This is a chapter from the book:
Finance Capital (2nd revised edition)

National economy with internationalized capital

(Note: We reproduce below the completed first paragraphs of an essay planned some time ago on the modern world market. They served as a basis for preparing chapters III and IV of this book.)

What the state is interested in is that its capital is successful. Political power secures the private power of money, promoting the growth of the business that ensures the state its revenue, on the one hand, and the production output it buys with this revenue, on the other. Replacing this revenue by credit is a quite necessary result of the need for debts as a means of business and a business item, which require a guarantee. With this guarantee, the state fundamentally emancipates its budgetary calculations from the revenue it actually receives. Not even the gold reserves of earlier times, together with the gold standard, was ever meant to be put to the test. After all, that would have meant expropriating the authority responsible for looking after wage labor and capital. Once the credit system is introduced, its guarantor discovers that the use of force is a very good substitute for money. So it does not have to stick to tallying up all the private business as a source of funds when it wants to help itself to money. But it still keeps tally of what the economy yields; it books its debts and pays interest on them properly, handling all its affairs according to the rules of its market economy even though it is only allowed these affairs because of its special economic — because political — position. There are good reasons why it does so. It has absolutely no benefit from being ‘basically’ able to ‘create’ and circulate any amount of credit for the territory under its power. If this credit loses its trust — by a financial crisis, an accumulation of zeros — the state’s economic power is gone.

Capitalist nations have experienced this from the outset through their competition and the critical effects that have followed from the internationalization of business.

Cross-border traffic in goods and capital is fine with any nation. It doesn’t even matter what direction something is being hauled, whether into or out of the country. It is always a service to business when means of consumption or production are purchased abroad, or competitively priced goods are exported. That said, trade in goods already shows that, firstly, the political guarantee for the private power of money is based on a continuing agreement between sovereigns. Secondly, international trade is not only based on the formal agreement that it can go ahead and take place, but at the same time on an economic promise made to both foreign and domestic capitalists bent on internationalizing the growth of their private wealth. Payment in good money needs to be ensured because otherwise foreign businessmen will be mad and their states as well, while domestic ones will be just as mad since they are counting on a regular supply or demand, having made themselves dependent on it. Thirdly, when it comes to some of the results of such basically desirable activities between states, the interests of capitalists and state diverge. The elemental form of this parting of ways goes back to when precious metal functioned as the ‘backing’ for national means of circulation — and the idea of gold outflow still exists unchanged. In the worst case, the state had to pay, with real value from its treasury. Being expropriated was the result of ‘imbalances’ (which is where economics gets its corresponding ideals from). And depending on whether the state could afford, or was willing, to be expropriated in this way, it was or was not a viable guarantee power from then on, and trade thus could or could not continue properly with ‘its’ capitalists, who were satisfied with the business they had done and most interested in doing more.

Adding capital exports and the modern credit system to this, one can equally well see the identity of economic interests between capitalists and state — and likewise their divergence. The identity is easy again: no nation objects if capital accumulated under its supervision seeks new investment spheres abroad, or spare surplus value from abroad hatches new business under its sovereignty. That’s why there are always multinational corporations everywhere. But modern states now spare themselves the occasional involuntary transition to using force as the sole guarantee for their money (in the case of gold outflow), instead forcefully guaranteeing their money constantly throughout the credit superstructure. And the gold standard is an always impending, if not actually materializing obstacle for privately calculated business even when it just comes to commodity trading. Furthermore, poor countries are no reason to cancel international business, either from their own point of view or from that of the other side — certainly not for capitalists. As a result of all this, the tiresome gold standard was increasingly abandoned as capital exports became the way to go.

Nowadays, the aforesaid divergence of interests looks somewhat more complicated, regardless of whether the transitions are recited in conceptual or historical order. This is not surprising, because states so absolutely insist on the identity of these interests particularly when it comes to making business international. They act as guarantors of their credit slips, but now only relative to the status of business done, no longer according to the absolute standard of preserving their economic power. A deficit or surplus is no longer supposed to be the criterion for deciding whether to answer for their currency. Conversely, business people are supposed to see what advantages and disadvantages are associated with one or the other currency, i.e., with its signatory’s economic potency. That means fluctuating exchange rates are the rule.

Under the new regime, there is one danger that capitalists certainly no longer need to fear: that a nation integrated into the world market 'drop out' due to difficulties in paying the balance of surpluses. Instead, in all their foreign business they have to take into account the risks that arise from changes in currency parities. Dealing with that provides the international money trade with some new tasks and earning opportunities.

For the state treasury, the worry about being plundered is replaced by the task of controlling devaluation. There are goods and capital being imported and exported. The resulting demand for the nation’s credit is now the guarantee for the stability of the treasury, of the nation’s ‘purchasing power.’ Nothing is an advantage or disadvantage in itself, because it all depends on comparisons. And while capitalists get their success from each of the elementary types of business on the world market, states always have a more critical stance the way they assess the effects on their economic power.

Nevertheless, it is no delusion that a state’s interests are reconciled with the interests of those who increase the private power of their money. Very familiar ideals and facts readily reveal the recipe for this harmony that every nation seeks. Which state is happy about its status as an ‘exporting nation’? Which looks to ‘foreign exchange procurement’ and ‘import substitution’? For which one is the export of capital not a ‘flight of capital’ and does not reduce the demand for its money, leading to it being relatively devalued so that imports become more expensive? Etc.

The answers are simple; and they decide the acid test in international competition long before the question of capital location causes a stir due to world economic crisis. A nation is successful and completely satisfied with the activities of capitalists all over the world when it manages an economy that is capable of all that. It is able to export very competitively priced products, has no trouble buying competitively priced goods from abroad, generates exportable surpluses and is therefore attractive for capital import…


States use their sovereignty, on the one hand, to solicit business people no matter where they come from. On the other hand, they seek to challenge the success of ‘foreign’ exporters and importers who are not agreeable to them. By so nicely combining goodwill and cooperation with just punishment, by promoting here and hindering there, states always document that they are dependent on something that is at the same time subject to their influence. How far this influence goes is, of course, in both respects a question that is decided by the economic capacities that a nation already possesses, that it has been able to amass by using the world market. This anti-competitive law of imperialist competition is confirmed by both protective tariffs and subsidies, by both nationalizations and privatizations, by taxation techniques, etc.; that is, all the measures found in the catalog of ‘how to exert influence.’ But these measures do testify to the fact that when nations are faced with capitalists’ past decisions — which they were usually already involved in as a good or bad business condition — they draw the conclusion that they have to take corrective action. If decisions in business life are so crucial for the nation, then the power of the state should make itself felt as what it is the other way round for producing, buying, and selling: a really decisive condition for business.

If a state has no success with either its relevant offers or its restrictive interventions in world market competition (which is thus never 'free' in view of all the states’ involvement), it gets presented with the bill: its currency becomes less suitable for doing world market business. This can start with the exchange rate declining, but is only really done when the lack of demand becomes something like a quality of the nation’s money. This does not mean the nation has to drop out of international competition, but now it participates without being able to set any important conditions itself, rather on terms that involve it submitting to the needs of some capitalists or other. The result is the opposite for nations that give shelter to a crowd of capitalists capable of importing and exporting profitably.

However, it is not enough to compare national credits by looking at their status and acknowledging this as a result. Considering this result as a condition for production and trade competes with the business of money capital, which proceeds without any focus on its origin, on the basis of this credit. Money capitalists do not care that credit is needed for the circulation process of productive capital — not even when they are the same people who are running an honorable manufacturing firm.

Comparison of exchange rates provides the sphere where debt is the only business item with an additional investment criterion and object of speculation. From trade credit to loan capital to stock trading, every transaction in this sector of profiteering is also a decision that is focused on the movement of currencies and is sometimes made only because of such movement. What is happening here is a back and forth of capital flows that has nothing to do with supply and demand the way they arise from production and trade. Some years, large firms earn more from their financial business than from their productive labor, and the national budgets of countries worthy of such speculation show inflows and outflows involving the purchase of nothing but money and titles to ownership.

Thus, a state’s problems with its national credit point to something quite different from unpatriotic capital shifting its location abroad. They point to decisions made in favor of a nation in its capacity as guarantor of private wealth in the form of credit. It is clear that this increases the credit volume of the nations enjoying speculation, but also that of states whose currency is used for paying money abroad. What is more difficult is to determine the benefit and the damage; because now the state’s economic power has been internationalized. That means the state starts regarding international financial business as a lever of its budget. It is not only seeing to its need for debt, but trying to preserve the value of its debt by exerting influence over demand and supply on the money markets by means of (a) terms, especially interest rates; (b) acting as a demander and a supplier itself; (c) cooperating in the area of international credit in addition to competing.

Trying to make sure one's own credit(-money) is useful relative to others: that is the modern way to avert 'gold outflow'...

© GegenStandpunkt 2022