The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets

195 Pages·1999·18.859 MB·English

by  David E. Spiro

The Hidden Hand ofA merican Hegemony
A volume in the series
Cornell Studies in Political Economy
EDITED BY PETER]. KATZENSTEIN
A full list of titles in the series appears at the end of the book.
The Hidden Hand
of American Hegemony
PETRODOLLAR RECYCLING AND
INTERNATIONAL MARKETS
E.
DAVID SPIRO
CORNELL UNIVERSITY PRESS
Ithaca and London
Copyright© 1999 by Cornell University
All rights reserved. Except for brief quotations in a review, this book, or parts
thereof, must not be reproduced in any form without permission in writing
from the publisher. For information, address Cornell University Press,
Sage House, 512 East State Street, Ithaca, New York 14850.
First published 1999 by Cornell University Press
Library of Congress Cataloging-in-Publication Data
Spiro, David E.
The hidden hand of American hegemony : petrodollar recycling and international
markets I David E. Spiro
p. em.-(Cornell studies in political economy)
Includes index.
ISBN 0-8014-2884-X (cloth: alk. paper)
1. Balance of payments--Arab countries. 2. Investments, Arab. 3. Petroleum products
Prices. 4. International finance. 5. Organization of Petroleum Exporting Countries.
6. International Monetary Fund. 7. United States--Foreign economic relations. I. Title.
II. Series.
HG3883.A67S64 1999
381 '.17'0973--dc21 99-22900
Cornell University Press strives to use environmentally responsible suppliers and
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include vegetable-based, low-VOC inks and acid-free papers that are recycled, totally
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further information, visit our website at www.cornellpress.cornell.edu.
Cloth printing 10 9 8 7 6 5 4 3 2 1
This book is dedicated to my teachers,
Jr.
Robert G. Gilpin and Robert C. Tucker.
They provided me with intellectual capital,
and I am recycling the interest.

Contents
Preface 1X
l. Explaining Petrodollar Recycling 1
2. Defining the Principles of Allocation 19
3· Making Markets Work 49
4· The Failure of International Institutions So
5· Competing for Capital 103
6. The Interpretation of Hegemony 127
Works Cited 159
Index 169
vii

Preface
G. K Chesterton once wrote, "It is the test of a good religion whether
you can joke about it. "1 In 1974 , U.S. Treasury Secretary William Simon
was putting Islam through its paces. He flew on a government plane to
Saudi Arabia to meet with the minister of finance because he was wor
ried about the future of the international financial system and the place
of the United States in it. Simon had put an extremely violent video on
the in-flight movie system and he was laughing uproariously while con
suming prodigious amounts of whiskey. Alcohol is illegal in Saudi Ara
bia, though drinking it might seem the national pastime to a new visitor
in the Kingdom. Ministers of state are not supposed to roll off their
planes drunk, but according to another government official on the trip,
that is just what Simon did.
In 1974 the financial problems facing the U.S. secretary of the trea
sury were enough to drive any level-headed soul to his cups. The federal
government was running an ever-increasing budget deficit, and it was
Simon's job to finance it. By the end of the year the Treasury was "pre
empting 62 percent of the debt markets in this country," and Simon
called the cost of paying interest on the national debt 'just frighten
ing."2
At the same time, the price of oil was getting higher and higher. Fi
nancial markets were in danger of collapse, partly because of new in
flows of capital from oil-exporting nations. "The strains could be re
lieved," Simon thought, "if the ... OPEC nations put a larger amount
1 "Spiritualism," p. 149· I thank "The Quotemeister" at the American Chesterton Soci
ety (http:/ /www.chesterton.org) for tracking down the source.
2 U.S. Congress, Senate, Committee on Finance, Economic Implications, pp. 18, tg, and
24·
ix