Does Capitalist Production Have a Long Cycle? (pt 9)

Because the industrial cycles that have occurred since 1945 have unfolded in a very different political environment than those before 1945, I will devote this post to examining these extremely important political changes.

From the recession of 1937-38 to the end of World War II

The upswing in the industrial cycle—interrupted by the Roosevelt deflation—resumed by mid-1938 as the administration and Federal Reserve System quickly reversed their deflationary measures. However, the recovery that began in mid-1938 started at a much lower level than that of mid-1937 when the Roosevelt recession began. Then before the industrial cycle could reach a new boom—or even get very far into the stage of average prosperity—the war economy took over. As we have already seen, a full-scale war economy suppresses the industrial cycle by suppressing the normal process of capitalist expanded reproduction.

Differences in the condition of the world economy on the eve of World War I and on the eve of World War II

The world economic situation was radically different on the eve of World War II than it was on the eve of World War I. While there was a world recession just before World War I broke out, in general the years preceding the first world war of the 20th century was a period of capitalist prosperity and rising prices. Real capital—productive and commodity capital—expanded rapidly. Or, what comes to exactly the same thing, the process of capitalist expanded reproduction proceeded with great energy, only interrupted by the brief crisis of 1907.

The pre-war prosperity had begun around 1896. The decade of the 1890s saw a big surge in gold production. The defeat of silver Democrat William Jennings Bryan in the U.S. presidential election of 1896 meant that the United States—which was already on the verge of replacing Britain as the leading industrial nation—would remain on the gold standard. This along with the rising production of gold and the consequent accelerated expansion of the world market brought the 1873-1896 late-19th-century “Great Depression” to an end. (1) A prolonged upturn in the general price level—both in terms of gold and in terms of currency, which under the international gold standard was the same thing—set in.

By the eve of World War I, prices were beginning to rise above the values of commodities, judging from the developing stagnation in world gold production in the years immediately preceding the war. Therefore, World War I broke out at a particularly bad time as far as the stability of the world capitalist economy was concerned. It took the super-crisis and the currency devaluations that accompanied it or followed it to lower commodity prices once again below their underlying labor values.

In contrast, the Depression decade that preceded World War II saw the virtual complete breakdown of capitalist expanded reproduction. Indeed, the United States—the leading capitalist country—had seen years of contracted reproduction. With expanded reproduction—the very essence of capitalist production—paralyzed, money fell out of circulation and accumulated in idle hoards. The huge expansion of idle reserves in U.S. banks during the 1930s was the chief manifestation of this.

The combined effects of the prolonged stagnation of the reproductive process, the 50 percent fall in prices of commodities in terms of gold, and the subsequent rise in gold production, meant that by the end of the 1930s the world was awash in liquidity. The growth of these hoards drove the rate of interest down to the lowest levels that had ever been seen in the history of capitalism up to that time.

The balance of forces in the money and capital market now favored the industrial and commercial capitalists over the money capitalists. (2) This created the possibility of a rapid growth in the profit of enterprise once the rate of profit began to recover. As I explained in my examination of the “ideal industrial cycle,” the beginning of a recovery is marked by a low rate of interest combined with a rapidly increasing profit of enterprise.

These conditions were the opposite of the situation that prevailed on the eve of World War I. Therefore, even before the war broke out in Europe in 1939, the operation of the basic economic laws that govern the capitalist system ensured that the post-World War II period would economically—and therefore politically—be very different than the post-World War I period.

The politics of World War II

World War I had ended indecisively. During World War I, the United States had demonstrated that its huge industrial machine, the biggest in the world, made it by far the most powerful nation in the world militarily. However, after the war, the United States rapidly dismantled the huge military forces it had assembled. America did not occupy Europe militarily after the war ended.

Instead, the United States relied on its new position as the world’s leading creditor nation. America insisted that Britain and France repay the loans that the United States had made to them during the war—loans that had been used not to finance Europe’s economic development but rather its economic destruction. (Soviet Russia repudiated the debts that the czarist regime had owed to the United States.)

This forced both Britain and France to finance their war debts by squeezing the needed funds out of defeated Germany in the form of reparation payments. Germany was forced to borrow great amounts of money from the United States, both to meet its reparations payments and rebuild its economy—after the contracted reproduction of World War I. In this way, the “victorious” British and French transfered their war debts onto the shoulders of the defeated Germans.

The only way that Germany could possibly pay these debts was through exports to the United States. America, however, stubbornly refused to open its markets to the Germans, or indeed any other nation. America behaved as though it was still a developing industrial capitalist nation in debt to Europe rather than the most powerful imperialist-creditor country in the world. Instead of establishing its military and political domination over Europe, the United States seemed to be trying to ruin Europe economically. (3)

If during the 1920s the United States had wanted to encourage European recovery, it would have opened its home market to European commodities and forgiven the war debts that were owed by Britain and France. The U.S. could then have urged that Britain and France cancel the reparations that were owed them by Germany. But after World War I, America pursued the exact opposite policies.

After World War II, however, the United States reversed its polices. The United States insisted on occupying Germany and Japan after the war—in contrast, after World War I defeated Germany as a whole was not occupied, except for the Rhineland. And it has never ended these occupations. In 1949, the United States created the so-called North Atlantic Treaty Organization. NATO from the beginning had a double purpose. One was to threaten the Soviet Union and its new Eastern European allies and if necessary put down any revolutionary movement in Western Europe.

The second was to make sure that neither Germany nor any other European power would rebel against U.S. domination. During the “cold war,” the United States and its other supporters in NATO of course claimed for propaganda purposes that its military forces in Europe were necessary to defend these countries against a possible Soviet attack. The last thing that the Soviet Union—after losing at least 20 million people as a result of World War II—and facing a United States armed with the atomic bomb that it had actually used against Japan in the closing days of the war—would have considered was a military offensive into Western Europe!

Real purpose of NATO clarified

The real purpose of NATO became clear after the Soviet Union was destroyed under the Gorbachev regime between 1985 and 1991. (4) While the Warsaw Pact, the defensive alliance formed by the Soviet Union in 1955 was abolished, NATO was not. Instead, the United States signed up the Soviet Union’s former Eastern European allies into NATO and then some of the former Soviet Republics. The United States is still working to get former Soviet republics such as the Ukraine and Georgia admitted into NATO.

Even though Russia is now capitalist and thus represents no “social” threat to any existing capitalist nation, the United States is determined to tighten its encirclement of Russia through NATO. It seems the only thing that will satisfy American imperialism will be the transformation of Russia with its vast natural wealth into a semi-colony—with the emphasis on “colony,” not on “semi”—of the United States.

It is absurd to think that today’s Russia represents any threat to either Germany or Japan. Indeed, by maintaining their “alliance” with the United States, Germany and Japan risk being dragged into a future American-Russian war—or in the case of Japan into a future American-China war as well. It wouldn’t take many nuclear weapons to completely destroy either of these geographically rather small countries.

Why then do the governments of Germany and Japan tolerate the U.S. presence 64 years after World War II ended? And why does the United States insist on maintaining these forces in Germany and Japan? There is only one real reason. They are there to make sure that the defeated axis powers remain U.S. satellites.

The nature of U.S. domination of modern Germany and Japan

The United States has maintained its domination of Germany and Japan not only through the stick—its military occupation. It has also used the carrot. Unlike after World War I, the United States made major economic concessions to the capitalists of Germany and Japan. The U.S. agreed to allow the Germans and Japanese access to its huge domestic market. The refusal of the United States to do this after World War I was one of the main causes—perhaps the main cause—of World War II.

This policy, however, has proved a costly one for the United States. If the United States had used its military rule of Germany and Japan to dismantle the German and Japanese economies, U.S. corporations for many decades to come would have had the world market pretty much to themselves. If the U.S. could have gotten away with such a policy, the U.S. corporations would be vastly richer than they actually are.

But as World War II was ending, the United States had its hands full with its struggle against the Soviet Union and its allies—the most important of these allies being the revolutionary-minded workers of Western Europe—and with revolutionary China, Korea and Vietnam, later joined by Cuba and other restless former colonial or semi-colonial countries. The U.S. was eager to transform the former colonial and semi-colonial countries that had been dominated by European colonial countries and Japan into U.S.-dominated neo-colonies. (5)

And perhaps even more important, the United States was afraid of a head-on collision with the workers of Western Europe. After the war, the U.S. did consider forcibly dismantling the German and Japanese corporations. The so-called Morganthau Plan—named after Roosevelt’s secretary of the treasury Henry Morganthau—aimed at transforming highly industrialized Germany into an agricultural country. In effect, Germany would have been reduced to “third world” status. The United States had similar plans for somewhat less industrialized Japan.

If such plans had been put into effect, this would have meant huge chronic unemployment in Germany and Japan. It was extremely unrealistic to think that very many German or Japanese industrial workers could be transformed back into peasant farmers like their fathers and grandfathers had been. That mode of production and way of life was gone for good. However, shortly after the war, in the face of the growing influence of the West European Communist parties and the rapid growth of other left parties and the trade unions, the United States was forced to renounce such plans. If the U.S. had been able to carry out its de-industrialization plans, the world would be a very different place today.

The postwar world takes shape

Unlike after World War I, America would allow Germany and Japan as well as Britain and France access to its huge home market. German, Japanese, Italian as well as British and French corporations would be allowed to compete economically with American corporations within the U.S. home market and the world market as a whole. In addition, the United States would guarantee historically raw material-short Germany and Japan access to raw materials and food stuffs. However, no political or military competition would be tolerated on the part of the defeated axis nations.

Why haven’t the German and Japanese governments ever rebelled against U.S. domination?

Suppose a government came to power in either Germany or Japan that wanted to compete with the United States, not just economically but militarily and politically as well. (6) Such a government would first have to send the U.S. troops and bases packing. Any attempt to do this would mean a major confrontation with the United States, and in the case of Germany, with NATO.

Even if the U.S. government agreed to peacefully withdraw its forces if requested to do so—which is far from certain—the United States could retaliate by limiting access of the German and or Japanese corporations to the U.S. home market—and other markets policed by America’s vast armed forces. The United States could also use its military power to cut off the flow of raw materials and food stuffs to any anti-U.S. German or Japanese government that might emerge.

For these reasons, the capitalists of Germany and Japan, have shown no desire to challenge the American military—and ultimately political—control of their countries that has prevailed since 1945.

Love of profit, not love of country, motivates capitalists

Since both the Japanese and German capitalists have made huge profits under these post-1945 arrangements, much greater profits than they ever made when Germany and Japan were fully sovereign countries before World War II, they are reasonably satisfied with these arrangements. In contrast to the situation after World War I, they have so far given little support to right-wing nationalist forces—which do exist in both Germany and Japan—that seek to restore full independence to these countries on an imperialist basis.

While capitalist propaganda constantly attempts to convince the workers that “love of country” is the highest value, the capitalists themselves are governed only by “love of profit.” Since World War II, “love of profit” has so far kept the German and Japanese capitalists loyal supporters of the American empire.

The status of Britain and France after World War II

Though Britain and France were among the “nominal” victors, they found that their military and political independence versus the United States was also melting away after World II. This became very clear during the Suez Crisis of 1956.

In 1956, the Egyptian government under President Nasser had nationalized the Suez Canal. London and Paris were determined to take it back and put rebel Egypt back under their semi-colonial control. They teamed up with the government of Israel—as always eager to serve as a colonial policeman to any imperialist power that desired its services—and invaded Egypt. The United States, however, had no particular interest in British, French or Israeli control of the Suez Canal. What was important to Washington was the ability of the U.S. military to seize control of the canal in a crisis.

Therefore, Washington told London, Paris and Israel to end their invasion of Egypt. The United States used both its financial power—threatening to withdraw support for the shaky British pound—and even its military power if it came to that. Realizing they were in no position to resist—financially not to speak of militarily—Britain, France and Israel were forced to withdraw.

After Suez—despite French President Charles De Gaulle’s nationalist gestures—it became clear that Britain and France also were unable to seriously compete with the United States either politically or militarily. Like was the case with Germany and Japan, they were pretty much limited to competing with the United States economically. Therefore, one of the most important results of World War II was to reduce the other imperialist powers into satellite imperialist powers of the American empire. (7)

The biggest problem that the United States faced in 1945 was the survival of the Soviet Union. As long as the Soviet Union existed, there was one major power that was not under the military and political control of the United States. And unlike Germany or Japan during World War II, it represented a rival social system whose existence was made possible by the workers’ revolution of October 1917. In addition, the survival of the Soviet Union, combined with the weakening of the old colonial powers, especially Britain, France and Japan, created the conditions for many of the colonized countries to struggle to regain their independence.

U.S. imperialism sometimes—though not always—gave a certain amount of support to independence from the old imperialist powers when it served to advance its interests. For example, the United States demanded access to the Indian market after World War II, much to the chagrin of London. This encouraged Britain to give India its independence in 1947, since the costs of holding India in colonial slavery was not justified if Britain could not monopolize the Indian market for itself. And U.S. policy during the Suez Crisis saved Egypt from being turned back into a British semi-colony. (8)

Despite saving Egypt from being re-colonized by Britain during the Suez crisis, the United States has proved no friend of the peoples of Middle East! If you have any doubts, ask the Palestinians or ask the Iraqis. Or the Egyptian people.

After President Nasser’s death in 1967, Egypt has become transformed in a U.S. neo-colony. The same tendencies are visible in today’s India. The United States acted the way it did during the Suez Crisis because it wanted to control the Middle East—it does not want any other imperialist power to control that region. It is willing to share some of the loot it extracts from the Middle East with the other imperialist powers, but only on its own terms.

Since the destruction of Soviet power between 1985 and 1991, the situation confronting the former colonial or semi-colonial countries has changed for the worse. Countries that are seeking to develop independently can no longer look to the Soviet Union and its Eastern European allies for support in their struggle against the imperialist powers.

After the Soviet collapse, the United States imagined that it would be able to rule the world pretty much unopposed in its so-called “New World Order.” It has not, however, quite turned out that way. Since the Soviet Union was destroyed, American imperialism has become both more greedy and more parasitic. As a result, the United States faces growing resistance throughout the world under various ideological banners that refuses to go away. Far from bringing the peace that Gorbachev and his supporters claimed their surrender to American imperialism would bring, we have seen full-fledged shooting wars waged by the United States against Iraq, Serbia and Afghanistan. (9)

A powerful but declining empire

Today, the U.S. world empire is in decline. Perhaps in the not-too-distant future a new period of political and military anarchy will succeed American domination, much like it succeeded British domination between 1914 and 1945. Because of the basic contradictions of capitalist production that I have been examining in these posts, any capitalist “order”—whether the British-dominated one that prevailed from 1815 to 1914 or the U.S.-dominated one that has prevailed since 1945—contains the seeds of its own undoing.

But unlike World War I, World War II had a decisive outcome. It established the domination of American imperialism over the globe—though not forever and not unopposed like Washington policy-makers dream of—for many decades to come. This is one of big differences between the post-World War I period and the post-World War II period.

The Bretton Woods Conference and the new international monetary system

The international gold standard that prevailed from the 1870s to 1914 had worked reasonably well for the capitalist system. It had not been able to eliminate cyclical economic crises, of course, but no international monetary system can do that. But neither was there a debacle on the scale of the 1929-40 Great Depression under the classical gold standard. The regime of the classical gold standard, with its fixed exchange rates and “limited” economic crises, had encouraged the rapid growth of international trade and international export of capital. Or what comes to exactly the same thing, the gold standard had stimulated the growth of what is today called globalization.

Capitalist Depression phobia

Ever since the 1929-40 Depression, capitalist economists and governments have been determined to avoid a similar Depression in the future at almost any cost. They feared and fear that the capitalist system might not survive “Depression II.” Even the prolonged retreat of the world workers’ movement that both preceded the destruction of the Soviet Union and was accelerated by it, has not ended capitalism’s “Depression phobia.” (10) Despite the “end of history” that followed the Soviet collapse, the capitalist class continues to display a curious lack of confidence about its long-term chances of survival.


I explained in my examination of the work of John Maynard Keynes that beginning with Keynes, bourgeois political economy split in two. One part, called micro-economics, is simply the old marginalism. Its purpose remains what it has always been—ideological. Micro-economics presents capitalism as an absolute mode of production, based on “fair,” mutually beneficial exchanges without exploitation or contradictions. By describing capitalism in these terms, the “micro-economists” present capitalism as a system that will last as long as human life persists.


The other wing, macro-economics, seeks to understand the workings of the capitalist economy within the limits required to develop policies that provide the capitalist governments and central banks with “tools” to prevent economic crises from turning into “super-crises on the scale of 1929-33. However, the bourgeois macro-economists have not returned to the concept of labor value, since that would open the door to the understanding of profit—surplus value—as arising from the unpaid labor of the working class. Though some marginalist concepts can be tacitly ignored when they get in the way, there has been no real return to classical political economy, still less the economic science developed by Karl Marx. (11)

As a result, modern bourgeois macro-economics is empirical, shallow and superficial. It analyzes only the outward appearances like all forms of “vulgar economics.” And so our modern bourgeois macro-economists have no real understanding of the nature of such basic economic categories as value, price, profit, rent and interest rates. For these reasons, the “tools” that they have provided the capitalist governments and central banks have a strong tendency to backfire. I will explore this in much more concrete terms when I examine the evolution of the post-1945 capitalist economy over the next few weeks.

One conclusion that the new discipline of macro-economics drew was that the general price level must never be allowed to fall. We can see the beginnings of the policy of “permanent inflation” in the policies of Roosevelt’s New Deal. The new Roosevelt administration quite frankly sought ways to increase prices. This was a break with the traditional policy of capitalist governments and central banks, which was to maintain the gold value of the currency—the price of gold in terms of the currency—and leave the determination of the general price level that emerged to market forces.

The macro-economists claimed—and claim—that this policy was a huge mistake. When prices fall, they point out, the industrial and commercial capitalists tend to put off new purchases of raw materials and machinery, waiting for prices to fall further. Such a situation, the macro-economists maintain, tends to drag out and deepen depressions.

In addition, falling prices tend to increase the real wages of employed workers. Of course, if falling prices are accompanied by crisis, the reduction in the quantity of work would still drive down the overall real income of the workers. When this happened, there would be far less work available, so the actual standard of the living of the workers could still fall despite the rise of real hourly wages. Keynes put great emphasis on the tendency of falling prices to raise real wages in his 1936 “General Theory,” considered the foundation work of macro-economists.

The macro-economists noticed that prices had generally risen at about a 1 to 3 percent rate during the prosperity of 1896-1913 that preceded World War I as well as other long-term periods of capitalist prosperity such as the one that followed the gold discoveries of 1848-51. Lacking any understanding of the real nature of value and price, they imagined—and imagine—that correct policies by the governments and central banks could ensure an 1896-1913—or 1848-1873—type of “creeping inflation” that would lead to permanent capitalist prosperity.

Virtually all bourgeois macro-economists agree on this. They only differ about the policies that can bring about these—for the capitalists—happy and profitable results. Should the emphasis be on “fiscal policy”—running deficits during periods of recession or stagnation—or on “monetary policy”? Regarding monetary policy—the policies of the central banks—should the emphasis be on manipulating interest rates—raising them during economic booms and lowering them during periods of recession—the policy generally supported by the followers of John Maynard Keynes and for the most part the central bankers themselves? Or as it was later suggested by the followers of Milton Friedman, should monetary policy be based instead on maintaining a steady rate of growth of the quantity of money.

Ironically, the new economic policies urged by the macro-economists proved in the long run to be incompatible with the postwar international monetary system, whose foundations were drawn up at the 1944 Bretton Woods Conference. As Marxists who understand the real nature of value and price, we can easily understand why the new international monetary system was doomed to collapse even before its details were hammered out at Bretton Woods.

The doomed Bretton Woods monetary system

Between about 1870 and 1914, the gold standard had dominated the international monetary system. The international gold standard had not come into existence through a formal agreement among the major capitalist countries. Instead, the major capitalist nations of the time found it in their interest to define their currencies in terms of a certain weight of gold and maintain the convertibility of their currencies into gold coins of a given weight. They were more or less obliged to do this, because if they didn’t they would risk being excluded from the London capital and money markets.

A variant of the gold standard that existed in the pre-1914 years was the gold-exchange standard. Some countries, especially colonized countries such as India—used pound-denominated British government securities alongside gold to back up their currencies. Owners of the Indian currency could demand British pounds instead of gold itself when they wanted to redeem Indian currency.

Even some of the European imperialists used British government securities alongside gold, though as World War I approached the European imperialists began to shift all their reserves back into gold itself. This hoarding of gold among the European countries as they prepared for the approaching war may have played a role in the 1913-14 world recession—which followed the crisis of 1907 by only six years, considerably less than normal for the industrial cycle—which immediately preceded World War I

After World I, there was an attempt to restore the pre-war international gold standard. But it was undermined by the high price of commodities relative to underlying values. As we have seen over the last few weeks, this expressed itself in a shortage of gold.

Therefore, to a much greater extent than before World War I, the gold-exchange standard was used in place of the “pure” gold standard following World War I. Countries short of gold, used dollar-denominated U.S. government securities alongside their scarce gold reserves to back up their currencies. Also, some countries such as Britain used a weaker form of the gold standard called the gold bar standard rather than a gold coin standard. Instead of coining gold, the government and the Bank of England were willing to sell gold bars—bullion—for only large sums of pounds—Bank of England notes. Unlike before the war, a person who owned five-pound notes could no longer go to the nearest branch of the Bank of England and redeem it for five gold sovereign coins.

All these modifications of the classic gold standard were attempts to economize on scarce gold. As we all know, it all ended in the super-crisis of 1929-33—with its unparalleled unemployment—which finally solved the problem of the world gold shortage by reducing the need for gold and at the same time increasing its supply. The price of this, however, was the super-crisis of 1929-33 and the Great Depression.

As the inevitable U.S. victory approached in 1944, a conference was held in Bretton Woods, New Hampshire, to lay out plans for an international monetary system that would underpin the now U.S.-dominated world capitalist system.

Unlike after World War I, gold was plentiful, but its distribution was even more lopsided, with most of the world’s gold in the U.S. Treasury. This was only one manifestation of U.S. domination. While the European and Japanese economies emerged heavily damaged by the effects of World War II, U.S. industrial might remained completely intact. Not a single bomb had fallen on the 48 states that then made up the American union, nor had a single shot been fired there. At Bretton Woods, the United States definitely held all the cards.

The Bretton Woods Conference created three new “international institutions”—all dominated by the United States—that are still around today. They are the International Bank of Reconstruction and Development, or World Bank; the International Monetary Fund; and the General Agreement on Trade and Tariffs, now called the World Trade Organization, or WTO for short. GATT—and its present-day successor, the WTO, are the organizations through which the United States controls access to its huge home market, enforces its access to foreign markets—and attempts to enforce the “concept of intellectual property”.

(For an explanation by computer scientist Dr. Richard Stallman of what is wrong with the concept of “intellectual property,” see

The World Bank was originally foreseen as providing loans for postwar European reconstruction. More important to the operations of the postwar international monetary system was the IMF.

The new international monetary system was a form of the gold-exchange standard. The United States promised that it would exchange dollars held by foreign government and central banks for gold bullion at the rate of one ounce of gold bullion for every $35 dollars. As far as governments and central banks were concerned, the dollar would in the postwar world be a form of credit money, not the token money it is today. As far as everyone else was concerned, the dollar would be token money, with the dollar price of gold varying on the open market. (12)

However, the promise that the United States made at Bretton Woods to redeem its dollars at the rate of an ounce of gold for every $35 meant that the U.S. could not allow the “free market price of gold” to rise to much above $35.

If the dollar price gold rose significantly above $35, the foreign governments and central banks would be tempted to “buy” gold with their dollars from the United States at a price of $35 an ounce and then sell the gold on the open market at the higher dollar price. They could then use these dollars to buy more gold at $35, and either hold the gold or sell it for dollars at a higher price. If they did this, they could repeat the operation with the extra dollars they “earned” by selling the gold they got from the U.S. Treasury in exchange for their dollars.

If this happened, even the gigantic U.S. gold reserve would quickly drain away and the Bretton Woods System would collapse. Therefore, the United States was obliged to move to lower the free market price of the precious metal—which during the war had risen somewhat above $35 an ounce indicating a wartime depreciation of the dollar—back down to or at least near to its $35 an ounce par value.

Other currencies would be linked to to the dollar at fixed exchange rates and through the dollar would also be defined in terms of weights of gold, like had been the case in the days of the classic gold standard. Indeed, the fixed exchange rates allowed smaller fluctuations around the par value than the old gold points of the pre-World War I international gold standard had allowed.

However, currencies could be devalued against the dollar—and gold—under certain circumstances. Suppose a country faced a balance of payments deficit and was losing reserves—essentially U.S. dollars. Under the Bretton Woods System, it could raise interest rates, which could mean recession; it could borrow from the International Monetary Fund and hope the balance of payments deficit would go away—or perhaps raise interest rates more gradually resulting in a milder recession; or it could devalue its currency. Indeed, major devaluations of European currencies occurred in 1949, and France devalued its currency several times during the late 1950s economic crisis.

The macroe-economists who designed this system hoped this would allow governments and central banks far more flexibility to fight recessions than they had under the pre-war international gold standard or during the abortive attempt to revive the gold standard after World War I.

By implication, the one currency that could not be devalued was the U.S. dollar. The dollar was defined as 1/35th of a troy ounce of gold, and was the anchor of the entire system. If the dollar went—that is, if it was devalued—the entire Bretton Woods System would collapse.

The hopeless contradiction of Bretton Woods

As the macro-economists saw it then and still see it today, the huge decline in prices in the early 1930s had brought the capitalist system to the verge of collapse. The key to avoiding a new Depression with a capital “D” was to make sure that no major price deflation would be allowed in the future. Instead, the job of governments and central banks was to ensure a gradual rise in the general price level—about 1 percent to 3 percent a year—much like had occurred between 1896 and 1913 and between 1848 and 1873.

However, these policies were in conflict with the basic economic law that governs the capitalist system, the law of the value of commodities. The old international gold standard had been kept “healthy” by periodic drops in the general price level that offset the periodic inflations of the general price level. In this way, prices fluctuated around an axis ultimately determined by their labor values. But the new economic doctrines held that governments and central banks must do everything they can to prevent such periodic falls in the general price level.

If the Bretton Woods System had survived, this would have meant that over time prices would have progressively and permanently risen above values. The dollar price of gold would be frozen at $35, but all other prices would gradually drift higher. If this happened, the industrial capitalists who produced gold would experience a gradual but relentless rise in their cost price, but would be unable to raise the “price” at which they sold their particular commodity—gold. That would be fixed at $35 a troy ounce.

This implied the profitability of mining and refining gold would progressively fall and sooner or later disappear altogether. And under capitalism when it isn’t profitable to produce a commodity—even if the commodity in question is the money commodity itself in whose use value the value of all other commodities is measured—it isn’t produced.

The combination of the policy of “permanent inflation” and the Bretton Woods System guaranteed the shortage of gold of the inter-war years would not only sooner or later reemerge, it would grow progressively worse as gold production fell toward zero. Sooner or later something had to give. And it did. What really has to be explained is not why the Bretton Woods System collapsed but why it lasted as long as it did. I will examine this question over the coming posts.

In addition to these hopeless contradictions involving the new international monetary system, capitalist governments faced a grave shorter-term problem. As we saw over the last few weeks, the decision of the United States to raise tariffs during the 1929-33 super-crisis meant that the European countries could not possibly repay their debts to the United States. The European countries were forced into bankruptcy, and the Wall Street money lenders ended up losing the money they had lent to Europe.

As I explained, right after World War II Washington was seriously considering the destruction of the German and Japanese economies. Because of this, Wall Street money lenders—despite the huge sums of idle money capital burning holes in their very deep pockets—were unwilling to lend money for purposes of European reconstruction. They feared that the Europeans would again not be able to repay their debts.

Washington for its part was alarmed by the strength of the Communist parties in Europe—the Italian Communist Party had the majority of the population behind it right after the war. Fearing it was on a headlong collision course not only with the Soviet Union but the workers of Western Europe and Japan as well, Washington was forced to give up any idea of dismantling the economies of Germany and Japan. (13)

The so-called Marshall Plan signaled the definite shift by Washington away from destroying the European and Japanese economies. The Marshall Plan program of soft loans and grants to Western Europe was a signal to the Wall Street money lenders that unlike after World War I this time it was safe to lend money to war-torn Europe and Japan. The so-called economic “miracles” of the 1950s and 1960s that followed were crucial to the survival of the capitalist system in these years. (14) Like happened a century earlier after the 1848 revolutions, the radicalization of the workers in Western Europe was drowned in a tide of rising capitalist prosperity.

But the United States paid a big price for this. As capitalism boomed in first Western Europe and then even more so in Japan, America faced economic competition—though not military or political competition—on a scale it had never experienced in its history. I will examine the consequences of this in coming posts.


1 If Bryan had won the 1896 election and the United States had shifted to the silver standard, U.S. interest rates would have risen—the opposite of what Bryan and the Democrats were promising—and the flow of money capital from Britain to the United States that was fueling America’s rapid economic growth would have slowed. The growth of the American and the world economy might then have been significantly lower. The outcome of the 1896 election, by consolidating the U.S. and international gold standards, helped launch the “long wave of expansion” that was to continue up to the eve of World War I.

2 There is a persistent myth that Roosevelt’s New Deal broke the power of “finance capital” that then reestablished itself with all kinds of dire results from the 1970s onward. The balance of forces in the capital and money market did indeed shift sharply in favor of the industrial capitalists and commercial capitalists as opposed to the money capitalists during the 1930s. But this had little to do with New Deal reforms, but rather was the natural consequence of the Depression itself.

3 The ruling U.S. Republican Party was following policies that reflected the interests of the rapidly developing industrial capitalism of late 19th-century America. These policies did not really reflect the interests of 20th-century U.S. imperialism. It took the Great Depression and the shift to the rule of the Democratic Party before the policy changes were made that were in line with the transformed economic reality of 20th-century America. Politics, though it reflects economic conditions, often does so with lesser or greater lags.

4 There is no question more important for Marxists to analyze than the “peaceful” destruction of the Soviet Union under the Gorbachev regime. However, I will not be able to take this question up now since these posts deal with the evolution of capitalism and not the Soviet Union. Marxists from Russia, who obviously know the history of their country much better than I do, will have to play a leading role in exploring and explaining the origins and nature of the Gorbachev regime and its incredibly destructive economic policies.

5 I believe it was former Ghana President Kwame Nkrumah who coined or at least popularized the term “neocolonialism.” Before World War II, the oppressed countries were either out-and-out colonies of the European countries—India for example—or economically and politically dominated by the imperialist powers—for example, China. After the war, most of the oppressed countries gained nominal independence. In some cases, where there were mass popular revolutions—China, Vietnam, (North) Korea and later Cuba—real independence was won. But in most cases, the oppressed “third world” countries remained under the economic and political domination of the imperialist powers—disguised by formal independence.

The tendency in the former colonies was for the role of European—and Japanese—imperialism to decline, while that of American imperialism grew. For example, Korea was a Japanese colony before World War II, but South Korea today is a U.S.-dominated neo-colony.

While the meaning of neo-colony is close to semi-colony, there is an important difference. Neo-colony refers to a situation where a struggle for independence was waged and some gains were made leading to formal independence. The older term semi-colony best describes a situation where a previously independent nation such as China, Iran or Ethiopia, for example, was able to maintain its formal independence from the colonialist powers but had fallen under the economic and political domination of those powers.

For example, I believe it best to describe Iraq under U.S. military occupation as a semi-colony rather than a neo-colony, because before it was invaded and occupied by the United States in 2003 it had far more independence, both political and economic, than it has today.

6 Historically, economic competition has led to political and military competition. This time, too, the increasingly fierce competition between Europe, Japan and the United States may well end in political and even military competition. But a central tenet of post-World War II U.S. foreign policy is to do all in its power to stave this off. This is the main purpose of NATO, the special “security agreements” with Japan, the continued U.S. military occupations of Germany and Japan, and so on. So far, the United States has been successful in this, but how much longer this situation can last remains to be seen. I will examine this question more closely in the following posts.

7 The status of Britain and France as “victors” in World War II still gives them a status somewhat different from that of Germany and Japan within the American empire. Unlike Germany and Japan, Britain and France have nuclear weapons of their own. Also Britain and France are permanent members of the U.N. Security Council with full veto rights. Recently, the United States has been trying to get U.S.-dominated Japan onto the Security Council in an attempt to assure itself an additional vote. But so far China as balked.

8 After World War II, while the “cold war”—really a global class war as the American Marxist Sam Marcy called it—was gaining the headlines, a struggle was unfolding in the Middle East between the United States on one side and Britain and to a lesser extent France on the other. The U.S. was working to undermine what was left of British domination of the Middle East and replace it with its own domination. While this struggle raged, it gave a certain room for maneuver to Middle Eastern countries such as Egypt, which were trying to emerge from colonialism and semi-colonialism. But after Suez, this struggle essentially ended with a complete U.S. victory.

9 Gorbachev and his supporters proclaimed the “new thinking.” It boiled down to the claim that if the Soviet Union ended its support for national liberation movements and former colonial and semi-colonial countries that were striving to regain their full independence, and surrendered to all other American demands, the United States would prove a benevolent world master, and world peace would be achieved.

Besides the fact that the “new thinking” of pacifist delusions isn’t all that new, no “new thinking” could change the economic laws of capitalist production that determine the aims and conduct of American imperialism. The “new thinking” did work, however, for some of Gorbachev’s supporters insomuch as they became rich through the restoration of capitalism in the Soviet Union. The vast concentration of wealth in the hands of private individuals matched by poverty at the other pole that we see today in Russia and the other former Soviet—and East European—nations would have been impossible under any form of the Soviet system—no matter how bureaucratically degenerated or deformed—created by the workers’ revolution of October 1917.

10 Ultimately, in my opinion, the destruction of the Soviet Union was actually part of the retreat of the world workers’ movement that began during the boom years after World War II, and with some fluctuations has unfortunately continued to the present.

11 This has not prevented some practical bourgeois observers from admitting in the wake of today’s “globalization” and the truly globalized economic panic of 2007-09 that Marx—and not any bourgeois economist—holds the key to the real workings of the system that they deal with every day.

12 U.S. residents weren’t even allowed to own monetary gold in these years.

13 Ironically, it was the strength of the workers’ movement and the strength of the Russian Revolution that saved the German and Japanese capitalists from the fate that American imperialism had been planning for them after World War II.

14 There wasn’t anything “miraculous” about the post-World War II upswings in Germany and Japan. The return to something like normal capitalist prosperity and economic growth after the years of war, hyper-inflation, and Depression, however, appeared miraculous. The booms in (West) Germany and Japan that reconciled both the capitalists and in a different way the working class to the rule of American-dominated capitalism was absolutely vital to U.S. imperialism if it were to achieve its objectives after World War II. Therefore, American imperialism was prepared to pay a high price economically in terms of opening up access to its markets to serious foreign competition to make sure these “miracles” occurred.

2 thoughts on “Does Capitalist Production Have a Long Cycle? (pt 9)

  1. Dear Sam,

    Great stuff! You are dealing with a difficult economic and political forces in these long cycle blogs. Don’t forget to interlace the’ long cycle’ ideas back into your historical discussions.

    Just a note: James Rickards, The Death of Money, has a long chapter on the history of gold in chapter 9, the Gold Redux. He is a right wing neo-con, yet he is aware of the fact that it takes a least a gold price of $1200 to $1500 an ounce to make it profitable to dig it out of the ground; he also understands that the american dollar and its disconnect from the value price of gold is at the center of the financial and economic maelstrom of post 2008 economic downturn and lack of recovery.

    Your persistence in bringing gold into the reality of global economics is slowly sinking into my head, but it’s difficult.

    Rickards also points out that different economic regions are manouvering to establish new economic zones with quasi regional banks based on some quasi gold backing for their ‘currencies’. An example is the SCO or Shanghai Cooperation Organization composed of Russia, China, Iran and Kazakhstan, Kyrgyzstan, Tajikistan with some links to the ASEAN bloc. The othe group is the BRICS group which are setting up the New Development Bank and perhaps and SDR type of currency. Lastly, the Gulf group ,the GCC, including Saudi Arabia is looking to form a monetary union.

    All of these regional groups are trying to avoid fallout from the imminent decline in the values of the dollar.

    Maybe you can comment on this recent development from your perspective.

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