Political and Economic Crises (Pt 16)

Trump is acquitted

The beginning of February finally saw the end of the impeachment saga with the acquittal of Trump in a partisan-line vote with one exception in the Republican-dominated U.S. Senate. That was Senator Mitt Romney, Republican of Utah, who voted to convict on the Article of abusing power. Romney’s vote reflects a growing friction between the conservative Utah-based Mormon religious sect of which Romney is a member and the pro-Trump “Christian right.”

The Christian right does not consider Mormons to be genuine Christians. Mormons indeed have a history of being persecuted in the U.S. They fear that despite their long-time alliance with the right wing of the Republican Party, Trump with his dependence on the Christian right is potentially dangerous to them. This is similar to the fears of even highly conservative parts of the U.S. Jewish community who fear the influence of anti-Semitism within the Trump “movement.”.

The fate of the impeachment trial was sealed when on Jan. 30 the Senate voted to refuse to allow witnesses to testify, making it impossible for the Democrats to advance their charges against Trump any further.

In mid-January, Nancy Pelosi finally sent two Articles of Impeachment, passed by the House of Representatives against President Trump in December, to the U.S. Senate. Essentially, the Democratic House charged that President Donald Trump held up military aid to the pro-imperialist Ukrainian government of President Volodymyr Zelensky to force Zelensky to open a corruption investigation of former-Vice President Joe Biden and his son Hunter. The Democrats charged that Trump intended to use this against Joe Biden if he were to become the Democratic presidential nominee.

Last fall, Pelosi opened an impeachment investigation after reports circulated that a CIA whistle-blower claimed to have received information that Trump was withholding the military aid to the Zelensky government passed by Congress. The aid was designed to strengthen the Zelensky government in the current Ukrainian civil war pitting the pro-imperialist government in Kiev against rebels in the eastern part of the country. The Democrats charge that Trump attempted to force Zelensky to open an investigation of the Bidens not to advance the interests of U.S. imperialism — that would be fine with the Democrats — but rather to increase his reelection chances in the upcoming presidential election. Or to use the language of supporters of U.S. imperialism, Trump subordinated the interests of U.S. “national security” to his personal interests.

At first, the Democrats’ case was based purely on hearsay, which would not be admissible in a criminal trial under U.S. law where the defendant faces a potential loss of freedom — imprisonment. However, federal officeholders like Trump face only loss of office if convicted in an impeachment trial. Therefore, many of the legal protections (1) defendants have in criminal trials do not apply to impeachment trials. A key pillar of the Republican defense of Trump was that the evidence against him was based entirely on hearsay.

However, on Jan. 26 the impeachment effort took a sharp turn. The strongly anti-Trump New York Times reported that John Bolton, Trump’s former national security advisor, in a soon-to-be-published memoir, supports the Democrats’ claim that there had indeed been a “quid quo pro.” That is, Bolton was ready to testify that Trump had demanded that Zelensky announce an investigation of the Bidens in return for continued military aid in the Ukrainian civil war.

Bolton had submitted the manuscript of his book to the White House for the required pre-publication censorship to make sure no state secrets were revealed. The Trump administration is demanding massive cuts in the book the White House claims would otherwise undermine “national security.” This attempt to suppress Bolton’s book provides more circumstantial evidence that Trump is indeed guilty of subordinating the interest of U.S. imperialism to his personal interests in winning a second term as president.

If the New York Times’ reports about the contents of Bolton’s book are true, and if he had been allowed to testify at the Senate impeachment trial, the evidence against Trump would no longer be hearsay. However, it would still fall short of proof. It would be a matter of whether you believe Trump or you believe Bolton.

Bolton is known as an extreme hawk. He always wants to “give war a chance.” Or, as Trump himself put it, if Bolton had his way we would be facing “World War 6.” Maybe Bolton turned against Trump when he failed to order the invasion of Venezuela during last year’s attempted coup, or for his failure so far to launch a full-scale military assault on Iran. So Bolton’s testimony, even if it had been allowed, could not have proved that Trump was guilty of the charges made against him, though it would have greatly strengthened the Democrats’ case.

During the impeachment inquiry against Nixon — who resigned before he could be tried and convicted — Nixon and his Republican defenders claimed that he did not know about the cover-up of the Watergate burglary until it became public knowledge many months later. This argument was blown sky-high when tapes were revealed that showed Nixon planning the cover-up within days of the burglary.

This was the famous “smoking gun” of Watergate that forced Nixon to resign in the face of certain impeachment in the House and conviction in the Senate. If Bolton had been allowed to give testimony that there was a quid pro quo in the face of Trump’s denial, it would still be a matter of whether you believed Trump or Bolton. Maybe a recording will be found one day that will “prove” a quid pro quo, but so far none has appeared.

The Republicans had a back-up defense of Trump in case the quid pro quo had been proven. They say that Trump’s actions, even if mistaken, did not rise to an impeachable offense. However, the Republicans were put in an awkward position by the Democrats. Bolton is an extreme hawk on the right wing of the Party of Order, making him a respected figure among right-wing Republicans.

By pushing for Bolton’s testimony, the Democrats widened the split in the Republican Party between the “Trumpist” and Party of Order factions. How much damage the split will cause to the Republicans in the November elections remains to be seen. One thing favoring Trump is that since Bolton is known to be an extreme warmonger, the split enables Trump to pose as a “pro-peace” president.

Of the three U.S. presidents (including Trump) impeached by the House of Representatives, only Trump and Andrew Johnson have been impeached in presidential election years. However, neither the Democratic nor Republican parties as they existed in 1868 (2) — quite different than the parties bearing those names today — wanted to nominate Andrew Johnson to be their presidential candidate. So the impeached Johnson was not a candidate for reelection. Bill Clinton was impeached during his second term and was thus ineligible under the 22nd Amendment to serve another term as president.

The Democratic leadership finally impeached Trump because they hope that the increasing hatred for both Trump and the Republican Party by the Democratic base — but not the Democratic leadership — will distract from the growing rift between that leadership and its increasingly radical (3) base of workers, particularly non-white workers and workers who are members of religious minority communities, and young people in general who are increasingly rejecting capitalism.

The Democratic leadership has come under attack from progressives for its failure to aggressively oppose Republicans in general and Trump in particular. By impeaching Trump, the Democrats can say to progressives that they tried to remove him but the Republicans refused to cooperate. Therefore, make sure you vote Democratic in November and remove Trump through the election.

What should be our attitude toward impeachment?

Last month, I noted that the Democrats are impeaching Trump not over his real crimes but rather over his alleged lack of wholehearted support for the puppet government of President Volodymyr Zelensky of Ukraine. Unknown to progressives or the American people at large, the Zelensky government is attempting to push a bill through the Ukrainian parliament that will allow the sale of Ukraine’s extremely rich agricultural lands to big U.S. agribusinesses.

As I pointed out last month, the U.S. intervention in Ukraine could lead not only to war with Russia but also a Vietnam-style war against the Ukrainian people. We cannot give any support whatsoever to Republican efforts to keep Trump in office. However, we also cannot at the same time give the slightest support to the Democrats’ anti-Ukraine, pro-war, and in general pro-imperialist impeachment.

We — the working class — have no interest in whether or not Trump attempted to use the Zelensky government against Joe Biden in the coming presidential election. While the Democrats charged Trump with withholding aid, class-conscious workers demand that this aid be canceled, period. Being drawn into what was essentially a phony attempt to remove Trump from office through impeachment, progressives gave backhanded support to the developing war against the Ukrainian people, supported by both the Republican and Democratic factions of the Party of Order as well as Trump.

The Democratic impeachment was an attempt to mislead the mass of people who hate Trump for good reason back into the pro-capitalist, pro-imperialist Democratic Party.

A surge of support for Bernie Sanders

A related but much more politically important development in an eventful January was the surge of support for Bernie Sanders in the polls. This surge was totally “unexpected” — or at least undesired, to say the least — by the Party of Order leadership of the Democratic Party. The leadership planned that if Joe Biden stumbled, as was largely expected as he did in all his earlier campaigns for the presidency, some other corporate Democrat would be found to replace him.

This corporate Democrat would differ from Biden insofar as he or she could be presented to the Democratic base as a “progressive,” something that given his record is impossible with Biden. Indeed, the media largely ignored Sanders though former President Barack Obama was, it was reported, prepared to speak out to stop Sanders but then decided that wouldn’t be necessary.

But now Sanders is surging in the polls. The problem for the Democrats and the Party of Order overall — determined to preserve the two-party system of Democrats and Republicans — is to keep Sanders’ progressive base in the Democratic Party without nominating him for the presidency.

However, the “moderate” candidates who were considered to have a chance of actually winning — and who are not named Biden — have stumbled and faded away. In reality, Sanders is the only candidate for the Democratic presidential nomination who has enthusiastic support from the Democratic base — but not the leadership (4). Among the rank and file, Biden’s supporters are lukewarm at best and favor him only because they believe only he can defeat Trump.

Bernie Sanders is the first self-described socialist (5) — though his socialism is vastly different than anything a Marxist would recognize as such — to have any chance of being elected president. Indeed, polls show that the young, if not the old, have a favorable view of “socialism” and unfavorable view of capitalism. This is unprecedented in the history of U.S. politics. This, combined with the rise of “Trumpism” on the right, points to the increasing class polarization within U.S. society, reflected only in a distorted way within Democratic-Republican politics. Behind this growing class polarization is the decline of American capitalism.

Rising war threat

The biggest story of the eventful month of January 2020 was the developing war with Iran and the renewed war with Iraq. I say developing war — and not the near-war — because the U.S. is already at war with Iran politically and economically.

For a while, it appeared that the so-called nuclear deal negotiated under Obama could finally lead to a normalization of U.S.-Iranian relations. But Trump, keeping a campaign promise that many had viewed as simple chauvinist rhetoric, tore up the Iranian nuclear deal last year. Then, in December, the U.S., using the death of a U.S. military contractor as a pretext, attacked an Iraqi militia aligned with the Shiite sect of Islam, which is an official part of Iraq’s armed forces. The attack led to scores of deaths among the militia. At the same time, Trump announced the suspension of the war with ISIS.

U.S. troops were briefly withdrawn from Iraq under Obama. Now more than 5,000 U.S. troops have been reintroduced into Iraq under the claim they are needed to fight ISIS. But in December, Trump announced they were now fighting Shiite Iraqi militias instead. The Shiite-dominated Iraqi government has been forced to demand the withdrawal of the U.S. troops, and the Iraqi parliament voted unanimously to demand all foreign troops withdraw.

Iraq is, in theory, a sovereign country. Therefore, the presence of U.S. troops in the country against the expressed will of the Iraqi government and parliament is itself an act of war against Iraq, not to speak of their use in combat missions against militia forces that form a part of the armed forces of that government. It is clear that a broader war against Iraq, which began with the announcement of U.S. sanctions against Iraq in 1990 and reached a climax with the outright invasion and occupation of its capital, Baghdad, is far from over.

The Trump government, in retaliation he claimed for the death of a U.S. military contractor, staged an attack that killed dozens of militia members. Outraged Iraqis reacted by staging a mass demonstration at the U.S. “Embassy,” which is not an embassy in the usual sense but was designed under George W. Bush to house the U.S. colonial administration of Iraq. The demonstrators briefly breached the walls of the “embassy” but then withdrew in a disciplined way.

Trump reportedly was furious at the protests. According to reports that may or may not be accurate, Trump asked the military to bring him options to deal with this new upsurge of Iraqi resistance to U.S. imperialism. Among the options was the assassination of Iran’s top military commander Qasem Soleimani, who was a widely beloved figure in Iran and considered the second most powerful man in the country. (6) Pentagon sources told U.S. news organizations that the top brass never expected Trump to pick this option and were horrified when he did.

Soleimani, in Iraq at the invitation of the Iraqi government, was on a diplomatic mission designed to improve relations between Iran and Saudi Arabia, something that the Trump government does not want to happen. Trump then ordered an attack that killed Soleimani and Iraqi militia members at the Baghdad airport. This action was an act of war against Iran and Iraq.

Huge demonstrations swept Iran. As a result, the Iranian government had no alternative but to engage in some kind of retaliatory action. The U.S. and Iran thanks to Trump’s action — an action both criminal and reckless — were now on the brink of a full-scale military war. Iran launched a limited military strike on U.S. bases located in western Iraq, showing how far Iran has come in developing computer-controlled missiles.

The next move was now up to the erratic U.S. president. It was widely feared that Trump would order a full-scale military attack on Iran. Indeed, what would prevent him from ordering a nuclear strike? Who knows what Trump is capable of? (7)

Earlier, Trump indicated that Iranian cultural sites would be likely targets — an action prohibited by international treaties. This was reminiscent of the statement often attributed to Nazi leader Hermann Goering: “Whenever I hear the word culture, I reach for my revolver.” Whether Goering said this, it pretty much sums up Trump.

In the hours after the Iranian actions, the Iranian military had no choice but to assume a massive military strike was imminent. Under these conditions, an Iranian soldier saw a blip on the radar screen that he or she had to assume was an incoming U.S. missile. It turned out to be a Ukrainian airliner and all 176 passengers and crew lost their lives. The U.S. media went on a campaign to blame Iran, but the blame lies with Trump, who started the crisis.

Some have criticized Iran for not grounding all air traffic in face of the war crisis. This might be a valid criticism if it were not for the massive economic blockade designed among other things to reduce Iran’s money supply — when measured in terms of gold and dollars — to create an artificial depression. Iran’s GDP has declined for two years straight due to this blockade. Thanks to the economic blockade, Iran is in a position where it cannot afford to take precautions that would be “commonsense” in the absence of the economic war already being waged against it by the Trump government. (For more on U.S. economic wars, see my article on the crisis in Venezuela last year.) (8)

Much to the relief — and surprise — of many, Trump responded by tightening the sanctions already imposed on Iran. In other words, he escalated the economic war against Iran but drew back from an actual military war at this time. However, the very existence of an independent Iran is encouraging resistance in various forms in Iraq. To reestablish its control over an increasingly rebellious and angry Iraq, the U.S. is driven to crush Iran.

Whoever inhabits the White House — whether Trump, Biden or Sanders — imperialism, which is not a policy but the final stage of capitalism, is driving the U.S. towards war with Iran. And as we saw when we examined the Democratic impeachment of Trump, similar forces are driving the U.S. towards war with both Ukraine and potentially Russia, though the danger of a full-scale U.S. war seems at the moment less imminent there than it does in Iraq and Iran. But things could change quickly, and the impeachment shows that the Democrats are not only not the solution. They are a big part of the problem.

And what about the European imperialist powers, especially the most powerful, Germany? It is clearly in Germany’s interest to maintain trade with Iran if only to prevent itself from being entirely at the mercy of U.S. imperialism when it comes to its energy supplies.

In accord with their own interests, the European imperialists agreed to create a special payments mechanism to get around the U.S. financial blockade of Iran. However, in the wake of Trump’s brazen assassination of General Soleimani and the war crisis, the European countries have indicated they plan to support new UN sanctions on Iran that will add to the sanctions that the U.S. has imposed and have already led to a two-year decline of the Iranian GDP.

Why have the European countries acted in a way directly counter to their interests? The Russian-sponsored news site Sputnik gives a plausible answer. Trump has threatened the EU with a 25 percent tariff on its auto imports to the U.S. market. As I have explained, the U.S. empire is based on an agreement that satellite imperialist powers — the Europeans, Japan, New Zealand, Australia, and Canada — get access to the U.S. and U.S.-protected markets and sources of raw materials. But — and this crucial — they get this access only as long as they do not pursue their interests in a way that conflicts with the interest of U.S. imperialism. Therefore, the European imperialist countries, including Germany, remain very much satellite imperialist countries. The U.S. empire is in long-term decline, but it is far from dead.

War economy and capitalist expanded reproduction

This brings us to the main subject of this month’s post — how war affects the economy and specifically how it affects capitalist expanded reproduction.

A war waged by a capitalist country will cause a certain portion of the total labor — always measured by some unit of time — available to society to be used for production of war material. The result is that a portion of capitalist industry instead of producing means of production or means of personal consumption produces means of destruction.

Marx called the sector that produces means of production — defined as commodities that don’t serve as means of personal consumption — Department I, while the industries that produce means of personal consumption he called Department II. But where does the production of means of destruction fit into this scheme?

What department of production produces the means of destruction?

One solution favored by many Marxists over the decades is to designate a third department of production — Department III — for means of destruction. There is nothing wrong with doing this.

However, if we want to stick to Marx’s two-department scheme, the sector that produces the means of destruction belongs in my opinion in Department II. The reason is that the value of means of production in Department I is conserved as it passes into the commodities produced there. In contrast, the value of the commodities of Department II is destroyed when they are consumed.

The means of personal consumption can be divided into two parts. One is the part destined for the personal consumption of the capitalist class. This portion can be further subdivided into two sub-departments — necessities that are also consumed by the (productive of surplus value) workers and luxury goods. When capitalists consume items of personal consumption, whether the items are necessary goods or luxury items, both the use values and the values of those commodities vanish.

When productive workers consume necessary goods, the use values of the items are transformed into the labor power of the workers. That is, the values previously embodied in the means of personal consumption are transferred into the labor power of the workers. The values change their material form but are preserved. Only when industrial capitalists consume that labor power is its value destroyed. But the destroyed value is then immediately replaced by a portion of the value of the commodities the workers’ labor is producing. In addition to the value those workers’ labor produce, an additional value is produced — the surplus value.

This surplus value is necessary for both simple production and expanded reproduction because of the need to keep the person of the capitalist alive and maintain the standard of living appropriate for capitalists. Capitalists are necessary for simple capitalist production and expanded reproduction. (9)

Simple production replaces the means of production, the means of personal consumption, and the labor power used up in production. Expanded capitalist reproduction creates additional means of production, means of personal consumption, and labor beyond merely replacing what is used up in production. Expanded capitalist reproduction is what we mean by economic growth under capitalism. However, we aren’t quite done. What about the money material?

Money material

Gold bullion when it is used as money material — for example, the gold bricks stored in Fort Knox — does not transfer its value to other commodities. Insomuch as it not used as currency, gold bullion as money material is never consumed, it is merely accumulated. (10) It seems, therefore, that money material belongs to neither Department I or Department II.

However, gold bullion is used for other purposes, functioning as raw material belonging in Department I. So to maintain his two-department scheme, Marx put the production of gold bullion in Department I. Creating a Department III for money material would have greatly complicated the model. However, putting the production of money material in Department I was still something of a fudge.

Therefore, a case can be made for putting the production of gold bullion used as money, as opposed to gold with other use values, in its own department. Leaving aside the problems of model building, we have seen throughout this blog that a certain quantity of the total capital of society must be accumulated in the form of money material. If no new money material is produced, the growth of markets would come to a halt. And without expanding markets, capitalism cannot exist.

Therefore, the production of money material is necessary for capitalist — but not socialist — expanded reproduction. Ignoring the production of money material is commonly done when analyzing reproduction. While it does simplify the problem, it runs the risk of treating capitalist production as though it was socialist production. Under capitalism, expanded reproduction requires not only an expanded scale of production but an expanded scale of circulation — the growth of the market — which is impossible without the production of additional money material.

Finally, there is the question of the production of the material that goes into paper money (ink and paper) and fractional coin (base metals). First, materials that represent paper money and coins should not be confused with money material, since the use value of paper money and base coins is to represent money material but not function as such. Remember, the main function of money out of which its other functions derive is in terms of its own use value to measure the value of all other commodities. It is, therefore, the independent existence of exchange value — the form of value.

The U.S. Mint — a branch of the Department of the Treasury — must purchase the paper, ink and base metals from private industrial capitalists at more or less the prices of production. Then, through the minting and printing process, the Treasury turns these materials into crisp new dollars and shiny new base metal coins. However, since these products are not sold, no value is added by the labor of the Mint’s workers. Unlike gold bullion sitting idle in Fort Knox, however, dollar bills and coin wear out — are consumed — in circulation without transferring their value to another commodity. The actual value of paper dollars is, therefore, gradually destroyed in circulation. Therefore, the materials the U.S. Mint purchases to create paper dollars and base coins should, in my opinion, be placed in Department II.

In many countries, the national mint doesn’t produce the paper money but buys it ready-made from industrial capitalists in the form of newly printed paper notes. In the hands of the industrial capitalists who produce these notes as commodities — but not as money material — the notes represent commodity capital, not money capital. In this case, to represent money in circulation they must be sold by the industrial capitalists at their prices of production to the national mints or central banks for some form of money — in practice commercial bank credit money.

The (credit) money that industrial capitalists get for selling these notes represents vastly less money than the face value the notes represent once they enter circulation. The sector of production that produces these notes is, therefore, part of Department II. (11) By extension, so are the accounting books and today the computers and computer storage media that have replaced traditional accounting books in the computer age, which increasingly replace paper notes and base coins with mere bookkeeping as the circulating media.

The means of destruction and capitalist reproduction

Now let’s examine the means of destruction including tanks, bombs, rifles, bullets, shells, computers used to produce malicious software, and so on produced by private capitalists and sold to the state as commodities. These commodities are consumed by the state itself as means of destruction. If they are used, both their value and use value vanishes. If they are not used, they eventually become obsolete and must ultimately be destroyed. In this case, too, their value vanishes with their use value.

These commodities should be distinguished from the means of destruction produced directly in state-owned factories or military facilities. The latter is destined to be “consumed” by their user, the state itself, and are therefore not commodities. The factories that produce them are not engaged in capitalist production in the strict sense at all.

Many Marxists who have examined this question over the decades agree that military production carried out by private capitalists for profit and sold to the state most resembles luxury goods produced by private capitalists and sold for personal consumption to the capitalists. They are not necessary for capitalist production — though they are necessary for capitalist society given the class and national antagonisms. The necessities consumed by the capitalists class are also necessary since you can’t have capitalist production without capitalists.

What military commodities have in common with luxury goods is that they contribute nothing to expanded reproduction of capitalist production. They are, however, a part of the accumulation of capital for the industrial capitalists that produce them and form a part of commodity capital. But unlike means of production, including raw and auxiliary materials, in the hands of their final consumer — the state — military commodities do not function as means of accumulation or have any role whatsoever in either simple or expanded capitalist production. Therefore, all things remaining equal, the more a capitalist society’s labor is used to produce means of destruction the less vigorous will be its expanded capitalist reproduction.

As a counter-argument, it is claimed with a considerable degree of truth that many new types of commodities originate in the military and then are adopted for use by the civilian economy. This is true of computers and computerized communication in general, including the Internet. However, in the absence of an accelerated expansion of the market, new types of commodities simply compete with existing commodities for market share. If I want to replace my car this year, short of getting a huge raise, I will have to put off replacing my computer and buy fewer clothes.

It is sometimes objected that the above argument assumes there is “full employment” of all living labor and means of production. This is the assumption that bourgeois economists often make, but we know it is false. However, it is argued that war spending, especially if it is financed by deficits, creates additional demand that can stimulate expanded reproduction. This would be the view of the Monthly Review School and many Keynesian schools, including the supporters of Modern Monetary Theory.

Indeed, there is never really “full employment” in a “peacetime” capitalist economy. Indeed, the normal condition is that there is a considerable degree of unemployed labor — the reserve army of the unemployed — as well as excess industrial capacity, surplus raw and auxiliary materials, and idle reserves of money capital. This is true, though the quantity of these idle resources varies greatly with the stage of the industrial cycle, being at its lowest point during an industrial boom and at its maximum at the bottom of a recession.

As a general rule, a sudden increase in war spending will indeed stimulate capitalist production, though the extent this is true will depend on the stage of the industrial cycle. Only if there were an exceptional boom that caused all the labor and means of production to be fully utilized — which in reality never happens — would the outbreak of war fail to simulate production.

However, capitalist expanded reproduction, the ability of production to grow over time, is weakened by war spending. Here we have to keep in mind the difference between production and reproduction. The effect of war on short-term industrial production, employment, and unemployment and long-term capitalist expanded reproduction depends to a large extent on the size of the war relative to the available labor power, means of production and money material. The last is generally overlooked because of the widespread view that under “modern monetary systems” money material doesn’t really exist and the state can always create more money if necessary.

If money material is abundant, existing idle bank reserves can be mobilized by state borrowing for war purposes with minimal impact on interest rates. And if the quantity of money material is growing rapidly due to rising gold production, the central bank can rapidly expand the quantity of bank reserves without triggering currency devaluation and with it rising interest rates. The more gold that is produced the more capitalist governments can wage war.

Therefore, to analyze the negative effects of war spending on capitalist expanded reproduction in a particular situation, you have to take into account not only the state of the real economy — the quantity of idle labor power, industrial capacity, vital raw materials, and food reserves when the war breaks out — but also the total quantity of available money material.

This brings us to the question of the size of the war relative to the total capitalist economy. A “small war” — though no war is small for those who directly face its destructive effects — has a very different impact on the total capitalist economy than a large war. In wars on the scale of World War I and II, so much of the means of production is directed to the production of means of destruction that production of the means of production — especially means of production used for purposes other than producing means of destruction — and the production of means of consumption both decline. The accumulation of capital — as well as use values that represent the capital — turns negative. Under these circumstances, what Ernest Mandel called contracted reproduction replaces expanded reproduction.

If such a war goes on long enough, eventually the standard of living — especially for the working class — and then industrial production and employment declines. Full-scale wars accompanied by contracted reproduction, therefore, can continue for only a limited amount of time. A war on this scale replaces expanded reproduction — the essence of capitalist production — with contracted reproduction, the negation of capitalist production.

In a situation of war-caused contracted reproduction, the industrial capitalists, instead of accumulating or at least replacing their existing real capital, replace their real capital with government bonds. Such bonds are simply promises to repay them in money at a future date, which in turn is based on state taxing power. Ultimately, the value of these bonds — principle plus the interest — depends on the government winning the war. If the government loses the war, the bonds will likely become worthless. For this reason, the industrial capitalists of the warring sides desperately want their side to win. If they lose, the government bonds increasingly replacing their real capital will be capital down the drain.

If in the course of such a war victory begins to look unlikely, the industrial capitalists will try to salvage as much of this capital as possible. They will sell off their government’s bonds for either “hard currencies” judged unlikely to depreciate even if they are the currencies of the enemy country — assuming such currencies exist — or replace them with money material such as gold bullion or gold coins.

Also, the industrial capitalists in these circumstances will hoard other commodities as well and withdraw their means of production in an attempt to save the value of their real capital, even if it undermines the war effort. This is pretty much a picture of the economy of Russia in 1916 just before the outbreak of the revolution. The economy begins to break down as vital inputs are withheld by the industrial capitalists — both from each other and the military. Under these circumstances, the war one way or another soon comes to an end. Therefore, wars on the scale of World War I and World War II tend to be relatively short.

Finally, there is the possibility of nuclear war. The U.S. used atomic bombs against Japan in the final weeks of World War II, and so far this is the only example of actual nuclear war. The far more powerful hydrogen bomb, based on nuclear fusion, has fortunately never been used in war and we can only hope that will continue to be the case. Scientists, in general, agree that a full-scale nuclear exchange between the U.S. and Russia — currently the two leading nuclear powers — would destroy human civilization, though a few hundred thousand humans — largely in the southern hemisphere — would likely survive. Life itself would probably not be destroyed nor would nuclear war destroy the planet.

However, modern society would be destroyed. Scientists agree that the main destructive mechanism would be a nuclear winter, though the damage done by thermonuclear explosions and the deaths caused by radiation sickness would be nightmarish as well. Thermonuclear explosions trigger huge firestorms that would engulf cities. These firestorms would create ash clouds that would rise high into the atmosphere causing a sharp decline in the global temperature and largely shutting off photosynthesis for years.

The nuclear winter would lead to a collapse of agricultural production. This would starve the great majority of humans that manage to survive the initial nuclear explosions, fires and firestorms, and radioactive fallout. Capitalist expanded reproduction, along with much else, would collapse completely. There would not be enough humans left to continue capitalist production or any form of civilization, at least for many centuries to come. Modern capitalist society would have ended in the mutual ruin of the contending classes.

Such a nightmare war if it ever comes will be much shorter than World War I or World War II — unless it forms the climax of a much longer “conventional” war, which is of course possible. What form of economy would continue among the perhaps few hundred thousand survivors is beyond the subject of this blog and will not be explored here.

War without a war economy

At the other end of the spectrum are the many lesser wars occurring today, which though they squander the labor available to society — both living labor and that embodied in machinery, raw materials, auxiliary materials, and items of personal consumption — do not come anywhere near the point of halting the process of capitalist expanded reproduction. Warfare on the scale of the wars now being waged by the U.S. government can continue indefinitely.

Since the events of 9/11 when George W. Bush announced his “war on terror,” the U.S. has been continuously at war. Yet according to the Federal Reserve Board’s figures, despite these wars and record military budgets and even after more than a decade of an upswing of the industrial cycle, less than 80 percent of U.S. industrial capacity is being utilized. Therefore, in the sense of the halt of expanded reproduction and shortage of consumers and rationing, there has been no war economy during this entire 18-plus years of continuous warfare.

War and money

As we have seen, the role of labor, means of production, and raw and auxiliary materials is obvious to all, but the role of money material is largely ignored. It is a basic feature of a capitalist economy that money capital exists side by side with real capital. Money capital is therefore not simply a reflection of real capital like our modern economists assume.

Real capital is defined as means of production, including raw and auxiliary material and labor power once it has been sold and put into motion by industrial capitalists. Money capital, in contrast, consists of money material, actual gold bullion. While money material plays no role in production and the physical aspect of reproduction, it is vital for capitalist expanded reproduction. Therefore, to understand the negative effects of war spending and actual wars on capitalist expanded reproduction we have to keep in mind both the “real” and “monetary” effects.

Negative effects of peacetime military spending and ‘small’ wars on capitalist expanded reproduction

Let’s examine the effect of “small wars” on the capitalist economy.

If the government increases its spending even when there are widespread unemployment and excess capacity, it must either increase the level of taxation or its borrowing. The capitalists will try to the extent they can to shift the entire burden of taxation on the working class, and the result is a lower standard of living of the workers. This implies that wages after taxes fall below the value of labor power. There is, of course, a limit to how far this process can go. If even a small part of the increased taxes hits the capitalists, this will tend to reduce investment and weaken capitalist expanded reproduction.

If the government finances a war through increased borrowing, interest rates will rise, which also weakens capitalist expanded reproduction by discouraging investment. Exactly how much this happens depends on the existing condition of the money market. If there is plenty of idle money capital, there may be very little if any rise in interest rates, and therefore the negative effects on capitalist expanded reproduction will be minimal.

Another possibility is that the quantity of idle money capital is relatively low when a war breaks out. Interest rates may rise initially but economic growth slows down as a result causing interest rates to fall once again.

Major economic crises and war

We have seen in prior posts that over the long run the central bank cannot issue additional paper without the paper money — or electronic equivalent — deprecating unless the additional paper (“token”) money is “backed” by additional gold.

These laws mean that the “best” time for the imperialist government to start a war from a financial point of view is during or immediately after a recession. The worst time to start a war is near the end of the industrial cycle and especially after a series of “strong” industrial cycles that include powerful booms and short and/or mild recessions.

For example, World War I was preceded by the global recession of 1913-14. However, the 1896-1914 period saw what were probably the most powerful booms in the entire history of capitalism. Notwithstanding the 1913-1914 recession, this was a very bad time from the financial point of view to start a war. In contrast, World War II was preceded by the worst Depression in the history of capitalism, which made that period an ideal time, from the economic and financial point of view, to launch the most destructive war the world has as yet seen.

Through a combination of very little increase in global commodity production and falling and then low golden prices (prices measured in weights of gold), and rising global gold production, an unprecedented amount of idle money capital accumulated. This huge hoard flowed in disproportional amounts into the U.S. banking system as European capitalists moved much of their money to the safety of the U.S. Its banking system was flooded with excess reserves backed by the gold bars in Fort Knox and other U.S. Treasury depositors.

This was not “printing press money.” It put the Roosevelt administration in an extraordinarily favorable position to mobilize the huge reserves of money capital into a world war in which the U.S. would pursue the aim not of regional but global domination.

Like all other prices, prices of production must always be defined in the use value of the money commodity. Market prices can be said to equal prices of production when all capitals in all branches of production, including the branch of production that produces money material, realize equal rates of profit in equal periods of time. And these profits must be measured in terms of the use value of the money commodity — for example, metric tons of gold bullion.

When market prices equal the prices of production — at least as a first approximation — money material will be produced in the correct amounts just as they are in the models of expanded reproduction found in Volume II of Marx’s “Capital.” Under these conditions, therefore, the growth in commodity production will be matched by the expansion of the markets for those commodities.

When market prices fall below prices of production, money material will be produced in excess of the correct amounts, meaning that idle money will accumulate in the banks leading to falling interest rates. This is a sign that money material is being overproduced relative to commodities. The surplus money can then be transformed into new productive capital leading to accelerating economic growth and rising employment, or it can be used for war purposes.

The situation where prices are low relative to prices of production is most favorable for wartime finance. However, when market prices exceed the prices of production, money material will be under-produced. This situation leads over time to a general shortage of money. Under conditions of a shortage of money, when governments run deficits interest rates rise along with financial instability. The result is sooner or later a major economic crisis that exceeds a normal cyclical recession.

A tale of two wars

It is well known that wars tend to be inflationary. In analyzing wartime inflation, we must, however, distinguish between two types of inflation. One is currency-devaluation-driven inflation. The other is the inflation of market prices in terms of money material — gold bullion. It is the second type that is of interest to us here.

On the eve of World War I, global gold production was leveling off. This shows that market prices, which had been below the prices of production due to the devaluation of gold during the 1890s, were once again rising above the prices of production. World War I, therefore, was fought against the background of a general shortage of money. The huge government borrowing needed to finance the war — allies Russia, Britain and France borrowed heavily from American money capitalists — led to extremely high and rising interest rates, even in the U.S.

This was a very unfavorable environment from the viewpoint of the imperialist government to finance a world war — though this didn’t prevent the war. By the end of the war, prices defined in terms of gold had risen sharply. Gold mining and refining became relatively and absolutely unprofitable, causing capital to flee this branch of production. Gold production entered a prolonged recession. The whole postwar period from right after the war down to the banking crisis of 1931-33 was marked by acute currency and financial crises and only short-lived stabilizations.

However, the years between 1918 and 1933 were a relatively “peaceful” period in part because the financial situation was unfavorable for starting a war. This, however, began to change dramatically in 1933 just as the world began shifting from a gold shortage — shortage of money capital — to a gold surplus — a glut of idle money capital.

This global monetary glut enabled the Hitler government, with the help of neo-mercantilist controls on the export of currency and annexing of Austrian and Czechoslovakia gold reserves, to “get away” with its massive rearmament program without a major new crisis of the German mark. And, as we saw above, the U.S. dollar was extremely strong during the 1930s. The rapidly improving global financial conditions and resulting easing of the global Depression after 1933 under the prevailing political conditions meant that the world was headed straight into another, far more bloody and destructive, world war.

After that war, Wall Street was flush with surplus money capital looking for investment. Even without the Marshal Plan, U.S. money capital would have flowed to Europe — where money capital was not nearly as abundant — in search of higher interest rates.

All this made possible the rapid economic recovery and consequent stabilization of European capitalism, financed by U.S. bankers. This outcome defied the widespread expectation of contemporary Marxists, who assumed that since World War II was physically much more destructive than World War I it would lead to an even greater financial and economic crisis. The root of the mistake of these Marxists — apart from wishful thinking that all revolutionaries are prone to — was the failure to take into account the role of the quantity of money material. From the viewpoint of capitalist finance, the end of the 1930s was an ideal time to start a war in sharp contrast with the situation that prevailed in the summer of 1914.

Both World Wars I and II had sharply negative effects on expanded capitalist production and gold production. World War II had a stronger negative effect on the “real side” of the economy, but World War I had a stronger negative on the “financial” side — largely due to the high level of market prices relative to prices of production when the war broke out.

After World War II, the U.S. and global capitalist economies entered into an era of strong growth — accelerated expanded capitalist reproduction — which enabled the U.S. to stabilize West European capitalism, especially West German capitalism, after the initial postwar revolutionary wave had run its course.

The tale of a third war

Finally, the Vietnam War, though it at first accelerated the developing prosperity of the 1960s, soon had very negative effects on expanded capitalist reproduction — particularly as regards the production of money material. The sharp escalation of this war, combined in the mid-1960s with the cyclical boom that was already underway, finally drove market prices above the prices of production. Gold production entered into a decade-long depression during the 1970s, leading to the stagflation that ended with the Volcker shock of 1979-80. The Vietnam War, though it brought a wave of “war prosperity,” had quite negative effects on capitalist expanded reproduction.

What effect would the outbreak of a major new war have today?

To be continued.


1 Despite the protections defendants have in criminal trials, like the presumption of innocence and the rule against hearsay testimony, the overwhelming majority of criminal defendants are convicted. According to the Bureau of Statistics Special Report, 92 percent of defendants with public counsel (public defenders) and 91 percent with private counsel were found guilty in the year 1998. The pattern has not changed significantly since then. And if you do choose to go to trial, in addition to the all but certain guilty verdict, you have to serve extra time for even demanding a trial. In contrast, of the three U.S. presidents including Trump who have been impeached, all have been acquitted. (back)

2 In 1868, the Republican Party enjoyed the support of all those people who wanted to end chattel slavery. These ranged from Radical Republicans, based on the freed slaves themselves (who wanted to wipe out slavery and its aftereffects root and branch) and their white allies, to “liberal” Republicans. The liberal Republicans wanted to maintain white supremacy in order to, over time, convert the former slaves into a super-exploited caste of wage workers — as long as the basic unity of the United States with its huge tariff-free continental market and new national banking system with a common banknote currency, was safeguarded. The Republican Party, in general, enjoyed the support of the descendants of the original English settlers and thus the more aristocratic section of the white working class.

The Democrats enjoyed the support of those Southern whites — not all but the majority — who had been thoroughly imbued with the doctrine of white supremacy over several centuries by the former slave-owning ruling class of the South.

In the North, the Democrats based themselves on recent European immigrants who had the worst jobs and pitted them against the newly freed slaves, claiming that they were saving the white workers from the competition of the newly freed slaves in the labor market. This enabled the Democratic Party to falsely pose as the defender of the working class against capital. (back)

3 By radical I don’t mean class consciousness. Class-conscious workers reject the idea of voting for the Democratic Party because it is a capitalist party and will remain a capitalist party even if Bernie Sanders becomes the Democratic nominee.

However, at this time only a handful of people reject voting Democrat on class principles. Those that do are often old-time leftists who, though they refuse to cross the “class line” by voting for Democrats, increasingly support U.S. State Department-backed groups in Iran, Iraq, Syria, Libya, Russia, Nicaragua, and so on.

To be specific, this would include many older socialists who have associated themselves with the politics — though not necessarily as members — of the recently dissolved U.S. International Socialist Organization, which grew out of the right wing of the old Trotskyist movement associated with Max Shachtman (1904-1972) and Tony Cliff (1917–2000). (back)

4 Hillary Clinton recently told HBO — the Internet movie and TV channel — that nobody likes Bernie Sanders. She was right insofar as she was referring to the Party of Order leadership of the Democratic Party but radically wrong about the progressive base of the party. (back)

5 The term “socialism” unlike “communism” is a word with many meanings. I plan to examine Sanders and his “socialism” next month. (back)

6 Trump may have been misled by the reaction to his assassination of ISIS leader Abu Bakr al-Baghdadi in October (2019). In his primitive mind, Trump probably saw both Baghdadi and the widely beloved Soleimani as “terrorists.” Since there was no significant reaction to the assassination of Baghdadi, Trump assumed there would be no reaction to the assassination of Soleimani. (back)

7 This shows an extremely dangerous flaw in the 18th-century U.S. Constitution when applied to the modern world. In the British parliamentary government, the cabinet can overrule the prime minister. For example, I recently saw on the Internet a claim that a drunken Winston Churchill during the buzz bomb attacks on London late in the Second World War wanted to order gas attacks on Germany. This would have broken the informal agreement that ultimately held on all sides not to use gas warfare. The British cabinet simply voted Churchill down. Whether this is true or not, it shows that unlike the U.S. president the executive authority of the British prime minister is checked by other members of the cabinet.

Another example involves Richard Nixon. In one case, Nixon ordered a mass bombing of Palestinians in Jordon. In another, he ordered the bombing of Damascus. However, Nixon’s aides who knew his moods simply ignored him. But what would have happened if when Nixon woke up in the morning he inquired why the papers didn’t say anything about the Jordon or Damascus bombings?

The people around Trump who might know his moods and know how to handle him have been continuously purged. Is there anybody left who knows how to stop a particularly deranged order from Trump? There were none in the case of Trump’s order to assassinate General Soleimani. Would there have been any if Trump had ordered a massive military attack in retaliation for Iran’s limited reactions, or even a nuclear attack?

Under the U.S. Constitution, the president has a power that no 20th-century dictator or despotic ruler from earlier centuries ever had. That is the power to order a civilization-ending nuclear attack that would kill billions of human beings, not to speak of other animals and plants on a scale last experienced during the mass extinction at the end of the age of dinosaurs some 66 million years ago. (back)

8 Pro-imperialist forces in Iran, momentarily silenced following the Soleimani assassination, used the shooting down of the Ukrainian plane to stage a series of demonstrations not against imperialism and Trump but the Iranian government. According to the online publication The Peoples World (reflecting the views of the Communist Party of the United States) the Tudeh Party — which descends from a former section of the Third, or Communist, International — supported these actions. The Tudeh Party apparently thinks this is alright because the demonstrators agreed to include “labor rights” and “women’s rights” in their demands.

If you want to discredit the struggle for labor rights and women’s rights in Iran today, I can’t think of a better way to do it than by forming a bloc with pro-imperialist forces. The Tudeh Party’s bloc is a classic example of an unprincipled one — in this case, a bloc of people presumably fighting for socialism in Iran with pro-imperialist forces. Only reactionaries in Iran, in the U.S., and throughout the world gain from such an unprincipled bloc. (back)

9 This is the fatal flaw in so-called market socialism. Market socialists accept the bourgeois critiques of central planning and tend to replace Marx’s labor value theory with neo-classical marginalism or its close cousin Austrian economics. However, market socialists argue that capitalists are not necessary for a market economy. If we can get rid of the capitalists with their extreme wealth, the market economy will then supposedly produce commodities in proportion to the needs of the worker-producers as revealed by the market. The theories of market socialism had great influence in the Soviet Union and eastern Europe, rising to the surface in the post-Stalin era.

For example, the doctrine that both the means of production and the means of personal consumption are, or at least should be, commodities under socialism became official doctrine. After various partial “experiments” between 1953 and 1985, the Gorbachev leadership decided to implement the market socialist doctrine across the board under the slogan perestroika. Perestroika revealed the truth of what Marx explained all along. A generalized market economy requires private ownership of the means of production. You cannot have generalized commodity production without capitalists.

In China, too, since Deng Xiaoping, market socialism has been the official doctrine of the Communist Party of China. Under this doctrine, the Chinese economy is not a planned economy but a market socialist economy. However, because the Chinese economy is a market economy, it of necessity includes a very prominent role for capitalists — not only small capitalists but billionaires (as measured in terms of U.S. dollars) — as well.

Therefore, whatever socialism is, if the term is to serve as something other than another name for capitalism, it cannot be capitalism without capitalists. This is not to deny, to use the terminology preferred by Marx, that during the transition between capitalism and the lower stage of communism, there will be various combinations of central planning based on public ownership and markets based on private ownership. But to the extent private ownership of the means of production and markets survive, it shows that we are in the transition between capitalism where elements of communism and capitalism are both present, and the lower stage of communism, and not yet in the transition from the lower stage of communism to the higher stage of communism.

The lower stage of communism means that all private ownership and commodity production on any economically significant scale has disappeared and with it the operation of the law of value. The lower stage of communism, however, differs from the higher stage because distribution is at least partially in proportion to the quantity of labor each person has performed as opposed to each person receiving in proportion to their needs. (back)

10 Marx did assume in his famous reproduction models in Volume II that gold coins were the medium of circulation. In simple reproduction, newly mined and refined gold was used to replace the gold coins that wore out in circulation. In expanded reproduction, gold production had to cover not only the replacement of coins worn out but the minting of additional gold coins necessary to circulate additional commodities.

In today’s world, only small amounts of gold circulate, largely in the shadowy world of illegal transactions. However, as we have seen, more gold has to be produced to prevent the paper money or its electronic equivalent — plus all the credit money created by the commercial banks backed by this paper money — from depreciating and kicking off currency-depreciation inflation with all its consequences.

Most Marxists over the decades have simplified Marx’s reproduction schemes, whether of simple or expanded reproduction, by leaving out the production of money material. Indeed, it is largely assumed that with the end of the international gold standard money material doesn’t even exist. This is a huge error in crisis theory. The phenomena of the general relative overproduction of commodities cannot be explained if money material is assumed not to exist. (back)

11 The circulating media, as Marx called it, increasingly takes a non-material form as capitalism develops. During the 18th and early 19th centuries, credit money created by commercial banks often took the form of banknotes. But over time, checking accounts increasingly replaced these printed notes. Today, electronic bookkeeping is increasingly replacing checks. This reduces the circulating media first to bookkeeping and now to invisible entries on computer storage media.

Relative overproduction has to be overproduction relative to something. This is why Marxists who deny the existence of money material end up explaining crises by something other than the general overproduction of commodities. But the correct understanding of Marx’s law of value, which requires an understanding of the continuing — as long as capitalism exists — existence of a separate money commodity, is necessary to understanding other phenomena as well. These include the origin and history of markets and thus the origin of capitalism, the genocide of native peoples of the Americas, African slavery and the trans-Atlantic slave trade, state finance and present-day monetary systems, and not least the war economy. (back)


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