Home > political-economy > How does capitalism end? (Part 3, or Why Bernie Maddoff should replace George Washington on the dollar bill)

How does capitalism end? (Part 3, or Why Bernie Maddoff should replace George Washington on the dollar bill)

Hint: It ain't because of his good looks!

Hint: It ain't because of his good looks!

Continued from here

We have stated the death of capitalism is the death of work.

We have also stated that, rather than reducing hours of work during the Great Depression, and, thereby, gradually abolishing capitalism, virtually all governments decided to kill money instead.

According to the Wiki:

Every major currency left the gold standard during the Great Depression. Great Britain was the first to do so. Facing speculative attacks on the pound and depleting gold reserves, in September 1931 the Bank of England ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets.

Great Britain, Japan, and the Scandinavian countries left the gold standard in 1931. Other countries, such as Italy and the United States, remained on the gold standard into 1932 or 1933, while a few countries in the so-called “gold bloc”, led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935-1936.

According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard, almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country’s severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This partly explains why the experience and length of the depression differed between national economies.

What the above statement says, in economist-speak, is that governments around the world sought to save capitalism, and maintain the overly long hours of work, by first debasing money – breaking the link between paper currency and gold – and, then, in a deliberate, and covert manner, insidiously subverting its purchasing power.

Thus began the largest and most sustained act of class warfare in the history of humanity, as governments, at the urging of industry and finance, began to sabotage the living standards of working people in every nation – a surreptitious campaign of starvation designed to bludgeon their populations into working longer and longer hours.

Within a short period of time, these same working families would come to expect each year that maintaining the exact same standard of living they had enjoyed the previous year would require more hours of work, more members of their families performing wage work, and, increasingly, to leverage those additional hours with an ever increasing volume of debt.

It is fairly easy to see the results of this secret war in the graph below compiled from statistics provided by  the Federal Reserve Bank from 1985 to 2006. The graph shows the decline in net savings of Americans as a percentage of their disposable income:


From Discursive Monologue blog

The net effect of these policies were to discourage and penalize saving, and convert the populations of various countries to a life of debt-driven consumption – the actual and very real potential for starvation lurking beneath a thin veneer of only apparently stable subsistence.

These three moments which we have so far discussed: (1) The steady abolition of work by the internal logic of capital; (2) the creation of a mass of superfluous labor utterly cut off from productive employment; and, (3) this same work force mired in actual conditions of abject impoverishment beneath a thin veneer of only an apparently stable, even an apparently improving, standard of living, finds its most developed expression precisely in statistics drawn from the United States for good reason: Owning the world’s reserve currency has allowed the US to pursue these policies more aggressively than any other nation on the planet, and all of them collectively.

Owing to the dollar’s unique status, a legacy of World War II and the resulting war-related economic catastrophe visited on the other industrial nations, the US was in the enviable position to do to all other nations what they were doing to their own national populations: rob them.

The Wiki provides a case which demonstrates the problem countries faced when they did not own the world reserve currency:

Japan’s Finance Minister Takahashi Korekiyo was the first to implement what have come to be identified as Keynesian economic policies: first, by large fiscal stimulus involving deficit spending; and second, by devaluing the currency. Takahashi used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary pressures. Econometric studies have identified the fiscal stimulus as especially effective.

The devaluation of the currency had an immediate effect. Japanese textiles began to displace British textiles in export markets. The deficit spending, however proved to be most profound. The deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934 Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions. This resulted in a strong and swift negative reaction from nationalists, especially those in the Army, culminating in his assassination in the course of the February 26 Incident. This had a chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military’s dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which would remain a problem until the end of World War II.

Japan left the Gold Standard in 1931, allowing it to discourage imports and make its exports cheaper through devaluation of its currency – which had the effect of reducing the standard of living of its own population. Additionally, it was borrowing in the capital markets to fund a massive military build up.

Japanese working families were dealt a triple blow to their living standards: Cheaper imports were curtailed, exports grew at the expense of domestic consumption, and domestic productive resources, which could have been utilized to satisfy consumer demand, were being redirected to military preparations.

THe United States suffered no such ill effects because the dollar was not only the national currency, it was the world reserve currency as well.

Since, goods are denominated indollars, and all currencies tend to be valued by their exchange rate with dollars, the US was uniquely positioned to do what Japan could not: Maintain the appearance of a rising standard of living, while pursuing a massive military build up, and an ever growing trade deficit, by borrowing back the money it used to purchase goods and services from the rest of the world.

Essentially, the United States was able to enjoy all of the goods and services it imported from the rest of the world – including the much complained about cost of imported oil – free of charge, simply by recycling the dollars it used to purchase those goods and services through American banks to be lent out to you, or, to purchase state and local government, corporate, and federal bonds!

However, far more important than this silly global ponzi scheme, is the net effect of this process as it applies to the question at hand, “How does capitalism end?”

Because it is precisely the dollar, the currency at the heart of this ponzi scheme, which became the scaffolding around which was erected, the actual empirical existence of men in their world-historical, instead of local, being.”

To be continued

  1. May 1, 2009 at 12:00 am

    I wonder if this information is relevant to today’s economic situation in any interesting way?

    The individual comes from here: EconomicWar mailing list

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