Notes on Peter Gowan's 'The Global Gamble: Washington's Faustian Bid for World Dominance'
2: ‘Capital Markets’, Financial Systems and the Postwar International Monetary System
The So-called Capital Markets
9 Credit is the lending of money in the expectation that the money will be paid back later along with a bonus or dividend in the form of a rate of interest. This is not necessarily a capitalist mechanism, co-operative societies can issue credit as well as building societies.
10 What makes banks distinct is their use of credit involves the creation of money; banks can be giving overdrafts to everyone in the economy at one time.
As such far more money is circulating in the economy than the amount of money derived from savings generated by past value creation.
Part of this money is fictitious; money derived not from the success of past investments but expectations that it will be validated by future productive activity.
11 As banks are crucial for the functioning of the global economy nation states constantly interfere in their operations, even though ideologically it makes sense to do so on the down low.
Without fictitious credit money economic development would be happening much slower; if employers could only invest real savings investments would be prohibitively expensive.
Modern economies therefore run to a large extent on debt.
Markets have developed around companies selling legal claims on future profits which the company may generate in the future as shares.
12 These securities markets, operated in by speculators and rentiers, do not contribute to productive investment; they are based on the buying and seeling of claims on future value created in productive activity.
The Two Poles of Capitalism and their Regulation
13 The interests and behaviours of productive capital and money capital are not identical.
14 The money capitalist will prefer to keep their money in a liquid form and be attentive to hot flows of cash.
Productive capital pursues more long-term circuits particularly w/r/t fixed capital investment, which only yield their value over long periods.
Gowan argues that the latter cohort were dominant in the postwar period up until about 50 years ago, when the former overtook them.
The International Monetary System
15 The formation of an international currency system arises from the need that exists for different states to do business which each other.
This is done either through a third currency which has an exchange price between the two currencies, such as gold.
Another option is an established exchange rate between the two currencies; the seller of the goods may be prepared to accept payment in either of the two currencies.
These inter-state exchanges are very closely monitored; if a state is heavily in deficit questions arise as to whether they will be able to pay off their loans.
16 This credibility question can be settled in a number of ways; a state may cut back their purchases from abroad, the state in surplus may be pressured to buy more from the state in deficit.
The former will have a depressive effect, the latter will stimulate economic activity, but ultimately it is the larger more powerful states which set the terms.
The Bretton Woods Regime for International Monetary and Financial Relations
In advancing an international monetary system after the war John Maynard Keynes and Dexter White aimed to create a predictable, stable and rule-based order that could not be manipulated by larger states.
Gold would therefore be retained as the anchor of the system; it would be separate from the currency of every nation state, and the dollar would have its price fixed against gold.
Every other nation state would then fix their currency prices against the dollar and could not change that price as they wished to. Changes in the price of currency would be determined co-operatively between states via a supra-national body, the International Monetary Fund (IMF).
The IMF would accept a change in a currency’s price only if it was needed to correct a fundamental disequilibrium in the state’s current account.
This would ensure economic operators benefitted from stability in the prices of the main currencies.
The Keynes-White system, or Bretton-Woods, would also ban private financial operators from moving funds around the world freely; states would have authority to control and restrict these movements.
17 The two states who devised this system, the US and the UK, became increasingly hostile towards Bretton-Woods: it was drawn up before the Cold War began and was therefore out of step with US imperial strategy.
During the Vietnam war the US economy entered into a structural deficit, exacerbated by the capital the US was exporting to Western Europe to maintain its dominance in their markets.
The US could have stabilised its economy by cutting back on its military expenditures, reduced its imports or devalued the dollar against gold, but instead the Nixon administration set out to destroy the Bretton-Woods regime.
This aligned with the interests of Wall Street and the City of London, who found their activities were restricted by Bretton Woods.
3: The Dollar-Wall Street Regime
The Inauguration and Structure of the Dollar-Wall Street Regime
20 Support for a single pure dollar standard had been advocated within the Nixon administration by Paul Volcker; the international monetary crisis of 1971 provided an opportunity, against Japanese and European opposition.
21 The Nixon administration also moved to place responsibility for financial regulation in the hands of private financial operators.
This was done by exerting pressure on the Europeans indirectly, by pressuring Gulf States to raise the price of oil.
European and Japanese economies entered into trade deficits as the costs of oil imports rose; the so-called petrodollars would have to be recycled from the Gulf through western banking systems to non-oil-producing states, rather than the IMF.
22 The destruction of Bretton-Woods brought speculative capital into the centre of a new international monetary system which operated in a manner qualitatively distinct from its predecessor.
Banks were also allowed to shed existing liquidity requirements and other regulative mechanisms.
23 This strengthened the hand of the American state and altered the relationships between states.
States in trade surplus had strong, stable currencies. If a state developed current account deficits, it needed foreign exchange reserves to defend its currency or appeal to the IMF to help.
Currency stability therefore depends on a state’s creditworthiness in international markets.
24 States eager to maintain currency stability are further integrated into American markets as it is in their best interests to retain their foreign currency reserves in dollars.
The Economic and Political Significance of Dollar Seigniorage
25 The US is therefore not not bound by the same balance of payments restraints that other nations are: it can spend far more abroad than it earns and can therefore set up military bases, have transnational companies buy up foreign firms effectively without limit.
American companies are also less exposed to international price fluctuations.
The Economic and Political Significance of Wall Street Dominance
28 Wall Street, being able to dictate international interest rates, can therefore determine the cost of credit.
29 When Americans deregulate their financial institutions it puts enormous pressure on regulative mechanisms in other states, as their competitors lobby for similarly light-touch regimes.
US governments also use the World Bank and the IMF to bail out their own financial institutions when they reach a point of insolvency with no cost to the US economy.
35 One of the paradoxes of this situation is that financial crises in the Global South do not weaken the regime but strengthen it; private wealth-holders move their money from the Global South to the US and the insolvent state has to export to the US to find the resources for debt servicing.
4: The Evolution of the DWSR from the 1970s to the 1990s
The US Policy for the Evolution of the DWSR from Nixon to 1993
40 Under Reagan economic growth was to be driven by deregulation of the banking and financial sectors, tax cuts for the wealthy and deficit spending on defense.
The new dominance afforded to money capital, and a drive to contain inflation, spurred employers to begin an assault on the power of organised labour and working conditions.
The Brits, the Germans, the French, the Italians and the Danish also rolled back their capital controls through the European Single Market.
41 A policy of high dollar and high interest rates led to Latin American and Central European debt crises in the early eighties.
Reagan took advantage of these debt crises to re-organise social relations in the distressed economies to the benefit of their own capitalist class.
The American Political Economy
53 There has been an enormous decline in the role of commercial banks in the supply of credit to the productive sector with the rise of mutual funds, which offer credit to companies in the form of bonds rather than bank loans. The depositors benefit from higher interest rates as well as the funds’ diverse portfolios of bonds and other securities.
Thus the supply of money capital to American employers is tied in with the rise and fall of prices on securities markets; the savings of Americans of all classes are tied into price movements on these markets.
Walls have also broken down between different sections of the financial sector; the savings and loans institutions have also been integrated into securities markets.
New types of securities have also been developed, whether in mortgage contracts or unregulated derivatives, which involve trading in securities whose prices are derived from their movements in other primary securities or currencies.
Derivatives link price movements in one market (shares or bonds) with another (foreign exchange). Price shocks therefore become more contagious.
54 Another development is the invention of hedge funds; speculative organisations which make money by buying and selling securities on their own account to exploit price movements over time and price differentials between markets.
Important to note that these are not marginal speculators but are produced by some of the largest investment banks and mutual funds so the banks can engage in tax-free speculative activities off the books.
Hedge funds are so large they can shift prices in the market in the direction they want through their sheer scale; hedge funds leverage amounts of money hundreds of times in excess of their actual size.
55 With an attenuated regulatory order, the USian state apparatus largely captured by the power of finance.
The systemic importance of securities markets means the USian economy is hugely vulnerable to collapse.
Power Politics, the DWSR and the Clinton Administration
1 National Interests and International Challenges
64 The tendency towards monopoly under capitalism is strong because advanced industry tends to have very high capital-output ratios (Marx refers to this as the organic composition of capital), meaning each extra unit of capital investment results in a relatively small amount of value add.
Very large investments in fixed capital are needed to enter the sector and capitalists who make such outlays have to be reassured of long-term market control so they can realise an adequate return on their capital.
States are enlisted to solve these problems by providing large state-markets for monopolistic industries and providing a large range of support services (infrastructure, labour training etc.)
This tendency towards monopolisation in advanced economies can have serious knock-on effects; if big monopolies in control of large swathes of a market collapse this has serious consequences.
65 States and their militaries are also enlisted to ensure private access to raw materials, such as aluminium, bauxite and copper.