April 30 Venezuela coup fails as trade war with China intensifies
On April 30, the Trump administration backed by the “Party of Order” launched a major new attempt to overthrow the democratically elected government of Venezuelan President Nicolas Maduro. Juan Guaidó, claiming he had major military support, announced that “Operation Freedom” – the coup – had entered its final stage. The hope of Trump, Mike Pence, John Bolton, and Eliot Abrams, supported by Democrat Speaker of the House Nancy Pelosi and Senate Minority Leader Charles Schumer, was that the Maduro government would be overthrown by May Day – the international workers’ holiday.
The hope of Trump and the Democrats was that Trump-appointed Juan Guaidó – perhaps on May Day itself – would be installed as the puppet “interim president.” The counterrevolutionary victory would then be ratified in a hastily organized election in which the overthrown Chavistas would be banned from participating, thus guaranteeing a victory for the pro-imperialist reactionaries.
Instead, the coup never got off the ground, and the Chavistas staged one of the largest May Day demonstrations in years, completely dwarfing the small, dispirited actions held by the Guaidó forces. Of course, the events of April 30-May 1 were only a battle – but an important one. A battle has been won but the war continues. The Trump administration still indicates that if all else fails it reserves the right to pass from economic and political war to a full-scale military invasion.
If the coup had succeeded, Trump, who has promised to banish socialism forever, would have celebrated what to him – and his class – would have been a major victory. When Trump uses the term socialism – a term of many meanings – he is not using it in the sense Lenin used it in his classic work “State and Revolution.”
In that work, Lenin defined socialism as the first stage of the future communist society. In this stage, private ownership of the means of production and with it the division of society into classes, along with commodity-money relations of production, have already died out.
But Lenin explained that socialism, while a form of communism, is an imperfect communism because people will still be paid, at least in part, according to their work rather than according to their needs, as would be the case in the higher form of communist society.
Trump, in contrast to Lenin, means by “socialism” the policies advocated by modern European social-democratic parties. These parties advocate a capitalist society with laws that limit the workday to 40 hours or less so workers have time to participate in politics; the right of workers to organize into unions and political parties and establish a mass workers’ press; and recognition of housing and education as rights along with social guarantees such as unemployment insurance, social security, and the right to medical care regardless of income and the ability to pay.
These things, even when taken together and fully realized, are still very far from Lenin’s definition of socialism. Under social-democratic “socialism,” society remains divided into a class of capitalist buyers of labor power and workers who sell their labor power and through their unpaid or surplus labor produce surplus value. The U.S. has achieved less of the elements of “socialism” in the modern social-democratic sense than virtually any other advanced capitalist country.
For example, a smaller percentage of the U.S. working class has union representation than in any developed, or even not-so-developed capitalist country (1), and the eight-hour workday is routinely violated by the bosses, forcing people to work overtime or work multiple jobs. During the current economic boom, many workers are living in their cars or in the streets, not so much despite the boom but because of it due to soaring boom-time rents. There is in the U.S. no basic right to medical care or education beyond high school. There is also no mass workers’ press to counter the bosses’ propaganda. Even basic, purely bourgeois-democratic rights such as the right to vote in elections when the only choice is between a Republican or a Democrat is negated in practice in many U.S. states.
Although there are far more elements of social-democratic “socialism” in Europe, Australia, New Zealand and even Canada than in the U.S., in these countries, too, they are under attack by the capitalist ruling class.
Unlike the Republican Party, the Democratic Party in the U.S. claims to be for many of the things that constitute “socialism” in the social-democratic sense. This is why more U.S. people support the Democratic Party than the Republican Party. For example, the Democrats claim to support the right of workers to form unions as well as to Social Security. A growing number of Democratic politicians, not including the Democratic Party leadership, claim to favor “Medicare for all.”
Some of the more left Democratic Party politicians, most famously Bernie Sanders (2) and Alexandria Ocasio-Cortez (3), the latter quickly becoming a household name, describe themselves as democratic socialists. By this, they do not mean that they are working for a socialist society in the sense Lenin used the term. Rather, they mean that they are in favor of “socialism” in the modern social-democratic sense. This comes down to advocating that U.S. workers should have the same rights that workers in Western Europe, Australia, New Zealand, and to some extent Canada enjoy.
Democrats form a united front with Trump, Pence, Pompeo and Abrams against the people of Venezuela
Yet in the struggle against the people of Venezuela, these same Democrats have formed a united front with none other than Donald Trump, John Bolton, Mike Pompeo and Eliot Abrams. These are the very same people who tried unsuccessfully to repeal Obamacare in Congress and are now trying to repeal it through the courts. Nancy Pelosi, the speaker of the House and the highest-ranking elected Democratic Party officeholder, and Charles Schumer, the Senate Majority leader, are quite open in their united front with Trump against the people of Venezuela.
Left-wing Democrats like Senator Bernie Sanders and Alexandria Ocasio-Cortez are participating in the united front with Trump shamefacedly by supporting the false claims of the Trump administration that President Maduro is a “bad guy” and was not democratically elected. (4) In reality, U.S. politicians, even Sanders and Ocasio-Cortez, have no right to determine who is and who is not the legitimate president of another sovereign country. Therefore, the right to determine who is and who is not the president of Venezuela belongs to the Venezuelan people alone.
Politicians like Sanders and Ocasio-Cortez are being forced to participate in the united front with Trump against the people of Venezuela because they are working within the capitalist and imperialist U.S. Democratic Party. The left wing of the party in an attempt to remain in the good graces of their party leadership feel that they have no alternative but to act as the left wing of the anti-Venezuelan united front, whose leader is none other than the racist chief himself, Donald J. Trump.
As the complete failure of the planned April 30-May Day coup sank in, many supporters of imperialism who back the crushing of Venezuela have begun to blame the incompetence of the Trump administration for the coup’s failure. Shaun Tandon, writing on May 1 for the French news agency AFP, quoted a certain Michael Shifter of the pro-imperialist Inter-American Dialogue think tank blaming the Trump administration for the imperialist defeat: “The hawkish rhetoric by President Donald Trump’s administration had been ‘unhelpful and often counterproductive.'”
By “hawkish rhetoric” Shifter means that the openly colonialist attitude of the Trump administration has stripped away any pretenses of the “opposition” and its figurehead Juan Gauidó of being anything else but the pro-imperialist lackeys they in fact are. As a result, even Venezuelans who may oppose the Maduro government on various questions now realize that nothing less than the existence of Venezuela as an independent sovereign state is at stake.
“Trump,” Tandon explains, “has cast Venezuela as part of an ideological battle against socialism and has sought to link the country’s crumbling economy with the US Democratic Party – which, in a rare point of agreement, has mostly backed the administration on ousting Maduro.” Yet socialists like Bernie Sanders and Alexandria Ocasio-Cortez are in a front with Trump and company against “socialist Venezuela.”
The Federal Reserve System and Trump
The potential struggle between Trump and Wall Street over the nominations of Herman Cain and Stephen Moore for seats on the Federal Reserve Board ended when Herman Cain withdrew his candidacy and Trump gave up on Stephen Moore. Trump was forced to back down when it became clear that there was too much opposition to both Cain and Moore among Senate Republicans. Cain was accused of sexually harassing women – as Trump himself has been – while the final blow to the Moore candidacy came when an article he authored for the reactionary National Review in 2002 came to light. “No women refs, no women announcers, no women beer vendors, no women anything,” Moore wrote.
Moore fought much harder for his nomination than did the African-American Cain, who seemed to realize from the beginning that he had little chance of confirmation. In reality, even before Moore’s offensive National Review article came to light, the Senate Republicans, who like the Democrats are loyal servants of Wall Street, had no enthusiasm for Moore.
Moore is a right-wing economic commentator but lacks a PhD in economics. Nor does he command any respect among Wall Street banking circles for his understanding of the workings of the capitalist system. In reality, Moore’s incredibly sexist article provided the Senate Republicans – who are not very advanced themselves when it comes to women’s rights since they, after all, insisted on ramming through the nomination of Brett Kavanaugh for the Supreme Court – a welcome excuse to serve Wall Street while scuttling the Moore nomination. They probably also hoped to pick up a few more female votes when their next reelection campaigns come up.
The real reason why Moore was dumped was that he was viewed as a none-too-bright amateur economist who would likely act as a stooge of the Trump White House on the Open Market Committee, the body that decides how many dollars the Federal Reserve System creates. If Moore and Cain had been confirmed by the Republican Senate, they would have had a voice and vote on the body that effectively manages the dollar-centered international monetary system. Therefore, the Open Market Committee, as well as Wall Street, see it as no place for amateurs and political hacks – even Republican hacks like Moore and Cain. For these positions, the Wall Street bankers require, especially under the current paper money system, knowledgeable pragmatists. (5)
However, a crisis involving Trump and the Federal Reserve may still occur in the coming months. The vacancies on the Board of Governors remain, meaning that Trump can and indeed has the duty to nominate two other candidates. He may choose traditional pragmatic experts in monetary policy in the mode of Jerome Powell or he might again choose “unqualified” candidates that would do his bidding.
Trump, who continues to poll well below 50 percent, needs a booming economy if he is to win re-election. Polls show that the only area where Trump earns an approval rating above 50 percent is his handling of the economy. A recession or a surge of inflation – especially involving food and gasoline prices – would sink Trump’s approval rating below 50 percent as well ending any chance of his re-election, unless the Democrats completely split apart. Trump continues to complain that the Fed has been raising interest rates and carrying out “quantitative tightening.” Instead, Trump has suggested that the Fed resume quantitative easing and cut interest rates – actually the Fed target for the fed funds rate – so the economy can take off “like a rocket,” ensuring his re-election in November 2020.
The chance of a crisis exists because Trump has the legal power to fire all seven members of the Board of Governors – though now they are only five – for cause, including Board of Governors head Jay Powell, though Trump would have to get their successors through the U.S. Senate, which effectively defied him on the Cain and Moore nominations. Five other members of the Open Market Committee cannot be fired by Trump. One is the chairman of the Federal Reserve Bank of New York, who is appointed directly by stockholders of that bank, which also all happen to be big Wall Street banks. The other members of the Open Market Committee are the presidents of the lesser Federal Reserve banks, with one-year rotating terms. The lesser banks are owned by their stockholders, who happen to be the commercial banks in their districts. Their presidents are chosen by the commercial banks and other businesses interests – not labor.
However, any move by Trump to fire Powell or any other of the current five members of the Board of Governors – for cause – would almost certainly convulse financial markets and send the U.S. dollar plunging against gold and foreign currencies, which could have fatal consequences for the dollar system and the U.S. world empire. As a result, Trump is feeling the full pressure of the “Party of Order,” as well as Wall Street and its banks that the Party of Order serves.
Four economic events could still trigger a confrontation between Trump and the Federal Reserve System between now and the November 2020 election. One would be the onset of a recession just as the election campaign of 2020 begins to heat up in earnest. Second, which would likely accompany such an event but could occur without it, would be a crash in stock market prices. Trump like other capitalists and the media tend to view the stock market as the essence of the economy, with the “real economy” as a mere appendage. The reason for this is that big capitalists – like Trump and smaller capitalists along with most leading bourgeois journalists – get rich primarily through rising share prices. As long as the stock market is rising, they are genuinely convinced that the economy is “doing well” – and for them, it is.
Most dangerous of all for what is left of the political stability of the U.S. and its world empire would be a sudden downward movement of the U.S. dollar. To be more specific, a sharp rise in the dollar price of gold – which would probably but not necessarily be accompanied by a sharp fall in the U.S. dollar against other currencies – would certainly lead to a surge in the dollar prices of primary commodities. If this were to happen during the run-up to the 2020 election, Powell and the Open Market Committee would, under pain of a collapse of the dollar system, be forced to dramatically increase its target for the fed funds rate.
Such a move as the election campaign hits high gear would enrage Trump and could cause him to make an irrational move – from the viewpoint of the needs of the U.S. world empire – such as attempting to fire Powell and possibly other members of the Board of Governors. Though Trump probably doesn’t realize it, Powell and the other Open Market Committee members are doing Trump a favor by keeping the target rate for fed funds high enough – so far at least – to prevent such a run on the dollar.
In recent weeks, the U.S. media, as they generally do, have been picturing the U.S. economy in a rosy light. No doubt Trump is being told that the U.S. economy is doing “tremendous” and there is no need for him or the Fed to take any action. No doubt, they are trying to convince Trump that he is virtually assured of a booming economy and “full employment” for his 2020 reelection campaign and that his chances of winning a second term are looking up – as long he does not “rock the boat” by attacking the independence of the Federal Reserve System.
Let’s take a look at some of these recent economic reports. Do they really assure a booming economy in the fourth quarter of 2020 – not 2019 – when the U.S. presidential elections are scheduled to be held?
Surge in unsold commodities fuels GDP growth in first quarter
On April 26, the U.S. Commerce Department reported that the U.S. GDP grew at an annual rate of 3.2 percent, significantly above the expectation of most economists. This seems like good news for Trump, and indeed Trump promptly took to Twitter to take personal credit. Broad sectors of the capitalist media are declaring that Trump’s and the Republican Party’s re-election prospects for 2020 are looking up due to the “strong economy.” The message for the “progressive and democratic-socialist wing” of the Democratic Party is not to insist on a “radical leftist” like Bernie Sanders but run with a safe centrist candidate like Wall Street darling Joe Biden (6).
But if the Republicans and Trump – assuming they read behind the misleading headlines and have any understanding of the capitalist industrial cycle – should actually be alarmed rather than reassured by the first-quarter GDP report. The Bureau of Economic Analysis, which computes the official GDP estimates, wrote that their estimate “reflected positive contributions from personal consumption expenditures (PCE), private inventory investment (my emphasis – SW), exports, state and local government spending, and nonresidential fixed investment.”
Private inventory investment refers to the exceptional expansion of business inventories – unsold commodities – that occurred during the first quarter. The accumulation of unsold commodities is, according to Marx and Engels, if not modern Marxists, is the cause of cyclical recessions and more severe cyclical crises. Whenever inventory expansions boost GDP, it is invariably a sign that the economy is slowing down. This is well known even to bourgeois economists who pay attention to these things.
“An acceleration in inventory building,” stated Paul Ashworth, chief U.S. economist for Capital Economics, as quoted by Emily McCormick in Yahoo April 26, “added an additional 0.7% points to GDP growth.” Ashworth added: “Normally those two components largely offset each other. With inventories elevated relative to sales, expect a reversal in the second quarter.”
In other words, inventories are beginning to pile up unsold in warehouses, the classic sign of an imminent downturn.
We can be certain as we ever can be in these matters that at the very least a Kitchin-type “inventory recession” will probably depress GDP growth during the current quarter. Considering the advanced state of the industrial cycle, the flat yield curve, and the three-and-a-half-year decline in the monetary base, there is a good chance the developing “inventory recession” will directly lead to the next full-blown recession, whose effects will be evident by November 2020. While not certain, it is quite likely.
Therefore, Trump and the Republicans should not be breaking out the champagne quite yet. While the capitalist media always reassure the public how great the economy is doing and how the recession danger is “fading” on the eve of every downturn, this time there is perhaps another factor at work. They may be trying to convince the mercurial and widely seen as not very bright U.S. president to keep his hands off the Federal Reserve Board. The economy is “tremendous” – to use a favorite Trumpism – they are telling the president. There is, therefore, no need to interfere with the “independence” of the Federal Reserve System. And please, Mr Trump, don’t make any more nominations to the Federal Reserve Board like Herman Cain or Stephen Moore!
Fraud of the ‘lowest unemployment in 50 years’
When the U.S. Labor Department released its preliminary unemployment “statements” – treated as fact by the commercial media – the headline estimated unemployment rate was 3.6 percent. Not since 1969, at the end of the economic boom of the 1960s when the Vietnam War was at its peak, did the Labor Department issue a lower estimate.
Even a cursory examination of the Labor Department report shows the fraud of the estimate. For example, the workweek actually declined by one-tenth of an hour in April. A falling workweek implies rising not falling unemployment. In addition, hourly earnings on average remained at 3.2 percent. Once the rising cost of living is factored in, real wages of non-supervisory workers were either stagnant or declining.
Unlike the economic boom of the 1960s, the current cyclical expansion has been the weakest on record, even according to official government statistics. And while the U.S. has been involved in continuous colonial wars throughout the current industrial cycle, these wars are not on the scale of wars the U.S. fought in Vietnam and the other Indochinese countries a half century ago. Then, the U.S. had more than half a million soldiers in southern Vietnam – below the 17th parallel – alone.
The simple reason that the U.S. and other capitalist governments can report “low unemployment” after a decade of historically very low economic growth that followed the “Great Recession” is that they have adopted increasingly narrow definitions of what it means to be “unemployed.” In the U.S., to be counted as “unemployed” you have to have been actively searching for work. You are considered “employed” if sometime in the last month you spent even a single hour at money-earning work, such as mowing your neighbor’s lawn for a few dollars.
Another measure of unemployment released by the Labor Department, called the U-6 rate, as opposed to the U-3 rate that the media focuses on, counts workers who can only find part-time work when they desire full-time or have given up looking altogether, was 7.3 percent. This is above the 6.8 percent unemployment rate the Labor Department reported in late 2000, just as the “dot-com” bust was beginning. This measure of unemployment would have to fall further to match the level that prevailed at the end of the Clinton boom. And that was only 19, not 50, years ago!
The percentage of the population that participated in the labor force – either by actually working or looking for work – rose through the 1950s and 1960s as women entered the labor force in large numbers. Then it began to fall after the turn of the century “dot-com” recession and fell sharply during the Great Recession. This shows that while unemployment has fallen cyclically since the depth of the Great Recession, it seems unlikely that a reasonable estimate of unemployment would reach the levels that prevailed on the eve of the “Great Recession,” let alone where the rate was at the end of the 1960s Vietnam War-era boom.
To illustrate how corrupt the Labor Department’s “estimated” unemployment rate has become, we can take the Depression-era symbol of unemployment – desperate people selling apples for five cents each on New York’s 42nd Street. Today, the U.S. government would count these people not as unemployed but as self-employed entrepreneurs engaged in the fruit business.
On top of that, the Labor Department came up with the 3.6 percent estimate for April only because 490,000 persons mysteriously dropped out of the labor force. Along with falling work hours, a shrinking labor force – fewer people looking because they are not finding work – is a sign of rising, not falling, unemployment.
Finally, the media often claims that “low unemployment” means that the “economic expansion” will continue because more employed workers mean increased demand for consumer goods. However, if this were true recessions would never occur, since unemployment is always near or at its low for the particular industrial cycle on the eve of the recession. Indeed, if unemployment is really at a 50-year low, a recession between now and November 2020 would be, barring World War III, all but certain – the opposite of what the media claims.
This is not to deny that there has been a cyclical decline in the rate of unemployment since the depth of the last downturn that occurred in 2009, just as cyclical unemployment will rise again when the inevitable next recession comes. These cyclical changes in unemployment are important and we should pay close attention to them. Periods of low cyclical unemployment would be used by a well-organized trade union movement to launch struggles for higher wages, shorter hours, and better conditions on the job.
This why it is important that the trade unions develop their own unemployment data that does not rely on a capitalist government that serves the interest of the capitalist class. It is in the interest of the capitalists to have high levels of unemployment – as long as unemployment doesn’t reflect a depression that depresses or wipes out profits. Therefore, the capitalists are always putting pressure on statisticians to find ways – such as counting as employed people who work only one hour per month – to present high levels of structural – non cyclical – unemployment as “full employment.”
What has happened with the economy since the Great Recession bottomed out?
While some government statistics such as the Labor Department’s estimated unemployment rate and the GDP estimates are designed for headline writers, others that are far more significant are found only on the financial pages, or sometimes not even there even though they are publicly available. Among these is the rate of capacity utilization. This – assuming it is accurately calculated – is a pretty good indication of the vigor of capitalist expanded reproduction – capitalist economic growth.
During periods of depression, capacity lies idle because all the means of production cannot function as capital. Such a situation indicates that almost all the means of production available in a given period are functioning as capital. Under these conditions, capitalists are forced to expand the existing means of production, leading to capitalist economic growth and high demand for labor power and, by capitalist standards, lower than average unemployment.
In March 2019, according to U.S. government estimates, the utilization was 78.8 percent. After 10 years of economic expansion, the utilization rate was still below 80 percent. According to John Bellamy Foster, editor of Monthly Review, this has never happened since records have been kept. With the current economic cycle showing every sign of being in its final stage – the critical point – it now seems likely that the capacity utilization rate will fail to hit 80 percent before the next recession hits. These figures provide further evidence if really needed, that there is no way that the U.S. unemployment rate, if it remotely reflects reality and is honestly calculated, could be the lowest in 50 years.
A close examination of government data not used to write headlines shows, despite the claims of the Trump administration and the media and once we take into account the current stage of the industrial cycle, that the U.S. economy is facing declining long-term growth rates. So far, the “most pro-business administration in history” has not reversed this trend. Indeed, though the super-crisis of 1929-33 was more severe than the 2007-09 Great Recession – the 1929-33 crisis was two back-to-back “Great Recessions” while 2007-09 was only one – the current “secular stagnation” is actually far more severe for the U.S. economy – and the European and Japanese economies as well – than during the 1930s Great Depression.
The reason the current U.S. cyclical expansion has lasted as long as it has is this: Recessions and sharper crises require the overproduction of commodities, and recession-breeding overproduction has taken longer to develop than in most economic cycles because of the weakness of the current global upswing. Even China has slowed, and no similar country has taken China’s place.
Trump’s prospects for re-election really hinge on the current expansion having developed so slowly that a recession can still be staved off until after November 2020. It is the stubborn “secular stagnation” combined now with the somewhat belated approach of a cyclical downturn that lies behind the move of the Trump administration to escalate its trade war with China.
Trump escalates trade war with China
For months, reports circulated that trade talks between the People’s Republic of China and the United States were going well and that a broad trade agreement would soon be announced, perhaps by the end of March. The end of March came and went with no agreement. But the reports continued to circulate that the talks were proceeding well. Then, on May 6, Trump suddenly announced that he would raise tariffs against many Chinese imports from 10 percent to 25 percent as of May 10 if an agreement was not reached.
These tariffs on $200 billion worth of Chinese imports will indeed go up on a broad range of Chinese commodities that leave Chinese ports after May 10 – unless an agreement is reached within the next few weeks. Among the commodities affected are, according to Reuters, “printed circuit boards, furniture, lighting products, auto parts, vacuum cleaners and building materials.” Trump has threatened to raise tariffs on $325 billion worth of additional Chinese commodities on which U.S. business and consumers have become increasingly dependent in recent decades.
Exported commodities that left Chinese ports before May 10 won’t be affected by the new tariffs, so it is still possible that an agreement could be announced keeping the tariffs from going into effect for real. Time is running out to avoid a much more serious trade war, however. If these tariffs actually do go into effect, U.S. consumers will soon notice the results on their wallets.
Trump claims that the Chinese reneged on an agreement to stop “stealing” U.S. intellectual property. The president referred to Chinese laws that require that U.S. companies that invest in Chinese companies – and thus share in the exploitation of Chinese workers with their Chinese partners – share with the partner the technology they employ. This is a highly progressive requirement since it allows technological and scientific knowledge to spread around the world.
However, U.S. capitalists hate this because they claim that the knowledge developed by scientists, inventors and technologists of many nationalities belongs to them, the capitalists, as their private property, just as they claim the commodities produced by the workers of the world as their private property.
By treating human knowledge as though it is private property, U.S. capitalists hope to hold on to their super-profits by slowing down the development of the world economy and of human progress as a whole. Indeed, when the U.S. was a rising industrial power in the 19th century threatening the British monopoly of world manufacturing, the U.S. government stubbornly refused to recognize British patents – or, as it is called today, “intellectual property.”
Trump now demands that China change its laws that regulate how foreign companies share – or do not share – intellectual property with their Chinese partners. What right does the U.S. government, headed by racist-in-chief Donald Trump, have to dictate the laws of a sovereign government, in this case, the People’s Republic of China? Was it that long ago that there were signs in stores in Chinese cities proclaiming that dogs and Chinese were not allowed to enter? If the Chinese government does agree to the outrageous demands that it change its laws in response to White House demands, it risks sliding down a slippery slope indeed.
All proportions guarded, Trump’s demand that China change its laws is cut from the same cloth as his demand that the Bolivarian Republic of Venezuela install a government that will follow neo-liberal policies and do the bidding of U.S. oil and mining companies or risk a full-scale military assault. Or, to take another example, that the Islamic Republic of Iran develop nuclear power only to the extent the U.S. government allows or face the very real danger of a shooting war.
Overproduction of commodities key to understanding current trade war
It is the background of an international capitalist economy faced by decades of historically slow growth of the world market, even slower growth since the Great Recession, and a looming cyclical crisis of overproduction that is the real cause of the rise of economic nationalism, political nationalism, and racism in all its forms sweeping the United States and Europe. The intensity of capitalist competition at any given time and in any given market for commodities of given use values and quality is determined by the ability of the given market to absorb all the commodities at their individual prices of production. The slower the growth of the market the more intense will be the competition.
If market demand is so strong that market prices of a particular commodity in a particular market rise strongly, the average rate of profit (7) of those industrial capitalists producing under the most unfavorable conditions of production will make the average rate of profit while all other capitalists will realize super-profits. Under these conditions, competition will be minimal among the industrial capitalists.
From the viewpoint of individual industrial capitalists, lowering prices then makes no sense because the result will not be to increase sales and will in fact only lower the mass and rate of profit for all the capitalists. Such a situation indicates that there is an insufficient quantity of capitalists producing for the market for these particular commodities.
But when a crisis of overproduction occurs – whether in a particular branch of industry or more generally – only the capitalists producing under the most favorable conditions of production make the average rate of profit while all other capitalists make less then average rate of profit on their advanced capital, or make outright losses.
In a crisis caused by the absolute overproduction of capital, accumulation begins to breaks down when the industrial capitalists try to convert sums of money into variable capital but fail when they cannot find enough workers who in their persons embody variable capital. In contrast, a crisis caused by the relative overproduction of commodities means that the crisis occurs due to an inability of the capitalists to convert commodity capital – unsold commodities containing surplus value – into new money capital (defined as the sum of money containing realized surplus value). Realized surplus value converted into money is the definition of profit.
The question arises, to what extent are actual cyclical capitalist downturns (recessions or more acute crises) caused by an overproduction of constant capital relative to variable capital (8) – the absolute overproduction of capital? Or to what extent are crises caused by the relative overproduction of commodities? Marx and Engels, at least how I read them, believed from the 1840s, when they were just beginning to learn bourgeois political economy, to the end of their lives that “business cycle” downturns were caused by the general relative overproduction of commodities and not the absolute overproduction of capital, though other factors including shortages of labor, especially skilled labor, and raw materials play a role in concrete crises.
Today at least, those Marxists who are professional economists believe in their great majority that “modern money” is non-commodity money created by the state and not gold bullion produced by gold miners and refiners. Therefore, the only way a crisis of relative general overproduction can occur is if the government makes massive mistakes or if it desires a higher level of unemployment to stave off an absolute overproduction of capital.
Therefore, they believe, modern crises in our post-gold standard world must be caused when capital expansion exhausts the supply of labor (power). This then causes recessions or worse because government responds to a growing labor shortage by tightening the money supply and balancing or at least reducing, the budget to deliberately increase unemployment.
I certainly agree that capital will indeed “break down” for good when it cannot find a sufficient quantity of variable capital. Without variable capital, no surplus value, no surplus value, no profit, no capitalist production, and no capital of any kind. The reason is that variable capital is inseparable from the persons of the workers. When the workers, independently organized economically and politically, refuse to have their ability to work – labor power – be used as variable capital by selling it to the class of capitalist exploiters, capitalism comes to an end. This process is known as the socialist – sometimes called in the literature the proletarian – revolution.
Until this happens, capitalism will go to great lengths to find ever more workers to exploit. In the process, it will also continue to experience periodic crises of the relative overproduction of commodities. The law of value, which governs capitalist production, demands that money, which in its own use value functions as the measure of the value of all other commodities, must itself be a commodity in every sense of the word. It is this last point that our modern Marxists fail to understand.
Competition among nation-states
The nation-state not only organizes the capitalists of a given nation against the workers of the same state. It organizes the capitalists of the nation against the capitalists of rival states. However, competition between individual capitalists is not the same as competition between nation-states, though there are some similarities. Competition between individual capitalists leads to monopoly, a situation where the number of capitalists supplying a given market and even the world market is reduced over time. Eventually, a few capitalists or even a single capitalist monopolize a given market for a certain period. Taken to its logical extreme, a single capitalist will monopolize the market for all commodities.
If that were to happen, competition – and not just free competition – would end and commodity production as well. The end of commodity production would also end the money relationship of production because money is, after all, a commodity. Labor power would cease to be a commodity. Labor power is a commodity because it is reproduced only when workers consume commodities required to reproduce their labor power. No commodity production, no money, and no labor power as a commodity mean no capitalism. Competition, therefore, contains the seeds within itself for the complete abolition of capitalism.
Marxists believe that the socialist revolution will occur long before economic competition leads to the complete negation of capitalist competition, and thus capitalism. Both the elemental operation of capitalist economic development and the workers instinctively – and when led by an organized revolutionary workers’ party – consciously strive towards socialism. This corresponds with the ultimate tendency of capitalist competition and capitalism itself towards its own negation, which is why Marxist socialism is not a utopia but a necessity.
Competition among rival capitalist states also leads to centralization. While economic competition means the reduction of the number of independent competing capitals, centralization in terms of the nation-state means a reduction in the number of “great powers” that confront one another economically, politically and militarily. The lesser powers are either conquered and absorbed into the larger powers or become subordinated to the larger powers, even if they retain their formal independence.
Carried to its logical extreme, this would lead to a single capitalist state and eventually a single capitalist nation, or what would come to the same thing, the complete negation of nationality. In this case, the now single universal capitalist state would still retain its primary function of repressing the working class in the interest of the capitalist class. But it would no longer function as an organization to promote the interest of a group of “national capitalists” against the capitalists of other nations, because all capitalists would belong to a single universal capitalist state whose sole function would be to oppress the universal working class.
This is where the political and military competition among capitalist states is indeed trending. The highest expression so far is the post-1945 U.S. world empire. However, just as capitalist economic competition doesn’t trend in a straight line to an uninterrupted reduction of the number of independent capitals in every branch of production, neither does it lead when combined with the economic law of uneven development to a steady reduction of the number of independent states.
Capitalist production has counter-tendencies against the centralization of capital that sometimes increase the number of independent capitals. If it didn’t, capitalism would have ended a long time ago. But counter-tendencies toward a decentralization of capital – and an increase in the number of independent capitals – are weaker than the tendency toward an increased centralization of capital. This is what makes the end of capitalism inevitable.
Again, Marxists believe that an ultimately international socialist revolution will be victorious long before the brutal process of competition between capitalist states comes to end. Indeed, considering the destructive power of modern warfare, it far more likely that in the absence of a victorious world socialist revolution competition among capitalist nation-states will end in the destruction of civilization before it leads to a single capitalist nation-state ruling the entire world.
The unquenchable thirst of capital for ever-larger quantities of surplus value means that the leading capitalists of a particular nation-state cannot be satisfied with the exploitation of the labor of their own workers. The capitalists are driven to exploit the labor power of the workers of other nations. This leads to immigration where workers of different nations are thrown together. This, combined with the increasing power of communications we see in today’s computerized world, shows the tendency toward the eventual abolition of nationality itself. As languages and cultures mix, they merge together. But again, no Marxist believes that the complete overcoming of the nation-state and nationality will be achieved under the capitalist mode of production. Instead, we have the decline of the nation-state and the crisis of nationality.
Through the history of capitalism, the world market is divided into national markets within nation-states. The nation-state aids its capitalists in ways that individual capitalists – even large monopoly corporations – cannot do on their own. Among these are controlling the flow of money into an out of the given national territory. Assuming a fixed global quantity of money, the expansion of the home market of the given country, in the long run, can only be achieved by contracting the home markets of rival nation-states.
If, on the other hand, the market increases with production – the assumption of the theory of comparative advantage you are forced to learn in college economics class – the problem of the expansion of the market comes down to the problem of the expansion of production. Or even if Say’s Law is not automatically true – as in Keynes – it is possible through having the state – the monetary authority – create a sufficient quantity of money and if necessary make sure the money circulates through deficit spending. This would logically end the struggle for markets among competing nation-states because it would be possible to create a sufficient demand to fully employ all the capital – and all the workers – within the home market.
However, as we have seen throughout this blog and through concrete economic history, while the world market does expand it cannot expand as fast as the industrial capitalists can increase production. Therefore, the struggle for market share among rival capitalist nation-states can by no means be reduced to the problem of increasing production. Capitalist nation-states are driven to increase the share of the total world market commanded by their own capitalists, not by the methods that the competing capitalists employ directly but rather by political, and in the final analysis, military means. At the end of the day, the state is an organization of violence.
If a given nation-state is successful, it means it has succeeded in increasing the portion of the world market that its capitalists get at the expense of capitalists who belong to other nation-states. The success of one nation-state in expanding the rate of growth of the markets its own capitalists command means that the capitalists of other states will at best suffer a reduced rate of growth of the markets they control and may even suffer an absolute contraction of their markets. The lower the rate of expansion of the world market in a given period of time, the more likely the latter will be true.
Weapons the state commands include tariffs, absolute prohibitions or restrictions on the commodities that can be imported (for example, by withholding import licenses), subsidies of exports to give its capitalists an artificial advantage, controls over the outflow and inflow of money (capital controls), and finally the use of military force to force rival nation-states to “open up” their markets.
The balance of payments
Here I am not interested in the various sophistries that are taught in the universities based on Say’s Law, the misunderstanding of the theory of money, comparative advantage, and so on but what really happens in the intercourse among nation-states engaged in capitalist production. I will define a balance of payments deficit as a situation where more money is flowing out of a given country than flowing into it. Unless the production of money material exceeds the balance of payments deficit within a given country, the country will experience an absolute reduction of the quantity of money within its territory. The results will be first rising interest rates, then if the deficit in the balance of payments continues, a contraction of the home market, rising unemployment, and recession.
The deficit, according to our definition, in one country will be offset by a positive balance of payments in another country, with the important qualification mentioned above. Therefore, the balance of payments surpluses and deficits in individual countries neither expand nor contract the world market as a whole.
A country that produces money material can increase the quantity of money within its borders even if running a balance of payments deficit as long as the negative balance of payments is less than its production of money material. Overall, the quantity of money within the capitalist world as a whole grows over time if the production of new money material is taken into account. It is the production of new money material that prevents the interactions of capitalist states with one another being a zero-sum game. However, the lower the production of new money material the closer world trade will tend towards a zero-sum game and vice-versa.
As we saw, a balance of trade deficit as defined above, all else remaining equal, means a reduction in the quantity of money in terms of money material circulating within a country. This fact is obscured in the token/fiat-money systems that prevail today. Under the present dollar-centered international monetary system, a balance of payments deficit means a fall in the rate of exchange of the national currency against other currencies but not necessarily a reduction in the quantity of currency.
However, since the national currency has been devalued against foreign currencies, and assuming that the value of these foreign currencies against gold remains unchanged, the national currency will represent less actual money material than before.
When this happens, prices in terms of the national currency will eventually rise and interest rates will rise followed by recession, stagnation, and a shrinking of the national market if it continues. Trump’s imposition of a ban on Venezuelan and Iranian oil exports is an attempt to use the power of the U.S. state to bring about shrinkage of the home markets of Venezuela and Iran, aiding Trump’s – and the Democrats’ – hope for regime change.
This should be distinguished from a situation where the currency of a country falls not because of an unfavorable balance of payments but because the quantity of that paper currency has been increased by the nation’s monetary authority without an increase in gold and foreign currency reserves. In this case, there will be no reduction in the quantity of money material that the national currency as a whole represents, though each unit of currency will represent less money than before, resulting in inflation.
The general rule is that a continued fall in the exchange rate of a given currency arising from a balance of payment deficit implies a shrinking home market, recession, stagnation, and rising unemployment. However, a fall in the rate of exchange that merely reflects a rise in the quantity of paper money implies inflation but not a shrinking home market, recession, increased unemployment, and so on.
The most important single factor determining a nation’s balance of payments is the balance of trade. When the capitalists of a given country sell more abroad than they buy, commodity use values leave the country and are replaced by money. This has the effect of increasing demand in the country, while an unfavorable balance of trade drain will, all things remaining equal, reduce it. When a country buys more commodities than it sells, money flows out.
If the national capitalists can produce commodities of a given quality more cheaply – which ultimately reflects the quantity of labor that must be expended in a given country to produce a given type of commodity, though the cost to the capitalists but not society also reflects the wage that the capitalists must pay for the labor power – the competitive power of those capitalists will increase. If the trend continues, it will mean that the collective capitalists of that particular state will take a larger share of the world market at the expense of the capitalists of other countries.
A contrasting situation involves the case of a country that has suffered a contraction of its internal money supply and consequent shrinkage of its internal market due to an unfavorable balance of trade leading to an unfavorable balance of payments. In this case, the balance of trade will improve but for very different reasons. As the home market shrinks, a portion of the industrial capitalists will have to shift from the home market to the international market if they are to avoid bankruptcy.
On the other hand, capitalists located in other nation-states that have imported to the country running a balance of trade deficit will have to find other markets if they are to avoid bankruptcy. A situation where the balance of trade improves due to the rise of the productivity of labor in a given capitalist country must be clearly distinguished from a situation where the balance of trade of a given country improves because its internal market has contracted.
In addition to reflecting the movement of commodities, other flows of money can directly affect the balance of payments. The driving force here is the search for higher interest by money capitalists. Just as industrial and merchant capitalists seek the highest rate of profit, money capitalists seek the highest rate of interest. Let’s say a country experiences a rise in the rate of interest reflecting a decline in the quantity of money in a given country caused by a negative balance of trade.
The higher interest rates attract loans from abroad, which once again expands the quantity of money in a given country. This inflow of money from abroad means that the country in question can avoid a contraction with all its consequences in its internal market. However, the effect reverses when interest and principal payments come due. But as long as a country can increase its borrowing sufficiently, it can stave off an economic crisis caused by a balance of payments deficit.
If industrial capitalists build factories, dig mines, or establish capitalist farms in other countries, money capital moves abroad either directly or when the national currency of the industrial capitalists establishing foreign enterprises or buy up existing enterprises is exchanged for the currency of the nation where the new capitalist enterprises are being established – for example, to meet wage payments that are paid in the local currency. However, when profits, whether directly or in the form of interest and dividend payments, flow back, the effect is reversed. Again, wherever money capital flows, the potential – and in the long run the actual – market demand increases.
Immigrants to the U.S. – and other imperialist countries – often send some of their wages to their home countries, which transfers purchasing power to these countries from the imperialist countries.
Another thing that affects the balance of payments is government spending of one country in another country. This generally arises where one country maintains military bases or fights wars on the territory of another. The U.S. government tolerates no foreign military bases on its own territory but maintains military bases in countries around the world. This inevitably pumps dollars around the world to the extent the dollars are either directly spent abroad – as opposed to being returned to the United States or sold for local currency. When this happens, the purchasing power – the size of the home market of the U.S. – is reduced relative to markets abroad.
The rise and fall of capitalist nation-states
The history of capitalism has been marked by a succession of successful capitalist nation-states. The domination of Venice – actually a pre-national Italian city-state – helped finance the development of Holland; Holland then financed its successor Great Britain; and Britain financed the rise of the United States. Each reigning capitalist state has financed the rise of its successor, leading to its own eventful downfall.
Just as the centralization of capital by creating super-profits in a particular branch of industry creates a counter-trend against the centralization of capital by attracting fresh capital into that branch of industry, the growing export of money capital by the dominant capitalist country of a particular epoch – Venice, Holland, Britain, and the U.S. – creates a counter-trend for the world to be dominated and eventually ruled by a single imperialist nation-state.
To be continued.
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1 And things are not getting better on this front with the percentage of workers who are represented by unions at the lowest levels in more than a century. (back)
2 In his younger, more radical days, Bernie Sanders was opposed to voting for Democrats. He still officially claims to be an independent and therefore not technically a Democrat. But he caucuses with the Democrats in the Senate, keeps his concrete proposals such as Medicare for All within the limits acceptable to at least a portion of the Democratic leadership, was a candidate for the Democratic presidential nomination in 2016, and is now a candidate for the 2020 nomination. Most importantly, he supports – or remains quiet – on imperialist foreign policy, confining himself to taking “dovish” positions within the framework of his overall support of imperialism. (back)
3 Alexandria Ocasio-Cortez is a member of the fast-growing Democratic Socialists of America. The DSA is divided between those who like Ocasio-Cortez support running for office as Democrats and those who believe socialists should run independently of the capitalist parties. (back)
4 Donald Trump, according to the official election returns, lost the popular vote to Democrat Hillary Clinton by almost 3 million votes. While it might be argued that Trump was chosen by the Electoral College based on the Constitution – the U.S. founding fathers, contrary to much mythology, never intended to write a democratic Constitution – there is no way that Trump can be considered a democratically elected president. (back)
5 Neither the U.S. president nor the Senate can find people to appoint to the Federal Reserve Board who have a deep understanding of the laws that govern the workings of the current dollar-centered international monetary system. The reason is that such people would have to understand Marx’s law of value, surplus value, price, money, and profit. The best candidates available to the president and the Senate are therefore pragmatic economists and bankers who do not take too seriously the teachings of the marginalist economists but instead have a practical understanding of the working of the current U.S. dollar-centered monetary, banking, and credit systems and how they interact with the real economy. The pragmatic banker Jerome Powell is an example but not Herman Cain and Stephen Moore. (back)
6 Joe Biden was Obama’s vice president and a former senator from Delaware. He is an old-fashioned Truman/Kennedy-type Democrat. In those days, the Jim Crow Dixiecrats were still in the Democratic Party. The Democrats could pose as both the defenders of New Deal reforms – picking up the support of African-Americans, who strongly supported those reforms – while still appealing to racist whites in their traditional role as the white people’s party.
In this spirit, Biden opposed the busing of school children to break post-Jim Crow de facto segregation in both the North and South – and says he still does – treated Anita Hill, a former secretary for then-Supreme Court nominee and now Supreme Court Justice Clarence Thomas with great disrespect when she revealed Thomas’s sexual harassment of her when she was his secretary and has been accused of inappropriate conduct towards women himself. In addition, his family has been personally involved in looting the Ukraine since the Euro-Maidan coup there. Earlier, Biden supported George W. Bush’s war against Iraq and every other act of imperialist aggression that the U.S. government has carried out during his long political lifetime. (back)
7 The average of rate of profit refers not to an average of profits in different branches of industry but the average rate of profit over a period of good – above-average rates of profit – and of bad – below-average rate of profit – years. (back)
8 If the U.S. economy were really facing a crisis of the absolute overproduction of capital, where the shortage of labor is so acute that the mass of surplus value was declining absolutely, Trump’s anti-immigrant policy would be completely insane. (back)
A Critique of Crisis Theory 