Political manipulation of the exchange value of paper currency continued throughout the 1930s, as each nation attempted to gain advantage over its trading partners. The international bankers, to their credit, almost unanimously fought against this destructive strategy in favor of a return to the gold standard (along with the orthodox economic policy prescriptions of a balanced budget and higher interest rates). During the Second World War, the discussion among the Allies (effectively, between Britain and the United States) gradually moved past mere victory against Germany, Italy and Japan and onto the remaking of the post-war nation-state system. The war itself had ensured that on both sides of what would become the iron curtain the world was moving very quickly into an era of intricately managed economies.

Dividing The Spoils Banking On The Banks

What kind of world awaited the victors in mid-1945? Certainly one that held special challenges. Destruction was widespread throughout Eurasia. Stalin had already absorbed new territories into the Soviet Union and demonstrated a taste for empire-building under the guise of communism. Elsewhere, nationalism, ethnicity and religionism erupted in the peripheral states and the core's colonial outposts all around the globe. Only the United States among the major industrialized states emerged with its physical plant intact, in possession of huge gold reserves, and its banks filled with deposits put there by a consumption-hungry work force.

Anticipating return to a peacetime economy, the entrepreneurial group in the United States was poised to convert productive assets into housing, automobiles and other consumer goods. Most of the rest of the world's population (with the notable exceptions of Canada, Australia, New Zealand, Sweden and South Africa among the industrialized societies) faced the prospect of severe austerity, or worse. Without doubt, the United States in 1945 had emerged as the strongest economic power in the world, challenged militarily only by the Soviet Union. Even for the United States, however, one result of the war was a national debt of over $250 billion. Despite a $40 billion drop in federal spending in 1946, pent up demand for just about everything pushed prices up (so much so that within the twelve-year period 1946-58 the purchasing power of the dollar eroded by a third.

Another reality for U.S. citizens was the permanent influence of what Dwight D. Eisenhower called a "military-industrial complex" capable of effecting "a distorted use of the nation's resources. ..." With so much of the world in disarray, those who held power in the United States represented -- for good or ill -- the promise of the future. The entry of the U.S. into the arena of empire-builders unfortunately carried the baggage of a long and dismal record of intervention on behalf of privilege and neocolonialism.

If Not Britain, Then At Least A Hierarchy
Dominated By The English-Speaking

Intellectual and activist attacks on the system I have called industrial-landlordism accelerated during the early twentieth century; and, as I have suggested, the response of the privileged was to adopt liberalism as a means of warding off more revolutionary attacks on their position. In this quest, the privileged were able to call on the universities to great effect. As historian John L. Thomas has observed:

Liberals in all the professions suddenly realized that their most urgent task was educating middle-class Americans by helping them to adjust their preferences for the fluidity and individualism of an agrarian social order to an industrial one in which these values seemed dysfunctional.

The American System was surely at this point in a state of great disarray, of potential disintegration under the pressures of population growth resulting largely from immigration and the rural to urban migration of those whose values were, in fact, agrarian. Expanding on this point, Thomas writes: "Whatever their varying diagnoses and prescriptions, younger economists, sociologists, and social scientists after 1886 began to build their bases of operation in the new universities and the professional associations, which they charged with the task of teaching Americans scientific social control." Another view, more pointed, was provided by Frederick Lewis Allen in his biography of J.P. Morgan:

And as for the poor, they were -- aside from the Negroes -- mostly immigrants from Europe, who were then pouring into the United States by the hundreds of thousands each year and overflowing from the slums of the Eastern seaboard into industrial towns the country over; they spoke foreign languages, looked rough and ignorant and dirty to people of older American stock, and seemed destined in the nature of things to sweat for low pay and live in miserable slums.

Today's socio-political atmosphere is considerably different from that which existed during the early decades of this century. Fabian socialists and trades unionists then represented an evolutionary counter force to the vested interests of industrial-landlordism. Out of their efforts and gradually-expanded support from the social scientists and others in the professional class arose the welfare state. The momentum on behalf of social-democracy accelerated following the Second World War, at a time when the power of traditional elite subgroups had not yet reorganized and the threat of dramatic upheaval was a real possibility.

The U.S. and British architects of the new policy agenda that took the name of liberalism were narrowly internationalist in thinking. The commonality of interest within the industrial-landlord and financier subgroups of these two societies was hardly interrupted even by the rebellion that brought the United States into existence. Historian John C. Miller [in The Federalist Era, 1789-1801 (1960) suggests the origins of later mutual interests: "The Federalists, whose aristocratic bias attracted few foreigners, demanded a long period of residence prior to naturalization or, better still, to admit only native-born to the rights of citizenship." Near the end of the War of 1812, disheartened Federalists led by Timothy Pickering and John Lowell even attempted to use the Hartford Convention of 1814 to promote secession of the New England states and seek a separate peace with Britain. With a common language, culture, history and system of socio-political arrangements, close ties between Britain and at least a significant number of citizens and interests in the United States was natural.

Britain's empire continued to expand throughout the nineteenth century, absent the United States in any formal sense; however, near the end of the century the possibility of an English-speaking empire enlarged to include the United States entered into the thinking of wealthy and powerful individuals who had considerable parallel interests. A key figure in this enterprise was Cecil Rhodes. As described by John Bowle, "[f]or Rhodes money meant power. He wanted nothing less than Anglo-Saxon world domination to impose world peace, ..." Toward that end, Rhodes established a trust to finance a network of "semi-secret organizations called the Round Table Groups," the purpose of which, according to Lord Milner (a former British secretary of state for war), "was to seek to federate the English-speaking world along lines laid down by Cecil Rhodes and William T. Stead." The authors further quote Rhodes as having declared that his life ambition was "the furtherance of the British empire, the bringing of the whole uncivilized world under its rule, the recovery of the United States of America, the making of the Anglo-Saxon race into one Empire."

The U.S. Round Table Group included several advisers to the Wilson administration, including Thomas W. Lamont (who was by then head of the House of Morgan). Another was Whitney H. Shepardson, a former Rhodes scholar. At about the same time in New York, the Council on Foreign Relations was formed by a group of internationally-oriented bankers, lawyers, academicians and former high government officials. A key early member of the Council was Edwin F. Gay, an economic historian and the first dean of the Harvard Business School, who had long held views similar to those of Rhodes. In 1898, he had written: "When I think of the British Empire as our inheritance I think simply of the natural right of succession. That ultimate succession is inevitable."

Council members unsuccessfully supported U.S. participation in the League of Nations and fought against the inward-looking depression-era policies that resulted in the Hawley-Smoot Tariff Act in 1930. During the early years of the Roosevelt administration, Council members used their influence to reduce tariffs on imports and negotiate trade agreements with other countries in an effort to rekindle international commerce. The British equivalent to the Council was the Royal Institute of International Affairs, with sister organizations throughout the British dominions.

The question that naturally arises is just how much actual influence these groups had in molding the foreign policy of Britain and the United States. For purposes of this study, however, the focus is necessarily limited to the international monetary arena, where the person of John Maynard Keynes has come down to us as the beacon light of the post-war era.

Keynes, Bretton Woods, and A New
International Balance Of Power

The influence of the Council on Foreign Relations increased significantly during the early period of war between Britain and Germany. The Council-sponsored Economic and Financial Group provided the U.S. State Department with detailed economic analyses that facilitated plans for an expanded U.S. role among the world's empire-builders. Early in 1941, Keynes was in Washington, D.C. representing Britain in the negotiations over lend-lease and met at length with Dean Acheson (Assistant Secretary of State). A Council memorandum had by this time already reached Harry Dexter White (and, perhaps Dean Acheson as well) laying out the fundamentals for what at Bretton Woods would take shape as the International Monetary Fund and the World Bank. Dean Acheson's own reflection on this is subtle, yet very telling:

By the spring of 1943 the White House draft of an international monetary fund, with Keynesian amendments, cleared with Parliament and congressional committees, was distributed for study and further discussion in Washington. Nineteen of the governments sent experts to meet in June and make a report. An Anglo-American group in the autumn added sections on commercial policy, commodity agreements, cartels, and employment.

Without doubt the advantage in Anglo-United States affairs was almost entirely with the latter power. Edwin Gay's forecast of a half century earlier had arrived; the dollar had replaced sterling as the primary currency of international exchange, and the United States was for the next two decades to be the unchallenged economic power in the world.

Not everyone was anxious to have the United States exercise such a prominent role in postwar affairs, political or economic. Remnants of what had been the traditional conservative (i.e., individualist) movement in the United States used what little power they still possessed to influence policy decisions. One of the more recognized of this group was Felix Morley (editor of the journal Human Events from 1945-50). In The Power In The People (1949), Morley warned:

Through monopoly power, both organized Business and organized Labor have tried to recreate the privileged Estate. Many would now like to see a new form of status established in America, through a governing elite or managerial class of "planners."

What Morley and others argued against but were powerless to prevent was the proliferation of government enterprises, the new and increasingly entrenched partnership between the professional advisers, the research community within academia and the state -- not merely in the United States but throughout the world. This included, of course, a strong desire to effect restructuring of the international monetary system.

From 1933 on, for example, the American Institute for Economic Research (located in the western part of Massachusetts) fought a relentless crusade against the monetary and fiscal policies supported by politicians and their economic advisers. A tireless proponent of sound money, AIER's founder, E.C. Harwood, was quick to criticize mainstream economists for their failure to voice strong disapproval over the abandonment of the gold standard. In a review of the 1955 edition of Paul Samuelson's text on economics, Harwood wrote:

When he attempts to discuss "money," Professor Samuelson gives his readers inadequate information. For example, what is meant by the words on a $10 bill, "The United States of America will pay to the bearer on demand Ten Dollars"? I could find no evidence in the Professor's discussion that he knows of this promise or its significance, in spite of his attributing West Germany's "miracle" to "currency reforms," a principal feature of which has been a sound currency now redeemable in gold on demand. Surely, differentiating between dollars (1/35 of an ounce of gold) and promises to pay dollars is elementary in any attempt to describe a money-credit system.

Harwood would not have been surprised (and may have been familiar with), I suspect, at the U.S. Treasury Department's 1947 response to a private citizen's request for "lawful money" in exchange for a Federal Reserve note. As written by M.E. Slindee, the nation's Acting Treasurer:

You are advised that the term "lawful money" has not been defined in federal legislation. It first came into use prior to 1933 when some United States currency was not legal tender but could be held by national banking associations as lawful money reserves. Since the act of May 12, 1933 ... makes all coins and currency of the United States legal tender and the Joint Resolution of August 27, 1935, provides for the exchange of United States coin or currency for other types of such coin or currency, the term "lawful currency" no longer has such special significance.

To the degree that coercion and confidence maintained a precarious balance, money had become merely legal claims to a floating quantity and quality of material goods or services.

If few economists in the industrialized social-democracies were calling for a return to gold, they were at least sufficiently well-versed in neo-classical economic principles to recognize the dichotomy of deficit spending during an economic expansion. British economist, Barbara Ward, for example, warned: "If an economy is working at full stretch and, in the short run, no more supplies will come on the market if extra demand is created, to pump more purchasing power into the community simply increases the pressure of demand on existing supplies and forces prices upwards. A budget deficit at such times does create extra purchasing power because it means that the government is not cancelling out private purchasing power by taxation or by non-negotiable loans before it issues its own orders to industry. It is simply creating new money on its own." Nonetheless, the general consensus among the economists and policy analysts most impressed by the possibilities of Keynesian demand management was that the public investment would succeed where private investment had obviously failed; the state would ensure that the business cycle would never again pull the global economy into a prolonged recession. By 1956, economist Gunnar Myrdal was sufficiently confident in the integration of the industrialized nations' economies to write:

After the Second World War these countries enjoyed on the whole continuous full employment, which has sustained rapid economic progress. Because recurrent periods of mass unemployment, with their very serious social and economic effects, have been regarded as the Achilles' heel of industrial society, its absence for a number of years -- for which governments in all these countries take the credit -- and the political determination to banish large-scale unemployment for ever are generally felt to be the crowning achievements of national integration.

Yet, as the next three decades have revealed, few (if any) of the structural problems that had permitted periodic cycles of boom to bust had been addressed. At best, the global economic integration of the industrialized nations gathered a momentum inherently dependent upon the extraction of low cost raw materials and access to cheap land and labor in much of the rest of the world. Certainly, this less direct but no less impoverishing form of domination by the industrialized core over the LDCs at the periphery is ironic in the present era of enthusiasm for democracy. If modernization can be used to describe this relationship, the potential for overt domination was recognized by at least some observers; as the German historian Ludwig Dehio boldly concluded in 1948:

The downfall of the European system of states, a negative process, produced a positive result -- the Atlantic orbis terrarum, an enlarged Occident, an entity united in its destinies. Up to and into the era of the two World Wars, the nations of the West felt powerful enough to think of nothing but individual expansion and to contend for it among themselves. Now, for the first time in their modern history, they feel sufficiently menaced to turn their thoughts to a concentration of strength, to solidarity, to the construction of a common defensive position.

Britain has, however, managed to maintain its national character and distance from its nonEnglish-speaking neighbors. As historian Roy Douglas observes:

Britain's international trading pattern was radically different from that of the continental EEC countries. ...British Governments of the 1950s, whether Labour or Conservative, did not wish to see an exclusive involvement with western Europe which would deny or curtail access of domestic consumers to cheaper goods from elsewhere. Reciprocal free trade with western Europe was welcome; obligations to impose barriers against trade with non-Europeans were most unwelcome.

Under these very unsettled circumstances, what we have reason to be most surprised over is the degree of stable economic growth that occurred. One reason, of course, is the small economic role played by the peripheral states (at least until the formation of OPEC). Thus, for a considerable period of time after the Second World War ended, the system hammered out by Harry Dexter White, John Maynard Keynes, Henry Morgenthau, Dean Acheson and others at Bretton Woods worked well enough.

Measured against any historical statistics one might choose, the standard of well-being for hundreds of millions of people was on the rise. Moreover, within the mainstream of government (and even academia), there was very little debate over the wisdom of this new monetary structure. What finally attracted attention, however, was the rapid balance of payments deficit experienced by the United States and the consequent accumulation of U.S. dollars as non-repatriated deposit balances in foreign banks. After two successive years of heavy balance of payment deficits ($10 billion in 1970 and $30 billion in 1971), the Nixon administration suspended convertibility, taking the U.S. off fixed exchange rates and the gold exchange standard. Nearly three decades of fiscal and monetary irresponsibility, a neocolonial (and knee-jerk, anti-communist) foreign policy and a quest by the privileged for ever greater power finally coalesced, destructively.

The United States, in no small degree as a conscious foreign policy initiative, had become the global economy's outlet for goods the producers in other nations could not afford to purchase. What West Germany, France, Japan, Britain, Italy and other European states embarked on was a massive program of modernization. The difference in their modernization efforts from those in the LDC nations was, however, the presence of the societal, technical and material infrastructure necessary to compete in an increasingly competitive global marketplace. So, while purchases by Europeans concentrated on new technologies and infrastructure, industry in the United States grew less productive and less competitive in quality. This is not new information; nor is there any mystery associated with the problem. What really created havoc, however, were the attempts by government agencies and central banks to outmaneuver market forces. The effort only made things worse and pulled the global economy into a deep recession that, for many people in dozens of countries, has never ended.

Had market forces been permitted to operate, an equilibrium exchange value for the U.S. dollar would have resulted out of the efforts by foreign holders of surplus dollars to exchange them (at discount) for other currencies of countries from which they did wish to acquire goods or services. As our historical analysis has shown, however, a government empowered to self-create credit through its control over the medium of exchange has no incentive to spend only what it receives in revenue. Moreover, the more concentrated the control over what the classical political economists referred to as the factors of production, the greater is the probability that the controlling oligarchy will resist taxation and effect devaluation -- wiping out the savings and purchasing power of the society's actual producers (but only after they have moved their own assets to safe harbors outside the country).

In mid-1974, with the global economy in the midst of a deepening recession, economist Leonard Silk expressed the frustration of mainstream economists over government's demonstrated propensity to spend without concern for long run consequences:

The reconstructed world monetary system was founded on the strength of the American economy, on the strength of the dollar and on the deficits in the United States balance of payments. Therein lay a serious contradiction: A strong dollar and chronic deficits in the United States balance of payments would in time prove to be incompatible; either the dollar would weaken or the American deficits would have to be ended. There was a further contradiction: If the American deficits ended, the flow of dollars that was providing the monetary reserves for world economic expansion would also cease.

We know what then occurred. The OPEC nations effectively used their quasi-monopolistic control over the supply of fossil fuels to effect the largest and fastest transfer of potential purchasing power in modern history. The net short-run effect included a contraction in global consumption amidst rising prices -- what came to be called stagflation. When corporate producers around the world cut back on production and reduced investment in new plant and equipment, the international bankers barely hesitated in spreading the billions of Petrodollar deposits around in the LDC group.

By 1978 the national debt of the United States approached $1 trillion and the nation's consumers were paying over $40 billion annually for imported oil. As measured by economists, the exchange value of the dollar had fallen by four-fifths between 1973-78. And, the LDCs owed something like $235 billion to the international bankers. This debt, largely denominated in dollars, kept the value of the dollar much higher than was justified by fundamentals. Buoyed by unrealistic expectations and a general failure to understand the dynamics involved, legislators in the United States did just about everything they could to bring the global economy to its knees. Yet, there was Henry Wallich, a renowned economist and Member of the Board of Governors of the Federal Reserve System speaking before the American Economic Association late in 1977:

As we look, from the year-end and watershed, upon what happened in 1977 and what is likely to happen in 1978, we can derive some satisfaction from progress made and progress that we have reason to believe lies ahead.

Despite the efforts of individuals and groups whose vision of the world had become transnational, there had been very little progress toward true reform of the global monetary system. Nevertheless, the industrialized social-democracies were about to embark on a decade of monetary and fiscal experimentation, advancing a policy agenda designed to stimulate private investment and reduce the punitive effects of taxation. From a variety of sources there have come accusations of conspiracy to form what amounts to a global cartel of entrenched wealth. In 1978, for example, Antony C. Sutton and Patrick M. Wood authored a book entitled Trilaterals Over Washington, which attempted to detail events and relationships demonstrating that the global conspiracy was real, that the conspirators were working to consolidate power in the hands of private, transnational organizations under the direction of the Trilateral Commission (founded in 1973 by David Rockefeller and Zbigniew Brzezinski). The context in which I view the promise of transnationalism is in the proliferation of decentralist, citizen-based groups that operate not to acquire political power but to frame socio-political issues as global concerns. The extent to which the accusations of Sutton, Wood and others can be suported beyond question has been the subject of countless books and journalistic efforts. What is certainly true is that powerful interests to have a strong historical tendency toward monopolistic activities, often in league with key public officials.

By the time Sutton and Wood had been published, the welfare state had reached the end of its ability to meet societal demands; public agencies had demonstrated irresponsibility, inefficiency and widespread corruption in the management of both the public domain and of nationalized utilities and industry. In Britain, Margaret Thatcher brought the return of the Conservative Party to power in May 1979; a year and a half later, her crusade would be even more dramatically pursued in the United States by Ronald Reagan.