Super Imperialism
The Economic Strategy of American Empire
Michael Hudson
2nd edition 2003
(1st edition 1972)
Pluto Press Release 25 11 2002
How America will get Europe to finance its 2002-03 Oil War with Iraq
What makes today’s Super Imperialism different from past “private enterprise” imperialism
How the United States makes other countries pay for its wars
America’s free lunch as Europe’s and Asia’s expense
Preface to the Second Edition (2002)
Introduction
The dilemma of American economic diplomacy in the interwar years
American plans for a postwar “free-trade imperialism”
America embarks on a Cold War that pushes its balance of payments into deficit
The new characteristics of American financial imperialism
How America’s payments deficit became a source of strength, not weakness
Implications for the theory of imperialism
Today’s source of financial instability as compared to that of the 1920s
The world’s need for financial autonomy from dollarization
Chapter 1: Origins of Inter-Governmental Debt, 1917-1921
Chapter 2: Breakdown of World Balance, 1921-33
Chapter 3: America Spurns World Leadership
Roosevelt meets with Hoover to discuss the debt problem
France defaults and Britain pays only a token amount
MacDonald and Herriot visit Washington
Preparing for London
Roosevelt’s “Bombshell” breaks up the London Economic Conference
Chapter 4: LendLease and Fracturing of the British Empire, 1941-45
Chapter 5: Bretton Woods: The Triumph of U.S. Government Finance Capital
Chapter 6: Isolating the Communist Bloc
Chapter 7: American Strategy Within the World Bank
The Bank’s transition from reconstruction to development lending
How World Bank operations are biased to aid the United States
Chapter 8: The Imperialism of U.S. Foreign Aid
The militarization of U.S. foreign aid
The role of aid recipients in America’s balance of trade and payments
How America’s military spending deranged its international payments and aid programs
How food aid promotes agricultural dependency
How food aid has helped the U.S. balance of payments
Foreign aid and Cold War geopolitics
The Third World’s dollar-debt problems
Chapter 9: GATT and the Double Standard
Chapter 10: Dollar Domination Through the IMF, 1945-1946
How Britain was ruined
Stabilizing currencies to protect against competitive devaluations
How fixed currency parities led to sterling’s overvaluation
How the United States set the quotas
The marginal character of early IMF loan operations
Add-on for Chapter 10
Chapter 11: Financing America’s Wars With Other Nations’ Resources, 1964-1968
Chapter 12: Power Through Bankruptcy, 1968-1970
Chapter 13: Perfecting Empire Through Monetary Crisis, 1970-1972
America’s illegal textile quotas spur foreign retaliation
Europe’s threats of financial and trade retaliation
The summer 1971 dollar crisis forces up Europe’s exchange rates
August 15 and its aftermath
Europe’s autumn 1971 collapse
Chapter 14: The Monetary Offensive of Spring 1973
U.S.-Soviet condominium?
Chapter 15: Monetary Imperialism
U.S. “food imperialism” vs. a New International Economic Order
The monetary imperialism implicit in the U.S. Treasury-bill standard
Epilogue
Pluto Press Release 25 11 2002
How America will get Europe to finance its 2002-03 Oil War with Iraq
Michael Hudson
Last time around, in the 1991 Gulf War, America got its allies to bear most of the costs voluntarily. After all, U.S. diplomats claimed, wasn’t the war fought to protect Kuwait and the next petro-domino, Saudi Arabia, from Iraqi attack – and in the process to protect Europe’s oil and gas supplies from an aggressive grabber? Wasn’t it therefore fair to ask the Saudis and Kuwaitis, along with the Germans, British and other countries to bear the lion’s share of the cost of the oil war fought for their own benefit?
Europe and the Near East agreed to pay, and their central banks turned over some of the excess U.S. Treasury bonds they had accumulated by running year after year of trade and payments surpluses with America. And almost immediately, these central banks’ dollar holdings filled up again with dollars that were unspendable and had little value, except to give back to the United States or let accumulate for no real purpose.
This Treasury-bond standard of international finance has enabled the United States to obtain the largest free lunch ever achieved in history. America has turned the international financial system upside down. Whereas formerly it rested on gold, central bank reserves are now held in the form of U.S. Government IOUs that can be run up without limit. In effect, America has been buying up Europe, Asia and other regions with paper credit – U.S. Treasury IOUs that it has informed the world it has little intention of ever paying off.
And there is little Europe or Asia can do about it, except to abandon the dollar and create their own financial system.
Michael Hudson’s Super Imperialism: The Origins and Fundamentals of U.S. World Dominance explains how the dollar’s being forced off gold in 1971 led to a new international financial system in which the world’s central banks are obliged to finance the U.S. balance of payments deficit by using their surplus dollars in the only way that central banks are allowed to use them: to buy U.S. Treasury bonds. In the process, they finance the U.S. Government’s domestic budget deficit as well.
The larger America’s balance-of-payments deficit becomes, the more dollars end up in the hands of European, Asian and Near Eastern central banks, and the more money they must recycle back to the United States by buying U.S. Treasury bonds. Over the past decade American savers have been net sellers of government bonds, putting their own money into the stock market, corporate bonds and real estate. Foreign governments have been obliged to hold U.S. bonds whose interest rates have fallen steadily, while their volume now exceeds America’s ability or willingness to pay.
What makes today’s Super Imperialism different from past “private enterprise” imperialism
Past studies of imperialism have focused on how corporations invest in other countries, extracting profits and interest. This phenomenon occurs largely via private-sector investors and exporters. But today’s novel form of international financial imperialism occurs among governments themselves, and specifically between the U.S. Government and the central banks of nations running balance-of-payments surpluses.
The larger their surpluses grow, the more dollars they are obliged to put into U.S. Treasury securities. Hence, the book’s title, Super Imperialism.
How the United States makes other countries pay for its wars
Since Europe’s Middle Ages and Renaissance, going to war has left nations with heavy public debts, which in turn have needed to be financed by raising taxes. Two centuries ago Adam Smith gave a list of how each new war borrowing in Britain led to a new tax being imposed to pay its interest charges. Militarily ambitious nations thus became indebted, high-tax and high-cost economies.
When foreign funds could not be borrowed, belligerent countries had to pay out gold to defray the costs of their military spending or see their currencies depreciate against gold. After the Napoleonic Wars ended in 1815 and again after World War I, Britain and other countries imposed deflationary financial policies whose unemployment and trade depression imposed economic austerity until prices fell to a point where the currency achieved its prewar gold price. Domestic economies thus were sacrificed to pay creditors, saving them from having to suffer a loss as measured in gold.
America’s war in Vietnam and Southeast Asia in the 1960s seemed to follow this time-honored scenario. U.S. overseas military spending ended up in the hands of foreign central banks, especially France, whose banks were the dominant financial institutions in Indo-China. Central banks cashed in these for gold nearly on a monthly basis from the 1965 troop buildup onward. Germany did on a quiet scale what General de Gaulle did with great fanfare in cashing in the dollars sent from France’s former colonies.
By 1971 the U.S. dollar’s gold cover – legally 25 percent for Federal Reserve currency – was nearly depleted, and America withdrew from the London Gold Pool. The dollar no longer could be redeemed for gold at $35 an ounce. It seemed at the time that the Vietnam War had cost America its world financial position, just as World War I had stripped Britain and the rest of Europe of their financial leadership as a result of their Inter-Ally arms debts to the United States.
But in going off gold the United States created a new kind of international financial system. It was a double standard, that is, the dollar-debt standard. The consequences can be seen today. This time around the Near East and Moslem world have announced their opposition to a new U.S. oil war, as have France and Germany. Popular opinion throughout Europe has turned against American adventurism, and at first glance it appears that America will have to finance its war alone.
And indeed it would, if today’s global financial system were still what it was before 1971. America could not fight a conventional war and pay for its troop support costs without seeing the dollar plunge. In fact, it seemed that in 1971 no country ever again could go to war without seeing its international reserves depleted and its currency collapse, forcing its interest rates to rise and its economy to fall into depression. Yet in all the argument over the coming U.S.-Islamic war, Europeans have not seen that it is they themselves that will have to bear the U.S. military costs, and to do so without limit.
What has changed is the fact that U.S. Treasury bonds – American IOUs of increasingly dubious real value – have replaced gold as the form of reserves held by the world’s central banks. Almost without anyone noticing it, these central banks have been left with only one asset to hold: U.S. Government bonds.
Central banks do not buy stocks, real estate or other tangible assets. When Saudi Arabia and Iran proposed to use their oil dollars to begin buying out American companies after 1972, U.S. officials let it be known that this would be viewed as an act of war. OPEC was told that it could raise oil prices all it wanted, as long as it used the proceeds to buy U.S. Government bonds. That way, Americans could pay for oil in their own currency, not in gold or other “money of the world.” Oil exports to the United States, as well as German and Japanese autos and sales by other countries, were bought with paper dollars that could be created ad infinitim.
America’s free lunch as Europe’s and Asia’s expense
After World Wars I and during World War II, U.S. diplomats forced Britain and other countries to pay their arms debts and other military expenditures in the form of real output and by selling off their companies. But this is not what American officials are willing to do today. The world economy now operates on a double standard that enables America to spend internationally without limit, following whatever economic and military policies it wishes to, without any gold constraint or other international constraint.
U.S. officials claim that the world’s dollar glut has become the “engine” driving the international economy. Where would Europe and Asia be, they ask, without the U.S. import demand? Do not dollar purchases help other countries employ labor that otherwise would stand idle?
This kind of rhetorical question fails to acknowledge the degree to which America is importing foreign goods and pumping dollars into the world economy without providing any quid pro quo. The important question to be asked is why European and Asian central banks don’t simply create their own domestic credit to expand their markets? Why can’t they increase their consumption and investment levels rather than relying on the U.S. economy to buy their consumer goods and capital goods for surplus dollars that have no better use than to accumulate in the world’s central banking system?
The answer is that Europe and Asia suffer from a set of economic blinders known as the Washington Consensus. It is a cover story to perpetuate America’s free ride at global expense, by pretending that the Treasury bill standard is something other than an exploitative free ride.
Toward debtor countries, American diplomats impose the Washington Consensus via the World Bank and IMF, demanding that debtors raise their interest rates to raise the money to pay foreign investors. These hapless countries dutifully impose austerity programs to keep their wages low, sell off their public domain to pay their foreign debts, deregulate their economy so as to enable foreign investors to privatize local electricity, telephone services and other national infrastructure formerly provided at subsidized rates to help these economies grow.
Toward creditor nations America relates as the world’s most Highly Indebted Developed Country by refusing to raise its own interest rates or permit key U.S. industries to be sold off.
Super-Imperialism explains how this dollar-debt standard came about. Hudson’s narrative begins with World War I, showing how unforgiving America was of Europe’s arms debts. Its stance was in sharp contrast to France’s forgiveness of America’s own Revolutionary War debt, and also to America’s insistence today that Europe and Asia agree to finance present and future American wars with unlimited lines of credit. In particular, Super Imperialism focuses on how the United States used Britain as its Trojan Horse within Europe. After reaching highly unfavorable agreements with Britain as to how to finance its debts stemming from World Wars I and II, America and Britain together than confronted the rest of Europe with a fait accompli on harsh U.S. terms. Britain acquiesced in relinquishing its world economic power to the United States instead of trying to go it alone.
It looks as if little has changed today. First published in 1972, this new and revised second edition of Super Imperialism, published by Pluto Press, reviews how the British and Germans, the Japanese and Chinese, and even the central banks of France and Russia are about to finance the war in Iraq indirectly, by absorb the dollars that will be thrown off by America’s military adventurism.
Prof. Hudson began writing this book while serving as the balance-of-payments economist for the Chase Manhattan Bank and Arthur Anderson during 1964-69, and completed it while teaching international finance at The New School in New York. (He is now Distinguished Professor of Economics at the University of Missouri at Kansas City.) His book was quickly translated into Spanish, Japanese, Russian and Arabic, and a new and revised edition was republished in Japan earlier this year before being published in Britain by Pluto.
This book was the first to explain how America has obliged other countries to finance its payments deficit, including its foreign military spending and its corporate buyouts of European and Asian companies. In effect, America has devised a new means to tax Europe and Asia via their central banks’ obligation to accept unlimited sums of dollars. The burden on Europe and Asia is not felt directly as a tax, however, but indirectly through their payments surpluses with the United States.
The Treasury-bill standard has enabled the USA to import goods far beyond its ability to export. The upshot is to provide America with a unique form of affluence, achieved by getting a free ride from Europe, Asia and other regions. When British exporters (or the owners of companies or real estate being sold for dollars) receive more dollar, the recipients of these payments turn them over to the Bank of England for sterling. The Bank of England in turn invests these dollars in U.S. Treasury bonds, receiving a relatively small interest rate. Now that the gold option has been closed there is no alternative for how to spend these dollars. America has found a way to make the rest of the world pay for its imports, and indeed pay for its takeover of foreign companies, and most imminently to pay for its new war in the Middle East.
This is why the new form of America’s inter-governmental super imperialism differs from the familiar old private-enterprise analysis that applied prior to 1971.
Preface to the Second Edition (2002)
As of summer 2002 the U.S. Treasury is pursuing the same strategy of "benign neglect" for its balance-of-payments deficit that it did thirty years ago. The deficit that caused a global crisis in 1971 when its $10 billion rate led to a 10 percent dollar devaluation has now risen to hundreds of billions of dollars annually, and is still rising. Treasury Secretary O'Neill says he is not worried and that the situation does not call for any action, at least not on the part of the United States.