Political and Economic Crises (Pt 9)

Scandals that rocked the Trump administration this month included sex scandals involving both the current president and former President Bill Clinton. Another scandal involved “detention centers” for immigrants, which are finally being called by their right name — concentration camps. The prisoners held in these camps are desperate people — men, women, children and infants — forced to flee desperate conditions in Central America created by U.S. imperialism under both Republicans and Democrats.

Particularly outrageous is the detention of children and even infants, who are held in cages and go without basic medical care (resulting in some children dying in the camps), toothbrushes, and bathing. The conditions in which these concentration camp victims are held would be scandalous even if they involved adult prisoners convicted after fair trials of terrible crimes. When the victims are children and infants, even the term popularized after the post-WWII Nuremberg Trials of German Nazi leaders for “crimes against humanity” seems somehow trite.

Trump supporters claim it is outrageous to call the detention centers concentration camps, pointing out there are no gas chambers or crematoria in these camps. This much is true. However, there were no gas chambers or crematoria in the Nazi concentration camps of the 1930s. There were also no children in the 1930s-era Nazi concentration camps. That did not prevent the Nazi government, which originally held “only” adult Communists, trade unionists, and some Social Democrats in “protective custody,” from calling them concentration camps. It was only during World War II that non-political women, children and infants — most Jews and Roma people — were taken to concentration camps equipped with gas chambers and crematoria.

As these revelations became known, a growing movement has emerged demanding that the concentration camps be shut down. On July 12, reports circulated that ICE, the U.S. federal secret police agency in charge of enforcing immigration laws, were planning massive raids on Sunday, July 14. In response, a series of demonstrations swept the U.S. demanding that the concentration camps be shut down and immigrants be allowed to stay.

The demonstrators included people of all “races” and nationalities, including those who remember the internment of Japanese Americans in concentration camps under Democratic President Franklin Roosevelt — a U.S. president still held in high regard by many present-day U.S. progressives and democratic socialists. They also included American Jews, who remember both the horror of the holocaust visited on their ancestors not all that long ago as well as the refusal of the Democratic Roosevelt administration to allow Jewish refugees — or would-be refugees — from Nazi Germany into the U.S. This stands in contrast with Roosevelt’s personal enthusiasm for the racist Zionist movement to settle and colonize Jews fleeing fascist-dominated Europe in Palestine instead.

A dangerous parallel between the period after World I, which preceded the horrors of the Third Reich, and today is the growth of economic nationalism, which then as now breeds political nationalism and increased racism. In the United States, the earlier racist wave took the form not only of a second coming of the Ku Klux Klan with African Americans being as always the chief victims.

A series of anti-immigration laws were also passed restricting immigration from southern and eastern Europe on grounds that these Europeans were made up of “inferior races.” These included Italians, Czechs, Poles, and Jews. One of the results was that European Jews who otherwise would have emigrated to the U.S. during the 1920s and 30s were effectively trapped in Europe, to be exterminated during the Holocaust.

The other notable scandal centered on the arrest of billionaire hedge fund manager and pedophile Jeffrey Epstein on charges that he hired underage women and girls to perform sex acts. Epstein was a friend of many powerful people, including a New York real-estate developer named Donald Trump and President Bill Clinton, who was often a guest of Epstein. (1) It is not known whether Trump or Clinton participated in the abuse of girls and young women when they visited Epstein or traveled on his plane — the “Lolita Express.” However, Clinton like Trump is infamous for his scandal-ridden sex life.

This included Clinton’s notorious affair with White House intern Monica Lewinsky, who was then in her early twenties. This scandal led to Clinton’s impeachment by the Republican House of Representatives — technically for lying to federal investigators — though he was acquitted in a partisan vote by the U.S. Senate and remained in office. Clinton has also like Trump been accused of outright rape by numerous women.

If the Epstein sex scandal was not enough, Trump was hit by yet another sex scandal when he was accused by writer E. Jean Carroll of raping her in the 1990s. Trump denied even knowing Carroll and had the nerve to sneer that he wasn’t “her type.” But photographs soon emerged from the 1990s showing Trump and Carroll together.

In contrast, Trump-appointed Supreme Court Justice Brett Kavanaugh was accused by Dr. Christine Blasey-Ford — denied by Kavanaugh — of an attempted but not actual rape. The alleged rape attempt occurred at a drunken high school party when the then-teenage Kavanaugh was extremely intoxicated. Since Trump is reported to be a teetotaler, it seems unlikely he was drunk, and unlike Kavanaugh at the time of his alleged attack on Ms. Blasey-Ford, was a mature man of about 50 when his alleged rape of Ms. Carroll took place.

Class justice

In an earlier case involving similar charges, Epstein was forced to register for the rest of his life as a sex offender. Being forced to register as a sex offender is a serious matter if you are a worker. It does not look good on a resume and makes it difficult to find an apartment since there are severe restrictions on where sex offenders can live. What landlords in today’s tight housing market want to rent an apartment to a registered sex offender in the first place when they have many other applicants.

But if you are a wealthy hedge fund manager like Mr. Epstein, finding a job is hardly a problem since you own your own “business” and anyway can easily live off the interest in considerable comfort on your billions. As for finding an apartment, that is not a problem if you like Mr. Epstein own an entire island in the Caribbean and numerous mansions elsewhere.

But Epstein did serve a year in jail in Palm Beach, Fla., after all. Well not exactly. Under the terms of his plea deal, Epstein was allowed to leave his jail cell six out of seven days a week so that he could continue to run his hedge fund. He only had to sleep in his jail cell, which was in a private wing of the jail. The prosecutor who agreed to this plea deal was none other than Alexander Acosta, Trump’s “labor” secretary, who has just been forced to resign in disgrace because of his role in the deal.

But there is another side to the Epstein-Clinton-Trump sex scandal that is not getting much media attention. The girls and young women who were forced to sell themselves into sexual slavery did so because they were poor — that is, they were proletarians — and were forced to sell their labor power to a person willing to buy it, in this case, Mr. Epstein. To the extent Mr. Epstein ran a sex ring involving other “customers” — we don’t know all the details — the young women and girls were “sex workers” producing surplus value for Epstein.

On the other hand, to the extent they merely serviced Mr. Epstein’s depraved sexual desires they didn’t actually produce surplus value but simply served as sexual wage slaves. Men of all classes may fantasize about engaging in sex acts with young girls, but they don’t usually do it. However, if you’re a billionaire capitalist like Mr. Epstein, you do have the ability to purchase the labor power of young working-class women and girls and force them to meet any sexual desires, just like you can coerce them to produce surplus value in the business enterprises you own.

Economic developments

As is typical at the peak of the industrial cycle, speculation is spreading on Wall Street regarding whether or not the Federal Reserve’s Open Market Committee will lower its target for the federal funds rate by a quarter or even half a percentage point at its next meeting at the end of this month (July 2019). Expectations grew that the FOMC will indeed lower its target rate as indications mounted that the U.S. — and world — economy is rapidly losing momentum.

The dollar price of gold, which has recently been below $1,300 an ounce, briefly soared to over $1,450 as the interest rate (2) on 10-year U.S. government bonds dropped below 2 percent for the first time since the Republican tax cut bill was passed at the end of 2017.

However, when the U.S. Labor Department released a report that showed that 244,000 jobs were created in June, doubts spread that the economy was slowing as rapidly as had been believed. A half-percentage point cut in the federal funds target rate suddenly seemed off the table, and even a quarter-point cut now seemed in doubt. As a result, the interest rate on 10-year bonds rose back above 2 percent while the dollar price of gold dropped once again below $1,400 an ounce.

However, Federal Reserve Chairman Jerome Powell in congressional testimony gave a surprisingly downbeat — by the standards of Fed chairpersons, who generally paint the state of the economy in glowing colors — assessment of the state of the U.S. and world economies. Speculation again mounted that the FOMC would lower its target rate for federal funds probably a quarter of one percent. As a result, the interest rate on 10-year bonds again dropped — though it stayed above 2 percent — while the dollar price of gold once again rose above $1,400 a troy ounce, though it stayed below $1,450.

If the U.S. and world economies have entered a recession or are about to — and we can’t know this for sure until the actual peak is well behind us as economic statistics lag well behind developments — reducing the fed funds rate, from the viewpoint of capitalism (3), is the correct move. If this proves to be the case, the demand for U.S. dollars as a means of payment will increase sharply in the coming weeks and months, driving the dollar price of gold down toward $1,000 a troy ounce — perhaps a little below that — even as interest rates fall and inflation is kept at bay. Indeed, if the U.S. and world economies follow this course in the months ahead, there will be concern in capitalist circles about deflation rather than inflation.

But if the economy has not yet peaked, or is not about to peak in the immediate future, the lowering of the fed funds rate will likely send the dollar price of gold well above its current levels. If this happens, the dollar prices of primary commodities will climb sharply and a dollar-depreciation-driven inflationary surge will loom. The Fed will then be forced to sharply reverse course and raise its target for federal funds — which would then be quickly followed by a recession in the very teeth of the 2020 election campaign. (4)

Either the beginning of a recession or a dollar crisis brought on by a “premature” reduction by the FOMC of the federal funds target rate are possible over the next months. Trump is continuing to attack the Federal Reserve System and Powell in particular for pushing and keeping interest rates “too high.” And he just nominated two new candidates for the Fed’s Board of Governors, whose fate is in the hands of the Republican Senate. I will examine these important developments as they unfold over the coming months. But this month I want to examine the latest developments in the international trade war, which has already begun.

At the G-20 summit held June 21-22, U.S. President Donald Trump agreed to another trade truce with Chinese President Xi Jinping. Trump backed off his threat to impose another $325 billion in tariffs in addition to the $200 billion on imports from China already in effect. China, in turn, agreed to step up its purchases of U.S. agricultural products. The trade talks between the two nations that had broken down in May are being resumed. However, no tariffs already imposed are being withdrawn.

On the question of Huawei, which is a formally separate issue but in fact is at the center of the growing friction between the People’s Republic of China and the United States, Trump promised that the company may be allowed to do some business with U.S. companies, though the details are vague. However, it appears that Huawei will not be allowed to sell its products in the United States — the largest single national market — and Ms. Meng remains under house arrest in Canada awaiting extradition to the U.S. for the “crime” of violating the criminal U.S. sanctions against Iran.

Thomas Friedman reveals the essence of the conflict between PRC and the U.S. world empire

On June 25, the billionaire columnist for The New York Times Thomas Friedman published an article that got right to the essence of what underlies the growing economic conflict between the People’s Republic of China and the U.S. Friedman is a staunch supporter of what I call the Party of Order. The term “Party of Order” I borrow from Karl Marx, who used it in his pamphlets “The Class Struggles in France, 1848-1850” and “The 18th Brumaire of Louis Bonaparte.”

These pamphlets were written during and right after the revolution of 1848. Marx describes how “the resistance” to the autocratic ambitions of French President Louis Bonaparte ended with the victory of the French president over his Party of Order opponents. Louis Bonaparte had, unlike Trump, won a landslide victory in the French presidential election of 1848 because he was the nephew of the “great” Napoleon. According to Marx, the French peasants voted for Bonaparte because they wrongly associated Napoleon with the land reform that had actually been a product of the Great French Revolution of 1789-94, which preceded Napoleon’s rise to power.

In 1852, the French president promoted himself to Napoleon III, Emperor of France. As emperor, Louis Bonaparte went on to rule France until his defeat in the Franco-Prussian war of 1870 and was then forced into exile in England, where he spent the rest of his life. The key to the French president’s victory over the Party of Order lay not in his “genius” — Marx called Louis Bonaparte a “vapid nonentity.” Rather, it lay in the exploitative nature of the capitalist “order” the Party of Order was defending.

President Trump, though he cannot claim to be the nephew of the “Great Napoleon” or any other “great ruler” of the past, does show many personal resemblances to the 19th-century French president/emperor. For example, if any of today’s rulers can be described as a “vapid nonentity,” it is surely Donald Trump. Just like Bonaparte’s sexual affairs were notorious, even by the standards of 19th-century European rulers, so are Trump’s by the standards of the rulers of today — and that is saying quite a lot.

In addition to his scandalous sex life, President Bonaparte like Trump had many ties to organized crime, and his personal financial corruption, much like Trump’s, was over the top. Trump, unlike his predecessors in the White House, has refused to put his assets in a “blind trust.” Also unlike his recent predecessors, he has refused to release his tax returns.

However, the Bonapartist tendencies so obvious in U.S. — and indeed world — politics today did not begin with the “vapid nonentity” who currently occupies the oval office. For many decades now, the leaders of the Democratic Party and the anti-Trump Republicans — and ex-Republicans — of today’s Party of Order have repeatedly shown themselves incapable of resisting the “imperial presidency.” As was the case with Louis Bonaparte in 19th-century France, the impotency of the Party of the Order when confronted with the growth of Executive powers is rooted in the very nature of the “order” the Party of Order defends.

In 19th-century France, the order defended by the Party of Order was industrial capitalism in its “free competition” stage, which had emerged out of the Great French Revolution of 1789-93. This order was marked by the brutal exploitation of the French working class and the peasantry by the ruling capitalist class. The order Trump presides over and the Party of Order defends is the U.S.-dominated world empire that emerged out of World War II and the Cold War.

However, just as Louis Bonaparte was only a caricature rather than a repetition of the “Great Napoleon” — as he had to appear in the mid-19th century, to paraphrase Marx — Donald Trump is a mere caricature of Louis Bonaparte as he must appear in the early 21st century.

Louis Bonaparte ruled France in a period of rapidly expanding industrial capitalism and rising world “free trade” fueled by the gold discoveries in California in 1848 and Australia in 1851. Trump, in contrast, rules a world empire that has experienced a long-term slowdown of economic growth and world trade that began in the 1970s and has dropped to even lower levels after the Great Recession of 2007-09. This long-term economic slowdown, whose effects have been felt in the imperialist and “developing” nations alike — including China — has led to stagnating world trade and a new wave of protectionism.

Both Bonaparte and Trump promised to launch public works programs. Bonaparte to some extent kept his promises in this regard because he ruled in an era of rapidly expanding French and world capitalism. In contrast, nothing has come of Trump’s promises as regards “infrastructure” beyond huge tax cuts for the rich, record military spending, and rapidly expanding federal budget deficits. It is against this background that the current struggle between today’s Party of Order and the vapid nonentity in the White House is unfolding.

Who is Thomas Friedman?

Thomas Friedman is a strong critic of Trump and is, therefore, part of the “resistance” to Trump led by the present-day Party of Order. However, Friedman and the Party of Order actually agree with Trump on the most crucial issues, much as the earlier Party of Order agreed with Bonaparte when it came to defending the rule of capital in 19th-century France. Trump and today’s Party of Order agree that U.S. capital must continue to rule over the rest of the world. And not least, Friedman agrees with Trump on the relationship between the United States and the People’s Republic of China. He shares Trump’s aims — even though he has tactical disagreements — with Trump on Iran as well.

However, Friedman does express concerns that Trump may be making a mistake by taking on China, Iran, as well as North Korea and U.S. imperialist “allies” all at the same time. “Trump,” Friedman observes, “is unilaterally breaking the 2015 denuclearization deal with Iran’s dictator (5) while trying to entice North Korea’s dictator, Kim Jong-un, into a denuclearization deal that he’s supposed to trust the U.S. president will honor.” Friedman continues: “Trump is sanctioning China on trade while trying to enlist its help to denuclearize North Korea. Trump is imposing steel and aluminum tariffs on America’s European allies while needing their help to confront China on trade and Iran on nukes.”

Friedman is still willing to give Trump credit where credit is due. “I will give Trump credit for one thing,” Friedman writes. “He has imposed real pain on Iran — virtually choking off all of its oil production through sanctions. … ”

Friedman suggests — and this may very well be what Trump is actually aiming for — “that Trump should invite Britain, France, Germany, Russia and China — our partners in the 2015 Obama-Iran nuclear deal that Trump tore up — to join us in improving that deal with a simple offer: The U.S. will lift oil sanctions if Tehran agrees to extend the restrictions on its ability to make a nuclear bomb from the original 15 years to 30 years, and agrees to a ban on testing Iranian missiles that can reach beyond the Middle East.”

In other words, Friedman suggests that Iran agree to “double” the period that it agreed to cripple it own nuclear power program and also agree to new restrictions on its ability to defend itself against the United States and Israel in the bargain. If Trump can pull that off, Friedman argues, he would have won a great victory for the Empire. And it is hard to disagree with Friedman on this point. However, as big a problem as Iran is — as well as North Korea and the U.S.’s Western European “allies” — it is China that represents the biggest problem according to the billionaire New York Times columnist “opinion maker.”

China’s crimes according to Friedman

“China,” Friedman complains, “stole others’ intellectual property, forced technology transfers from companies doing business there, imposed nonreciprocal trade arrangements, provided huge government subsidies to its exporters and ignored World Trade Organization rulings.” This is a pretty good description of how the U.S. industrialized in the 19th century against the bitter opposition of the then-dominate industrial country — Great Britain. The one exception is that the U.S. didn’t ignore World Trade Organization rulings back then but only because the WTO did not exist at the time.

“If we were to allow China to use those same abusive practices [the same ones the U.S. used during its own rise — SW] it employed to dominate the manufacturing and assembly of low-margin, high-volume goods to now compete directly with us for the high-value-added, high-margin [emphasis added — SW] technologies of the 21st century — like 5G telecom, new materials, AI, aerospace, microchips — we’d be crazy,” Friedman explains. (By “margin,” the Times columnist means the popular slang term for the current rate of profit on capital advanced.)

Let’s translate what Friedman is saying into scientific — that is, Marxist — terminology. Friedman is saying Chinese “dominance” of those branches of industry that yield only the average rate of profit to their capitalist owners is tolerable if not desirable. We know that even if we assume “free competition,” with equal rates of profits among all branches of industry, surplus value in the form of profit is transferred through circulation from industries of a lower-than-average organic composition of capital — where the bulk of surplus value is actually produced — to the owners of industries with a higher organic composition of capital.

The organic composition of capital refers to the ratio between constant capital, which does not produce any surplus value, to variable capital, which does. Labor power functions as variable capital after it has been sold to the capitalist. If this transfer of surplus value did not take place, industries with a higher-than-average organic composition of capital would make a lower rate of profit for their capitalist owners than industries with a lower-than-average organic composition.

If we add in the factor of monopoly, which can involve either sellers who use monopoly power to sell their commodities above their prices of production — the price that yields the average rate of profit — or monopolist buyers who buy commodities at prices below their prices of production, the transfer of surplus value that occurs in the sphere of circulation is magnified.

This is the basis of what can be called the Foxconn model of capitalist development and imperialist domination. The workers in China, India and other “low-wage countries” — generally young women recruited from the ranks of the poor peasantry — assemble devices from parts made in many countries. These devices include smartphones, laptop and desktop computers, gaming consoles, smartwatches, and so on. Huge amounts of surplus value are then transferred from Foxconn — though enough remains to make Terry Gou and other Foxconn bosses billionaires many times over — to a handful of “device designers” located in the imperialist countries, of which Silicon Valley’s giant Apple Corporation is the best known.

These device designers use their monopoly buying power, reinforced by various forms of “intellectual property” such as trademarks, hardware and software patents, and software copyrights. The super-profits — in the final analysis always based on redistributed surplus value — can then be shared out among stockholders in proportion to the quantity of stock they own and real-estate interests in proportion to the amount of land they own.

This means that skilled workers who bought a house with a small yard a few decades ago in Silicon Valley, and paid down the mortgage, will be U.S. dollar millionaires in terms of total net worth — not income — a few times over. This places them on the verge of membership in the lower ranks of the capitalist class.

The capitalist class is defined as those people who have enough capital — and in practice landed property, since the landlords today can hardly be separated from the capitalists proper — to live off interest, rents and dividends at a “comfortable middle-class” lifestyle without having to work. This is, of course, the “American Dream” pushed not only by the Republican right but more so by the Democratic “left” and many “progressives” and even “democratic socialists.” The American Dream is therefore profoundly reactionary.

At the other end of the pole are the increasingly unaffordable house rents that have led to the growth of full-scale homelessness, people doubling up, young people living with their parents until their youth is gone, and people having poverty level incomes once they have paid their monthly rent. These conditions spreading throughout the United States and other imperialist countries are most developed in California’s Silicon Valley, the center of “high tech” and its “intellectual property” rackets.

Through the process of monopoly pricing and other mechanisms, surplus value is transferred in the form of super-profits to “high-margin” businesses like telecoms, aerospace, and makers of CPUs and GPUs. (6) In Friedman’s view, China cannot be allowed to threaten these monopoly profits, which form the very heart of Friedman’s beloved “order.” It is not for nothing that Lenin defined the essence of imperialism as monopoly. However much the leaders of the People’s Republic of China may desire China’s “peaceful rise,” Friedman will have none of it. Foxconn is all right from the viewpoint of the billionaires like opinion-maker and columnist Thomas Friedman. But Huawei, which by providing competition threatens the monopoly super-profit gravy train, cannot be tolerated.

“I believe 2019 will be a pivotal year — like 1945 and 1989,” Friedman concludes. “I just hope it ends as well.”

The year 1945 saw the victory of the U.S. in earlier commercial wars and then gigantic military conflicts with Germany and Japan for domination of the world market. It marks the beginning of the unchallenged military and political domination of U.S. imperialism over the rest of the imperialist world as well as the oppressed nations.

The year 1989 marked the surrender of Mikhail Gorbachev and his government to the U.S. world empire. Gorbachev’s surrender ushered in a period of unparalleled world reaction as U.S. political, military and economic domination spread to many areas that were formerly part of the “socialist camp.” Friedman is looking forward to the even greater reaction that would be ushered in if the governments of Iran, Venezuela and above all China surrender unconditionally to the demands of the Party of Order and Trump.

Both Trump and the Party of Order are saying that if only Xi Jinping gives up any idea of China ever building a telecom industry, developing artificial intelligence and machine learning, manufacturing CPUs and GPUs, developing its own aerospace industry, or any other “high-margin” business, there can be peace between the United States and China. This is what Thomas Friedman is hoping for, and as Trump might put it, would be a “great deal.” Indeed, it would be for U.S. imperialism and its world empire.

If anything like this were to come to pass, the result would be greater monopoly power for the existing U.S.-, European- and Japanese-based monopolies and a much-reduced rate of “innovation” as well higher prices for high-tech commodities. But there will also be increased and more secure monopoly profits for the existing monopolies and their owners, including one coupon-clipper named Thomas Friedman, leading to higher share prices on Wall Street. Unwitting Friedman, blinded by his class position and personal material interest, has through his column delivered a condemnation of the very “order” he so stubbornly if naively defends.

Storm clouds gathering over Germany

On July 8, a scene was witnessed on Wall Street that hadn’t been seen since the panic days of 2008. Investment bank employees — this time working for Deutsche Bank — were told to clear out their desks and leave. Deutsch bank announced that as part of a corporate “restructuring” it was reducing worldwide employment by 18,000 over three years to restore profitability. Reports circulated on the Internet that the venerable but now scandal-ridden German universal bank was on the brink of collapse, though this cannot be confirmed as of this writing.

But it is true that German imperialism, symbolized by Deutsche Bank, is in serious trouble. Germany’s relative prosperity over the last few years has been built on solid mercantilist principles, namely soaring exports. However, with the coming to power of the protectionist Trump administration and the threat of a “hard Brexit” by Britain, Germany’s access to both the U.S. and British home markets is threatened. Now with a general cyclical slowdown in the world capitalist economy, the recent boom in Germany is fading fast.

An article posted in the online journal Sputnik International features an interview with former Social Democratic Chancellor Gerhard Schroeder that appeared in the July 7, 2019, edition of the German newspaper Handelsblatt. Schroeder complained: “What is the American ambassador doing publicly criticizing Germany’s defense budget, or attacking our automotive industry? Here I would like to have heard a statement from the German government on one or two occasions about how this is none of his business. We are not a banana republic here!”

In a sense, however, Germany is a banana republic. Not in the economic but in the military and political sense. Its banana-republic status was determined by the outcome of World War II.

Schroeder is angry with the U.S. partly because he heads the German consortium that is building a pipeline delivering cheap natural gas from Russia to Europe, not least Germany. The U.S., both Trump and the Party of Order, however, insist that Germany and other European nations buy more expensive natural gas produced by fracking in the U.S. and shipped in liquid form from the U.S. to Europe.

“Commenting on the assessment that China engages in ‘neo-mercantilist’ policy with its Silk Road initiative,” Sputnik reports, “Schroeder said the US dollar system does the same thing.” So it appears that “everybody” is following a “neo-mercantilist” policy, which is not surprising since the mercantilist economists described the economic laws that govern capitalist international trade more realistically than do supporters of the “theory of comparative advantage,” taught in university economics departments.

“According to Schroeder,” Sputnik reports, “a realignment of power is underway in the world.” Further: “’On one hand there is the still strong US, and on the other a powerful, Asia dominated by China. Who will be able to stand between them — not Germany, not France, but only a united Europe.” Again, a very apt observation by the former German chancellor, but it overlooks one little thing — Germany’s defeat in World War II.

Back in the European spring of 1940, Germany succeeded in occupying France in just six weeks. It appeared for a moment that Germany had won the war. All that was left was to crush the Soviet Union, and couldn’t that be done in a matter of weeks? If things had only turned out that way, Europe would be “united” under German hegemony — France would know “its place” and a Europe dominated not only economically but militarily and politically by Hitler’s heirs would be able to hold its own against the declining but still powerful United States to its west and the rising power of Asian capitalism to its east.

As things turned out, the antagonism between Germany and France led to three wars between France and Germany — the short Franco-Prussian war of 1870, World War I between 1914 and 1918 (the real big one as far as France is concerned), and the brief war of 1940 that ended with Germany’s victory in only six weeks. France was later “liberated” by the rising U.S. empire in 1944. Ever since, the antagonism between the two most powerful capitalist countries on the European continent — Germany and France — has been “regulated” by the U.S. world empire.

With Britain now on the verge of leaving the European Union — more on this in future months as the Brexit drama continues — Europe including Germany, France, Britain and Russia is doomed to play a secondary role as the main struggle — economic but also political with the threat of a military struggle in the background — intensifies between rising Asia and a “still powerful” but declining U.S.

The U.S. economic war against Iran, though less overtly, is also aimed against the U.S.’s “allies” in Europe. Europe is being pressured to not buy natural gas from Russia but rather to import U.S.-produced natural gas shipped to Europe in liquid form by ship. Germany and the rest of Europe are being told that they cannot buy oil from its natural trading partner Iran.

The Trump administration is using its “ally” the Saudi oil monarchy, which unlike rival Iran is not a nation-state or even a nation-state in the making, to increase the pressure on Europe. Since oil from Iran and Venezuela is blocked, Europeans have to buy their oil from Saudi Arabia. As a result, the landlord-owners of oil-bearing land and capitalists of Saudi Arabia can sell more oil at artificially high prices. This is indeed a “great deal” for them. This is why the Saudi oil monarchy is so solidly allied with the U.S. and its “white” colony in Palestine — the “Jewish” state of Israel — against its fellow Muslims in Iran.

An escalation of the trade war with Europe?

When Trump imposed his tariffs against Canadian steel, this was good for the U.S. steel industry that consequently was able to expand its share of the home market at the expense of steel plants in Canada. From the point of view of Trump’s drive to re-industrialize the U.S., so far so good, though this has not saved the U.S. steel industry from the effects of the current cyclical slump.

The problem is that the tariff puts the U.S. auto industry at a disadvantage relative to the auto industries of other countries. The U.S. steel industry, which developed during the late 19th century, and the auto industry, which was the backbone of mid-20th-century U.S. industry, are just the type of industries, along with the coal industry, that Trump has promised to revive. By protecting the U.S. steel industry, Trump undermined the U.S. auto industry, including the auto parts industry.

However, if Trump actually moves to impose tariffs on European — and Japanese — automobiles, which he threatens to do, it will perhaps be a fatal blow against the compromise that the U.S. made with Germany and Japan after it (or in the case of Germany, the USSR) had utterly defeated them militarily in 1945. The compromise was that while neither Germany or Japan would be allowed to ever again challenge the U.S. politically or militarily, they would be allowed access to U.S. markets, and their corporations would be granted access to raw materials and markets including the previously highly protected U.S. home market so they could compete economically with U.S. corporations.

From the viewpoint of the German and Japanese capitalists, World War II was therefore not a dead loss. They had indeed achieved one of their dreams, access to the U.S. home market even if they had to give up an independent military and political role. Indeed, if the U.S. had been willing to offer Germany a similar deal after World I, Hitler would likely have never come to power and World War II might have been avoided or at least delayed.

But now the Trump administration threatens to tear up “the deal” that dates back to the 1940s just as he tore up the more recent deal with Iran. Through Trump, U.S. imperialism is saying to the capitalists of Germany and Japan, you are weak politically and militarily, so what are you going to do about it? Maybe Germany, Japan, France, Russia or even Britain will find ways of “doing something about it” after all. Time will tell.

Trump’s threats of tariffs against Mexico reveal the essence of capitalism

While Trump’s trade war against China enjoys widespread support, the trade war against Europe and Japan less so. Among the U.S. capitalist class — both Democrats and Republicans — Trump’s sudden announcement that he would impose tariffs against Mexico unless Mexico takes action to halt “illegal” immigration of people mostly from Central America to the U.S. by way of the Mexican-U.S. border enjoys even less support.

This led to a wave of protests in both the Democratic and Republican parties and the media. The Senate Republicans made clear to Trump that they would have none of it and threatened to join the Democrats in overriding the phony “state of emergency” that Trump would have to declare to impose tariffs against Mexican imports. This condemnation did not, however, target such “excesses” as the incarceration of children, including infants, in concentration camps. The concentration camps are okay with the Senate Republicans — and for the most part the Democrats as well.

Specifically, Trump threatened to impose a 5 percent tariff beginning on June 19 (2019) and keep increasing it an additional 5 percent until it reached 25 percent by October 2019. The tariffs would have to be paid by the customers of U.S. capitalists operating in Mexico (as well as non-U. S. capitalists operating there).

A tariff is simply a sales tax paid by the purchaser of commodities imported from a targeted country. The capitalist importer can either pay the sales tax themselves or increase prices they charge to consumers. If they pay the tax themselves, they suffer a direct loss in profit. If they do not pay the tax themselves and pass it on to their customers, they lose market share to other capitalists who do not have to pay the tariff. Either way, if Trump’s tariff on Mexican-produced commodities had gone into effect, the rate of profit earned by many American capitalists — both industrial and merchant, not least U.S. automobile manufacturers — would have declined.

Did Trump really intend to impose profit-lowering tariffs, or was he simply engaged in racist grandstanding to “energize” his racist base ahead of the 2020 election? By going after Mexico for allowing immigration of Brown people, he is seen by his white nationalist supporters to have stood up to the Mexicans and defended the “white race” from the influx of immigrants who are threatening the “racial” character of the United States.

But there is an economic-nationalist argument that is not racist as such — though it tends to generate racism — in favor of Trump’s tariffs. The argument is that the power of a nation-state relative to other nation-states ultimately depends on the strength of its industries, including agriculture, located within its boundaries. The stronger its industries the more likely it is to run a balance of trade surplus, and the larger in real purchasing power terms will be the domestic money supply, leading to a larger home market and making possible lower taxes while increasing military spending at the same time. Indeed, there is much to be said for this argument as long as the world is divided into separate nation-states.

The mercantilists, who dominated political economy before Adam Smith, drew the conclusion that the government should do everything in its power to ensure that the nation-state it rules over enjoys a positive balance of trade. Just like individual capitalists strive to maximize their own profits, individual nation-states, the mercantilists argued, should strive to maximize the quantity of money within their home markets. This, these economists argued, will result in the strongest possible flow of revenue into the state coffers at a given rate of taxation. Therefore, the larger the positive balance in trade, the mercantilists explained, the more the government will be able to spend on war — or defense, as it is said today.

And the stronger the flow of money into state coffers at a given rate of taxation, the stronger will be the state power, the less likely the nation-state will be attacked by a rival nation-state, and the more it will be able to go on the offensive and take away the colonies of other nation-states and even attack its rivals directly. The problem with mercantilism is that not every nation-state can enjoy a positive balance of trade at the same time.

The positive balance of trade enjoyed by some nations is balanced off by a deficit for other nations. Therefore, the mercantilist policies imply the inevitability of commercial wars as each nation-state attempts to improve its balance of trade at the expense of its rivals. It also means that existing capitalist nation-states will resist the rise of new capitalist nation-states. (7)

Viewed from the economic-nationalist, or neo-mercantilist, perspective, the increasing movement of industry such as automobile manufacturing and the production of auto parts from the U.S. to Mexico is highly undesirable. This is true even if Mexican industrialization follows the “Foxconn” model. The economic nationalists argue that even if “we,” the imperialists, use these industries to squeeze vast amounts of surplus value out of the oppressed countries today, tomorrow the industries may change ownership and the very imperialist system that has made “us” billionaires will then collapse. The risk, economic nationalists hold, is simply too great. We must return production to our “own” countries. For Donald Trump and Steve Bannon, this means above all the return of production to the United States.

One danger from the economic-nationalist point of view is that the spread of Mexican “Foxconns” could pave the way for the rise of a future Mexican “Huawei” as scientific and engineering knowledge spreads despite the best efforts of the champions of “intellectual property rights” to stop it.

However, there is an even greater danger to the defenders of the current “world order” in the movement of industry from the imperialist nations to the oppressed nations. What would happen if a wave of socialist revolutions spreads throughout the oppressed world? Indeed, capitalism would not exist today if in 1917 the bulk of industrial production had been carried out not in Western Europe and the United States but in Czarist Russia. The more the bulk of industrial and agricultural production migrates from the imperialist world to the oppressed nations, the more likely the next wave of socialist revolutions will likely begin in the oppressed nations and then by cutting off the flow of surplus value to the imperialist nations end capitalism once and for all.

The increasingly parasitic national economies of the imperialist nations, built around “financial services” and “intellectual property” would then collapse like a house of cards. This is the other side of “dependency” analyzed by dependency theory. The more industrial and agricultural production shifts from the imperialist nations to the oppressed nations the more dependent the imperialist countries become on the willingness of the oppressed nations and their working classes to continue to tolerate these conditions. A century ago, the so-called U.S. isolationists could still dream — even if it wasn’t realistic even then — of a largely self-contained U.S. capitalism. This is utterly impossible today even if Trump sometimes seems to flirt with “neo-isolationism” in his speeches and rallies.

To avoid the “terrible danger,” economic nationalists argue, of the continued movement of industry and even agriculture from the imperialist countries to the oppressed nations, it is better to raise tariffs on Mexican-produced commodities — and commodities produced in China, Vietnam, India and other oppressed countries — before it is too late.

Profit Upon alienation, the fatal weakness of mercantilist economics

The early mercantilist economists made many correct observations about foreign trade. Their arguments — under capitalism — stand up much better than do the theories of international trade based on “comparative advantage.” What the mercantilist economists did not do was examine the origins of profit in production. They confined themselves to the appearance that profits arise upon alienation — that is, at the point of sale.

A merchant makes his money— it would have been “his” in mercantilist days — by buying cheap and selling dear. If you ask a merchant capitalist what is the source of his or her profit, the merchant will answer as follows. I add up the costs of my stock — commodity capital in Marxist terminology — and then add the overhead onto that. Having calculated my total costs, I then add a reasonable “markup.”

My markup is as high as the market will allow, but since I have fierce competitors who are trying to take sales away from me, my markup is limited by competition. That is how I make my profit. However, the liberal economists that followed the mercantilist economists, and even more so Marx, pointed out that the origin of profit is not to be sought in the sphere of circulation but the sphere of production.

A home country is dear to the capitalists but is only a means to an end. And that end is profit. Here is where John Smith and international “labor arbitrage” that Smith points to comes in. The price of labor power is “cheap” in Mexico. With “labor” so cheap, the cost price — that is, the price that the capitalists — not society — have to pay for producing automobiles, auto parts, and many other commodities is considerably lower in Mexico than it is in the U.S.

What good, the congressional Democrats and Republicans of the Party of Order proclaim, is making “America Great Again” if the rate of profit on the capital advanced falls! Given a choice between the higher rate of profit and the interest of “the nation,” the capitalists will always choose the higher rate of profit. When Trump announced his tariffs on Mexican commodities, the Democrats and the Republicans in both the House and the Senate rose up as one person in defense of the rate of profit.

Though Trump quickly capitulated to the opposition — assuming he was serious about the rate-of-profit-lowering tariffs in the first place — the economic nationalists do have a counter-argument. Mexico — and China, India, Vietnam and others — they argue, have an advantage in terms of their plentiful supplies of cheap labor, unlike the “developed countries” of Western Europe, Japan, the United States, Canada, Australia, and New Zealand. But the U.S. and the other “advanced” nations have the advantage of high technology. That is why “we” — the economic nationalists and Party of Order alike insist — must fiercely enforce our intellectual property rights.

A series of recent breakthroughs involving what is called “machine learning” is opening up the prospect of automating jobs that have resisted automation up to now. As a result, the economic nationalists argue, U.S corporations don’t really need cheap labor as much as in the past, and they will be able to do without it completely as the new technology centered on machine learning advances further. In this way, “we” can “free ourselves” from our increasingly dangerous dependency on the cheap labor of the oppressed nations.

This brings us to what the capitalist system is and what it isn’t. Capitalist production is not a system of the accumulation of ever more “stuff” or of the means of producing such “stuff.” It is about the accumulation of capital. Capital, Marx discovered, is a social substance — whose immanent measure is abstract human labor measured in some unit of time. However, abstract labor embodied in commodities cannot be directly measured because if it were there would be no way to determine whether it was socially necessary or not. Therefore, abstract labor embodied in commodities — value — must take the form of exchange value. Exchange value is the value of one commodity measured in the use value of another — equivalent — commodity. Therefore, in a money economy — and all capitalist economies are money economies — the value of commodities is measured in the use value of the commodity that serves as the universal equivalent, the money commodity.

The immanent measure of surplus value is like capital abstract human labor measured in some unit of time. The value that makes up surplus value also must take the form of exchange value, that is profit. Therefore, profit must always be measured in the use value of the commodity that serves as the universal equivalent — today gold bullion. Even an economist as sophisticated as Anwar Shaikh failed to understand this crucial point.

Under the influence of Piero Sraffa, Shaikh confuses the surplus product — the use values of the commodities that are consumed either productively, means of production and additional labor power whose use value is to expand the physical scale of production, or unproductively, defined as those commodities whether necessaries or luxuries that are used as means of personal consumption of the capitalists and other non-workers — with profit. There is no way, however, that you can measure the rate of profit in terms of the many different use values of the commodities that make up the total surplus product of society.

The aim of capitalist production is to increase the quantity of capital, which can only be done by adding new surplus value in the form of profit to the already existing capital. Since the workday consists of only 24 hours, the amount of surplus value that is squeezed out of the average individual workers in a 24-hour workday will always be some fraction of 24 hours. Therefore, in the long run, the only way the mass of surplus value can keep rising — absolutely necessary if capitalism continues to exist — is for the total number of workers who produce surplus value employed by capital to increase without limit. Therefore, U.S. capital — as well as the capital of the other imperialist nations because it is capital — has no choice but to continue to transfer production from regions where wages are higher to areas where wages are lower.

The three forms the ‘the surplus’ takes under the capitalist mode of production

The Monthly Review writers waver between using the term “the surplus” and surplus value. Paul Sweezy borrowed it from Paul Baran but later regretted using “the surplus” instead of surplus value. The late U.S. Marxist economist realized that “the surplus” was a giant step backward from Marx’s surplus value. Actually, “the surplus” mixes up three quite different things, which is why in my opinion this confusing term should be dropped.

First, “the surplus” can refer to the surplus product. The surplus product consists of the use values consumed either productively or non-productively by the capitalist class, landowners, and their hangers-on. The surplus product consists of the means of production that expand the existing level of production, additional raw and auxiliary materials, and not least the additional labor power and means of subsistence needed to maintain this additional labor power in terms of value but not use value as well as the means of subsistence consumed by the ruling class plus luxury goods consumed only by members of the ruling class.

An example of the latter category would be the labor power — and the means of subsistence needed to maintain them — of the “girls” employed by billionaire pedophile Jeffery Epstein. In addition, we include weapons used by both the police and the military. These range from the nightstick carried by your local police officer to hydrogen bombs.

Surplus value, in contrast, forms part of the value of all commodities — regardless of their use value to their ultimate consumers — that are produced capitalistically. It is produced during the part of the working day that workers work for free for the capitalists in contrast to the necessary value produced by the same workers during the part of the working day they reproduce the value of their labor power. Surplus value, unlike surplus product, is not a physical substance but a social substance.

Surplus value is the most important category of the Marxist critique of political economy because it explains that even assuming that all commodities sell at their values — direct prices to use Anwar Shaikh’s more precise terminology — the workers, just as was the case under chattel slavery, feudalism and every other exploitative system of production, work part of the day for themselves and part of the day for the capitalists or other exploiters free of charge.

And finally, there is the form that surplus value assumes. Though it appears to be measured in terms of U.S. dollars, yen, pounds, yuan and so on, these “talismanic” signs, as Marx called them, ultimately represent definite quantities of the use value of the money commodity. In practice, this is gold bullion measured in some unit of weight. (8) It is the form that surplus value contained in all capitalistically produced commodities — not simply those that make up the surplus product — must assume if they are to enrich the capitalist. Unlike surplus value, which is a social substance, profit is a physical substance — or thing that can be carried around in a pocket or money bag — that represents an exploitative social relationship of production.

To be continued.


1 It is not clear exactly how Epstein became a multi-billionaire. There are rumors he is connected to the U.S. “intelligence” apparatus. (back)

2 As a general rule, when interest rates rise the dollar price of gold drops and when interest rates fall the dollar price of gold rises. (back)

3 We must always remember that as workers we have no interest in the Fed’s target level for the federal funds rate. The Federal Reserve System’s dilemma over whether or not to cut the federal funds rate is only of interest to us insomuch as it exposes the contradictions of capitalist production that we are fighting to transform into socialism. (back)

4 Trump’s constant attacks on Powell for raising interest rates is limiting Powell’s room for maneuver. The speculators in the gold markets are constantly trying to figure out exactly how many dollars the Fed will create or destroy in the coming months. Their judgments can turn on a dime. There is a constant suspicion among them that Powell will bow to Trump’s constant pressure to lower interest rates and improve the prospects for him and Republicans in general in 2020. To allay these “fears,” Powell and the Open Market Committee he leads might have to follow a “tighter policy” than they otherwise would in order not to lose credibility, and that could increase the chance of a recession in the very near future. This is why recent presidents — but not Trump — have learned to avoid criticizing the Federal Reserve’s policies. (back)

5 It’s unclear who Friedman is referring to here. Is it Iran’s constitutional and self-described elected moderate President Hassan Rouhani, or is it Supreme Leader Ali Khamenei. Khamenei expressed reservations that the moderate Rouhani made excessive concessions when he signed the agreement that greatly limited the ability of Iran to develop atomic power and allowed intrusive inspections of Iran’s nuclear facilities. Never mind, the U.S. by definition according to the Party of Order represents “democracy,” and those countries that dare to resist the U.S. world empire in any way are ruled, by definition, by a “dictator.” (back)

6 CPU stands for “central processing unit,” referring to the central processor of an actual computer. GPU stands for “graphical processing unit,” which carries out the mathematical calculations crucial not only for computational-intensive calculations required for video game graphics but for machine learning as well. (back)

7 This is the main reason that mercantilist theory is so unpopular in academic circles. Far better to preach the theory of comparative advantage, which “proves” that all capitalist nation-states have the same interests, just like the economists also prove that the classes within capitalist nation-states have the same interests. (back)

8 The purpose of the Volcker shock — even if it rather unlikely that Volcker himself realized it — was to restore the profitably of U.S. — and world — capitalist industry in terms of gold as opposed to “talismanic” currency units like U.S. dollars, pounds, yen and so on. (back)