Capitalist production is based on the world market. To understand the laws governing the capitalist system, one must understand those governing world trade. The orthodox or neoclassical theory of foreign trade is based on the theory of comparative advantage. [See “World Trade and the False Theory of Comparative Advantage” and “Comparative Advantage, Monopoly, Money, John Maynard Keynes, and Anwar Shaikh”]
The theory of comparative advantage holds that in national trade: the industrial capitalist with the lowest cost price when producing a commodity of a given use value and quality prevails in competition. In international trade: the capitalist with the comparative advantage prevails.
The view that different laws govern national and international trade precedes neoclassical economics. The originator of this theory is the classical British economist David Ricardo, who formulated the comparative law more clearly than neoclassical economists. This is because of his labor-based theory of value, where the value of a commodity of a given use value and quality is determined by the quantity of labor necessary to produce it.
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On August 8, former U.S. President Donald Trump announced that the FBI was searching his luxurious palace-like mansion in Mar-a-Lago in Palm Beach, Florida. Trump wasn’t in Mar-a-Lago. He was in his Trump Tower residence high above Manhattan in New York City, another one of his many residences. Trump claimed he observed the FBI search live on close circuit TV. The FBI raid was ordered by U.S. Attorney-General Merrick Garland. President Joseph Biden claimed he didn’t know about the raid in advance.
The search warrant, soon made public with redactions, is a legal document U.S. police agencies — in this case, the FBI — need for a legal search without the approval of the person who is being searched. According to U.S. law, to obtain a search warrant, the police agency conducting the search must convince a judge — in this case, a federal judge — that there is probable cause of a crime. The alleged crimes being investigated center on Trump’s possession of secret documents with various degrees of classification. Documents with high degrees of classification are documents whose contents are hidden from the American people and everybody else, except for certain high-ranking government officials, for “national security” reasons.
The classified documents allegedly stored at Mar-a-Lago without authorization might include military secrets (including those of nuclear weapons), as well as information, if made public, embarrassing to powerful people. They are supposed to be stored in highly secure government buildings — it’s a crime to hold them in a private residence or other unsecured location. Only Trump and a handful of government officials know what’s in them.
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The U.S. Supreme Court’s decision on June 24, 2022, to strip women of their right to abortion dominates the news. The Court overturned its 1973 Roe v. Wade decision establishing abortion as a constitutional right. The other event dominating U.S. politics was the congressional hearings into the events of January 6, 2021. These issues unfold against a background of high inflation, a looming recession, and disastrously low approval ratings for President Joseph Biden. On July 11, The New York Times/Siena College poll gave Biden a 33% approval rating. The same poll showed only 26% of Democrat voters support his renomination for a second term.
Democrats, appearing likely to lose control of the House and maybe the Senate, hope to recoup power by making abortion a prime issue. A bill to make abortion rights a federal law has gone nowhere. Democratic Senators Joseph Manchin and Kyrsten Sinema refuse to suspend a Senate rule that effectively gives the Republican Party veto power over all legislation, the filibuster rule. Democrats hope the outrage felt by women and many men over the Supreme Court decision will cause them to vote Democratic in the November congressional elections. These elections will determine the make-up of Congress for the final two years of Biden’s term.
However, attempts by Democrats to profit from the outrage over the Court decision were undermined when it was revealed Biden made a deal with Senate Republican leader Mitch McConnell to nominate anti-abortion Republican Chad Meredith to a lifetime federal judgeship. This deal — though it appears to have fallen through — is typical of Biden’s 50-year-long political career. As a young Senator, Biden played a crucial role in securing Senate approval of Republican President George H.W. Bush nominee Clarence Thomas to a lifetime position on the Supreme Court. Thomas joined the Court majority in throwing out the right of abortion as a constitutional right.
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In June 2022, the news in the United States was dominated by two stories. One was the decision of the Federal Reserve System to raise its target for the federal funds rate by 0.75%. The new rate range is between 1.50% and 1.75%. The second story broke the same week: The congressional hearings into the events of January 6, 2021. On that date, a right-wing mob, supported and inspired by President Donald Trump, broke into the U.S. Capitol. It was an attempt to force Congress to reverse the 2020 presidential election results. Is there a connection between these two? Yes, even if it isn’t a direct one.
Let’s begin with the Federal Reserve story. For most people, Federal Reserve operations are a mystery. The federal funds rate is the interest rate charged on overnight loans that U.S. commercial banks make to one another. The law, as well as financial prudence, require commercial banks to maintain a certain minimum of ready money to cover their deposit liabilities. Many are surprised to learn that under the fractional reserve system, commercial banks maintain only enough cash on hand to redeem a small portion of the money the public has on deposit. If all depositors were to try to withdraw all their money at the same time, every bank would fail. The reason? Most of the money on deposit does not represent actual cash in the form of legal tender — bills and coins — but is imaginary money created by the banks themselves through their loans and discounts. To prevent collapse, a minimal cash amount backs up deposit liabilities.
Commercial banks are for-profit enterprises. To maximize profits, cash on hand is kept to a minimum as it earns no interest. To put it in more scientific terms: The cash commercial banks must keep on hand to redeem deposits does not entitle the bank’s shareholders to a portion of the unpaid labor — surplus value — performed by the working class.
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According to Russian Foreign Minister Sergey Lavrov, the “collective West” launched a “total hybrid war” against Russia. The shooting war in the Donbass and Ukraine is only part of it. Thousands of dead Ukrainian and Russian soldiers are bad enough. But this is only the beginning of the story. The disruption of trade as well as grain and fertilizer production — of which both Russia and Ukraine are critical suppliers — is threatening to create global food shortages and, in some areas, full-scale famine. Food shortages bring death to people of the Global South and beyond. Deaths occur not only from starvation but also from weakening immune systems making them more susceptible to COVID and other infectious diseases. But the biggest threat is that it could end in nuclear war. What has led to this dangerous, disastrous state of affairs in the relationship between the two powers?
Anyone who has taken college-level economic courses has run into the theory that claims that comparative advantage, not absolute advantage, rules international trade. This theory holds that free trade is equally in the interests of all nations regardless of their degree of economic development. Yet the governments of underdeveloped nations showing any independence from imperialism often follow policies neoclassical economists call neo-mercantilist. Comparative advantage supporters claim that such policies are harmful to both developing and developed countries alike.
Left-wing economists who reject neoclassical economics generally support neo-mercantilist policies for developing countries. These economists learned the theory of comparative advantage from neoclassical teachers. But, unlike orthodox neoclassical economists, they admit the law of comparative advantage doesn’t work out as the textbooks say it should.
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Three factors shape the current global economic conjuncture.
The first is the sluggish but long rise in the capitalist global industrial cycle following the world economic crisis of 2007-09. This rise continued until February 2020.
The second factor is the worldwide COVID-19 pandemic that shut down large parts of the global economy and world trade in 2020. This sent unemployment rates into double digits. The West’s capitalist governments increasingly treat COVID-19 as endemic rather than a pandemic. Shutdowns are over and even mask-wearing is becoming a thing of the past. But the virus continues. On-and-off shutdowns continue in the world’s leading manufacturing nation: China.
The third factor is the global economic and financial war launched by the U.S. world empire against Russia. This war was formally launched in response to the Russo-Ukrainian war, ongoing since the U.S.-supported right-wing Euromaidan coup in 2014. It entered a new stage with Moscow’s launching of a special military operation on Feb. 24, 2022. The war had already taken about 15,000 people’s lives before the military operation began. Fighting was limited in recent years, but in the weeks leading up to Feb. 24 Kiev stepped up shelling the Donbass. All indications are Washington encouraged its puppet Euromaidan government to launch an offensive to crush the ethnically Russian People’s Republics of Lugansk and Donetsk.
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As I write these lines the Russo-Ukrainian war is entering its second month. The main fighting is in the Donbass region. The Russian military is attempting to encircle and destroy a Ukrainian army spearheaded by the fascist Azov brigade, variously estimated as between 50,000- to 100,000-strong. Russia also sent ground forces toward Kiev, the Ukrainian capital, with no attempt to storm and seize the city. Kiev is revered by Russians, Belarusians and Ukrainians alike as the city of origin of their respective nations.
Putin indicated Russia does not want to occupy or rule Ukraine. Russia has been fighting a limited war. Its demands are that Ukraine acknowledges the independence of the Lugansk and Donestk People’s Republics as well as Russia’s claim to Crimea. Before 1954, Crimea was never Ukrainian. Since the 19th century, it’s had a Russian majority. Russia further demands Ukraine stay out of NATO, be demilitarized, not acquire nuclear weapons or allow NATO to put nuclear weapons or other weapons of mass destruction on its territory, disband the fascist militias operating there and recognize the rights of Russian-language speakers.
Russia hopes to negotiate a peace treaty with Ukrainian president Volodymyr Zelensky’s government meeting Russia’s basic demands. At the start of the war, Russia opened peace negotiations. It would not have done so if it intended to occupy and rule the entire country. Additionally, on March 29 Russia announced as a measure of good faith that it was scaling back, but not ending, its military operation near Kiev and other areas in northern Ukraine.. Regarding the western region, Russia launched cruise missile attacks aimed at military targets but has not moved ground forces into the area.
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In this post, I had hoped to concentrate on the COVID aftermath boom, inflation, the Federal Reserve System monetary policy, and the growing threat of a deep recession.
But events in Ukraine do not permit this. Even if the Russo-Ukrainian conflict doesn’t spiral into a world war, the U.S. world empire has launched an economic war that is already having a major impact on the development of the global economy.
The most extensive propaganda campaign against any nation occurring within recent memory is blaring out of every media outlet — printed, digital, radio, and TV. Some examples of the propaganda tricks employed include glaring headlines declaring as fact what a close reading of the article reveals as claims of the government or Pentagon.
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In January of this year, the U.S. government and its media claimed an invasion of Ukraine by Russia was imminent. One version of the media reports raised fears that Ukraine is only the initial target — first crush Ukraine, then march all the way to the Atlantic. In rhetoric akin to that of the Cold War, when it was said the Soviet army was threatening to invade Western Europe, now Russian President Vladimir Putin is cast as the aggressor.
We know this isn’t true. The Russian economy, devastated by 30 years of capitalist counterrevolution and only partially recovered from capitalism’s restoration in the 1990s, is in no position to support aggressive military campaigns. Russia may have moved about 100,000 troops closer to the Ukrainian border. This would be a defensive move to prevent increased warfare from spilling over into Russia proper. If not for an invasion, what explains the Russian troop movements?
The real story: U.S. imperialism is moving to consolidate domination of Ukraine. Ukraine is rich in agricultural lands and fossil fuels. Adolf Hitler had his eyes on the country as a key to his vision for an Eastern European empire. Ukraine is an important acquisition for a U.S. world empire as well.
The United States established its current domination by orchestrating the 2014 EuroMadian coup, spearheaded by Ukrainian fascists. This overthrew the corrupt capitalist, but elected, government of Ukrainian President Viktor Yanukovych (1950- ). But two areas in eastern Ukraine refused to accept the coup. They are now under control of the Donetsk People’s Republic and the Luhansk People’s Republic. Another region that escaped is Crimea. Ignoring this region’s real history, the U.S. media paints a completely false picture of what really happened there.
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The COVID-19 global pandemic has been with us now for more than two years. In recent weeks, with winter in the Northern Hemisphere, the pandemic has once again gained momentum. The new variant called omicron is hyper-contagious. Hospitals and their ICU units are again filling up. The vaccines still provide good protection against serious illness and death. It remains very important to receive all the doses, two shots plus a booster for most vaccines — if possible. This time however the capitalists are determined to avoid business closures.
It appears the new omicron variant causes less serious illness and death. This may reflect that in imperialist countries a large part of the population has been at least partially vaccinated. In the Global South far fewer have been vaccinated, and many have already been infected by COVID and survived, gaining natural immunity. The same is true for those in imperialist countries who refused the vaccine. Or it might be the genetic code of omicron makes it inherently less pathogenic than earlier less contagious variants.
In response to the milder nature of omicron, the CDC has slashed isolation guidelines from 10 to five days. “If a 5-day quarantine is not feasible, it is imperative that an exposed person wear a well-fitting mask at all times when around others for 10 days after exposure.” In other words, if the bosses consider it not profitable for the workers to isolate for even five days, they can go to work sick.
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