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The Globalization of Capital and the Growth of American Power

Maria Conceio Tavares* and Luiz Gonzaga Belluzzo**

Introduction

The Formation and Expansion of the Capitalist System

Over the course of the so-called long 16th century mercantile capital created the first European world economy alongside the formation of the modern nation state. These two essential developments (of capital and state) in the formation of the capitalist system did not work in step with each other. Europe was progressively integrated by circles of mercantile capital, the movement of which was periodically blocked by intra-European wars. The banks had a double role. They were agents of capitalist expansion and the financiers of wars and the overseas expansion of empires. Several banks failed because of the defeat of princes or because of excessive spending by imperial powers on territories from which they were unable to raise taxes or obtain mercantile surpluses sufficient for the payment of debts. The localisation and displacement of the main financial marketplaces has a lot to do not only with the routes of mercantile capital but also with the paths of empires. Portugal and Spain had weak bourgeoisies and had to rely on the support of Mediterranean bankers for their overseas expansion. Holland created itself as a nation state defending itself from the Spanish empire but had also had a strong and very cosmopolitan bourgeoisie ever since Europes financial centre relocated to Amsterdam (the European expansion of Charles V had cost the survival of Arab, Italian and German bankers). We could say that that the global expansion of capital had in the Dutch East India Company its first large multinational company. But Holland had no strong national project behind it and was unable to secure an imperial project of political domination either in the Americas or Africa.
Professora Emrita da Universidade Federal do Rio de Janeiro (UFRJ) e Professora Associada da Universidade de Campinas (Unicamp). ** Professor Titular de Economia da Universidade de Campinas (Unicamp).
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The only capitalist powers capable of maintaining the political hegemony of their states and expanding capital without territorial limitations have been Anglo-Saxon: England in the 19th century and the US in the second half of the 20th century, after the victory of the Second World War. The union of politico-military power with financial capital gave them strength and a global dimension that did not exist previously. Their main instrument has been the issue of a dominant international currency which is an expression of their political power and the force of their financial capital. Both their public debt and the turnover of goods and capital on the international market have been denominated in their national currency. The displacement of the centres of capitalism produces modifications in the international division of labour and in centre-periphery relations, that is, in geo-economics. These changes can be helped or hindered by the geopolitics of imperial centres. Wars have been periodic determinants of international trade barriers and have profoundly affected the development of many nations productive forces. This holds for both the great powers of the final quarter of the 19th century and some peripheral nations in the 20th century. The expansion of capital is most widely understood in the private appropriation of wealth and the compulsive vocation for limitless accumulation expressed in its most common form: money. This is the markets god, but also the instrument of Princes. The expansion of capital does not proceed in the form of sustained growth. It goes through cycles of accumulation, through the incorporation of technical progress, through the appreciation and depreciation of financial capital and through physical displacement. The conquest of new markets, the incorporation of new consumers and the expansion of the workforce at variable rates of exploitation are inherent forces of capitalist competition. Contradictions surface in economic, social and political displacement, which generate periodic crises in the system1. The expanding power of the nation states with a vocation to imperial power, meanwhile, is limited by the international power of their public money and by imperialist rivalry. No capitalist potentate has had unlimited territorial expansion, neither has their hegemony lasted as long as that of the empires of antiquity. The limits to imperial expansion are always external, as none has been brought down or blocked without another limiting it by the power of arms and money. The link between the geographic

There is no logical model along the lines of the objective theory of Value that takes into account the contradictions of capitalism, just as there is no philosophy of history that concretely determines its movement.

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growth of capitalism and the growth of empires decisive for the history of the system is not deducible to an inherent movement of capital, neither to an abstract geopolitical theory. The competition of capital and rivalry between potentates give a fantastic dynamism to this system that is incompatible with notions of stationary state, market balance or the balance of power. Neither is there the stable monetary standard that monetary theories would postulate, beginning with the classic British economists, always seeking a constant with which to measure the value of universal wealth. A recurrent obsession of economists is to make currency independent of political power, as seen in Keyness proposals at the preparatory Bretton Woods meetings and in the current neo-liberal doctrine of independent Central Banks. The dollar-gold standard was abandoned over 30 years ago, which has speeded up financial globalisation and led to the peaking and politicisation of the value of the US currency. For some economists and sociologists on both left and right the break with the Bretton Woods system and periodic devaluations of the dollar are linked to the decline of American hegemony or to a defining crisis in the capitalist order. For others, now that the millennia-old empires of India and China are being incorporated as independent nation states into the global capitalist system and the Soviet empire has failed we are seeing a definitive victory of liberal capitalism and are on the path to a unipolar order. In fact we are once again at a moment where geo-economics and geopolitics are out of step with each other, both in Europe, Asia and the South American and African peripheries. Neither the decline of the American Empire, the appearance of a new hegemon or the end of history is in sight.

The Emergence of American Power in the Liberal Bourgeois Order The first industrial revolution added the brushstroke of liberal to the intrinsically international and mercantile character of British capitalism. On the other hand, while Pax Brittanica created a new periphery and destroyed the systems of production of millennia-old empires, it also boosted the stunted industrialisation of continental Europe

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and of New England. The productive, commercial and financial links proposed by Britain meant opportunities for the adoption of strategic industries in regions in which the division of labour, market relations (especially in the mobilisation of the workforce) and the formation of the nation state had reached a stage of greater relative development. In the final three decades of the 19th century the world economy went through a Great Depression and the profound transformations of a 2nd Industrial Revolution. Between 1873 and 1896 steel, electricity, the internal combustion engine, sodium and chlorine chemistry, the telegraph and refrigerated shipping radically altered the panorama of industry, transport and communications. Previously these were run on coal, iron and the steam engine. Simple mechanical application gave way to scientific use and integration in processes of production. This second industrial revolution was accompanied by an extraordinary process of rising rates of production. The increased volume of capital required for new investments imposed new forms of organisation on the capitalist company. The publicly-traded company became the dominant structure of property. The end of the 19th century was marked by the unfurling of five interrelated processes: 1) the consolidation of the monetary and international payments system through the adoption of the gold-standard; 2) the metamorphosis of the credit system, which adjusted its forms and operating functions to the new global capitalist economy; 3) the creation of specifically capitalist forces of production in the growing technical and economic gap between the means of consumption and the means of production; 4) the development of the international division of labour between a central producer of manufactures and a peripheral producer of raw materials and foodstuffs; 5) the emergence of new industrial powers, constructed in the shadow of commercial and financial relations made possible by liberal British hegemony. The US, Germany and Japan debuted on the international picture making most of the modernity of their capitalist structures, especially the agility of their banks and the active presence of their respective nation states. The emergence of new powers inaugurated a period of great international rivalry. The dispute for economic pre-eminence caused a more intense penetration of capital into areas that were suppliers of raw materials and foodstuffs, altering the configuration of the co-called periphery of the capitalist world. In the case of the late-coming capitalists of the 19th century, the banking system in which their public debt financing operations and working capital were concentrated began

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to advance money for new enterprises and to promote mergers between companies that already existed. Little by little all industrial sectors came to be dominated by large companies under the command of finance capital. This concentration of productive capital and centralisation of capitalist command made obsolete the figure of the frugal entrepreneur who confused the destiny of his company with his own biography. The finance magnate is hero and villain of the world then born. The American economy built the foundations of growth in the 19th century around four watersheds: virtuous insertion into the international division of labour proposed by British hegemony, deregulated domestic finance, commercial protectionism and privileges granted by the state to business promoters. The peculiar liberal character present since the constitution of the American state was also the basis of this states decisive role in guaranteeing the norms of Darwinist competition. The porous nature of political power in the face of private interest created a plutocratic state in that the most economically powerful groups developed in its shadow, on its patronage and thanks to the permissiveness of liberal institutions. Charles Morris writes in Money, Greed and Risk2 that up to the end of the 19th century the US did not have adequate commercial legislation. The British at Barings frequently complained of the risk they ran of their American counterparts defaulting. It was not clear, says Morris, if they could exercise their rights against defaulters. The writer Kevin Phillips, in Wealth and Democracy3, suggests that since the Civil War this institutional precariousness sustained the advance of successive generations of robber barons who transformed the economy and commanded American politics. The US, an economy in rapid ascension, ended the 19th century as the largest industrial economy on the planet. It had become a powerful competitor on the global foodstuffs, raw materials and manufactures markets. Even so, the American economy went through frequent and severe financial and currency crises, given the subordinated position of the dollar, the unregulated organisation of its banking system and the risky and speculative interventions of investment banks in the promotion of business. There were successive bond price collapses and runs on banks in the aftermath of the Civil War.

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See Morris, 1999. See Phillips, 2002.

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In the final decades of the 19th century and the start of the 20th century speculative financial practices and successive deflationary episodes always accompanied by liquidation of debtors and the destruction of public wealth resulted in the centralisation of capital, allowing the consolidation of trust capitalism. This modern form taken by capitalism developed from modifications in the American economy after the War of Independence. The results of these transformations can fittingly be called modern capitalism, above all in the sense that the appearance and development of the large American corporation is contained in national embryo and in the posterior transnational playing out of large-scale capital. Hobsons Modern Capitalism4 shows how radical changes in industrial organisation and the technological advances of large companies will accompany the appearance of a financial class. This tends to concentrate into the hands of those controlling the monetary machinery of developed industrial societies a growing strategic management of interstitial (inter-sectorial and international) relations in the system. As large as the national area monopolised and protected by the nation state may be, continually growing profits create a need to search for foreign markets for merchandise, direct investments and the financial export of capital. Such was the case with the US. In other words the internationalisation of capital takes place via the abovementioned structure of the large company and condenses all of the internal mechanisms of expansion: mercantile, industrial and financial. It also synthesises the practices of previous imperial states, from the expansionist outset to the protectionist and frankly interventionist defence of strategic raw material reserves. Populist movements were ephemeral and recurrent attempts to interrupt the process of merging large business and the state. The Progressive Era at the start of the 20th century was a moment of democratic rebellion on the part of small property-holders, of the new liberal professionals and of the working masses against the power of the banks and the large corporations. Sean Cashman wrote in America Ascendant that the progressives wanted to limit the power of big business, make the political system more representative and increase the role of government in protecting the public interest and alleviating terrible social conditions and poverty.
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See Hobson, 1965. See Cashman, 1998.

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These affirmations were taken up again more profoundly with the New Deal, which for the first time represented a break between the financial class of Wall Street and the large new industrial companies that were hit hard by the Depression of the 1930s.

The passing of British Hegemony to American Hegemony

The balance between the global powers and the classic gold standard was, as already mentioned, the trademark of the Liberal Bourgeois Order at its height. This order was a conjuncture of practices and institutions charged with the coordination of an international arrangement that sheltered contradictory forces: British financial hegemony exercised through a powerful banking system; the exacerbation of competition between England and the new industrial trust and large corporation economies born in Germany and the US; the exclusion of the mass of workers from the political process (the lack of universal suffrage) and the constitution of a functional periphery as a source of foodstuffs, raw materials and, above all as a frontier for the expansion of credit from the metropolises. The transformations that took place in the capitalist system over the 20th century cannot be understood without taking three factors into account: the effect of global wars, changes in international monetary patterns and alterations to the international division of labour. All of these powerfully affected changes in bourgeois social standing by breaking with the liberal order through the rise of authoritarian national reactions (Nazi nationalsocialism and soviet national socialism) or through the interventionist or socialdemocratic experiences that accompanied the constitution of mass societies in Europe and the US. On the eve of World War I Britains fragility as a major centre capable of coordinating international finance became apparent, given the disturbing presence of Wall Street and the ascension of competing financial centres in continental Europe. Meanwhile, growing political tension in continental Europe eroded British balance-of-power diplomacy. The First World War was in fact an asymmetrical inter-imperialist war. The allies England, France and Russia were industrially weak powers, compared with Germany (and the US) who had proved their mettle in the second industrial revolution. Russia, the weakest link from the both the economic and military viewpoints, capitulated in 1917, signed the Treaty of Brest-Litovsk and went into imperial and revolutionary disintegration.

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In this same year the US which despite its neutrality had conceded aid to the allies entered into the conflict determining the definitive defeat of Germany.

At the Paris Peace Conference the winners imposed disarmament and war reparations on the German imperial state. The map of Europe changed, creating dozens of countries in Central Europe. A period of financial and political turbulence followed, isolating the Soviet Union and leading the Weimar Republic to collapse. At the same time, in the face of American isolationism, Britain tried to resume its hegemony by reviving the gold standard and maintaining its pretensions of commanding a liberal-bourgeois order that was already in ruins. The 1920s was a period of expansion albeit uneven for American capitalism, consolidating a mass consumer society (the roaring twenties). However hyperinflation and stabilisation programmes in Germany and Central Europe, stop and go policies in Britain and the economic crisis of Northern Europe generated unemployment and social tensions. Increasing union and other popular strife followed, resulting in the growth of SocialDemocratic parties in continental Europe and of the Labour Party in Britain and in white dominions such as Canada and Australia. The interwar period ended once and for all the British hegemony that had been made flesh by free trade imperialism and the gold standard. The old British Empire held onto its colonies and dominions and extended its protectorates to Palestine and elsewhere in the Middle East. War debt and the lack of a new international division of labour rapidly converted the gold standard into a broken-down anachronism. The US took centre stage in economic and financial terms and came out of the conflict with over half of the worlds gold reserves. From this vantage point the Americans refused to negotiate the allies debt, transferring negotiations to Wall Street bankers. Britain was a net debtor to the US but remained a creditor to those owing in weak currency, in particular Russia, the countries of Eastern Europe and Italy, but also France. This made Britain the corner of a triangle involving the end creditor (the US) and the rest of the debtor countries. As a result pressure increased for German war reparations, leading that country to financial collapse, hyperinflation and the 1924 negotiations with the Dawes Committee, supervised by JP Morgan. The phenomenon of business and state working hand in glove reached its peak in the 1920s. JP Morgan became the financial arm of Washington policy. JP Morgan

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employees commanded loans destined to guarantee strong currency reserves in stabilisation plans for Germany in 1924 and France in 1926. With the stabilisation loan Germany reverted to the gold standard, which forced Britain to revert in 1925 with a strong pound in relation to the dollar, set at the pre-War exchange rate. There followed a heavy movement of capital from the US to a stabilised Europe and to a periphery indebted to the British system. From here JP Morgan became the main vehicle for a shower of cheap loans to Europe and Latin America. The liberal order began to erode from top to bottom, both from the financial economic and social and political viewpoints. The crisis of 1930 aggravated the disorganisation of the global system and led to a surge in nationalist and state-centralising episodes of various hues. At the liberal democratic extreme the US experimented with the New Deal while Britain abandoned the gold standard and carried out a policy of low interest rates and compensatory public spending. In continental Europe severe unemployment, deflation and shrinking international trade, caused by competitive devaluations, resulted in a high degree of state intervention. Unprecedented mass regimentation led to a surge in authoritarian nationalisms that boosted the bellicose expansionism of the Axis powers and led to the outbreak of World War 2. The 1914-1918 war provoked radical changes in European geopolitics - the effects of which are still felt today - and also saw the entrance onto the scene of a new world power: the US. The US appeared at the Treaty of Versailles negotiations as an arbitrator but then unilaterally withdrew. Wilsons vision of the League of Nations was rejected by the US Congress. The financial economic power of the large American trusts reverted to business as usual. The US passed on the opportunity of establishing, or was unable to establish, a new world order.

The World Wars and American Power At the end of the 19th century the United States was already the most powerful industrial economy in the world, thanks to its exceptional natural resources. It also boasted a position as a major exporter of materials and foodstuffs and had in New York a financial and business centre

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capable of simultaneously promoting high-risk investment in new sectors and the rapid centralisation of capital6.

In 1913 American industrial capacity had comfortably overtaken its main European competitors Germany and Britain. But the makeup of American hegemony cannot be understood without evaluating the effects of the two world wars, of 1914-1918 and 19391945. Historians recognise that the 1914-1918 war was innovative in its technological, economic, social and political aspects when compared with previous conflicts. The conflagration was not only global because of the number of countries involved but also because it was total. For the first time the war effort involved almost all of the material and human resources of the societies involved. That is, it demanded the mobilisation of the entire range of productive forces. This mobilisation imposed a drastic abandonment of the canons of liberal economics, meaning the substitution of market mechanisms by centralised decision-making by state organs of coordination. It meant the abandonment in fact or de jure of the rules of convertibility to the gold standard and the adoption of financing schemes for government spending based on a higher tax burden and, above all, on the placing of debt with the public and with the banking system. In the First World War the technological and economic potential developed from the 2nd Industrial Revolution was placed at the service of combatants on the battlefield. This led to a leap in the destructive power of armaments and an increase in the competitive advantage of North American industries which, since the end of the 19th century and together with Germany had led innovations in the chemical, metals, mechanical and transport sectors. These sectors were converted for the production of long-range cannon, of rifles, machine guns, combat vehicles, submarines, airplanes and highly lethal munitions, as well as chemical weapons. In the First World War, under the command of Council of National Defence, organs such as the War Industrial Board, the United States Shipping Board and the Director General of Railroads established general price controls, transport network planning, food and coal rationing, government purchase programmes and maintained a high level of government expenditure. These forms of control and coordination were compatible with a

For the importance of the Civil War as the first step on the Short March to Hegemony, see Teixeira, 1999.

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sharp growth of private sector profits and increase in real salaries, despite a general doubling of prices between 1913 and 1918. As also happened after Word War 2, the accumulation of repressed consumer spending power had a significant impact on the performance of the American economy in the immediate post-war period. As a war materials supplier the US came out of World War 1 as a creditor nation, which as has been said already, profoundly affected the Versailles negotiations and the direction of frustrated attempts of economic normalisation throughout the 1920s. In Europe war debt and reparations demanded an additional effort to obtain fiscal resources, which populations especially the privileged classes were unwilling to grant to governments. Price levels rose fourfold to fivefold and countries that had to pay reparations and that were overloaded with the reconstruction of the productive sector suffered the scourge of hyperinflation. Widespread universal suffrage and the perception of the imperialist nature of war attributed to the insensitivity of the economic and political elites granted a greater weight to the opinion of the lower classes. Against this background of the first half of the 1920s it became impossible to restore the monetary regime that had prevailed in the pre-war period. The first years of peace allowed for the observation and evaluation of a free floating exchange rate. It was a negative experience and only increased anxiety for the restoration of a stable monetary standard. The resurrected gold standard, however, was not able to revive previously successful conventions, processes of adjustment or forms of coordination. The last country to officially declare its adhesion to the gold standard was France in 1928. Before this, between 1923 and 1925, Germany and its partners in hyperinflation Austria, Hungary and Poland had also returned to the standard. Britain returned in 1925. Establishing the pound at pre-war parity with gold was the cause of many of the coordination problems in the troubled 1920s and 1930s. The Gold Exchange Standard allowed - in the face of a gold shortage the accumulation of resources in strong currency (basically the dollar and pound). Britains decision in 1925 to return to pre-war parity was clearly incompatible with the new levels of domestic prices and did not recognise the decline of its economic and financial power. The overvaluation of the pound and the undervaluation of other currencies, principally the franc, caused deepening balance of payment gaps and constant pressure on the British currency over the period. The markets were pessimistic as to the sustainability of parity and adjustments between countries in surplus and those in deficit did not occur.

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On the contrary, deficits and surpluses tended to become chronic largely because those countries running surpluses chose to exchange what they held in strong currency for gold. The United States, France and Germany ended up with a substantial part of gold reserves, contributing to negative expectations about the future of the pound. Adjustment problems became more serious between 1925 and 1928. Private capital, especially of North American origin, avid for capital gains opportunities formed speculative bubbles encouraged by the interest rate differentials (and cheap assets) of countries with recently stabilised currencies, especially Germany. The cycle of gains for foreign assets was concomitant with rapid gains for shares on the US stock exchange. This wave of bullish speculation was inevitably fed by the expansion of credit in the US where discount rates were lowered in 1927 in order to ease the pressure on the pound. The disaster that followed was the consequence of a change to American monetary policy in 1928. Concerned about the heating up of the economy and about feverish financial markets, the Federal Reserve raised the discount rate. This burst the speculative bubble in October 1929. The golden handcuffs of the monetary regime immobilised economic policy, determining an almost complete incapacity of response and coordination on the part of the European governments and, until 1933 at least, on the part of the US. Between 1929 and the start of the Second World War the capitalist economies were overwhelmed by a sharp drop in the price of goods, by the deflation of assets, successive and endless banking crises, by competitive currency devaluations, by ruptures in the international commerce and payments systems and, finally, by the collapse of the Gold Exchange Standard. In the United States unemployment levels reached over 20% of the economically-active population and the use of installed capacity fell drastically, to only 30% in some cases. Notwithstanding the ups and downs of Roosevelts policies, the idea of planned state intervention was present in various stages of the New Deal. In the industrial area the first years saw attempts to restrict competition and to set wages and prices. The purpose of this was to prevent predatory competition from leading to a destructive price war and a drop in nominal salaries. On the monetary and fiscal front the state became involved through the Glass-Steagall Act in operations to save the banks and in the strict regulation of the credit system. Added to this came still-timid public spending programmes aimed at encouraging economic recovery. Despite all of this, the American economy remained sluggish and suffered a recession 1937-1938. Under attack from the right Roosevelt decided to balance the budget.

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Signs of firm recovery only appeared in May 1940 after Britain had declared war on Germany and begun ordering purchases of war materials. In 1941, still before the attack on Pearl Harbour, US industrial production was 40% higher than the pre-depression level of 1929. The United States entered the war with considerable untapped reserves both in installed industrial capacity and in the workforce. But strong recovery promoted by military demand would require the very rapid conversion of civil industry. The role of wartime mobilisation in the rapid growth of the economy is unequivocal. In 1940 federal public spending represented only 8.2% of GDP, despite increases seen during the New Deal. In 1944 the federal governments costs had reached 52.3% of gross domestic product. Americas participation in the two wars was undoubtedly singular and decisive. Not only did the country enter late into the two conflicts in 1917and 1941 as it was protected by the Atlantic and Pacific Oceans it suffered no damage to its continental territory. Thus, the use of its huge economic potential was carried out in ideal conditions: the war effort legitimised the centralisation of decision making into state-run coordination bodies. At the same time territorial security guaranteed the invulnerability of its production apparatus and transport and communications networks. This undoubtedly encouraged technological advances (above all electronic, chemical and mechanical) and increased the capacity of many sectors. The transport and telecommunications sectors linked to the war went through true structural revolutions7. With the war over many feared the depression-provoking effects of demobilisation and reduced public spending. But the American economy could once again count on the spending power families had accumulated during the conflict, in war bonds. The reconverted durable goods industry, for example, met solvent consumers avid to substitute old automobiles that had survived over the period in which civilian production was vetoed. No less important for the performance of the US economy in the immediate post-war period was financial aid for the reconstruction of Europe and the recovery of the Japanese economy. After World War 2 and in the ambit of the Cold War the military-industrial complex incorporated itself into the dynamics of American capitalism. Its links with the

For the telecommunications sector see the article by Moraes Telecomunicaes e o poder global do EUA (Telecommunications and the global Power of the US) in this volume.

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academic establishment are a permanent source of autonomous scientific and technological development aimed at keeping and expanding North American military might8.

American Hegemony: from Political Construction to Crisis

The appearance of a new world power had to wait until the end of the Second World War when American hegemony was constructed under the protection of the dollar standard and as a bipolar geopolitical order appeared that split the world into two spheres of influence. The US emerged from Word War 2 with a clear project to affirm its position as hegemonic power of the capitalist world. This purpose was justified in terms of avoiding the disastrous consequences of the isolationism that had guided American politics after World War 1. The trademark of this period is the subordination of the economy to politics. The American economist Michael Hudson in his Superimperialism9 was the first to reveal the subordination of the economy to politics in the process of constructing institutions at Bretton Woods and Dumbarton Oaks. In essence the creation of the United Nations, the International Monetary Fund, the World Bank and Gatt meant recognising the definite collapse of the pillars of the liberal bourgeois order. That is, the balance of power and the supposed automatism of the gold standard. For this reason the principles that informed the construction of the new order were clearly directed against what was left of the old British Empire. In this manner the US first allied with the Soviet Union to dismantle the colonial system that had served as a support for the British Empire. Secondly, the US established a system of international institutions of political-military (NATO) and financial economic (Gatt, IMF, the World Bank) control and a global legal body capable of incorporating in a an Assembly successive decolonised countries while maintaining decisive power in the nucleus of victorious powers (the Security Council). Soviet power, for its part, had expanded to Berlin during the war (with Roosevelts assent and Churchills opposition), which shortly led to the Cold War. West Germany was

See Medeiros O desenvolvimento tecnolgico americano no ps-guerra como um empreendimento militar (the Development of American Technology in the post-war period as a military undertaking) in this volume. 9 Hudson, 2003.

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rapidly reconstructed with American aid, transforming itself into the first European economic miracle. The same occurred in Asia with Japan, Taiwan and South Korea, after the victory of the Chinese revolution. Geopolitics in Europe remained almost frozen until the implosion of the USSR and of Yugoslavia. It remained active in Asia until defeat in Vietnam and continues in a game, still at an impasse, of American interventions in the Middle East. Hegemonic moves to secure control by the capitalist system included 1) the establishment of military bases at the borders of its rival socialist system; 2) support given for the economic recovery of the defeated and disarmed ex-Axis powers; 3) substitution in the Middle East of the chessboard set up by the ex-imperial powers France and Britain; 4) an attempt to become the worlds policeman. Upon reaching the Far East this culminated in adopting a strategy of contention with China, which led to the invited development of Japan, South Korea and Taiwan. The global expansion of capitalism under American hegemony changed the international division of labour and the centre-periphery scheme proposed by Britain. This is both because the nature and dimension of the new centre was radically different and because its foreign expansion and its incorporation of functioning peripheries no longer corresponded to the classic division between a central producer of manufactures and a peripheral producer of raw materials. As has already been said, since the 19th century the North American economy has simultaneously been a large producer of manufactures, raw materials and foodstuffs. Thus its foreign expansion is not carried out only or even fundamentally by trade, but above all by branches of trust capital. This has been dominant internally since the end of the 19th century and internationally since the start of the 20th century. After World War 2 the expansion of large companies gradually promoted the appearance of trade flows between countries that are in fact flows between head offices and branches. This movement spread from the North Atlantic to Latin America, advancing afterwards to the Pacific. Upon arrival in Asia it once again changed the division of labour, as this region became a large-scale producer of cheap manufactures and of raw materials. These changes completely altered the terms of the Centre-Periphery relationship proposed by Britain and theorised by Raul Prebish, the founder of the United Nations Economic Commission in Latin America and the Caribbean (CEPAL). International trading relations ceased to lean in favour of manufactures and against primary products because new manufactures came to be produced in Asian countries where labour was cheap and foreign

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direct investment abundant. Thus, while the deflation of assets came from the US at the end of the 20th century, deflation in the price of manufactures came from Asia, as did large demand for food and raw materials. With the new international division of labour made easier by the displacement of multi-sourcing branches, Americas domestic economy was forced to open up more while generating a rising trade deficit in order to accommodate the asymmetrical commercial expansion of the Asian countries. This expansion was caused in large part by the global expansion of major American capital. This combination is at the root of the definitive rupture with the Bretton Woods system and of the growing financial liberalisation imposed by the hegemonic power over other countries from the 1980s. The Nixon presidencys decreeing in 1971 of the non-convertibility of the dollar into gold had consequences that protagonists and observers at the time were incapable of analysing. After disengaging from gold in 1971 and free-floating the exchange rate in 1973 demand for the US currency for transactions and reserves almost collapsed, giving rise to a problematical and unstable system of free-floating exchange rates. The dollar continuously fluctuated downwards. It was therefore unsurprising that the role of the US currency in commercial and financial transactions began to decline, as did its participation in the formation of Central Banks currency reserves. In provoking a drop in the revenue from and value of dollar-denominated oil reserves, the depreciation of the dollar was also at the root of the 1973 and 1979 oil shocks. This dollar crisis led to attempts at the end of the 1970s to replace the use of currency with special drawing rights: liquid assets issued by the IMF and pegged to a basket of currencies. The FEDs decision to unilaterally raise US interest rates in October 1979 (before the second oil shock) was made to rescue the supremacy of the dollar as a reserve currency following an onslaught by European and Japanese investors. On imposing a renewed role for the dollar as a universal standard via the unprecedented hike in interest rates of 1979 the US delivered a coup de grce to plans of reforming the Bretton Woods monetary order10 and sparked off a liquidity crisis for Third World debtors. Michael Hudson11 correctly argues that at this point the US was imposing on holders of surplus dollar the US Treasury Bill Standard, a monetary gauge whose end net assets came to be US Treasury bonds, increasing the seignoriage power of the US currency. From then on, freed from the chains of convertibility and fixed parity with gold,
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See Tavares 1985 in: Tavares, 1997 and Belluzzo in: Fiori, 1999. See Hudson, M., op. cit.

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the US could attract capital for its markets and give itself the luxury of maintaining moderate rates of interest. This phenomenon became more marked in the 1990s with the accumulation of Asian countries reserves following growing trade deficits with the region. Thus while real and potential geopolitical conflicts continued to gather at the shifting Eurasian borders the global geo-economy under the aegis of American financial capital and the new monetary standard took a different direction, relocating to the Far East. From the 1970s, especially after the Vietnam disaster and Chinas policy of military contention, US diplomacy in Asia concentrated on economic and financial aspects. The process of the globalisation of capital commanded by the US via trade and financial liberalisation and by direct investment advanced rapidly from the 1980s and ended up embracing a resurgent old Asia. This stage of financial globalisation occurred alongside the largest and longest-lasting cycle of US economic growth in the post-war period. Meanwhile, the rate of growth slowed for the other partners of the Triad (Japan and Germany) and the indebted Periphery went into crisis12.

Financial Globalisation and the Mutation of Capitalist Wealth

With the systematic rupture of the 1970s the accumulation of financial assets gained a permanent status in most countries capitalist wealth management, and selfserving practices by economically powerful groups (rentism) increased across the board. Mutations grew rapidly in the capitalist worlds social makeup and asymmetries became more accentuated in the relative rates of countries growth and in the distribution of income between classes. The middle and upper classes came to directly hold important bond and share portfolios but these were mainly through investment, pension and insurance funds. The typical equity of a middle-income family increasingly came to include financial assets as well as property and durable goods, which substantially altered the distribution of revenue between salaries and that coming from financial assets.

12

See Maddison, 2001, Chapter 3.

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The Federal Reserve reported in its Flow of Funds Accounts13 that in the first quarter of 2004 (after the 1990s bubble had burst) the value of financial assets held by American families shares, investments in funds and public and private debt securities) totalled US$ 34.8 trillion, compared with US$ 20.1 trillion in tangible assets (own homes, durable goods). Companies in general also increased what they held in financial assets and not only as capital reserve to carry out future fixed investments, but as a decisive change in the structure of their equity. For this reason the expectation of price variations in financial assets has come to occupy a very important role in the decisions of companies and banks, and financial profits have tended to surpass operating profits. Observed from the point of view of institutions and financial instruments these transformations in wealth reflect the greater importance of direct and securitised finance compared with credit from the banking system. Financial deregulation broke through dikes that had been constructed after the crisis of the 1930s to protect against the action of commercial banks that are now transformed into financial supermarkets. This change engendered the securitisation of credits and eased the involvement of banks in financing capital market positions and off-balance sheet operations involving derivatives. This has not only allowed greater liquidity for the markets but also occasioned a greater degree of leverage for brokerages, funds and investment banks. Competition between investment banks was a decisive factor in attracting clients and speeding along financial innovation. Portfolio managers anxious to bring more money to their mutual and pension funds and anxious to beat the competition, sought to show off the best performances. To this end they opened space in their portfolios for higher-risk products and assets. The expectation of price variations in financial assets thus comes to hold a very relevant position in the decisions of companies and banks14. In his PhD thesis Professor Jos Carlos Braga, gave an early warning of the trend towards the financing-centred and new rentism in the capitalist economies, a process that has not been confined to national borders15. Although most financial assets in each country are the property of residents, cross-investment from foreign investors has grown significantly with the liberalisation of the capital markets and the deregulation of controls
The Federal Reserve publishes the Flow of Funds Accounts of the United States. This quarterly report registers flows generated by individual lending institutions and the main borrowers are identified. The study also presents data about the stock of debt accumulated at the end of each period, as well as the net equity of end borrowers. 14 See Belluzzo, L.G., op.cit. 15 See Braga, 1997.
13

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on capital flows. The value of the large bulk of tradable financial assets on the worlds capital markets leaped from around US$ 5 trillion at the start of the 1980s to US$ 100 trillion at the end of the 1990s, according to estimates from BIS. Accompanying the financialising trend, the central countries moved towards a system of floating rates. In the opinion of many this was to escape from the aporias of the impossible trinity, that is, of the co-existence of fixed rates, capital mobility and domestic monetary policy. Pronounced exchange rate fluctuations exacerbated the role of appreciation/depreciation expectations of currency in the evaluation of different assets. For countries with a convertible currency, above all for the central money manger, monetary policy became an efficient instrument for stabilising the cycle of business and of general price levels. But at the same time at which the level of fluctuations in central countries was eased and inflation rates for goods and services fell, the possibilities grew for the occurrence of bubbles and successive crises on the financial markets. In a recent article16 the economists Ben Bernanke and Mark Gertler recognised the importance of financial wealth and the equity situation of companies and families in the granting of credit and therefore in determining capitalist cost. The world in which we live, opposed to the one envisaged by the benchmark neoclassic model, is one in which credit markets are not frictionless: i.e., problems of information, incentives and enforcement are pervasive. Because of these problems, credit can be extended more freely and at a lower cost to borrowers who already have strong financial positions. According to Bernanke and Gertler research suggests that the effects of asset price changes on the economy are transmitted to a very significant extent through their effects on the balance sheets of households, firms, and financial intermediaries. The two authors construct a growth model with an expansion of credit, increased investment and inflation of assets in which there is a premium for external finance (third-party resources). This premium varies inversely in relation to the financial condition of the borrower, that is, it falls for those borrowers able to offer better collateral. As the price of assets rises rapidly and inflates the net equity of companies and families the use of indebtedness becomes irresistible as a means to lever productive investment or positions that promise expressive capital gains. Successive episodes of inflation of assets and the risk of crises have been faced down so far successfully by American monetary policy. This was the case with the

16

Bernanke and Gertler, 1999.

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hedge-fund crisis (Long Term Capital Management) in 1998 when wealth managers, wrong-footed by brusque and unforeseen price changes were obliged to close out positions that were generally highly leveraged. The FEDs swift reaction prevented a crisis in the system. The fact is that over the past 20 years American economic policy has shown itself capable of meeting three objectives: 1) administering domestic liquidity conditions in the stages of expansion and retraction of the two American cycles; 2) guaranteeing the resilience of its financial market through last-resort interventions; 3) maintaining external financing conditions when there is extensive fluctuation in international liquidity, while preserving the role of the dollar as a reserve currency. In the case of peripheral economies in non-convertible currencies where there is no demand from third-party countries, financial inter-dependence has brought significant discomfort. Interest rates and exchange rates have become most sensitive to brusque changes in expectations on the part of the holders of wealth. For these countries the new financial integration has been accompanied by frequent external liquidity problems and major fluctuation in the price of currencies and assets. From this stems severe limitations imposed on monetary and fiscal policy. These have undoubtedly been more inflexible and longer-lasting for countries that have opened their capital accounts, ridden the waves of foreign credit cycles and become heavily indebted in foreign currency. In the net capital outflow phase reserves have fallen but interest rates risen, which increases the weight of liabilities and promotes the dollarisation of the governments domestic debt. This situation apparently occurs where there is both a fixed- and a freefloating exchange rate. In both cases the Central Bank is obliged to buy and sell dollar in an attempt to ease the path of the exchange rate and prevent an undesirable growth of the debt/GDP ratio. The relatively high volume of reserves that Central Banks must maintain in order to keep up an appearance of solvency is one of the symptoms of the impossibility of adopting a pure free-floating exchange rate. As local-currency and dollar-denominated securities are far from perfect substitutes the financial market continues to carry out arbitrage between domestic and foreign interest rates, keeping a keen eye on exchange rate, liquidity and solvency risks. This impedes the convergence of interest rates and demands intervention in the exchange rate. In countries with a high foreign debt, even when able to significantly reduce the current account deficit, the free-floating exchange rate does not eliminate currency risks and the Central Bank is forever obliged to stand in the way of fluctuations. Short-term

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appreciation or depreciation depends on conditions of financial openness, the stage at which capital flows are, on the degree of separation between banks dollar assets and liabilities, and on companies and rentist families based in the peripheral country.

The Reaffirmation of American Power

In the 1970s, as has been said in the fourth segment of this piece, the break with the fixed-dollar standard, the defeat in Vietnam and the oil crises shook the pillars of American power. Most analysts continued to proclaim a certain end to American hegemony, even after 1985 when the crisis had been overcome and the US was advancing as a global power. The vulnerability of the dollar as an international currency was sidestepped by the strong-dollar diplomacy of the Reagan government (Volker), executed without pity at the start of the 1980s17. The strengthening of the dollar as a reserve currency and as the denomination of commercial and financial transactions provoked profound changes in the structure and dynamic of the global economy. This was especially so in manufacturing industry, in the appearance of long-lasting balance-of-payment imbalances between the US Asia and Europe and in the advance of financial globalisation. At two moments (1980-85 and 1995-2001) the valuation of the dollar and the consequent increase of the USs position as a net debtor shaped the course of transformations. At the start of the 1980s the unprecedented increase in interest rates simultaneously led to a budget deficit for the Reagan government and the appreciation of the dollar, which was responsible for the most marked post-war trade deficit up to that time. In the 1990s a widening of the US current account deficit was provoked by increased private spending and indebtedness. It is essential to emphasise that in both periods the American economy gained freedom to adopt firstly an expansionist monetary policy and, in the 1990s, a monetary policy of permissive credit. In both cases high growth rates came with an expansion in nominal demand at a far higher pace that that of domestic production, as well as with an increase in the total debt/GDP ratio. An important factor in the revitalisation of market financing was the role played at the beginning of the 1980s by increased and better quality American public indebtedness.

17

See Tavares, op. cit.

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This was a crucial phenomenon in aiding portfolios and containing the collapse of banks involved in the Third Worlds foreign debt crisis. The public debt of the US and Europe grew rapidly in the 1980s, fattened up by high interest rates. The endogenous growth of public debt was accompanied by governments greater dependence in relation to the internationalised financial markets. From then on, in an unprecedented manner in the history of capitalist internationalisation, the US went from being one of the largest creditors to one of the largest debtors in the world, both from the domestic and foreign standpoints. With the inflationary shock of the early 1980s over the combination of supply-side economics and the overvaluation of the dollar allowed the American economy to resume growth without inflationary pressure. The increased purchasing power of salaries was boosted by cheap imports of consumer goods and by monetary expansion over nominal income. In this adjustment the US was able to simultaneously obtain transferrals of liquidity in real income and capital from the rest of the worldThe resumption of American growth was possible thanks to global supply, with growing incomes and a large capacity for response to stimulation by demand. The increase of the American trade deficit corresponds to attempts by the other industrialised countries to obtain growing trade surpluses. Exporting is the solution for all but the dominant economy, which chooses the path of cheap imports.18 Reaganomics, with its super-appreciated dollar, enormous budget and trade deficits, served as a boost for the Asian countries, above all for Japan, Korea and Taiwan. This was the period of large Japanese, Korean and Taiwanese trade surpluses. The appearance of Japanese banks, brokerages and insurers on the international financial picture was the inevitable product of enormous financial accumulations resulting from consecutive Japanese trade surpluses, especially with the US but also with Europe. When in the middle of the 1980s, however, the US resolved to reverse the brutal valuation of the dollar, which had already caused irreparable damage to its industry, it was taken as a clear sign that at least this part of the party was set to end. The Japanese were obliged to swallow the appreciation of the yen, which on the one hand affected exports to predominantly dollar-pegged areas and on the other caused serious losses for banks, brokerages and insurers with dollar assets in their portfolios. The famous endaka would

18

See Tavares an Belluzzo, 1986.

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push forward a new round of relocating Japanese industries to other countries in the region, supported by the financing capacities of Japanese banks which tried to compensate losses taken on by dollar assets. Korea, Taiwan and second-generation Asian Tigers such as Thailand, Malaysia and Indonesia, had pegged their currencies to the dollar, which made them attractive destinations for relocating Japanese investment. On the other hand, interest rates in yen were extremely attractive and compensated at least part of the risk of an additional appreciation of the Japanese currency. Chinas devaluation of the yuan would complete the first decade of accelerated growth. This new and gigantic protagonist of the Asian miracle carried out its programs of economic reform with great efficiency. These reforms sought a combination of an aggressive export strategy, the encouragement of foreign direct investment in stipulated zones and major state intervention. State involvement was mostly used to back small-scale agriculture, in massive infrastructure investments and in the use of state-run companies as an anchor in the creation of large conglomerates. All of this was accompanied by a careful transition from the price system of the old command economy to a new market economy. The internationalised financial marketplaces of Hong Kong and Singapore rapidly integrated into the Asian complex being created through local banks and foreign banks based on their soil. These cross flows of direct investment, of the expansion of credit and later of portfolio investment stimulated very rapid growth in trade between the countries of the region, above all in inter-company transactions. From the end of the 1980s trade between countries in the region was to grow at impressively high rates, surpassing trading relations with Europe and North America. In an excellent article entitled Globaliazao e Insero Internacional (Globalization and International Insertion)19 Carlos Medeiros shows that there was evidence of a regional inter-industry and intercompany investment and trade cluster, permitting companies, especially Japanese and Korean, to obtain important economies of scale and specialisation in the manufacturing segment This dynamic cannot be explained, however, outside of a context of regional macroeconomic expansion and penetration of the large markets of the OECD (Organisation for Economic Co-operation and Development). Neither can it be explained outside of the

19

Medeiros, 1997.

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context of marked US macroeconomic growth in the 1990s and Japanese stagnation in the same period. The exuberant cycle of American expansion in the 1990s once again accompanied by massive current account deficits reinforces both ties and strong competition within the Asian bloc. Korea and Japan, for example, became ferocious competitors on third-party marketplaces in the most dynamic sectors, such as auto-industry, microprocessors and electronic consumer goods. On the other hand, Korean expansion was heavily based on the import of capital goods and financing by Japanese banks in order to maintain the high rates of accumulation seen throughout the 1990s. These relationships of competition and solidarity have been even more evident in the case of China, whose competitiveness has grown both in terms of less-qualified markets and, at a fast pace, in those of more sophisticated technology. The Chinese export drive especially took space from Asian partners in third-party countries after the depreciation of 1994. At the same time it stimulated an import of components from countries in the region. The Chinese also maintained steady growth in domestic capital accumulation and the rapid incorporation of new technologies through the encouragement of joint-ventures with Korean, Japanese and Taiwanese companies (with surplus capital from the Asian crises of the 1990s and low rates of growth for their internal markets from then on). These relationships of interdependence obviously made these economies very sensitive to exchange rate variations and in particular to changes in the relationship between the dollar and yen and both of these and the yuan. After the depreciation of this latter in 1994/95 it became anchored to the dollar. The Chinese position in the global economy improved rapidly due to high rates of domestic growth, the absorption of foreign direct investment and to growing exports, which held at their most stable and vigorous on a global comparison since 1970, even before liberal reforms. China became the second-largest recipient of foreign direct investments after the US and maintained with that country a special relationship of competition and complementation. In contrast with Japan, which did not rely on an important foreign absorption of capital and remains until the present indebted to the US, China is both debtor (via foreign direct investment) and creditor (by the accumulation of vast dollar reserves invested in US Treasury bonds). Any accentuated decrease in Chinese trade and investment would dramatically affect the economy of East Asia, which currently has Chinas growth as its main engine, and could provoke a blockage in one of the most important arteries of American

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globalisation. Pressure from exponents of American power to penalise Chinas protective systems and lower its surplus appears to be a lurking protectionist tic that resurfaces periodically on the face of American leadership. It could also be a realpolitik manoeuvre supported by Japan to obtain larger trading and financial concessions from China and maintain the balance of power in Asia. The Chinese government is resisting and as well as maintaining a high rate of investment in order to expand its internal market it is beginning an offensive to invest in high technology and to seek complementary arrangements with countries that are suppliers of natural resources. The pursuit of wider international roles is part of a strategy that frees China from its centuries-old dilemma whether to close in on itself within its vast territory, or put itself at the mercy of the game between great powers.

Conclusions

The US, despite its monumental current account deficit, does not need to concern itself with the risk of a run on the dollar. Demand for the US currency is currently born from that countrys dominant role as global trading economy and on the financial markets, where the allure remains for public securities as last-resort liquid assets in a global economy. This is an enormous advantage for a country with a current account deficit of approximately $550 billion. A deficit of this magnitude would have meant a massive run on the currency of any other country but this does not seem likely in the case of the dollar. Demand from non-residents for US T-bonds, especially born from the trade surpluses and enormous reserves of the Asian countries, has allowed credit to grow and has supported the prices of assets on the American financial market. At the same time, American families become ever more indebted in order to acquire cheap products coming from the producers of Asia. American globalisation has occasioned in an unprecedented manner a structural linkage between the credit system, the productive accumulation of companies, private consumption and the management of the states finances (particularly public debt). This true merger of functions and interests reaffirms the essentially collectivist (and macroeconomic) character of the new dynamic of central capitalist reproduction. It is a practical example of the political macroeconomics of American Power and Wealth, founded on the relationships between monetary hegemony, credit growth, the appreciation of assets and economic growth.

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Relations between State and Market (an imperfect form of expressing the relationship between politics and the economy) are not external, based on mere interventionism. They are organic and constructive. In times of a global economy such forms socialised by private power allow for the diversification of wealth of each group, distribute that wealth to several markets and assure maximum equity gains, in the short term if possible. The agents of these operations are private financial institutions. It is these who decide sell prices, methods of financing, the shareholding of groups, strategies to increase the value of shares. The end, but not definitive, guarantee of the process of increasing the value of assets is the existence of a stock of safe and liquid assets issued by the government of the hegemonic country. This is the competitive capitalist market formed by giant corporations in the area of deregulation and liberalisation. On the two flexible markets, oil and dollar, the US has ceased to internally bear the burden of deregulation that characterised the 1973/85 period of transition and become command-based, unilaterally carrying out preventative or corrective interventions. Without general self-applicative rules and without consideration for the rules of the very international bodies it has helped to create, US preventative interventionism has made the countrys global power grow as never before. The internal economic management of US preventative interventionism has become more complex with the reaffirmation of that countrys hegemony. However, eventual economic policy divergences between the Treasury Secretariat and the FED are easily surmountable when elastic fiscal and monetary policies are at hand (with no balance-ofpayments restrictions) and when neither of their directors considers contradicting the interests of the large American banks or the international financial community, installed once again in Wall Street after 1985. The same cannot be said for oil and arms. After all, Texas does not have the power to coordinate the international oil market, much less the sectorial and global policies of the American military complex. US foreign policy after Nixons (Kissinger) diplomatic overtures to China ceased to concentrate purely on East-West conflict frozen by the Cold War, and its focus relocated to the Middle East. Pretensions of arbitration in the Middle East by old Britain were definitively put paid by the Suez Crisis and required that the baton be passed on the US. This meant simultaneously solving the geopolitics of the area and the geo-economics of oil, both in a period of great turbulence. In respect to the regulation and geopolitics of oil, American-Saudi-Iranian cohabitation reaffirmed by the Tehran Agreement of 1971 was short-lived thanks to the instability of the international monetary system and by conflicts

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growing within the Arab countries, made more serious by the overthrow of the Shah of Iran20. There has been no lack of movement on the politico-military chessboard of the Middle East since then. The strategy of preventative interventionism has prospered. In the case of the Middle East the US has not hesitated, as was the case with Vietnam, to substitute the old colonial gendarmerie. It has intervened in all conflicts, made unilateral agreements with Egypt and Israel and backed the Shah of Iran and when he was overthrown by the Shiite Revolution of 1979 armed Iraq in the long war that followed, supporting the same Saddam Hussein it would overthrow two decades later. Saudi Arabia has remained until the present the only faithful ally to the US, after successive shifts in alliances and conflicts in the other Arab countries. As part of the logic of a continuous and permanent expansion of its military presence in the world the US has kept the old bases it set up during World War II in what is now the EU and extended these into Eastern Europe following the implosion of the USSR. The most recent bases, meanwhile, are to be found in oil-producing countries or on the current Russian and Chinese borders of Asia Minor21. The fact that these foreign military bases respond in their multiple tasks to the command of military and intelligence forces that are not unified internally often disturbs and distorts the information available to the Pentagon and other security services. This aggravates disputes between the Department of Defence and the State Department, which have been accentuated since the Reagan administration. There is in fact no unified National Security command in the US (as evidenced in the case of the September 11 disaster) possibly because security doctrine and intelligence agencies have spread throughout all levels of government ever since national power has become confused with global power. The crossing of large corporate and military interests, especially since the Iraq War, turns into enigmas Washington dissentions about US foreign policy. The unmeasured increase of the global power of the US, without the shared consensus of its old partners, is incompatible with the old notion of International Order, due to its inherent structural instability. From the viewpoint of the globalisation of capital, China has returned as the desired goal of the West as in the times of the Venetian Marco Polo at the beginning of Mediterranean modernity. Special export zones have started life at the same ports occupied

20

On oil see Torres Filho O Papel do Petrleo na Geopoltica Americana (The Role of Oil in American Geopolitics) in this volume. 21 On the geopolitics of the bases see Johnson, 2004.

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in the 19th century by large imperial powers. This is not, however, a bellicose or colonial occupation, but the application of the old thesis of the opening of ports to free trade and the movement of capital, today expressed by the World Trade Organisation (WTO). The Chinese government, even after liberal reform and its entrance at the WTO, maintains a hold on its exchange rate and resists the opening of its capital account. This does not prevent the country from being the largest recipient of direct investment from global branches. It is also the second-largest financer of the US deficit via its hefty reserves invested in US bonds. At the start of the 21st century a new capitalist geo-economic anatomy has taken shape. The brain, power of contention, geopolitical control and heart of the global economy continues to be the gigantic, continental economy of the hegemonic superpower. The lungs whereby it breathes and expands in the second wave of American globalisation is resurgent Asia, China in particular. Despite its strong growth rates and status as a nuclear power, India is not a relevant financial player in the globalisation of capitalism. This is because, in contrast to Southeast Asia, it does not have relevant financial marketplaces for the movement of international capital. Old continental Europe, until recently a mercantile fortress made up of only 12 countries, has continued to grow at a slow pace. Since the break-up of the USSR the European Union appears to be once again experiencing the old headaches on its Eastern Frontier accumulated since the peace of 1919. Africa has crumbled in the face of failed autonomous development following decolonisation. Latin America remains a zone of indebtedness and low growth. Russia, after the dismantling of its empire, has become isolated and pauperised, although it remains a major military power. The area of greatest economic (oil) and political (successive wars) instability remains the Middle East, where the Wilsonian dream of universal peace and self-determination has turned into a nightmare.

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TAVARES, M. C. e BELLUZZO, L. G. (1986) Uma reflexo sobre a natureza da inflao contempornea in: REGO, J.M., Inflao Inercial, Teorias sobre a Inflao e o Plano Cruzado. Paz e Terra, So Paulo.

TEIXEIRA, A. (1999) Estados Unidos: a curta marcha para a hegemonia, in: FIORI, J. L., Estados e Moedas no Desenvolvimento das Naes. Ed. Vozes, Petrpolis.