Political and Economic Crises (Pt 13)

Trump faces impeachment

On Oct. 31, 2019, the U.S. House of Representatives passed a resolution by a vote of 232 to 196 that established procedures for the ongoing impeachment inquiry into President Donald Trump. No articles of impeachment — equivalent to counts in a criminal case — have been passed or even drawn up against Trump. The resolution only establishes the technical procedures under which the impeachment probe in the House will proceed.

The vote was almost entirely along party lines. Two Democrats who come from districts that went for Trump in 2016 voted against the proposed procedures. One congressman, who was until recently a right-wing Republican but is now strongly anti-Trump and calls himself an independent, voted for the resolution.

The vote indicates that Trump will probably be impeached in the House. It is possible that new revelations about Trump’s conduct in office could cause — or provide a pretext for — the Republicans to turn on Trump, forcing him to resign or be removed by a vote of two-thirds of the Senate. This is what happened in August 1974 during the Nixon impeachment crisis. But at this time it appears a long shot. Assuming that Trump is acquitted as expected in a Senate trial, he will be in office until Jan. 20, 2020 — or until Jan. 20, 2024, if he wins a second term.

What crimes and misdemeanors is Trump being accused of by the Democrats?

The charges — articles of impeachment — the Democrats are expected to bring against Trump are that he pressured Ukraine’s President Volodymyr Zelensky to investigate Hunter Biden, the son of former vice president and current Democratic presidential candidate Joseph Biden, for corruption. The corruption charges stem from the younger Biden’s membership on the board of directors of Burisma, Ukraine’s chief natural gas producer.

After the “Euro-Maidan” coup in 2014, it is fair to say that Burisma appointed Hunter Biden — who had no experience in the natural gas business — to its board to curry favor with Ukraine’s new master, U.S. imperialism. For his “work” for Burisma, Hunter Biden was compensated with a salary of $50,000 a month. This certainly seems like corruption — and it is — but it is not clear that any U.S. law was broken. After all, the U.S. is an imperialist country and profiting from colonization of countries like Ukraine is not against U.S. law — to say the very least.

Trump in a July 25 telephone call said in effect to Zelensky that if he wanted to receive the military aid Congress had signed off on but Trump was holding back, he would have to open an investigation into the Bidens. This would violate two U.S. laws. One, the U.S. president would be asking a foreign country — Ukraine — to “interfere” in a U.S. election. (1) Two, the quid pro quo of releasing the aid in return for Ukraine “interfering” in a U.S. election serves Trump’s personal interests not the interest of the imperialist state and the capitalist ruling class it represents and therefore is also a crime under U.S. law.

The crime not being investigated by the congressional Democrats is the reduction of another nation, Ukraine, to a semi-colony through a coup that overthrew an elected government and enabled the subsequent stealing of the country’s natural resources to enrich the U.S. capitalist class. Of course, the chief architect of this crime was not Donald Trump — who was not president at the time — but rather Democrat Barrack Obama and his administration, with the full support, however, of the Republican “opposition.”

The Democrats’ charges against Trump is much like a person who committed a murder investigating another person for an act of trespassing made possible by the murder in the first place.

Ukraine is a country that is extremely rich in natural resources, especially its fertile “black soil” agricultural lands and its natural gas. It was a prize possession of the Russian Empire, and one of Germany’s chief war aims during World War I as well as World War II was to gain control of Ukraine and its grain and other natural resources. Without the grain of the Ukraine, the success of the Soviet five-year plans that made it possible to defeat Nazi Germany would not have been possible. It is important to emphasize that on the fundamental question of the right of the U.S. to reduce Ukraine to a U.S. semi-colony, there is not a whit of difference between the Democrats and Republicans, or between the Party of Order of both Democrats and Republicans and the Trump administration with all its Bonapartist tendencies. (2)

A basic feature of the epoch of monopoly capitalism has been the increasing centralization of power in the hands of the executive wing of the state at the expense of the parliament and judiciary. Imperialism, defined as the era of monopoly capital (3), features the extreme centralization of capital and the merger of industrial, commercial and above all banking corporations with the state power. The centralization of political power in the hands of a powerful executive is a historical reversal of the struggle against centralized executive power that marked the transition from early mercantile capitalism to industrial capitalism dominated by free competition and free — more or less — world trade. That era, at least in Britain, saw the transfer of power from the crown to parliament.

However, the growth of executive power is not without its owns perils for monopoly capitalism. We should always distinguish between class rule — the power of the capitalist class as the ruling class — and personal dictatorship, which can be defined as a powerful executive unchecked by law. When a ruling class is strongly entrenched in power, there is no need for a personal dictatorship. Class dictatorship can never be considered secure if it is dependent on a personal dictator.

Perils of personal dictatorship for monopoly capitalism

Even if the dictator is a “real stable genius,” no dictator is immortal. Limits that biology puts on human lifespans, at least up to now, mean that at most a personal dictatorship is measured in decades. This isn’t much time from the point of view of the capitalist ruling class, which plans on holding power forever. When a dictator dies, the succession becomes an immediate problem. The inevitable struggle for personal power among the various claimants can become a starting point for broader political struggle and even civil war. In the latter case, the power of the capitalist ruling class itself can be threatened

In addition, there is no guarantee a dictator will not follow policies that ultimately prove harmful to the ruling class. For example, anti-Semitism had proved useful for the German ruling class and had been encouraged for many decades. By diverting the anger of the German middle class from the ruling class onto the Jewish minority, anti-Semitism helped prevent the middle class from uniting with the workers’ movement. The anti-Semites claimed that the workers’ movement was a scam run by Jews to enrich themselves at the expense of the middle class and the German nation.

The “National Socialist” movement under Hitler’s skillful leadership used the fury of the German middle classes and widespread anti-Semitism to build a movement that could not only wage civil war against the German workers but then build a regime that could mobilize Germany to wage war against the Soviet Union and any rival imperialist countries that got in the way.

However, for Adolf Hitler anti-Semitism was not simply demagoguery but something the German dictator deeply believed in. Once he had achieved dictatorial power, Hitler was determined to eliminate the Jews by whatever means necessary from Germany and later German-controlled Europe, even at the cost of Germany’s war effort.

Before Hitler came to power, German physics had led the world. However, many German physicists were Jews, including most famously Albert Einstein. For example, working in Berlin the Austrian-German woman scientist Lise Meitner discovered nuclear fission, the heart of the atomic bomb. But there was a problem. Meitner was Jewish. Unlike Albert Einstein, who was a pacifist opponent of German militarist imperialism, Meitner was a patriotic German who had strongly supported Germany in World War I. But to Hitler, a Jew was a Jew and she was duly driven into exile in Sweden. This proved to be quite a gift to the enemies of German imperialism, which included both U.S. imperialism and its arch enemy the Soviet Union.

Absent Hitler’s monomaniacal anti-Semitism, Germany’s combination of industrial power and, related to this, its role as a scientific powerhouse that included scientists like Einstein and Meitner meant that it was well positioned to be the first country to develop nuclear weapons as well as the means to deliver them. Germany led the world in rocket science and was the first country to develop jet planes. Hitler’s anti-Semitic policies, however, ensured that Germany would not develop atomic weapons either before or during World War II, which helped destroy any chance Germany would win the war or at least avoid complete defeat.

Also, Hitler’s wartime policy of physically exterminating European Jews diverted valuable resources from the war economy to the death camps. While Hitler’s powerful talents as a demagogic mass agitator and organizer for war proved a valuable asset for German imperialism in its drive first against its own working class and then for European domination, his fanatical anti-Semitism might well have cost Germany the war.

But there is a deeper problem beyond the danger that a dictator’s personal prejudices get in the way of the policies necessary for victory in war. The classical economists explained that capitalism works best when all individuals — and especially all capitalists — pursue their own personal material interests. The classical economists showed that the capitalist order emerges through the clashing personal interests of millions of individuals, what they called “free competition.”

However, the interest of individuals, including individual capitalists, often contradicts the broader interests of the capitalist ruling class. Therefore, as the visible embodiment of the ruling class as a whole, the capitalist state strives to reconcile the interests of the individual capitalists with the general interests of the capitalist class. From this arises the “rule of law” — which reflects the interests of the class as a whole — enforced when necessary against individual capitalists.

In part because of the contradiction between the personal interests of the members of the capitalist ruling class and the ruling class as a whole, the capitalist class is itself divided into different sections that carry out different functions. One function is the active capitalist or “entrepreneur.” These include individual business owners who strive for the maximum rate of profit. As a rule, however, in modern capitalism only small or at most middle-size companies are ruled over by individual or family owners. The really large enterprises, including the banks, are led by chief executive officers, who though they own only a small percentage of the stock function as active capitalists.

The CEOs in addition to representing the corporation they head are money capitalists in their own right, with their individual interests that may or may not coincide with the interests of the corporation they head. For example, the CEOs may loot the corporation’s assets to enrich themselves at the expense of the corporation and its stockholders. However, successful corporations with these kinds of CEOs are eliminated through the process of competition. So the corporations that survive are those where the individual interests of the CEOs to enrich themselves personally are aligned with the collective interests of the stockholders to enrich themselves.

In addition to a layer of active capitalists, the ruling class needs a “political bourgeoisie” which specializes in developing foreign and domestic policies that are in the interest of the capitalist class as a whole as opposed to the interests of either individual capitalists or individual corporations. This layer is made up mostly of money capitalists who though individually wealthy — or become individually wealthy during their service to the ruling class — are not themselves active capitalists.

The political bourgeoisie is further subdivided into elected politicians who function to misdirect the various sections of the “lower classes” through political demagoguery and misrepresentation into voting for one or another set of capitalist politicians. These include both the bourgeois politicians of the right — the conservatives — and the left — the liberals (in the U.S. sense of the word), progressives, and social democrats. In this way, different layers of the working class and petty bourgeoisie are set against one another, preventing the real class contradiction — the one between the capitalists as a whole and the wage workers — from crystallizing. Instead of a conflict between the working class and the capitalist class, we have white versus black and brown, black versus brown, native-born versus immigrant, men versus women, young versus old, straight versus gay, and so on. All these divisions are encouraged by the political bourgeoisie in the interest of the ruling class.

Through this process, the illusion is created that through elections the “people” choose the government and its policies. The “people” are then told that if they don’t like the policy of the existing government — which is generally the case under the capitalist system — they can change it by voting in a different government made up of a rival set of politicians in the next elections. The elections usually change the personal composition of the government, but the policies pursued by the government remain unaffected on all decisive questions.

Another layer of the ruling class is the professional ideologues of capitalism. Their role is to present the rule of capital as the rule of freedom. Some specialize in “political science,” presenting capitalist class dictatorship as the “rule of the people.” Others falsify facts to present the history of capitalist society in general and a given capitalist nation in particular as the triumph of freedom and democracy.

To advance the interests of the U.S. world empire, we also have a layer of experts who develop foreign policies that aim at defending and expanding the U.S. empire. To take examples from the last generation, there was Henry Kissinger, who specialized in developing foreign policies for Republican administrations, and Zbigniew Brzezinski, who did the same for the Democrats.

From the point of view of the ruling class, the perfect form of its class dictatorship is a liberal parliamentary, multi-party democracy.

There is also a layer of highly paid entertainers such as top movie actors and actresses and professional athletes who divert the attention of the “lower classes” away from political questions.

Finally, there is the journalist wing of the U.S. ruling class, the “opinion makers” as they are called. They both create a distorted picture of the news — for example, repeating the claim based on the “estimate” of the U.S. Labor Department that U.S. unemployment is at a 50-year low. Another is explaining why “we” should maintain troops in Syria to defend “our” allies the Kurds. When this is repeated from every media outlet on the right and the left, the overwhelming majority of U.S. people assume that “we” should maintain troops in Syria to “protect the Kurds” from genocide, even if they have no idea who the Kurds are or their real history.

To take another example from more than half a century ago, the great majority of American people were convinced that “we” needed to have troops in “South Vietnam” to protect that “country” against “aggression from the Communist North,” and “Red China,” out to conquer “South Vietnam.” Of course, the great majority of the American people had no idea who the Vietnamese people were or knew anything about their real history. The anti-war movement through “teach-ins” and other ways soon began to change that — and the Vietnamese people on the battlefields were pretty good teachers as well — but that is another story.

Crimes of U.S. presidents

From the 1790s onward, U.S. presidents have committed many crimes. These include but are not limited to defending and expanding African slavery, carrying out genocide against the Native Americans in the early days of U.S. capitalism, and waging imperialist wars of aggression to create and maintain the U.S. world empire over the last century. Most of these crimes were committed in the interest of the two U.S. ruling classes, the slave owners, who based themselves on the exploitation of human labor through African chattel slavery, and the capitalist class proper, which based itself primarily — though not exclusively — on the exploitation of wage labor. Since 1865, there has been only one U.S. ruling class — the capitalist class.

The crimes committed by U.S. presidents fall into two categories. One is the crimes committed in the interests of the ruling classes — which included the slave owners before 1861. The other type of crimes are those committed by presidents for their personal interests. The great majority of the crimes committed by U.S. presidents, from Washington to Trump, fall into the first category. For example, President Obama personally authorized drone attacks — murders — against many people that he was convinced were a danger to the U.S world empire.

What would have happened, however, if Obama had carried out these mob-style hits not against alleged “Muslim terrorists” but his Republican opposition? Imagine if he had sent drones to murder Senator John McCain at his home in Arizona and then kidnapped and murdered Mitt Romney and dumped his body into the ocean like Obama did with Osama Bin Laden and Trump has just done with Bakr al-Baghdadi, without bothering with such details as a trial?

Arguably, the single greatest crime committed by a U.S. president was to order the use of the atomic bomb against an already defeated Japan by President Harry Truman. This mass murder — death estimates range from 129,000 to 226,000 men, women and children — was committed in the interests of the emerging U.S. world empire and not Truman’s personal interests. To put things in perspective, the number of U.S. soldiers who died during the entire war against the people of Indochina is estimated at “only” 58,000, while the fatalities from the 9/11 attack on the World Trade Center were about 2,600.

U.S. presidents are forgiven their crimes by the bourgeois historians, Congress, and the criminal justice system as long as the crimes are committed in the interests of the ruling class. This is true even if the crimes committed by successive U.S. presidents turn out to be bad for the ruling class itself, as some have. In this case, the crimes are described as “well-meaning mistakes.”

For example, Lyndon Johnson’s war against the Vietnamese people ended up costing millions of Vietnamese lives and tens of thousands of U.S. soldiers and had very negative effects on the U.S. economy. It led to an anti-war movement that shook capitalist rule like it hadn’t been shaken since the Great Depression. And in the end, it was a failure on its own terms.

But the spokespeople of the ruling class looking back on history say that Lyndon Johnson made a tragic but well-meaning mistake. Johnson, they insist, should be remembered for his positive achievements such as his signing the Civil Rights Act of 1964 and his “Great Society” social policies, not his “mistake” in Vietnam. If only he hadn’t made this “mistake,” he would have been a “great” U.S. president — right up there with Harry Truman.

And isn’t it true that by monstrously escalating the Vietnam War Johnson believed that he was doing so in the interests of “America” — that is, of the U.S. capitalist ruling class? That is what his advisors and the capitalist “opinion makers” in the media were urging him to do. There is no evidence that Johnson escalated the Vietnam War for his personal interests or that he got anything personally out of it.

But what about crimes that presidents commit for their own account? Well, that is a different matter entirely. The United States is a democratic law-ruled state, after all, and not a lawless dictatorship like Adolf Hitler’s Germany. A particular U.S. president might not like Jews, for example — many have not — but he cannot drive them out of the U.S. or kill them because of his personal distaste for them. Even if he wanted to expel or even kill off all U.S. Jews, he would not get the support in Congress to do that nor would the courts go along. That’s the difference, the spokespeople for the ruling class explain, between a dictatorship and democracy.

Marxists would put it differently. We would say this is the difference between a dictatorship of the capitalists class and a personal dictatorship that functions on top of a class dictatorship such as was the case with Nazi Germany under Adolf Hitler.


Keeping the dictatorship of the capitalist class secure, therefore, requires that there are certain checks on the power of the chief executive. One of these checks written into the U.S. Constitution is impeachment. Impeachment is a quasi-juridical procedure whereby an official of the U.S. federal (4) government — generally a federal judge or U.S. president — is charged with high crimes and misdemeanors by the House of Representatives. The impeached official is then tried not by a jury, as is the case in a criminal procedure, but by the U.S Senate.

If a simple majority in the House of Representatives votes for impeachment, the official is impeached. If convicted by a two-thirds vote of the Senate, he or she is removed from office. The Senate can also decide in the event of conviction that the removed official is ineligible to serve in another federal office. The removed official, however, is not considered a convicted felon even if the articles of impeachment include violations of laws considered felonies.

Unlike those convicted in a criminal court, he or she is therefore not subject to either fines or imprisonment such as a person convicted of a felony by a jury or who pleads guilty or no contest is considered to be. An impeached former official can be charged in the legal system with a crime and be duly convicted by a jury or plead guilty or no contest and then be subjected to fines and imprisonment, but that is a separate procedure.

Under the U.S. presidential — not parliamentary — system, the chief executive officer — the president — serves a fixed term of four years. During those four years, a president cannot easily be removed from office. While this has the advantage of stability for the ruling class, it also has a disadvantage if a particular president for whatever reason proves unsuitable from the viewpoint of the capitalist ruling class. In that case, it is difficult to remove him or her before his or her four-year term has expired.

One of the advantages for the ruling class of a parliamentary as opposed to a presidential system is that a prime minister can be removed from office at any time by a vote of no-confidence. This gives the governing party — for example, the Conservative Party in Britain — the power to remove the prime minister at any time by making clear that if he or she does not resign, he or she will be removed through a no-confidence vote in Parliament. Under this system, a prime minister that the political leaders of the ruling class consider unsuitable for office for whatever reason will be quickly removed without unnecessarily destabilizing the entire political system.

Examples of this type of removal of British Tory prime ministers include Margaret Thatcher, David Cameron, and most recently Theresa May. There are many other examples throughout the history of British parliamentary rule. In contrast, only three, and counting Trump now a fourth, U.S. presidents have faced a serious threat of impeachment or have been impeached. Only two of these were impeached and one other resigned — Richard Nixon in 1974 when it became clear that he would face certain impeachment in the House of Representatives and conviction in the Senate. No U.S. president has ever been removed through conviction in the Senate on impeachment articles leveled by the House, though a few federal judges have.

The two presidents who were impeached but then acquitted by the U.S. Senate were Andrew Johnson and Bill Clinton. The case of Andrew Johnson was the only impeachment crisis that occurred before the imperialist era proper. The other two impeachment crises occurred during the imperialist epoch. The Johnson impeachment involved not the abuse of executive power by the president — that was a mere pretext in his case — but rather the policy the federal government toward the U.S. South after the defeat of the slaveholders’ rebellion. Andrew Johnson, who himself came from a family of Tennessee slaveholders, wanted to maintain chattel slavery in the South in all but name.

Formally, Johnson was impeached because he violated the Tenure of Office Act, which forbids the U.S. president to fire cabinet members. The real reason was that many radical Republicans in the House of Representatives wanted to follow policies to revolutionize to varying degrees the South along (bourgeois) democratic lines. This above all would have meant safeguarding the democratic rights of the newly freed slaves, at least male slaves, both to vote and to be free of the threat of violence by racist whites embittered by the defeat of the slave owners’ rebellion.

The Tenure of Office Act took away the power that U.S. presidents had exercised — the right to fire cabinet members. The Act was later ruled unconstitutional. Johnson was impeached by the U.S. House of Representatives and acquitted by only one vote in the U.S. Senate.

Before the Civil Rights Act and Black Power Movement, the Johnson acquittal was hailed by most U.S. historians as a victory for constitutional rule and general decency. But today Andrew Johnson’s acquittal is considered by most U.S. bourgeois historians to be a tragedy. If Johnson had been removed from office for what in effect would be trying to preserve the essence of African chattel slavery, the rule of Jim Crow in the U.S. South would perhaps have been avoided and U.S. society would have evolved along much more democratic lines. This is a fascinating and crucial question but has little relevance for the current impeachment crisis, so I will not write any more about it here.

The other two — other than the current one, the third — impeachment crises have all occurred within the post-1945 epoch of the U.S. world empire. However, these were two very different impeachment crises. The least important was the impeachment of Bill Clinton by the Republican U.S. House of Representatives in 1998. During the Clinton administration, Republicans launched a series of investigations of Clinton and his wife Hillary that lawyers call a fishing expedition. The Republicans didn’t have a crime, meaning a crime committed by President Clinton, not in the interest of the capitalist class — there were many of those — but for his personal interest. However, that did not prevent the GOP from looking for one.

At first, the investigators focused on the Whitewater real-estate speculation Bill and Hillary Clinton had engaged in in the early 1980s. Essentially, the Clintons invested in residential real estate during the Volcker shock and were taken to the cleaners as interest rates soared to record heights and the real-estate market froze up. The Clintons proved to be lousy market timers and speculators but there was nothing (according to bourgeois law) criminal in their actions. Eventually, the Republicans had to give up on that line of inquiry.

Then rumors circulated in Republican circles that a Clinton aide who committed suicide was murdered by the Clintons. Murder certainly would have been an impeachable offense, but the Republicans failed to provide the least bit of evidence indicating this was the case. Rumors that Bill Clinton had raped various women may have had more substance. Either the evidence was not conclusive on the rape allegations or the Republican investigators were two vulnerable to similar charges themselves to pursue this line of investigation.

Finally, after years of investigating, the Republicans hit pay dirt. They discovered that Bill Clinton had a sexual affair with a young White House intern named Monica Lewinsky. Ms. Lewinsky, who came from a wealthy family, was led to believe that Bill Clinton would divorce Hillary and marry her instead. The naive Ms. Lewinsky was unaware that the president had had many affairs and was swept away by the thought she was the president’s true love and would become “First Lady” in place of Hillary.

If Lewinsky had been a few years younger, the president would have been guilty of statutory rape, a serious charge and surely an impeachable offense. But Lewinsky was of age and consequently the affair involved nothing illegal, just highly unethical behavior. But when Republicans sent a federal investigator to question the president about his thoroughly legal affair with his young office aide, he did what most men would do in similar circumstances. He lied about it.

Finally, the Republicans found a law that President Clinton had broken. It is illegal to lie to police, whether local, state or federal. Clinton was duly impeached by the Republican House of Representatives and the case was sent to trial in the U.S. Senate.

Now, there was a real issue involved here that could have been used against Clinton but the GOP was incapable of taking advantage of it. In the U.S. and indeed in all capitalist countries, men with power over employment take advantage of women to force them into sexual relations with them. In some cases, this may involve excitement that a young woman may feel in having an affair with “the boss.” But in many other cases, the women are made to understand that either they meet the sexual “needs” of the boss or they will lose their employment and livelihood.

If the Republicans had been capable of explaining that the president of the United States was in effect using the “bully pulpit” of the presidency to condone and even encourage the sexual exploitation of women by their bosses and committing a “misdemeanor” in the sense of high crimes and misdemeanors that should not be tolerated in the U.S. presidency, they would have had a point.

But since the men who engage in such actions against their young women subordinates on a daily basis are in no small number Republicans — though Democrats do it too — the GOP was in no position to take advantage of it. Also, there had been no sex scandal of the gravity of the Weinstein and Epstein revelations that had made headlines at that time and no “me-too” movement. Instead, the Republicans based the impeachment effort entirely on the technical fact that the president had lied to investigators about a matter involving his private life that in itself was entirely legal. The Republican investigation against Clinton had in effect created the very crime the president was impeached for.

The public was outraged by the contrived Republican impeachment of the Democratic president and Clinton’s approval ratings soared as the impeachment trial proceeded. The Republicans had a majority in the U.S. House of Representatives but lacked a two-thirds’ majority in the Senate. The Democratic senators formed what amounted to a Clinton defense committee. (Imagine having your defense committee represented on a jury when you are facing criminal charges.)

The Republicans no doubt understood that they never had any chance of removing Clinton from office. They merely sought to embarrass the president and the Democrats, but the whole gambit backfired.

The Nixon impeachment crisis

The impeachment crisis known as the Watergate scandal involved a far more serious political crisis than the Clinton impeachment. It ended with the resignation of President Richard Nixon, which took effect on Aug. 9, 1974. Nixon is the only U.S. president up to the present who did not complete his four-year term or die in office.

The Watergate affair began with the burglarizing on June 17, 1972, of the offices of the Democratic National Committee located at the Watergate Hotel in Washington, D.C. At the time, the burglary was largely ignored by the media as well as the Democratic Party itself. However, after Nixon won the November 1972 election by a landslide, it was revealed that the White House itself was behind the burglary. It became known that Nixon had created a special squad, called “the plumbers,” made up of former CIA agents and right-wing counterrevolutionary Cuban emigres.

Nixon and his Republican supporters claimed the president had nothing to do either with the burglary itself or its subsequent cover-up. Instead, Nixon’s top aides, including his “law and order” attorney general, John Mitchell, and his chief of staff, Bob Halderman, took the fall, and eventually, both men went to prison. Through 1973 and well into 1974, it seemed that because the question of Nixon’s role in Watergate could not be proved one way or another, he would likely cling to office until his term came to its scheduled end on Jan. 20, 1977.

But then, on Aug. 5, 1974, a tape of a 1972 White House conversation was released that revealed that Nixon had organized the cover-up from the very beginning. Whether Nixon ordered the Watergate burglary is still unknown, but this tape was the famous “smoking gun” of Watergate.

After the smoking gun tape was released, Republican senators headed by Arizona Senator Barry Goldwater, the symbol of Republican reaction and together with Nixon the originator of the racist Southern Strategy, turned against Nixon. Goldwater and the other Republicans explained to Nixon that the only way he could avoid impeachment in the House of Representatives and conviction and removal in the U.S. Senate would be if he immediately resigned. Nixon announced on Aug. 8, 1974, that he was resigning effective the following day, Aug. 9. His successor, Vice President Gerald Ford then pardoned him on Sept. 8 for all crimes he had committed.

Ford’s pardon of Nixon has been hailed as heroic by ruling-class historians. The pardon is largely seen as costing Ford his election bid in 1976 — though the “Great Recession” of 1973-75 and its aftermath played a role, too. A trial of Nixon in the criminal courts would have brought to light so many facts about the operations of the capitalist class and its government that it was in the interests of the ruling class to keep them hidden.

Richard Nixon committed many crimes during his long and unusually sleazy career, even by the standards of U.S. bourgeois politicians, not least during the six years he served as U.S. president. His biggest crimes by far involved the Vietnam War. These crimes started as soon he was elected president in November 1968 before he took office when he encouraged the U.S. puppet government in Saigon to ignore outgoing President Lyndon Johnson’s attempts to bring the Vietnam War to an end through negotiations.

Nixon made it clear to the Saigon puppets that he intended to continue and win the war against the people of Vietnam and the other Indochinese countries. This was illegal in itself according to U.S. laws because only the president and not private citizens — even president-elects — are legally allowed to make foreign policy and pursue diplomacy. Nixon’s ultimately unsuccessful efforts to win the war in Indochina cost millions more lives of Indochinese people and the deaths of many thousands of U.S. soldiers. The damage to the environment of Vietnam through the use of Agent Orange is still being felt to this day.

But Nixon was not impeached for these crimes. Instead, he was impeached for what is usually considered a minor street felony — the burglary of the Democrats’ office at the Watergate Hotel or rather the cover-up of said burglary. From the viewpoint of the Democrats and the ruling class they serve, Nixon’s pursuit of victory was at worst a “well-meaning mistake.” And it is only considered a mistake because it failed in the end. In reality, the Democrats and Republicans are equally guilty as regards the Vietnam War and the millions of deaths it caused.

However, Watergate was not an isolated incident. It was part of a developing tendency to go beyond the limits of the law in dealing with Nixon’s pro-imperialist Democratic party opposition. Nixon’s crimes in pursuit of the interests of the ruling class were fine even when they later proved to be mistakes. But far lesser crimes pursued in his personal interest were another matter. If U.S. presidents are allowed to commit crimes not to serve the interests of the capitalist ruling class but to maintain themselves in power, and this tendency was allowed to continue, it could lead to the president becoming a personal dictator with all the dangers this represents to the class dictatorship of the capitalist class.

Nixon’s tendencies to put his personal interests above the interests of the ruling class was by no mean confined to Watergate. Another and far more important example involved Nixon’s economic policy, which is of great interest to this blog and involves parallels to what is happening today. Nixon followed a policy aimed at stirring up an economic boom in 1972 (5), not to serve the interests of the ruling class but to improve his personal reelection prospects, even though this caused great damage to the U.S. economy.

These policies did not involve anything illegal, and Nixon was not threatened with impeachment over these policies. However, if Nixon had not shown a tendency to put his personal interests over the interests of the ruling class as a whole, he might have been forgiven for his role in the cover-up of the Watergate burglary, which after all by itself could have been dismissed as an election season “dirty trick” of no great importance.

Central bank policy and the working class

Before we examine Nixon’s economic policies leading up to Watergate, we should examine whether it is possible to formulate a pro-working-class central bank policy. Is it even possible to have such a policy under the capitalist mode of production? Progressives, democratic socialists, and many Marxists who do not fully understand the Marxist theory of value answer in the affirmative. This view begins with the correct observation that the closer the capitalist economy is to “full employment” the better things are for the working class. If there existed a set of policies by central banks that could achieve more or less continuous full employment under capitalism, the workers’ movements — parties and trade unions — would be correct to demand and agitate for such policies.

After the working class wins political power, the workers’ government will use the mechanism of the banking system, including the central bank, as a lever to transform capitalist production to socialist production. The central bank, such as the Federal Reserve System in the United States, and the private for-profit banking system will not be broken up as progressives such as Bernie Sanders advocate but merged to form a powerful instrument of centralized bookkeeping and economic management. Private ownership of the banking system will be abolished.

Instead of enriching the stockholders of the private banks and helping to maximize the profits of the capitalist class as a whole, as the central bank does, the combined publicly owned banking system will, under the control of the workers’ government, be in a position to organize a policy of genuine full employment for the working class and cheap credit for the remaining small independent producers.

Under these conditions, full-employment policies will make it harder for small-business people to exploit workers while enabling them to remain in business in a non-exploitative way as long as they desire to do so, with the direct aid of the workers’ government. Under these conditions, wage labor will progressively die out, since few people would want to work for wages for another person when they can work in the socialist enterprises owned by the associated producers themselves.

But as long as the capitalist class retains political power, the central bank cannot be used to advance the interests of the working class, even if the central bankers desire to do so. As we have seen throughout this blog, if the central bank attempts to maintain low unemployment by issuing paper currency in excess of the growth of the quantity of new gold bullion flowing out of the capitalist gold mines and refiners of the world, the result will be a devaluation of the currency that breeds inflation that then leads to sharply higher interest rates, credit crunches, and banking crises followed by depression and mass unemployment.

Currency devaluations, though they fail to avoid economic crises, also hurt the immediate economic interests of the working class. Workers have no interest in the devaluation of the medium in which they paid — the devalued currency. During an inflation caused by currency devaluations, prices in terms of the devalued currency invariably rise faster than wages, even when the trade unions are strong and well organized.

Small producers are generally highly indebted under capitalism, and workers are often in debt as consumers. Inflationary policies of currency devaluation favor debtors — the exploited — over their creditors — the exploiters. What is overlooked is that using inflation to wipe out debts is like quenching thirst by drinking salt water. Inflation wipes out old debts but it raises the cost of living and doing business. It forces small producers, businesses, and purchasers of durable goods such as homes, autos, cars, appliances, and so on to borrow more money to meet the higher costs of doing business and purchasing consumer durables.

As we have seen throughout this blog, a devalued currency must always be stabilized sooner or later at interest rates higher than they were before the inflation. Small producers and durable goods purchasers are then obliged to borrow more at these higher interest rates as debt levels rise, leaving them worse off than they were before the inflation.

Finally, high interest rates that follow currency devaluation-induced inflation postpones but then accelerates the closing down of unprofitable factories, mines, large capitalist farms, and other enterprises leading to shrinking employment opportunities for the workers.

Of course, tight monetary policy that is never advocated by progressives but often by conservatives aimed at maintaining the value of the currency that checks the tendency for capitalist production to increase faster than the market can grow is hardly in the interest of the workers. Such policies directly lead to high unemployment while hitting small producers and durable goods consumers with high interest rates.

Capitalist demagogues — for example, Donald Trump — encourage the workers to put the blame for crises and the unemployment they bring on the central bankers. In reality, it is the capitalist class as a whole, not just the bankers, that is responsible for crises of overproduction and the mass unemployment they periodically produce. While the bankers over-lend and the merchants over-trade, it is the industrial capitalists who overproduce.

Now, when I say below that certain policies of the Federal Reserve System carried out under Richard Nixon were harmful, I mean they were harmful to the capitalist system and the stability of the U.S. world empire and thus the interests of the capitalist class as a whole. The alternative “correct” policies — for example, raising interest rates in 1971-72 — would also have been harmful to the working class and its allies among small non-exploiting independent producers.

However, this doesn’t change the fact that certain policies of the central banks can help consolidate the capitalist system in the long run while other policies can undermine the system. Only in this sense is it possible to talk about correct or incorrect central bank policies.

Economic background of Watergate

In February 1970, business-cycle expert and Nixon-nominated Republican economist Arthur Burns (1904-1984) assumed the chairmanship of the Federal Reserve System. Burns took over the Fed leadership just as the economic boom of the 1960s was coming to an end. In a broader sense, so was the post-Depression and post-World War II period of accelerated capitalist economic growth. By the U.S. spring of 1970, signs of an approaching major economic crisis were becoming clear just as a historic mass anti-war strike against the U.S. invasion of Cambodia was sweeping college campuses.

As students walked out of classes and organized anti-war actions, stock market prices on Wall Street were plunging and the U.S. commercial paper market (6) was in deep trouble. Then, on June 21, the Penn Central Railroad — at the time the sixth-largest corporation in the U.S. — went bankrupt, the largest single U.S. bankruptcy up to that time. The U.S. economy was already in a “mild” recession that was on the brink of turning into something far worse.

One development, however, gave the Federal Reserve System room to maneuver. The free market “price of gold,” which had risen above $40 an ounce after the collapse of the “gold pool” in March 1968, had dropped back to $35 allowing the U.S. Treasury to purchase more gold on the open market. The dollar’s renewed strength reflected a growing demand for dollars as means of payment as opposed to a means of circulation as the U.S. economy teetered on the brink of a major credit collapse.

This development indicated that the Bretton Woods international monetary system based on the gold-exchange standard could still be saved but only if the Federal Reserve stopped resisting the developing global economic crisis by following “expansionary” — that is, inflationary — policies. But to achieve this result, the Fed would have had to restrain its creation of new dollars until the panic was underway. This was the course of action the Fed was to pursue in 2007-08 just before the “Great Recession” hit with full force. But that is not what the Fed did in 1970.

Instead, the Federal Reserve System under the Burns leadership moved in the opposite direction. They flooded the U.S. banking system with newly created reserves to prevent the panic from breaking out in the first place. Due to the Fed’s actions, the tension in the money market subsided, the stock market rallied, and the recession remained “mild.”

But as the immediate threat of a financial panic receded, the dollar price of gold resumed its rise. Never again would the free market dollar price of gold see $35 an ounce. From the point of view of stabilizing the international monetary system centered on a gold-dollar exchange standard and holding capitalist overproduction in check, the Burns Fed had eased too soon and too much. As a result, the growing crisis of the international monetary system was about to get a whole lot worse.

In response to the Fed’s “premature” — from the point of view of the needs of capitalist production — easing, the mild 1970 recession gave way to a weak upturn in 1971 that featured unemployment remaining at levels well above the “booming” 1960s and showing little sign of declining, combined with a continued rise in the cost of living. The renewed rise of the dollar price of gold was beginning to breed currency devaluation inflation. The “stagflation” of the 1970s was underway.

The year 1970 was not the first time the Fed had eased “too soon” in the post-World War II period. In 1958, when faced with a sudden sharp recession, the Fed also eased too soon, which led to the first major U.S. gold outflow since 1931. In 1958 like in 1970, the U.S. Treasury was obliged to redeem dollars presented to it at a rate of $35 per ounce of gold by government and central banks, but unlike in 1970 it was also obliged to sell gold on the open gold market whenever the open market dollar price of gold rose above $35 an ounce.

When the price of gold on the open market fell below $35, the U.S. Treasury would purchase gold to raise its price back to $35, causing the Treasury’s gold reserves to rise. When the dollar price of gold rose above $35, the Treasury would sell gold on the open market to knock the gold price back below $35. When Treasury did this, the result was a fall — or drain — of gold from the U.S. Treasury.

Under the then-prevailing international monetary system, an excessively easy monetary policy by the Federal Reserve System did not express itself as it does today in a rising dollar price of gold but in the form of an outflow of gold from the U.S. Treasury.

Until 1958, the central banks of Western Europe, such as the Bank of France and the Bank of England, had maintained confidence that the U.S. would maintain the gold value of the dollar at 1/35 per troy ounce. By holding their reserves in U.S. government short-term securities, which yielded a low but positive rate of interest in terms of gold, the reserves could quickly be converted to gold on the open market rather than in the form of gold bullion itself, which yields no interest. The U.S. dollar was “better than gold.” But in 1958, facing the first real cyclical downturn since the Great Depression, the Fed “flunked the test” and eased too rapidly. That was the beginning of the end of the U.S. dollar’s role as a reserve asset “better than gold.”

Even though the Bretton Woods system had no provisions for devaluation of the dollar against gold, it became clear that sooner or later the “dollar price of gold” would rise above $35, not just momentarily on the “free market” but permanently. Therefore, it made sense for the central banks of those European countries that retained enough sovereignty after the war to make such a decision to shift some of their reserves from U.S. Treasury notes to gold, even though gold yielded no interest. On the open market, speculators were encouraged to purchase gold at $35 increasingly confident that sooner or later its dollar price would rise. (7)

The Fed in 1958 soon realized it had eased too soon and too much in response to the 1957-58 recession. It soon corrected its mistake and tightened once again. This move halted the gold outflow and the dollar’s devaluation was prevented for another decade — the length of an industrial cycle. Though the Fed’s timely action staved off a major international crisis of the Bretton Woods System in the late 1950s, there was a price to pay. The price was that the U.S. economy fell back into recession during the presidential election year of 1960.

The Republican candidate for president to succeed the termed-out Republican Dwight Eisenhower, Vice President Richard Nixon, was furious. But Nixon found himself powerless to prevent the Federal Reserve from following a disastrous policy — from his point of view — of tightening even though this tightening was necessary to stave off a major crisis of the international monetary system.

The return to recession conditions played a major role in Democratic Senator John F. Kennedy’s narrow victory over Nixon in the November 1960 election. For many voters in those days, the Depression was not an historical event you learn about in school like it is today but a living memory. Nor had it been forgotten that the 1930s super-crisis/Great Depression had broken out under Republican Herbert Hoover. (8)

Once again, the U.S. economy was drifting into depression conditions — though not on the scale of the 1930s — under Republican rule. The Democrats had long claimed that a return to Republican rule would mean a return of the Depression. Taking full advantage of this situation, Kennedy ran on the slogan of “Get America Moving Again.”

Democrats were saying to the voters, elect Republicans and you get depression and mass unemployment. Elect us and you get prosperity with plenty of good jobs. Just as Roosevelt ended the Great Depression, Kennedy was saying, I will end the current depression. If the U.S. economy had not slipped back into recession in response to the Fed’s action in 1960, Richard Nixon rather than John F. Kennedy would have almost certainly been elected president.

The absence of Michael Kalecki’s “political business cycle” (see last month’s post on what this is) had proved fatal for Nixon’s first run for president. Nixon was determined that history would not repeat itself in 1972. This time he would have his political business cycle, the long-term interest of the capitalist system and its ruling class be damned.

The two-tier dollar price of gold

After the collapse of the gold pool in March 1968, the U.S. Treasury agreed to a two-tier price of gold. On the open market, the dollar price of gold would be free to fluctuate. Among government and central banks, gold would be traded at the official price of $35 per ounce. This could work, however, only as long as the official price of gold and the free-market price were not too far apart. If the free-market price exceeded $35 an ounce, central banks could make a quick profit by redeeming some of their dollars at the U.S. Treasury for $35 and then reselling the gold at a higher price on the open market. The bigger the gap between the “low” official price of gold and the higher free-market price the more this would be the case.

Of course, the U.S. government exerted considerable pressure on the European central banks not to present their dollars for redemption at the U.S. Treasury gold window, but this could only go so far if the gap between the official and open market price of gold kept widening. At first, the two-tier price of gold worked reasonably well. This was not an accident but occurred because immediately after the collapse of the gold pool the U.S. moved to raise taxes and the Federal Reserve Board moved to tighten monetary policy, making U.S. dollars scarcer and thus more valuable in gold terms. With a recession now clearly approaching, the dollar’s role as a means of payment was once again gaining importance as opposed to its role as a means of circulation.

Not least, the outgoing U.S. president, Lyndon Johnson, moved to cancel his plan to again greatly increase the size of the U.S. expeditionary force in Vietnam in the wake of the January Tet Offensive by the Vietnamese resistance. Instead, the Johnson administration opened up negotiations to end the war — the very negotiations that were to be illegally undermined by Richard Nixon once he won the presidency but before he could assume office in November 1968. As a result, the dollar price of gold entered a bear phase. As long as the bear market in gold lasted, the two-tier dollar price of gold could last as well. But once a bull market in gold replaced the bear market, a major crisis of the now weakened Bretton Woods system could not be postponed for long.

When the bull gold market resumed in response to the Fed’s easing too much and too soon, the crisis of the Bretton Woods System came to a head. The crunch came in August 1971. As the difference between the dollar price of gold of $35 and the free-market price widened in 1971, European central banks and governments led by the Charles De Gaulle government of France presented dollars to the U.S. Treasury and demanded payment in gold. Only a sharp tightening of monetary policy by the Federal Reserve could now save the two-tier price of gold.

This was the course that Burns, a conservative economist, wanted to follow because he knew full well that this was the only way that the Bretton Woods gold-dollar exchange international monetary system could be saved. But Richard Nixon was determined that 1960 not be repeated in 1972. For nothing was as important to Nixon — not what was left of the Bretton Woods System or the long-term stability of U.S. capitalism — as his winning a second term in the November 1972 presidential election. Nixon was on a collision course with the Federal Reserve under his appointed chairman, Arthur Burns.

Nixon attacks Burns, and Burns surrenders

Nixon launched a personal campaign against his “friend” Arthur Burns. Negative news stories about the Fed chief at the White House’s direction were planted in the newspapers. The administration threatened to introduce legislation to put the Fed under the direct control of the White House: “The President looked wild; talked like a desperate man; fulminated with hatred against the press; took some of us to task – apparently meaning me or [chairman of the Council of Economic Advisors, Paul] McCracken or both – for not putting a gay and optimistic face on every piece of economic news, however discouraging; propounded the theory that confidence can be best generated by appearing confident and coloring, if need be, the news.” If we didn’t know better, we would think that Burns was writing about — Donald Trump!

Nixon gets his political business cycle

Unlike in 1960, Nixon was to have his political business cycle. In November 1972, the U.S. economy was booming and Nixon won by a landslide, carrying every state except for liberal Massachusetts. How in the face of the “run on the dollar” of August 1971 did Nixon manage to achieve these happy results?

First, Nixon ended the redemption of the dollar for gold by foreign governments and central banks at $35 an ounce — or any other rate. It was announced as a temporary measure but proved to be permanent. Wage-price controls were imposed, though as carried out by the capitalist state the wage controls were more “effective” than the price controls. Inflation was suppressed by government decree but not for long.

Milton Friedman denounced Nixon’s “socialist” policies. Weren’t free prices vital, the right-wing economist believed, in giving industrial capitalists signals to produce what consumers desired? And indeed, to be fair to Friedman, there is some truth to this argument. But while Friedman denounced Nixon’s “socialism,” progressives of the day, though they despised the shady right-wing Republican president, were delighted.

Inflation, recession, monetarism, and the Phillips curve

While Nixon’s policies were successful insomuch as he won the November 1972 election by a landslide, they were not what the capitalist economy and the ruling class needed to maintain economic and political stability in the long run. Under the economic conditions of 1972, what the capitalist economy needed was a tighter monetary policy to stabilize the dollar — lower the dollar price of gold — and, more fundamentally, liquidate runaway overproduction that the 1970 recession had been too mild to sufficiently accomplish.

While the wage-price controls that were more wage than price controls raised the rate of surplus value and therefore the rate of profit, they did nothing to liquidate the ongoing overproduction of non-money commodities relative to gold bullion. Surplus value that is not realized in terms of the use value of gold bullion is not profit. And without profit, capitalist production cannot exist for long.

To make it possible for the value and surplus value that commodities contain to be realized on the market (in terms of gold bullion) in the long run, capitalism needs periodic recessions and occasional much more intense crises to keep the production of money material in balance with the production of non-money commodities. This is the price of maintaining private appropriation — private ownership of the means of production and products these means of production produce — alongside socialized production. There is simply no way around this.

Immediately after the November 1972 election, inflation broke through the price controls as capitalists increasingly withheld commodities from the market. This growing withholding of commodities soon forced the Nixon administration to end the controls. For Nixon, the controls had done their work by artificially suppressing inflation allowing Nixon to claim falsely that he had beat inflation.

As primary commodity prices and both wholesale and retail prices rose, real demand fell. With a little help from the 1973 Arab oil embargo (9) — largely a reaction to the devaluation of the U.S. dollar — the U.S. economy began to stagnate. The first phase of the “Great Recession” of 1973-75 had begun, though at this stage it was a “mild” recession. More than the recession, it was the long lines at gas stations that angered people as oil monarchies and the oil refiners withheld gasoline from the market because the “controlled prices” were “too low.” As the controls were lifted, inflation soared, consumer purchasing power plummeted, and interest rates rose as the dollar price of commodities continued to climb.

Only after the mild recession turned into a Great Recession, which occurred in the fourth quarter of 1974, just after Nixon resigned, was the rise in the dollar price of gold temporarily halted. The onset of a deep recession again brought the role of the dollar as a means of payment to the fore.

The lesson the capitalist ruling class learned was that U.S. presidents must not be permitted to interfere with the Federal Reserve System’s operations for partisan — that is, Democrat versus Republican — political purposes. No Kalecki-type political business cycle on top of the industrial cycle can be allowed under pain of radically undermining the long-term both economic and political stability of the capitalist system..

Economic controversies of the early 1970s

In those days, capitalist macroeconomics in its attempts to explain the co-existence of high inflation and high unemployment were divided into two schools. One school, associated with right-wing Republican politics, was led by Milton Friedman. Friedman used a slightly modified version of the old-fashioned quantity theory of money — rechristened “monetarism” — to explain the inflation.

The Federal Reserve System, Friedman complained, was creating money faster than the ability of the industrial capitalists to increase production. As a result, according to Friedman, demand exceeded supply at the existing prices. The cure to the inflation was to restrict and stabilize the rate of growth of the money supply — defined as the total supply of paper dollars, fractional coin, and checkable bank deposits — a variable that Friedman falsely assumed was under the Federal Reserve System’s strict control.

Friedman admitted that his proposals to slow and then stabilize the growth in the “money supply” would cause a new recession with rising unemployment. But convinced, or so he claimed, of the basic stability of the capitalist system, Friedman held that as long as the monetary authority kept the rate of growth of the money supply as defined above stable, the recession would not last long, unemployment would not rise that much, and recession would soon give way to renewed prosperity. Even if Nixon believed in Friedman’s theories — and who knows what if anything Nixon really believed, or whether he even gave economic theory any thought at all — his answer would have been, “This is well and good, Milton, but it won’t help me win the November 1972 election!”

The other prominent theory to explain the stagflation setting in during the early 1970s was inspired by the writings of John Maynard Keynes. Keynes, who is the favorite bourgeois economist of the progressives and social democrats, claimed that prices are determined by money wages. The supporters of this theory claimed that the inflation of the early 1970s was a cost-push rather than demand-pull inflation. The rising cost of production, this school held, forced businesses to raise prices. And what determined the cost of production? Why the price of labor. In other words, the unions were to blame. They were “too strong” and using their excessive strength to demand higher money wages. This was the cause of the stagflation of the early 1970s.

In reality, though the unions were a lot stronger in those days than they are now, their policy was essentially defensive. As the cost of living rose, they had no alternative but to seek higher wages for their members. The unions were reacting to inflation, not causing it. The wage-price spiral, as it was dubbed in the media, was based on an old economic fallacy that higher wages lead to higher prices. This fallacy was first disproved by the great classical English economist David Ricardo and then, basing himself on Ricardo’s work, by Karl Marx.

The classical Marxist refutation of the so-called “cost-push” theory of inflation is found in the pamphlet “Value, Price and Profit,” by Marx. The cost-push theory of inflation is expressed by the so-called Phillips curve, named after New Zealand economist William Philips (1914-1975). Basing himself on Keynes, Phillips assumed correctly that the lower unemployment is, everything else remaining equal, the more wages will rise. While Ricardo and Marx explained that higher wages would lead to a lower rate of profit (9), Phillips following Keynes, who in turn followed Malthus, falsely claimed that higher wages would by raising the prime cost of producing commodities cause higher prices.

Behind the cost-push theory of inflation is Malthus’s vulgar theory of surplus value as an extra charge added on top of the value of commodities that in turn is determined by the “value of labor.” This isn’t simply ancient history, because the claims that higher wages lead to inflation is often repeated today, not as a theory but as a fact in the media. Also, though it deserves to be forgotten, the Phillips curve is being mentioned again in the media. The only difference is that the Phillips curve is used to explain today’s “low” inflation while in the days of Nixon it was used to “explain” the high inflation. The message is that any renewed strength of the unions will mean a return to inflation. The Phillips curve is not only false, but it is also reactionary.

Inflation, according to supporters of the Phillips curve, can always be stopped if unemployment rises high enough to halt the rise in money wages. The problem would be that high unemployment would tend to radicalize the workers such as happened in the 1930s. The early 1970s was an era when trade unions coming out of World War II and the postwar boom were still strong and the Soviet Union and the socialist camp represented an actual and not simply theoretical alternative to the capitalist economy.

Why are progressives who are pro-trade union attracted to the anti-trade union arguments of Keynes and Phillips? The reason is that Keynes and Phillips, unlike Friedman, claimed that it was possible to halt the inflation of the early 1970s without a recession while retaining the capitalist system. If only the trade unions followed a policy of moderation — that is, did not take full advantage of opportunities to raise money wages when labor market conditions were favorable to the sellers of labor power — inflation would be avoided. Then, supporters of the Phillips curve argue, there would be no need for the government and central banks to follow “restrictive” (like balanced budgets) and “tight” monetary policies. If the unions are not willing or not able to voluntarily moderate their wage demands, the supporters of the Phillips curve claim, the government should step in and forcibly limit both wage and price increases.

Liberals and progressives were attracted to the Phillips curve because of its bogus promise of recession-free “full employment” capitalism. They accepted then as today the claim that booms end not when markets become flooded with overproduced commodities but rather when the capitalist economy runs out of a fresh supply of workers. When this happens, workers win higher money wages leading to higher prices. Governments and central banks then respond to inflation by “raising interest rates” and move to balance budgets by raising taxes and holding back on spending, which causes a recession. If workers would only moderate their demands for higher money wages — or be forced to by the government — when labor markets are “tight,” inflation would be avoided and there would be no need for recession-inducing “tight” fiscal and monetary policies.

In August 1971, progressives were delighted when Nixon, a conservative “free market” Republican, ditched the last remnant of the international gold standard — hated because it stood in the way of “expansionary” monetary policies and was blamed for causing the Great Depression — and adopted wage and price controls.

What happened?

Almost 50 years have passed since these events and we now know what the actual outcome was. One outcome as we have seen was that in August 1974 Nixon facing certain impeachment in the House of Representatives and conviction in the U.S. Senate resigned. But what happened economically?

Author Bob Navarro in his book “Chairmen of the Federal Reserve,” writes: “There was significant inflation during this period, which Nixon attempted to manage through wage and price controls while the Fed under Burns maintained an expansive monetary policy. Although Burns opposed Nixon’s decision to close the ‘gold window,’ he assured the President that he would support his new program fully. (10) After the 1972 election, due in part to oil shocks from the 1973 oil crisis, price controls began to fail and by 1974, the inflation rate was 12.3 percent.”

In other words, the Burns-led Fed, though Burns knew better, knuckled under to Nixon’s demands that served not the general interest of the ruling capitalist class but only Nixon’s reelection campaign. It certainly worked for Nixon in November 1972. In part due to a booming economy, Nixon won by landslide victory both the popular vote and in the electoral college. But in the end, Nixon served half his second term only to be ousted by the U.S. Congress under the threat of impeachment and conviction. The “Great Recession,” staved off in 1970, hit with full force in the fourth quarter of 1974 within weeks of Nixon’s forced resignation. But as we have seen elsewhere in this blog, the U.S. economy was destabilized well beyond the Great Recession of 1973-75 and bears the scars to this day.

The lesson the U.S. capitalists learned was that the president must not interfere with the Federal Reserve System’s operations for partisan, Democrat versus Republican, political purposes. A Kalecki-type political business cycle on top of the actual industrial cycle is highly de-stabilizing to the capitalist system, both politically and economically. Today, Donald Trump is demanding a political business cycle to increase the chances of his reelection in the November 2020 elections. Could the economic and political history of 1972 repeat itself in 2020?

To be continued.

1 This resembles Russiagate where the Democrats accused Russian President
Vladimir Putin of intervening or “attacking” the U.S. presidential and congressional elections held in November 2016. However, in the alleged Russiagate affair, the Democrats attempted to prove that Trump was serving the interests of Russia’s ruling capitalist class at the expense of the U.S. capitalist class. In the current scandal, it is Zelensky who is the puppet and Trump the puppeteer. (back)

2 Socialist construction in Ukraine ended 30 years ago under Mikhail Gorbachev’s perestroika “reforms,” just as it did in the rest of the USSR. Since 1991, Ukraine has been an independent capitalist nation. However, this has been a mere formality since the 2014 coup, which effectively reduced Ukraine to a U.S. semi-colony.

However, some of the gains made possible by the October 1917 revolution in the former Russian Empire remain. One such gain, though now largely negated by the Euro-Maidan coup, is the fact that Ukraine is formally an independent nation. Before the 1917 revolution, Ukraine was a colony of the Russian Empire.

Second, elements of the nationalization of land have remained. While land can now be privately owned in the Ukraine, it cannot be freely bought, sold and mortgaged. However, under the pressure of its U.S. masters, the puppet government of Ukrainian President Volodymyr Zelensky is now attempting to push a bill through the Ukrainian parliament to allow land to be sold and mortgaged without restriction. U.S. agribusiness corporations are now positioning themselves to buy up the “black earth” of Ukraine for a song from money-starved Ukrainian landowners as soon as the latter gain the “freedom” to sell it.

This is a repeat of what happened during the Nazi occupation of Ukraine during World War II. Nazi Germany was planning to make Ukraine the “jewel in the crown” of its new empire. Wealthy German capitalists-landowners were planning to buy up Ukraine’s “black earth” agricultural lands and other natural resources. Today many Ukrainians are bitter as the same process is unfolding again with the difference that this time it is U.S. and not German corporations that will benefit.

On Oct. 31, 2019, Associated Press correspondents Lynn Berry and Inna Varenytsia quoted John Shmorhun, CEO of the U.S.-dominated agribusiness company AgroGeneration as explaining: “It’s very emotional, I think it dates back to the war, when black earth was being exported by the Germans. People don’t forget that.”

If the Democrats want to investigate a real crime of Trump in Ukraine, they could draw up an article of impeachment charging him with forcing the U.S.-controlled puppet government to sell off Ukrainian “black earth” to U.S. agribusiness corporations such as AgroGeneration. (back)

3 I do not define imperialism simply as a handful of advanced, or “core,” countries exploiting oppressed countries and peoples. While this is indeed a feature of imperialism, it has marked the entire history of capitalism from the 16th century . The central feature of imperialism that distinguishes it from the early stage of capitalism is the growth of monopoly marked by the monstrous centralization of capital out of capitalist free competition itself, signaling the approaching end in the historical sense of capitalist production. (back)

4 Officials in the U.S. can also be impeached by state legislatures according to rules prescribed in state constitutions. (back)

5 The boom of 1972 was not the only reason for Nixon’s landslide. Nixon had gradually withdrawn U.S. ground troops from Vietnam, though he increased the bombing and chemical warfare against Vietnam, Cambodia and Laos. The result was a sharp drop in U.S. casualties. He had also moved to normalize relations with the government of the People’s Republic, and the U.S. media began to refer to China by its actual name rather than “Red China” as it had done up to that point. Nixon’s move to normalize relations with the People’s Republic of China was highly popular among the American people.

Also, the big business-controlled media strongly supported Nixon, picturing his Democratic opponent Senator George McGovern as a radical leftist, much like they describe Bernie Sanders today. McGovern’s main talking point that he was a “peace candidate” determined to finally end the Vietnam war was largely neutralized by the sharp fall in the number of U.S. casualties due to Nixon’s troop withdrawals. (back)

6 Commercial paper is short-term unsecured loans that corporations make to one another. (back)

7 This gold physically remained in the vaults of the Federal Reserve Bank of New York, where it was kept for “safety reasons.” However, the U.S. government could not seize this gold without politically undermining the so-called Western alliance, which formed and still forms the cornerstone of the U.S. world empire. (back)

8 It was a historical accident that the super-crisis of 1929-33 broke out under a Republican rather than a Democratic administration. The last prolonged depression had occurred under Democrat Grover Cleveland in the 1890s. As long as the depression of the nineties remained in popular memory, the Republicans were able to run against Cleveland. But after the 1930s, the Democrats could run against Herbert Hoover. They continued to so as long as the Depression remained within living memory. (back)

9 In the wake of the U.S. government’s support of Israel in its October war of 1973 against Egypt, Arab countries including the Saudi Arabian oil monarchy announced a boycott of oil sales to Western countries, especially the U.S. The embargo was soon called off though as the U.S. and its Western “allies” continued to support Israel. However, the boycott did enable the Arab oil-producing countries to protect themselves against the massive devaluation of the U.S. dollar unfolding under Nixon. (back)

10 Marx would have said, “everything else remaining equal,” rising wages will lower the rate of profit and falling wages will raise it. Ricardo would have said the same thing without Marx’s qualification. The reason is that Ricardo like other classical economists since Adam Smith ignored the role of constant capital in determining the rate of profit. From Adam Smith on, the classical economists including Ricardo held that what Marx called constant capital is reducible in the final analysis to variable capital. However, this qualification does not affect the essence of the issue we are considering here. Whether we follow Ricardo straight or Ricardo with Marx’s modifications, the Phillips curve is still false. (back)