When one encounters the term “epochal break” after 1989, it usually refers to the decline of the German Democratic Republic and the end of state socialism in Russia and Eastern Europe; it also names the end of the Cold War between competing political blocs and the termination of the corresponding “hot” proxy wars in backyards of the world market. The supposed victory of capitalism, according to freedom-lovers everywhere, together with a general commitment to the “market economy” and the constitution of a singular global economic system on the Western model, was interpreted as heralding a new era of disarmament, peace, and global prosperity.

This expectation has proven to be completely naïve. Over the past seventeen years, reality has developed into the virtual opposite of that which such optimists by profession have wantonly forecast. Globalization has produced new zones of mass poverty, aimless civil wars, and a postmodern, neoreligious form of terrorism that one cannot describe as anything but barbaric. The West, led by the last world power, the United States, has responded with equally directionless “wars of world order” (Weltordnungskriegen) and precarious, planetary crisis management.

As has become obvious, the interpretation of the events following 1989 was merely superficial and therefore grasped far too little. Indeed, the break was not actually isolated only to the Eastern bloc as a “flawed system,” but a similar fate befell more than a few pro-Western countries in the so-called Third World. Moreover, even in the Western core countries the postwar “economic miracle” had vanished and growth rates had long been sinking. Structural mass unemployment that has nothing to do with mere labor-market friction has subsequently developed, accompanied by underemployment and the increasing precarity of labor.1

Focusing instead on these tendencies, a whole other interpretation might come to the fore: namely, that it is a common crisis of the modern system of global commodity production, which includes the centers of capitalism themselves. From this perspective, the so-called “actually existing socialism” of the Eastern bloc was not a historical alternative, but a state-capitalistic system of recuperative modernization on the periphery of the world markets, and an integral component of them. After 1989, with the end of all kinds of older development regimes, this “weakest link” of the global system was broken, continuing the inexorable crisis process of direct globalization.

Many consider (not incorrectly) the third industrial revolution of microelectronics to be the deepest cause of the new world crisis. For the first time in the history of capitalism, the potential of rationalization has overtaken the possibilities of an expansion of the market. Through crisis competition, capital has melted away its own “labor substance” (Marx). The ugly underbelly of structural mass unemployment and underemployment on a global scale is the flight of capital toward the famous “financial bubble” economy, because additional real investment has become unprofitable; an index of this is the global excess capacity of production (exemplified by the auto industry) and speculative “takeover battles.”2

This roughly sketched interpretation was in the late 1990s considered plausible and perhaps even possible within a segment of leftist social critique. In the meantime, however, one has become accustomed to the fact that capital is somehow able to survive even with a simulated form of financial accumulation (“jobless growth”). And doesn’t the recent export industrialization in Asia, particularly in China, point to a new era of real growth — just no longer in Europe? At the same time, the wars of world order seem to have become reduced to trivial oil interests, because capitalism’s combustion culture is running out of fuel. Might these circumstances not suggest a new competition between imperialist blocs — for example, between the United States, the European Union, and China? With such considerations, the Left returns (with a few modifications) largely to those old ways of thinking that characterized the times predating the epochal break. There are, however, good reasons to think that such a reinterpretation provides us with a distorted picture and that determinations appear quite different upon closer inspection. The key here is the political-economic status of the last world power, the United States, in the global crisis of capitalism.

The Crisis of Money and the World Monetary System

The world crisis of the third industrial revolution and globalization of the past two decades rests upon a much longer, simmering crisis of money that dates back to World War I. Up to that point, the nature of money as a “singled-out commodity,” general equivalent with its own particular value substance, was virtually undisputed. The currencies of the major capitalist countries therefore had to be stabilized by means of gold reserves in central banks. Gold was the real world money — the lingua franca of world markets — and the sterling pound of former world power Great Britain could function as a world currency only because of its gold standard. However, the industrial war economies of the two world wars and the productive forces of the second industrial revolution (Fordist mass production, assembly line, automobilization), even with accelerated circulation, could no longer be mediated by the gold standard — which therefore had to be abolished.

In other words: the value substance of money, based on the compressed “labor substance” of rare metal gold, could not be maintained. On the level of money — the general equivalent as “king commodity” and appearance of capital — this desubstantivization was therefore perceptible already much earlier than on the level of the ordinary “commodity rabble,” where it is becoming manifest only now in the third industrial revolution. The result was a “secular age of inflation” entirely unknown in the nineteenth century: the uninterrupted deflation of money, sometimes galloping (hyperinflation), sometimes creeping.

In spite of this inflationary effect, some theorists made a virtue of necessity by declaring the gold standard unnecessary and money a mere sign that could only be guaranteed by state law.3 But the collapse of the world market in the Depression of the 1930s also had something to do with the lack of a recognized world money, after all attempts in Europe to return to the gold standard had failed. When the foundations of the economic and monetary order of the postwar period were established in Bretton Woods in 1944 under the guise of the “Pax Americana,” this was done in direct orientation toward the U.S. dollar as the new currency for international trade and reserve. The basis of this was not only the paramount industrial position of the United States (due mainly to the tremendous growth spurt of the war economy), but also the fact that the dollar was the only currency that was gold-convertible. The famous Fort Knox held three-quarters of the world’s gold reserves.4

Only on this basis — the world currency system of Bretton Woods and then the severance of the dollar from a fixed exchange rate — could the “economic miracle” of postwar history unfold in the shadow of the Cold War. But the resurgence of Europe and Japan in the prosperous world market soon began to gnaw at economic dominance of the United States and the gold substance of the dollar. In the same measure, when the share of the commodity and capital exports shifted to the detriment of the United States, the dollar also lost strength and was increasingly converted into gold. The reserves in Fort Knox melted away. In 1971, President Nixon was thus forced to cancel the gold-convertibility of the dollar.

With this, the Bretton Woods system came to an end. Exchange rates were deregulated and have since “floated” on the market, which was the starting point for a completely new kind of currency speculation founded on the fluctuation of exchange rates, with dangerous repercussions for the real economy. However, since the global currency crisis of the 1970s did not produce the great catastrophe, Left theorists, too, have considered the problem of money and currency to have been solved empirically: contrary to Marx, the character of money as singled-out commodity, with its particular and definite value substance, is said to have been disposed with.5 But the by no means safe practice of flexible currency conditions in the brief historical period of the last decades says nothing substantial about the essential durability of the new constellation, especially with respect to the currency crises on the peripheries throughout Asia in the 1990s and Argentina after the turn of the century, which both point to a long-smoldering issue.

From Gold Dollar to Arms Dollar

The global currency crisis of the 1970s can be considered to have been mild for the sole reason that, in spite of the loss of its convertibility into gold, the U.S. dollar was able to retain its function as world trade and reserve currency in the absence of a viable alternative. If this had not been the case, the result would have been a repetition of the disaster of the 1930s, but on a greater scale — without the dollar’s function as global currency, the world market could only implode. However, the reconstitution of the dollar as world currency was built on a completely new kind of foundation. World money’s substance of value, which had been founded on the gold standard, was now actually based on a kind of “political” guarantee — not a formal-legal but essentially a military one. The currency of the world power or “superpower” of the Western hemisphere now took on its world-money function now purely on the basis of this power.

This gave rise to a peculiar reciprocal process: to the same degree that the economic position of the United States deteriorated within the “regular” world market of commodity and capital flows (a process that continues up to today), there was a continuous growth in what President Eisenhower described as the “military-industrial complex.” The exorbitant growth rates of the military industry during World War II continued in the form of the much-discussed “permanent war economy.” Against this background, the impact of the third industrial revolution of microelectronics was reflected in ever-new high-tech weapons systems, marking the path from industrialization to the computerization of war. With the development of one generation of weaponry after another, the United States moved into a position in arms that was increasingly unassailable by the rest of the world. President Reagan pushed this tendency even further. While the Soviet Union, the opposing world power of recuperative modernization, was in part undone by its own internal contradictions as a planned capitalist economy, it was also armed to death and could win the race neither economically nor militarily.

This extra-economic factor of the increasingly unrivaled U.S. military machine transformed it into a mighty economic power. The cautioners and warners in the United States who voiced opposition to the unstoppable trend towards the permanent war economy were correct insofar as it triggered an avalanche of public debt. Reagan’s tight neoliberal fiscal and monetary policy brutally cut the Keynesian social programs of his predecessors, but against his own doctrine he allowed the explosion in scale of weaponized-Keynesianism. As a result, the already bloated military-industrial complex became in many ways (also in derivative forms) the main guarantor of growth and a job machine. The U.S. economy showed nominal inner strength, although it was becoming weaker on the world market.

The United States’ astronomical debt arising from this process of economic militarization could already in the 1980s no longer be funded from its own savings. But the economic power of the military machine was also reflected in foreign affairs. It was the military power of the United States as world police that offered global financial markets a safe haven — or so it seemed. This impression was reinforced significantly by the perceived victory over the opposing Eastern (European) system. The dollar maintained its function as world currency through the mutation from the gold dollar to the arms dollar. And the strategic nature of global wars in the 1990s and turn of the century in the Middle East (in the Balkans and in Afghanistan) was directed at preserving the myth of the safe haven via the demonstration of the ability to intervene militarily on a global scale, thereby also securing the dollar as world currency. On this ultimately irrational basis, excess (that is, not profitable and investable) capital from the third industrial revolution from around the world flowed increasingly into the United States, thus indirectly financing the defense and military machine.

The Biggest Financial Bubble of All Time and the U.S. Consumer Miracle

Everywhere the internal barriers of valorization of capital in the third industrial revolution caused a flight toward the credit superstructure and finance-bubble economy. This crisis economy of financial capitalism inevitably had to be concentrated in the supposed safe haven of the dollar zone. The more excess money capital strayed around the global financial markets, the greater the suction power of the United States to attract these financial flows. In this manner there arose, in God’s own country, the mother of all financial bubbles. The sale of government bonds around the world not only financed the debt-driven arms boom; parallel to this, the U.S. stock market swelled in the 1990s, and so, in turn, the U.S. real estate market after the turn of the century, thus producing the basis for a new quality of debt.

In addition to the military-industrial complex thus arose the second pillar of the, as it were, irregular apparent growth of the internal U.S. economy. Due to the very wide dispersion of share and property ownership (in comparison to Europe), a paradoxical consumption miracle could take its course. Even though average real wages had stagnated or even declined since the 1970s, consumption increasingly became the critical driver of growth.6 Though invoked again and again, the jobs miracle was in no way the real cause of this boom. Apart from jobs in the military-industrial complex, itself hanging on the drip of public debt employment, it was mainly low-income jobs in the service sector that were created — the famous “labouring poor.”7 Due to weakness in global markets, employment in the export sector was also declining.

Today, the consumption boom is fueled not so much by regular wages but primarily by financial bubbles in the stock and property markets. It was possible to borrow against the difference gains from the fictitious increase in value of relevant property titles, and its millionfold, broad dissemination resulted in credit card and mortgage debt on an unprecedented scale. The only security for this was the very same increases in stock prizes and of real estate. The influx of excess money capital from around the world into the supposed safe haven of the dollar not only financed the indebted consumption of armaments, but was also diverted into the debt-ridden field of private consumption. It is this marvelous money machine that fed the U.S. consumption miracle.

Pacific Debt Cycle and the Global Economy

The real economic weakness of the United States on the world markets revealed itself in the form of a steadily growing trade deficit. Relatively speaking, the internal economy of the last world power, characterized by the arms industry and service sector, produced fewer and fewer industrial goods (in some areas the decline was even absolute). A significant portion of U.S. citizens, who could go into debt due to sustained increases in stocks and real estate prices, increasingly consumed goods that were manufactured elsewhere. As a result, a global deficit cycle gained momentum — one visible for the first time in the 1980s, which accelerated in the 1990s and that is beginning to run hot today. While initially it was mainly the balance of trade with Japan that slipped into the red, the trade deficit soon also rose with the smaller Asian countries and Europe, eventually escalating in the context of the immense commodity flow between the United States and the colossi India and China. Today, there are hardly any industrial regions in the world that do not sell their surpluses to the United States.

The flip side of external monetary debt created by the sucking of global money flows is, conversely, that excess global commodity flows of goods are drawn back. In other words, U.S. consumers (government and private) borrow the money with which they pay for the flood of commodities from the very same suppliers. The United States has thus become the black hole of the world economy. However, this function includes a double reciprocal dependence. If the miraculous U.S. consumers had not heroically eaten up global overproduction, the global economic crisis of the third industrial revolution would have become resoundingly manifest long ago. Moreover, these are by no means the flows of goods between separate national economies, but movements within a fully global economy. In addition to Japanese and European corporations, it is mainly U.S. corporations themselves who use China as a hub for transnational value chains because of its low wage structures, in order to supply markets in the United States and elsewhere. The corresponding investments are therefore limited to economic export zones and have nothing to do with the traditional ideas of a national economic development of China, India, and so on.

The one-way street across the Pacific of Asian exports to the United States has now turned the deficit cycle into a flywheel that powers the global economy. Just as in other regions of the world market, European industry not only supplies a portion of its surpluses to the United States itself, but simultaneously exports an ever-increasing extent of the production components for the massive Asian export systems (particularly in engineering). The widely celebrated upswing of the last few years is almost entirely a result of this voodoo economy. Periodically, the danger of the increasing global economic inequalities in the form of accumulating U.S. foreign deficits become a topic of discussion, but because everything has somehow gone so well for so long, the all-clear signal is usually not far away.

The Coming Credit- and Dollar-Crisis Scenario

Over the course of 2007, however, menacing black clouds have gathered on the global horizon. It had to happen: the U.S. housing bubble, the consumption engine’s fuel in recent years, is imploding, and real estate prices are shrinking fast. As a result, subprime mortgage loans suffer en masse. What forms the financial crisis might take have already been shown over the past few months: suddenly, banks and savings institutions in many countries have come under massive pressure from asset depreciation, because U.S. debt circulates globally. However, that was just the beginning. Because cycles of credit and physical capital extend over several years, the true extent of the credit crisis will only become apparent in the years 2008-2010. If in this period U.S. consumption experiences a deep slump, there will not only be a setback in global stock markets, but also a decline in Pacific deficit circulation that will bring the world economy to a halt. No one can predict the exact magnitude, but it threatens to surpass all the crisis phenomena faced by the third industrial revolution over the past twenty years.

It’s mere whistling in the dark when economic commentators now pretend to expect that the domestic economy in the European Union or China could suddenly become self-supporting and might replace the U.S. consumer as the vacuum cleaner of the excess flow of goods. Where should we expect the purchasing power in these regions to come from, if it was not already there during the booming export economy? At the same time, a dual interest rate dilemma opens up. The impact of the Asian crisis of the 1990s and the collapse of the virtual New Economy after 2000 could still be absorbed by the central banks in a rate-cut race that flooded markets with cheap money. The financial markets now expect the same from the U.S. Federal Reserve, hoping that central banks everywhere else will follow. But when dying American consumption is supposed to be reignited in this way, a renewed threat of a dollar glut can reignite the long-lurking inflationary potential of asset inflation and permit a secular age of inflation to escalate. Additionally, it is foreseeable that the flow of surplus money capital into the United States will dry up, if in the face of rising inflation the European Central Bank does not follow suit and level the interest rate differential between the United States and the European Union. The simultaneity of depression and inflation moves into the realm of possibility.

The resulting global interest-rate dilemma generated by the U.S. credit crisis is also beginning to call into question the function of the dollar as global currency. Standing behind this is ultimately the towering external deficit, which requires a drastic devaluation of the dollar and a similar appreciation of the export-surplus currencies. Although the dollar had been devalued repeatedly and in controlled fashion in the past, forcing creditor countries to pay part of the U.S. debt, now there are signs of an uncontrolled crash and a rapid loss of value, one that has started against the euro, while Asian currencies are still kept artificially low. But if the credit crisis strikes through fully, even this barrier will be broken. Then, not only the financing capacity of the military-industrial complex but also the myth of the safe haven will come to an end.

It is, however, not possible to replace the dollar with a new global currency, even if the euro is widely celebrated as containing such potential. Since neither the euro nor gold is based on armament, they will not be able to replace the dollar. The crisis of the global currency and the connected potential for inflation indicate a growing crisis of money proper. This is indicated by the constant and unavoidable rise in the price of gold which accompanies the currency crisis — the commodity character of money with its own value substance is asserting itself in this crisis. Gold, no longer simply a resource, returns to its status of “real” global currency, but it is no longer possible to mediate the productive power of the Third World via movements of the global market on the basis of gold. It would be no more plausible to attempt to drain the ocean with a teaspoon. The situation of the interwar period threatens to return — this time, however, on a much higher level of development.

World Crisis, World Ideology, and World Civil War

What is required of emancipatory social critique in this situation characterized by an internal limit of capitalism is the redefinition of socialism beyond the fetish forms of commodity, money, nation, and their associated gender relations. However, to the extent that the Left returns to its old patterns of interpretation and seeks possibilities of positively appropriating immanent power inherent in the new global constellation, it runs the risk of becoming reactionary. This critique of capitalism frequently turns into anti-Americanism and into overt or structural antisemitism. The “objective thought-forms” (Marx) of the capital fetish, which contain an inversion of reality, form (if they are not broken) the ideological basis for processing the crisis, which already led in the interwar period to devastating results. From within the globalization of capital arises a murderous world ideology. Cause and effect will be turned on their head: the credit crisis does not appear as the result of the internal degradation of real accumulation, but as the result of “finance capitalist greed” (one which for 200 years has been a stereotype associated with antisemitic ideas); the role of the United States and the arms dollar are understood not as an overarching common condition of globalized capital, but as imperial oppression of the rest of the world.

The motive for these ideological inversions today is the desperate desire to flee back to the times of Fordist prosperity and Keynesian regulation. It constitutes the radical Left’s option to replace the American, unilateral version of the Empire with a “democratic” globalization led by the European Union and possibly with the euro as the new international trade and reserve currency.8 This option is not only fully crisis-blind, but it also fails to recognize the interdependence of world capital and the character of the European Union. The phantasmal illusion of a confederation of this virtual world reform is unearthly: imagine the Gazprom-and-intelligence regime of a Putin, or the larger part of a transnational capital-investment Chinese export bureaucracy, incorporated into an unholy alliance between the oil-caudillismo of a Chavez and the antisemitic Islamist regime in Tehran…

Quite apart from the fact that an E.U.-centered globalization would be no better than a U.S.-centric one, it is not even possible. It is not just that the euro cannot take the place of the arms dollar, but that the European Union is not in a position to reverse the excess cash flows and absorb global overproduction. In even greater global economic dependence on this paradoxical role of the U.S. economy are Russia, Venezuela, and Iran, whose political claims against the Great Satan are nourished by the explosion in oil prices. If the flywheel of the Pacific deficit cycle comes to a halt and a world depression is triggered, the oil regimes together will be thrown to the wolves.

The ripening world crisis of the third industrial revolution, for which there is no new regulatory model in sight, will certainly not only run its economic course. Even more than in previous breaks in the history of modernization, there lurks in the looming, unmanageable global economic crisis the danger of an irrational flight forward into world war. However, based on the level of development of globalization, this will not be a national war between national-imperial power blocs for the redistribution of the world. One must rather speak of a new kind of world civil war, as suggested by the “denationalization” and wars of world order since the collapse of the Soviet Union; perhaps these were precursors to this (coming civil) war. Never before has the slogan “socialism or barbarism” been as relevant as today. But simultaneously, socialism must be reinvented at the end of the history of modernization.

1. The term “structural unemployment” is deployed here somewhat differently than in current mainstream macroeconomic discourse. “Technological mass unemployment, which by now had also been given the name of ‘structural’ unemployment, grew since the early 1980s in parallel with the rise of the micro-electronic revolution in an increasingly relentless manner, and displayed a characteristic that would have a most disconcerting effect on capitalist consciousness: unemployment had become structural to the extent that it no longer increased and subsided in accordance with the economic cycle, but rather displayed continuous growth independent of the economic cycle. It was not only the case that growth had become relatively slow, but also that the cycle by this time only came to rest as the weak modulation of a mass unemployment that was growing in absolute terms, the ‘base level’ of which would subsequently continue to grow right through to the end of the twentieth century. This problem had emerged as the main social problem, as a perpetual global crisis, in comparison with which all other problems (when they were not, as was increasingly the case, themselves caused by this crisis) paled into insignificance.” Robert Kurz, Schwarzbuch Kapitalismus: Ein Abgesang auf die Marktwirtschaft (Frankfurt am Main: Eichborn, 2009) 642.
2. Robert Kurz, Das Weltkapital. Globalisierung und innere Schranken des modernen warenproduzierenden Systems (Berlin: Bittermann, 2005), and Kurz, Weltordnungskrieg. Das Ende der Souveränität und die Wandlungen des Imperialismus im Zeitalter der Globalisierung (Bad Honnef: Horlemann, 2003).
3. Georg Friedrich Knapp, Staatliche Theorie des Geldes (München und Leipzig, 1905).
4. Paul Kennedy, Preparing for the Twenty-First Century (New York: HarperCollins, 1993).
5. Michael Heinrich, Die Wissenschaft vom Wert (Münster: Westfälisches Dampfboot, 2004).
6. Lester Thurow, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World (New York: William Morrow and Company, 1996).
7. See Karl Marx, Capital: A Critique of Political Economy, Volume I, trans. Ben Fowkes (New York: Penguin, 1976) 765 [Eds.].
8. Michael Hardt and Antonio Negri, Multitude: War and Democracy in the Age of Empire (New York: Penguin, 2004).