A Narrow History of Dollar Hegemony: Hudson’s Super Imperialism

(Crossposted at DailyKos.com)

Book review: Hudson, Michael.  Super Imperialism.

Second edition.  London: Pluto, 2003.

I thought that a discussion of Hudson’s book book would be pertinent in terms of recent discussions of indebtedness and in terms of Hudson’s role in the run-up to next year’s elections.  Michael Hudson’s site says he is “President of the Institute for the Study of Long-Term Economic Trends (ISLET), A Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super Imperialism: The Economic Strategy of American Empire (1972 and 2003) and of The Myth of Aid (1971).

In 2007, Dr. Hudson has been appointed Chief Economic Policy Adviser for the Kucinich for President campaign and is writing a new tax policy for the United States.

Recent rhetoric about how the US is “an empire, not a republic, has been fortified by the well-published words of neoconservative historian seeking to justify America’s “imperial” stature.  On the other hand, a number of commentators have noted the obscenely high level of US government indebtedness.  So how is the US an “empire” if it’s so thoroughly in debt?  The media rhetoricians dramatize the indebtedness part quite often.  Tuesday’s Amy Goodman’s “Democracy Now” mentioned a Democratic Party staff report which claimed that the Iraq war has cost $1.3 trillion dollars, or, (and this is supposed to be the clinching argument) $20,000 for every American family.  This report is supposed to have freaked out the Republicans as well.

Are we legitimately to expect American families to pay for the Iraq war?  Does anyone seriously think the US government will pay its debts?  What is seriously lacking from any discussion of the economics of US government spending is a discussion of dollar hegemony.  From Henry C. K. Liu’s article on this matter:

World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world’s interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.

Since the foreign banks are obliged to take US dollars, and then to spend them on Treasury bills, thus allowing the US government to further issue more debt (which they will then cover), the US government has been granted a potentially endless credit line, which it has used to the point of a $9 trillion dollar debt.  Since disrupting this scheme would mean the collapse of the global economy, the foreign banks play along.

This, of course, is the origin of Dick Cheney’s belief that “deficits don’t matter.”  On the other hand, you have the DLC slogan of “fiscal prudence,” based on the taken-for-granted proposition that deficits do matter.  Do deficits matter?  I think it’s a false choice.  Instead of complaining about deficit spending, we ought to be demanding our share of it – Iraq war spending is not bad because it’s debt, but because it’s money wasted.  (This brings us back to this poorly-discussed matter of whether or not we’re getting anything for our tax moneys.  Demanding something of government might force the subject of dollar hegemony out of hiding, no?)

At any rate, the theory of dollar hegemony has a fairly old origin, which is why it’s such a wonder that nobody discusses it.  One early origin can be placed in Michael Hudson’s book Super Imperialism, which came out in a first edition in 1972 but is more relevant in the 2003 second edition.

Admittedly, the flaws of this work are significant, but it nevertheless contains some really vital discussions which are not enlivened today by the notion that the US has been ruined by its debts.  It is perhaps possible that the US could be ruined by its debts in the future, if there were to be a collapse of dollar hegemony; the problem is, as Hudson suggests, that no competing currency, neither the Euro nor the Yen, is at present capable of substituting for the US Dollar.  

Dollar hegemony ought to make clear some common, yet muddled, thinking about US government spending.  If there is supposed to be some immediate comeuppance for US spending on, say, Iraq, we might ask: where was the comeuppance during the Reagan administration two decades ago, when the national debt ballooned to $2 trillion?  At what point do we really get to see this imagined crisis?  At what point do the Powers That Be tell us we have to pay off this debt?

But, as Peter Hudis says in a November 2003 piece on “today’s imperialism”: “Nothing is more hollow than the claim that today’s drive for permanent war lacks an economic basis.” (1)  When the Bush administration opens the debt floodgates with large tax cuts for the rich while spending upon indefinite war, it has a rationale.  Super Imperialism explains this rationale, and so it deserves our attention.

Now, Super Imperialism is by no means a great book.  It’s a tedious read, and its argument lines up its ducks in a one-sided manner with no stopping for reflection upon the complexity of the world.  One wades through a long list of tedious citations of economic diplomacy to get to Hudson’s conclusions.  The book’s conclusion is evident on p. 1: the US government has manipulated the world economy since 1914 for the sake of its own profit (although it remains hazy in Hudson’s narrative as to who, precisely, the US government is), while living parasitically off of the nations with whom it deals.

I can’t seem to find any impartial discussion of Super Imperialism.  Readers either love this book or they hate it.  At any rate, here’s a synopsis:

Michael Hudson starts his narrative of US financial imperialism at the beginning of World War I, when the US busies itself by lending lots of money to the British and French, later entering the war itself in order (or so we are told) to make good on its outstanding loans.  In order to pay back these loans (and doubtless for other reasons as well), the British and French stiff the Germans with reparations debt.

Throughout the 1920s, we are told, there is a triangular movement of moneys: the US lends money to Germany, who uses it to pay back reparations to the British and French, who send loan payments (and who were, says Hudson, on a debt treadmill) to the US. (66)  This situation ends in 1933 when the Roosevelt administration takes over in the US and when Hitler attains power in Germany.  From that point on, a general economic isolation precipitates from the failure of economic conferences to resolve debt.  

This is ended with World War II, in which the US becomes a creditor to the British war effort, and again with the Marshall Plan.  The attempt to exploit Europe as creditor after World War II differs from that which happened after World War I in that the Marshall Plan offered credit on far more generous terms and was intended to spread Keynesian capitalism as opposed to the classical variety.

The economic system imposed upon the capitalist world after World War II was one in which the US Dollar is made equivalent in value to gold (at the rate of $35/oz.), and lent out to Europe for the sake of hoarding gold reserves.  These reserves were then redeemed when the US spent itself into debt with the Korean conflict and the conflict in Vietnam.

This system lasted until March 18, 1968, when the jury-rigged “Gold Pool” system that protected the gold standard collapsed.  The global financial system then continued in limbo until 1971, when then-President Nixon dissolved the gold standard entirely.  At some later point in 1973 another financial system is put into place, around dollar hegemony.  Instead of getting gold back for their dollars, the other countries are only to receive Treasury bills, promising them more dollars.

The last chapter of Super Imperialism attempts to synopsize the developments in dollar hegemony over the thirty years thereafter, depicting a reality in which:

The technique of exploitation involves an adroit use of central banks, the IMF, World Bank and its associated regional lending institutions to provide forced loans to the US Treasury.  This rigged game has enabled the United States to flood the world with dollars without constraint as it has appropriated foreign resources and companies, goods and services for nothing in return except Treasury IOUs of questionable (and certainly shrinking) value.  (386)

I’m not quite sure how the forced-loan thing works, from Hudson’s description.  At any rate, Hudson’s’ prognosis for this reality is “more of the same”:


Until Europe and Asia are able to replace the Dollar standard with a currency system of their own, and until they are willing to run the risk of a trade and investment war as an intermediate step toward achieving their own self-sufficiency, the US economy will have little reason to feel that it needs to live within its means.  (387)

Why do Europe and Asia lie down before dollar hegemony?  Hudson complains:

There has been no political will for Europe or Asia to take an alternative route.  Only America has shown the will to create global international structures and restructure them at will to fit its financial needs as these have evolved to hyper-creditor to hyper-debtor status.  It is as if European and Asian society lack some gene for institutional self-programming for their own economic evolution, and have acted simply as the mirror image of America like a dancer following the partner’s lead. (392-393)

There are sixteen chapters to this book if one includes the introduction, which summarizes the whole book over thirty-nine pages.  The first six chapters tell the long and sometimes tedious financial prehistory of dollar hegemony.  Hudson hopes to do for US financial history what Noam Chomsky or William Blum have done for US military incursions – chart the history of US imperialism to show that there is in fact such a thing.  Chapters 7 through 10 discuss the long history entangling the Third World in the net of structural adjustment programs required by the World Bank and the IMF as a consequence of development loans.  The structural adjustment programs are said to keep Third World countries in poverty while opening their economies to multinational corporate penetration.  This history is told in great detail (and more effectively) in a number of other books; Kevin Danaher’s 50 Years Is Enough comes to mind.  Chapters 11 through 14 contain the immediate history of dollar hegemony, and chapter 15 summarizes its progress to the present day.  Readers in a hurry may wish to read the introduction and chapter 15 and leave it at that.

There are, however, flashes of brilliance in the middle sections of Hudson’s book.  The best of these flashes is given in the chapter on the World Bank/IMF:

Free trade is essentially a doctrine of the status quo.  Its workings tend to perpetuate existing patterns of comparative advantage – and disadvantage – upon nations. (201)

One of Hudson’s critics, writing in the Journal of Finance, complains that Hudson assumes incorrectly that trade is a zero-sum game, when it’s not.  This criticism utterly misses the point.  Dollar hegemony means that debt, as well as credit, can be leveraged by a better-off economic power (the United States) into economic advantage.  This lesson should have been easy to understand, if it were not for the fact that so many people do not seem to have gotten it.

But don’t debts have to be paid off?

Whenever I hear this plaint I imagine this dialogue:

Rest of world: Pay up!

United States: Make me!

The short answer, then, is “no.”  Capitalist economy, rather than being an ethical system of fair exchange, is an arena for the rich and powerful to gain from the poor and powerless.  What matters is power, and account balances must shape themselves to fit that reality.  This itself holds significant dangers for the system as a whole.  In a recent piece in Asia Times Online, Henry C. K. Liu presents this challenge:

It is time for all countries to seek solutions to problems created by runaway exploitative terms of world trade by focusing again on fundamental issues of domestic development before the prodigal global trading system collapses from its own contradictions to bring forth a global depression.

Does this advice hold any value anymore?  Is anyone listening?  What do you think?

23 comments

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    • Pluto on November 14, 2007 at 10:14 pm

    …for the decline of the United States currency. The dollar hegemony is unwinding from the global economy — and we are living through the unthinkable. From this morning’s sampling of high-level economic comment:

    Americans will have to start reigning in their discretionary spending in order to pay their energy bills this winter.  This consumer spending slowdown during the very important Christmas season could have dire consequences for US economic growth in 2008.

    While the US retail sales are slowing, China’s retail sales rose at the fastest pace in eight years.  This report is further illustration of the dichotomy of our two economies.  Both China and India have been growing at near double digit rates for the last few years.  And while this growth has been on the back of exports, these high growth rates have contributed to a burgeoning middle class in both of these countries.  Retail sales in China increased 18.1% in October from a year earlier.  Sales of clothes, electronics, and automobiles jumped more than 30%.  Consumption will continue to increase as more of the wealth is distributed to this new middle class.

    The world’s economy is growing less dependent on the US consumer.  A dramatic slowdown in the US economy will not have the impact on global growth that it once had.  This is a good thing for the global economy, but not such a good thing for the status of the US$ as the world’s reserve currency.  Another illustration of why investors should diversify their investment portfolios out of the US$.

    Don’t expect to get this story from US media sources. The US economy is at the mercy of Consumer Confidence. If the people stop spending — we collapse economically. Thus, all media outlets are pushing good news about the economy.

    As for your final question:

    In a recent piece in Asia Times Online, Henry C. K. Liu presents this challenge:

    It is time for all countries to seek solutions to problems created by runaway exploitative terms of world trade by focusing again on fundamental issues of domestic development before the prodigal global trading system collapses from its own contradictions to bring forth a global depression.

    Does this advice hold any value anymore?

    Not really. It is clear that the world economy can function fabulously without the debt-heavy, utterly bankrupt United States — and its hopelessly debt-ridden population.

    The United States is finally over as an economic power in the world. And the rest of the world doesn’t really care if the US buys any of their exports or not. They have more than enough customers in nations that are wealthy rather than bankrupt.

  1. is Dennis Kucinich’s Economic Advisor.

    Sorry if I missed this factoid in the essay…

    But thought it important enough to say again, even if redundant.

    • pfiore8 on November 14, 2007 at 11:55 pm

    when China privatized its first businesses that they would become the next “America”

    i also realized why it was so easy for BushCo to sell off the US and siphon our tax dollars to companies like Halliburton: because the US was no longer the economic engine of the world

    what with 2 billion potential consumers in China and India alone, why did they need to protect the US middle class? they could just suck us dry and leave us to blow away

    that’s what’s funny to me… i think bushCo had very good analysis of world economy and used it to take us for everything and more… like using our troops to secure oil and other resources for the their global corporate pals

    it hasn’t been about America the beautiful for quite some time…

    • banger on November 16, 2007 at 1:24 am

    Yes, I’ve read Hudson and he is a poor stylist of English and a bit muddled–but I agree with you his central point is dramatically important. What is amazing is that no popular writer of economics, or any economists I know (my father is a retired economist among other things) gives any explanation of why we can go so deeply into debt and print as much money as we want without anyone bothering to call our bluff. Hudson understands that it is part of the system that the dollar be sacrosanct. In fact, if the dollar truly tanks, the whole international order is in danger of falling–this may be a good thing–but ruling elites hate those kinds of changes and they will do their utmost to keep things as they are.

    I believe you will have, unless something truly strange happens, a Democratic administration which will bring in austerity measures–by that I mean it will try to staunch the rampant looting of the Treasury that is currently going on and make the corruption a little less intense and bring the budget into something within hailing distance of being balanced. This may work in the short term but is unlikely to work the way the Clinton 1 administration made it work–times are very different.

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