The Rise and Fall of Empires

Francis Lee for the Saker Blog

June 08, 2020

I think that it would be true to say that sudden spurts of economic growth are often caused by preparation for war, war itself, and post-war reconstruction. This process in particular was occasioned by the end of WW1 which was succeeded by a restless and runaway period of economic growth based on the US Stock Market boom in 1929. Given the laws of capitalism and its immanent rhythm of boom-bust this break-down was entirely predictable.

The ensuing downturn migrated over the pond to a still weak Europe which had not really recovered from the carnage of 1914-18. The resulting depression in Europe was particularly acute in Germany since it was still attempting to pay its wartime reparations to the allies which had been foisted upon it as a result of the Versailles Treaty. This resulted in the great German inflation during the early to late 1920s.

As if this wasn’t enough, another blow to global economic and financial stability was to be delivered: this in the form of the Anstalt-Credit Bank failure of 1931. Credit-Anstalt was an exceptionally large bank based in Vienna. Given the interconnectedness of banking and finance, and the fragility of the European banking system at the time, one bank failure can give rise to multiple failures. In October 1929, the Austrian  Schober government compelled the allegedly well-financed Credit-Anstalt to assume liabilities, which together with the simultaneous Wall Street Crash led to the financial imbalance of the then-largest Austrian credit provider. Credit-Anstalt had to declare bankruptcy on 11 May 1931.

The collapse of the Credit-Anstalt in Vienna started the spread of the crisis in Europe and forced most countries off the Gold Standard within a few months. A feeling of financial distrust and insecurity spread from Vienna and led to runs on other banks in Hungary, Czechoslovakia, Romania, Poland, and Germany. The collapse set off a chain reaction that led from the run on German banks to withdrawals in London and the devaluation of the pound to large-scale withdrawals from New York and another series of bank failures in the United States. So in brief the news of the crisis of the Credit-Anstalt, the most important bank in Central Europe, shook the whole economic structure of Europe and sent shock waves through the rest of the world.

POLITICAL AND STRATEGIC IMPLICATIONS

All of which added even greater political and economic instability in both Europe and North America during the Interregnum. Crises of this type unsurprisingly gave rise to bitter class struggles between capital and labour, and various other social and political disequilibria. Revolution in Russia, the rise of the Nazis in Germany and earlier in Italy the new political movement of the black-shirted Fascisti led by one Benito Mussolini – this new political template being the counter-revolution from below. Coincidental with this there was, moreover, the fall of no less than four royal dynasties, the Habsburgs, Hohenzollerns, Romanovs, and Ottomans. The old order had gone, in Europe at least, but their empires still remained: Britain, France, and new kid to the imperialist club – the United States since it had got into the imperialist game in the late 19^th century, and there it still remains.

The resulting collisions of interest between the rival nations and blocs with unfinished geopolitical business left over from WW1 seemed to take on an inexorable process – a process headed toward open military conflict between the Great Powers. And so it turned out. Germany was a powerful well-armed state with imperial ambitions but eventually was to be confronted by the combination of the USA, the USSR, and the British Empire, which meant it was bound to lose.

World War 2 was, with the exception of Latin America, a global war and had global ramifications. The major reconstruction of physical, economic, political, and geopolitical organizations and institutions had a number of distinct phases in both war-ravaged Europe and the Far East. The US was fortunate in this regard since apart from Pearl Harbour no major damage occurred on its own territory with the exception of Hawaii.

BRETTON WOODS 1944

The year 1942 was the turning point when the allied victory was more or less guaranteed. It was decided therefore to convene a meeting of the allied powers – excluding the USSR for geopolitical reasons – which was in the main conducted and overseen by the US and UK, with the US being the senior partner, of course. In 1944 the conference was to be held at the Washington Hotel in the small town of Bretton Woods in New Hampshire, USA; grandiosely titled, the United Nations Monetary and Financial Conference. At the time Hitler would last another 10 months, and war continued to rage in the Far East and Japan would not surrender for another 13 months. The UN Charter was still a year away. The specific goals of the attendees was to create institutions that would promote a vision beyond the end of the war united in hopes for a world united through prosperity.

US FOREIGN POLICY & TWILIGHT OF THE BRITISH EMPIRE

All very noble and idealistic. However also in play were the usual motivations of nation states and their internal interest groups – groups who harboured their own concerns which were somewhat less idealistic. It was argued by some realist foreign relations theorists that the plan for these Bretton Woods institutions go back further to the 1930s and to the US Council of Foreign Relations. (1)

‘’Members of this group assessed early on that, at a minimum, the US national interest required free access to the raw materials of the Western hemisphere, the Far East, and the British Empire. On July 24, 1941, a council memorandum outlined the concept of a grand area: that part of the world which the United States dominated economically and militarily to ensure materials to its industries.’’ (2)

Of course it was tacitly understood by the Americans that the British Empire stood in the way of US imperial aggrandisement and ultimately it had to go. The British delegation were in fact being played by the Americans throughout these tortuous negotiations. But the British were semi-aware of what the Americans were up to. According to the principal British negotiator J.M.Keynes who wrote in a private letter to a colleague:

‘’The greatest cause of friction between the US and Great Britain over a very long period was the problem of what we used to call the old commitments, arising out of the fact that lend-lease* did not come into anything like full operation for some nine months after it had legally come into force … You do not emphasise the point that the US Administration was very careful not to take every precaution to see that the British were as near as possible bankrupt before any assistance was given … or appropriately abated whenever there seems the slightest prospect that leaving things as they are might possibly lead to a result in leaving the British at the end of the war otherwise than hopelessly insolvent.’’(3)

Thus the whole issue of lend-lease boiled down to this: The UK was broke, a supplicant, and did not have the wherewithal to pay back the loans made to the US. On the other hand the hard-nosed US ruling circles were not a registered charity and insisted on business reciprocity involving loan repayment. Moreover, the fact that this meant the virtual winding up of the British empire and the Sterling Area was judged in certain American quarters as being a good deal for the US. It should be noted that the parsimony of the US vis-à-vis the British loan contrasted sharply with the extension of Marshall Aid and the wiping out of post-war German debts.

‘’The first loan on the post-war agenda was the British Loan which, as President Truman announced in forwarding it to Congress, would set the course of American and British economic relations for many years to come. He was right, for the Anglo-American Loan Agreement spelled the end of Britain as a Great Power.’’ (4)

POST-WAR AUSTERITY – POLITICS IN EUROPE

The post-war period was one of bitter austerity from the late 40s with rationing and austerity taking place among the ruins of war, and this continued until the early 1950s, to be exact 1954 in the UK, 1950 in Germany.

In the UK The Labour party was elected to power in 1945, which it is said, won the 1945 election by servicemen returning from the war and voting Labour in droves. The new government was given a political mandate to nationalise the core industries: Rail, Public Utilities (gas, electricity, water), Transport, Coal, Iron and Steel, and, most importantly, the setting up of the National Health Service, the jewel in the crown of a new social and political order as overseen by a determined social-democratic party

Over in Europe change was also on the agenda. There were open mass communist parties, the PCF in France, and PCI in Italy often supplemented with armed partisans in France, Italy, Yugoslavia, and the Balkans including Greece. Tito’s partisans gained power in 1946. But the civil war in Greece 1944-49 had a different outcome.(5) Also coming to power in the Balkans at this time were Albanian partisans led by the charismatic albeit demented figure of Enver Hoxha.

Things got better in the next phase of post-war recovery during the 1950s which marked the continuation of post-war reconstruction policies. This involved an end of rationing and a spurt of growth which had been pretty much flat for centuries until WW1 when the epoch of industrialisation of society evolved pari passu with mechanized industrial production; this was a feature of both civilian and military research which often involved a cross-fertilisation of both. Growth took off almost vertically in the 1950s and 60s. This was certainly true in the mid-20^th century. But this was a political as well as a strategic/economic phenomenon. This was a period of acute internal political conflict and struggle.

POST-WAR BOOM AND COLD WAR

However from the middle 1950s the momentum of social and political developments moved to a more sustained and semi-tranquil path. The Trente Glorieuses as the French called it – a golden age of social and political peace: there were high levels of growth, low levels of unemployment, high wage levels, high levels of investment, not quite a social-democratic utopia, but at least the years of poverty, war and austerity had been left behind, it seemed for good. I think this unparalleled post-war economic boom had a great deal to do with post-war reconstruction. A point I made in the opening paragraph.

However, it should also be borne in mind that in international and strategic terms this was the Cold War era. A period of nuclear standoff, NATO, the Warsaw Pact, and the unstable division of Europe and colonial wars in Korea (UN under US control) Indo-China (French and American) Malaya, Kenya, Palestine (British). A situation which is still ongoing with the U.S. attempting (unsuccessfully) to carve out an empire.

BRETTON WOODS 2

These tendencies were highly visible and generally in the public realm. But perhaps the less contentious issues and decisions had been and were taking place in more recondite settings. Back in 1944, at the opening session of Bretton Woods, Henry Morgenthau, then Secretary of the US Treasury was to set forth one of the underlying assumptions that guided the work of the architects of the Bretton Woods system. Some were valid others less so. In particular the assumption that 1. Everyone would be the beneficiary of increased world trade, and 2. That economic growth would not be constrained by the limits of the planet.

The trouble with this mode of thinking is that the policy consensus and values among the powers that be (PTB) are also shared by everyone else. This is a very obvious and common shortcoming ‘groupthink’ among the ‘power elite’ of policy makers, and opinion formers, as was pointed out by the astute American intellectual, C Wright Mills way back in the 1950s.

All of this notwithstanding, by the end of the historic meeting, the World Bank (International Bank for Reconstruction and Development) and IMF (International Monetary Fund) and GATT (the General Agreement on Tariffs and Trade) which was superseded by the WTO (World Trade Organization). If I may paraphrase the poet Robert Browning: Roosevelt was in the White House, God was in his Heaven and all was right with the world!

CONSOLIDATION AND NEW WORLD ORDER

Since that time these global organizations have been dutifully occupied over the years adhering faithfully to their mandate to promote economic growth through globalization – globalization being a catch-all term involving market liberalisation, deregulation and privatisation. Through Structural Adjustment Programmes/Policies (SAPs) the World Bank and the IMF have pressured countries of the Global South to open their borders and convert their economies from self-sufficiency to export production. Trade agreements negotiated through GATT/WTO have reinforced these policies and prized open economies in both the Global South and North opening the path to the increasingly free importation of goods and capital flows (usually ‘hot money’). These archaic trade theories are justified by reference to David Ricardo and his archaic concept of ‘comparative advantage’ which is still taught in economics departments of universities.

The American New World Order established in 1945 had a strategic-military component as well as an economic one. US occupation in 1945 became permanent through the imposition of NATO which has expanded incrementally all the way to the Russian border. This occupation has lasted for 7 decades and is barely noticed as such. Europe has essentially become a collection of vassal states unthinkingly loyal to its American masters. The situation has become so entrenched that – apart from a brief Gaullist opposition – Europeans are completely unaware of this silent annexation. An annexation which in large part was carried out by the CIA and its euro Quislings. These included Operations, Gladio, Mockingbird and Paperclip.

This Atlantic Military-Strategic bloc – NATO – is an aggressive intercontinental vehicle serving as the instrument for US strategy for global dominance. Hard power.

‘’The occupied and colonized can come to accept and adopt the system and ways of their occupiers and colonizers … In Western (and now a fortiori Eastern) Europe many have come to accept without challenge the primary role of the US over the affairs of their states and give little thought to NATO except as a foundation of their security architecture. They have been raised and socialised, with this as part of their world. In many instances it is not only a normal part of the status-quo for them, it is also invisible to them. This is why the post-Cold-War continuation of the Atlantic Alliance went mostly unchallenged at the societal level in NATO member states, leaving the US to slowly consolidate its influence in each and every state.’’(6)

Financial dominance has also been another weapon operationalised and used by the US in their quest for global hegemony. This is particularly relevant with the role of the US$. As the global reserve currency the dollar gives a number of trade advantages over its trade ‘partners’. These are easy enough to enumerate but taking one example:

‘’It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries have to pony up $100 of goods and services in order to obtain one. (The difference between what it costs the government to print a note and a foreigner to procure it is known as seignorage after the right of the medieval Lord or seigneur to coin money and keep for himself some of the precious metal from which it was made.) About $500 billion of US currency circulates outside of the United States for which foreigners have had to provide the United States with $500 billion goods and services.’’(7)

But it is not a privilege which should be abused. Human Nature being what it is, however, it was abused. When the US left the Gold Standard in 1971 it could print dollars with abandon to pay its import bills. This meant it could accrue many advantages including the one mentioned by Eichengreen above. However, all was not as clear-cut as it seemed.

THE TRIFFIN DILEMMA AND THE DOLLAR RACKET

There was always a fundamental incompatibility between the attainment of global economic stability and possession of a single national currency to perform the role of the world’s reserve currency. As a global reserve currency the dollar has to be the anchor of the world’s trading system. However, as a domestic currency the dollar needs to have sufficient flexibility for internal policy. Thus at the heart of the dollar’s value and use there is this contradiction for the dual roles of this currency.

During the Bretton Woods ‘golden age’ which lasted from 1944 until 1971, the US$ was fixed against gold at $35 per oz. However the cost of US wars of choice in Korea and Indo-China, as well as ambitious social programmes like LBJ’s ‘Great Society’, saw a global build-up of surplus dollars accumulating in central banks around the world. These surplus dollar countries then began trading in their surplus dollars at the gold window at the Fed. This was a situation which the US could not tolerate as gold was flying out of the US to various overseas central bank venues.

Thus it was that on August 15, 1971, President Nixon suspended dollar/gold convertibility for a temporary period, which in fact morphed into a permanent arrangement – an arrangement which persists to this day. The gold standard was replaced with the US$ fiat standard. The dollar was to be regarded as being as good as gold, which was rather more like an act of faith than rational economic policy.

The maverick Belgian economist Robert Triffin first drew attention to this anomaly during the 1960s in his seminal work Gold and the Dollar Crisis: The Future of Convertibility. He observed that having the US dollar perform the role of the world’s reserve currency created fundamental conflicts of interest between domestic and international economic objectives.

On the one hand, the international economy needed dollars for liquidity purposes and to satisfy demand for reserve assets. But this forced, or at least made it easy, for the US to run consistently large current account deficits.

He argued that such a policy of running persistent deficits would eventually put pressure on the dollars convertibility and ultimately lead to the demise of the Bretton Woods system of international exchange which is exactly what happened in 1971.

This arrangement led to what in effect were tangible advantages for the US, at least to the current situation.

Nice work if you can get it. International trade as denominated in US$’s meant that the US$ qua world reserve currency could use its dollars to buy foreign assets and pay for them in dollars. These dollars were then held by foreigners who could no longer convert surplus dollars into gold but could only purchase US Treasuries and other US dollar-denominated assets which were never going to be repaid. Surplus dollar countries would sell their hard-earned dollars to purchase US Treasuries which pushed up the value of the dollar and kept US interest rates low; and the US in turn would buy goods and services from these same surplus countries. It worked rather like this: a foreign computer company – say ‘Japcom’ – sells you a computer by lending you the money to buy it! The ultimate free lunch.

But of course there’s always a catch! The effect of a strong dollar which raised domestic US industries costs, led to the hollowing out of the US domestic economy which ultimately could not compete with more efficient overseas competition. The last thing that the US rust belt needed was/is a strong dollar which had the effect of making its export industries less competitive. This left the US in an economic quandary. Namely, that the United States must on the one hand simultaneously run a strong/dollar, policy and on the other a weak/dollar policy, or put another way must allow for an outflow of dollars to satisfy the global demand for the currency, but must also engineer an inflow of dollars to make its domestic industries more competitive. As explained thus: when the Fed cuts interest rates, investors sell dollar-denominated assets and buy foreign assets, which tends to weaken the dollar’s exchange rate.

Having it both ways! Which of course is hardly possible.

Moreover, it is a moot point as to whether the rest of the world will continue to support this ‘exorbitant privilege’ in perpetuity. So far, the Vichy-Quisling-Petainst regimes in Europe and East Asia have to touch their forelocks and prostrate themselves before their Lord and Masters, but it would be wrong to imagine that this can continue as a permanent arrangement. Ironically, however, the US hegemon treats its friends and allies considerably worse than its putative enemies. Such is the nature of geopolitics.

WHAT NEXT?

The rise and fall of empires has always been a leitmotif for historians from Thucydidies and Herodotus, to Gibbon, Glubb and Hobsbawm in the modern period. It seems fairly obvious that the United States is in irreversible decline, and I think that the same is probably true of Europe given that Europe has been effectively Americanised. The American intellectual Morris Berman has perceptively got his finger on the pulse of the decay of modern-day America.

‘’As the 21^st century dawns, American culture is, quite simply, in a mess … The dissolution of American corporate hegemony, when it does occur – and our own ‘Soviet Watershed’ is at least 40 or 50 years down the road as of this writing – will happen because of the ultimate inability of the system to maintain itself indefinitely. This type of breakdown which is a recurrent historical phenomenon is a long-range one and internal to the system.’’ (8)

The long decline as described by Berman is in general a cultural critique. A dumbing down so massive, relentless and comprehensive that is seems irresistible and sadly unstoppable. As Berman further writes:

‘’For a zoned-out, stupefied populace, ‘democracy’ will be nothing more than the right to shop, or to choose between Wendy’s or Burger King, or to stare at CNN and think that this managed infotainment is actually the news. As I have said, corporate hegemony, the triumph of global democracy/consumerism based upon the American model is the collapse of American civilization. So a large-scale transformation is going on, but it is one that makes triumph indistinguishable from disintegration.’’(9)

Add to this the hollowing out of the US productive economy (10) and the rise of a bloated financial sector which is kept going by infusions of money freshly printed by the Fed and which is more and more taking on the visage of an gigantic Ponzi scheme where existing debt levels are serviced by more debt, apparently without end. This is not going to be easy to reverse. The ongoing deindustrialisation of the US and its satellites seems to be irreversible.

The US political elites and the MSM seem little more than a monkey house of corrupt buffoons with not a political idea in their heads or what they are about and where they are going: but everything is fine as long as they get paid-off. It seems all very reminiscent of the last days of the French monarchy with America’s own Marie Antoinette, the air-head Nancy Pelosi, passing the time on TV by recommending the variety of ice-cream she keeps in her fridge during the current shut-down. The people have got no bread Nancy! Well let them eat ice-cream! Brilliant PR from Nancy Antionette.

Then of course there are the complete and certifiable lunatics (the neo-cons) who, along with Israel and its 5^th column within the US, are intent on dragging the US into unwinnable wars which are slowly degrading the morale the civilian population and fighting capacity of the ‘invincible’ US military machine.

An historical analogy from history seems germane at this point.

It has been recorded that the most important battle that the Roman Army fought was The Battle of the Teutoburg Forest. Three crack Roman legions crossed the Rhine to engage the Germanic tribes; a cake walk, or so they thought. Unfortunately, they were overconfident and badly led. Strung out on the march and unable to get into their customary Roman battle formations – the dreaded testudo (tortoise) – and were attacked on all sides by hordes of Germanic tribesmen and unceremoniously put to the sword: three crack legions, 20,000 men, one tenth of the Roman Army. This was in 9 CE. The Roman Empire lasted approx. another 400 years, but its reputation had suffered a blow from which it never recovered. The beginning of the end came when the Visigoths crossed the Danube 376 AD into the Roman Empire properly. When Rome was sacked it was the definitive end of empire. The US seems set on the same course, or one similar perhaps, although it is difficult if not impossible to put a date on its final demise.

Who can tell the future? We shall wait and we shall see.

NOTES

(1) The Council of Foreign Relations founded in 1921, is a United States non-profit think tank specializing in U.S. foreign policy and international affairs. It is headquartered in New York City, with an additional office in Washington, D.C. This somewhat bland description does not explain the reality. In fact the CFR is made up of a number of notables drawn from the American political and financial nomenklatura, an incubator of leaders and ideas unified in their vision of a global economy dominated by US corporate interests.

(2) The Failures of Bretton Woods – David C Korten – The Case Against the Global Economy – 1996 – p.21

* Under the Lend-Lease program, from 1941 to 1945 the United States provided approximately $50 billion in military equipment, raw materials, and other goods to thirty-eight countries. About $30 billion of the total went to Britain, with most of the remainder delivered to the Soviet Union, China, and France

(3) Robert Skidelsky – John Maynard Keynes – Fighting for Britain – 1937-46- collected works and letters – xxiv 28/29 letter to E.R.Stettinuis, 18 April 1944

(4) Michael Hudson – Super Imperialism – pp.268/269

(5) The British Labour government of 1945-40 actually took sides in the Greek Civil War fought between the Greek government army (supported by the United Kingdom and the United States)and the Democratic Army of Greece (DSE) — the military branch of the Communist Party of Greece (KKE) supported by Yugoslavia, Albania and Bulgaria. This lasted from 1946 to 1949. The Soviet Union avoided sending aid. The fighting resulted in the defeat of the DSE by the Hellenic Army. The Labour party, social-democratic as it may have portrayed itself, was nonetheless pro-imperialist to the core and a founder member of 1940.

(6) Mahdi Darius Nazemroaya – The Globalization of NATO p.334.

(7) Barry Eichengreen – Exorbitant Privilege – pp.3/4

(8) Morris Berman – The Twilight of American Culture – p.21. Published in 2000.

(9) Berman – ibid. – p.132

(10) The Auto-vehicle industry which was pioneered by Henry Ford was dominant up until recently when it produced 50% of motor vehicles. But this is no longer the case. Currently global auto-vehicle producers can be ranked as follows:

1. Toyota (Japan) Annual Output: 10,455,051 2. Volkswagen (Germany) Annual Output: 10,382,384 3. Hyundai/Kia (South Korea) Annual Output: 7,218,391. 4. General Motors (United States) Annual Output: 6,856,880. 5. Ford (United States) Annual Output: 6,386,818. 6. Nissan (Japan) Annual Output: 5,769,277. 7. Honda (Japan) Annual Output: 5,235,842. 8. FCA (Italy, USA) Annual Output: 4,681,457. 9. Renault (France) Annual Output: 3,373,278. Group PSA (France) Annual Output: 3,152,787

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