . . his idea seemed to be a decisive factor in determining many Congressmen to vote for the loan . . . Senator Barkely said, “I do not desire, for myself or for my country, to take a position that will drive our ally into arms into which we do not want her to be folded.”
Speaker of the House Sam Rayburn endorsed this position. It was to become the political lever to extract U.S. foreign aid for the next two decades. International policies henceforth were dressed in anti-Communist garb in order to facilitate their acceptance by non-liberal congressmen whose sympathies hardly lay with the laissez-faire that had afforded the earlier window dressing for the government’s postwar economic planning.
The problem from the government’s point of view was that the U.S. balance of payments had reached a surplus level unattained by any other nation in history. It had an embarrassment of riches, and now required a payments deficit to promote foreign export markets and world currency stability. Foreigners could not buy American exports without a means of payment, and private creditors were not eager to extend further loans to countries that were not creditworthy.
The Korean War seemed to resolve this set of problems by shifting the U.S. balance of payments into deficit. Confrontation with Communism became a catalyst for U.S. military and aid programs abroad. Congress was much more willing to provide countries with dollars via anti-Communist or national defense programs than by outright gifts or loans, and after the Korean War U.S. military spending in the NATO and SEATO countries seemed to be a relatively bloodless form of international monetary support. In country after country, military spending and aid programs provided a reflux of some of the foreign gold that the United States had absorbed during the late 1940s.
Within a decade, however, what at first seemed to be a stabilizing economic dynamic became destabilizing. The United States, the only nation capable of financing a worldwide military program, began to sink into the mire that had bankrupted every European power that experimented with colonialism. America’s Cold War strategists failed to perceive that whereas private investment tends to be flexible in cutting its losses, being committed to relatively autonomous projects on the basis of securing a satisfactory rate of return year after year, this is not the case with government spending programs, especially in the case of national security programs that created vested interests. Such programs are by no means as readily reversible as those of private industry, for military spending abroad, once initiated, tends to take on a momentum of its own. The government cannot simply say that national security programs have become economically disadvantageous and therefore must be curtailed. That would imply they were pursued in the first place only because they were economically remunerative – something involving the sacrifice of human lives for the narrow motives of economic gain, even if national gain. What began as pretense became a new reality.
The new characteristics of American financial imperialism
If the United States had continued to run payments surpluses, if it had absorbed more foreign gold and dollar balances, the world’s monetary reserves would have been reduced. This would have constrained world trade, and especially imports from the United States. A US payments surplus thus was incompatible with continued growth in world liquidity and trade. The United States was obliged to buy more foreign goods, services and capital assets than it supplied to foreigners, unless they could augment monetary reserves with non-U.S. currencies.
What was not grasped was the corollary implication. Under the key-currency dollar standard the only way that the world financial system could become more liquid was for the United States to pump more dollars into it by running a payments deficit. The foreign dollar balances being built up as a result of foreign military and foreign aid spending in the 1950s and 1960s were, simultaneously, debts of the United States.
At first, foreign countries welcomed their surplus of dollar receipts. At the time there was no doubt that the United States was fully capable of redeeming these dollars with its enormous gold stock. But in autumn 1960 a run on the dollar temporarily pushed up the price of gold to $40 an ounce. This was a reminder that the U.S. balance of payments had been in continuing and growing deficit for a decade, since the Korean War. It became clear that just as the U.S. payments surplus had been destabilizing in the late 1940s, so in the early 1960s a U.S. payments deficit beyond a point likewise would be incompatible with world financial stability.
The run on gold had followed John Kennedy’s victory in the 1960 presidential election, waged largely over a rather demagogic debate over military preparedness. It seemed unlikely that the incoming Democratic administration would do much to change the Cold War policies responsible for the U.S. payments deficit.
Growing attention began to be paid to the difference between domestic and international money. Apart from metallic coinage, domestic currency is a form of debt, but one that nobody really expects to be paid. Attempts by governments to repay their debts beyond a point would extinguish their monetary base. Back in the 1890s high U.S. tariffs produced a federal budget surplus that obliged the Treasury to redeem its bonds, causing a painful monetary deflation. But in the sphere of international money and credit, most investors expect debts to be paid on schedule.
This expectation would seem to doom any attempt to create a key-currency standard. The problem is that international money (viewed as an asset) is simultaneously a debt of the key-currency nation. Growth in key-currency reserves accumulated by payments-surplus economies implies that the nation issuing the key currency acts in effect, and even in reality, as an international borrower. To provide other countries with key-currency assets involves running into debt, and to repay such debt is to extinguish an international monetary asset.
This debt character of the world’s growing dollar reserves hardly had been noticed by foreign governments that needed them in the 1950s to finance their own foreign trade and payments. But by the early 1960s it became clear that the United States was approaching the point at which its debts to foreign