Tuesday, February 15, 2011

"Collapse is far more than a simple depression"

An Analysis of the American Service Economy

Over the course of recent decades, a theory had been presented over and over in the bourgeois press. This theory is known as a “service-based economy.” On the face of it, this theory seems plausible. Like most bourgeois economic theories, it is idealistic in nature and ignores a key factor in economics. There are two types of labor—labor that produces wealth and labor that consumes wealth. This is not to be confused with value; all labor, regardless of whether it extractive, industrial or service, produces a value of some form—a commodity or a use-value. Rather, what we are discussing here is not the creation of value but the creation of wealth. “Wealth” is nothing more or less than the increase in the total value in terms of commodities. As such, in some instances the creation of a use-value can consume wealth regardless of the necessity of its production.

We will use agriculture to present an example of a wealth-creating process. In order to grow a field of wheat, a farmer must first plow the field, then add any soil amendments necessary, plant seeds and use whatever protective measures throughout the year until the harvests, which he naturally labors to collect. In this example we see that labor (plowing, planting, harvesting) + commodities (fertilizers, pesticides, etc) = harvested wheat. Since the value and the amount of wheat is greater than the number of seeds sowed, this process has resulted in an increase of the overall commodity and thus has created wealth.

Now let us present an example of a wealth-consuming process using the art of cooking. Here food ingredients, energy and labor are used to result in a meal, which is then consumed. The meal has more value than the ingredients, energy or even the labor by itself—there has been an increase in value in the cooking process. However, since the labor, energy, ingredients and even the meal itself is immediately consumed, there is an overall loss in commodities. That is to say a loss of wealth—or more accurately—the wealth has been consumed.

Any economy which is based on the consumption of wealth rather than its production is doomed to collapse. What does this mean for the United States in particular, and also, how has collapse been avoided in the US thus far? Collapse is far more than a simple depression, or as the bourgeois media likes to call them these days, recessions. A collapse is no mere crisis of overproduction. Rather it is an overall systemic breakdown of the entire economy, including its base and subsequently the political superstructure associated with that economy, usually in the form of a state. To ascertain what this means for the US in particular, we must first understand that the United States, despite being a bourgeois republic with democratic formulations, is indeed an empire in the sense that it has many colonies around the world. Naturally, there are those countries that are independent on paper. However, realistically they are colonies—or to be more accurate “neo-colonies,” in that their economic and military structures are based upon close association with the US empire. Most of these neo-colonies are in Latin America, although there are neo-colonies throughout the world. There are also direct puppet states of the US, particularly Iraq and Afghanistan. These neo-colonies serve the US by providing raw materials and other wealth to be consumed by the overly large proportion of the US economy that is geared toward wealth consumption. It is, in effect, one leg of a two-legged stool that supports the US living standard. The second “leg” is the fact that the US dollar is the de-facto reserve currency used by most of the world. This has been the case since the end of the Second World War, when the Brenton Woods Agreement, the International Monetary Fund (IMF) and the World Bank were established. The use of the dollar as global reserve currency has much impact on the economy. Why?

To understand this, we must first know how the system prior to 1973 worked. Following WWII, the dollar was convertible into gold and gold into dollars. Given that in 1946 the US had the largest reserves of gold in the world this not only made sense, but created a whole new market for US products. Japan and Europe were in ruins and in no shape to begin mass production of wealth until well after recovery had been made. As such, in order to buy finished goods for consumption—food, fuel, clothing and all manner of other items—they to be bought from the United States (unless of course the country in question was in Eastern Europe where the primary production point was the Soviet Union, though the recovery of Eastern Europe was slower as the Soviet Union itself had to recover from the war). Given that most of the Western European countries had already spent their gold, the only other solution was to have them purchase dollars. In large part they became indebted to the US for dollars which were then used for recovery and consumption.

This system worked until the 1960s when with Western Europe and Japan fully recovered and began to pay off the debts to the US and to use whatever dollars they had left to purchase gold, causing a sharp decline in US gold reserves and weakening the currency. This recovery was made possible by the Marshal Plan, initiated by the US toward Western Europe and Japan. However, this has far more to do with the fear of the spread of communism and the Cold War than it did any benevolent intentions of the American government. By the 1960s, with gold flowing out of the US, new industrial competition such as Japan and Germany, and an imperialist war raging in Southeast Asia, the Brenton-Woods system became untenable and was starting to lead to hyperinflation. To address this concern, President Richard Nixon removed the convertibility of the dollar internationally and “allowed the currency to float” as many economists at the time put it. How was he able to do this without jeopardizing the US economy? The answer is simple: oil. Saudi Arabia and the other oil-exporting countries had decided to accept dollars for oil. Oil accounts for OPEC members are denominated in US dollars. As such, since most of the countries of the world need to import oil—including the US by 1973—the main transportation fuel commodity was bought and sold using US dollars. Even if the economy of the country in question didn’t buy a single American product, it would still need dollars to buy oil. This is partially the case with the People’s Republic of China now. By tying oil to the US dollar, a single currency became the most important reserve currency in spite of the fact that other currencies had become available: the British pound, Japanese yen, euro (after 1998) and the deutschmark (prior to 1998). The result of this was that the US needed to print dollars to finance its wealth consumption, which has been the case since the mid 1990s, with a plethora of “free trade agreements” eviscerating the US industrial sector (wealth-producing activities) if not before.

Like all two-legged stools, this one is unstable—so unstable that there has been a war and a long-term occupation of a country to maintain the status quo. One of the reasons for the Iraq War was Hussein attempting to change the Iraq oil accounts out of US dollars into euro. If Iraqi oil was suddenly available in euro, that currency could replace the US dollar as a major reserve currency. Europe continues to have industry and to produce wealth—not on the level of China per se, but in comparison to the US, Europe remains industrialized. Should Iraq, with the second-largest oil reserves in the world, start accepting both dollars and euro for oil, other OPEC countries would likewise diversify. These include Iran, with the third-largest oil reserves, and Venezuela with the fifth-largest oil reserves. Even though the US has had a primarily service economy since the early 1990s, total collapse has not occurred. Overall, the de-industrialization of the United States will result in any hopes for advancement being halted with no recovery in sight. Once collapse sets in, real estate in “suburbia” will become worthless, mounting debts from spending to keep up living standards privately will result in a flux of real assets—everything from televisions to jewelry to vegetables—being transferred from the many to the few, a process which has already started, but under collapse will accelerate. This will culminate in asset-striping from foreclosed housing, idle industry, etc. Avoiding this will be impossible without a major overhaul of the economic and political system. What is needed is socialist transformation and re-industrialization.

Regulation of capitalism, as the so-called progressives want to do will not work; after all, all it took was a willing “conservative” administration and “conservative” Congress to destroy those regulations and we have no reason to expect that even if said regulations were restored the powers-that-be could not overturn them again given a little time.

Only by working people taking the reigns of the economy and the state can the situation be reversed and living standards restored or even advanced. Such a socialist economy must naturally realize that the basis of wealth itself is in the production of commodities. Services, while necessary, should never be the basis of any economy.

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