Luis Mata Mollejas & Kasim Asker Hasan
Luis Mata Mollejas, Economist, PhD in Social Sciences from the Central University of Venezuela (U.C.V.)
Coordinator of the Doctorate in Economics of the Central University of Venezuela and Individual number of the National Academy of Economic Sciences of Venezuela (N.A.E.S.)
Kasim Asker Hasan, Economist, Doctor of Economics, Doctor of Engineering, Researcher and Ambassador of the Republic of Iraq to Venezuela, Non-Resident Ambassador of the Republic of Iraq to the Republic of Cuba
Since homo sapiens appeared (approximately 120000 or 100000 years ago) the relations of control or power over space and the resources it contains, useful for the survival of mankind, have not ceased to evolve; highlighting the passage from the relations of the Oikos (family) to those of the polis (cities) formed by numerous families according to the Ancient Greek philosophers: the remote origin being the collection of vegetable species, the hunting of «wild» animals and the rapacity between human groups.
Gradually, rapacity is transformed into orderly or commercial exchange, between human groups associated by sympathies or alliances, when pursuing common purposes; giving rise to the notion of economic power or ability to do for material welfare and its confluence with the ability to direct the activities of people, by adopting decisions on collective actions to follow: or who does what or political power.
History tells us that political power has shown from personal authoritarianism supported on physical violence or coercion to collective obedience by consensus, associated to decisions adopted by many individuals or plural government, coming from strategic alliances among people, family clans and tribes, until reaching the political construct called State – Nation with origin in the transition from the XV to the XIX Century A.D.
As for the economic power, let us remember that in the space occupied by the European or Western civilization, which arose after the Greek-Roman slave productive system, between the XV and XVII centuries it conforms the Feudal System, with agricultural production, with small volume of «crafts» and exchanges of goods and fixed times or «fairs»; transforming in the XVIII century into mercantile Capitalism, when trade expanded to the planetary scope; a process that would become industrial liberal capitalism in the XIX century.
Let us emphasize that, since the Greek – Roman period, the mixed exchange: plunder / trade, was valued with merchandise currency with the metals gold, silver and copper; having collected, the first Roman emperor (1st century A.D., Caesar Augustus, the mixed exchange: plunder / trade, was valued with merchandise currency with the metals gold, silver and copper) Caesar Augustus the usual exchange between gold and silver coins: ratio 1/15, and the ratio silver and copper 1/45; and that, during the mercantile capitalism, as an evolution of the activity of the money changers, the first banks appear, by giving credits on the existing deposits of coins: activity that we call «first generation finance»; which, during liberal capitalism receives «last instance» support from a bank with government capital; the first one being the Bank of England (1694) which allows deposit banks to give credits with unsecured currency (banknotes); with the requirement of keeping metallic reserves in gold, to guarantee international payments: This system was applied throughout the 19th century, under the commercial, banking and military hegemony of England, having benefited from the alliance with Portugal since 1703: the Methuen Agreement of a commercial-military nature, according to which wine produced in Portugal must compensate imports: manufactured goods produced by England, the differences in balances being satisfied with payments in gold; England being obliged to give military assistance to Portugal.
The commercial balance during the hundred years after the signing of the Treaty of 1703, was always favorable to England; which will allow the accumulation of gold from Brazil subject to Portugal. This arrangement allowed the Portuguese king to escape from Napoleon, when the latter invaded Spain (1807), having diminished its power with the Treaty of Utrecht (1713 / 1715).
The economic and political successes of England with the Industrial Revolution (1760-1840) led to a loss of economic dynamism in Germany and France, which stimulated criticism of liberal capitalism, This led to the outbreak of the First World War (1914-1918) followed by the Great Depression (1929-1939) with the sequel of the Second World War (1939-1945) which induced modifications of the world monetary order (under Keynesian (1936) or Neoliberal inspiration) or the Bretton Woods Agreement (1944-1945) with the creation of the IMF and the World Bank (WB); The political economic regime of the so-called Welfare State was formed, according to which the State «covers» the social rights of all citizens, mediating between governmental and private initiatives; a system that was unable to contain the various crises of the last quarter of the 20th century: unemployment and inequality in the distribution of national income, even in the most advanced industrial societies; impacting / driving the revision of macro-economic theory and its relationship with international financial events.
Reforms include the Neoliberalism of the Chicago School, led by George Stigler (1911-1991) and Milton Friedman (1912-2006) defenders of the market economy and critical opinion of the short-termism of the Keynesian vision (New View) by assuming that every economy has a natural rate of unemployment… thesis criticized in turn by E. Malinvaud, (1977), J.P. Benassy (1984), M. Allais (1989), A. Leijonhufvud (1981); with synthesis in the Preliminary Theory (1984) and the New View (1981). Malinvaud, (1977), J.P. Benassy (1984), M. Allais (1989), A. Leijonhufvud (1981); with synthesis in the Theory of Financial Pre-adjustment (Mata Mollejas, L. 2001); which leads to the vision of Third Generation Finance co-authored with K. Ashker Hasan (2018). Work where the structural weaknesses of the Monetary-Financial Systems (MFS) of Bretton Woods are highlighted, considering the speculative framework denounced by Alan Greenspan during his presidency at the Federal Reserve Bank of Washington, D.C., (1987-2006).
Thus, the work on Third Generation Finance proposes options for solving financial crises, avoiding the need to resort to IMF assistance to face the burden of external public debts, which have become eternal, as shown, among other cases, by those of Greece and Argentina, at the beginning of 2021.
Let us emphasize, finally, that the referred theses radically confront those of renovation of Marxism exposed by Alexander V. Buzgalin (1996) and Heinz Dieterich (2005) called Socialism of the XXI Century. Buzgalin (1996) and Heinz Dieterich (2005) called Socialism of the XXI Century; supported on State Capitalism, the communal organization of civil society and centralized planning…
Therefore, the purpose of this essay is to highlight the interrelations between the visions of geopolitics and geoeconomics, by deepening the examination of the responsibility/causality of the economic-political crises suffered, in the portico of the 21st century.
- GEOPOLITICAL AND GEOECONOMIC DYNAMICS
«I imagine that, at first… (The) (global) authority shall consist of a group of financiers that will be unofficially supported by one or more States»
Beltrand Russell (1933)
As we pointed out in the preamble, in the present time various changes are confronted in public and private structures, relatively quickly; while, according to A. Salbuchi (2003, p. 35-37) the worldview that encompasses the interaction of political, economic, social and cultural processes, are slowly evolving; which opens up a gap between the control capacity of the various processes and the ability to understand (learn), the influence of the march of each of the processes on the future of humanity.
Thus, in the political sphere, the image of the Nation-State, built between the XVII and XIX centuries, prevails as the maximum center of power; while the currencies they support, traffic in a matter of minutes, according to decisions made on stock exchanges that operate with very short-term (speculative) profit criteria; leaving unarmed monetary authorities (Central Banks).
Thus, the private administrative technostructure effectively challenges the technostructure of the States. In simple terms, the ability to do (economic power) challenges the ability to allow, decide, who makes, or political power….converting the economic power, in real power; although with rudimentary structures and, depending on the circumstances (including ideologies), the political power, appears as formal power, with functional weakness… episodic. (Salbuchi 2003, p. 41-42)
Focusing our attention on the visions of money «old view» and «new view«, according to the issuing agents: government/civil society, and considering the dimensions of space and time, we present as a diagram to learn/understand the interactions or economic political situations, Figure N°1 below: where macro agents Soc. Civil and government , with potentially divergent ranges of political interests, according to political-normative ideologies: governments’ preference for physical-psychic coercion (authoritarianism) vs. Civil Society preference for the conviction obtained through plural discussion (democracy) allows to define, graphically, the logical causal conditions of the interaction between geopolitics and geoeconomics.
Economic-political elements of the macro cosmos: diagnosis/prognosis
- THE POWER OF CIVIL SOCIETY AND THE POWER OF WORDS
“For a man of action thought is confused with acting; as for the poet, is confused with the image»
- Maurois (1986)
The description of the initial circumstances for developing the diagnosis or anguish of the population, but with possibilities of being overcome, when the logic of the argument offered by the candidates to govern is accepted, makes clear the power that the words possess (Wittgenstein, 1921) if one wishes to intervene rationally, in social processes, on which many interests affect.
Highlighting the fact that any description that a present (here and now) is the result of many processes (underlying complexity) that, following J. Lemke (1998) we can group them into three sets:
- Those who help to sustain life by satisfying material needs or Activities that are called economics, characterized by the power to do.
- Activities that increase knowledge about non-human objects and living beings, called natural sciences and, in addition, activities that describe and explain human behaviors or social sciences, including those of organizing the tasks leading to the cooperation of people: who makes or that related to the social or political control , set called political science.
Here, we should add that the natural sciences do not change the status objects under study, but the social and political sciences, expose the changes in relationships between the congeners; including their influence or power over behaviors.
Hence, the precise knowledge of economic, social and political interrelationships will make it possible to know the relative effectiveness of the initiatives and acts of civil society and government actors… issues that, as universal history demonstrates, may have non-convergent purposes.
- 1) ¿Laissez faire – Laissez Passer?
Until the XVII century, with the predominance of agricultural production, economic and political power is associated with landowners; therefore, from the second half of that century, the economic power begins to move to industries, in a not inconsiderable partnership, with bankers; and, from the second half of the XX century, the growing influence of financial speculators, and behind them, that of international banking, is evident.
Let us remember here that, in the industrial enterprise, production depends on the engineering expertise; that product placement is associated with the effectiveness of marketing and, that all said, depends on the financing of associated expenses and the resources that come from monetary advances, before they enter the product of sales.
Thus, we arrived at the premises of administrators and economists, who communicate their appreciations to capital holders (shareholders) to assess the various production and distribution scenarios.
Therefore, analysts, since the second half of the XX century, have warned about the growing influence of techno industrial-financial structure, responsible for informing-managing, possible returns for capital; including those offered by speculative options in local and foreign markets.
Having to say, that, the decisions of the techno-structure, contrast the purposes of the Public Choice (government) with those of the Civil Society: Social Choice; within the parameters of basic social contracts (constitutions of States) and policies preferred by governments; being able to conclude that the political constraints identified, operate as the catalysts for chemical reactions, accelerating or slowing down the processes and achievements desired by the Social Choice; economic power; which we illustrate with Figure N°2.
Figure No. 2
The power of techno-structure
Indeed, the consideration of the interactions between: production oriented to international markets, the technological innovations required; domestic credit processes and the widespread flotation of existing currencies make it clear that in final decisions, they include the risks and expectations of profit, according to the domestic Social Choice, before a Public Choice that operates as a catalyst.
In other words, the need to have a satisfactory purchasing capacity for the remuneration of private agents (Civil Society) implies a sustained growth of production; therefore the government must sustain «pari pasu» demand growth according to Keynes (1936) so that prices do not depress (economic depression); which means that the central bank can attend private banking at low cost (interest), for the domestic industry… subject to competition from international innovations.
Hence, the realization of the Social Choice, depend on the political alliances Necessary (Public Choice) to seek to reduce political and economic tensions…. It is therefore, essential to hold conversations in the National Parliament and, in the various technical committees, that requires the variety of constituent products of the national offer…While observing the conditioner of the world payment system and, to the march of the exchange merchandise and capital… that, from 1980, they attached to the search for monetary gains in the minimum of time…»Financial Exuberance».
2.2) Financial Exuberance
Contemporary macroeconomic analysis or post-Keynesian circuit, in the Allais version (1981) translates the vision of monetary flows and real flows in a necessary compensation of sources and uses of funds, in the temporal course of a productive economy; which should not be confused with instant compensation, or General Equilibrium vision by way of Say-Walras, focused from trade.
Does the circuitist vision omit the concepts of market and confrontation or the reasoning of equilibrium?
When we express ourselves in the context of circuit, the idea of assignment and circulation of values in a time horizon context is explicit; because there is an explicit phenomenon that is reflux or return. In that coming and going, there are three poles of attraction: production, consumption and financing. In that continuity of flows, in instants and in specific given space (hic et nunc) will present the supply-demand confrontation, which we usually call market.
It is not then about sacrificing the concept, but not to restrict the analysis to the circumstances of an instant; without understanding that, the order to close the different markets matters and much; thus, the instantaneous vision is the result of a confrontation, seen as a cause of nearby circumstances, in originating sequences of decisions.
Thus, circuit vision, excludes balance in its conception of simultaneous and instantaneous general; although Marschall’s concept of partial balance survives; which allowed reasoning in terms of before and after; as is done in the Theory of Financial Pre-Adjustment (Mata Mollejas, 2006).
She comes from observing that every income someone comes from someone else’s expense. At the national level, the passage of monetary flows through different markets (goods, labour and securities) at all times is offset by a liquidity balance: which is presented, in neoclassical analyses as the result of supply and demand in the money market; as if it were a desirable good by himself; as is apparent from a hasty reading of Keynes in relation to his concept of preference for liquidity.
Let’s say about it, following contemporary thinking, in productive economies, money is fundamentally a flow of acreences (titles); therefore, the retention of liquidity cannot be considered as forming part of a market; for only, for an instant: the cutting of accounts, would be observed as a residue susceptible to speculation (Netto, 1988) and, as an imprecise retention in the idea Keynesian of precaution.
Hence, the formulation of Allais (1981) expresses this condition of compensation of balances of flows (goods and work) by provisional stocks of money and securities, generating general interaction or conjunctural relative prices.
In other words, at the national level, the expansive development of the economy supposes the existence of clear differences between interest rates (r) to allow the cancellation of credits made in national currency; at the same time, at the international level, the payment of foreign exchange credits must be guaranteed; therefore, which is why it matters a lot, the result of the balance of payments and the establishment of international reserves (IR).
Hence, the phases of crises (Mata Mollejas, 2002:88) are, then: placing the economic surplus in speculative activities; leveraged expansion of these; reduction of job-creating reproductive investment; increase in bank credit and increase in moratorium; and early settlements on stock exchanges; all summarized in exchange rate changes. It should be noted that, in small and open economies, speculation and credit escalation can be associated with the persistence of the fiscal deficit. The final consequence is that the private securities market will play a minor role, given its structural narrowness. It is also clear that the exchange rate rise reveals, or implies, the persistence of the negative balance in the trade balance (X<M).
By contrast, in industrialized economies, because the internal market has a significant magnitude compared to international, the influence of external events is minimized; opening up ample scope for interest rate management by the desire to increase production desired; as is the case in the American and European economies. While, in small economies, such as South American economies, interest rate management may be motivated by the requirement to face, in the short term, exchange rate speculation…But the repeated use of such an option involves increasing cost processes and depressive processes.
2.3) Derivations of political speculation
In the preceding paragraphs, we have presented the basic schemes of interaction between economic processes for subsisting or being able to do, and decisions relating to who does what, or political processes; in addition to the characteristics relative to how it’s done that, or scientific-technological process, or cultural process in the broad sense, by including the consideration of ethical-cultural values: the good, the just, the beautiful, etc., which may or may not answer metaphysical or religious questions. Thus, by idealizing certain results, at all times, ideologies have been built; that will obviously influence the process of making decisions about who does what; that is, by prefixing political criteria.
It is now appropriate to summarize the derivations of speculation and political actions as catalysts for processes in the fields: economic and cultural. In other words, when considering, as structural or stable the characteristics of the processes of the areas mentioned in second place
In more direct terms: Do political conditioning prelate over economic-cultural ones or does it happen the other way around?
Here it is worth noting authors such as Schmitt, Huntington and Fukuyuma, among others, who have pointed out the existence of a kind of center of gravity by intervening in the discussion of cosmovision changes in that of political elites. Thus, initially, the center of gravity would have been religious or theological, during the XVII century; humanitarian moralist or philosophical-metaphysical, in the XVIII century; and, from the XIX century onwards, the gravitational center would be economic. In our view, the circumstance that human beings, as living beings, depend on the use of the material resources of the planet (biosphere): there is no doubt that the gravitational center par excellence remains the economic one.
In other words, since, from a global perspective, the first reference system of our analysis: the system of production and distribution of goods, is the dominant one in the contemporary world, being designated; capitalist, because it is based on the performance of equipment and wage labour, as the original source of the productive surplus; which varies to the extent that investment is accompanied by technical innovations; it is clear that the political system basically influences on the process of distribution; or if you want, on the redistribution (ex post) of the surplus obtained (ex ante) on the basis of a technological decision.
By supposing, in addition, that the participation in the capitalist production process, each of the production factors acquires, essentially, rights (without discussion) on a share of the surplus; and since the political system intends to control and regulate that this is fulfilled, making decisions; and that, in principle, they must contribute the economic process to be efficient and orderly for the benefit of the social whole in the long run, it is clear that political conditioning will operate rationally when considering alternative economic forecasts.
What was said is summed up by saying that, political bodies are subsidiaries of the economic system; or what is equivalent: the duty to be or supposed economic regulation, should prelate over the duty to be political. In crude terms, if the political system has as its reference generic values such as: freedom, justice and equality, the corresponding decisions should not harm the efficiency and sustainability of the economic system.
From such a restriction it follows that, if a particular State intends to impose barriers to traffic from the most efficient to protect the local-domestic market, where production is less efficient; or alternatively, taking provisions that help the less efficient local producer, to become more efficient, by providing him with additional resources (including ex nihilo) such practices will have the consequence: That the «prodigal-benefactor» State is weakened by the accumulation of tax obligations it hires; thus having to take into account the restrictions of international exchange and its geopolitical consequences.
This is because, the general economic constraint of world exchange is a zero-sum game (what someone wins, someone else loses) third-party retaliation is always possible.
- ANGLO-SAXON CONTROL: UNTIL WHEN?
«History – as it usually is – will be in charge of giving the reason, not to the most powerful, if to the one who has it.”
- Pernaut (1967)
Alexis de Tocqueville in 1835 pointed out in his book «Democracy in America», that in the future, two great containers for world hegemonic power are emerging; the United States of America and Russia; without to glimpse that they would be preceded by the dominance of England.
Therefore, during the XIX century the competition between the British, Russian and the Ottoman Empire for predominance over Central Asia was called «Great Game”
Today, the «Great Game» in addition to witnessing the economic preeminence of the United State over the planet, with a paternalistic political vision over the non-industrialized world, must:
- Consider the political activity of the Middle East, with its religious cultural disagreements.
- The table of tensions between North, South Korea, and their repercussions on Japan; China’s concurrent trade in Southeast Asia.
- Consider that, in the short term, the European Union, Russia and China compete for second place; and
- That in a distant third position, the economic associations of South America, Africa and the South Pacific appear
It should be noted that:
First, American dominance is based, economically, on its productivity; bearing in mind that the influence of innovations (criterion: Kondratiev-Schumpeter) during long cycles (50-60 years) still become present, given that the computer revolution began in 1970-1990;
Second, that the management of the financial conjuncture, is based on the simple fact that the payment of external debts must generate lower interest rates than the growth of the product. Condition that does not affect the United States because as the lender of last instance at the planetary level, its debts are in dollars, so in practice it has no debts;
Thirdly, that the management of the internal economic conjuncture of the various countries, is affected by the restriction of the International Payment System and by the control of the dynamics of the energy economy, essential in the development of the productive economy; what we call dollar-oil pincer;
Fourth, that politically informed journalists debate about who seems the most powerful emerging to hegemon. Some are inclined to China, based on foreign trade growth; other to Russia, considering the inadequacies of the energy factor; pointing out that China is and will be for the long term an importer of energy inputs; and
Fifthly, among the matters to be considered, by hegemon and the contenders to replace it: importers of crude oil and gas, such as the European Union and most South American republics, are the characteristics of political regimes with whom they will have to discuss the rules of future commercial trade and subsequent payments.
For all that has been said, our concluding judgment is that, it is our time, and in the near future (putting us on a horizon of a luster) it is illusory to escape American economic-political dominance, imagining trivialities such as believing that ambitions and political rhetoric at national levels can subvert international economic reality…Nevertheless, if the South American countries unify their productive potential with the financial surpluses of the Middle East, options would be opened to reduce, sensibly the condition of marginality that is suffered.
|Relationship dynamics %
|I.M.S. PATTERNS||Years||$ ounce try||$/b||Relation||%|
|Dollar as good as gold||1933-1967||35.0||1.4||0.04||4.0%|
|Dollar as good as dollar||1968-1973||66.0||4.4||0.06||6.0%|
|Banking and stock market exuberance||1979-1985||460.9||32.2||0.06||6.0%|
|Central bank, IMF support and fiscal deficit control||2015||1066.0||41.6||0.04||4.0%|
|Source (2014) Inter-Academic Committee National Academy (digital version) and The Economist, end of 2015, 2016 and first quarter of 2021.|
 Russell, B. (1933). Cheerful perspectives and others.
2We use the logical graphical method of Venn-Euler mathematicians to describe the interactions between mathematical sets, where circle overlays, point to the interaction between overlapping set variables, forming dual, triple combinations, etc.
 Maurois, A. (1986). An art of living. Hachette Bookshop Editorial. Buenos Aires.
 Speculation according to Kaldor (1939) is the purchase and sale of assets by forecasting profits and risks due to variations in various circumstances.
Kaldor N. (1939) Speculation and economic stability the review of economic studies.
 Here we generalize the concept of speculation in the economic sphere, proposed by Kaldor, as decisions to buy or sell today, in order to sell or buy tomorrow, in the face of a high probability of variations in today’s prices with respect to tomorrow’s to obtain an appreciable profit. The definition for the political sphere will then be: Taking an open position (as stated in the financial context) in the face of expectations of political gains in the short term. A first corollary of the above, refers to decision-making (position take) in the medium- and long-term context, turning speculation into the exercise of planning. A second corollary is that not making decisions because there is a high level of uncertainty can be a terrible option. Hence, the cutting edge, of the evaluation of strategies is to minimize risks. Namely, evaluate (consider) the maximum loss.
 Pernaut, M. (1967). The devaluation of the pound sterling. UCAB. Caracas
 Tocqueville, A. [1835 (1958)]: Democracy in America. Editorial Orbis, España.