Archive for the ‘Money’ Category

The Crisis (Pt 11)

June 28, 2020

Is capitalism approaching its limits?

In the first years of the 20th century, Rosa Luxemburg expressed great alarm when she discovered that Marx’s formulas of expanded reproduction in Volume II of “Capital” suggested that capitalism can in principle go on forever. These formulas appeared to contradict Marx’s famous Preface in “A Contribution to a Critique of Political Economy.” There Marx wrote: “No social order ever perishes before all the productive forces for which there is room in it have developed [my emphasis — SW] and new, higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself.”

If, however, capitalism can engage in expanded reproduction without limit, how can capitalism ever develop all the productive forces “for which it has room”? Didn’t Marx himself mathematically demonstrate that capitalism can develop the productive forces without limit? However, a closer look reveals this apparent contradiction to be an illusion.

In the Volume II formula, the productive forces expanded only quantitatively but not qualitatively. There is no growth in labor productivity or what Marx called the organic composition of capital — the ratio of constant capital, which does not produce surplus value but merely transfers its value to the commodities it helps produce, and variable capital, the sold labor power of the workers, which replaces its value and produces additional surplus value.

It is also assumed that the correct proportions of production, including the correct proportions between Department I, which produces the means of production, and Department II, which produces the means of consumption, are maintained without explaining how they are maintained. And — almost always overlooked — among the correct proportions between the various branches of production that must be maintained is that between the production of money material and all other branches of commodity production.

In reality, the concrete history of capitalism has been marked by growth in labor productivity. The rate at which productivity grows is largely regulated by the competition between the industrial capitalists and the workers. To maximize their profits, the industrial capitalists as the buyers of labor power try to pay the workers the lowest possible wage. The workers as the sellers of labor attempt to get the highest possible wage right up to the mathematical limit where surplus value — and therefore its monetary form, profit — disappears altogether.

If Marx’s formulas show expanded capitalist reproduction running forever, it must be assumed that the quantity of auxiliary materials and the ores out of which money material is produced, and the supply of labor power that produces the means of subsistence for the workers, must be available in infinite quantities. If this is true — which it obviously is not — then the population, including the fraction of the population that consists of workers, can grow to the mathematical limit of infinity and capitalism can indeed go on forever. Otherwise, it can’t.

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The Crisis (Pt 10)

June 21, 2020

The police and the state

On Sunday, June 7, the Minneapolis City Council, by a veto-proof majority, voted to disband its police department over the opposition of the Democratic mayor. This doesn’t mean that Minneapolis police are about to be abolished. To believe this would be naive. For one thing, the abolition of the police would violate the Minneapolis City Character — the equivalent of a city constitution, which mandates the existence of a police department. And even if the Minneapolis Police Department were to be formally abolished, there are many other police agencies such as the Sheriff’s Department and the Minnesota State Patrol that could step into its role.

The significance of the City Council vote lies elsewhere. It represents an attempt by Democratic Party politicians to halt the growing movement in the streets demanding the abolition — not the reform — of the police. Once this is done, the Democrats figure that they can count on the courts to render their vote to “disband the police” harmless. It will then be back to business as usual.

But the real significance of the demand to abolish the police is that, even at this early stage, the incipient U.S. revolution cannot but begin to realize that the state consists of a body of armed men, and now some women, plus material extensions such as prisons. The state exists to defend capitalist private property in the means of production. It cannot be reformed. It must be smashed and replaced by an entirely new system of “public safety.” All this is in line with the writings of Marx, Engels and Lenin on the state.

The demand to abolish or “de-fund” the police is being raised not because the demonstrators have read the Marxist classics — very few have — but because their practical experience in what is, in essence, a class struggle points in the direction of getting rid of — not reforming — the police. Since the May 25 murder of George Floyd by Minneapolis police officers, which was duly recorded on cell phone video, anti-racist demonstrators have put the demand to abolish the police into the mainstream of political discussion in the U.S. for the first time.

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The Crisis (Pt 9)

June 15, 2020

After police murder of George Floyd, demonstrations and uprisings sweep U.S.

On June 1, a combined force of military police, park police, and Secret Service brutally cleared an area around the White House of peaceful demonstrators who had been protesting the May 25 murder by Minneapolis police officers of African-American George Floyd. To clear the crowd, these military-police forces used a low-flying helicopter, tear gas, and stun grenades. This was so that President Donald Trump could appear in front of a nearby church Bible in hand.

Trump, who had earlier been sheltering in a special bunker beneath the White House, threatened to invoke the Insurrection Act of 1807, which would permit him to order the military to suppress the massive wave of demonstrations and uprisings that have been sweeping the U.S. since the police murder of Floyd. Trump’s threat to use the military, if carried out, would be a major step towards a military-Bonapartist dictatorship.

Trump’s threats led to a wave of complaints by mostly Democratic politicians and warnings of some retired generals, including Trump’s former Secretary of “Defense” General James “Maddog” Mattis, not to use the military against peaceful demonstrators. Republican leaders, with a few exceptions, either supported Trump or maintained an icy silence.

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The Crisis (Pt 8)

June 7, 2020

The dollar system, gold and the U.S. empire

The current international monetary system is a system of “fiat currency” centered on the U.S. dollar. It is bound up with the financial, political, and military system unofficially called the U.S. empire. To maintain the empire, the U.S. spends about 10 times more on its annual “defense” budget than any other country. Therefore, when it comes to raw military power, especially firepower and the ability to project it around the globe, the U.S. is a military power second to none. Unlike in the pre-1945 world, no other imperialist power can even think of challenging the U.S. militarily.

The U.S. empire in its modern form — in contrast to the North American U.S. proper and the relatively small but growing colonial empire that the U.S. had been building since the Spanish-American War of 1898 — dates to the lopsided victory of the U.S. over Nazi Germany (1) and Imperial Japan in 1945. Thereafter, and this was confirmed in the Suez Crisis of 1956, [link to posts which discuss this] no other imperialist power can undertake a major military operation without U.S. approval.

This emerging situation enabled the U.S. at the Bretton Woods Conference — held in Bretton Woods, New Hampshire, in 1944 — to establish the U.S. dollar as the world currency and the U.S. Federal Reserve System as the world central bank. The dollar remains the world currency even though the U.S. dollar since 1971 has not been convertible into gold.

Originally, the U.S. built up a huge gold hoard by running balance of trade surpluses that were the result of the superior productivity of its industrial, extractive and agricultural enterprises. The size of the U.S. gold hoard was further increased in the 1930s when with a new European war looming, European capitalists moved much of their gold to the U.S. in exchange for U.S. dollars. Some European governments moved their gold reserves to the U.S. for safekeeping as well.

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The Crisis (Pt 7)

June 3, 2020

An unprecedented crisis

The current economic crisis has many unprecedented features. Most importantly, it was triggered by a pandemic and the resulting business shutdowns and stay-at-home orders. This led to a sharp decline in the sale of commodities. The result has been a collapse of industrial production, world trade, and employment over a period of a few weeks that is unparalleled in the history of capitalism. Because nothing like this had ever happened before, it is extremely difficult to predict what will happen next.

For example, we don’t know the future course of the pandemic as capitalist governments move, even as the pandemic continues, to lift the shutdowns of nonessential businesses and stay-at-home orders. Will these moves to “reopen the economy for business” cause the pandemic to accelerate? Or will the pandemic decline in the Northern Hemisphere, where the largest capitalist economies are located, as summer conditions set in? Many virus-caused diseases decline in the summer months and accelerate in the fall and winter. Will COVID-19 follow a similar pattern?

Even if we assume the pandemic peters out over the (Northern Hemisphere) summer and doesn’t come back this fall/winter, an extremely optimistic and experts say unwarranted assumption, will the U.S. and world economy revive rapidly in a so-called V-shaped recovery? Or will the recovery be slow and torturous, with Depression levels of unemployment lingering on for years? Or will it be something in between?

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The Crisis (Pt 6)

May 24, 2020

U.S. unemployment hits Depression levels

In April, the U.S. Labor Department U-3 measure of unemployment hit 14.7 percent. The U-3 rate had been used over the last year or so to claim that unemployment was the lowest since 1969. In fact, it is designed to greatly underestimate the real level of unemployment. Even some Federal Reserve Board officials admit that the real rate of unemployment is over 20 percent and fast approaching the all-time quasi-official estimate of 24.9 percent that occurred at the very bottom of the Depression in March 1933. Nobody denies that the number of unemployed in the U.S. is in the tens of millions — around 50 million if you believe AFL-CIO President Richard Trumka.

However, it is claimed by Trump and most economists that the current unemployment crisis is the result of the deliberate shutting down of the economy made necessary by the COVID-19 pandemic. What is occurring, according to this logic, is not the long-feared Depression II but the “Great Suppression.” Though unemployment generally declined after March 1933 — except for the sharp but short-lived Roosevelt recession of 1937-38 — “full employment” did not return until the U.S. had entered World War II in 1941. This time, it is claimed by Trump and many economists, in contrast to 1933 there is no underlying economic crisis. Therefore, “full employment” will return much more quickly. The pandemic will have run its course within months, as Trump claims, or at most within several years, as claimed by more cautious economists.

Therefore, the argument goes, while still a terrible situation it is not quite Depression II. Though unemployment may be as bad as during the Depression, it won’t last nearly as long. Anyway, Depression-level unemployment is the necessary price we have to pay to stave off the much greater evil of millions of deaths in the U.S. alone from COVID-19. Not surprisingly, Donald Trump, who had been planning on running on “prosperity and full employment” as shown by the Labor Department’s U-3 unemployment rate, is leading the charge to “open America for business.”

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The Crisis (Pt 5)

May 17, 2020

U.S. infection rates rise as states move to reopen

More and more U.S. states are moving to reopen non-essential businesses though there is no sign the COVID-19 epidemic is dying down. “Take the New York metropolitan area’s progress against the coronavirus out of the equation, Nicky Forster, Carla K. Johnson, and Mike Stobbe wrote May 4 in an Associated Press article, “and the numbers show the rest of the U.S. is moving in the wrong direction, with the known infection rate rising even as states move to lift their lockdowns. … ”

According to a leaked CDC document that appeared in The New York Times and Washington Post, the government projects that new COVID-19 cases will increase 225,000 a day by June, with deaths climbing to 3,000 per day. In early May, when this is being written, new cases are only 25,000 with deaths a mere 2,000. This despite all the social distancing and stay-at-home orders.

With President Trump leading the charge to reopen America for business, state and local governments are competing with one another for which one can lift the social distancing and stay-in-place orders the fastest. So far, these are the only policies that have slowed the pandemic in some areas.

In reality, the pandemic is still gaining momentum nationwide. Thanks to Trump and various state and local governments, the spread of COVID-19 in the U.S. could very well accelerate further in the coming months. A similar pattern is emerging in other capitalist countries. Of course, the growth of the pandemic in one country, particularly one as large as the U.S., is a threat to people of all other countries, since the virus does not respect national boundaries.

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The Crisis (Pt 4)

May 10, 2020

May Day strikes

On May 1, International Workers’ Day, a wave of worker and renter strikes swept the United States. Workers protested the dangerous conditions in which they are forced to work during the COVID-19 pandemic. Among the companies struck were Amazon, Walmart, FedEx, Target, Instacart, Shipt, and Whole Foods. The May Day strikes show the increasing influence the internationalist traditions of the world workers’ movement is having on the U.S. working class, especially among the lowest paid and most exploited workers. The current medical-biological-economic-employment crisis has only deepened this tendency.

Also, and this should be noted, the internationalist implications of the global May Day holiday stand in complete opposition to the traditional AFL-CIO union leaders, Bernie Sanders, and many progressives and newly minted “democratic socialists” going down the disastrous road of economic nationalism and China bashing. Trump and the other economic nationalists, both Democrats and Republicans, are trying to divert attention from the disastrous mishandling of the pandemic by the U.S. government — both federal and state — to China. More on this in the coming weeks.

‘Party of Order’ versus Sanders

As we saw last week, Bernie Sanders has for many years operated well within the limits of capitalist, or — to use traditional Marxist language — bourgeois, politics. He has done nothing to organize an independent workers’ party or an independent workers’ media, either print, radio-TV or Internet. Nor is he internationalist like the working-class leaders of the past, such as Sanders’ personal hero Eugene Debs. Rather, Sanders is an economic nationalist and an imperialist dove.

Why then is the Party of Order so hostile to Sanders? As its leaders know full well, capitalism has in many countries survived presidents and prime ministers far more radical than Bernie Sanders. No knowledgeable person believes that U.S. capitalism would be in danger of being abolished under a Sanders administration.

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The Crisis (Pt 3)

May 3, 2020

The king of commodities

On April 20 (2020), the May futures contract for the delivery of oil fell to a negative $37 per barrel. Since the 1970s, some have suggested that oil has replaced gold as the money commodity, reflected in the term petrodollars. We can now see that this idea is based on a misunderstanding. Oil as the commodity that stores energy as well as serving as a raw material is perhaps the king of commodities as far as its use value is concerned. However, this doesn’t mean that oil is the money commodity, which in terms of its use value measures the value of all other commodities.

What would happen if global production and circulation suddenly became paralyzed? We are now finding out. With production and transportation sharply curtailed around the globe, what is the use value of oil now? Marx explained in Chapter 3, Volume I of “Capital”: “Whenever there is a general and extensive disturbance of this mechanism [credit — SW], no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities [such as oil — SW] can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money.”

Since oil has storage costs, the owners of May 2020 oil futures contracts were for a day willing to pay buyers to take it off their hands to free themselves of those costs. This shows that not oil but money is the king of commodities. In the words of Marx, the value of oil has vanished in the presence of its independent value form. Even Trump’s move to buy all the oil that the U.S. government can physically store has not prevented the oil price collapse.

When the value of a commodity as important as oil vanishes — though it isn’t only oil that is being affected — in the presence of its own value form, the credit system is thrown into crisis. Credit is based on the assumption of a given price structure. When commodities become unsalable or at least unsalable at the expected price, the credit system begins to break at a thousand and one places. For example, banks lend money to oil companies. If the oil companies can’t sell their oil at profitable prices, they will not be able to pay the banks. How will the banks pay their creditors, which include their depositors? And what about the pension funds loaded up with oil and bank stocks?

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The Crisis (Pt 2)

April 26, 2020

Trump bares his Bonapartist fangs

The conflict between Trump and some state governments grew as Trump claimed “total authority” to “reopen the economy” in any state whenever he wants. But he soon outdid himself when on April 15 he claimed, in complete contradiction to the U.S. Constitution and its “separation of powers” doctrine, that he had the right to “adjourn Congress.” No U.S. president has ever claimed that authority.

At a press conference, Trump bitterly attacked the Republican Senate as well as the Democratic House for remaining nominally in session, thereby blocking his authority to make “recess appointments.” The U.S. Constitution gives the president the right to appoint federal officials only with the consent of the Senate. If the Senate is not in session, the president can make a temporary recess appointment. The official who is appointed through such an appointment then has “acting” in front of his or her title. Trump prefers this because it removes the ability of the Senate to block his appointments.

However, if the president can “adjourn” the Senate and House of Representatives at will, the legislative branch of the government would be rendered powerless versus an all-powerful executive. Imagine if Richard Nixon in 1974, when told by Republican congressional leaders that he faced certain impeachment in the House of Representatives and conviction in the U.S. Senate, had simply adjourned the U.S. Congress instead of resigning!

There is a term for the system of government where the parliament is powerless and the executive is all-powerful. It is called the Bonapartist system. If Trump’s doctrine of total presidential authority and the right of the president to adjourn Congress was to be implemented and accepted as part of the system of government, the U.S. would no longer be an imperialist democracy — no matter how eroded — but a Bonapartist autocracy run by an all-powerful dictator-president.

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