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August
02
2019

An Economy Based on Plunder
Paul Craig Roberts

Capitalists have claimed responsibility for America’s past economic success.  Let’s begin by setting the record straight. American success had little to do with capitalism. This is not to say that the US would have had more success with something like Soviet central planning.

Prior to 1900 when the frontier was closed, America’s success was a multi-century long success based on the plunder of a pristine environment and abundant natural resources. Individuals and companies were capitalized simply by occupying the land and using the resources present.

As the population grew and resources were depleted, the per capita resource endowment declined.

America got a second wind from World War I, which devastated European powers and permitted the emergence of the US as a budding world power.  World War II finished off Europe and put economic and financial supremacy in Washington’s hands.  The US dollar seized the world reserve currency role from the British pound, enabling the US to pay its bills by printing money.  The world currency role of the dollar, more than nuclear weapons, has been the source of American power. Russia has equal or greater nuclear weapons power, but it is the dollar not the ruble that is the currency in which international payments are settled. 

The world currency role made the US the financial hegemon.  This power together with the IMF and  World Bank enabled the US to plunder foreign resources the way vanishing American resources had been plundered.  

We can conclude that plunder of natural resources and the ability to externalize much of the cost have been  major contributors right through the present day to the success of American capitalism.  Michael Hudson has described the plunder process in his many books and articles (for example, http://www.unz.com/mhudson/u-s-economic-warfare-and-likely-foreign-defenses/ ), as has John Perkins in Confessions of an Economic Hit Man

Essentially, capitalism is a plunder mechanism that generates short-run profits by externalizing long-run costs.  It exhausts natural resources, including air, land, and water, for temporary profits while imposing most of its costs, such as pollution, on the environment.  An example is the destruction of the Amazon rain forest by loggers.  The world loses a massive carbon sink that stabilizes the global climate, and loggers gain short-run profits that are a tiny percentage of the long-run costs.

This destructive process is amplified by the inherently short-run time perspective of capitalist activity which seldom extends beyond the next quarter.  

US economic success was also a result of a strong consumer demand fed by rising real wages as technological advances in manufacturing raised the productivity of labor and consumer purchasing power. The middle class became dominant. When I was an economics student, Paul Samuelson taught us that American prosperity was based entirely on the large American consumer market and had nothing to do with foreign trade.  Indeed, foreign trade was a minor factor in American GDP.  America had such a large domestic consumer market that the US did not need foreign trade to enjoy economics of scale.

All of this changed with the rise of free market ideology and the collapse of the Soviet Union. When I was a student we were taught that boards of directors and corporate executives had responsibilities to their employees, their customers, their communities, and to their shareholders.  These responsibilities were all equally valid and needed to be kept in balance.

In response to liberals, who tried to impose more and more “social responsibilities” on corporations, free market economists responded with the argument that, in fact, corporations only have responsibilities to their owners. Rightly or wrongly, this reactive argument is blamed on Milton Friedman.  Conservative foundations set about teaching jurists and legislators that companies were only responsible to owners.  

Judges were taught that ownership is specific and cannot be abridged by government imposing obligations on the investments of owners for responsibilities that do not benefit the owners. This argument was used to terminate all responsibilities except to shareholders and left profit maximization as the corporate goal.

Thus, when the Soviet Union collapsed and China and India opened their economies to foreign capital, US corporations were free to desert their work forces and home towns and use cheaper labor abroad to produce the goods and services sold to Americans. This increased their profits and, thereby, executive bonuses and shareholder capital gains at the expense of the livelihoods of their former domestic work force and tax base of their local communities and states.  The external costs of the larger profits were born by their former employees and the impaired financial condition of states and localities. These costs greatly exceed the higher profits.

Generally speaking, economists assume away external costs.  Their mantra is that progress fixes everything.  But their measures of progress are deceptive.  Ecological economists, such as Herman Daly, have raised the issue whether, considering the neglect of external costs and the inaccurate way in which GDP is measured, announced increases in GDP exceed in value the cost of producing them.  It is entirely possible that GDP growth is simply an artifact of not counting all of the costs of production.  

As we approach the end of the second decade of the 21st century, the long history of American capitalism fed by plunder seems to be coming to an end simultaneously with the ability of the US central bank to protect existing financial wealth by creating ever more money with which to support stock, bond, and real estate prices.  The US has a long history of overthrowing reformist governments in Latin America that threatened American control over their resources.  Washington’s coups against democracy and self-determination succeeded until Venezuela.  Washington’s coup against Chavez was overturned by the Venezuelan people and military, and so far Washington’s attempt to overthrow Chavez’s successor, Maduro, has failed.

Washington’s attempt to overthrow the Syrian government was prevented by Russia, and most likely Russia and China will prevent Washington from overthrowing the government of Iran.  In Africa the Chinese are proving to be better business partners than the exploitative American corporations.  To continue feeding the empire with its heavy costs is becoming more difficult.

Washington’s policy of sanctions is making it even more difficult. To avoid the arbitrary and illegal sanctions, other countries are starting to abandon the US dollar as the currency of international transactions and arranging to settle their international accounts in their domestic currencies. China’s Silk Road encompasses Russia with much of Asia in a trade bloc independent of the Western financial system.  Other countries hoping to escape US control are turning to Russia and China to achieve sovereignty from Washington.  These developments will reduce the demand for dollars and impair US financial hegemony.  Alternatives to the World Bank will remove areas of the world from the reach of US plunder.

As plunderable resources diminish, American capitalism, which is heavily dependent on plunder, will have one foundation of its success removed.  As aggregate consumer demand collapses from the absence of growth in real income, absence of middle class jobs, and the extreme polarization of income and wealth in the US, another pillar of American capitalism disintegrates.  As business investment has also collapsed, as indicated by the use of corporate profits and borrowing to repurchase the corporations’ equity, thus decapitalizing the companies, total aggregate demand itself collapses. 

The absence of growth in aggregate demand will make the gap between high stock prices and dismal prospects for corporate profits too great to be bridged by the Federal Reserve flooding money into financial assets.  Without the ability to prop up financial asset prices with money creation, flight from dollar-denominated assets could bring down the US dollar.

What is left will be a ruin.

Hon. Paul Craig Roberts is the John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service, he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor's Business Daily. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists.

He was Distinguished Fellow at the Cato Institute from 1993 to 1996. From 1982 through 1993, he held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981, and he was awarded the Treasury Department's Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy." From 1975 to 1978, Dr. Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy.

In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor.

Dr. Roberts' latest books are The Tyranny of Good Intentions, co-authored with IPE Fellow Lawrence Stratton, and published by Prima Publishing in May 2000, and Chile: Two Visions - The Allende-Pinochet Era, co-authored with IPE Fellow Karen Araujo, and published in Spanish by Universidad Nacional Andres Bello in Santiago, Chile, in November 2000. The Capitalist Revolution in Latin America, co-authored with IPE Fellow Karen LaFollette Araujo, was published by Oxford University Press in 1997. A Spanish language edition was published by Oxford in 1999. The New Colorline: How Quotas and Privilege Destroy Democracy, co-authored with Lawrence Stratton, was published by Regnery in 1995. A paperback edition was published in 1997. Meltdown: Inside the Soviet Economy, co-authored with Karen LaFollette, was published by the Cato Institute in 1990. Harvard University Press published his book, The Supply-Side Revolution, in 1984. Widely reviewed and favorably received, the book was praised by Forbes as "a timely masterpiece that will have real impact on economic thinking in the years ahead." Dr. Roberts is the author of Alienation and the Soviet Economy, published in 1971 and republished in 1990. He is the author of Marx's Theory of Exchange, Alienation and Crisis, published in 1973 and republished in 1983. A Spanish language edition was published in 1974.

Dr. Roberts has held numerous academic appointments. He has contributed chapters to numerous books and has published many articles in journals of scholarship, including the Journal of Political Economy, Oxford Economic Papers, Journal of Law and Economics, Studies in Banking and Finance, Journal of Monetary Economics, Public Finance Quarterly, Public Choice, Classica et Mediaevalia, Ethics, Slavic Review, Soviet Studies, Rivista de Political Economica, and Zeitschrift fur Wirtschafspolitik. He has entries in the McGraw-Hill Encyclopedia of Economics and the New Palgrave Dictionary of Money and Finance. He has contributed to Commentary, The Public Interest, The National Interest, Harper's, the New York Times, The Washington Post, The Los Angeles Times, Fortune, London Times, The Financial Times, TLS, The Spectator, Il Sole 24 Ore, Le Figaro, Liberation, and the Nihon Keizai Shimbun. He has testified before committees of Congress on 30 occasions.

Dr. Roberts was educated at the Georgia Institute of Technology (B.S.), the University of Virginia (Ph.D.), the University of California at Berkeley and Oxford University where he was a member of Merton College.

He is listed in Who's Who in America, Who's Who in the World, The Dictionary of International Biography, Outstanding People of the Twentieth Century, and 1000 Leaders of World Influence. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: [email protected]

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