|This transcript appears in the July 7, 2000 issue of Executive Intelligence Review.
New Bretton Woods System
While in Rome
Here is the speech of U.S. Democratic Party Presidential pre-candidate
Lyndon LaRouche, entitled "Toward a New Bretton Woods," in Cenacolo Hall of the
Italian Chamber of Deputies, in Rome, on June 23. Due to technical difficulties,
the first few minutes of the speech are summarized, followed by a transcript of
the rest of his remarks. Subheads have been added.
LaRouche said that the current financial and monetary system
has entered a phase which in physics is called a "boundary condition,"
comparable to the change in physical state from ice to water, or to what happens
when the speed of sound is approached, and a shock wave builds. This gives us
only three, plus one, alternative ways in which the present financial and
monetary system will be soon terminated: 1) a deflationary collapse; 2) a
hyperinflationary disintegration; 3) a "military" solution to the crisis; or 4)
the establishment of a New Bretton Woods system.
The current phase started in 1997, with the breakout of what
was called the "Asian crisis," but which in fact was a general crisis, hitting
first the yen trade zone of the global economy. At that time, Japanese Vice
Minister of Finance Eisuke Sakakibara and U.S. Treasury Secretary Robert Rubin
proposed a solution to the crisis, which was rejected at that time, but which
has now been adopted, at the recent Chiang Mai meeting in Thailand.
But then, the United States went insane, and in October 1998,
decided to adopt a bailout policy, driven by the Federal Reserve, that marked a
phase-change in the crisis. From the threat of a deflationary explosion of the
system, we shifted to a phase characterized by the threat of a hyperinflationary
blowout, similar to the development of the hyperinflationary spiral in Germany
from March to November 1923.
The power controlling the system, which is a
financial-political-military power, typically reacts out of desperation to this
type of situation, by launching wars, such as in the Balkans.
The system is currently bankrupt. Approximately $41 trillion
of world Gross National Product faces short-term obligations of about $300
trillion. The United States is running a current account deficit in the order of
$500 billion a year, and importing capital in the order of $1-3 billion per
So therefore, this pure political, military, and financial
power is used to intimidate and control other countries, while the U.S. press
insists that everything is wonderful for the U.S. dollar--propaganda which can
largely be considered part of the U.S. election campaign. The fact is, that
other countries are not so stupid. That's why the group of Chiang Mai, which is
the group of the ASEAN countries plus Japan, plus China, plus Korea, recently
acted to free themselves from control by the present international monetary
system. That is what happened in the G-15 meeting in Cairo recently. That is the
process which is being introduced through the Organization of Islamic
Conference, the group of international Islamic countries. What has happened in
the euro area, in the changes in Maastricht direction, is a reflection of the
Europeans' determination to defend themselves from this threat from London and
from New York.
So, these are the immediate circumstances. The world is on
the edge of saying, "If the United States goes, if Britain goes, if the monetary
system goes, we must survive, and we must begin now to define alternatives to
the present IMF, present financial system."
The same idea is expressed in a different way by the
proposals for the Jubilee action--the forgiving of debt of countries which have
been robbed too much. So, these political developments in various countries, the
international movement for a New Bretton Woods, the international movement for a
Jubilee year, coincide as a tendency.
Let me point now to this question of
hyperinflation, since there are some notable economists in the room, and others
who have some competence in economics. Let me emphasize to you and to others the
importance of not overlooking a close examination of what actually happened in
Germany in 1923. You should compare the known facts about the present financial
crisis with the events leading into the March-November 1923 Germany crisis, the
change in the French occupation and reparations demands and so forth, and look
at the way the German government responded to this concession to the British and
French, and also New York City, at the point of a bayonet. And look at these
months especially from March on into November [Figure 1]. Now, up until
March of 1923, the process imposed upon Germany in 1923 had not produced a
significant commodity price inflation. In March, that began to change. In July,
it changed radically, and the rate of acceleration of commodity price inflation
zoomed into the point of the October-November destruction of the reichsmark. If
you compare everything we know about the present situation--and there are many
hidden facts which governments and others are hiding; only after the crash
occurs will we discover how insane governments have been, because then all the
dirty laundry will come out for examination. But, on the basis of known facts,
about Germany 1923, and known facts about the present situation, the world today
is in a situation relative to hyperinflation, comparative to the situation in
The first, most obvious, and most inevitable expression of
that hyperinflationary trend in commodity prices is the recent zooming of
petroleum prices. There is no supply and demand reason for petroleum price
rises. The amount of petroleum being produced and available for purchase exceeds
all demand. Pressuring OPEC to increase its production is not going to do
anything good, it's going to make things worse. If I were President of the
United States right know, I wouldn't have any problem with oil prices. As
President of the United States, I would go directly to the governments of each
of the oil-producing nations, and buy the oil directly--not from the middlemen.
I would think the way the famous [Italian statesman and industrialist Enrico]
Mattei thought, some years back, here in Italy. If you have the capacity to
process the oil, you can process the oil. If you have the power of government,
you can make sure the existing private facilities will process the oil for the
government. And under those conditions, the prices of petroleum would be
approximately those of a few years ago.
Where does a price rise come from? From mergers and
acquisitions, and from derivatives. The flood of inflationary money into
leveraged takeovers of oil and other firms, has resulted in an added cost per
barrel on financial charges--not on the price of actually producing
the petroleum. What you're doing is, when you're paying for a barrel of oil,
you're not paying for the cost of the production and distribution of the barrel
of oil, you're paying also a tribute to the speculators who have added their
investment, as a cost, on top of every foreign barrel of oil which they deliver.
You have a rise in the price of gold under similar pressures. You have a
speculative escalation of real estate prices in many parts of the world, for the
same reasons. We will very soon be in inflationary rates of 5-6% and rising in
most commodity prices. The commodity price inflation will tend to follow the
same kind of path that the inflation in Germany followed in March to November
1923, mostly on a world scale. If we submit to that price inflation without
bankrupting the financial system, we will unleash the equivalent of a New Dark
Age on the planet.
So, the obvious thing comes up. If I, as President, were to
buy oil the way I indicated--the Mattei way--then this would collapse and
bankrupt most of the petroleum companies today. Because what I would be doing is
bypassing the margin of payment which is attributable to their investment,
financial investment, in debt.
The Standpoint of Physical Systems
Now, this comes to the question of what's the alternative.
Yes, we could have a New Bretton Woods, it could work, but what are the
mechanisms which will determine whether it's successful? The world economy today
is not an economy. It's lunacy! It's pure speculation. It's a John Law bubble.
It's a tulip bubble from the Seventeenth-Century Netherlands. It is investing in
the profits of speculation, not the profits of enterprise. So, we've got to get
back to thinking about economies, not in terms of financial systems, but
thinking of financial systems from the standpoint of physical, economic systems.
The idea that profit comes from financial trade, must be abandoned. It's
immoral. We must define profit, not in terms of financial profit. Because
whatever happens, the present financial system will cease to exist. Some people
will be very happy, because finally there will be a tabula rasa, where
there was once a financial system. It's the only tabula rasa which is
ever likely to exist.
What do we start with? We start with man.
What is economy? It's not financial systems. Governments can
create and destroy, eliminate financial systems overnight, by an act of will.
The government makes the appropriate law, and the financial system disappears.
The government makes a new law, and a new financial system comes into being. We
did something similar at the end of World War II. We eliminated whole
currencies, and started new ones. We wiped out whole financial systems, and
created new ones--in that case, for Europe and the United States, up until 1966,
that was pretty successful. Soon, we are going to have to do that again--very
soon. You have to set new rules, new monetary and financial rules, and it will
work. But, what makes it work?
Real economy starts with man. Now, contrary to some pagans,
man is different than animals. Man is the only creature which is able to change
its power in and over the universe, by will. No other species can do that. Only
the human individual mind can do that. We call this human reason. Progress of
humanity has always depended on discoveries which always are made by individual
minds--discoveries of universal principle. These discoveries have been
re-experienced and shared by other human beings. By discovering and validating
new principles, we increase man's power, per capita, in the universe. Therefore,
by increasing man's power over nature, through the discovery and transmission
and cooperation in the practice of these ideas, man is able to improve his
condition on this planet and in the universe.
The Modern Nation-State
The specific genius of modern European civilization, as
extended to a large degree throughout the planet, is expressed by a curve of
rising population density and standard of living which began in Italy in the
Fifteenth Century. From Italy it went to France under Louis XI. Louis XI
established the first modern European nation-state. He created modern France,
because he adopted the principle which we call in English, the general welfare,
which is called otherwise in English, the commonwealth. He accepted the
principle, and introduced that there is no form of government which has moral
legitimacy under natural law, except governments which are efficiently committed
to promoting the general welfare of all of the people and their posterity--the
example of the success of Louis XI, who doubled the national income of France,
physical income, during his 20-odd years of rule. It was copied in England,
where they eliminated the Wars of the Roses under Henry VII, and introduced the
great Erasmian reforms in England in that period, which were based on the same
Since that time in Europe, the tradition of the legacy of the
Italian Renaissance, and its effects on England and France and elsewhere,
inspired people to believe that it was possible for the state to perform this
kind of function. Instead of a few people, as an oligarchy, controlling many
people, as human cattle, now the state becomes responsible for the welfare, the
improvement of the condition of life and development of each individual person.
When it became difficult for Europeans committed to this principle to realize
this form of state in Europe, they placed increasing emphasis on the promotion
of new republics of this form in the Americas, both South America and North
America. The United States was created by the 1776 Declaration of
Independence, based on these principles, as expressed in the first three
paragraphs of the Declaration of Independence. If we look at a very simple test,
the growth of population, the improvement of demographic conditions of life, per
person and per square kilometer of area, since the Fifteenth Century, this is
the greatest revolution in human progress in all known human existence
Thus, if the nation-state, and cooperating nations, are
committed to this principle of promoting and realizing the discovery of new
physical principles and their application, there is no limit to the improvement
of the human condition.
In every society so organized, each individual person is
recognizable as an immortal personality, as well as a mortal being, because the
ideas, the discoveries of principle which are the power of human beings, which
make man in the likeness of the Creator, are thus not only present, but are
expressed in the individual personality and the individual personality's
relationship to not only presently living people, but also to the past and to
the future. This applies not only to the history of scientific discovery, it
applies to Classical artistic principles. It is through Classical artistic
principles, and the improvement of language to reflect the benefit of Classical
principles, that the ability of human beings to cooperate and to improve their
cooperation in an effective way, becomes possible.
A Naturally Cooperative Relationship
Profit, therefore, in physical terms, is a commitment to a
margin of net improvement in man's power in and over the universe, for this
benefit, for the general welfare. In the American System, as defined by Benjamin
Franklin, and Hamilton, and people like that--Lincoln, and I--there's no such
thing as a "state enterprise" or a "private enterprise." Rather, there is a
cooperative relationship, a naturally cooperative relationship between true
private entrepreneurs and states which provide basic economic infrastucture. The
responsibility of the state for the general welfare, means the state must take
care of all of the people and all of the land area. And, no individual
enterprise or consort of individual enterprises is capable of such a function.
The management of land and water, the improvement of schools and health systems
and things of that sort, are the moral responsibility of the state, and cannot
be seconded out to merely private enterprises. The function of the private
enterprise is to promote the general welfare through the ingenuity of the
private entrepreneur. The scientist-engineer who owns a firm, who makes an
improvement; the farmer who improves the methods of agriculture, and so
forth--this is the proper area of private enterprise. The state cannot privatize
its responsibility for the general infrastructure. It would be immoral to do so.
Privatization of that form is intrinsically immoral, as a matter of natural
However, to the same degree, the government must protect the
opportunities of the entrepreneur to make a true entrepreneurial contribution to
the general welfare. Among the things which are most important for the public
area, is the promotion of the quality of education, which promotes Classical
culture, Classical cultural conceptions in language, and Classical science, and
commits the society to base its hope on improved prosperity on the benefits of
using Classical culture's influence on the cooperation among persons in order to
promote scientific and technological progress, per capita and per square
kilometer of land area. That is the proper moral function of the
Now, I'll come to my concluding point.
Since we have to make an emergency decision soon, and since
we must convince many people to support those decisions, we must keep our
radical changes to a limited amount. At leisure we can make other improvements
later, but the form of the emergency action to be taken on short notice must be
relatively simple and clear. Therefore, the best model we have available that's
appropriate, that people know about, is the example of what was done by Europe
and the United States during the period from the close of the war into the
middle of the 1960s. The system of fixed exchange rates and protectionism, which
is characterisic of the period 1946 through 1958 in particular, is the model
which is required as an emergency basis for the crisis we face today. The
difference is, that today, unlike 1946, we must carry the policy to the degree
that President Franklin Roosevelt had intended for the postwar period, before he
died. Which comes back again to the Jubilee question.
President Roosevelt had intended, as he warned Churchill,
that at the end of the war, the United States would use its power to ensure that
there was the instant dissolution of all colonial systems: Portuguese, Dutch,
British, and French. When Roosevelt died, London's 10 Downing Street took over
U.S. foreign policy. This process was completed before Roosevelt was in his
grave. This time, we must do what we did in 1945-1946 on monetary reform to
rebuild a war-torn, ruined planet. This time, we must create a just world
economic order, as Roosevelt had intended.
This means that groups of developing nations must have equal
authority in the revised monetary system. This is not merely a matter of
formalities of law. The issue here is, the world is now in a very dangerous
situation, demographically. Presently, the planet--as in India, as in China, as
in Southeast Asia, as in Africa, and so forth--we have a war-torn, strife-torn,
impoverished world, in which nations presently are not able to sustain
acceptable qualities of life for the individuals who are now living.
For example, take the question of Middle East peace, which is
now in jeopardy. Now, there can be no peace in the Middle East, because there's
not enough water available for everyone. A decent standard of life does not
exist in the Middle East unless there's adequate water. The water does not
presently exist, and will not exist. But nonetheless, we in the advanced nations
have the technology to enable the Middle East to produce fresh water in
sufficient quantities, and quality, to meet not only the needs of the present
population, but to transform the desert gradually into a prosperous area of
growth--as in the Mezzogiorno, or in central Sicily. Sicily was once a very
prosperous area. We have the technology and know-how to do it again: bring back
a semi-desert area into a prosperous area of agricultural habitation.
So, with the aid of the technology which we in the United
States, Europe, and Japan, and to some degree the former Soviet Union, have, if
we turn that technology and continued progress into an engine of technological
progress, we, of nations which were traditionally the more economically
developed, can aid the nations which were more poorly developed, to develop true
equality, through long-term credit, to provide them with our sale to them of the
technology they need, without which they can not meet the requirements of their
own populations. This is true in the western area of China, this is true in
India today, this is true in Africa, it's true in the Middle East and elsewhere.
Therefore, we must have a twofold, simple policy for emergency action. Other
improvements can come once we have started on the emergency action. Then, the
parliamentarians can have time to discuss those things.
But, we must have immediate executive action to deal with
this crisis. There are two things: the question of the form of the
reorganization, the emergency reorganization--the experience of the United
States and Europe from 1945-1946 into 1958-1966 is a good example of what that
must be, the form. But, it must include a just participation of the so-called
developing nations, not just the so-called advanced ones. Secondly, we must
accept a long-term mission, of at least 30 years to begin with. The new monetary
and financial system of sovereign nation-states, must use the power of the
nation-state to generate on this planet a mass of tightly regulated credit, at
low prices, with the purpose of extending credit of up to 30 years, for
long-term infrastructure development, and in the short term for actual private
entrepreneurial development, on a global scale. A global enterprise which means
the promotion of scientific progress, at an accelerated rate. And also, the
transformation of this planet, so that the discrepancy, the moral discrepancy,
between the poor of the world, and the nations which are more stably
provided--that must end. We must bring global justice at last, if we wish to
have a world in which there are sovereign nation-states which live at peace with
one another, for the common benefit of all mankind. Thank you.