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August 27, 2007

Crackpot Realists and Permanent War


by Ann Berg

While economic pundits point fingers at loose lending for the malodor in the housing market that is now filling the noses of financiers, they miss the primary cause: permanent war. Permanent war has caused the nation's institutions political, social, and economic to be organized into an impervious structure without which war could not be tolerated or financed.

Although 9/11 pushed the war machine into high gear, political centralization and the structuring of American society around war first gained a foothold during World War II. In 1956, five years before President Dwight D. Eisenhower warned in his farewell address of the ascendancy of the military-industrial complex (a phrase that originally included the word congressional), the anti-imperialist C. Wright Mills described the triad of power in his book The Power Elite. Stressing how the military entered the political and economic spheres only temporarily during the First World War, he related how modern warfare and its need for massive industrial capacity along with support from the technological and scientific communities propelled the military to new heights of influence. Wrote Mills:

"For the first time in American history, men in authority are talking about an 'emergency' without a foreseeable end. The only seriously accepted plan for 'peace' is a fully loaded pistol. In short, war or a high state of war preparedness is felt to be the normal and seemingly permanent condition of the United States."

The sheer scale of the war machine's supply and service sector called for new cooperation among the military, corporate, and political prongs of power, resulting in what Mills called an "interlocking directorate." Since cooperation expanded the power and prestige of its members, the directorate, according to Mills, would remain slavishly devoted to war in the face of all contrary facts and logic. As if speaking today, Mills said of the power elite, "They have no image of what 'victory' might mean, and they have no idea of any road to victory." He recounted an interview between Gen. James Van Fleet and a reporter over the stalemate produced by the Korean War:

Reporter: "How may we know, General, when and if we achieve victory?"

Van Fleet: "I don't know, except that somebody higher up will have to tell us."

Mills' prediction of the increasing integration and institutionalization of this ruling trinity is manifest today in the actions of congressional Democrats, who are as keen on military intervention as their Republican colleagues. They cannot resist earmarks for more military spending, because power and its attendant prerogatives are their only interests. Their constant lookout for future wealth and privilege has rendered the lessons of the past or any talk about them irrelevant. Could any of these Democrats articulate before the electorate how territorial fragmentation has been the trend of nation-states since the collapse of four empires during WWI (and thereby expose our interventionist nation-building policy as folly)? Would they dare acknowledge Orwell's insight that conquests and occupations were doomed to failure by the middle of the 20th century (so we need interchangeable enemies)? They would be branded by the media as fringe. Mainstream America desirous only of an endless tableau of "human interest" stories would discard them. Their power and prestige dissolved, the dissidents' book deals, lobbying posts, and celebrity engagements would forever shutter.

According to Mills, the corporate elite, or men "controlling property" (in the modern sense of assets), soared in influence during the 1950s as "the coincidence of interest [grew] between those who controlled the means of production and those who controlled the newly enlarged means of violence." But even Mills could not have foreseen the astonishing rise to power of corporate moguls 50 years later.

The corporate elite has amassed and centralized power in a mirror of the central government and military establishment. While workers occupy the lowest rung, shareholders contributing what Mussolini once described as "anonymous floating capital" have scant power to determine the pay or policies of the top decision-makers. CEOs and upper management, like generals and political appointees, not only evade accountability but also get the monetary equivalent of the Medal of Freedom with multi-million-dollar payoffs for egregious incompetence. Not by coincidence, CEOs stock their boards of directors with politicians and military men who lend an aura of integrity and eminence to their decisions especially decisions concerning their own compensation.

The corporate stranglehold on the mind of the polity is on full display in the ongoing charade of televised candidate debates. Dressed up as folksy town-hall meetings or other such democratic exercises, these debates are nothing more than mindless distractions until the new president is installed at the helm of the dreadnought. While propagating notions of psychic and material well-being to the masses, the corporate organism continues to gorge at the trough of subsidies, depletion allowances, and tax gimmicks. Between intervals of shining allurements, the corporate media still saturates the airwaves with serial mediocrity, "synthetic celebrities who make virtue out of cultural poverty," further grinding the individual into what Mills called "the spectator of everything but the human witness of nothing."

But it is in monetary policy that the political-military-corporate triad has achieved its most stupendous success. No longer compelled by the discipline of the gold standard (snuffed by the debts of the Vietnam War), the power elite has turned the biblical fishes and loaves narrative into a real-life story. Because of global market integration, the unchecked growth of complex financial products, and the ballooning money supply, the financial sector has been able to extract billions out of millions. The sheer size of the phenomenon has no precedent. Leverage, they call it. (See here, here, and here.)

To appreciate how complexity has clouded monetary thinking, recall a simpler time when Argentina and Brazil experienced hyperinflation in the 1980s. It was a monetary phenomenon caused principally by the IMF's recycling of Mideast petrodollars into loans for the two countries. The increased money supply flowed directly into wages and prices for one reason it had nowhere else to go. These countries lacked stock, bond, derivative, or real-estate markets that could have absorbed the flow of funds. The IMF naturally blamed the inflation on "poor investment choices." Hyperinflation exists in Zimbabwe today just as it did in Germany, Austria, Hungary, and Russia during the inter-war period as the result of massive fiat money printing together with undeveloped capital markets.

Today's ultra-complex financial markets have enabled the Federal Reserve for the last 20 years to perpetuate one of the greatest hoaxes of history. By systematically eliminating from its inflation index any goods and services that registered price increases, such as food and energy, the Fed has declared inflation tame while simultaneously increasing the money supply by multiples. While creating a mirage of prosperity for the "ownership society," this legerdemain has delivered gargantuan gains to the financial industry and to the Fed's own private share-holding banks all with the fulsome obeisance of Congress. How handy the creation of this grand sea of liquidity has been to the power triad! Up until mid-August, when the tide offered up a great shoal of rotting fish, the sea has washed the electorate in cheap credit and above all kept the war machine speeding at full throttle. Not surprisingly, last week in an I-feel-your-pain kind of moment, the Fed chief eased the discount rate for his banking chums, a move described by a Financial Times economist as "socialism for capitalists."

In The Power Elite's last chapter, "The Higher Immorality," Mills condemned the mindlessness and blunted moral sensibility of men of affairs for whom power, wealth, and celebrity trump knowledge, culture, and principle. They are second-rate minds "in command of the ponderously spoken platitudes." Mills called those in charge "crackpot realists," explaining, "in the name of realism they have constructed a paranoid reality all their own; in the name of practicality they have projected a utopian image of capitalism."

So as the treacherous sea of liquidity now threatens to capsize the utopian image of state capitalism, it is no wonder that the crackpot realists are readying for ever more slaughter to sustain their paranoid reality of permanent war.

 

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Ann Berg has spent a 30-year career in commodities and capital markets as a trader, consultant, and writer. While a commodity futures trader and Director of the Chicago Board of Trade, she advised foreign governments, NGOs (the United Nations, World Bank), think tanks (Catalyst Institute), and multinational and foreign corporations on a variety market-related issues. She was also a frequent conference speaker at international derivatives markets forums. In recent years, she has contributed articles to several commodities/capital markets publications, including Futures Magazine, Traders Source, Financial Exchange, and the Financial Times editorial page. Berg is also an artist. She is currently working on a body of work entitled The Unknown Unknowns – The Things You Don’t Know You Don’t Know, which explores U.S. national security policy.

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