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Why this economic war on Russia breaks all rules of the game

The 'great expropriation' will come to be regarded as a turning point — one which the great powers of the world will likely regret.

Analysis | Europe

The setting is a time near the end of the world. An earnest officer of the Royal Air Force, detailed to an American airbase in the Southwest, is trying to make a call to the president of the United States. It’s urgent. The commander of the base went mad and launched a nuclear attack on the Soviet Union. The officer must riddle a Coke machine with gunfire in order to get the coins to pay for the call. Do it for me, says the Brit, Captain Mandrake. No can do, says the U.S. soldier. “That’s private property.” 

I don’t want to spoil the plot, but Mandrake did ultimately get those coins and got the president on the phone. It was all going to work out swell until it didn’t. Then the world ended.

Private property! What a joke. One tiny moral of the story from Dr. Strangelove is that there are times when it is permissible to break the rule forbidding theft, as Mandrake observed to the dolt he was talking to. However, the American army officer, played in wonderful deadpan by Keenan Wynn, had a point. In the American creed, you weren’t supposed to do this sort of thing, ever. You should no more take another person’s property than you should take another person’s life. Respect for private property was an essential part of the compact that makes citizens respect their government. Ensure that our rights are respected, it was once said in unison; then we shall happily obey you. The same rule held for the law of nations, which gave protection to both private and public property, as inhering separately in individuals and nations.   

In the Declaration of Independence, Jefferson somewhat mischievously identified “life, liberty, and the pursuit of happiness” as the irreducible core of man’s natural right, which governments were instituted to secure. He might have said property, as John Locke had done, for everyone understood at that time, including radicals like Thomas Paine, that the protection of property rights was a central task of government. Alexander Hamilton, Jefferson’s adversary on so many points, was yet more emphatic on the point that the protection of property fell to government as naturally as did its obligation to punish crimes against the person. 

Hamilton is mostly known today as the star of a fabulously successful Broadway musical. He was Secretary of the Treasury when the new government started out, but his influence under George Washington’s administration touched everything, especially foreign affairs. In 1795, he was down but not out. He had resigned from the Treasury. His wife Eliza had suffered a miscarriage. He was deeply embarrassed by scandal (Ave Maria, baby), of which his political enemies knew, but not at that time the public. 

From this unhappy state he reemerged like a sea god into the public arena. He wrote a series of newspaper articles, the length of a fat book, in defense of the Jay Treaty, recently concluded with Great Britain. Hamilton astonished his adversaries (Thomas Jefferson and James Madison) by his methodical destruction of their point of view. For them, it must have seemed like being put under an artillery barrage, pounded each successive week by Grotius, Pufendorf, and Vattel, as Hamilton never left any point without examining it every which way, refuting all possible objections. 

In the course of this amazing performance, which still gives me a tingle, Hamilton was trying to explain why he regarded war as an especially dangerous recourse in America’s then-current state of affairs. The biggest danger, he wrote, was that grotesque violations of our rights would flow from the “fermentation of certain wild opinions” induced by war. In that event, “those wise, just, and temperate maxims, which will for ever constitute the true security and felicity of a state, would be overruled.” A “war upon credit, eventually upon property” would ensue. “The confiscation of debts due to the enemy, might have been the first step of this destructive process. From one violation of justice to another, the passage is easy. Invasions of right, still more fatal to credit, might have followed.” 

If the modern reader is following along, Hamilton is saying that the confiscation of the enemy’s property in war is a grotesque violation of justice and that invasions of justice are fatal to credit and reputation. Hamilton thought that such transgressions might happen if the United States were in a war. Little could he have imagined that the United States, in distant times, would do that before the war. 

The recent act of “the West” — governments and central bankers in league and in unison — to expropriate what Biden called “Putin’s $630 billion war fund” is really off the charts by way of economic warfare, something that just wasn’t done in the 18th and 19th centuries, even in terrible extremities. Debts were paid, even to cretins. The reputation for trustworthiness was the banker’s most precious asset, and it became the creed of nations. Only by an authoritative legal process, governed by the law of nations, might someone else get their hands on your stash. 

In the three centuries before 1914, beginning the age in which all restraints in war, military and economic, were obliterated, such a default was seen in “civilized Europe” as equivalent to the method of “the barbarian” — "we like, we take.” But not only by them. Vigorous shakings of the head in disapproval would also have come from the Princes of Africa, the Sultan of the Turks, the Kings of Persia and China, the Great Mogul of India, the Grand Duke of Moscovy, the Emperor of Ethiopia (Prester John), the rulers of Japan and Morocco, and the Khanate of Crimea. 

Weighing in to similar effect in the 19th century would have been the British Parliament, the American Congress, the German Diet, and the French Chamber of Deputies. To the proposition that great financial contracts could be broken at will, they would say, why, sir, such an arrogation betrays “a wilderness of powers, of which fancy, in her happiest mood, is unable to perceive the far distant and shadowy boundary. Armed with such a power, you may achieve more conquests over sovereignties not your own, than falls to the common lot of even uncommon ambition.” 

The commentariat treats this Vast and Unprecedented Expropriation, this Financial H-Bomb, alongside things like sanctioning Putin’s niece as just parts of a generic class of “sanctions,” as if they were two peas in a pod, when the Central Bank Expropriations are a revolutionary stake into the heart of the global economic system. They will one day be seen as hurtling us to a new monetary order, distinguished across the East-West divide by a rabid neomercantilism, wealth-destroying but inexorable.

In name the central bank actions are a freeze, but in actuality they constitute a debt repudiation, a default, on a far bigger scale than anything engineered by the Bolsheviks, who put the debts of the Tsar to the torch when they came to power. 

The situation is made all the more incredible by two facts. First, the contemporary default occurred at the center of the financial order, not at its periphery. That makes it staggering and unlike any other. Second, it was cooked up in a couple of hours by U.S. government staffers. Previous discussions of sanctions had always treated Russia’s removal from SWIFT as the Absolute Weapon. The Great Freeze on Russian assets never made it into the press.

Our leaders in thought and action, the ones at the top of the political and financial and corporate media hierarchy, violated the first rule, the indispensable rule, the rule on which our grand financial edifice was built. Full faith and credit wasn’t just a phrase; it was a way of life. The idea of it, a new model of civilization, generated rules that most princes and peoples came to respect. No more. 

The commentariat is oblivious to what would have been the first thought of people from these distant ages. The commentariat is like, hey, it’s the 21st century and we control the pixels and we’ll deal with the consequences later. 

Cassandra would like to say in reply: the Great Expropriation will come to be regarded as the financial equivalent of Operation Barbarossa, which sowed terror in all that lay in its path but which created through overextension and hubris the basis for its subsequent reversal. Our leaders, our “oligarchs,” have not necessarily shot themselves in the foot with these measures, but they have definitely shot their peoples in the foot, and they do not seem to care. 

Screenshot from the movie, Dr. Strangelove (1964 Columbia Pictures)
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