Global military spending hits a record in 2008

NEW YORK (MarketWatch) -- Global spending on military armaments and services hit a record in 2008, driven by the U.S. wars in Iraq and Afghanistan and helped by sharp increases in Chinese and Russian defense budgets.

For 2008, countries around the world spent $1.5 trillion on weapons, vehicles and intelligence and reconnaissance services, according to a Monday report from the Stockholm International Peace Research Institute, or Sipri. The amount represented a 4% increase from 2007.




http://www.marketwatch.com/story/global-military-spending-hits-a-record-in-2008

And yet the more money, the less is actually bought

L-3 Communications......what are they communicating? death?

Knock Knock.

Who's there?

Death.

.

I wager there is a continution here from 1968, when the Vietnam war intensified in the context of a tapering off of the post 1950 world trade expansion, through the 1980s when the USSR collapsed under the weight of an intensified cold war, to the present day and the wars against Iraq.

"In every phase of financial expansion of the world-economy, the overabundance of money capital engendered by the diminishing returns and increasing risks of its employment in trade and production has been matched and even surpassed by a roughly synchronous expansion of the demand for money capital by organisations for which power and status, rather than profit, were the guiding principle of action ... they struggled against diminishing returns by borrowing all the capital they could and by investing it in the forcible conquest of markets, territories, and populations." (Arrighi)

The same sorry pattern has occured previously at the concluding moments of financial expansions in the global economy. There was the parallel Anglo-French and Italian 100 years war, the Thirty Years War, the Napolonic Wars, and WWII.

^^This is the part where I question Giovanni Arrighi. It is an assumption that doesn't seem to take into consideration the effects of expansionary monetary policy.

His conclusion is that an overabundance of money is due to diminishing returns from capital investments. This is exactly what Keynes believed was happening with the "marginal efficiency of capital" and why he he proposed “comprehensive socialisation of investment”. Keynes General Theory also led to Alvin Hanson carrying it on to develop "secular stagnation hypothesis".

These are flawed judgments, so it makes me particularly skeptical of this Arrighi fellow, even though I have not read his various works.

*except in Keynes General Theory he believed diminishing returns from investment opportunities prevented economies from reaching "full employment"

Keynes wasn't focused on an over abundance of money being created as an outcome, rather this seems unique to Arrighi.

So what is Arrighi's theory by comparison then? I assume that he concludes that an overabundance of money causes a crisis?

I don't know what sort of policies were used in the Italian city states 1350-1450, in Genoa 1580-1640, in the United Provinces of Holland 1740-1780, or in the UK 1870-1940, but they all failed when faced with the same circumstances as the US is now.

Mind you all of the above were undone by the systemic chaos, ie 'warfare', that typically occurs in periods of financialisation. Perhaps if they'd found a way to keep profits high they could have bought sufficient protection to survive, but the problem was that typically systemic circumstances shifted the trade advantage somewhere else, and once that happened they were doomed.

It should be noted that all wars are inflationary. You will notice that historically it's always been the case that during war, countries drop their gold standard, because it restricts the amount of money they need to pay for military spending. They then inflate drastically and in the case of WWII (which I have studied) they adopt wage and price controls and sell war bonds to try and curb price increases. Then there is this huge problem of trying to go back onto the gold standard after.

This might be why Arrighi notices that warfare occurs during periods of "financialisation"

You should read Zhivan Alach, "Slowing Military Change" - it's an SSI paper. Has some good references to some sources on military inflation as well, but in general covers how inflation is meaning more $ for less capability.

I can see how that line of argumentation might be plausible. Arrighi's explanation however is that:

Productive crises lead to 1) surplus capital seeking other forms of investment (not trade, not production) in order to maintain profits, and 2) increased competition between nation states which leads them into competition with one another via other means, ie warfare.

Conveniently, the sudden flush of capital seeking new forms of investment coincides with a glut of nation states seeking capital to finance arms production and fight wars.

The end result for nation states of these wars or arms races obviously depends. They may grow stronger by annihiliting the competition, allowing their production to expand once more, they may be crippled by debt, they may be wiped from the map.

I accept you may not agree with the concept or reality of a productive crisis as i use it, so i'm still looking for a way to evidence that. In the discussion re America in the 1920s i've glossed some important factors. America was at that time the emerging hegemon, and its industry was in expansionary mode. The UK was the one in decline. America's ascent to world power was in part a consequence of the expansion of its industry interally to serve the huge market of a continent sized island, protected as it was by distance from the costly power stuggles internal to Europe. American corporations also enjoyed a competitive edge over British free trade. I think this growing imbalance between US industry and the rest of the world was a factor in the 1930s Depression.

That sounds bang on and does sound interesting. The dollar is deprecating in value the more the Fed inflates or prints money. It is of no surprise that it costs more for less capability.

It's effects are subtle but corrosive.

It has never been a factor excepted by any economist who have written at length about the Great Depression. Which is why I can't take it seriously as a cause. I mean how is it a factor at all? The monetary forces are so astute, easy to define and measure their cause and effect relationships, where as this general look at an imbalance has no clear distinction behhind what it's causing.

This is a unique interpretation to a very select group of historians who have a embraced certain definitions and reapplied them to history, without a clear understanding of economic fundamentals.

*accepted

by any economist who has written at length about the Great Depression.

- while you're about it

Yes noticed that. As per usual I am in too many places at once. Window skipping between forums and posting on the internet never helps my ability to focus.

Do you mean the general perspective of Arrighi and the World Systems Theorists?

I mean this:

For example if competition between nation states leads to warfare, how is that so many countries use diplomacy through fear of hurting trade relations.

If this theory is accurate, it should be consistent.

Do you predict a future war against India due to many of the worlds IT giants outsourcing their support to Bangalore?

How can other companies and firms compete with the cheap labour? They must be getting ready to fund an attack as we type.

It's pretty obvious now that you dont understand the first thing about the theory and the evidence behind it that you are responding to.

You can make fun of it, but quite clearly you dont understand it in the slightest.
There's a very obvious reason to not go to war with India - are you smart enough to figure it out?

Well that's for certain because I have not read these authors works, but then I can still respond to individual statements you have made and question their absurdity.

No?

This theory must be consistent at every second of every day for me to accept it. You can't just point out wars and so forth and conclude that this is the fault of surplus profit seeking out new opportunities due to diminishing returns.

Where are these profits held for one thing? If they are in a bank, then the deposits are most likely being lent out via fractional reserve banking to other people.

One can save capital and accumulate interest. I.e. still make profit right? there are so many flaws in this theory it's not funny.

Cheap accounting?

I've found an acknowledgement in Arrighi of the inflationary effect of war. Obviously that doesn't proove his idea about when wars are more likely to occur, but it does indicate that he is aware of a factor which might explain away his thesis.

Yes wars are inherently inflationary and contrary to popular sentiment can be very destructive on the economy. Resources become scarce from the crowding out effects and rations are usually employed to prevent the struggle between military and civilian demand.

Not to mention the effects of wage and price controls, which while they can work in the short term to mitigate inflation, cause all sorts of anomalies in the private sector.

This is a contributing factor in why the economic model for warfare has changed so much since WWII. These days it's far more about contracting out to the private sector and as such has transformed from Military Keynesianism into Neoliberal Militarism.

This is an interesting read on the very subject: http://monthlyreview.org/0607jmc.htm

That is a very interesting read, i will try to find time to get through all of it.

There's a popular sentiment that believes wars are good for the economy?

Wars only ever make a select few rich, usually the people responsible for them while the rest suffer for generations.

The hypothesis has it's roots in observing Nazi Germany and also from Keynesian economic theory. Both of which became popular when WWII began and the Great Depression ended (seeming to verify the theory). The popular myth was then created, that if economic growth starts to falter or an economy is actually in a recession, that stimulating demand through war can stimulate the economy.

This is a piss-take propaganda poster that espouses the view:



Evidence which supports the view:

1. Technological innovation tends to increase.
2. Full employment (note: not zero unemployment) can be attained, through jobs that are created and from the draft.
3. Investment, Consumption and Spending all tend to increase due to the 'Keynesian Multiplier' effect.
4. GDP tends to increase.

However while these aspects do increase in the short term, in the long term they have been proven to be problematic* and as a consequence the hypothesis has been placed into question.

*except perhaps with technological innovation, but even this is sometimes debated.

My mother used to say sometimes, obviously not really meaning it, but indicating the beliefs whihc had developed in some of the generations that lived through WWII "we need a good war to get us all going again."

There is also that powerful psychological element which I missed out and that you allude towards Onehappy. The notion of everyone working together for a dire cause is quite a powerful thing and sure to accelerate economic activity.

America did well out of WW2 mainly because Britain put her empire on the block to pay for it

post war fertiliser companies did well out of the need by munitions companies to find new markets for their phosphate - we're paying for that now with nutrient rich runoff to our lakes and aquifers

Well I think to say that people are more productive when facing annihilation is really just stating the obvious.

But you have to look at what is actually being produced, everything is for the war so what happens when its over? All that demand just disappears and your left with the same problem you had before the war.

There might be some positive on flow in the following years but its no long term solution.

You also piss a lot of people off in the process which can effect trade etc.

Exactly, and just so you know I am in complete agreement with you. Inter alia it causes crowding out effects, inflation, malinvestment and wastes scarce resources, including human life...

See this for instance:

http://en.wikipedia.org/wiki/Crowding_out_(economics)

Those figures are horrendiously sad, I know defense budgets are pretty much needed these days, imagine what that kind of money could do in other areas of the social scheme. 1.5 trillion in one year? Could have ended poverty right there. Ah well, at least Iraq is democratic, right?

Just know that the people in Washington who came up with the entire Iraqi neoliberal experiment are neo-conservitives, not true conservitiives, please don't slant them all with the same brush.

True conservitives are against big government and defficit spending. They argue for balanced budgets, are against nation building and policing the world and believe America should cut down on its empire around the world.

"commerce with nations aliance with none" - Thomas Jefferson

sound just like little Englanders to me

Similar NR, very much so. Ron Paul = true conservitive in America and is one of the only Republicans who believes in and attempts to uphold the constitution.

If you look past the feel good music and watch the debates you can see how he differs to other Republicans and Neo-Cons in this vid.

http://www.youtube.com/watch?v=FG2PUZoukfA

Actually I think this YouTube video is more apt NR. This really shows you the difference between neo-cons and conservatives.

Ron Paul clashes with his fellow Republicans:

http://www.youtube.com/watch?v=9PqL2hotdbM&feature=related

I don't think we could ever substitute the motivation that is stimulated during war or survival periods (other than perhaps drugs?), but in peaceful times it can be encouraged through making workers feel valued for their participation in the workplace.

Of course there are various incentive based policies, such as companies selling stock, increasing wages and granting other amenities to their employees. The drug aspect makes me think about Aldous Huxley's "Brave New World".

Here are two examples of historical periods where productive expansion fell into decline.

The common pattern is one of rapid/accelerating growth, followed by a period of declining/decelerating growth (sometimes with a fall at the end of the cycle). The significant point is that in the periods of deceleration in growth capital sought other forms of investment in order for profits to remain high, leading to a period of financial expansion.

The examples referred to are sixteenth-century Spanish trade, and ninteenth-century British trade. Silver and raw cotton are included alongside more general measures as these were the primary commodities that made the fortunes of the Genoese and the Rothschilds.

The period of Genoese/Spanish hegemony
The Seville-Atlantic trade (tonnage of departing and returning ships)
1500-1560: A quick rise from 100 to 1000, then a fall to about 750
1560-1630: A slow rise from 750 to 2000, then a slow fall to 900

Silver bullion consignments in Seville (Ducats)
1500-1560: A slow rise from 300 to 6000
1560-1630: A slow rise from 6000 to 10,000 then a slow drop to 7000

The period of British hegemony
British Imports (millions of pounds sterling)
1800-1870: Stationary around 80 to 1826, then a rapid rise to 800
1876-1930: A slow rise from 800 to 2,500 in the early 1920s, then a drop to 900

British raw cotton consumption (thousands of metric tons)
1800-1870: A steady rise from 50 to 800
1876-1930: A slow rise from 800 to 1,000

Note: I have read all the above figures of some very small grpahs so they are very approximate.

Arrighi notes that during the two financial expansions alluded to above, prices trends were the opposite, in the first case they rose, in the second they fell, suggesting that "price logistics" are "not valid indicators of what is specifically capitalist in systemic processes of capital accumulation." He speculates that the so called one hundred years peace in Europe from the end of the Napolonic wars to WWI might be the reason why the Long Recession was deflationary.

i.e. the periods of deceleration: 1560-1630 and 1876-1930

You have to admit then that capitalism does seem prone to these boom and bust cycles

I see nothing wrong with boom and bust cycles - just a natural order of things

Onehappy I don't have sufficient knowledge regarding these occurrences to explain them with modern economic paradigms. However I immediately think that wars, tariffs, restrictions on shipping routes may be responsible for such declines, but I really don't know. I am very interested in studying these examples though and hope to give you a response from an economic perspective. I would like to take these down as notes and ask my economic professor what his opinion of them is.

As far as your comments regarding capitalism suffering from the boom/bust cycle, you are not alone in your observation. I believe a Russian economist Nikolai Kondratiev was the first to bring these observations to international attention in his book The Major Economic Cycles, which was written in 1925. Joseph Schumpeter the Austrian economist you are already aware of, suggested naming the cycles, "Kondratieff waves", in his honor.

Many people have attempted to explain them and of course John Maynard Keynes wrote an entire book on how to smooth them out using counter cyclical policy. I.e. he suggest that when a recession comes, that government 1. increase the money supply, 2. lower interest rates, 3. cut taxes and 4. stimulate demand by ticking up a deficit or using a surplus and spending it on public works projects. We are still affected by Keynes policy suggestions today.

I personally believe we need to keep a close eye on the money supply during these cycles, because it is in effect the lifeblood of the economy and will undeniably play a role. The Austrian economists explain them and have their own theory called 'Austrian Business Cycle Theory', which I am sure you are already aware of. Whether it's complete or needs more work is a subject of debate and one I wish to perform a considerable amount of time researching.

The Austrian economist Murray N Rothbard (who was a student of Mises) believed the answer resides in answering the following questions:

Put like that is sounds somewhat benign, but in two ways there is definitely a problem:
1) In current times, the 'global south' tend to share a disproportionate burden of the downturn
2) The association between territorialism and capitalism has historically led to periods of large scale conflict in the downturn between states competing for leadership, and control over capital. In the current context significant changes in the capitalist world system over time have tended to shift conflict from powerful states competing for hegemony, to weak states and 'nations' fighting for survival

There is something in this, will try to address it later

Will try looking into this as well when i can find some time

That's why I support the positions I do Onehappy and want monetary policy (especially interest rates) given back to the market. A central monetary authority inflating the money supply and distorting prices is inherently dangerous for the well-being of society. These counter-cyclical policies have potential to hurt the poor the hardest through the repercussions. Also in serious recessions the best thing government can do is stay out of the economy and let it clear by itself. History shows that the various interventionist polices often employed, i.e fixing wage rates and prices, along with implementing tariffs on imports, make the situation much worse.

To quote Robert Murphy, who recently wrote an article for the Ludwig Von Mises Institute on counterproductive policies employed during the Great Depression:

Would this be the same as "tightening monetary policy"?

I just found a passage in Arrighi discussing the early 80s when America "abandoned the tradition of confrontation with private high finance" and "sought by all available means the latter's assistance in gaining the upper hand." The turn towards restrictive monetary policies bought a sudden flush of wealth in America during the 80s, and disaster for the Third World. Real commodity prices for exports from the global south declined 40%, and oil prices declined 50%. In Latin America service payments for debt lept from one third of exports in 1977 to two thirds in 1982. There was a shift from "First World bankers begging Third World states to borrow their overabundant capital" to "Third World states begging First World governments and bankers to grant them the credit to stay afloat in an increasingly integrated, shrinking, and competitive world market."

Wow i saw Baran and Sweezy and Gramsci in the references and thought 'this must be a bit left wing.' I've just read it all now and though 'yep this is very left wing.' How do you reconcile it with Austrian Economics?

I intend to reply to your comments soon Onehappy (possibly another day this week), please don't think I am avoiding this discussion as I have other commitments at the moment. I would also like to compile some economic data and make a careful and reasoned response which I believe can explain these outcomes...

That's a good explanation, and it makes a lot of sense.

However, it also seems to demonstrate the inevitable outcome of a system that is based upon the principle that 'profits must remain high'.

If, on the other hand, we accept that the underlying problem is declining profit, then that does seem to suggest that a solution could be constructed which would share the losses equally (or even according to the capacity to suffer loss) so they are not suffered primarily by the working classes and the weaker elements of the business class.

And totally cool with gaps in the discussion.
It does become demanding of time involved thinking and researching!

It can be, it just depends on the policy employed by the central bank at the time, with monetary management or mismanagement (as the case may be) generally either being tight or loose in application. This can depend on a number of different factors, such as who is at the helms of the institution and what they base their decisions on when implementing policy.



I am very suspicious of the way this is construed here, evident is an over simplification of events and a noticeable omission of other significant develops during that same time period; implying an almost simple causation between wealth generation in America, spelling disaster for the developing world. Arrighi seems to have a very interpretative approach to history, has confused significant relationships between events and could even be guilty of “cherry picking” data in order to align outcomes to support his overall hypothesis. Let me attempt to explain why. For one thing he neglects attention towards Cold War politics, especially the spread of communism, which antagonized American foreign policy, caused considerable interference of its own (resulting in wealth destruction), and which also spelt disaster for the developing world. Not to mention many of these outcomes, like commodity prices for exports from the global south, along with oil prices declining and even changes in American debt financing can be linked to numerous causes other than his stated hypothesis.

With that said in order to understand the 80’s one must also consider the implications of the 70’s and in America’s case specifically, it actually entered into the 80’s in severe recession. This recession was due to events from the 70’s, the effects of which had repercussions on demand for the global south’s commodities. I mean even without an economics background, it seems inevitable, that the price of various developing countries commodities will decline in reaction to diminishing demand from developed countries; whose purchasing power has been weakened, making imports more expensive. Also we need to look at why America went into a recession, which was mostly due to double digit inflation, which in collusion with high progressive tax rates (leading to considerable bracket creep), caused incomes to fall. The Federal Reserve Bank attempting to fight the inflation slammed the breaks on, increasing interest rates and restricting the money supply. There were also some ill conceived reactionary policies employed by government to the crisis, which actually made things worse. But overall the high interest rates or restrictive monetary policy actually popped a bubble so to speak and caused numerous bankruptcies and the Savings and Loan (S&L) crisis, but did eventually curb inflation and in collusion with tax cuts, (i.e. not just restrictive monetary policy) led to a period of sustained economic growth during the later part of the 80’s.

Additionally inflation itself has a few different causes (especially in this case) and can be traced to 1. Suspension of gold convertibility by America in 1971 (i.e. abolishment of bretton woods, adoption of floating exchange rates), 2. Over stimulation of the economy from military spending, and 3. Dependency on OPEC oil, its monopolistic power and the embargo placed on the West. These are all noticeable contributions which had flow on effects into world trade and financial markets, for instance each time the price of oil was raised during the 70's by OPEC, the Eurodollar market expanded to finance the deficits of oil-importing countries; from deposits of $223 billion 1971 they would explode to $2,351 billion in 1982.

Also if we consider the following, it had taken twenty years from 1952 to 1971, for U.S. wholesale prices to rise by less than 30 percent. But after 1971, it took only eleven years for U.S. prices to rise by 157 percent. This mainly cold war era inflation was greater than the war-related inflations from World War II (108 percent over 1913-1920), World War I (121 percent over 1913-1920), the Civil War (118 percent over 1861-1864) or the War of 1812 (44 percent over 1811-1814). In fact the greatest inflation in U.S. history since the War of Independence took place after the United States left the gold standard in the decade after 1971 which allowed the money supply (now based on fiat currency) to become more elastic and governments to print additional money. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world and because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price; this caused OPEC to retaliate further by fixing their oil to gold.

The western countries targeted by OPEC responded with a wide variety of new initiatives to contain their further dependency on oil, which diminished demand for OPEC oil. The result? Falling prices of oil. The inflation in the 1970's was worldwide too, only in Germany did consumer prices in the decade of the seventies fall short of doubling. In Italy and the United Kingdom, prices more than tripled. The breakdown in monetary discipline was worldwide, especially engulfing all the G-7 countries of the time. As aforementioned, America had three back-to-back years of two-digit inflation (1979-81) which ended in economic crisis and on March 14, 1980, President Jimmy Carter announced a program to deal with the problem: an oil import fee and credit controls, both of which aggravated the situation and caused real output to plummet. In December 1980, the prime interest rate hit a record of 21.5 percent, which was due to Paul Volker (acting chairman of the Fed) fighting the inflation by performing what some have termed a “Volker Torpedo”. This tight monetary policy adopted by Volker is widely credited with ending the crisis of the 70s, which despite causing numerous business failures, lowered inflation to 3.2% by 1983.

Personally though I think one of the most important aspects here to consider when assessing American events specifically, is to analyze the effects and understand the relationships of Cold War politics. Here I have placed in brackets next to various events, the significant causes for their prominence to bridge clear associations. Generally the cold war caused the following outcomes: 1. Bastardization of Keynesian economics for military rather than civilian purposes (Cold War), 2. The United Sates government suspending gold convertibility and in effect removing restrictions on the money supply (Cold War/OPEC Oil Embargo), 3. The United States government over-stimulating their economy through large scale military spending (Economic Philosophy/Cold War), 4. High inflation and a newly observed anomaly coined “Stagflation” (Cold War/Economic Philosophy/OPEC Oil Embargo/Suspension of Gold Convertibility), 5. The emergence of Neo-classical economics, which influenced policy design for a number of different institutions (Economic Philosophy), 6. Government support for CIA and corporate intervention into developing nations to purchase and control core utilities (Economic Philosophy) and counter the spread of communism, via funding coups and supporting military dictatorships, sometimes causing protracted civil wars (Cold War).

What I would like to now focus on is the paradigm shift amongst the economics profession, for it is just one part which seems to have been significantly underestimated by Arrighi and which I have sufficient knowledge to elaborate on. To summarize, this is where a new set of arguments has become popular within the field and shifted policy design; with it being noted that politics and economics are inherently interrelated areas of human interest, i.e. what affects one will almost certainly have repercussions for the other. We must also remember that up until the 70’s the Keynesian paradigm (probably more aptly described as “Bastard Keynesianism” in application) had enjoyed considerable influence over government policy. But with an exposed contradiction between its proponents predictive models and the newly observed phenomenon “stagflation” (thought to be impossible up until this point), it came under increasing scrutiny as a philosophy, was routinely rebuked and its influence would wane.

Instead a new group of contrarians would seemingly rise to the occasion and introduce alternative arguments for both explaining economic history and implementing policy design, their influence of which (in collusion), would eventually usurp Keynesian orthodoxy (at least for a while) and raise new schools of thought to prominence. Amongst the growing number of dissidents stood notorious economists: Milton Friedman, Robert Lucas, Arthur Laffer and Robert Mundell, who despite holding differences in opinion over macroeconomics, like currency devaluation and whether tax cuts or monetary policy were more potent in stimulating economic growth, they still all had considerable overlap, especially in regards to their microeconomic foundations being steeped in classical tradition. So while Milton Friedman and Robert Lucas from the Chicago school, should be thought of as mutually exclusive and acting independently from Robert Mundell and Arthur Laffer from the Supply-Side school, collectively they would never-the-less, influence policy and usher in a new age of: Monetarism, Rational Expectations and Supply-Side economics. All of which were fundamental in reviving certain classical tenets and would help to solidify and promote the emergence of Neoclassical economics.

The emergence of these schools of thought were fundamental with influencing Ronald Reagan in America (Reagonomics), Margret Thature in England and Roger Douglas in New Zealand (Rogernomics), and are of considerable importance in understanding history throughout both the developed and developing world. To elaborate, because adherence to Neoclassical economics promote open markets and free trade (I use the term relatively), it promoted various nations, removing agricultural subsidies and barriers to trade such as tariffs. It also (along with assisting American Cold War strategy) caused the privatization of public assets and would play a key role in the International Monetary Fund (IMF) adopting, what some refer to as “conditionalism”. This is where in order for developing nations to receive loans and assistance, they must first meet specific criteria and adhere to various institutional policies. Evidently this prohibits IMF members from linking their currencies to gold, fixing their exchange rates (i.e. you must adopt floating exchange rates) and places an insistence on the removal of currency controls to free up capital movements and allow for foreign investment. It is important to note that such reform caused huge disruptions for both the developed and developing world, for instance think about our own case here in New Zealand.

Here is actually an ironic (due to who it’s come from) quote for you to think about and end my post on.

Overlap occurs on the political spectrum in various instances, one can be socially liberal and fiscally conservative for instance. Also I am not really an orthodox Austrian, in saying that I am closer to this school of thought than any other.

I posted the article to convey how the economic model for warfare has changed over the years, while it comes from a left wing source, you shouldn't infer anything about my personal views regarding that.

Tragically, Giovanni Arrighi died from cancer just just a few days ago on June 18.

I'll see if i can reply to your long post later.
Note that Arrighi's PhD was in economics from the University of Milan, so he's unlikely to be naieve on economic fundamentals, etc.

A PHD in economics? I'm not impressed by this guys scholarship at all. I mean how can he not know these aspects and if he does, why has he not elaborated on them?

Arrighi does indeed mention many of the factors you discuss - particularly the impact of the cold war, and the shift in economic thinking. An important difference in focus however may be one reason that to some extent we appear to be talking past each other and focussing on the significance of different factors. Arrighi, following Braudel, states that he is primarily interested in analysing the "top layer" of a three-fold economic structure composed of: 1) the 'anti-market', which he calls the home of capitalism proper, and the level at which the alternation between periods of productive, followed by financial expansion are observed; 2) the market economy, which he says is the most easily observed of the three levels, being the home of economics, and readily accessible through masses of empirical data; 3) material life.

For Braudel and Arrighi the 'anti-market' is the true home of capitalism because the greatest profits have always been made by capitalists who have aligned themselves with territorialist powers. But more than this, capitalism requires for its successful operation co-operation between the owners of capital, and the policy making power and military might of the nation state.

Arrighi acknowledges that this level of focus is both a strengh and a weakness of his work.

Just to clear something up, economists are notorious for dividing up markets into different industries, blocks of cartels and so forth, even though they are all interconnected. It’s accepted, but whether anything meaningful can come of it, is what’s often questioned. In this case though the term “anti-capitalism” depending on how it is utilized, does make me question its validity, but only in certain applications.

Also he has a point in regards to mercantilism, you certainly won’t find me disagreeing with him there and strangely enough, I almost find myself understanding what is being implied by the top layer being anti-capitalism. I immediately link it to the Federal Reserve Bank (a hybrid of private and government interests), which as an institution, is notorious for creating false booms and busts, debasing currency and financing wars at the economies own demise. It is very much “anti-capitalism”

What does this graph tell you for instance? Note: the Federal Reserve Bank was created in 1913 and since then the US dollar has depreciated constantly.



By the way, these shifts in economic thinking are still going on at this very moment, there are literal battles of rhetoric raging across the internet, between Neo Keynesians, Monetarists and Austrian economists over this crisis.

Personally I agree with the Austrians and I think Paul Krugman especially (representing the Neo Keynesians) is an intellectual despot. I mean can you believe this guy was actually calling for a housing bubble back in 2001?!?

See this for instance: http://mises.org/story/3530

Can you explain how you interpret that chart a bit more? It seems to say that the purchasing power of the $US has declined for one hundred years - yet over this time America has risen to the top of the global economy, and then slid somewhat. That would suggest that purchasing power is independent of wealth?

The graph illustrates that whenever money has been historically debased from specie and turned into fiat, it has depreciated in value. This is because once the amount of money is no longer restricted by specie, the Treasury or Federal Reserve can print in excess, which undermines the integrity of the dollar, through the slow and corrosive effects of inflation.

The fact that America has maintained and even developed considerable power despite such dollar depreciation is due to a number of significant factors. Of considerable importance is how Bretton Woods II operates and political pressure on countries (especially who hold debt through the world bank) to continue to keep their dollars pegged to the US dollar.

Onehappy regarding your comments on wealth, it's not real wealth that has increased, only paper value. The only economists that seem to realize this are the Austrian economists. You will not find this clearly expressed by Neoclassical economists, which is the popular paradigm taught in universities. Looking at increasing GDP statistics, along with profits, bond and real estate values are inherently flawed methods to gauge a real wealth increase.

Watch this quick debate between Art Laffer from the Supply Side School Vs. Peter Schiff representing the Austrian School. Take note that this is before the major implications of the crash have developed, and pay careful attention to Art Laffer's rather apparent misunderstanding, of what constitutes real wealth.

Petter Schiff schools him...

Shit. Schooled alright how could Laffer be such as idiot? (rhetorical qn by the way).

A lot of economists are, it's an education problem.

By the way Art is responsible for the "Laffer Curve" in economics and what some refer to as "Trickle Down Economics".

The top layer which Arrighi and Braudel describe is not "anti-capitalist", it is "anti-market" - and because it is anti market, it is also the true home of capitalism.

Confusing no doubt, as capitalism is often equated with the free market. If fact, capitalism has alternated between periods in which the free market has dominated (Genoese and British hegemony), and periods of state corporate capitalism (Venice initially as the most pure example of all, and then Dutch and US hegemony). Importantly however, in none of these periods has the leading capitalist power not enjoyed, and made use of, the benefits of military domination.

Capitalism is "anti-market" for Arrighi because capitalists have always relied upon state and military power to ensure they have access to the most profitable markets. Thus, in his view, capitalism and the modern (western) inter-state system grew up together in a relationship of mutual interdependance. This is not what happened in the East, where nation states formed earlier than in the west, but where capitalists were never (historically at least) allowed to gain the upper hand in influencing the behavior of the state.

Braudel: "Capitalism only triumphs when it becomes identified with the state, when it is the state."

Max Weber: "... it is the closed national state that afforded to capitalism its chance for development ..."

Arrighi sees Venice as the greatest, most pure example of capitalism. The leaders of the Venetian state thought purely in terms of cost benefit analysis. In each transition since then, the emergent power has been less capitalistic than its predecessor because it has had to accomodate iteself to social revolutions and resistance to the rule of capitalism.

The pattern over time has been for hegemonic capitalist powers to become larger, more organisationally complex, and more powerful. Thus Genoa was a mere city-state (in alliance with Imperial Spain), the United Provinces of Holland were not quite a nation state, the UK controlled its own world empire, and the USA is a continent sized state with institutions of (attempted) world governance, and historically unprecedented military power. (Although its military has often proved to be virtually useless when needed, the USA was at least able to defeat its only serious competitor by simply outspending it in a cold war).

There is the possibility, that America, if it should turn back from a war upon terror which few other states support, could attempt in co-operation with Europe to bring capitalist history to a close, and engineer a world order centered upon western power. This would mean the end of capitalist history because competition for global capital would cease. In this scenario, capital would be controlled and locked up by a European Empire - which would govern the rest of the world with some degree of benevolence/despotism.

Another possibility is that East Asia, centered upon China, would wrestle economic power from the West. This too would end capitalist history. Because the East lacks the military might of the West its economic power could not be based upon military power. Thus capitalism would end, and revert to the underlying market economy. This market economy would represent a new level of respect among nations, and it would look something like what Adam Smith anticipated when he spoke of an eventual equalisation of power between the West and the territories it conquored.

A final, and worst possiblity of all, is that the systemic chaos, which has always accompanied changes in hegemonic power, takes hold and does not end because no state has sufficient power to rise above the conflict and show a new way forward.

In all Arrighi's scenarios, capitalism ends. There simply does not seem to be a new capitalist power capable of giving new life to capitalism - not unless China undergoes a massive re-orientation in the outlook which has driven it for over a thousand years.