The purpose of the system

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Original Article: The purpose of the system

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If I were to suggest that we do not have an energy crisis, you would no doubt wonder exactly what type of mushrooms I’d put in my risotto. Nevertheless, please bear with me for a moment while I explain. While it is certainly true that the UK (and Europe) is currently experiencing eye-watering rises in the price of gas, electricity, petrol, and diesel, this is not – at least not yet – the energy crisis that I have been writing about on this blog for close to a decade. What we are currently experiencing is the final economic crisis of the neoliberal system… expensive energy is merely the rocky nemesis upon which the neoliberal ship is being torn apart.

The result of the immediate crisis is that we see people grasping for easy but wrong explanations for why things have gone so bad apparently so rapidly. “Putin’s energy shortages” seems to be the preferred explanation for the establishment media. “Brexit,” is the inevitable scapegoat for the 10 percent or so who insist on blaming everything on Britain’s decision to leave the European Union. The cry of “greedy energy company bosses!” grows ever louder as the impact upon the poorest becomes more evident. But these are merely symptoms and misdiagnoses of the collapse of the current economic and social system.

To understand this, we need to go back half a century to the crisis of the 1970s, the breakdown of the post-war consensus and the ensuing battle of ideologies. The crisis itself stems from the combination of the failure of the 1944 Bretton Woods monetary system, which created a massive dollar shortage across the western economies, together with the end of the US position as the world’s swing producer of oil. The landmark events being the German and French decision in 1969 and 1970 to settle balance of payments accounts in gold rather than dollars – a process that created inflation in the USA. The August 1971 decision to take the dollar off the gold standard – thereby exporting the inflation back to Europe. The 1970 peak of US oil production. The October 1973 OPEC oil embargo – which forced the price of oil up, thereby increasing the price of everything made from or transported with oil.

The two – erroneous – contesting ideologies of the period were developed in response to the failure of gold-backed currencies in the aftermath of the First World War. Neither had any understanding of the key role of energy in the economy. Nor did they have much understanding of how currency is created in a fiat system. The incumbent “Keynesian” ideology had held that the way to maintain economic growth and full-employment was for governments to act as investors and consumers of last resort – printing and investing or spending new currency into the economy in order to increase consumer demand and to improve the productivity of the industrial base. This approach appeared to have considerable success in the aftermath of the Second World War, where the massive dollar printing in the Marshall Aid program helped usher in a spectacular period of economic growth. As historian Paul Kennedy explains:

“The accumulated world industrial output between 1953 and 1973 was comparable in volume to that of the entire century and a half which separated 1953 from 1800. The recovery of war-damaged economies, the development of new technologies, the continued shift from agriculture...

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