So now we have the debate about whether we will enter a period of 'stagflation' - an ugly neologism, but characteristic of the neo-post-neo mentality of those who try to dispose of history, that is, of those whose 'professionalism' disallows larger trends and general principles, things which can be apprehended more or less directly.  At issue is the question of whether we are about to enter a period of zero or negative 'growth' combined with an aggressive inflation, an inflation projected as anywhere from difficult to catastrophic. Krugman in the Times points out that we do not have the wage / price spiral of the mid-seventies, since we have neither the inordinate wages nor the dominant unions. But, of course, this is not 1974. Not only do we not have the wage / price seesaw, we do not have the raw production base which formed its fulcrum. It has become a cliché to talk about how we have exported production in the last few decades. But if the economy no longer pivots on the production base, what is its axis or hub? We can say that 70 percent of the economy is now consumer based, but what does that mean? Does it validate what my father was saying 30 years ago, that we are now beginning to make a living selling hamburgers to each other? The whole seems to be supported by the credit structure. Certainly, the greatest and most consistent profit centers, in the last decade or two, have been in the financial sector. But credit cannot exist in a vacuum. Or, if it can, it is short term, like Enron.
            What we are living on is the residual or inertial potency of the dollar itself. But since the dollar itself is an instrument of credit, the support is circular. Certainly, one of the deepest principles, if not the oldest saw, about money, is that money as credit is 'produced' against commercial production. The simplest one-to-one correlation for the generation of money as credit is the loan against tangible production for 'the marketplace', whether in the construction of a home or of a plant that manufactures consumer items, or the production of consumer or capital goods themselves. If we want to look at where Marx's concept of 'surplus value' actually resides, it is not in the area of labor, but in the commercial arena between credit and production. The United States, in terms of its history, is the living exemplar of this fact. The United States created an empire almost entirely out of the 'surplus value' of credit in an environment of tremendous raw production. The United State became the production powerhouse of the world, and in the process not only dominated the financial markets of the world, but also penetrated the social, cultural and political fabric of almost all other nations, a power it exercised with imperial dominion.
            I do not wish to discount the military imperialism of the United States. Just the reverse, I am painfully aware of our history. Our journalistic immediacy that keeps us ignorant of the past makes it hard to understand our present day relationships with nations as diverse as Nicaragua and China. And we pursue the same policies to this day in El Salvador, Honduras, Guatemala, Columbia and dozens if not scores of other nations, quite apart from the obvious and disastrous intervention in Iraq. In fact, our international militarism may be worse today than at any time in the past precisely because of the waning powers inherent in our financial situation. As much as we play the game of denial, our dominion is fading. But, given our aggressive a-historicity - a blindness we can no longer ascribe to our 'newness' as a nation - we are falling collectively into viciously reactive policies, policies made far more dangerous to the hapless victims because of the sinister depths of modern weapons technology.
            But none of this would have been possible without the original production and credit base, the development of the United States as the premier manufacturing nation of the world. The fact that we adopted and adapted British mercantilist theories of colonialism during that period of development was almost peripheral to the force of our dominance, although the Nicaraguans will long remember the name of United Fruit, even if the company has changed its name.

            'Globalization' is part of this reactive process. It used to be that the credit power of the United States, as an instrument of financial 'warfare', could force open markets, largely without the overt assistance of the federal government. We had the power to control the markets without necessarily resorting to the military. Even latterly, when the people of Chile, one of the most stable democracies in South America, elected a Marxist, Salvador Allende Gossens, as president in 1970, Nixon was able to use the World Bank to cut off credit to Chile. The result was that a nation that had had a small but manageable inflation was suddenly confronted with 400 percent per annum inflation. As a consequence, Chileans were relatively passive when an insurrection killed Allende and replaced democracy with a military junta. While we are now cognizant of the consequences in terms of the 'dirty war' of Augusto Pinochet, direct American military involvement in the putsch was minimal enough so that Nixon basically succeeded in hiding it from the American people for the remainder of his term.
           But 'globalization' is a two-way door. While its initial effect serves the commercial interests of the United States, it also involves the globalization of credit. And globalized credit not only moves without barriers, in the electronic and digital era it moves instantaneously. Because businessmen rather than statesmen have determined our recent economic policy, no foresight or insight went into the process. But, of course, as I say, we cannot acknowledge the diminishing power of the dollar.

            The American empire was an empire of credit, an empire of the dollar. Therefore the dollar went out into the world in a range of forms, apart from the raw dollar transactions of commerce. One of the forms was a function of raw commerce: the cash reserve. Because the dollar was so powerful, international trade was denominated in terms of the dollar. International banks retained dollars as their cash reserves, a pool of dollars for settling international transactions, as well as the cash ground for liquidity. The United States is still the premier economy of the world, but its preeminence is diminished by the growth of other economies. Our power is shown by the wide distribution of our present difficulties among other countries. But the slide of the dollar against other currencies also shows our diminished position. And while a range of international transactions are still denominated in dollars, both the Euro and the Chinese currency are muscling into the international currency markets as competitors for international cash reserves. Several years ago, I heard estimates that the dollar value of these cash reserves could be as high as thirty trillion - a that point nearly three times the GDP - although I am in no position to assess whether that figure was fanciful.
            And the falling dollar itself is driving the dollar home from other arenas. As an investment power, the dollar is losing ground to its domestic competitor in other countries, so investment dollars are being driven home.
            In other words, where we are experiencing the 'inflation', at this point, is in the falling dollar. We are experiencing direct inflation in terms of commodity prices, most noticeably in the prices of gasoline and bread. But, in part these are also a function of the falling value of the dollar and its homeward migration. Some suggest that the sudden rise in commodity prices involves a bubble. But this is the same bubble that has been wandering around the economy for the last twenty years. I would suggest that this wandering bubble is also a consequence of 'empty' dollars returning home, looking for an investment place to hide.

            What we are seeing is the success of the 'conservatives', beginning with Reagan's 'supply side' economics - perhaps more accurately the 'un-supply side' economics, since its profitability aimed precisely at the elision of 'supply' from the equation. Move the dollar and forget the product. Send production and product to India or China and make your profit from the dollar transaction. The problem here, of course, is that you wind up sending everything, including both the real value and the profit to India and China, and hence driving the dollar home. In the internet age, the service sector follows the product and the production. Apparently we hoped to outsource everything except the profit. But the dollar comes back. But it comes back to 'buy American', as the old slogan says, only now in the hands of Chinese, Indian and Saudi Arabian investors. But it also comes back as dead ballast. The decline of the dollar is inevitable. And here is where the 'inflation' is taking place for the moment. But where it goes from here is not necessarily obvious or predictable.

            Inadvertently, apparently, the Romans combined military and commercial imperialism. Their extraordinary feats of engineering created the infrastructure for radical commercial development. As I suggested a few posts ago, the Roman Empire fell, not so much because of the failure of its military as because it had reached the limits of its economic development in terms of the technologies for production and distribution.
            In some respects, the United States is more like the Spanish empire. While the Spanish empire developed through conquest, the conquest was largely based on the disparity between military technologies, war clubs versus guns. The primary Spanish concern centered on gold. The Spanish enslaved the native populations, an extremely low profit business model. But as long as the gold flowed to Spain, she was a dominant power in Europe. Her demise came when she invested her gold in a contemporary European military force, the Armada. The chance destruction of the Armada on the coastal rocks of the British Isles largely destroyed Spanish power.
            Our empire has been built, not on gold, but on something far more ephemeral and elusive than gold, namely 'pure' credit. Gold seems solid and substantial. But it produces nothing of itself. And once it's gone, it's gone. Credit has great productive value, when it's backed by productive value - an apparent conundrum, but an economic fact. The production machine has largely shut down. How large a military, how many Iraqs constitute the equivalent of one Armada?

- Jeremy