Lyndon LaRouche on a Basket of Commodities and Beyond

The proposal made by Russian economist Sergey Glazyev is extremely important, and cannot be simply reduced to a “de-dollarization”, or a “replacement” of the dollar in international trade and as a reserve currency. What Glazyev presents above is nothing less than a credit system and is very similar to proposals for a reform of the international monetary system made by the late American economist Lyndon LaRouche. LaRouche insisted on the distinction between a mere “monetary” system, in which currency is used as a commodity, and a “credit” system, in which currency is subordinated to the capacity of the system to issue credit for development. Since a monetary system is incapable of generating credit, it is inherently unstable and produces recession and inflation. A credit system, by pegging the value of a currency to physical productivity, is a characteristic of healthy, prosperous economies.

Whereas Glazyev’s proposal goes in the right direction as concern the policy that the BRICS-centered alliance of nations must adopt in order to promote integration and development among themselves, we must not forget that many of those nations have major trade relations with the U.S., the EU, the UK, Japan and other nations, trade which is denominated in dollars, euros or yens. Therefore, those currencies will continue to have a role in international trade. Since it is not acceptable to have a world divided into blocs that wage commercial and financial warfare against one another, it is indispensable to think about how the principles of the emerging BRICS-centered new paradigm of development must be adopted by the West.

In his 2000 essay On a Basket of Hard Commodities: Trade Without Currency, LaRouche addressed the proposal to replace the bankrupt, dollar-centered financial system with a system based on a basket of currencies. LaRouche warned that “as long as the IMF system, and its related attributes exist in their present form, the attempt to use a ‘basket of currencies’ as a substitute for the kind of role performed by the 1945-1963 U.S. dollar is not a remedy but a trap”.

LaRouche then proposed two steps: first, to create regional blocs around institutions to protect from the worst consequences of the inevitable collapse of the system. One such proposal was to create an Asian Monetary Fund to promote “measures of hard-commodity forms of combined trade and long-term capital improvements among Asian nations”.

Secondly, to wipe out a large part of global financial assets, based on derivatives and similar speculative claims, and to reorganize the system so as to provide credit to “resume and maintain levels of employment, consumption, and production, especially in hard-commodity categories” and to maintain rates of net growth in hard commodities and related infrastructure.

This would mean that “many among the world’s leading currencies will have to be either simply wiped from the accounts, or put through bankruptcy-reorganization under the authority of a new world system”. LaRouche proposed that a new system, based on a “basket of commodities”, should be created, such as that notion “implicitly underlies the relative success of the 1945-1965 fixed-exchange-rate monetary system”.

“So, in a situation in which the hard-commodity content among currencies is fluctuating, one has still the option of constructing a synthetic unit of account which is based upon an agreed basket of hard commodities. Thereafter, as currencies fluctuate, it is the currencies not the commodities, which are given implicitly adjusted values, as based upon the basket of commodities used to define the unit.”

However, LaRouche went further, and enlarged the notion of “commodity” in a dynamic way. Consider, he wrote, “combined market-baskets of economic infrastructure (such as public works), combined with household consumption and with technologically progressive, hard-commodity forms of increasingly capital-intensive investments in capital goods of production and physical distribution, increases the relative productive powers of labor, as this is to be measured, in physical product, per capita and per square kilometer. It is that factor of rate of growth, as expressed in hard-commodity terms, which defines the appropriate notion of assignable economic value.”