The Big Picture I

This article first examines the United States’ gradual rising dynamics after World War II, and how it became the sole superpower of the world after the collapse of the USSR. The threats that it is facing, its current politics on the world, (Iraq War,Afghanistan, etc...) and the reasons why the US's "superpower' role must end, will be explained according to Power Transition Theory, Balance of Power Theory and Quantity Theory of Money.

The United States took the first steps of economic globalization by Breton Woods System (1944), which was an international monetary management in order to regulate the economic relations among its allies. By Breton Woods American dollar has been accepted as the reserve currency. After the World War I and Great Depression the European countries were devastated by the war and their economies were in bad situation and were instable. By Marshall Plan, in 1947, The United States offered up to $20 billion for economic recovery, but only if the European nations could get together and draw up a rational plan on how they would use the aid.1Further more Breton Woods and Marshall Plan ended English currencies dominance on the world. In addition to Breton Woods and Marshall Plan, foundation of the World Bank also enabled the U.S to inject dollar, to developing countries by providing advices and funds with reasonable interest rates and thus to expand its influence on every part of the globe. Soon the American dollar became the reserve currency in world trade. Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Breton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat.2

According to The Federal Reserve Board, recent estimates show that between one-half and two-thirds of the value of currency in circulation is held abroad. Some residents of foreign countries hold dollars as a store of value, while others use it as a medium of exchange. Besides from 1995 to 2005, the value of currency in circulation increased 89.0 percent to $758.8 billion, which represents an average annual growth rate of 6.6 percent.3 In short, dollar became a hegemonic power to rule and reshape the world in the game called “capitalism”. Henry C. K. Liu, elaborates the dollar domination very well. According to him:

“World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.”

In an economy there is a direct relationship between the quantity of money and the level of prices of goods and services sold. According to Quantity Theory of Money, a rapid increase in money supply leads to a rapid increase in inflation. Money growth that surpasses the growth of economic output results in inflation as there is too much money behind too little production of goods and services. In order to curb inflation, money growth must fall below growth in economic output.4

Since Nixon administration took the dollar off the gold standard, as mentioned above, it is neither fixed to gold nor has the equivalent good or services in the country. For this reason the American dollar’s value is only but only fixed to the stability of the United States. Any attempts to destabilize it, will also have instable effect on its currency as well. Thus economic and political issues are highly intertwined.

After the decline of the USSR in 1991, the United Sates became the superpower of the world and had an opportunity to expand the free markets, thus to be able to influence new territories. Soon economic superiority enhanced its political and military strength. Today economically, politically, militarily and technologically the hegemony of the United States is beyond debates.

According to Organski (World Politics, 1958), international system is in a hierarchic structure that looks like a pyramid. The strongest state is on the top of this pyramid and is called “dominant power”. The dominant power has the largest proportion of power resources (Economic, political, cultural and technological). There are also a collection of “great powers” which can be or may be the rivals of the dominant power. “Middle powers” follows the great powers in the hierarchic system and finally “small powers” come after the middle powers. These dominant powers, or hegemons, commonly arise and use their power to create a set of political and economic structures and norms of behavior that enhance the stability of the system at the same time that they advance their own security.

In other words, this state is interested in maintaining the "status quo" of the international system. Organski and Jacek Kugler defined status quo states as those that have participated in designing "the rules of the game" and stand to benefit from these rules. Challengers, or "revisionist states”, want "a new place for themselves in the international society" commensurate with their power. Revisionist states express a "general dissatisfaction" with their "position in the system", and they have a "desire to redraft the rules by which relations among nations work". At this point, Power Transition Theory (PTT) presumes that there should be counterbalancing and challenging powers against The US hegemonic power.

Today, there is neither a state nor a group of states considered as superpower or an equivalent of the United States in order to counterbalance it. However, as Power Transition Theory points out the world politics are creating alternative powers to counterbalance the imbalanced world. Counterbalance of a hegemonic power is presumed by balance of power theory as well. According to this theory, serious threats of hegemony are a sufficient condition for the formation of a blocking coalition, which leads either to the withdrawal of the threatening power or to a hegemonic war. (Levy,Jack The Causes of War and Conditions of Peace, Annual Review Pol. Sci. 1998,1:139,65) These blocking coalition, counterbalancing powers, are serious threats to the preeminence of the hegemonic powers and what if they are not controlled immediately the unipolar system will be replaced with bipolar or multipolar systems, which ever balances the world, in the cost of severe, hegemonic wars.

In short the Balance of Power Theory, Power Transition Theory, and Quantity Money Theory, indicate that the role of the US as the “World’s Policeman” will end soon. The European Union (EU) and Shanghai Cooperation Organization are two potential threats to the US to succeed this end; because they have the capability of cracking the globalization. Globalization is, simply, the accumulative results of those rules that strongest power set to get benefit from. In addition to Shanghai Cooperation Organization (SCO) members and the EU countries, there are several unions and countries that are showing their dissatisfaction with the status quo. Iran, Venezuela Sudan,Syria, are a couple examples. Since all the dissatisfied countries have the same end, to get a better allocation of resources and a better position in the hierarchy, they all take steps towards common policies among each other against the dominant power. The logic behind these polices is, the enemy of my enemy is my friend. The current debate between Bush and Putin over missile shield in Poland or the China’s first satellite destroyer missile in the space and Iran's nuclear enrichment activities are the signals from “challenging powers” to the dominant power. Thus, the challenger powers desire to end the unipolar world system and create a new system which will let them have a better position, in the ranks of in international arena (pyramid) and get more resources from the reallocation of the natural sources on the world.

(To be continued....)