Eight Days A Week - The Fourth Wave - On The Origin of Wars - Extended

Eight Days A Week The Fourth Wave
Author: Geert Callens
7 On the origin of wars
7.1
The economic importance of wars Cui bono?
We start this chapter with a story which at first glance seems rather unrealistic and even ridiculous. But it will prove to have a clear link with reality. The story will lead us to the notion of disinvestment goods. 7.1.1 The story of the pram industry
In this story we imagine ourselves living in a closed community: a small country, with the strange and unpronounceable name Htrae, completely surrounded by high mountains. There is no contact with the outside world. The society of Htrae has sufficient raw materials, energy and technological know-how in order to fulfill the populations basic needs for housing, clothes, food... and prams. Thanks to the know-how and creativity of the engineers and the scientists the means of production are well developed, so that very little human effort is needed in the production process. Men need to work only 20 hours a week while their wives, or vice versa, can stay at home and take care of their family, unless they want to go out work themselves. There is plenty of leisure time for both sexes. All the needs of everybody are amply fulfilled. The population is stable and we have a situation of zero-growth. But a group of persons in this small country is not very happy with this state of affairs. In previous years, when the needs were not yet fulfilled and the economy was still growing, they used to earn their living by lending others people saving money to other people and receiving an interest on this: they created money out of money. The profit they made was part of the profit for society which resulted from the economic growth. As there is no longer economic growth now, they have no longer an income: money can no longer create money. This implies that, in order to provide in their living, they should either spend their own capital or find a job and produce goods or services in demand by others. They could also depend on others for their living. However, the laws in this country are very strict but fair: to convert wealth from others to ones own use in an illegitimate way is considered as a crime, and the punishments for violation of this law are very severe. So this group of persons is faced with a problem. They are well aware of the fact that the income they had in former days was a consequence of the economic growth. So they decide to induce economic growth in some way or another. However, the growth potential in the field of consumption goods and hence in investment goods is nil. The people of Htrae cannot be tempted to consume more than they need. By the way, they all have studied The Right to be Idle by Paul Lafargue at school. So our group of ex-money-makers decides to set up a secret conspiracy against their fellow citizens and they make up a plan to develop the pram industry to gigantic proportions. This is, of course, not an easy thing to do, but they put so many efforts in implementing and promoting this plan that they indeed succeed.
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Several years later, thousands and thousands of prams leave the assembly line each year. A pram is made of several components (wheels, axles, frame, cover, cushions...), made of all kinds of raw materials (metal, wood, cotton, plastic...). In order to produce the prams as costeffective as possible new machines are developed and produced. The activities in the pram industry and the supply industries absorb a lot of resources: energy, raw materials and human effort by laborers, engineers and scientists are needed in large quantity. Working time has to be doubled from 20 to 40 hours a week, so half of the men working in other industries can now work in the pram business. The slogan The Right to be Idle is now taboo and replaced by Right for Labor. An organization of women is created, the Ymra. These women have as their only duty to go walking with the prams. They are even paid for doing this, they are real professional promenaders. As there are not enough babies in Htrae compared to the number of prams, they have to put a doll in the pram. So the doll industry also knows an unprecedented boom. The Ymra is very well organized; it has a strict hierarchical structure: women with a higher rank wear longer earrings, more bracelets and shoes with higher heels. Those women who do the actual walking, of course, wear flat shoes. The prams are given a lot of maintenance so they are operational 24 hours a day. At regular intervals in time they are replaced with new and better models, even before they are worn out. The people in the pram industry are very good in lobbying, one even gossips that they pay bribe to the politicians, but this has never been proved by facts. Of course there is a Secretary of State responsible for spending taxpayers money as rationally as possible in order to buy the best prams available and to keep the Ymra operational. Production is running at full capacity, industrial output grows year after year, and profits, as part of profit for society, are substantial. As a matter of fact, we are faced with a situation which is the logical extension by way of speaking of the consumer society and which makes even less sense. Energy, raw materials and human effort are wasted in the production of a good (prams) and a service (walking with these prams) which are absolutely not needed and which fulfill not even a cultivated need. I am sure the reader doesnt need a Ph.D. in economics in order to realize that this situation is absurd, and that our little country Htrae better should get rid of the excessive pram production and the Ymra, return to a 20 hours working week and fall back to the production of useful goods and services, a production which is sufficient in order to fulfill the needs of all, even the women in the Ymra, the men working in the pram industry and those who are earning their living by making money out of money and are reluctant to work themselves. By doing this, they would save raw materials and energy for later generations and they would save time for themselves, time they could spend on more interesting and rewarding activities. However, the situation changes drastically when a pass through the mountains is discovered and contact is made with other societies. The economic system of Htrae no longer is a closed one: trade with the outer world becomes possible. In addition, the people of Htrae have found out that some of those other societies dislike each other and that they manifest their feelings in a rather peculiar way: they run into each other with prams until those prams are destroyed. So, suddenly the people of Htrae have found a substantial new market for their pram industry: the demand for prams from these outside societies is so great they no longer have to make the prams themselves so then can concentrate on riding them into destruction, what a saving in time! and those other societies are always eager for the newest models. They are willing to
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sacrifice a lot for these prams: energy, raw materials and goods are withdrawn from their own population in order to pay for the prams93. So our little society in the mountains continues with the excessive production of prams as there is great demand for them. The inhabitants (and taxpayers) of Htrae no longer criticize the pram-industry and the Ymra, they work 40 hours per week, they earn a good wage and can afford to buy things imported from those other countries. Their material wellbeing has increased substantially. The professional promenaders in the Ymra are also satisfied: they have an occupation, they are paid for it and they can afford themselves fancy clothes and luxury goods. The Secretary of State keeps his job. The economy keeps growing, so the people earning their living by making money out of money are also happy. The pram-industry seems to be the driving force of the economy, the source of all material abundance. It provides jobs to a major part of the population and by exporting the prams our little country can import goods, raw materials and energy from other countries. There is a general consensus among the government, the labor unions, the industry, the banks and the women in the Ymra (see illustration 1 below). There is of course the risk that those other societies might resolve their dispute, so they would no longer need so many prams. The economy in our little country is indeed very vulnerable. No need to worry: special emissaries are sent to those other countries in order to talk about peace (see illustration 2 below). They even allow price increases for the products imported from those other societies so that they can sell ever more prams. As a consequence the imported products become more expensive for the people of Htrae, who see their purchasing power eroded. They blame the other countries for this; they are even willing to attack them with their own Ymra. By the way, a similar evolution could have been possible even if the pass across the mountains would not have been discovered. By dividing the society of Htrae in two or more groups and setting them up against each other so that they would go to the battlefield with prams94, the demand for those prams would be induced, so the economic growth could have been stimulated artificially, and it would still be possible to create money out of money. The raw materials, energy and human effort in order to produce those prams and keep the Ymra operational would then be taken away from the population of Htrae itself. But due to the internal struggle, one could say that there is no longer one single society surrounded by mountains, but two, three... so the stupidity of the situation is not so obvious. So far for this rather strange story of the pram-industry on Htrae. We remember that it is fairly easy to show that such an out-of-proportion pram industry is useless in a closed economic system, but that it is also rather easy to defend the usefulness of it in an open economic system. One only does have to make appeal on a few manifestations of human weakness: lust for power, greed, ambition... Assuming that the Earth is flat and thus infinite, then no economic system could be closed: for every finite society there exists an infinite outer world with whom energy and raw materials and goods can be exchanged. But as already stated, we know that the Earth is a globe and is thus finite. Let us think of ourselves as world citizens. When we see the Earth as one closed economic system one little country surrounded by high mountains of infinite space , then we can understand that it is indeed irresponsible for ourselves and for future generations to spend so much energy, raw materials and human effort in order to make so many useless prams, which are only used to make parades and to ride
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See the film The Last Samurai. Civil War.
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them into destruction. Still those silly things do happen on earth! Why? And how is this possible?
7.1.2 Illustrations In this section we will give some examples which clearly show that the story of the pramindustry we invented is surprisingly close to reality. The following pages are borrowed from The Challenge written by the former French politician and writer J.J. Servan-Schreiber. He published his book in 1981 during the economic crisis that followed the oil crisis of 1974. So maybe these lines could teach us something of things that may happen in the near future, as were are now, since 2008, once more faced with a financial crisis, and most likely a long and deep economic depression. Illustration 1: The glory of weapons95. The Third World is corroded by its hunger for weapons. The enormous homicidal machinery is in full expansion. There seems to be no way back. As oil prices are increasing, the industrialized countries need more export in order to pay for their import of energy. One of the easiest ways is to sell ever more weapons to ever more countries96. 90% of the French and British production of weapons is intended for export to Third World countries. During the last 10 years the growth figures of the export of weapons by France was twice that of any other commodity. In 1978 the international trade of weapons showed the following figures: Billion $ USA USSR France Italy UK 12 7 3 1.2 1 % 48.0 26.9 11.2 3.9 3.7
All industrialized countries fight for new markets and contracts, brokers make fortunes in negotiating secret deals97. The most tragic thing about this trade is that most western weapons
J.J. Servan-Schreiber, The Challenge, pp. 170-175. According to the SIRPI Yearbook of 2006, Armaments, Disarmament and International Security, 1,120 billion US$ were spent on arms worldwide, the highest level ever. With 507 billion US$, the USA represents about 50% of the arms sales. In 2009, the U.S. government-to-government sales to 208 countries will be $40 billion. Most of the contracts were signed when Bush Jr. was still in office. In 2006 and 2007 more than half of the top 25 U.S. arms purchasers in the developing world are undemocratic governments or regimes that are engaged in major human right abuses, according to a report of The New America Foundation. According to that organization, there is a 92% correlation between rising oil prices and rising U.S. arm sales. From an article of Jim Wolf, Reuters. 97 See the film Lord of War.
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are sold to countries which are already in great debt, countries who are unable to feed their own population and who undermine their own economic development98. With the money paid for one tank, about 400,000 $, one could build modern silos to preserve 100,000 tons of rice, which would allow for extra saving in rice of about 4,000 ton each year. One pound of rice is enough for the daily food of a person. The price of one war airplane is enough to invest in 40,000 small pharmacies in Third World villages. Indeed one can say that those countries buying the weapons are on the wrong way, but meanwhile western industry makes the profits. The industrialized countries deliver machine guns, planes and tanks on command, and in doing so they let other pay for their military defense. The French general Cauchie expressed this with the following words during a congress on European pram whoops, excuse me for this slip of the pen weapon-industry: Not only does the total capacity of the European weapon industry far exceeds the potential European market, it also can no longer exist if European governments do not increase their budgets for military expenditures... So in order to keep military industry running, Europe has to find other buyers, it is forced to export weapons. The foreign currencies a country receives is just one of the consequences of exporting weapons. By making larger series of the same type of weapon, the own defense becomes cheaper as development costs and investments can be spread over more units. Without export of weapons (82 billion FF. in 1980), the French defense budget would have to be increased with 20 to 25 billion French francs... Thirty countries of the Third World spend more than 30% of their GNP on defense, this is more than Europe; in 1960 this figure was only 13%. Egypt had the world record in 1974 with 40% of its GNP. Third world countries even started their own weapon-industry: combat-planes are now built in Argentina, Indonesia, Pakistan, Chili, North- and South-Korea, the Philippines, Taiwan, Vietnam, Colombia, Thailand, India and Brazil... Most of these countries have gained their independence by the use of weapons. To them, the possession of and the control over weapons is a symbol of new pride and self-esteem in front of the rest of the world. Every day one can hear voices in the western countries saying that the independence of a country is closely related to its safety, thus to its weapons. How could one then prevent the leaders of the Third World countries to take care of their independence in the same way? On the contrary, they are even encouraged, as the weapon-trade does not know any political borders and yields such a high profit. The discrepancy between the military expenditures of the Third World and their level of development can only lead to selfdestruction for those countries, as the need for new and better high tech weaponry keeps on growing. If they buy their weapons or they make them themselves, in either case this policy erodes the economy of the country, because a lot of financial resources and human effort and creativity are wasted instead of being used in the development of an economy to fulfill the basic needs of the population. In India, for example, the national economy is restrained by the lack of telephone lines. The weapon industry, on the other hand, has its own communication and transport system. In 1980 Indira Gandhi made the following statement concerning nuclear weapons: If necessary for the general good of India, we must be able to control the most modern techniques. We cannot afford our country to be unprepared. But at the same time she asked herself this question: In joining this race for weapons, does India increase or destroy its security?
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Malthusianism in the purest sense.
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The answer to this question for her and the whole world was given by the self-destruction of the Iranian empire of the Shah. The growth of the military budget under the reign of the Shah was impressive: 241 million $ in 1964, 4 billion $ in 1974 and 10 billion $ in 1977! But why? The Shah explained to Anthony Sampson: I hope that our American and European friends will understand that there is no longer a difference between Iran and France, Britain or Germany. It is considered as normal that France spends so much for its defense, so why not Iran too? Our power in the Persian Gulf is now ten times stronger than the one of the British ever has been. In 1978 the army of Iran was twice that of the British. It had almost 3,000 tanks (France had about 1,000 tanks at that time). Their navy had the largest fleet of Hovercrafts. Their air-force was the fourth in size of all countries, in 1976 it had a budget of 12 billion $. Only the most sophisticated equipment was enough for the Shah. At the end of his reign he ordered 290 Phantom bombers, 33 light F-5 interception planes, 80 F-14 supersonic combat-planes and 160 F-16 planes. Often the weapons were already outdated by the time of delivery. Iran then sold them to Pakistan and ordered new ones. The Shah had made up his mind to install the worlds most modern army in his country with the help of his military advisers of the American weapon industry. He succeeded in this project. Nixon and Kissinger had decided to give the Shah everything he asked for (see also illustration 2 below). But what is an army without technical and logistic support? In order to provide these the Shah started a program for the installation of seven air-force bases and six marine bases for the navy. The sophisticated weaponry also demanded for highly trained personnel. Next to two to three pilots a supersonic combat-plane demands about 30 technically trained persons for maintenance. A country like Iran, with more than half of its population being poor farmers, is not able to deliver the necessary pilots, navigators and technicians in a short period of time. The whole supply of trained personnel was absorbed by the army, leaving the industry and agriculture with the untrained ones. During that period some businessmen made fortunes 45 families controlled 85% of the Iranian industry and business and corruption was present in all layers of society. Contracts were always accompanied with commissions or bribes to be paid to intermediate persons and officials. At the start of the military program in Iran, senator William Dulbright made the following comment after a visit to the country in 1976: I have been in Iran and I saw a very poor country. There are a few rich, but most of the people only believe in the revolution. I think we do not serve this country by selling weapons to it. A few years later senator Edward Kennedy made a similar statement after a visit to the region: Teheran has started to change its economic potential into a military one. He also urged the American government to review its policy in the Gulf, which was based on the excessive military power of the Shah. Richard Helme, the American ambassador in Teheran, expressed his concern on the growing presence of American military advisers and agents of the weapon-industry. During this one-sided development, the agriculture of the country was neglected, although more than 75% of the population were farmers. People without land and without an income left the countryside and went to the cities, hoping to find a job. Instead they formed the basis for the revolution which was preached to them by Ayatollah Khomeini. It is interesting to note that this enormous military force has served nobody, not the Shah, not the American public, only the American weapon industry. The only result was that this onesided development has eroded the regime of the Shah and that the western influence in this
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part of the world was no longer welcome. But if one studies the order-book of the western weapon-industry today, one sees that the western world has learned nothing out of this story. Illustration 2: Keep the fire simmering99 Kissinger has kept Metternichs secret in mind. His example and inspirator had indeed a peculiar way of handling diplomatic affairs: he told one thing to the Russian Czar, another to the king of Prussia, and still another to the king of France. He knew that each one of them would keep the secret to him and that years could pass before they would find out what he had said to the others. So in the mean time... Kissinger has applied the same formula: one truth for Sadat in Egypt, one for Assad in Syria, another for Feisal in Saudi-Arabia and the real confidentialitys were for the Shah in Iran. Kissinger was sure that they did not trust each other so they would not exchange their secrets. So he would remain the master of the game, at least for some time. And so it happened. When two of the rulers in the Gulf area did talk to each other and found out that Kissinger had told them different stories, then this situation was resolved by simply saying that they must have misunderstood him. But after a few rounds of this merry-go-round, the indiscretions on the Kissinger-talks accumulated, so they created more distrust than confidence in the American policy. The secretary [Kissinger], however, has never hidden his real intentions. He was not really interested in a deal on the price of oil. His real concern was to develop a strong military force in Iran against the Soviet Union, in order to protect the Arabian oil fields and to secure the transport of oil to the west. As the Iranian income from oil increased year after year, the Shahs hunger for more and better weapons kept growing. The price was even irrelevant. The Pentagon was ordered to give him everything he asked for. But after some time Iran could no longer pay the bill. In 1974 Kissinger and the Shah found a simple solution to this problem: the price per barrel was increased. In this way Irans income from oil was increased, so it could order more weapons, while Kissinger promised that America would have no objections when the Shah imposed one price increase after the other. In 1974 50% of the American export of weapons went to Iran.... while people in America, Europe and all over the world had to pay more and more for their energy, money which was used to buy weapons (prams) which had no use at all 100, money which ultimately was diverted to the weapon-industry as profits. I hope that these two historical analyses have illustrated the story of the pram-industry and that the reader now has a full understanding of who is interested in the excessive development of the pram-industry. In the next section we will return to our basic economic model in order to explain this situation.
J.J. Servan-Schreiber, The Challenge, pp. 79-80. Except for the war between Iran and Iraq. Have you ever understood the reason why they were fighting? Saddam Hussein came to power after a coup with the support of the CIA and was backed-up by the USA government at that time. Divide et impera?
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7.1.3 Disinvestment goods In a normal economic system one can divide the civil production, the goods and services which are produced, in two categories: Consumption goods: these are intended to be consumed or used by you and me. They satisfy a real or a cultivated need of humankind. Investment goods: these are not consumed by you and me, but they are useful or necessary in the production and distribution of consumption goods or other investment goods (machinery, office buildings, communication and transport infrastructure...)
In the initial phase of the evolution of an economic system, both categories contribute to the economic growth and thus to profits. They allow to make money out of money. When needs are not yet fulfilled, the category of consumption goods can grow, and this growth in turn stimulates the growth in the field of investment goods, as long as the material conditions of energy and raw material allow further growth. As long as the growth rate and the return on investment are sufficient, there is no problem. We have already discussed the consequences of a lower growth rate due to the saturation of the market, free competition and of the accumulation of capital goods: profits are eroded, the return on investment is lower, unemployment increases. Initially this can be solved by stimulating the economic growth: the government can start programs to build new roads, new needs can be cultivated, etc. But these measures have their limits. As we have already discussed, the growth rate and the profit ratio has the tendency to decline in times of peace in between wars. Let us forget for a moment that we are world citizens and place ourselves in the position of a person who earns his living by making money out of money. We are faced with the following problems: the return on investment of our capital is too low, so some people are forced to use their saved money in order to live instead of making more money out of them. We will now outline a possible solution to this unfavorable situation, a measure which has been the solution to an economic crisis on several occasions in the course of history. But we will also argue that this kind of solution has become obsolete. Instead we will outline an alternative later in this book, an alternative which is feasible... and which is probably the only possible solution. The profit ratio is equal to the profit (numerator) divided by the invested capital (divisor). Profit is too low due to the slow economic growth, due to overproduction and free competition. The invested capital is too high due to the accumulation of ever more machinery and industry buildings. So the solution of the economic crisis seems to be obvious: we should return to a situation where there are again real opportunities for growth so the numerator can increase, and where the level of invested capital is reduced so the divisor is smaller. The question remains: how do we get to this situation? Well, we could start with the development of a third category of goods in our economic system, next to consumption goods and investment goods: the category of disinvestment goods. Initially, this new category would give us the opportunity to stimulate the economic growth in an artificial way by producing and marketing these disinvestment goods, and then, when this field of business is sufficiently developed and starts to show signs of saturation itself, to use these goods for two purposes: 114
Primo: to return society into a situation where there are again real needs and thus potential for growth, so that money can again create money. Secundo: to destroy the excessive supply of investment goods, i.e. to disinvest on a large scale, the larger the better.
The profit ratio would increase at once! The reader has probably already figured out what is meant here with the term disinvestment goods: the goods produced by the weapon industry and the services taken care of by the army, goods and services which are not really needed in such a massive quantity and could be compared with the pram-industry and the Ymra in our story of Htrae. But these disinvestment goods are very useful in stimulating the economy when consumption goods and investment goods are in a period of zero-growth, they create jobs, so the problem of unemployment can be handled in an artificial way for some time, and, on the long run, they can solve the economic crisis as described above: war, massive destruction. As Konrad Lorenz has stated already in 1984: It is a mistake to think that the world is ruled by politicians. Behind them stand the true and only rulers of the world: big business. The arms race ever continues on both sides of the Iron Curtain, despite all conferences and disarmament talks, not because the Russians and the Americans are afraid of each other, but because the industry earns a lot of money out of it101. And for Malthusiantistic reasons, of course.
At this point we can again formulate the following conclusion: the arms race and wars are used (fomented) to preserve the mechanism of creating money out of nothing from total collapse.
You might make the following objection: if capital goods are destructed, then we all become poorer. Yes indeed, but the question is who is we all? In a peaceful growing economy, people can afford to save, to put some money aside in for example a pension fund, on a saving account, in government bonds. It is striking that after a financial crisis like the Great Depression pension funds were just hollow vessels. So for many years they were restricted in the way they could invest the money of the millions of people: they could only make very secure investments in real estate or government bonds. But then comes a time people tend to forget that these pension funds are allowed once more to invest in risk-bearing stocks. As the good money of millions of people is diverted to the stock exchange, and because of the law of supply and demand, the stock market becomes a bull market, it goes up and up, and secure money is diverted to insecure investments. People start to follow the market and put also other savings in the stock market, and even a major part of their monthly income goes to the stock market. And the people who sell the stocks receive a lot of good money. So if there is a major destruction of capital goods, which then is the big looser? In order to justify that the tax-payers money is invested in the field of disinvestment goods, one has used arguments as employment, security and the threat of the communist world or
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terrorists102. It is a dangerous evolution that, in spite of more economic uncertainty, there is one branch in industry which is not affected: the military industry. Per definition, there can be no overproduction in this field, as one is sure to find a buyer for the goods produced: the government. Under President Reagan the defense budget of the USA has increased year after year, while the NATO has imposed a yearly increase of 3% on its member states. And the deeper the economic crisis in civil production, the greater the pressure on politicians to increase military expenditures in order to create jobs. This resulted in an acceleration of the arms race, which increased the risk for war, as these weapons were sold to all kinds of unstable regimes all over the world. And this also resulted in higher budget deficits, so governments had to loan more money, and certain groups in society earned quite a lot of money by selling loans. In the summer of 2007, Bush Jr. proposed to increase the export of weapons to the neighboring countries of Iran in order to increase the safety in the region. And very coincidentally shortly thereafter there was a crash on the stock-markets. I hope I have enfeebled the argument of employment by showing the stupidity of it in the story on the pram-industry.
7.2
To be or not to be, thats the question
The armament race since the Second World War, induced by the weapon industry, had of course another direct consequence: ever more raw materials and energy are used in the production of ever more prams or disinvestment-goods. The growth in this category of business provided profits and jobs to a lot of people, who otherwise would be forced to find another, maybe less paid job to earn their living. But the goods that these people need for their living are now also available, even with all the energy, raw materials and human effort wasted in the production of these prams. If one would reduce the production of these prams, there would be more resources available to fulfill more needs of more people, while those working in the branch of the disinvestment-goods even would not have to work at all! One should even give them more for working not at all than for working in the pram-business! Why dont people see through this situation? Or are they still deluded by the ideas of Thomas Malthus? However, since the days of Malthus science and technology have evolved so drastically that, with ever less energy and materials, more and more can be accomplished. Buckminster Fuller has given several examples of this evolution from the use of water over the building of houses to the production and distribution of electricity on a world scale. He ends his discourse with the following conclusion: This clearly confirmed the reasonability of my working assumption that the accelerated ephemeralization of science and technology might someday accomplish so much with so little that we could sustainingly take care of all humanity at a higher standard of living than any ever experienced, which would prove the Malthusian only you or me doctrine to be completely fallacious... Neither the great political and financial structures of the world, nor the specialization-blinded professionals, nor the population in general realize that sum-totally the omni-engineering- integratable, invisible revolution in the metallurgical, chemical, and electronic arts now makes it possible to do so
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Enemies which have been created by the financial lite themselves!
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much more with ever fewer pounds and volumes of material, ergs of energy, and seconds of time per given technical function that it is now highly feasible to take care of everybody on Earth at a higher standard of living than any have ever known. In order to realize this, one has only to apply already existing technologies and use the resources that are now wasted to make weaponry and to realize profitfor-the-few instead of creating high-quality-livingry-for-all. It no longer has to be you or me. Selfishness is unnecessary and henceforth unrationalizable as mandated by survival. War is obsolete. B. Fuller, Critical Path, pp. 148-149, xxv. But still there are people in high positions who abuse the resources of the earth in order to improve their own already vast material position at the expenses of others and to strengthen their power. This is described in a very lucid way by B. Fuller in the chapter Legally Piggily of his book Critical Path. He gives a good overview of the origin, the development and the legalization of the phenomenon exploitation of the major part of the population by a small but powerful lite. On this subject, we can also recommend The Warmongers by Howard Katz and Intellectuals and the State, On Power and Ideology and Failed States by Noam Chomsky as very sharp analyses of the situation. Next to the scientific and technological evolution described by Fuller, we can also stress the fact that demographic evolution has changed since the days of Malthus. Studies have shown that with increasing material development of a society the growth-rate of the population declines. As already discussed, Thomas Malthus was right over only a short time-span. Over a longer period of time, the population growth evolves according to the S-curve, elaborated by the Belgian demographer Pierre Francois Verhulst already in 1838: the logistic population growth model103.
I am pretty sure that most students in economics or politics have learned about Thomas Malthus at university, but that they were never instructed about the logistic population growth model of Pierre Francois Verhulst. Economic science is an ideology in disguise!
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The Malthusian vision is assimilated so deeply in our western way of thinking, that scarcity has been institutionalized so to speak. This is really the greatest obstacle for the designrevolution Fuller refers to. Indeed, scarcity means business: one can ask a higher price for a scarce good, while the prices of abundant goods are low. So the myth of scarcity must be kept high in order to protect the western capitalistic model. Tons of fruits and vegetables are destroyed each year in the European common market in order to keep prices at a level. The supply of meat, milk, butter and wine is greater than demand, it costs the European tax-payers millions and millions of whatever currency in order to preserve or even destroy these surpluses. An electricity or oil-company is only interested in forms of energy which reach the consumer through a teller and which require an expensive infrastructure. Buckminster Fuller describes how he holds several patents which could have had significant contributions to the savings of materials and energy. Big business is not interested in developing these patents into products; instead they have tried to freeze them i.e. to take them away from all of humanity by trying to buy them. The implementation of these patents would be to the advantage of the consumers and of humanity as a whole. But natural resources would become less scarce and thus less expensive, so profits would decline in some fields of business. In the same way we observe that the production of long lasting goods with high quality is something of the past. Because of scarcity? No, on the contrary, because of the abundance! Well, at least in the western industrialized countries. The growth of the economic process must be induced in an artificial way. Scarcity also means struggle for life and thus insecurity, which in turn is used to justify the highly profitable pram industry. Security is sold to the tax-payer, whose savings are eroded by inflation and high taxes due to high budget deficits. The financial effort a democracy must impose upon itself in order to maintain a substantial army and weapon industry can only be sold to the tax-payer if one can point to an external enemy, who is seeking to take away our freedom and our material wellbeing. For this purpose, a former ally is sometimes turned into an enemy, or an enemy is created out of the blue. By the Cold War campaign in the 1950s104, the people in the Western industrialized countries were deceived in order to justify the enormous pram-industry, which served the interests of certain interest groups in society. But inducing fear for the enemy by misleading propaganda was just one of the means to serve these interests. In order to extend an enormous weapon industry and to keep a large army operational one has to spend money, quite a lot of money. In a later section we will see by what means these projects has been financed, how certain groups in society have elaborated mechanisms in order to get hold of the wealth of the common people.
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The film Atomic Caf is a very lucid account of this period in American history!
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7.3
Protectionism and its relation with war An important lesson from history
Those who do not remember the past are condemned to relive it. Santayana. We have asked ourselves already the question why a positive balance of trade is considered to be good for the economy of a country. We found the answer to this question in our basic theory on the origin of profit: the surplus of a positive balance of trade is to be considered as profit for the country, which accumulates with the profit for society resulting from internal economic growth. When internal growth stagnates because of saturation of the home market or because of lack of purchasing power with major groups of the population, then business can still make a profit by exporting their products to other countries. In order to do this, they have to be competitive with the industry from other countries. But what happens when these foreign markets also become saturated, so that prices are under pressure as a result of the fierce competition? In order to keep their market share in the foreign markets, companies can try to lower their labor cost, sometimes with the help of the wage control policy of the government. But this will result in lower purchasing power and less turnover at the home market, so the internal growth will slow down even more. The loss in profit as a result of the lower internal economic growth must then be compensated by more export in order to increase the surplus in the balance of trade. Another popular measure countries often adapt is to devaluate their currency in order to make their own products cheaper compared to those of other countries, so that export will increase and import will decrease, with a more positive balance of trade as end-result. But then the import of raw materials and energy becomes more expensive, which results in higher production costs: a devaluation of the currency must then be accompanied with a strict wage control policy, indeed resulting in lower purchasing power, etceteras, etceteras, etceteras... If a countrys foreign trade is focused on other industrialized countries that are themselves faced with the same economic problems (stagnation of the internal consumption) and applying the same economic policy, then this policy will not result into a lasting solution of the problem, on the contrary! Let us imagine all those countries as being part of one economic system. Then it is obvious that the whole system (i.e. all countries) will be subject to an economic crash as described in the section on the consumer society (the souffl). The internal demand of the whole system is undermined and cannot be compensated by extra export of goods as the outside world of the industrialized world (the Third World countries) does not have the purchasing power to buy those products, which are not even adapted to their basic needs. No need to worry: countries or a group of countries return to the protectionism of former days. Products from abroad are subject to import tariffs and quota or severe technical specifications. Some of the western countries are very ingenious in finding new measures to discourage the import of foreign products. Those countries argue that those protectionistic measures are taken for the general good and to protect the employment in their own countries. But is this really the reason? Does protectionism hurts only the other countries, their industry and their employees? For a thorough analysis of protectionism we refer to Howard Katz. During his argumentation he often refers to the relation between protectionism 119
and war. Sorry for the rather long analysis that will follow, but it rather crucial in order to understand the relation between war and economy. Those who do not remember the past are condemned to relive it! Autarky is economic isolation, the sealing off of a group of people from any trade or economic relationship with others. Like war, paper money and prescription105, it benefits one part of society at the expenses of everyone else, yet is defended by appeals to sacrifice for the good of the whole. If we will keep firmly in mind that the whole has no existence apart from the individual people who make it up, then we can understand that such calls for sacrifice are simply demands that one person sacrifices himself to another. One man must spend his time in the army, while another gets rich on government contracts; one man must suffer the depreciation of the currency on a fixed income while another gets rich by paying off his debts in dollars of less value; one man must risk his life while another sits behind a desk in Washington. Of course, during such periods of sacrifice there is a great pretense that the sacrifices are to be fair. But the sacrifices are never fair. Indeed, since the whole point of the war is for the power structure to exploit the people, the sacrifices are not intended to be fair. If it were not for the unfairness and the benefits flowing to certain powerful persons thereby the war could not be worth it to anyone and would probably not occur. As professor Charles A. Beard pointed out: Of course it may be shown that the general good is the ostensible object of any particular act; but the general good is a passive force, and unless we know who are the several individuals that benefit in its name, it has no meaning. When it is analyzed, immediate and remote beneficiaries are discovered; and the former are usually found to have been the dynamic element in securing the legislation106. This general rule applies accurately to tariffs, quotas, commodity agreements and other assorted paraphernalia which serve to intervene in the free flow of trade across national borders. We repeatedly hear the cry of the labor unions (in rare agreement with management and stockholders) urging to buy American107. The argument is that, if we buy American-made goods in preference to foreign, it will increase the number of jobs in America, raise our standard of living and benefit the whole country. The error in this can be seen most easily if we go back to the time when tariffs and quotas were applied, not only between countries, but between different parts of the same country. It was only in the 19th century that the Zollverein, or custom union, was adopted in Germany so that goods could exchange between any two parts of the country without interference. Similarly, the US Constitution prohibited states from putting tariffs on goods from other states. If it is beneficial to America to wall herself off economically from the rest of the world, then it must be beneficial to New York State to isolate herself
Forced service in the army. The offices of the Carlyle Group are on Pennsylvania Avenue in Washington DC, midway between the White House and the Capitol building, and within a stones throw of the headquarters of the FBI and numerous government departments. 107 On Labor Day 2010, President Obama repeated this appeal to the American public.
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economically from the rest of America. Similarly, it would be even better if New York City cut off all trade with the outside. If this idea is correct, the height of prosperity could be achieved if the island of Manhattan would refuse to trade with anyone else in the world. If we carry an idea to its logical extension we can often see a fallacy in it which would otherwise escape us. If Manhattan were to isolate itself, it would starve within a few weeks. There would be a mass exodus (or starvation) and when the smoke had cleared several decades later, all that would be left would be a handful of farmers scratching out a bare living from the rocky soil. The general principle is that trade is good. It must be good because it occurs voluntarily; if it did not benefit both parties, it would not take place. Thus, the more trade the better. When someone interferes with our trade, we become poorer. The special interests who advocate autarky in our society today only propose minor interferences with trade, with the effect that the resulting losses are not noticed (as the isolation of Manhattan would be). When Americans buy Japanese goods, it does not throw American workers out of a job any more than New Yorkers purchases of Californian goods throws New York workers out of jobs... If a Japanese firm (or the American firm across the street for that matter) offers the same product that you are producing at a lower cost, it is true that, in the short run, this may put you out of a job. This is part of the incentive which consumers use on producers to induce them to move into the areas appropriate to their special skills, thus getting the maximum advantage from the division of labor. If a group of Japanese can produce color television sets more efficiently than you, then it is better that they be producing television sets and that you be doing something else. In general terms, it is better that those people who can grow oranges best grow oranges, those who can build TV sets best build TV sets and those who can operate computers best do so, etc. The irony is that, if a social planner were trying to design an economic system whereby each person worked in the area best suited to his special skills, he would probably design a militaristic-authoritarian system with a central authority testing everyone and ordering them into appropriate jobs. Yet the simple measure of leaving people free in their economic choices accomplishes this goal far more effectively than an authoritarian system ever has and does so without the use of coercion. What the autarkists are proposing is that they have the right to make television sets (and be paid for this), even when the consumer does not want those television sets (and similarly for other goods). If this proposal were applied generally, it would lead to a situation where those better at growing oranges are fixing high tension wires and those better at writing music are planting corn. Our response to those people should be to say: You have no right to force us to pay more for television sets just because you want to receive a higher wage. If you cant make television sets more efficiently than the Japanese, the fault is with you; you do not deserve (and will not long retain) your higher standard of living. If you want to earn more than the Japanese, find something you can do better than they can.
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So there is no benefit to America from tariffs or quotas or other aspects of autarky, rather the reverse. And there is a clear loss to the American consumer who intends to purchase a restricted good. Americans who want to buy color TV sets in 1979 will find prices generally higher because of the 40% quota recently pressed upon Japan. The advocates of tariffs, etc. will usually concede these principles in the long run, but argue for a tariff to counter the short-run effects of a fluctuation in trade. One might think from this that the country is free of tariffs and quotas most of the time and that most of those which are put on have provisions causing them to expire within a few months. But this is not the case. Once the tariff advocates have pressured Congress into adopting one of their measures, they never advocate its repeal. Actually, the long run is composed of a succession of short runs. Just as the people who pledge themselves to a balanced budget over the long term but a deficit for this year run a perpetual deficit, so the people who advocates tariffs as a short-term measure keep perpetual tariffs. Man always lives in the present, and if he decides on something for the present, he will have it all the time. Neither is it true that free trade costs jobs in the short run. A fluctuation in the conditions of trade may throw some people out of work, but for the government to respond by autarky causes the loss of more jobs. When trade is free, decisions are made by thousands, perhaps millions, of consumers. Since people change their buying patterns slowly, any shift in jobs which results will be gradual, and the industry will have time to adapt. But a tariff is put on by a single body108 (the government) and is not gradual. Thus the shift in economic behavior, and hence in jobs, is sudden. If Holland retaliates for our tariffs on her steel by putting tariffs on our glass products, then the loss of jobs in the US glass industry is sharp and sudden. There is no time to adjust. The assumptions of the autarkist are arrogant and immoral. When a man decides to make his living by offering a product on the free market, he is competing for our favor. He has no right to compel us to buy his product, which is what is happening when compulsion is used to add a tariff to his competitors product. He only has the option to make a good enough product that we will find it to our interest to buy it at his price. His employment in this line of work is conditional upon our consent. He only has a right to work in that field, if we choose to buy his product. He has no right to make a product and demand that people buy it or force them to buy it. Yet that is what tariffs are. They constitute a demand by the producer of the good that he has a right to be employed in that line. If people prefer another product, he will interfere with their freedom by taxing (a tariff) or banning (a quota) that product. People who infringe on the freedom of others have no moral claim to it themselves109.
...which can be more easily infiltrated and manipulated than thousands and thousands of producers and customers... 109 Pure self-interest thus becomes, in Lockes formulation, the sole basis for the establishment of the state. Society properly becomes materialistic and individualistic because, Locke maintains, reason leads us to conclude that this is the natural order of things. By the law of nature, each individual is called upon to act out his role of social atom, careering through life, attempting to amass personal wealth, even at the expense of other people. There is no moral judgment to be made here: self-interest is simply the only basis for society.
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When the US Government imposes a tariff on Japanese goods, it is hurting American consumers of those goods in order to benefit the American producers. Modern liberals often talk about autarky as though it were a problem of international relations and as though each nation gained a benefit at the others expense when it imposes restraint on trade. But the example above of the completely isolated Manhattan shows that this reasoning is in error. When America imposes a tariff on Japan, it is sacrificing the large majority of American consumers to the minority or American producers; when Japan retaliates with a tariff, it is sacrificing its Japanese consumers to the Japanese producers. Two nations erecting tariff barriers against each other are each cutting off its nose to spite its face. Tariffs began when a criminal gang acquired additional power and became a feudal dukedom and then realized that, rather than rob the merchants who passed by all at once, it was better to rob a fixed percentage each time and leave the merchant enough to stay in business and come back next year. Tariffs are a complete triumph of might over right - totally unjustifiable, but a tribute to the stubborn conservatism with which the human race clings to any and all institutions. Modern autarky is another proof that patriotism is the last refuge of a scoundrel. When these people urge us to buy American, they are claiming both our wealth and our freedom as a sacrifice to their interests. H. Katz: The Warmongers, Appendix I (Autarky versus free trade) pp. 249254. Besides, when all countries start to take protective measures, then this will result in economic warfare, which could even escalate into a real military war. Moving ahead to consider World War II, it appears at first glance that there were real reasons for fighting, unrelated to paper money. Hitler was an evil man with aggressive designs. He had to be stopped. But a close look will show us a more complex situation; first consider the Pacific theater. The US-Japanese sector of World War II was caused by a third110 aspect of paper money, relating to international trade. Governments can force their own citizens to accept paper as a legal tender, but they are not able to force foreigners to accept it. This creates a problem; when I sell something to a citizen of another country, what should I ask from him in payment? If both countries are on a gold standard, the problem is solved. For example, if the US $ is 25.8 grains of gold and the French franc is 5.16 grains of gold, clearly five franc equal a dollar. If I sell something to a Frenchman, then I must ask five times as many francs from him as I would ask dollars. But if the countries are not on the gold standard, the problem is more complex. The franc will still have value to some Americans those who wish to import from or travel in France and I can sell the francs to those Americans, but it is not clear what they will pay me. What they will pay depends very much on how badly they want the French goods. In this case there will be a market where people exchange foreign money, and the number of francs which are
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The first and second aspect will be discussed in a later section of this chapter.
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equal to one dollar will vary from day to day according to supply and demand (depending on how many people want to buy French goods and what French prices are doing relative to American prices). On one day a franc might exchange for 19 cent, on another day for 18 cent, or again for 20 cent. Because the rate of exchange varies from day-to-day this is called a system of floating exchange rates, as opposed to a gold standard where the exchange rate is fixed. The system of floating exchange rates brings extensive vested interests into play as follows. Suppose I am an American steel producer selling steel to people in California for $300 per ton. Suppose a Japanese steel producer can make and ship steel to California, allowing himself a reasonable profit, for 100,000 yen a ton. If the exchange rate between dollars and yen is 500 yen equals one dollar, then the Japanese firm can charge 200 dollars a ton and undersell me in the California market. He will get the business, and I will not. On the other hand, if the exchange rate is 200 yen equals one dollar, he will have to charge 500 dollars per ton to make the same profit. Thus I can undersell him and get the business. The same reasoning applies to many other products. Clearly it can be very important to businessmen in both countries just what the exchange rate is, and when the rate is fluctuating every day, it drastically affects their profits. When a business suffers a disadvantage because of fluctuation in the foreign exchange rate, it is likely to run to the government to ask for a special favor to offset the disadvantage. In the example above, where the exchange rate was disadvantageous to the Japanese firm, their government gave them special subsidies (taken from the rest of the Japanese people) to enable them to sell steel at competitive price in America. When the exchange rate is in the other direction, the American firm is likely to ask that a special tax be put on all goods coming from out of the country a tariff or ask that the quantity of goods coming from outside be limited by law a quota. It does not matter that tariffs and quotas injure the American consumer by forcing him either to pay more for foreign goods or to buy higher priced American goods. Even though many more consumers are injured by tariff and quota legislation than producers are helped by it, Congress rarely fails to put the special interests of a particular industry above the interests of the American people in this regard. Under a system of floating exchange rates, international trade becomes a cutthroat business. First the exchange rate moves; then injured businessmen in one country demand a subsidy to compensate. Elements in the other country retaliate with a quota. Then the rate moves back, but the producers do not want to give up their subsidy. People yell unfair competition. There is a general rising of tempers as these groups discover that their basic interests are in conflict. The raising of tempers does nothing to aid international harmony, but there is a worse effect. In a period of floating exchange rates and increasing tariffs and quotas, nations which are self-sufficient may suffer a reduction in their standard of living. But nations which are not self-sufficient are put in an impossible bind. A country that cannot produce enough food for its people, like Japan or England, must sell manufactured goods abroad in order to pay for the goods it imports. If foreign countries prevent this by a barrier of tariffs or 124
quotas, the country will starve. In that case it may resort to war to conquer agricultural areas so that it will be assured of a food supply. Cordell Hull, Secretary of State under F.D. Roosevelt, was well aware of this phenomenon as he stated: Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair competition with war. Though realizing that many other factors were involved, I reasoned that, if we could get a freer flow of trade freer in the sense of fewer discrimination and obstructions so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace. Richard Gardner tells us: He [Hull] had written to Secretary of State Lansing that the chief underlying cause of the conflict which began in 1914 could be found in the strenuous trade conquests and bitter trade rivalry being conducted prior to the outbreak of the war. H. Katz, The Warmongers, pp. 69-71. Howard Katz illustrates the relation between economic rivalry and war as follows: This factor was a contributing cause of World War I, which we did not examine as it did not relate to American entry. Let us now consider it in relation to World War II. When a country isolates itself economically by tariffs, quotas and the like, it is in a condition called autarky. In the Dark Ages every village or castle lived in autarky; that is, they had no economic intercourse with their neighbors. Japan is an industrial nation which does not grow enough food for its people. It must sell its products abroad in order to pay for food and raw materials. In the early 1930s the western nations abandoned the gold standard (England in 1931, the USA in 1933, France in 1935); there followed a period of floating exchange rates and increasing autarky. As Noam Chomsky points out: Western economic policies of the 1930s made an intolerable situation still worse, as was reported regularly in the conferences of the Institute of Pacific Relations (IPR). The report of the Banff conference of August 1933 noted that the Indian government111, in an attempt to foster its own cotton industry, imposed an almost prohibitive tariff on imported cotton goods, the effects of which were of course felt chiefly by Japanese traders, whose markets in India had been growing rapidly.... Japan, which is a rapidly growing industrial nation, has a special need for mineral resources and is faced with a serious shortage of iron, steel, oil, and a number of important industrial minerals under her domestic control, while on the other hand, the greater part of the supplies of tin and rubber, not only of the Pacific area but for the whole world, are, by historical accident, largely under the control of Great Britain and the Netherlands. The same was true of iron and oil, of course. In 1932, Japanese exports of cotton piece-goods for the first time exceeded those of Great Britain. The Indian tariff, mentioned above, was 75 percent on Japanese cotton goods and 25 percent on Britain goods. The Ottawa conference of 1932 effectively
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blocked Japanese trade with the Commonwealth, including India. As the IPR conference report noted, Ottawa had dealt a blow to Japanese liberalism. Japan did not have the resiliency to absorb such a serious shock to its economy. The textile industry, which was hit most severely by the discriminatory policies of the major imperialist powers, produced nearly half of the value of manufactured goods and about two thirds of the value of Japanese exports, and employed about half of the factory workers... It was in no position to tolerate a situation in which India, Malaya, Indochina and the Philippines erected tariff barriers favoring the mother country, and could not survive the deterioration in its very substantial trade with the United States and the sharp decline in the China trade. It was, in fact, being suffocated by the American and British and other Western imperial systems, which quickly abandoned their lofty liberal rhetoric as soon as the shoe began to pinch. England, like Japan, is an industrial nation, which cannot grow enough food for her people and must sell manufactured goods in order to buy food from abroad. England dealt with the problem of autarky by a policy of imperialism conquering weaker countries around the world and using them as sources of food. This provides a convenient excuse for war, which in turn will create a need for paper money. It is not surprising that 20th century Japan adopted the policy of 18th and 19th century England securing trading areas by military conquest of weaker countries. Americans have been taught that Japan was the aggressor in World War II; this is true, but the US did not exactly lure her to the side of peace. William L. Neumann points out: When an effort to set a quota on imports of bleached and colored cotton cloths failed, President Roosevelt finally took direct action. In May of 1936 he invoked the flexible provision of the tariff law and ordered an average increase of 42 percent in the duty on these categories of imports. By this date Japans cotton goods had begun to suffer from other restrictive measures taken by more than half of their other markets. Japanese xenophobia was further stimulated as tariff barriers rose against Japanese goods, like earlier barriers against Japanese immigrants, and presented a convincing picture of western encirclement. The most secure markets were those which Japan could control politically; an argument for further political expansion. Japan conceived the idea of the Greater East Asia Co-prosperity Sphere, a free trade zone in eastern Asia wherein Japan would provide the manufactured goods and several other countries would provide the food and raw material under Japanese domination of course. Royama, a leading Japanese liberal of the time, wrote that his countrys aim was: ... not to conquer China, or to take any territory from her, but instead to create jointly with China and Manchukuo a new order comprising the three independent states. In accordance with this program, East Asia is to become a vast self-sustaining region where Japan will acquire economic security and immunity from such trade boycotts as she has been experiencing at the hands of the Western powers. We begin to see that the Pacific theater of World War II might have been avoided had the Western powers, including the US, not imposed trade restrictions, including the closing of the Californian market, on Japan. Political pressure to close this market stemmed directly (in the manner described above) from the abolition of the gold standard in 1933. 126
In fact, we can go further and state that Japan not only could have dissuaded from making war on America: she positively had to be dragged kicking and screaming into the attack on Pearl Harbor. Many Americans wondered at that time (and subsequently) whether Japan was crazy? How would she hope to defeat the USA? Japan was not crazy. Here is the story112. Japanese expansion was blocked by what she called the ABCD countries America, Britain, China and the Dutch three of which were enemies of Germany; so Japan allied with Germany on the principle that the enemy of my enemy is my friend. Meanwhile investigations by the Nye and Pujo Committees here in the US brought out many facts surrounding the US entry into World War I. This created a large isolationist sentiment, a group of Americans who would no longer believe their government and who were violently opposed to any American involvement in a European war. As Roosevelt began to realize the importance of stopping Hitler 113, he was faced with the fact that a substantial body of opinion would simply not believe him. And we can be sure that this isolationist sentiment (which had a good historical foundation in Americas traditions) was encouraged by Nazi sympathizers. Although this was not a majority, Roosevelt knew enough not to try to take a divided country into war with Germany exactly the policy which had been such a disaster two decades before. It would be nice to say that FDR heroically rose to the challenge and rationally persuaded the American people of the evil of Hitler and of the essentials difference between World War I and World War II. But this is not the case. Roosevelt chose to get into a war with Germany through their alliance with Japan. By one restrictive action after another, he began to block Japanese plans for expansion in the Far East, confronting them with the alternative: make war on America or give up the entire plan for the Greater East Asia Co-Prosperity Sphere. At the same time he left Pearl Harbor unprotected as an inviting target hoping that the Japanese would take the bait and pull a sneak attack as they had done to initiate the Russian-Japanese war. Three days before Pearl Harbor the New York Times commented editorially: Japan is facing international economic siege and she is very vulnerable... Scarcely able to sustain herself in foodstuffs, she is heavily dependent upon imports of other raw materials. For such industrial and military necessities as petroleum, iron, steel, aluminum, lead, zinc, copper, tin, machine tools, wool and cotton she relied chiefly upon the United States, the British Empire and the Netherlandss Indies, nations which are now enforcing against her a rigid economic blockade.
See also http://www.geocities.com/Pentagon/6315/pearl.html and Noam Chomsky, Failed States, p. 84, where he describes that by November 1940, more than one year before Pearl Harbor, the USA had already made plans to bomb Tokyo and other big cities in Japan cities made of rice-paper and wood with fire-bombs, and that there would be no hesitation about bombing civilians. 113 Hitler signed Germanys death warrant when he prohibited the withdrawal of funds from Germany except in very small annual amounts. This act was tantamount to confiscation of foreign capital, and the big industrialists moved to retaliate.
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Admiral Theobald, in his book The Final Secret of Pearl Harbor, explains that the US Intelligence had cracked the Japanese code prior to World War II. A select number of machines had been built (the Purple machines) to decode the Japanese messages. The messages sent from Tokyo to the Japanese embassy in Washington in November and early December 1941 all available to Roosevelt leave no doubt in the mind of any reasonable person that an attack was planned. Yet Pearl Harbor, a point of obvious vulnerability, was not warned and was not even given a Purple machine. The commander of Pearl Harbor would have done better to have read the New York Times than to have waited for orders from Washington. Interviewing an American diplomat involved in the Japanese negotiations in his column for December 4 1941, Arthur Krock asked: How would you state the prospects now? and received the answer: It is conceivable that the Japanese will move aggressively at any time. The Times of Sunday morning, December 7th, would have told him that civilians were being evacuated from Manila (like Honolulu, then the capital city of an American territory) and the paper of December 1 st would have brought him the opinion of the First Lord of the British Admiralty that there existed very grave danger that the war at sea may extend to the Far East... if Japan breaks with and attacks the United States... If the American people did not know Roosevelts intentions, the Japanese leaders did. They must have reasoned as follows: Roosevelt wants to fight Germany. If we strike first and deal a knockout blow to the US Pacific Forces, Roosevelt will have his German war. Then he will be anxious to make peace with us so he can concentrate on Europe. We can negotiate favorable terms with America which allows us the flow of raw materials we need to continue our Asia Wars. Dangerous? Yes, but there was little alternative. Roosevelt had just cut off Japans source of scrap steel; she had only 15 months supply. Oil was crucial. While the business or labor elements which had originally supported the Greater East Asia Co-Prosperity Sphere might have been willing to abandon it had they known that it would involve war with the United States, control had passed to dedicated militarists who were not willing to make such a decision. This is the reason America fought the Pacific theater of World War II. Unfortunately, these facts, well known to serious students of the subject, are not taught in our schools. Too many people are unwilling to believe that their hero, Franklin D. Roosevelt, deliberately let thousands of American soldiers die in a surprise attack, of which he had advance knowledge. Those who purposely close their eyes to reality are like sheep, destined to die for someone elses end. Americans who would not face the truth about World War I died unnecessarily in the Pacific theater of World War II and in Vietnam114. And if we of the present generation are not ready to face the truth as it is (rather than as we wish it to be), in a few years we will again be dying in an unnecessary war to further the goals of someone who wants to take away our freedom. Howard Katz, The Warmongers, pp. 72-77.
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Afghanistan, Iraq
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Or as Santayana has said: Those who do not remember the past are condemned to relive it. In the next section we will explain how a war can be financed.
7.4
Inflation and its relation with war Cui bono?
We have discussed already the why of war based on our economic model and the Malthusian world view. When needs for products and services reach a certain level of saturation so that people no longer buy more and more, or people still in need do not have the purchasing power, then economic growth will stagnate, so money can no longer create money. In that situation, a war can be used in order to reduce, next to the level of population (Malthusianism), also the level of capital invested (destruction = disinvestment) and, at the same time, to return the society to a level where there again are basic needs and thus potential for growth: the profit-ratio will increase and money can once more create money. By the introduction of protectionistic measures like tariffs and quota, governments try to protect the own already saturated market for the benefit of the own producers. Countries depending on the export of manufactured goods in order to pay for their import of energy, raw materials and food are cut from their markets. They are then faced with the choice of internal social conflicts, which can jeopardize their internal power structure, or an external conflict, in which the aggression is ventilated toward the outside world. We have already a presumption of who will benefit from a war in the first place. But how do these people succeed in leading a society into such an adventure? One instrument is of course war propaganda and the manipulation of the media in order to deceive the people about the real nature of the war. Indeed, economic recession and unemployment are the perfect soil for nationalism, racism, extremism and fascism. It is rather easy to point to an external enemy as a scapegoat.
and in all times. May the lights in the land of plenty shine on the truth some day
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Eight Days A Week The Fourth Wave The psychological base of war115.
There is a belief widespread in our society that feeling any emotion of hostility is a wrong or immoral thing. People who accept this belief do not like to admit their hostile emotional states, even to themselves. Such a person will, of course, feel anger and hate. Human emotions are automatic responses to the outside world. If a man perceives something which is evil and a threat to his values, hostility (and often fear) is automatic. It is part of his make-up as a human being. Such responses are not in themselves bad. In a good person the hate will be directed at the evil and will act as a psychological motive for him to fight the evil and preserve his values. But when people deny their hate, pretending to themselves that it does not exist, then the hate ceases to be under rational control. The most familiar example of this is the man who grovels before his superiors and takes out his aggression on his subordinates or his wife and children. Instead of feeling hate for the person who has caused his frustration, he simply hates the weakest available party116. This is not in accord with justice. It is not a rational policy; and it will do nothing to deter future frustration. But this man cannot subject his hate to a rational process because he will not even admit that it exists. One may see many examples of this type in the Armed Forces. Another example may be found in certain members of minority groups who are servile to those who have the power in our society and take out their hostility in criminal acts against random passers-by. Again this does nothing to deter the injustice to which these groups are often subject. The result of this is that a huge number of people are walking around with irrational hostility a free-floating hate caused by events in their personal lives but not directed at the rational object of their frustration. If a politician can reach out and channel that hate, he will strike a deep public chord and win a lot of support. The following method for channeling hatred has a long and successful history: Look out there, the politician says, There is The Enemy. He is not like us. He harbors vicious and aggressive designs against us. He is evil. If one studies history, one is struck by the number of times that this syndrome dominated countries so that each of them became the Enemy to the other. Each element in the syndrome has a function:
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Howard Katz, The Warmongers, pp. 114-115. Immigrants, people with another skin color, another religion
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The enemy is outside:
This allows the politician to unite all elements of the society. There is no one to fight back. This alleviates the guilt which people feel because the truth is the opposite, and the essence of this kind of personality is the belief that any hatred is immoral. Thus easier to hate. Again one is struck by the frequency with which countries fight those who are similar to themselves. The Germanic tribes of Western Europe, all basically similar in culture, who have bitterly fought each other since they overran the Roman Empire are one example. The Greek citystates are another. Thus worthy of hate.
He hates us:
He is different:
He is evil:
Howard Katz, The Warmongers, pp. 114-115. But in order to convince the own population that the enemy is outside, that he hates us, that he is different and that he is evil is one thing. To finance a war is quite another thing.
7.5
A 1st mechanism to get hold of the wealth of the common people: Inflation.
7.5.1 On the origin of paper money Cui bono? During the Middle Ages gold and silver coins where used as means of exchange in the economic system. The very rich people did not keep their money at home, but with a goldsmith. For the rent of space in a safe they paid a fee to the goldsmith. In return they received a certificate on their name, which they could use as proof of their credit-worthiness in an economic transaction. They also had to pay a fee for every deposit or withdrawal they made on their account. But in order to complete an economic transaction, the gold and silver had still to be physically transported from the goldsmith of the buyer to the goldsmith of the seller. And then there where people like Robin Hood, who robbed the money transports. The goldsmiths got the idea to issue certificates on bearer. This dramatically reduced the physical transport of gold and silver, as the people started to use those certificates instead of the real money as means of payment. They did this in the knowledge that they could always exchange the certificates for real money gold and silver with the goldsmith who had issued them. 131
The goldsmiths noticed that the people did not bother to collect the gold and silver anymore, and that their income on deposits and withdrawals had declined drastically. So they got the idea to issue more certificates than they had coverage in precious metals. They could not use these extra certificates themselves; this would be a too obvious fraud. And there were always people who collected part of their real money in deposit. No, the goldsmiths printed 5 times more certificates than they had coverage117, and lent these at a certain interest to people in need of money. So they earned money on something they did not own. One can raise questions on the morality of this practice, but the system seemed to have a positive effect on the economy, as it induced economic growth. This mechanism is probably one of the triggers for the Industrial Revolution, next to the following topic. 7.5.2 On the origin of democracy In those days the aristocracy was the power-structure in society. The king or the local aristocracy autonomously decided on the level of taxes the people had to pay. Very often they used the technique of re-minting: gold and silver coins collected as taxes were melted, a less precious metal was added and new coins were stamped. So they could spend more money than they had collected as taxes. Inflation was created. They did this in order to increase their budgetary capacity, e.g. in order to finance a war against another king, the payment of the administrative, juridical and military apparatus needed in order to guarantee that the population paid the taxes to the aristocracy. In England something happened which could very well have reshaped the course of history in a dramatic way. The people revolted against King Charles I, who was decapitated (1642), and they installed a republic with an elected parliament. During this republican period under Cromwell there was a real tyranny, very much similar to the period of Robespierre in France after the French Revolution. People were induced to spy on each other, and a lot of innocent people were executed. After some time, the people of England decided to return to the monarchy, but under the condition that the new king would accept the Bill of Rights. This Bill stipulated that the power of the king should be subordinate to the authority of the Parliament, chosen by and representing the people well, part of the people as only the well-off citizens could vote. This king William started as was the tradition in those days a new war with France. But the war was dragging along and cost a lot of money. At a certain moment William was short of money, so he asked the Parliament for a tax increase. The people grumbled and were more than sick of the never-ending war, so the elected members of Parliament were only willing to vote a tax-increase of three million pounds. The king was still in need of two million pound more. He tried to borrow the remaining sum, but could only raise half of the amount, forcing the interest rates to very high levels. So King William was faced with a big problem. In 1691 a certain William Paterson got the brilliant idea to start with a central bank in order to manage the monetary affairs of the king. A starting capital of 72,000 pounds in gold and silver was collected, and then the bank printed 162/3 times more paper certificates than they had coverage, for an amount of 1,200,000 pound. That money was lent to the king at an interest of 81/3%. The yearly interest, 100,000 pound, was thus greater than the originally invested capital!
This was the start of the fractional reserve banking system which is still common practice in these days, and the cause of a lot of calamities in the financial world, especially for the public who has a blind faith in what the banks are advising them.
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The king could continue his war with France by spending the lent money on warships, weapons, ammunition, horses, paying the soldiers, food for the horses and the soldiers. But against this sudden influx of money in the economic system, there was no similar increase of economic production, and according to the law of supply and demand prices started to soar up, so also the cost of living of the common people. There was a hyperinflation. The population recognized that they could buy less with that paper-money. They lost their confidence in those certificates. So they went to the goldsmiths who in the mean time had become bankers in order to exchange the certificates for real gold and silver. The ones who came first were lucky, and then there was no more gold and silver in the safes of the bankers, so the banks went bankrupt. The first central Bank of England also crashed. You see, hardworking people who produced real economic value, who provided jobs to others, who paid taxes and then also tried to save some money for their old age, well these people were taken in. Just as in 1929 and 2008. What is the difference between a hedge fund, that loans money in order to speculate on the stock market, and a bank that issues more loans than it has deposits? Morality of the story so far: when people can decide in a rational way to go to war or not, and when they are directly confronted a priori with the real cost of a war, then people are more peace-likely, just for economical reasons. But since those times, wars have always been indirectly financed by the creation of paper money out of nothing, and lending this money to those in authority. The creators of the money earned a lot, so those in authority, who supported this mechanism, could also have some part of it in order to finance their (re-) election campaign. The common people where confronted with inflation, their savings were eroded. They paid for the war in an indirect way during the war and long after the war was over, as their money lost its original value. In England and the USA, the Bank of England118 and the Federal Reserve are private banks, with a private shareholder structure. In other countries, fortunately, the central bank is under political and social control, and the creation of money follows more or less the real economic evolution. Only two presidents of the USA have ever tried to stop this mechanism of creating money out of nothing, by pulling the authority of issuing money to the government, away from the private central bank, as is even stipulated in the 16th amendment of The American Constitution: Abraham Lincoln and J.F. Kennedy. You know what happened to both of them. Under the British mercantile system, the colonies were supposed to supply raw materials like cotton, which were then processed in the English mills into fabrics, which where then exported, so the British Isles could pay for the import of their food and other necessities. Control over cotton in those days was considered just as crucial as control over oil in these days119.
The Bank of England was nationalized in 1946, but since then dividends were still paid to private shareholders. The nationalization could go along as in 1944 the International Monetary Fund and the Bank for International Settlements were established during the conference of Bretton Woods: the mechanism of creation money out of nothing was lifted to a global level. On the website http://www.prosperityuk.com/prosperity/articles/kerby.html you find the story of a bill proposed by Captain Henry Kerby in the British House of Commons on December 22nd 1964 in order to withdraw the power to issue money from the Bank of England and to bring this under the authority of the government. 119 Noam Chomsky, Failed States, P. 93.
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One of the first things President Lincoln did after he came to office, was to close the USA borders from free trade in order to stimulate the domestic industrial production120, against the economic and financial interests of the British mercantilists. In that time money was issued by private banks in the United States. Lincoln decided that money should be issued by the government: the famous greenback notes. The two measures resulted in his death. He was shot by John Wilkins Booth. What was the motive for this murder and who was behind Booth? On the website http://home.att.net/~rjnorton/Lincoln74.html six theories are formulated, and it is very well possible that the truth is a combination of two or more of these theories. The fourth theory is rather interesting: Lincolns assassination was the result of a conspiracy of powerful international bankers. This theory is that Abraham Lincoln was killed as a result of his monetary policies. John Wilkes Booth would be seen as a hired gun. In its simplest terms, the theory is that Lincoln needed money to finance the Civil War. He was offered loans at high interest rates by bankers in Europe led by the Rothschilds. Rather than accept the loans, Lincoln found other means to fund the war effort. More importantly, the British bankers opposed Lincolns protectionist policies. Some Englishmen in the 1860s believed that British free trade, industrial monopoly121 and human slavery travel together. Lincolns policies after the Civil War would have destroyed the Rothschilds commodity speculations. After the war, Lincoln planned a mild Reconstruction policy which would have enabled a resumption of agriculture production. The Rothschilds were betting the other way on high prices caused by a tough reconstruction policy toward the South. Lincoln was viewed as a threat to the established order of things, and he was assassinated as a result. The goal was to weaken the United States so the Rothschilds could take over its economy. An article titled The Rothschilds International Plot to Kill Lincoln was published October 29, 1976, in New Solidarity.
In India Mahatma Gandhi introduced the spinning wheel in every household and stimulated local salt production from sea water. He was shot too. 121 As advocated by the British East India Company.
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In the early 1960s President J.F. Kennedy was reluctant to send more ground troops to Vietnam. He also took the decision that the government should issue the money, backed by the value of silver122. He was shot too by, well yes, by whom? According to the Rolling Stones in their song Sympathy for the Devil: After all, who shot the Kennedys, it was you and me. Actually the system you and me have been born in, living in, the system that we have to endure. On the website http://www.john-f-kennedy.net/thefederalreserve.htm you can find an article written by Anthony Wayne on this matter. Here are some highlights. On June 4, 1963, a virtually unknown Presidential decree, Executive Order 11110, was signed with the authority to basically strip the Federal Reserve Bank of its power to loan money to the United States Federal Government at interest. With the stroke of a pen, President Kennedy declared that the privately owned Federal Reserve Bank would soon be out of business. The Christian Law Fellowship has exhaustively researched this matter through the Federal Register and Library of Congress. We can now safely conclude that this Executive Order has never been repealed, amended, or superseded by any subsequent Executive Order. In simple terms, it is still valid. United States Notes were issued as an interest-free and debt-free currency backed by silver reserves in the U.S. Treasury. Source: http://usrarecurrency.com/1963$5UnitedStatesLegalTenderNoteSnA51298086 A.htm
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http://www.john-f-kennedy.net/thefederalreserve.htm
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1963 $5 United States Legal Tender Note FR-1536 (front and back) The silver-backed dollar notes were characterized by the red serial number.
President Kennedy was assassinated on November 22nd 1963, and the United States Notes he had issued were immediately taken out of circulation. Since then the Federal Reserve Notes continued to serve as the only legal currency of the nation. According to the United States Secret Service, 99% of all U.S. paper currency circulating in 1999 are Federal Reserve Notes.
7.5.3 Motives for war versus forces for peace Let us return to the England of the 17th century. Once the king could no longer determine the level of taxation, but this was decided by an elected parliament, the common people refused to pay higher taxes in order to finance a war. At this point we can begin to see the operation of an important social force. When democracy entered the history of a major European power most particularly establishing the principle that the people could only be taxed through their elected representatives it acted as a force for peace. It did not do this for any idealistic reasons. There is no evidence that the 17th century English were less warlike than other peoples. They loved the bands and the parades and the uniforms of war; they hated the outsider; they erased from
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their minds the suffering of their countrymen and glorified the killing of the enemy just like all other people of that time and this. Where democracy acted as a force for peace was not in regard to any spiritual motives, but in the very practical motive of cost. War is expensive. War, in effect, is mass destruction. Every war must be paid for, and it must be paid for by the people of the country doing the fighting (wars financed by loot and booty being a figment of some militarists imagination). Under a monarchy or dictatorship the people have no say over expenditures. Taxes are seized from them against their will. But in a democracy they vote (or choose representatives who vote) their level of taxation. The peoples seizure of political power coupled with the average persons unwillingness to pay the cost of war showed itself in 1693 to be an important new political force a force for peace. It could have brought a new era to world history. But a method was found to circumvent this force... The British Parliament of 1693 was up against a new political force. Politicians had discovered the peoples unwillingness to pay for war. The solution was to deceive them about the costs... At this point a new motive for war has been created. The government is desperate for funds and is willing to resort to unsound financial methods methods which could not be tolerated in peace. The banker creates money out of nothing, lends it to the government and profits from the interest. War is of great financial interest to the bankers. The perceptive reader may raise an objection: I see how the king got the money he needed. But after all, war is not fought with money. What are needed are real goods: horses, arms, foods, transportation, etc. If we could create real goods by simply printing paper notes, then, in war or peace, why should anyone bother to work? Paterson provided the paper notes for the war, but who provided the real goods? The answer is that the English people of the time provided them: the same people, who through their elected representatives had refused to provide the goods via taxes, wound up providing them through the paper money. When the king spent William Patersons Bank of England notes, using them to acquire real wealth, then that much wealth was taken from the people of England. When they went to their markets, they found that a given amount of money would buy less. In short, there was a deprecation of their currency. Here we have a second motive for war, or more precisely, the removal of what would otherwise be a motive for peace. Bank issues of paper money hide the cost from the people. In the final analysis the people must pay for the war 123; there is no one else who can manage such sums. When the war is financed through taxation, the cost is presented to each person in advance, and he is able to make a rational decision: is this war, and the benefits to be gained from it, worth the additional burden? But when the war is financed by depreciating the currency via paper money, the true cost is hidden from the people and becomes apparent only afterward.
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And the financial and economic crises.
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In this case, the costs are not judged according to a rational standard; rather people act on the basis of emotions and mystical notions of power and glory. Thus, paper money provides a motive for war in two ways124: The true cost of the war is hidden from the people so that they cannot make a rational decision whether or not to bear it. Through the operations of paper money the bankers make huge profits. Since very large paper issues are only associated with war, then if the banker can foment a war, he can enjoy these profits.
The principle of 1693 was continuously repeated. In the history of nation after nation, subsequent to the attainment of democracy, the people never shouldered the costs of a war in the direct and rational form of taxation. It was always imposed on them by deception via paper money. Thus there is a close correlation between paper money and war... H. Katz: The Warmongers, pp. 14-21. So far Howard Katz in his revealing book The Warmongers125. In this book he gives a complete overview of the wars in which the United States of America were involved until Vietnam. He reveals for each of these wars who has had the most financial advantage and at whose expenses. He also analyzes the Cold War politics and clearly shows who is really in control behind the curtains. At the end of his book he gives a very interesting discussion on the American Constitution, how it was carefully designed in order to avoid all the abuses of power by the aristocracy in medieval Europe, where people were exploited by their own rulers, and how the Constitution was violated each time America was involved in a war, under the pretext that it was necessary to sacrifice individual freedom for the general good, to protect the free world against foreign aggressors. In America there are two kinds of law. There is the ordinary law, made by the government and acting as a constraint on the people, telling us that we must do this or that and threatening us with penalties if we do not comply. But there is another law, the peoples law which operates on the government, that is, the Constitution: the people made the Constitution to act as a constraint on the government, telling it what it may do and threatening its officials with penalties126 if they do not comply. In addition to providing the moral basis for government, the process of framing principles in a constitution and leaving the application of those principles to a continuing body has a further advantage. It allows the question of government to be considered in the manner conducive to the most effective use of the human mind the framing of abstract principles according to rational considerations and the deduction from those principles of specific application to meet specific circumstances. Perhaps this is why, when we look at the
The third one has already been discussed: autarky, combined with floating exchange rates of currencies whose value is no longer related to the gold standard. 125 See also Batra, The Great Depression of 1990, pp. 14-20 126 Impeachment.
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provisions of the US Constitution, we are struck by their genius, and when we look at the times in history when we have deviated from the Constitution, we are ashamed and apologetic. Most particularly, war is a time when the human mind is at its worst. Every war generates a wave of emotion which blots out rational action. This is relevant to an anti-war movement because the Constitution contains a number of provisions designed to guide the nation to war in the most rational way, provisions which are routinely flouted in a war manufactured by the banker-conspiracy to help subordinate us. These are: 1. the prohibition of paper money; 2. the requirement that Congress declare war127; 3. the absence of any Federal conscription power; 4. the militia system. H. Katz, The Warmongers, p. 228-229. By the way, would it not be possible to finance our pram-industry in the same way as the king of England financed his war? Buckminster Fuller claims that the Cold War was invented and fomented after the Second World War in order to justify the very expensive nuclear research and the arms race both very profitable for certain groups in society in the eyes of the people in the western world. It was indeed after the Second World War that the United States abandoned their traditional policy of isolation and neutrality as stipulated in their Constitution. At that time they did not disbanded their army as they have done after previous wars. Now we can fully understand the evolution of the purchasing power of the American dollar: The large deprecations are the result of manipulation of the dollar by using paper money in order to hide the cost of war from the people and at the same time to withdraw purchasing power real wealth from them to finance the war. Before the Second World War America has disbanded its army after every war and has returned to the militia system and to the gold standard, so the purchasing power of the dollar was restored at the same level as before the war. The continuous erosion of the purchasing power of the dollar since the 1930s is due to the manipulation of the dollar, not only to hide the cost of several wars to the tax-payer, but also to finance the Cold War arms race and to hide the cost of keeping an enormous army and secret service operational worldwide. Not only the American people have paid for the arms race, but the whole western world, as the dollar is generally accepted in international trade (for how long?).
From this discussion we have learned that inflation is a perfect instrument in order to siphon off purchasing power from one subsystem in society to another. In a situation of low or zero economic growth, where there is no profit for society and thus no increase of purchasing power for the society as a whole, and money can no longer create money, certain groups can still acquire more purchasing power at the expense of others. They even succeed in creating money out of nothing. These tactics are not so visible and violent as the one used in the old
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... and not the president or the government.
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days, when people were forced by their oppressors-rulers to finance the war and the army, but they yield the same result: it still remains exploitation of one group in society by another. Interestingly, two years after the establishment of the Bank of England the old practice of coin clipping and alloying base metals with the gold which had gone one since virtually the invention of money was ended by a reminting of the debased coinage. With the new methods of exploitation in place, there was no need for the old. Power to debase the currency thus passed from the king, representing the old aristocracy, to the banker, representing the covert aristocracy, and there it remains to this day. H. Katz: The Warmongers, p. 41.
At this point we can once again formulate a conclusion: More democracy leads to more peace. Reduction of democratic rights carries the seeds of war.
7.6
A 2nd mechanism to get hold of the wealth of the common people: Income taxes.
Inflation is one method to get hold of the wealth of the common people in order to pay for the war. But there are really no limits to the imagination of those in real control of geopolitical affairs. Here is a second method: the introduction of income tax in the USA prior to the First World War. Buckminster Fuller has described this in great detail in his book Critical Path. The supreme leaders of the American Revolution were of the southern type George Washington and Thomas Jefferson. Both were great landowners with direct royal grants for their lands, in contradiction to the relatively meager individual landholdings of the northern Puritan colonists. With the revolution over, we have Alexander Hamilton arguing before the Congress that it was not the intention of the signers of the Declaration of Independence that the nation so formed should have any wealth. Wealth, Hamilton argued as supported by Adam Smith is the land, which is something that belonged entirely to private individuals, preponderantly the great landowners with king-granted deeds to hundreds and sometimes thousands of square miles, as contrasted to the ordinary colonists few hundreds of acres of homestead farms128. Hamilton went on to argue that the United States government so formed would, of course, need money from time to time and must borrow that money from the rich landowners banks and must pay the banks back with interest. Assuming that the people would be benefited by what their representative government did with the money it borrowed, the people gladly would be taxed in order to pay the money back to the landowners with interest. This is where a century-and-a-half-long game of wealth-poker began with the cards dealt only to the great landowners by the world power structure.
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Try to understand the American Civil War with this in mind.
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Obviously, very powerful people had their land given to them by the king and not by God, but the king, with the churchs approbation, asserted it was with Gods blessing. This deed-processing produced a vast number of court decisions and legal precedent based on centuries and centuries of deed inheritances. Thus, landlords deed evolved from deeds originally dispensed from deeds of war. Then the great landlords loaned parcels of their lands to sharecropping farmers, who had to pay the landlords a tithe, or rent, and interest out of the wealth produced by nature within the confines of the deeded land. The landlord had his tithing barn within which to store the grains collected in the baskets (fiscus is Latin for basket; thus the fiscal year is that which winds up within the basketed measuring of the net grains harvested). The real payoff, of course, was in regenerative metabolic increments of the botanical photosynthetic impoundment of Sun radiation and hydrocarbon molecules structuring and proliferation through other hydrogenic and biological interaccommodations129. Obviously none of this natural wealthregenerating and -multiplying was accreditable to the landlords. When I was young, there were people whom everybody knew to be very wealthy. Nobody had the slightest idea of what that wealth consisted, other than the visible land and the complex of buildings, in which the wealthy lived, plus their horses, carriages and yachts. The only thing that counted was that they were known to be enormously wealthy. The wealthy could do approximately anything they wanted to do. Many owned cargo ships. However, the richest were often too prone to live in very unostentatious ways. Of course, money was coined and the paper equivalents of metallic coinage were issued by the officers of banks of variously ventured private-capitalbanking-type land systems. Enterprises were underwritten by wealthy landowners, to whom shares in the enterprises were issued and, when fortunate, dividends were paid. Rich people sometimes had their own private banks as, for instance J.P. Morgan and Company. Ordinary people rushed to deposit their earnings in the wealthy peoples banks. For all the foregoing reasons nobody knew of what the wealth of the wealthy really consisted, nor how much there was of it. There were no income taxes until after World War I130. But the income tax did not disclose capital wealth. It disclosed only the declared income of the wealthy. The banks were capitalized in various substantial amounts considered obviously adequate to cover any and all deposits by other than the bankers involved in proclaiming the capital values. These capital values were agreed upon privately between great landowners based on equities well within the marketable values of small fractions of their vast king-deeded landholdings. The rich get richer and the poor get children was a popular song of the early 1920s131. Wages were incredibly low, and the rich could get their buildings built for a song and people them with as many servants for another song. But,
What Bucky is telling: added value is produced on Earth by the Sun in a pure natural way, something no person or corporation ever can accomplish. 130 This may surprise you, but later on you will read the reason for this. 131 A contemporary version goes like this: The poor stay poor, the rich get rich. Thats how it goes. Everybody knows that the boat is leaking and that the captains lied.
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as with uncalled poker hands, nobody ever knew what the wealthy really had. I was a boy in a comfortable off family, not a wealthy family not wealthy enough to buy and own horses and carriages. To me the wealthy seemed to be just fantastically so. This brings us to World War I. Why is it called the First World War? All wars until this time had been fought in the era when land was the primary wealth. The land was the wealth because it produces the food essential to life. In the land-wealth era of warring the opposing forces took the farmers from the land and made soldiers of them. They exhausted the farm-produced food supplies and trampled down the farms. War was local. In 1810, only five years after Malthuss pronouncement of the fundamental inadequacy of life support on planet Earth, the telegraph was invented. It used copper wires to carry its messages. This was the beginning of a new age of advancing technology. The applied findings of sciences brought about an era in which there was a great increase of metals being interalloyed or interemployed mechanically, chemically, and electrolytically. Metals greatly increased the effectiveness of the land produced foods. The development of non-rusting, hermetically sealed tin cans made possible preservation and distribution of foods to all inhabited portions of our planet Earth. All the new technology of all the advancing industry, which was inaugurated by the production of steel in the mid-nineteenth century, required the use of all the known primary metallic elements in various intercomplementary alloyings. For instance tin cans involved tin from the Malay straits, iron from West Virginia mines, and manganese from Southern Russia. The metals were rarely found under the farmlands or in the lands that belonged to the old lords of the food-productive lands. Metals were found often, but not always, in mountains all around the world, in lands of countries remote from one another. Mine ownerships were granted by governments to the first to file claims. It was the high seas, intercontinental, international trafficking in these metals that made possible the life-support effectiveness of both farming and fishing. The high-seas trafficking was mastered by the world around line-of-supply controllers the venturers and pirates known collectively as the British Empire. This world-around traffic was in turn financed, accounted, and maximally profited in by international bankers and their letter of credit, bills of exchange, and similar pieces of paper. International banking greatly reduced the necessity for businessmen to travel with their exported goods to collect at the importers end. Because the world-around-occurring metals were at the heart of this advance in standard of living for increasing numbers of humans all around the world, the struggle for mastery of this trade by the invisible, behind-the-scenes-contending world power structures ultimately brought about the breakout of the visible, international World War I. The war was the consequence of the world-power-structure outs becoming realistically ambitious to take away from the British ins the control of the worlds high-seas lines of supply. The outs saw that the British Navy was guarding only the surface of the sea and that there were proven new inventions the submarine, which could go under water, and the airplane, which could fly above water so the behind-the-scenes world-power-structure outs adopted 142
their multidimensional offensive strategy against the two-dimensional worldpower-structure ins. The invisible-power-structure outs puppeted the Germans and their allies. The invisible-power-structure ins puppeted Great Britain and her allies. With their underwater strategies the outs did severely break down the ins line of supply. J.P. Morgan was the visible fiscal agent for the in power structure, operating through Great Britain and her allies. The 1914 industrial productivity in America was enormous, with an even more enormous amount of untapped US metallic resources, particularly of iron and copper, as backup. Throughout the nineteenth century all the contending invisible world power structures invested heavily in U.S.A.-enterprise equities132. Throughout that nineteenth century, the vast resources of the U.S.A. plus the new array of imported European industrial tooling, the North American economy established productivity. The U.S.A. economy took all machinery that had been invented in England, Germany, France, and Europe in general and reproduced it in America with obvious experience suggested improvements. In 1914 World War I started in the Balkans and was joined in Belgium and France on the European continent. The British Isles represented the unsinkable flagship of the high-seas navy of the masters of the world oceans lines of supply. The unsinkable flagship commended the harbors of the European customers of the high-seas-line-of-supply control. If the line of supply that kept the war joined on the European continent broke down completely, then the outs would be able to take the British Isles themselves, which, as the flagship of the ins would mean the latters defeat. In 1914, three years before the U.S.A. entered the war, J.P. Morgan, as the Allies fiscal agent, began to buy in the U.S.A. to offset the line-of-supply losses accomplished by the enemy submarines. Morgan kept buying and buying, but finally, on the basis of sound world-banking finance, which was predicated on the available gold reserve, came the point at which Morgan had bought for the British and their allies an amount of goods from the U.S.A. equaling all the monetary bullion gold in the world available to the ins power structure. Despite this historically unprecedented magnitude of the Allied purchasing it had only fractionally tapped the productivity of the U.S.A. So Morgan, buying on behalf of England and her allies, exercised their borrowing credit to an extent that bought a total of goods worth twice the amount of gold and silver in the world available to the ins. As yet the potential productivity of the U.S.A. was but fractionally articulated. Because the ability to pay later credit of the Allied nations could not be stretched any further, the only way to keep the U.S.A. productivity flowing and increasing was to get the U.S.A. itself into the war on the ins side, so that it would buy its own productivity in support of its own war effort as well as that of its allies. By skillful psychology and propaganda the ins persuaded America that they were fighting to save democracy. I recall, as one of the youth of those times, how enthusiastic everyone became about saving democracy. Immediately the U.S.A. government asked the British and their allies, What do you need over
Remember Great Britain loosing the American Independence war but the East India Company swiftly moving its interests to the U.S.A.
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there? The ins replied, A million trained and armed men, and the ships to carry them to France, and many, many new ships to replace the ships that have been sunk by submarines. We need them desperately to keep carrying the tanks and airplanes, weapons, and munitions to France. The ins also urgently requested that the U.S. Navy be increased in strength to equal the strength of the British Navy and therewith to cope with the German submarines, while our British Navy keeps the German high-see fleet bottled up. We want all of this from America. America went to work, took over and newly implemented many of the U.S. industries, such as the telephone, telegraph, and power companies, and produced all that was wanted. For the first time in history, from 1914 to 1918, humanity entered upon a comprehensive program of industrial transformation and went from wire to wireless communication; from tracked to trackless transportation; from two-dimensional transport to four-dimensional133; from visible structuring and mechanical techniques to invisible atomic and molecular structuring mechanics. Within one year the million armed and trained U.S.A. soldiers were safely transported to France without the loss of one soldier to the submarines134. Arrived in France, they entered the line of battle. With the line of supply once more powerfully re-established by the U.S. Navy and its merchant fleet, it became clear that the ins were soon going to win. J.P. Morgan, now representing the allied power structures capitalist systems banks as well as serving as the Allies purchasing agent, said to the American Congress, How are you going to pay for it all? The American Congress said, What do you mean, pay for it? This is our own wealth. This is our war to save democracy. We will win the war and then stop the armaments production. Morgan said, You have forgotten Alexander Hamilton. The U.S. government doesnt have any money. Youre going to pay for it all right , but since you dont have any money, youre going to have to borrow it all from the banks. Youre going to borrow from me, Mr. Morgan, in order to pay these vast war bills. Then you must raise the money by taxes to pay me back135. To finance these enormous payments Mr. Morgan and his army of lawyers invented for the U.S. government the Liberty Loans and Victory Loans. Then the Congress invented the income tax. With the U.S. Congresss formulating of the legislation that set up the scheme of the annual income tax, we the people had, for the first time, a little peek into the poker hands of the wealthy. But only into the amount of their taxable income, not into the principal wealth cards of their poker game.
133 134
Yes, four, two dimensional on the surface of the oceans, one under water and one in the air. They were scheduled to die in the fields of Flanders, not to die a useless death at sea. 135 You might think there is one step too much: why a loan from Mr. Morgans bank? Wouldnt it be cheaper and more rational if taxes were raised so the government could then pay directly for the warfare without first lending money from the bank, so Mr. Morgan could not make a profit on his loan? But as already stated, the cost of the war is never presented a priori to the people in a direct, rational way taxes directly related to the war but the cost is a posteriori presented in an indirect way: the first introduction of income taxes in American history and the depreciation of the currency when the newly established Federal Reserve Bank started to spend the money created out of nothing.
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During World War I, U.S. industrial production has gone to $178 billion. With only $30 billion of monetary gold in the world, this monetary magnitude greatly exceeded any previously experienced controllability of the behind-thescenes finance power structure of the European Allies. World War I over, won by the Allies, all the countries on both sides of the warring countries are deeply in debt to America. Because the debt to the U.S.A. was twice that of all the gold in the ins world, all the countries involved in World War I paid all their gold to the U.S.A. Despite those enormous payments in gold all the countries were as yet deeply in debt to the U.S.A. Thereafter all those countries went of the gold standard. B. Fuller, Critical Path, pp. 78, xxii-xxiii
7.7
3rd
mechanism to get hold of the wealth of the common people: Higher
prices for essential commodities. In the early 1970s, the shah of Iran was allowed to continue his excessive military spending by increasing the price of oil, with the consent of the Nixon and Kissinger: purchasing power of all the people all over the world was diverted into the pockets of the American weapon industry. As oil is one of the main energy resources in the economic production process, this has lead to a world-wide double digit inflation that lasted for about a decade, so the erosion of purchasing power was even enforced. After the disintegration of the USSR in the early 1990s, the southern former USSR states around the Caspian seas got their independence from Russia. The Americans swiftly took interest in the vast supplies of oil and natural gas in that region: American oil companies moved in and American military bases were installed in those countries. A plan of European companies to build a oil-pipeline from the Caspian sea through former Yugoslavia to the Adriatic sea was thwarted by the war in the Balkans in the mid 1990s, in which three ethnic groups who had lived peacefully together for 50 years after WWII were set up against each other: Muslims, Orthodox Christians and Roman Catholic Christians. As Julius Caesar said: Divide et Impera. After September 11th 2001, Afghanistan was attacked under the pretence that Bush wanted to get hold of Osama Bin Laden and that the Taliban a former USA ally at the time the USSR was in Afghanistan should be defeated. The Americans never got hold of Osama, but the war was very convenient in order to get control of the region and to build a pipeline from the Caspian Sea to the Indian Ocean. After the first war against Iraq, that country was allowed to export only a limited amount of oil, just enough to be able to pay for the import of food and medicines. After the second war against Iraq, the Americans got full control over the oil-supplies of Iraq. Now the USA controls the major supplies of oil on Earth and the price of oil is soaring to unprecedented heights, so the price of electricity and natural gas will follow this trend. All the people of the world have to pay more for their transport and their heating or air-conditioning, the cost of production will increase: we are facing once more a period of hyperinflation. This
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is completely in line with what Ravi Batra has predicted in his book The Great Depression of 1990136.
Inflation and money growth per decade (in %) 180 165 150 135 120 105 90 75 60 45 30 15 0 -15 -30 -45 1750 1770 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 Time Note the increasing trend of the peaks.
180 165 150 135 120 105 90 75 60 45 30 15 0 -15 -30 -45 Moneygrowth Inflation
Im just sitting here watching the wheels go round and round. (John Lennon) History teaches us that humankind has nothing learned from it. (Anonymous) Those who do not remember the past are condemned to relive it. (Santayana) We are once more paying the bill of the war a posteriori, while some companies like Halliburton (Dick Cheney) and The Carlyle Group (Bush Sr.) are making a huge profit out of this.
In the beginning of the 1990s, there was indeed an economic dip, but not as great as Ravi Batra had expected. But then there was the First Golf War. The high expenditure in the category of desinvestments goods was very convenient in order to avoid a great depression.
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Eight Days A Week The Fourth Wave 7.8 A 4th
mechanism to get hold of the wealth of the common people:
Crashes on the stock market. And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers137, and the seats of them that sold doves138, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves. St. Matthew 21-12,13.
We have seen that the evolution in time of the profit margin of companies follows a saw-tooth shaped curve: longer periods of decrease in between wars are alternating with short periods of fast increase during the war. The stock exchange has the inverse evolution: long periods of slow increase alternate with short periods of sharp decrease. After the soap-bubble burst on Wall Street in 1929 and the following Great Depression during the 1930s, Roosevelt tried to put things back to order with his New Deal, and the financial system was strictly controlled by the government. A banker had as much decision power over interest rates as a postmaster over the price of post stamps; he could not decide autonomously on the level of interest for loans or savings. These were dictated by the government. A strict division between save and loan banks and investment banks was imposed, just as a strict division between banks and insurance companies. Pension funds were allowed to invest only in government bonds with a low but secured yield. The mechanism for the creation of money was strictly controlled: increase in the money supply should go hand in hand with real economic growth. After the Second World War, the major international currencies were linked to the value of gold at the conference of Bretton Woods in 1944, and for years the dollar had a rather fixed international exchange rate compared to other currencies. This was good for international trade, as this gave industrial companies financial security and stability: there was no or little uncertainty on the prices of import and export products and services. In 1973 President Nixon abandoned most of these measures: the value of the dollar was no longer tied to the value of gold and pension-funds were again allowed to invest in shares of private companies. The division between banks and insurance companies was abandoned. And in 1999, with one stroke of a pen, President Clinton abandoned the strict division between save and loan banks and investment banks. The story goes that there was a very big party on Wall Street that day: the money of the common people could again be used for more speculative investments. Capitol Hill houses democratic and republican senators and representatives. But the capital controls the Capitol, and even the White House.
At that time, every city in Palestine had its own coins. In Jerusalem, pilgrims for Eastern had to exchange their coins in order to be able to buy a dove. In was the tradition to release a pigeon, just as the Roman Catholic pope is still doing at Eastern Sunday. 138 The doves were domestic ones: once they were released by the pilgrims who bought them, they flew back to their dovecote where they got some food. And then they were transferred once more to the temple for another flight. Making money out of the credulity of common people is of all times and can take many forms!
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When a lot of private people and employers pump money into the stock market each year, for their private pension-fund or a collective pension-fund for the employees, then the stock market must go up. The value of shares increases beyond a level that is normally considered as healthy, based on the yearly dividend they pay or the ratio of the profit per share versus the value of the shares on the stock market. And as the value of the shares goes up, more and more people are willing to divert part of their real savings towards the stock market. They divert savings from their saving account, with a low but rather secure interest rate just above the inflation rate, towards the volatile stock market, in the hope to have a higher return. This means that banks have to pay less interest on saving accounts to the public, while they can charge a fee on every transaction the public makes on their portfolio of shares and investment funds. The risk is thus completely shifted from the bank towards the public, while the banks increase their income free from any risk. Now most of the post the WWII baby-boom generation is retiring and they are collecting their private and collective pension-funds. This means that the funds have to sell part of their shares in order to have cash money. Inside traders know when this is going to happen and on what funds and shares this will happen! The common belief of financial experts and even economists is that, when a major correction occurs on the stock-market and the value of the shares sharply drops, wealth has been destroyed. This is pure nonsense. Real wealth is determined by economic production, not by the value of some piece of paper. The purchasing power of those who lost a major part of their fortune or their pension-fund in the crash on the stock market has indeed been eroded. But they themselves have voluntarily diverted their real purchasing power during many years towards those who sold their shares just-in-time, cashing their profit! If a private person or a pension-fund is eager to buy shares on the stock market at any price, then there must be someone else willing to sell them, as he is satisfied with the profit he can realize, or companies can issue new shares in order to increase their working capital in order to invest in capital goods or to finance acquisitions. There is a continual transfer of real wealth towards the persons who cash their shares and take their profit, and towards companies who issue new shares. So, over a period of many years, the real wealth of common people has been diverted to a system that is nothing else than a pyramid game, a Ponzi scheme, in which most of the participants act as lemmings, while inside traders take their profit just -in-time and stock brokers and banks charge a fee for every exchange on the stock market. And then one day the whole pyramid collapses, the end of the Ponzi scheme. Who do you think buys the shares after a major drop in value? Very often companies buy their own shares, so they have to pay fewer dividends to outsiders. And more often the insiders with foreknowledge, who are sitting on a heap of cash given to them by the common people, buy the same shares they had sold just before the crash. Same players on the financial pinball-machine get a bonus and can shoot again.
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7.9
The North-South relationship
The previous sections dealt with the phenomenon of war as an offshoot of an economic crisis: the saturation of the market, overproduction, high unemployment, the accumulation of too many capital goods, the introduction of protectionist measures and the high profitability of the pram-industry, financed by taking away purchasing power from the people through the creation of fiat money and inflation. All these ingredients constitute a perfect soil for the seeds of war. During the Cold War period, we usually thought of the tensed relations between NATO (more specific the USA) and the Warsaw-pact (more specific the USSR) as a possible cause for war. But this was just propaganda in order to justify the enormous military expenditures by the NATO allies, not a real threat. The relation between the rich Northern hemisphere and the underdeveloped South, however, is much more explosive than the East-West contrasts of that time and could lead us to a real global conflict. In 1972 Robert McNamara published his first historical message: There is now an economic burst between the North and the South. This flaw constitutes a very deep cleavage in the sociological crust. It will result in tremendous storms and earth quakes. If the Northern part of the world will not try everything in order to narrow the gap between the very successful North and the very poor Southern part of the world, then at the end of the road nobody will be secure anymore, regardless the size of our arsenals and troops... In his introduction to a study made by specialists of different nationalities Willy Brandt has written the following: Our commission was unanimous in its conclusion that a revision of the relations between the two parts of the world is very urgent. The economic system that has been operational since the Second World War has now led to a situation where it holds more disadvantages for the Third World countries than advantages. A complete new equilibrium must be found, a new international economic order. This is a historical mission... In 1960 Franz Fanon wrote already: We must continue to convince the capitalistic world that the basic problem of this time is not to be found in the struggle between communism and capitalism. The Cold War, the conventional and nuclear arms race must stop at once. One should on the contrary invest all the resources, which are now wasted on the arms race, in the underdeveloped countries and give them technological and financial help. The destiny of the whole world is dependent on this. J.J. Servan-Schreiber, The Challenge, pp. 156, 301, 135-136. The situation between the Northern and Southern hemisphere is now indeed very tense, even explosive, especially with this created War Against Terror which is aimed at Islamic people, and not in the least because of the enormous evolution in communication technology. Due to the fast and easy transfer of and access to information, the earth we live on seems to get smaller, more compact, than it used to be. We could compare this situation of the world now with that of most European countries in the 19th century. 149
In those days European countries had a small lite of very rich people with under them a mass of poor illiterate people without any possessions or political power139. There was no middle class as we have now. The poor people had little knowledge of the mechanisms by which the rich secured the extreme wealth they lived in. But because of the industrialization it was necessary to give the laborers a minimum of education in order to read and understand written orders and instructions. In doing so, the poor were given access to a new form of information: they could read books and papers. Those books usually dealt with life in the upper classes, as there was little literature about the lower classes. So through these books the lower classes got an insight in the world of the rich, they became aware of another world and they started to question the situation: Why do we have nothing and they have everything? Why dont we have the right for some material wellbeing? After all, it is we who do the work and they enjoy the fruits of our labor! Social reformers started to write books on this matter and through pamphlets this emerging consciousness started to find its way to the lower classes in society, who started to organize themselves in unions and political parties. This new evolving consciousness has led to the class-struggle, which in some countries has led to violent revolutions and drastic political reforms, while other countries diverted the aggression to other countries by waging war. Most West-European countries have been able to avoid such revolutions by administering by driblets more democratic rights and material welfare to the lower classes. As discussed in section on distribution of profit as driving force of economic growth, this transfer of purchasing power to the people most in need of material goods has resulted in an enormous stimulus for the economic growth and even in more profit for the upper classes! We could say that Marx and Keynes go hand in hand in this matter. Because of the gradual distribution of economic welfare among all social classes, one has been able to control the social tensions, for the better of all classes in society. Nowadays we have a similar situation worldwide with tensions between the rich industrialized world and the poor Third World countries. In the underdeveloped and developing countries the majority of the population lives in extreme poverty and in need of the basic goods and utilities to survive. In the ghettos of the large cities in Asia, Africa, Southand Central-America, millions of people live in permanent need for food and medical care. But due to the fast evolution of the technical communication media, especially television, films and the Internet, those people are informed about the situation in the rich countries. In Mexico City for example, families with seven or more children live in sheds built of trash and corrugated asbestos, girls of fourteen years old have to sell their body the only thing they have on the street because their father does not earn enough money to support his family. But very often those families have bought a second hand television set. And then they watch American soap operas like Dallas and Dynasty and they see the extreme luxury some Americans live in. Not every person in the USA lives like JR. Ewing, but on their television set the poor family in Mexico City does not see the unemployed workers in Detroit and other industrial centers, they do not see the tramps living on the streets of Philadelphia and looking for food in the trash cans, there are no or very few series on television about these people and they are surely not broadcasted in the Third World countries. There people do not know that since the beginning of the Reagan administration in the early 1980s the minimum wages in the USA have fallen by one third in real terms, and that the increasing concentration of wealth has destroyed the American middleclass, the basis of civil production. So a new consciousness is emerging in the Third World countries: How does it come that people in the North enjoy such material wealth while we cant even find enough food and
139
Read the books of Charles Dickens, Victor Hugo and others.
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clothes and proper housing? Dont we have a right for these basic goods? This insight is even sharpened because most of these people are well aware of the fact that the industrial process in the North is based on import of cheap energy, raw materials and manufactured articles from the Third World countries and export of expensive finished goods, investment and disinvestment goods towards the underdeveloped countries. And who has control over these prices? Besides, only a small portion of the population in the Third World countries takes advantage of this worldwide over-cropping. The majority of the people in the underdeveloped countries are not able to buy the products they produce themselves. In tropical countries where Nature is abundant people didnt had to work very hard. But then the colonists came, who took possession of their land and started mono-culture agriculture on large scale aimed at export to the rich countries at very low prices. The local people were cut from their own natural resources, so they were forced to work for the landlords at minimum wages, too low to live, too high to die. So, in a way, the Middle Ages were exported to the colonies. This situation is similar to the one of most European countries in the 19th century. Deceived by the false theories of economists, the proletarians have surrendered their body and soul to the curse of labor, and in doing so, they have led society into an industrial crisis of overproduction. Because there is excess of supply of goods and shortage of people able to buy, factories and mills are closed and laborers suffer from hunger and cold. The proletarians, drugged by the dogma of labor and not knowing that their excessive labor in times of so-called prosperity is the cause of the crisis and their own misery, they should run to the granary and shout: We are hungry, we want food. Although we have no money and are beggars now, it is we who have harvested the grain and selected the grapes. They should attack the warehouses of monsieur Bonnet in Jujurieux, the inventor of the industrial convents and yell at him: Monsieur Bonnet, here are your clear-starchers, your silk-throwsters, your spinners, your weavers. They shiver in their patched cotton clothes, although they have made the silk clothes that you have sold to the whores of Christianity. The poor girls worked thirteen hours a day so they had no time to dress up. Now they are unemployed and have the time, but they cannot afford the silk clothes they have made for others. As soon as they had lost their milk-teeth, they have dedicated their lives to your fortune, while living in poverty themselves140. P. Lafargue, The Right to be Idle, pp. 65-66. A small minority in the underdeveloped countries is able to live in extreme wealth, while at the same time they have the money to acquire the political and military means in order to suppress their own population. This situation holds two dangers. First, think of what could happen if the suppressed population manages to overrule the possessing opposing class and acquires control over that military apparatus, as actually happened in Iran? A former ally of the western industrialized countries can turn into an opponent. Secondly, think of what could happen if the rulers in those countries become aware of the aggressive feelings of their own population toward the rich and try to secure their own position by diverting the aggression towards another country, against the rich Northern part of the world 141? What if those
See the film The Corporation, in which the situation of female laborers in Third World countries, working for Western multinationals, is described. 141 Al Qaeda, the Taliban...
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countries cut off the supply or increase prices of energy and raw materials vital to the economic process of the industrialized countries? Is there really no other way besides military action and suppression in order to resolve this explosive situation?
Once more we end this section with a conclusion: Democratization of information can lead to more equality and more prosperity for more people.
7.10 The dangers and excesses of the banking industry The smarting imbalance between the saturation in the rich northern part of the world on one side and the extreme poverty in the southern part on the other side not only carries the danger for a global war. It could also result in severe difficulties for the capitalistic banking system, as they have granted excessive loans to Third World Countries in order to finance megalomaniac projects, project which are not in the interest of the local population, but which yield profit for western companies like Halliburton. The book Confessions of an Economic Hitman, written by John Perkins, is a very good analysis of this policy: poor countries are talked into and sold big infrastructure projects in order to bring them to a debt level that they will never be able to pay back. So they become puppet states of the USAs industrial and financial lite as they have lost their financial, political and thus economic independence. The following facts from the 1980s illustrate the scope of the problem and also its evolution in time: The four largest American banks have granted loans to Brazil for an amount that is more than their own capital. Other international banks have also engaged in this adventure. Brazil has a debt of 57 billion dollar and has to pay a yearly interest of 13 billion dollar. Demands for new loans are rejected, as they would only serve to pay the interests. So Brazil has suddenly become unhealthy for foreign capital. It still has a dangerous weapon: blackmail. Think of what would happen to the western banking system if a country like Brazil would refuse to pay back its debts. In 1980 the total debt of the Third World countries had reached the astronomic figure of 350 billion dollar. Until 1974 these countries paid back their loans on a regular basis, but not anymore. J.J. Servan-Schreiber, The Challenge, p. 160. We are facing a disorder in the international monetary and banking system. Because of the immense debts of the Third World countries (650 billion dollar already in 1984) a lot of financial analysts fear for a disaster, as those countries will not be able to pay their debts. Some have even stopped paying interests on loans! Besides, in order to pay back their debts, those countries would have to have such excessive surpluses on their balance of trade for longer periods of time that this would result in a structural imbalance in the world economy. Interview with professor E. Mandel in Knack, March 14 1984.
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The ten largest banks have more than 50 billion dollar on loan to developing countries. This sum amounts to roughly 100% of their shareholders equity; if all the loans went into default, the banks capital would be wiped out. Time, August 29 1988. But there is a second phenomenon, less known to the public but even more threatening to the banking system. Due to the saturation of the markets and the resulting pressure on prices, companies that want to stay in business are forced to invest ever more in order to improve their productivity and to make acquisitions in order to increase the scale they are working on and to gain market-share. Not all of these investments and acquisitions can be financed by using retained earnings or by attracting new risk-bearing capital from stock-holders. So companies are forced to take loans from commercial banks. And these banks are eager to sell loans, to make money out of money in order to be able to pay back the interest to their depositors. These banks often neglect to do a thorough risk analysis. But when the expected economic growth does not come and turnover is not what it ought to be, then these companies are in trouble to fulfill their financial obligations toward the banks. This in turn results into a difficult time for these banks, as they have used the money of other people, their depositors, to make these loans. In the USA one can see thousands of cases which remind us of the early 1930s, farmers who can no longer pay their mortgage and so lose their land and equipment, resulting in an endless loop for the local economy: loss of purchasing power, other businesses going down, less tax-revenues for local communities... But these are the small farmers. Think of the level of debts the large multinationals are living with, billions and billions of dollars... This makes the banking system very vulnerable, here lays the real danger. I would not predict a total collapse of the financial system. But surely we will see an evolution to more regulation and more financial support from the government, paid for by the tax-payer, in order to divert the financial crisis. The American government cannot afford to let the Chase-Manhattan bank to go down the drain, for the Chase-Manhattan bank is the American government. So the crisis of the private banking world will be reshaped into a larger public deficit, paid for by every American. Interview with professor E. Mandel in Knack, March 14 1984. Almost 1,500, or roughly 11% of the 13,700 commercial banks in the US are still on the Federal Deposit Insurance Corporation list of troubled institutions. Many of these banks are already doomed, and hundreds of others could be sunk by a continued rise in interest rates, which means that they would have to pay more to depositors. Time, August 29 1988. The severity of the situation at that time was well understood by the US government. Father George Bush, who inherited the problem from Ronald Reagan, made up a plan to set aside 285 billion dollar to rescue the savings and loans industry, whereof 157 billion dollar will 153
come from tax-payers money. And in 2008, Bush Jr. asked for 700 billion dollar from the tax-payers! Remember, from October 2008 till October 2009 hundred American banks went bankrupt! This whole evolution can easily be understood in terms of our basic theory. As the economic system in the western world suffers from saturation and fierce competition, while at the same time the Third World countries and the former Comecon countries do not have the purchasing power to buy the surpluses of the rich countries, the world economy stagnates. In a zerogrowth economy, one can no longer create money out of money, so banks can no longer make a profit: it is impossible for them to receive a higher interest on the loans they make than the interests they have to pay on the deposits they have collected. What could cause such a positive difference? If the banking world keeps to such a difference between interests on loans and interests on deposits in times of zero-growth, then this can only be accomplished by extracting purchasing power from other socioeconomic entities, such as companies, private families the common people , other industrialized countries or Third World countries. The multilateral agencies have become net takers of money from Latin America. Commercial banks lent 6 billion dollar of new money to the continent last year. But they extracted more in interest around 26 billion dollar... Both this hemorrhage of cash, and the inability of most governments to take tough economic measures, has squeezed the continents growth. Only Chile and Columbia have grown by more than 3% in each of the past three years. It is no coincidence that those two countries now spend the lowest proportion of their export earnings on debt-service. The Economist, February 11th 1989, p. 83. This clearly illustrates that in a situation of low or zero economic growth, the banks with their money-making mechanisms have a destabilizing influence on the economic process: the economic crisis is sharpened, which can result in negative growth, and this is in nobodys interests, not even the banks! On the excesses of the banking industry, we can refer to the book La Trahison de la Finance [The Betrayal of the Financial World] written by the investment banker Georges Ugeux. In this book he gives an in depth analysis of the financial crisis of 2008 from within the very heart of the financial world. He also formulates some necessary measures that should be taken on national and international level in order to avoid similar crises in the future. In his book he gives a good description of all kind of financial constructions the financial whiz kids of the investment banks and other banks have engineered in order to create the maximum of profit out of money of others (their depositors, their own clients and even their own shareholders) and to shift the risk as much as possible to other parties, very often their own clients or other financial institutions. Warren Buffet once labeled these derivates as financial weapons of mass destruction: credit default swaps, short selling, collateralized debt obligations, private equity funds, leverage funds, hedge funds, the use of equity capital for proprietary trading, trading for own account against the own clients. Mr. Ugeux explicitly states that this kind of financial practices and non-transparency are bosom-friends. This nontransparency made that, during the crisis of 2008, the banks no longer trusted each other and
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refused loans to other banks, while they still expected that the public would have confidence in them. Central banks and governments in several countries had to intervene on a never seen scale, using taxpayers money in order to counter a run on the banks and to restore the confidence of the public and the enterprises in the whole financial system. And some of these banks (like Goldman Sachs) even dared to use the total amount of financial support they received from the US government in order to pay excessive bonuses to their traders (trade sharks in the words of Mr. Ugeux) and high dividends to their shareholders (financial institutions are responsible for 10% of the employment, but they pay 25% of the salaries!) Therefore Mr. Ugeux advocates simpler financial techniques and products, so that the size of the investment, the possible risks and opportunities become more transparent and easier to assess. He also calls for a better capitalization of the banks, more international control on banks in a financial world that has become more and more transnational, and more honesty within the financial world and better communication toward their clients and shareholders. The financial institutions should also reconsider their prime raison dtre and socioeconomic mission: provide an intermediate financial service to enterprises and the public in general by providing credit for purposeful projects and a fair compensation for those who provide the money. The long term economic and social role should prevail over the urge to make a quick buck. A possible approach is outlined in the next section.
7.11 An alternative banking system that really works Mr. Muhammad Yunus, a former professor in economics in Bangladesh, was granted the Nobel Prize of Peace in 2006 for his Grameen Bank project of microcredit: a bank that lends money in small amounts to the poorest people, even to beggars, and is making a profit in doing so. In his own words: The financial crisis has shown us more clearly than ever where capitalism fails. Originally the credit market was designed to serve peoples needs. It was designed to provide businessmen with capital to found or expand companies. Thanks to home mortgages, people were able to buy homes and pay the costs over a long period of time. Student loans funded education for millions. Banks that provided the credit earned a reasonable profit. Everyone benefited. But traditional capitalism demands ever-increasing profits, and it creates powerful incentives for smart people who used their creativity to make that possible. Over time, competing financial institutions aimed for higher and higher profits in the credit market using clever feats of financial engineering. They repacked mortgages and other loans into sophisticated instruments whose risk level and other characteristics were hidden or disguised. Then they sold and resold these instruments, earning a slice of profit on every transaction. All the while, investors eagerly bid up the prices, scrambling for unsustainable growth. Blinded by these unrealistically high rates of return, they never made an effort to question the risks hidden inside those financial instruments. They gambled that the systems underlying weakness would never come to light. But it did. With the collapse of the housing market in the United States, the whole house of cards tumbled down with such momentum it surprised even those of us who had been skeptical about the financial system all along. 155
Millions of people around the world who did nothing wrong are suffering. As always, the ones who are hit the hardest are the poor especially the bottom 3 billion, who were already living at a bare subsistence level. They are being hit hard by the combined effects of the food crisis, the environmental crisis, and the financial crisis. It its current, incomplete form, capitalism has badly failed its social responsibility. So far, governments struggling to alleviate the combined crises of 2008-2010 have kept themselves busy coming up with super-sized bail-out packages for the institutions responsible for creating the financial crisis. Unfortunately, no bail-out package of any size has even been discussed for the victims of the crisis: the bottom 3 billion and the planet itself. Todays crisis has been a valuable reminder that all people around the world are undeniably connected. The fate of Lehman Brothers and that of the poor women working in a garment factory in Bangladesh are linked. Therefore, I have repeatedly urged that this mega-crisis be taken as an opportunity to redesign the existing economic and financial system. This is the time to bring the world together and to change our economic architecture so that this type of crisis never occurs again. Social business can be a key element of this change. Muhammad Yunus, Building Social Business The New Kind of Capitalism that Serves Humanitys Most Pressing Needs, pp. 198-199. The more time you spend among poor people, the more you become convinced that poverty is not the result of any incapacity on the part of the poor. Poverty is not created by poor people. It is created by the system we have built, the institutions we have designed, and the concepts we have formulated. Poverty is created by deficiencies in the institutions we have built for example financial institutions. These banks refuse to provide financial services to nearly two-thirds of the worlds population. For generations they claimed it could not be done, and everybody accepted that explanation. This allowed loan sharks to thrive all over the world. Grameen Bank questioned this assumption and demonstrated that lending money to the poorest is not only possible but profitable. During the global financial crisis that began in 2008, the falsity of the old assumptions became even more visible. While big conventional banks with all their collateral were collapsing, around the world microcredit programs, which do not depend on collateral, continued to be as strong as ever. Will this demonstration make the mainstream financial institutions change their minds about their traditional definition of creditworthiness? Will they finally open their doors to the poor? I am quite serious about this question (although I know all too well what the likely answer is). When a crisis is at its deepest, it can offer a huge opportunity. When things fall apart, we can redesign, recast, and rebuild. We should not miss this opportunity to convert our financial institutions into inclusive institutions. Nobody should be refused access to financial services. Because these services are so vital for peoples self-realization, I strongly feel that credit should be given the status of a human right.
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Muhammad Yunus, Building Social Business The New Kind of Capitalism that Serves Humanitys Most Pressing Needs, pp. xii-xiii. We can create a poverty-free world if we redesign our system to take out its gross flaws which create poverty. We can create a world in which the only place you would be able to see poverty is in poverty museums [like Holocaust museums]. Someday, schoolchildren will be taken to visit these poverty museums. They will be horrified to see the misery and indignity that innumerable people had to go through for no fault of their own. They will blame their ancestors for tolerating this inhuman condition for so long and rightly so. Muhammad Yunus, Building Social Business The New Kind of Capitalism that Serves Humanitys Most Pressing Needs, pp. xiii. I dont have anything to add to this, or maybe yes, I do have.
7.12 War Against Terror in order to defend The Sixth Freedom After the disintegration of the Communist East block and the end of the Cold War, the USA was suddenly faced with a problem: the military industry, responsible for a great part of scientific research and employment in the USA, had lost their raison dtre. And what to do with the CIA and the NSA? So a new enemy had to be created The achievements of Bush administration planners in inspiring Islamic radicalism and terror are impressive. The senior CIA analyst responsible for tracking Osama bin Laden from 1996, Michael Scheur, writes that bin Laden has been precise in telling America the reasons he is waging war on us. None of the reasons have anything to do with our freedom, liberty, and democracy, but have everything to do with US policies and actions in the Muslim world. Scheur notes that US forces and policies are completing the radicalization of the Islamic world, something Osama bin Laden has been trying to do with substantial but incomplete success since the early 1990s. As a result it is fair to conclude that the United States of America remains bin Ladens only indispensable ally142. From his detailed study of Al Qaeda, Jason Burke draws a similar conclusion. Every use of force is another small victory for bin Laden, he writes, creating a whole new cadre of terrorists for a cosmic struggle between good and evil, the vision shared by bin Laden and Bush. Noam Chomsky, Failed States, p. 23.
142
And vice versa.
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In On Power and Ideology Noam Chomsky defines The Fifth Freedom as the freedom that some countries grant themselves to get complete control over the natural resources of minerals and energy supplies of other countries143, even by war. We could even define a Sixth Freedom: the freedom that some interest groups grant themselves to create money out of nothing in an illegal way in order to finance this Fifth Freedom. The solution they have engineered in order to defend this Sixth Freedom is phenomenal, as they succeeded to hit three targets in one stroke. The Islamic Taliban in Afghanistan, former freedom fighters in the war against the USSR occupation and secretly supported by the USA, were redesigned into an international, invisible and elusive enemy, so the new War Against Terror can go on indefinitely. Osama Bin Laden and Saddam Hussein, two former business partners of Bush Sr. en Bush Jr. were promoted to the enemies No 1 and 2 (in whatever order you want) of the four American Freedoms (freedom of speech, freedom of religion, freedom from want, freedom from fear). The wars in Afghanistan and Iraq against terrorism and for democracy were very convenient to get absolute control over the world supplies of fossil fuels (the Fifth Freedom) and even opium. Osama Bin Laden is still not found, neither are the weapons of mass destruction in Iraq. And once the fundamentalist Islam will be defeated, a new area of profit will be created for the Sixth Freedom, the freedom that some people impute themselves in order to create money out of nothing144.
In order to clarify the last target, let us elaborate on the Islamic religion. In the Islam it is considered to be a sin against the will of Allah to live from the interests of money (usury). Only saved money, not the interest, and the proceeds of own labor are allowed as means for subsistence. So, in most Islamic countries, this religious prescription has prevented the development of a banking system as we know it in the western world: the very religious people kept their money at home. Because of this, a new form of banking system was developed in some Arabic countries. In keeping with the Korans ban on usury, Islamic bankers have devised an unorthodox interest-free system. It is not only gaining acceptance at home, but is forcing conventional Western banks eager for Muslim [petrol] dollars to adapt some of their own entrenched rules... The institutions in all these countries share a common guiding principle. Instead of receiving a fixed return in the form of interest, depositors share the risk of investment with the bank and split the resulting profits or bear part of the losses. To apply that principle, however, Muslim bankers have been forced to devise a bewildering array of investment plans. Under mudaraba, banks lend money, and clients provide management expertise for a project: the two partners then split any profits on a pre-agreed basis, but losses are born by the bank alone145. Murabaka enables banks to buy commodities and resell
According to their Malthusian paradigm. I once read a report that stated that 30% of the Gross National Product of the United Kingdom comes from financial transactions in The City. 145 Really, can you imagine your bank doing this?
144 143
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them to borrowers at a higher price. Under Musharaka banks and clients jointly contribute capital to a project, and share either the rewards or the losses. In all of these arrangements, as Indian economist Mohammed Nejatullah Sidiqi puts it, the banks cease to be lenders and become partners in enterprise146. Newsweek, May 7th 1984. Hence, in this system interests on savings are not paid automatically: money does not create money out of nothing. Interest on money, i.e. increase of the amount of money, is balanced by real economic production: the successful completion of a project, the creation of added value, economic growth. In the western banking system, on the contrary, money itself has become a commodity with a price: the interest one receives for a deposit or pays for a loan. In that system there can be creation of money without real economic added value. This may lead us to inflation, so purchasing power is diverted in a very sly way from one group in society to another. As we have discussed in great detail in the section on the motives for war versus forces for peace, together with Howard Katz, our banking system holds a real danger for war. On the one hand people are not directly confronted with the cost of the arms race and of warfare when governments finance military expenditures with the creation of money of the blue instead of raising taxes. On the other hand certain groups in society can earn a lot of money, if they succeed to stimulate the arms race, by selling weapons as well as loans to the government. It is an interesting and revealing exercise to unravel the clew of interests of arm producers, the banking world and politics147.
The War Against Terror was invented in order to defend the Sixth Freedom and the Fifth Freedom.
7.13 Summary We now end this rather long analysis I hope you have enjoyed yourselves of the present economic situation with a rsum of the most important topics and relations discussed. In the industrialized countries there is at the same time material abundance and saturation of the markets, unemployment, a growing inequality in income and wealth: this results into a stagnation of the economic growth. Together with the enormous accumulation of capital goods over the years, this leads to lower profit ratios. In former times, war was very often the offspring of such an economic depression in the capitalistic world. After a war, due to the massive destruction with the aid of disinvestment goods, the society returned to a state of greater needs for material goods and a lower level of capital goods, so the profit ratio could jump to a substantial higher level. Inflation, one of the symptoms of an economic crisis, increases the danger for war in two ways. On the one side, the real cost of the arms race is kept secret for the tax-payer. On the
146 147
The beginning of the end of active unproductivity. The Englishman J.P Morgan was at the same time arms trader and agent of the Rothschilds in the
USA.
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other hand, certain groups in society can make huge profits by creating money out of nothing and lending it to the government, who need the money for their military expenditures. As these groups usually have rather close connections with the producers of these weapons, they have a double interest in this affair. There is indeed a strong coupling between the financial world, the weapon industry and the political power, as President Eisenhower once said148. Due to the increased protectionism there are ever more economic tensions among industrialized countries themselves and with the developing countries. And last but not least we have the ever growing gap between the industrialized and developing countries and the Third World Countries. Taking all this into consideration, we can conclude that something has to be done about the situation. War as a solution to an economic crisis is no longer possible. In the good old days, wars were fought with conventional weapons, so the destruction the disinvestment was limited in space and in time. After such a conflict, those who survived could start to rebuild the economic system. Nowadays, a lot of countries have nuclear weapons or have the knowledge to produce them. The destructive power of these weapons is not limited in space and in time. Larger parts of the world would become inhabitable for longer periods of time due to radioactive fallout and nuclear winter. There would be many more victims in an extreme short period of time, which increases the risk for epidemics. After a nuclear conflict it would take a very long time for the economy to regain a moderate level of production. By the way, for whom would the economic system be rebuilt? And who would do it? With conventional wars, the persons who took advantage of the situation kept far away from the battlefields, they even did business with both fighting parties. But could they survive a nuclear war now? And if they could, who would provide them with the abundance they now live in? So, to be effective in solving the economic crisis, is must be a conventional war. But with the spread of nuclear know-how and material all over the world, who can guarantee this? Due to the increased effectiveness and precision of cruise missiles and other assorted weaponry, there is an increased probability that nuclear weapons will be used in case a country tends to lose a conventional war. Is there really no other way out of this MADness149? In the next chapter we will argue that there is indeed an alternative for war and military adventures (the capitalist way) or for violent revolution (the communist way): there is a another way to get out of this mess. The economic crisis can be solved in a very simple, elegant and human-friendly way. The solution that will be outlined will result in new opportunities for economic growth for the industrialized countries and at the same time dissolves the tensed situation among industrialized countries and the smarting imbalance between North and South. Its so easy you know. People asking questions lost in confusion Well I tell them theres no problem, only solutions Well they shake their heads and look at me as if I lost my mind I tell them theres no hurry... Im just sitting here doing time Im just sitting here watching the wheels go round and round I really love to watch them roll
148 149
Halliburton, Carlyle Group MAD: Mutually Assured Destruction.
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Eight Days A Week The Fourth Wave No longer riding on the merry-go-round I just had to let it go John Lennon, Watching the Wheels.
We will indeed once more fool around with time in a very surprising manner that will meet the aspirations of a great deal of people.
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Eight Days A Week - The Fourth Wave - On The Origin of Wars - Extended

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Eight Days A Week The Fourth Wave

Author: Geert Callens

7 On the origin of wars

The economic importance of wars Cui bono?