World money, world creditocracy

from Radhika Desai and Michael Hudson  

We are now ready to approach the question of how these national monetary orders of capitalism relate to one another internationally. One key contradiction has powered the history of world money under capitalism. On the one hand, money is created by states or those delegated and controlled by them. On the other, there can be no world state under capitalism, and thus no world money. When dominant states nevertheless seek to foist their currency on the world as world money, they add new layers of contradictions and volatilities to the already unstable logic inherent in the geopolitical economy of capitalism (Desai, 2013), the “relations between [its] producing states” as Marx once put it (Marx, [1858]1973, p. 886).

Dominant states and their capitalists seek to externalise onto other states or territories the consequences of their capitalism’s contradictions, such as excess commodities and capital, or the need for cheap labour and raw materials. These efforts victimize subordinated economies, but make rivals of states that are able to contest this domination. When the latter happens, there are confrontations – diplomatic, economic or even military – like those between Britain and her nineteenth century rivals, such as Germany. The result then was a Thirty Years’ Crisis (1914-45), including two world wars and a Great Depression.  Today, we are witnessing rising tensions between the US and countries like China and Russia. The struggles resulting from international victimization and rivalries prevent any world state from being formed, also preventing stable world money. That is why all major critical writers on the subject, from Marx through to Keynes and Polanyi, distinguished the understanding of national currencies from the distinctly different arrangements world monies have needed.

That is also why the gold-sterling standard before the First World War and the dollar-centred system since the Second World War have been inherently unstable arrangements, the latter even more than the former. National states posing as world states offer their national currency as world money, and use force to integrate the world economy though their goal of a seamless realm of its acceptance has not and could not be realised, thanks to the inherent instabilities of capitalism’s geopolitical economy (Desai, 2013 and 2020b).

The key to understanding the world monetary systems based on the national currencies of the dominant capitalist countries is that they are primarily financial systems: private credit forms the battering ram of their international projection as world money. International monetary systems have, therefore, been the financial systems of particular countries. Governed by central banks that in most countries represent the interests of the financial sector, they generate vastly more private debt than public money. The results have been international rentier elites and world creditocracies, first centred on sterling and then the dollar. Their power extends through networks of institutions offering private credit to the world’s households, firms and governments and dealing in financial assets, such as stocks, bonds and other securities and their derivatives, especially for real estate and natural resources. The network is ultimately protected by the international power of that state. The 1950s and 60s constituted an exception to this when the United States supplied gold and exports to other countries.  (Much of the gold was simply a return of the flight capital that had come to the United States in the 1930s.)

These arrangements have shaped the world’s trade and production patterns in the interest of financial classes, seeking to lock in the world balance of power. Other countries became satellites of the dominant economies, buying their surpluses and monopoly goods, and opening their capital markets. Open capital markets let dominant-country capitalists own and control their most lucrative sectors, especially those involved in primary commodities and public-infrastructure monopolies, earning higher returns on their capital than they would enjoy at home. They also let dominant nations’ financial houses speculate in the asset markets – for stocks, bonds, real-estate etc. – of the satellite countries, profiting while the going is good and leaving the country’s government to clean up the financial and economic mess after the inevitable financial crisis strikes. Whether such countries are colonies or formally independent countries, their freedom to do otherwise is severely curtailed. A great deal of this is achieved by backing compliant satellite oligarchies, often by overt military force and covert operations.

As the core instrumentality of domination, creditocracies are intricately enmeshed in international conflict. Major shifts in the international balance of power are expressed in parallel shifts in the international monetary systems and the domestic financial systems on which they rest. Each international monetary system has rested on an inherently unstable financial system. Of course, this is precisely what is hidden by the dominant discourses about them.

Beyond dollar creditocracy: A geopolitical economy