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The USA turns into Amsterdam

by rootless2 Tue May 11th, 2010 at 08:56:27 AM EST

Beginning in the 1760s the mighty Dutch system experienced several serious incapacitating crisis: crisis which all resemble one another and appear connected with credit. The mass of commercial paper, the total sum of 'artificial money', seems to have enjoyed a degree of autonomy vis-a-vis the economy in general, but there were limits that could not be overstepped.  

Braudel.


On 19 August, the bankruptcies totaled 42 [..] The Amsterdam Stock Exchange was immediately paraysed: "The Bourse is at a standstill ... there is no discounting or exchange; there are no prices quoted; everyone distrusts everyone else" The only solution would be to play for time, or for 'extensions' [..] One would be author of a rescue plan talks in his paper of a surcheance [..] a breathing space granted by the state so that the usual channels of circulation could be set moving again. [..] The cash injection was the right answer. Indeed the Bank of Amsterdam had, from August 4, contrary to its usual rules, consented to accept 'gold and silver ingots as deposits', which was one way of drawing bullion straight into circulation.

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by Xavier in Paris on Tue May 11th, 2010 at 09:18:18 AM EST
shorter version:

It's all Europe's fault ;-)

Money is a sign of Poverty - Culture Saying

by RogueTrooper on Tue May 11th, 2010 at 11:33:25 AM EST
Oh, wait a minute, Wall Street was first laid out by ...

... aha! Its all the fault of the Dutch!


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue May 11th, 2010 at 01:10:45 PM EST
[ Parent ]
One should be suspicious of people who eat fried cheese
by rootless2 on Tue May 11th, 2010 at 05:55:19 PM EST
[ Parent ]
... oh, wait, I see your point.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue May 11th, 2010 at 07:36:29 PM EST
[ Parent ]
Braudel has a nice conjecture that the rising new center feels the effects of the crisis first and recovers first. And I note the rapid recovery of Chinese markets.

The slide of the US into rentier-finance seems sadly to be driven by powerful historical progression. But it is not necessarily a given that the pattern from Genoa to Amsterdam to London should be unbreakable.

by rootless2 on Tue May 11th, 2010 at 01:59:53 PM EST
I get your argument, but I think that a deeper application of Braudel's thinking to the present issue shows exactly the opposite.  The US caused the crisis (something only the center of a world-economy can do), and the US is really recovering first among the core powers while also bearing the lion's share of QE burden's in its recovery. (China would still a peripheral country in Braudel's categorization of world-economies, trying to become a member of the capitalist core.)  This indicates that, if Braudel is right, the US is still the center.  

Writing within a similar framework about these things, Giovanni Arrighi's great recent work, "Adam Smith in Beijing," comes to a similar conclusion, although most discussion of it, including some here at FT, seems to read too much into the "America is an empire in decline" part of the analysis.  

What Arrighi concludes, following Braudel, is that China's rise means an eventual end to the present US hegemony, but not an end to its dominance, of world affairs.  Whether US dominance also declines is largely determined by whether US political leadership can successful migrate from organizational strategies based on hegemony, where it is in everyone's best interest to follow America, to one where America must act strategically to insure that it remains dominant. The US under George Bush provides an example of political leadership that didn't recognize this shift to American dominance from hegemony.  But Barrack Obama's administration arguably does.

by santiago on Tue May 11th, 2010 at 05:42:48 PM EST
[ Parent ]
I'm not so sure. The crisis began in the US, no doubt, but the markets and general economy of China has recovered much faster. Part of this is what Braudel notes: the top capitalist system is drawn towards finance at the expense of manufacturing and trade and also its political structure tends to fossilize as the elites focus on protecting their take. Consider the modern US economy - manufacturing in decline and dependent on foreign shipping, declines in upward social mobility, and an increasingly reactionary top corporate class that resists any changes even ones that are manifestly necessary (e.g. carbon reduction).

But I agree - the election of Obama shows that the US system might be able to adapt. If he gets shot or his administration is damaged, things look grim. Economists in general fail to acknowledge the critical role of the state.

Anyway, it's hard for those of us in the tidal wave to predict where it will go.

by rootless2 on Tue May 11th, 2010 at 05:52:45 PM EST
[ Parent ]
Yes, some of the "danger signals" of a power shift, in Braudel's framework, are there, as you mention.  But China is just not a core capitalist country yet, even if it is a rising one and promises eventually to be one.  As big a producer as it is, the existing core capitalist countries just don't need China to do one thing or another, even if China can be helpful or harmful to them. Compare that to the need of the capitalist world for US, Japanese and European credit activity and government action to recover.

More evidence of this is that China was barely affected by the crisis, which means that it is really still mostly the center of its own world-economy, not yet fully part of the capitalist one dominated by the US. Genoa, Amsterdam, London, and New York could be more honestly categorized as full members of the world-economy of the previous core at the time power shifted to them.  

Conceivably, China could still choose to remain in its own world-economy, but it appears to have chosen, instead, to enter the American capitalist one and therefore to contest power over resources of that economy with the US, currently under American-dominated rules for contesting power. So I think it's still America's own dominance of the capitalist world-economy to lose through endogenous errors, and not China's to win through deterministic outcomes of history, as many narratives seem to argue.

by santiago on Tue May 11th, 2010 at 06:27:58 PM EST
[ Parent ]
i'm not sure i buy the peripheral nature of China

http://www2.timesdispatch.com/rtd/news/opinion/op_ed/article/ED-SAMU03_20100502-171006/341648/

But I don't know.

by rootless2 on Tue May 11th, 2010 at 07:16:35 PM EST
[ Parent ]
There is, of course, a lot of qualitative judgments to be made in such a categorization, but there are, I think, two key questions that one can ask to determine if a country is a core or peripheral one in a world-economy such as Braudel and other thinkers influenced by him would frame the issue:

  1. Is China a world banking center yet, or merely an internal or regional one?

  2. What import does the the prosperity of that country have to the prosperity of the core countries?

On question one, China engages in two kinds of capitalist finance primarily.  It finances its own exports and it finances its own internal construction boom. To an increasing degree, China is also purchasing assets abroad, but I think that to date most of these assets are in other peripheral countries, not in core areas such as the US and Europe, although this is changing as time goes on.  China is not yet a banking center comparable Japan, the US, or the UK, and until it becomes one, capitalists won't opt to raise and organize money in China.

On question 2, I think China could collapse entirely today, with financial meltdowns, famines and social unrest, similar to Russia in the 1990's, and the core economies of the capitalist world would feel few, if any, severe reverberations because of it. That just cannot be said of the large core economies of the capitalist world, particular of the United States.  While China has a very large stake in the prosperity of the capitalist world, the capitalist world has only a minor stake in China. China represents the risky, venture capital part of the portfolio of the capitalist world, not the patrimony, which is the US, Europe, and Japan.

by santiago on Wed May 12th, 2010 at 01:27:30 PM EST
[ Parent ]

On question 2, I think China could collapse entirely today, with financial meltdowns, famines and social unrest, similar to Russia in the 1990's, and the core economies of the capitalist world would feel few, if any, severe reverberations because of it.

Though your scenario of a China collapse may be unlikely (the threat is there), could you be underestimating the amount of western consumption of more or less essential goods?

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Thu May 13th, 2010 at 08:39:37 AM EST
[ Parent ]
I don't think so.  I don't think China produces any irreplaceable essential goods.  Which means, at worst, without China things cost marginally more expensive.  The opposite, however, is not true.  China depends on other nations for essential goods ranging from oil and steel to soybeans. China is a luxury, while the core economies are essential.
by santiago on Fri May 14th, 2010 at 10:14:53 PM EST
[ Parent ]
try finding a computer board not made in china.
by rootless2 on Fri May 14th, 2010 at 10:53:00 PM EST
[ Parent ]
But try finding another country or domestic manufacturer that won't make the computer board instead.  China isn't the essential element in computer boards. The same cannot be said of other products or services.
by santiago on Sat May 15th, 2010 at 08:51:05 AM EST
[ Parent ]
that isn't right from my understanding. replicating that manufacturing capability would be a slow painful process.
by rootless2 on Sat May 15th, 2010 at 11:07:51 PM EST
[ Parent ]
Do all of these motherboard manufacturers do it in China?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 04:52:13 AM EST
[ Parent ]
"On question 2, I think China could collapse entirely today, with financial meltdowns, famines and social unrest, similar to Russia in the 1990's, and the core economies of the capitalist world would feel few, if any, severe reverberations because of it."

And one could have said that of the USA in 1855 - with good reason. And in 1929 too.

I also think the analogy is obviously limited - Amsterdam was the last dominant city-state, giving way to a national center, and the US the replaced the UK with a system where the internal market was even larger - and that trend would continue if China becomes the dominant power. There is enormous room for expansion of the domestic chinese market and, as you noted, China is becoming a financial power although not a finance centered nation

http://www.dailyfinance.com/story/china-lubricates-its-ties-with-venezuela/19444236/

That is a really remarkable development. In the backyard of the US, a foreign power finances the critical oil resources of a rebellious former client state! I think that as noted in Adam Smith in Beijing, the Bush administration put the decline of US power onto warp speed, but we'll see what happens now that PNAC is temporarily out of power.

by rootless2 on Thu May 13th, 2010 at 11:12:47 AM EST
[ Parent ]
For the USA, in 1855, yes.  In 1929, no.  That's how we know when the shift from London to NY occurred between those two time periods.  Most put it at or around WWI.
by santiago on Thu May 13th, 2010 at 01:04:51 PM EST
[ Parent ]
Speaking of Braudel...

I. Wallerstein, 276, "Greek Mess, Euromess, Western Nations Mess, World Mess?"

Greece's problems are indeed Germany's problems. Germany's problems are indeed the United States' problems. And the United States' problems are indeed the world's problems. Analyzing who did what in the last ten years is far less useful than discussing what, if anything, can be done in the next ten years. What is going on is a world-wide game of chicken. Everyone seems to be waiting for who will flinch first. Someone is going to make a mistake. And then we'll have what Barry Eichengreen has called "the mother of all financial crises." Even China will be affected by that one.

I. Wallerstein, 280, "Is Europe Imploding?"

There is a certain Schadenfreude among U.S. politicians about Europe's difficulties. What may however save Europe from any implosion is precisely the ever-increasing threat of the implosion of the United States. Europe and the United States are on a seesaw, on which as one goes up the other goes down. How this will play out over the next two to five years is not at all clear.


"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Wed May 12th, 2010 at 12:15:41 PM EST
[ Parent ]
Wallerstein, in my opinion, has always been mislead by his anti-Americanism. It prevents him from effectively using world-systems theory in an honest and therefore useful way.  Nothing in world-systems theory, for example, hypothesizes that tiny countries like Greece have the kinds of deterministic outcomes on large core countries that he implies here. Greece just can't matter very much to anyone who has more than one degree of separation from those events.  So I think he'd be better if he stuck to the rules of his own methodology.

And we just had the "mother of all financial crises," according to the same Barry Eichmann that he's quoting, so I wonder whether he's taking Eichmann out of context -- I don't know, I like to see his source for that and maybe Eichmann is getting caught up in the hype now too as many good economists have been.

Like the "Europe is doomed" narrative we all make sport of here, Wallerstein's "capitalism is doomed, especially America" narrative seems to lead to overly selective analysis of the facts, from my reading of him anyway.

But either way, even Wallerstein seems to side against he idea that the center of capitalism is shifting to China.  Rather, capitalism is imploding and going to take China with it seems to be his thesis.

by santiago on Wed May 12th, 2010 at 01:40:54 PM EST
[ Parent ]
"Rather, capitalism is imploding and going to take China with it"

Jesus could return too.

by rootless2 on Thu May 13th, 2010 at 11:43:26 AM EST
[ Parent ]
Even old New York was once New Amsterdam.

And the world will live as one
by Montereyan (robert at calitics dot com) on Tue May 11th, 2010 at 02:12:01 PM EST
Let's not bring the Ottoman Empire into it.
by rootless2 on Tue May 11th, 2010 at 02:28:11 PM EST
[ Parent ]
That's nobody business but the Turks.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue May 11th, 2010 at 03:22:05 PM EST
[ Parent ]
people just liked it better that way.
by rootless2 on Tue May 11th, 2010 at 05:54:28 PM EST
[ Parent ]
I thought this was a diary about the availability of medical marijuana in the US.

PS- New Your City still features an "Amsterdam Ave."

by US Blues on Tue May 11th, 2010 at 04:35:06 PM EST
Welcome back from lurkerdom...

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Tue May 11th, 2010 at 06:36:31 PM EST
[ Parent ]
It's the Dutch Disease, again!

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Tue May 11th, 2010 at 06:35:35 PM EST
So quiet streets around canals with everyone riding bikes and trams?  Sounds wonderful!  I'll move back.
by njh on Wed May 12th, 2010 at 07:15:44 PM EST


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