The explanation of global adventures.
Budget deficits (Analysis)
Capital formation (Analysis)
Mouhammed, Adil H.
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Name: European Journal of Management Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2008 International Academy of Business and Economics ISSN: 1555-4015
Date: Winter, 2008 Source Volume: 8 Source Issue: 4
Event Code: 200 Management dynamics Computer Subject: Company business management
Product Code: 6100050 Finance Houses NAICS Code: 522298 All Other Nondepository Credit Intermediation SIC Code: 6100 NONDEPOSITORY INSTITUTIONS
Geographic Scope: United States Geographic Code: 1USA United States

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This paper explains U.S. global adventures from a Veblenian perspective. Thorstein Veblen's theory of imperialism argues that imperialism is explained by various forces and aims at benefiting the ruling class at the expense of the community. These benefits may be economical, political, and psychological, sharing a common theme that powerless countries are looted and exploited by imperialist activities. The ruling class uses its government to implement global adventures which require powerful military forces, patriotism, and undemocratic means to ensure social cohesion. This paper contends that this Veblenian theoretical framework predicts that the recent global adventures have disastrous economic and non-economic consequences on the United States of America.

Keywords: Finance Capital; Colonies; Capital Accumulation; Militarism; Patriotism, Stagnation; Inflation; Stagflation; Monetarism; Budget Deficit; Depreciation of Dollar; and National Debt.


The phenomenon of global adventures are manifested in colonizing and exploiting other countries, and has been with humanity for a long time, as history shows that some countries invade and massacre people of other countries. Recent historical events do demonstrate that powerful countries such as Great Britain, France, the ex-Soviet Union, and the United States of America have adopted the same institution and resorted to the occupation and domination of other countries, a behavior that is inconsistent with the principles of democracy and freedom.

Many scholars such as Ibn Khaldun (1969), Sismondi (Brue and Grant 2007), and Marx (1967) explain imperialism as a way for finding foreign markets in order to sell products and purchase materials used for the production process. Sumner (Bannister 1992 and Trask 2004), who was Veblen's advisor at Yale from 1880-1884, argues that imperialism is "at war with the best traditions, principles, and interests of the American people," and Hoxie (1903: 205), who was at the University of Chicago during Veblen's tenure, thinks that imperialism is for "enriching the home producer, market, and carrier at the expense of a colonial possession." He thinks that imperialism with tariffs is a plan for colonial exploit. Thorstein Veblen, who knows Sumner's and Hoxie's works on imperialism, has developed his own theory of imperialism.

There are many other theories of imperialism (analyzed in Mouhammed 2006) developed by Marxists and non-Marxists after Veblen develops his own theory such as, Luxemburg (1964), Hilferding (1981), Lenin (1989), Woolf (1920), Bukharin (1929), Schumpeter (1951), Baran (1957), Magdoff (1969 and 2003), Cramer and Leathers (1977), Edgell and Townshend (1992), and Amin (1976 and 2005), but Veblen's theory is superior because it explains imperialism by concentrating on economic and non-economic factors.

Section two of this paper analyzes the theoretical framework of imperialism and its basic components of militarism and patriotism. Section three provides historical and current evidence to substantiate the theoretical framework of imperialism. Section four will analyze the expected economic consequences of the recent U.S. global adventures In Iraq and Afghanistan, which are manifested in stagflation, destruction, and the erosion of civil liberty. A summary and conclusions are provided in the last section.


Imperialism is grounded in capitalist sabotage, or the retardation of the production process for more power and profits (Mouhammed 2006). This sabotage associated with the triangle of conservatism, advanced technology, and militarism represents a cohesive whole tending to wage imperialist adventures used not only for looting economic wealth of other defenseless countries but for generating a perpetual usucraft: "The imperial aim is not a passing act of pillage but a perpetual usucraft" (Veblen 1917: 152), and this is the field of imperialism and hegemony that Veblen rigorously develops. He (Veblen 1917: 6974, 118-125, 152, and 235) thinks that since the industrial system needs markets and resources, national policies become very aggressive and imperialistic, serving foreign trade and investments of the vested interests. The economic interests are manifested in finding those markets or territories for boosting international trade (exports and imports of materials) and investments of the imperial nation to increase profitability and wealth of the ruling class, or the few. He contends that the basic motivations for imperial wars are economic interests, vindication of national honor, and the advancement of the nation's culture in terms of language, cultural values, and life style: hegemony.

Hegemony is manifested in forcing other nations to accept the cultural system of the imperialistic country, and Americanization of the world is an example. Hegemony may take the form of imposing languages, moral principles, religious rules, and political and economic institutions on other nations: Racism or the White Man's Burden. For Veblen (1917: 81) imperialism breaks the peace and creates wars. For him (Veblen 1917: 262) colonial possessions provide the reason for serviceable means of stirring the national pride and of keeping alive a suitable spirit of patriotic animosity. Colonies and imperialist wars are also used to divert national attention from domestic problems such as poverty and unemployment. And the ruling class is capable of doing so because it controls every cultural aspect of the capitalist society, including media and communications which are used to invent a particular line and to create the required public sentiment to support it. Since the creation of colonies generates private gains for businesses, imperial wars become the normal affair under the system of business enterprise. In America, Veblen (1917: 297) argues, "The business interests ... will disapprove of any peace compact that does not involve an increase of the national armament and a prospective demand for munitions and an increased expenditure of the national funds."

The occupation process of small defenseless countries generates markets (or aggregate demand) for the output (exports) produced by the capitalist industrial system, which are necessary for the realization process: the conversion of output into money. Colonies are useful for obtaining low-cost labor and raw materials which are utilized in the advanced countries for further industrial processing which require continuous technological innovations. For example, oil is used as a source of energy, transportation, and an input to produce final and intermediate products. Consequently, the security of such a commodity compels the ruling class to undertake imperialistic adventures, because this security reduces uncertainty regarding the future delivery of this input. Moreover, the occupied small nations become investment opportunities for the extra real means of production and the extra money capital the financiers have, i.e., the exports of capital will increase profitability of the available capital. In short, colonies provide more independence for an empire. Veblen (1915: 184) explains:

It is also true that such acquisition can be used to influence other countries depending on that input. For example, controlling of the Iraqi oil reserve by the American oil corporations will affect countries depending on imported oil such as China. But the competition for profits of the acquisition of colonies engenders conflicts among the vested interests of the advanced capitalist nations, conflicts that were manifested in wars and in the rise of Fascism and Nazism. Costly conflicts between these advanced countries and their colonies will also rise, and several cases will be provided later on to substantiate this proposition.

Most importantly, Veblen connects imperialism, militarism, and patriotism in a very meaningful and cohesive whole that his contemporaries were not able to do. For him, since imperialism is a form of perpetual usucraft and national graft, militarism becomes the fundamental tool for achieving private gains for the business interests. He provides an example about the United States of America for using militarism and imperialism for obtaining profitable contracts for oil corporations. He (1934: 432) points out that American capitalism employs "an increased armament by use of which to 'safeguard American Interests'--that is to say, negotiate profitable concessions for American oil companies." Veblen (1904: 295) also argues, "The definitive argument ... for armaments (in England and America) is that the maintenance of business interests requires the backing of arms.... Armaments ... are useful in extending and maintaining business enterprise and privileges in the outlying regions of the earth." Currently, the American military forces guard the Iraqi oil pipelines and other economic resources which will be privatized to American oil corporations when stability and security are restored.

Many capitalist governments spend huge funds on military equipment, technologies, machines, weapons, airplanes and fighting jets, and many other commodities. By the same token, militarism requires strong armies, because without armies technologies and weapons cannot accomplish military goals successfully. Thus, the more imperial adventures are planned, the larger the military forces will have to be. Economically, these military expenditures are wasteful and generating budget deficits but are helpful for the military industries and other related industries, because as long as these expenditures are on the rise, military corporations can extend their operations and generate super profits: War industry and its workers gain. But Veblen (1915: 342) contends that "the whole industry in other lines will" lose, as demand for their products will decline, and the cost of living will rise as well due to the military expenditures. In sum, through these operations the military industries will affect other industries through their economic interdependence, or by what Veblen (1915: 244) calls repercussion. Indeed, the current huge profits generated by the military complex and oil corporations and the huge lose incurred by many other American businesses, home owners, and consumers are facts supporting Veblen's analysis. So are the current high rates of U.S. inflation and unemployment.

To make imperialist wars publicly and emotionally acceptable, two basic means are required according to Veblen. The first is a process of public habituation to these wars: "drilling in patriotic--that is to say military--ritual has incorporated in the ordinary routine of the public schools" (Veblen 1934: 432). Even education and scholarship are censored (Veblen 1917: 336). The second is a process of misinformation of citizens and of prohibition of some people from participation, a process involving an important element of sabotage according to Veblen (1921: 52-53). Indeed, these two means have made it extremely difficult for people to realize the true goal behind imperialist adventures, and the only possible course of action for people to follow is the submission to the government's patriotic propaganda, which indeed creates "bond of solidarity" or social cohesion. Thus, during wars patriotism becomes the most dominant sentiment: "But ... once the policy of warlike enterprise has been entered upon for business ends, these loyal affections gradually shift from the business interests to the warlike and dynastic interests, as witness the history of imperialism in Germany and England" (Veblen 1904: 394). During wars, "Civil rights are in abeyance, and the more warfare and armament the more abeyance" (Veblen 1904: 391). The Patriot Act and the surveillance of American people without court orders are recent examples substantiating Veblen's argument.

For Veblen, patriotism is used successfully to ensure the loyalty of even some of the socialist people, as they are manipulated for the support of imperialist wars: "War begets patriotism, and the socialists fell under the reproach of not being sufficiently patriotic.... During all this time that part of the population has also grown gradually more patriotic and more loyal, and the leaders and keepers of socialist opinion have shared in the growth of chauvinism" (Veblen 1907: 319). He (1907: 321-22) also states, "The imperial policy seems in a fair way to get the better of revolutionary socialism, not by repressing it, but by force of the discipline in imperialistic ways of thinking to which it subjects all classes of the population." Specifically, Veblen (1907: 321) thinks, "German socialism gradually changing into somewhat characterless imperialistic democracy." That is to say, imperialism, wars, and militarism are accepted as "an article of patriotic faith and [are] accepted as a matter of course and of common sense," even though "the community has nothing substantial to gain" (Veblen 1934: 379).

Veblen does not analyze in detail the effects of imperialism on those dominated countries, but he does consider these effects as a disastrous outcome. Veblen (1915: 219) thinks that occupation "would throw [the common man] under the rule of another government that would use him more harshly." He (1915: 157) also states that occupation is a "period of ruthless exploitation, terror, disturbance, reprisal, [and] servitude." Essentially, one can infer the core of his analysis, which is the exploitation of people and of material resources, a conclusion that is compatible with Marx's analysis of the primitive capital accumulation, where he emphasizes colonialism, destruction, and looting. His conclusion is also consistent with the results of the occupation of Iraq, where exploitation, terrorism, and sectarian violence have become a normal practice.

As a result of the imperialist exploitation and domination of other small defenseless nations, these helpless people will resist, because they reject submission. Veblen (1917: 133) brings the Armenian case when the Armenians revolted against the Turkish occupation and were massacred and even reduced in number for their insubordination. For this experience, Veblen (1915: 255f) quotes the following statement: "Resistance became a crime to be washed out only in the blood of the victim." Similar resistance happened against the British and the French Empires during the nineteenth and the twentieth centuries. Woolf (1920: 102-103) points out that the results of economic imperialism of political subjection, of exploitation, and of economic slavery "are never pleasant to their victims." He concludes (1920: 103) that India and Egypt have demonstrated that "neither the Asiatic nor the African will submit indefinitely to the despotic government and exploitation of a European [Imperial] State." At any rate, when these conflicts start, killing and destruction propagate cumulatively, and both sides will lose. In contrast to the violent resistance, Veblen (!917: 131) brings the Chinese case as an example of non-resistance against foreign occupation: "The Chinese plan of non-resistance has proved eminently successful."

The resistance against imperialist adventures will weaken the imperialist schemes according to Veblen. While imperialism is gaining through its domination, the "competitors in the world politics have also been gaining; and latterly these competitors have on the whole been gaining at cumulatively accelerating rate" (Veblen 1915: 261). This means that the net external gain is not in favor of imperialism. Domestically, imperialism creates many negative effects on the community from unemployment, poverty, high interest rates, public debt, inflation, declining expenditures on social programs and public investments, to the death of people. Historically, imperial occupiers and empires lose, as it happened to the ex-Soviet Union when lost the war in Afghanistan.

There are other significant imperialist issues discussed by Veblen. He, similar to Schumpeter (1951), thinks that some imperialist countries adopt a trade policy of protective tariffs in order to hinder economic growth and to maintain market power of large corporations: higher prices and profits. In fact, imperialist countries do restrict the flow of commodities produced by the peripheral nations to their economies, and restrict the flow of technology to other nations in order to hinder (sabotage) economic growth and development: "These endeavors in restraint of industrial knowledge and practice have been detrimental to all peoples concerned, in that they have lowered the aggregate industrial efficiency, wealth, or well-being of any one of them" (Veblen 1934: 385). Marx concludes that capital inhibits development, and Veblen states that the vested interests sabotage economic growth and development: "The national establishment and its frontiers and jurisdiction serve substantially no other purpose than obstruction, retardation, and a lessened efficiency" (Veblen: 1934: 390).

The impact of such a retardation of development is the creation of uneven development among countries, which is the normal outcome under imperialism or the higher plane capitalism. This idea of uneven economic development among countries, which is an international manifestation of the dualistic economy, was developed later on by Bukharin (1929) and Samir Amin (1976). When the advanced countries control the flow of technologies they are able to control the level of technological development in many other countries. This technological gap will deprive those countries from developing autonomous interdependent industrial and agricultural sectors. Low production and inefficiency are created due to this technical gap, which will be translated into lower productivity and income. Most important, the technological backwardness is associated with the existence of inefficient economic, political, and social institutions. Once these countries remain underdeveloped, they become easy prey for the developed nations.

In short, Veblen teaches us in his revolutionary writing the following consequences of imperialist adventures, which are disastrous domestically and globally: more profits for the business interests such as the military complex and oil corporations, more psychic income for the non-wealthy, more government spending, more national debt and higher interest rates, higher cost of living, national stagnation, more international armed races, creation of international conflicts, vindication of racism and discrimination, wasting of financial and human resources, weakening of democratic principles of self determination and freedom, the conversion of population into conservatism, strengthening of the dictatorship of the wealthy, the development of underdevelopment of many Third World countries, and the creation of inefficient global economic order.


After the United States of America won the war against Spain, the decision was made to incorporate the Philippine Islands which were under the Spanish colonial control and to make the country a reasonable foreign market for the American products. U.S. forces invaded the islands and were resisted by the Filipinos. The U.S. forces "responded by resettling populations in concentration camps, burning down villages ... mass hangings and bayoneting of suspects, systematic raping of women and girls, and torture" (The Editors, 2003: 5). In addition, the [Moro] Massacre [of] Muslim people left many men, women and children dead. Many American soldiers were killed as well. The war which created the U.S. colonial power was indeed very costly on both sides.

After the allied won the World War II, the United States of America became the most powerful nation. Politically, America controlled Japan and Germany with full military occupation and military bases. Economically, the dollar became the reserve currency, and the Marshall Plan which was enacted in 1948 was designed to rebuild Europe. According to the plan, U.S. provided Western Europe with machines, equipment, and other materials for rebuilding Western Europe. For more than twenty years the plan helped the two sides to accomplish their goals. Western Europe was rebuilt and the U.S. economy was prospering.

During the post-war period the Korean War started on 25 June 1950 when North Korea attacked South Korea. The fighting stopped on 27 July 1953 after millions of people were killed. The outcome was crystal-clear. The North Korea's communist regime was intact, and the South Korea's capitalist system survived. Essentially, a single nation was divided in 1945 because of the intervention of U.S. imperialism and the Soviet communism for the defeat of imperial Japan: hegemony. The U.S. adventure ended with a significant problem which was the survival of the communist regime in North Korea, a problem that has still been in existence. North Korea sells weapons to some Third World countries such as Iran and Syria and has nuclear weapons. North Korea has tested its nuclear bomb successfully and can threaten several countries, including the United States of America. More important, North Korea has demonstrated to the entire world that if a country is a powerful, U.S. military force will not approach it. That is to say, U.S. foreign policy usually threatens by military force weak and defenseless nations such as Grenade, Libya, Somalia, and now Iraq, to mention a few and turns its back on powerful nations such as North Korea. This conclusion forces other nations such as Iran to imitate North Korea. If this imitation is defused in the long run, U.S. hegemony will be eliminated.

In its effort to retain the Shah of Iran, U.S. imperialism contributed significantly for toppling of the Mussadaq government in 1954 which nationalized the Iranian oil. U.S. was successful in bringing the Shah of Iran back to power. When the Shah returned to power he denationalized the Iranian oil, and oil corporations received their contracts. The Shah also started purging the left in Iran. While the Shah was eliminating the progressive movements, the religious movement became very strong. The Shah was defeated by the Iranian mullahs in 1979. Many Americans were taken hostages by the Iranian national guards, which compelled the Carter administration to try to rescue these hostages. The rescue operation failed, and hostility intensified between the two countries. For the last 30 years the hostility has been worsening, and Iran, with the help of U.S. foreign policy, has become the dominant force in the Middle East. Iran has also been trying to produce nuclear weapons to counter other nations. In short, the intervention of U.S. imperialism in Iran generated some stability under the Shah dictatorial regime but created its own enemy, as was the situation in Korea. The Iranian mullahs have been trying to capitalize on this situation by involving other Muslim groups and nations to counter U.S. global adventures. The Iranian mullahs have been successful thus far, and have been able to establish Hezbollah in Lebanon, a force that has been giving the U.S. allies in the region greater pains.

The Johnson administration waged the Vietnam War for a variety of reasons such as the elimination of the communist movement in South East Asia and the diffusion of capitalist ideology: hegemony. It was argued, using the Domino theory, that the success of the communist movement in North Vietnam would topple other regimes in South East Asia and accordingly the communists, the Soviets, and the Chinese would establish their domination and squeeze U.S. interests and influence. Given these causes the Johnson administration dropped bombs and chemical weapons, killing millions of people. The American People thought that the United States government was misleading them about the war, and did not trust the government version. Nixon tried to Vietnamize the war by letting the South and the North fighting each other, but Vietnamization of the war was not successful. Eventually, the United Stated ended its involvement in Vietnam in January 1973. In other words, the goal of the war which was the defeat of the communists in Vietnam was not accomplished. In fact, the communists won and were able to establish the Socialist Republic of Vietnam.

The war was another miserable chapter in the history of civilization. Millions of people were killed on both sides. Vietnam was destroyed and the environment was poisoned as a result of the use of chemical weapons. This endeavor suggests that the American military complex made huge profits at the expense of the American and the Vietnamese people. In other words, the war was a basic tool for distributing part of the wealth of the nation to the military complex. Essentially, the United States of America created more enemies after the war.

The American occupation of Afghanistan, which came as a result of the terrorist attack of September 11, 2001, has destroyed Afghanistan in many aspects. The government of the country has power over a very small area, and is not legitimate because it has been protected by the foreign occupiers. The infrastructure of the country has been destroyed completely, which is not ready to support the process of economic development. The production of opium is at the highest level, and war lords are controlling its revenues. In fact, a recent report (December 2006) by the Pentagon stated that the production of opium rose by three times since the occupation of the country in 2001. Surprisingly, the U.S. occupation has not eliminated the terrorist groups of Bin Laden. One fundamental achievement has been the building of the oil pipeline that goes through the northern part of Afghanistan, a pipeline that the Taliban government had previously rejected to build. In short, the occupation of Afghanistan has destroyed the country in many cultural and material aspects: a catastrophe, and the basic beneficiaries are oil corporations, the military complex, and the opium produces. Given this calamity, some ignorant people have called the occupation of Afghanistan a progressive step toward democracy and freedom.

The Iraq War is another perfect event supporting Veblen's theory of imperialism. The American occupation of the defenseless Iraq was partly motivated by the huge reserve of the Iraqi oil, which was estimated to be around 300 billion barrels but was discounted to 120 billion barrels. President Bush indicated in various speeches that the war in Iraq is about energy security and we cannot let the terrorists control the Iraqi oil. This huge oil reserve can be used by the ruling class of the United States of America to control and dominate many other countries depending on imported oil such as China and India. The government invented a false story of Weapons of Mass Destruction by using various methods of deception and misinformation to create internal fear. Patriotism, usually used to create social cohesion, is invoked in order to bond the American people behind the government's decision of invasion. Patriotism has brought people together, forming a coherent whole to defend the imperialist scheme of the ruling class. The Patriot Act and the surveillance of Americans, which is a naked violation of democratic principles, are additional means to suppress opposing views. Abu Ghraib is another violation of human rights, which has become the brand of U.S. democracy of monopoly capitalism. Many Americans and Iraqi citizens are being killed daily, and Iraq has been looted and destroyed. Not surprisingly, the ruling class capitalizes on this disastrous condition by making the best deal: more profits and wealth for Halliburton, other oil corporations, and the military complex at the expense of the underlying population.

Indeed, the U.S. adventure in Iraq generates more costs compared to its benefits (or irrationality), and the underlying population pays the cost. Essentially, the benefits received by the American ruling class from the occupation and destruction of Iraq are far less than the public cost of the invasion. This war has generated the following negative disastrous consequences on the United States of America and other nations. (1) The number of Americans killed has been more than 4119 soldiers and the number of wounded Americans has been more than 32500 soldiers. (2) The direct financial cost of the war may have reached $700 billions, a tremendous amount of funds that could have been invested in many domestic alternatives. (3) The profitability of oil corporations and the military complex has been on the rise. (4) American' people's consumption on some items has been on the decline due to the high prices of oil, which have created a negative income effect, an effect that will influence many businesses in the near future.

(5) The status of the American democracy has been seriously harmed by the various means suggested to counter terrorism such as the spying on American people. (6) The security of the country's interest has been weakened globally, as many enemies have been created. (7) AL-Qaeda has become stronger and it is expected to attack the nation according to our government estimation. (8) The U.S. foreign policy towards Iran and North Korea has been weakened, because U.S. military forces have been busy in Iraq and Afghanistan. (9) The global reputation of the United States of America has been downgraded, because of the shameful practices at Abu Ghraib prison.

(10) The destruction of Iraqi roads and bridges continues. (11) The destruction of Iraqi education and technology has been increasing. (12) The destruction of Iraqi water and power industries has been intensified. (13) A large number of landfills have been created in the Iraqi cities and towns, which will create deadly diseases and kill many people. (14) The destruction of Iraqi civilian houses and businesses has been continuing at a rapid rate. (15) The destruction of Iraqi industrial factories which has left millions of working people unemployed. (16) Killing of more than 1000,000 Iraqis and the number has been rising. (17) Four million Iraqis have taken refuge in Syria, Turkey, Sweden, and Jordan. (18) Looting of funds and of Iraqi oil has been rising, which will be intensified under the proposed law of oil revenue-sharing which actually means the looting of Iraqi oil by U.S. and British oil corporations. (19) The looting of the precious archeological materials has been continued. (20) The establishment of the Iraqi mullah government has been accomplished, which will become the seed for establishing the New Fatimid Dynasty in Iran, Iraq, Syria, and in Lebanon.

All these costs and destruction could have been avoided by less than $15 billion which was used to maintain the no-fly zone over the Iraqi territory. But once again, the military spending (of $12 billion a month) has generated business prosperity for the financiers, oil corporations, the military complex, and for the military related-industries.

Although the war is not over in Iraq, the trend is very clear in that if the U.S. adventure fails, there will be important negative consequences on the Middle East. First, the U.S. global action in Iraq has created many enemies to the American people. Many Iraqis want U.S. forces to leave the country, because they cannot tolerate the daily destruction of the brand of U.S. democracy. Second, Iran has become the most powerful country in the Middle East. The Iranian mullahs have increased their hegemony on several countries in the region such as Iraq, Syria, and Lebanon. Other Gulf States in the region cannot defend their people from the Iranian influence. Third, several regimes in the region will experience political instability in the future, as they have lost the respect of their own citizens. Fourth, millions of Arab and Muslim people will have negative attitude toward America, because Abu Ghraib-type freedom will be in people mind for years to come. In short, Marx was correct when he states that capitalism digs its own grave. In our context, U.S. imperialism does create its own enemies.


One important outcome of the recent U.S. global adventures which must be fully explained is the expected collapse of the U.S. economy. Currently, the U.S. economy has been facing several economic problems that cannot be solved without ending the two current wars. The housing sector is collapsing due to the problem of sub-prime lending. Lenders were taking the risk for more returns and had interest to provide mortgages to risky borrowers at high mortgage rates and fees. Initially, mortgage rates were low, but a few years later the Fed increased the federal funds rate to fight inflation resulting from the government deficit spending on the wars, and these mortgage rates adjusted upward. Usually, when the interest rate rises, values of assets, including houses and collaterals will decline. Families had to pay extra $1000 (and more) on the average on their monthly mortgage payments. Many of these families could not afford these higher payments; consequently, their properties were put for foreclosure. Most of these houses, even when they are sold, could not cover their values, because they were sold at lower prices compared to their purchasing prices. This means thousands of owners have been bankrupt, and some small and large banks will be bankrupt as well (although they may be bailed out by the taxpayers' money), a credit condition that will make it extremely difficult for the capitalist-credit economy to rebound soon.

Unemployment rate has been increasing in the U.S. economy. Currently, the rate is at about 5.5 percent and will be increasing. In fact, the economy has to generate about 110000 jobs to accommodate the increase in the labor force and to keep the unemployment rate at 5.5 percent. Instead, the economy has lost more than three million jobs since 2001, an increase that has worsened the American housing market. Having stated this fact, there are several reasons explaining the unemployment problem. The first reason is outsourcing. Many firms are outsourcing their contracts to foreign firms in order to cut their costs. At the same time, many firms are leaving the country due to the high costs of insurances and healthcare. The second reason is the decline in consumption spending due to higher oil prices. Oil price per a barrel is about $140 which prevents consumers from spending on other goods and services. Some families cannot even purchase sufficient amount of milk for their children. Investment expenditures have been on the decline due to the collapse of the housing sector and to the decline in consumer spending. These causes will cumulatively increase the rate of unemployment in the coming months.

The inflation rate has been increasing to about 4.2 percent and may be even higher. Media and many economists have mentioned the phenomenon regularly but are not interested in explaining it. As economic theory teaches us there are several factors behind the increase in the general price level. First, the increase in profit rate since 2001 has augmented prices, creating profit inflation. Second, the increases in government and aggregate spending will raise the inflation rate as well. Recently, government spending, particularly on militarism, has been on the rise since September 11, 2001. Government revenues have not been sufficient to cover the actual spending, because tax rates have been declining on the wealthy people. It follows that the government has resorted to borrowing to finance its deficit spending. This borrowing comes from foreign and domestic lenders. Foreign countries have been purchasing government bonds, so are domestic lenders such as the Fed. When the Fed purchases government bonds it writes a check to the U.S. Treasury and the check represents new hot money. For monetarism this new money will increase the money supply and spending, which will in turn increases the inflation rate.

The increase in money supply will force people to spend the excess amount of money relative to the amount of money they like to hold, and this spending will increase the amount of dollars in the world market. Consequently, the exchange rate of the dollar will decline. For example, currently the British pound (Sterling) is equal to about $2.0 and the euro is close to $1.59. Prices of imported items have been increasing and pushing domestic prices to go higher, culminating into a higher price level: inflation. When the value of the dollar declines, the price of oil will increase, making hedgers investing in oil and other commodities for higher profits. Currently, the price of oil is about $140 per barrel, and is expected to rise. If the exchange rate of the dollar against the euro stayed at one to one, the price per barrel of oil would be 140/1.59, or $88.05.

Imagine some of these countries holding dollars decide to change their course of action. If some of these countries reach a conclusion that holding dollars is a not a good option and decide to dump the dollars, then the value of the dollar will decline significantly in the world market. In this situation the United States of America will need to purchase currencies for buying oil and other imported commodities. When a similar situation happened in 1971, President Nixon prevented the conversion of dollars into gold, and the international monetary system established in Breton Woods collapsed in August 1971. If a similar situation happens, the U.S. has no such alternative.

But oil prices have been rising for other reasons. The war in Iraq has reduced the production of oil from four million barrels a day to about two millions. This means the world supply of oil is not at its capacity. The threat of war with Iran and the invasion of Turkey to the Northern part of Iraq have given rise to the expectations that oil supply will decline. Consequently, the price of oil is increasing, and speculators use these fundamentals to purchase oil contracts in order to sell them at higher prices in the future, a behavior exerting more pressure on oil price to rise further. Additionally, those factors constitute about two-third of the price of a barrel of oil adjusted for the exchange rate of the dollar. That is, the price of oil would have been around ($88.0)(1/3), or $29.35 without the war in Iraq. At any rate, when the prices of oil are increasing many industries using oil as inputs will have to face a higher cost of production, a condition that compels these industries such as the airline industry to increase domestic prices. For example, even the price of milk and groceries have been increasing due to the higher transportation cost. It is also true that the prices of corn and food are increasing because of the high cost of shipping and the increased demand for corn to produce fuel. And keep in mind that the auto industry is collapsing.

Higher domestic prices and a higher rate of inflation have been reducing the purchasing power of people's income and wages. People's standard of living has been on the decline. It is also true that people's wages and salaries are increasing at a small amount, but these increases are not at par with the rising cost of living. Therefore, people's income and money wages are squeezed and are becoming worse off. Similarly, many business enterprises are paying higher cost of materials, a situation that squeezes their profit margins and creates pressure to reduce the values of their share in the stock market, and stock holders will try to sell their stocks, a process that generates loses and panics in the financial market. An immediate impact of this process is the decline in aggregate consumption spending and consumer confidence, which will affect the business economy negatively.

Not surprisingly, a higher inflation rate and increasing rate of unemployment generate stagflation, a situation which is similar to what happened during the 1970s with the exception of low wages now which de-intensifies the problem. During that period the economy had experienced several recessions which created more economic and social problems for business enterprises and people. Businesses had to pay higher costs for labor and inputs used in the production process. People did not have sufficient income to purchase goods and services. Government did not have funds to spend on education. All these problems are emerging again. Many people are not able to pay for health care, nor are they able to pay for their education. Foreign competition is very fierce and many American businesses cannot compete. Even if the business enterprises introduce new technologies to cut cost of production, these cost cuts mean lower incomes for the American people. Consequently, the government will be in a deeper budget deficit and a larger national debt which stands now at about $10 trillions, a condition forces the government to cut social and public programs which in turn intensify people suffering. Thus, this is a recipe for misery and calamity, which weakens the social cohesion.

During this inflationary environment the Fed has decided to cut the federal funds rate to 2 percent. As economic theory teaches us this course of action is the wrong policy, because a low rate of interest is associated with a high money supply which will increase, not decrease, inflation. Privately, banks and financiers will not be able to charge borrowers a low rate of interest during inflationary environment. If the rate of inflation is 7 percent, the interest rate has to be 7 percent plus the real rate of interest. In other words, even if the Fed reduces the federal funds rate, financiers cannot charge a low interest rate during a period of high inflation, nor can they easily lend funds if they a liquidity shortage. It is also reasonable to state that under this condition of uncertainty and low income, a lower interest rate may not be effective, because it will not stimulate people to borrow funds for consumption and investment. This is a situation called the liquidity trap developed by Hawtrey and Keynes (Brue and Grant 2007: 316 and 440). Similarly, the tax cut by the Bush administration cannot stimulate investors to increase investments in housing, inventories, and manufacturing if people cannot purchase.

In contrast to the miserable economic conditions of the auto, the airline, and many other firms in the service industries, some corporations have been making huge profits due to these wars. Oil corporations have been making significant profits. Shell made more than $13 billions in profits and Exxon made more than $40 billions during 2007. These profits have come from the high prices of oil that the American people and industries have paid. In addition to the profitability of oil corporations, the military complex has been making huge profits as well. Annually, about 400 billions of dollars are spent on the military operations in Iraq and Afghanistan, and a significant part of this spending goes to the military complex for purchasing military hardware and weapons.

These indicators of the unemployment rate, the rate of inflation, high oil prices, credit crunch and financial panic, and budget deficit are grounded in the wars in Iraq and Afghanistan. These wars have created these problems and will worsen the economic condition as they continue. This is true for a simple reason in that these two countries do not like to be occupied and lose their freedom to a foreign power. History has shown us that the French empire kept the course of fighting in Algeria for 132 years (1830-1962) and eventually, the French Empire was defeated. The French and the Italians had a similar problem in Libya, and were eventually and completely defeated in 1969. The British Empire occupied Iraq in 1917 and was finally defeated in 1958. The Palestinians have been fighting the Israelis since 1948, and without the American's financial and military support for Israel the latter may have lost the permanent war a long time ago. The ex-Soviet Union lost the war in Afghanistan and was disintegrated into several pieces, because the Soviets did not have enough economic resources to continue the costly war. The U.S. imperialist adventures in Iraq and Afghanistan are facing the same historic fate, which explains why President Bush and Senator John McCain always talk about the national honor. History will also report the eventuality of these wars, a history that has not favored imperialist occupiers.

Essentially, the predicted collapse of the war economy indicates that the wars in Iraq and Afghanistan have taken a permanent shape, which will increase the cost of the United States of America significantly to a point that these two wars will not be afforded economically. No country in the world will pay the U.S. war bills, as U.S. pays the bills for the Israeli occupation of Palestine. It is really up to the American people whether or not to keep the same course of action, and this section has established the case for ending these two wars and for finding a cheaper alternative way to fight terrorism.


Capitalism furnishes the environment for imperialism, because it emphasizes private ownership, self-interest, and sabotage, which stimulates aggressive pecuniary behavior. Worst, the leisure (ruling) class controls all aspects of the capitalist economy, including government, media, and militarism. Militarism is the basic important force for achieving global hegemony, defending absentee ownership in foreign parts, and for bringing more wealth, profits, and economic resources from helpless nations. This is why Veblen defines imperialism as national graft and looting, and the aggressive chauvinist policy of dynastic states, generating negative consequences on the world peace and development. For him, even democracy under imperialism becomes a dictatorship of financiers.

Veblen's analysis of imperialism implies that the great imperialist empires depend on two foundations are patriotism and militarism. Patriotic fervor is stimulated by habituation to nationalistic principles and fabrication of reality. Monopoly capitalism or naked imperialism cannot maintain these foundations in the long run because it cannot eradicate economic crises, nor can it eliminate social divisions, nor can it control the global opposition to its adventures. It follows that long run practice of global imperialist adventures and a permanent war for enriching the wealthy, the few, will eventually lead to stagflation, erosion of freedom, uncreative destruction, and loss of millions of lives.


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Adil H. Mouhammed, University of Illinois at Springfield; Springfield, Illinois, USA


Dr. Adil Mouhammed earned his Ph.D. at the University of Nebraska, Lincoln in 1985. Currently, he is associate professor of economics at the University of Illinois at Springfield. He has written three books on Quantitative Methods for Business and Economics, Introductory Mathematical Economics, An Introduction To Thorstein Veblen's Economic Theory, and published many articles in referred economic and business journals.
By the acquisition of colonies, it has been hoped the raw materials
   of industry could in great part, perhaps in the end exclusively, be
   drawn from these dependencies; so making the Empire independent of
   foreign nations for its supply of the materials of its industry, at
   the same time that the same colonies would afford a market for
   wrought goods. The aim has been to achieve an industrially
   self-contained Imperial State.
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