Page 3 of 5 CHINA'S DOLLAR MILLSTONE, Part 4 Gold, manipulation and domination
By Henry C K Liu
the role of "the indispensable nation" as a justification for hegemony. The
only challenge to postwar US hegemony came from its former wartime ally, the
USSR, the "evil empire", as president Reagan later came to call it.
Soviets reject Marshall Plan - onset of Cold War
The opening salvo of the Cold War was Soviet rejection of the Marshall Plan. In
saving Europe from war-induced starvation, the Marshall Plan also saved the US
economy from a repeat of the postwar depression of World War I. The financial
aid was denominated in US dollars, to be used to buy goods from the US shipped
across the Atlantic on US merchant vessels.
By 1953, the United States had pumped $13 billion into the
Marshall Plan account, moderating the adverse impact of military demobilization
on the US domestic economy. Moreover, the plan included former arch-enemy West
Germany, which was thus reintegrated into the European community. It
neutralized war reparations normally required of a vanquished country through
the division of the German nation into capitalistic West and socialist East.
More significantly, the Marshall Plan established the US dollars as the reserve
currency for intra-European and international trade and laid the economic
foundation for gold-backed dollar dominance, which turned into a fiat currency
after Nixon closed the gold window in 1971 and emerged as dollar hegemony with
globalization of finance after the end of the Cold War.
Aside from helping to put Europe economically back on its feet, the Marshall
Plan led to the Schuman Plan, the Coal and Iron Community and the Common
Market, and pointed to what may yet evolve into an economically and politically
united Europe. The Schuman Plan in turn led to the European Atomic Energy
Community (Euratom), which was signed (along with the EEC Treaty) in Rome on
March 25, 1957, and entered into force on January 1, 1958. It was one of the
founding treaties of the EU, which called for support for nuclear power across
the EU and is the only treaty that supports the development of a particular
energy source.
However, currently in the EU seven member states do not have nuclear power,
while four more have the political objective of phasing out their nuclear power
programs. Throughout the EU there are no reactors under construction since May
2008. Despite this the Euratom Treaty remains.
Soviet policymakers understandably viewed the Marshall Plan as a US strategy to
exploit the war-ravaged conditions of Europe to establish US domination through
monetary imperialism. To Soviet leaders, the Marshall Plan was a realpolitik
strategy cloaked in humanistic ideals. The USSR rejection of the Marshall Plan
turned the Cold War into economic position warfare.
While US policies militarily assumed a defensive geo-strategic position against
communist expansionism, its economic policies took on aggressively assertive
initiatives designed to expand the reach of the capitalist system throughout
the world. From this perspective, Soviet rejection of the Marshall Plan was a
natural response of a socialist state trying to resist external market pressure
and internal revisionist agitation for reintegration of hard-won socialism back
into the capitalist Western economy, and the subordination of new socialist
nations to new domination by the capitalist West.
In 1947, Soviet economist and Hungarian expatriate Evgenii Varga proposed the
notion of a "Third World" that would be a decisive arena of opportunity and
conflict in the post-World War ll era. The First World was occupied by the two
superpowers: US and the USSR, and Second World was occupied by the major powers
that were allies of either the two superpowers. The main arena of opportunity
and conflict was in the Third World countries in Asia, Africa, and Central and
South America. Since World War II, all limited wars, some lasting longer than
the world wars, have been fought in the Third World
The Soviet leadership also viewed the Marshal Plan as an attempt to use
economic aid not only to consolidate a Western European bloc, but also to
undermine recently won, and still somewhat tenuous, Soviet geopolitical gains
in Eastern Europe. It feared that the US economic aid program sought to
transform the new chain of Soviet-oriented buffer states into a revamped
version of the "cordon sanitaire" of the interwar years. The plan appeared to
aim at the reintegration of Eastern Europe into the capitalist economic system
of the West, with all the political ramification that implied.
Thus the Marshall Plan, conceived by US policymakers primarily as a defensive
measure to stave off economic collapse in Western Europe to keep communism from
electoral triumph in European domestic politics, proved indistinguishable to
the Soviet leadership from an offensive attempt to subvert Soviet security
interests.
Offensive aspects of Marshall Plan
The Marshall Plan was openly offensive in that its authors, notably George F
Kennan, whose writings formed the basis of the Truman Doctrine to support any
nation economically and militarily to prevent their falling under Soviet
control, did indeed aim at luring some of the Eastern European states out of
the Soviet orbit and integrate them into the Western European economy. In this
sense, the economic motives behind the Marshall Plan were undeniably more than
just a geo-strategy to counter Soviet expansionism. It was rather a plan to
constrict and reduce socialism in Eastern Europe.
In conversations with Harold Stassen, a perennial candidate for the Republican
presidential nomination, Stalin particularly focused his queries on the
possibility of government intervention heading off a future economic crisis.
And he seemed more optimistic than Stassen that such intervention could
succeed. Stassen, a Roosevelt Republican who lost the nomination as Republican
candidate against Truman in the 1948 presidential election to Thomas Dewey, ran
for president a total of nine times, the last being in 1992.
Stassen delivered the keynote address at the 1940 Republican Convention to help
secure the nomination for Wendell Willkie, when senator Robert Taft of Ohio
stressed that the US needed to prevent the New Deal from using the
international crisis to extend socialism at home. Had Stassen received the
Republican nomination in 1948, he might have defeated Truman to reach an
understanding with the Soviet Union to prevent the Cold War.
Time Magazine in its Monday, May 12, 1947 edition reported:
Last week,
Harold Stassen, peripatetic Republican presidential candidate, disclosed the
full report of his recent conversation with Russia's Generalissimo Joseph
Stalin. It went something like this: Stassen: Generalissimo Stalin ... I would be interested to know if you
think [our] two economic systems can exist together in the same modern world in
harmony ... Stalin: Of course, they can ... Stassen: ... There have been many statements about not being able to
cooperate. Some of these were made by the Generalissimo himself ... Stalin: It's not possible that I said that the two economic systems
could not cooperate ... Stassen: The statements I referred to are those made by you at the 18th
Communist Party Congress in 1939 and the Plenary Session in 1937 - statements
about "capitalist encirclement" and "monopoly ..." Stalin: There was not a single Party Congress or Plenary Session ... at
which I said or could have said that cooperation between the two systems was
impossible. Stassen: I had an informal talk with Mr Molotov ... and it developed
into an invitation to visit Russia on the occasion of my trip to Europe. Stalin: Things are in very bad shape in Europe as a whole. Is that true? Stassen: Yes, in general, but there are some countries ... Switzerland,
Czechoslovakia -
Stalin: Those are small countries ... Stassen: The low production of coal in the Ruhr has caused a shortage of
coal throughout Europe. Stalin: Yes. It is very strange ... Stassen: It is fortunate that we have had such large production of coal
in the United States ... Stalin: Things are not bad in the United States. Stassen: Our [the US] problem now is to see to it that we do not have a
depression, an economic crisis. Stalin: Do you expect a crisis? Stassen: ... I believe we can regulate our capitalism and stabilize our
production and employment at a high level without any serious crisis ... Stalin: The Government must be vested with wide powers to accomplish
that ... Magazine analysts and the American press carry open reports to the
effect that an economic crisis will break out. Stassen: ... The problem is one of leveling off at high production and
stabilizing ... Stalin: The regulation of production? Stassen: The regulation of capitalism. Stalin: But what about businessmen? Will they be prepared to be
regulated? Stassen: No. Some will have objections. Stalin: Yes, they do ...
The influential economist Varga suggested in 1946 that the
increased role played in the economy by the governments of the Western
capitalist states might make possible the emergence of a limited form of
economic planning in those economies after the war. With such planning, Varga
contended, these economies might be able to avoid economic crises of the type
that had caused the Great Depression in the 1930s. (See
National planning and the American myth, Asia Times Online, June 13,
2002).
The implication was that Western market economies would be stabilized by
adopting aspects of war planning in peace time, using an enlarged public sector
to counterbalance the volatile business cycle. Such views coincided with those
expressed by Joseph Schumpeter's 1942 work Capitalism, Socialism and Democracy
and later given further analysis by Hyman Minsky's work on financial
instability. As Western capitalist powers adopted mixed economies, they would
be less aggressive against communism. Consequently a moderate Soviet policy of
cooperation with the Western powers might pay large peace dividends fro the
whole world.
Varga's contention that US confidence in its capitalist economy would reduce US
aggressiveness against communism was obvious wishful thinking, given the
ideological wind of the Truman era. As it turned out, the enlarged public
sector in the US was mostly concentrated in defense spending. Still Varga's
prediction that market capitalism would be saved through planning and Keynesian
intervention held for half a century until the US went on a wholesale market
deregulation binge in the Reagan era.
The credit crisis that began in August 2007 appears to be spinning out of
control with a high probability that financial capitalism will be drowned by
excessive debt beyond the power of the government to rescue. How this mess will
finally play out over the course of the next few years is hard to predict
because of the uncertainty of government policy and action.
One thing is certain: when the dust finally settles, the global economy will be
fundamentally different from what it was before 2007. In many ways, countries
with emerging economies such as China, India and Brazil, can affect the shape
of the new global economy if their leaders have the wisdom and creativity to
forge a new direction, instead of continuing to play passive supporting roles
to a dying system.
In the latter part of 1947, once confrontation had come to dominate Soviet-US
relations, Varga would be publicly criticized in the Soviet press and forced to
recant this views, which by then no longer comported with the thrust of Soviet
response to hostile US posture. But in April of that year, Stalin in his
conversations with Stassen was merely gathering information from a high US
source to confirm his impression that despite some economic difficulties, the
Western economies were not on the verge of collapse, nor was the US moving
towards a mixed economy. The lack of progress at the December 1945 Moscow
conference to discuss occupation of Germany, peace establishment, and Far
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