The Current Industrial Cycle (Pt 3)

A deepening political crisis

On Aug. 23, African-American Jacob Blake was shot in the back by police seven times in Kenosha, Wisconsin. Blake is expected to survive but is paralyzed from the waist down. This latest police outrage triggered a wave of demonstrations by the Black Lives Matter movement in Kenosha and elsewhere. Two days later, a Trump supporter and police wannabe named Kyle Rittenhouse shot to death two Black Lives Matter protesters with a rifle he was carrying. Rittenhouse, who lives in Illinois, is a member of a fascist militia group that came to Kenosha for the announced purpose of defending the property of business owners from Black Lives Matter protesters.

The cops were seen thanking the fascists and offering them water. After Rittenhouse killed the two protesters, he walked up to the cops with his hands up. However, the guardians of “law and order” refused to arrest him. He was finally arrested and charged with murder only after he returned to Illinois. U.S. President Donald Trump then weighed in. Trump defended the young fascist killer claiming that Rittenhouse faced certain death if he had not acted to defend himself. Trump also attacked the alleged violence of “left-wing” — Black Lives Matter — protesters but defended the violence of Rittenhouse and other murderous right-wing counter-protesters.

As the 2020 election campaign heats up, Trump steps up his racism and cements his alliance with the fascists. This is shown not only by the events in Kenosha but also by what has occurred in Portland, Oregon. Previously, Trump had sent a force of federal “police” to Oregon that attacked Black Lives Matter protesters in Portland. While this force has been withdrawn, thousands of Trump supporters, which doubtless include many fascists, descended on Portland to fight the Black Lives Matter protesters.

Violent clashes broke out between the pro-Trump mob and Black Lives Matter protesters. Right-winger and Trump supporter Aaron Danielson, a member of the far-right group Patriot Prayer, was shot to death. Michael Reinoehl, who was white and claimed to be a Black Lives Matter and Antifa sympathizer — though he had no formal ties to any organization as far as can be determined at this time — fled the scene. Later, he took responsibility for the Danielson killing in a Vice interview claiming that he was acting in self-defense to defend Black Lives Matter supporters and himself from Danielson.

However, Reinoehl was treated quite differently by police than Rittenhouse. Reinoehl was shot to death on Sept. 3 by a federally led squad of cops. Unlike Rittenhouse, Reinoehl will not get his day in court. President Donald Trump then took personal credit for the police murder of Reinoehl. At a September campaign rally in Nevada, Trump boasted that he sent in the U.S. Marshals and it was taken care of “in 15 minutes.” Trump defended the murder of Reinoehl by U.S. marshals and local cops in an interview on Fox News explaining to Judge Jeanine that there has to be “retribution.”

Apparently, “legal technicalities” like trials, juries, the right to confront your accusers, and a presumption of innocence until proven guilty have nothing to do with it. Trump is making clear to both the fascist and police killers that he has their backs when they go after Black Lives Matter and other left-wing protesters.

Anyone who knows the history of the U.S. — but also other countries, such as Germany during the rise of Adolf Hitler — will see a familiar pattern. The police claim to be neutral between left and right. They explain that their job is to see to it that no laws are violated and to prevent anybody from being hurt on either side. Sometimes, but not always, they will indeed keep left-wing and fascist demonstrators apart. But the cops are always neutral on the side of the fascists. In the police ranks — this is probably even more true in the U.S. today than it was in the case of Germany — there are many fascist sympathizers. Indeed, in the U.S. today the majority of cops can be described as fascist sympathizers and some are members of fascist organizations.

Democratic and Republican conventions

A few weeks before the latest acts of police violence against African-Americans and street demonstrators, where fascists engaged in violent acts endorsed by Donald Trump, the largely “virtual” Democratic and Republican conventions were held. There were no real surprises provided by the Republican convention, which as expected was organized around Trump’s campaign for a second term.

The Democratic convention as expected rubber-stamped the nomination of former Vice President Joseph Biden for the U.S. presidency and California Senator Kamala Harris for the vice-presidency. Harris, whose family is from Jamaica, is of mixed Indian — India, not Native American — and African background, is the first woman of color to be nominated for the vice presidency by either the Democratic or Republican party.

While Harris herself did nothing to advance the cause of either women or people of color in the U.S., like the Obama presidency her nomination reflects important changes that have taken place in U.S. society. Not so long ago, the nomination of a woman, let alone a woman of color like Harris for the vice presidency by either the Democratic and Republican parties would have been unthinkable.

In addition to the Harris nomination, the Democratic convention had interesting features that could portend a major realignment of U.S. party politics. Congresswomen Alexandria Ocasio-Cortez — AOC — was allowed only 90 seconds to speak to the virtual convention and then only in a pre-recorded video. However, many Republicans were featured speakers. Among these were former Republican presidential candidate and Ohio Governor John Kasich. Among the other Republicans — or in a few cases former Republicans — who endorsed Biden were Chuck Hagel; former Secretary of Defense (War) General Colin Powell; Secretary of Transportation Ray LaHood; former New Jersey Governor Christine Whitman; Anthony Scaramucci, who briefly served in the Trump administration as communication director; and Carly Fiorina, former head of Hewlett-Packard and Republican presidential and California candidate for governor.

Republicans endorsing Biden also include many former FBI, CIA, and other “national security” officials. Among these are William Webster, who has the dubious honor of being the only person to serve as both head of the FBI and the CIA. Other Republican national security officials for Biden-Harris include Michael Leiter, former National Intelligence director, and former Air Force Secretary Mike Donley. More than 70 Republican “national security officials” have endorsed the Joseph Biden-Kamala Harris ticket.

Election reveals the real political division

The way things are shaping up, the presidential election is not so much between the Democratic and Republican parties but rather between the “Party of Order,” which includes both Democrats and Republicans rallying behind Biden and Harris, and the capitalist supporters of Donald Trump. The overwhelming majority of progressives, many with heavy hearts, have joined with the Party of Order in endorsing Biden-Harris. These progressives argue that this is the only way within the two-party system to defeat the “fascism” of Donald Trump.

A broad electoral “people’s front” — sometimes called a popular front — against Trump has been forming stretching from conservative Republicans who oppose Trump for various reasons, on the right, through the AFL-CIO, most of the African-American leadership, AOC and other “Squad” members who fought off challenges by conservative Democrats successfully in the primaries, and on the left the Communist Party USA, and on the extreme left the self-described Maoist Revolutionary Communist Party (1).

I will examine the question of a people’s front versus a united front in the battle against Bonapartism, fascism, and other extreme forms of capitalist reaction next month. This month, I want to examine the most powerful group within the electoral people’s front to defeat Donald Trump in the coming election — the group I call the Party of Order.

The capitalist class, its leadership, and Donald Trump

The ruling capitalist class is strongly divided on Donald Trump. Who are the people that collectively make up the U.S. ruling class? Here I do not define the ruling capitalist class as the handful of billionaire families that financially towers above the majority of the capitalist class, as is sometimes done on the left. Rather, I define the capitalist ruling class in the broader sense used by the British classical economists — Adam Smith and David Ricardo — as well as Karl Marx.

Adam Smith divided the Britain of his day into three classes. One was the landowning class that lived off ground rent, another was the capitalist class that lived off the profits of capital, and third was the wage-earning class that lived off the wages of labor. There is also an intermediate class between the capitalist class and the working class, which is — to use the traditional French expression — the petty bourgeoisie.

The ruling capitalist class consists of those people who live off the profit of capital. Profit is divided between the profit of enterprise and interest. We can also include the other major component of surplus value realized in money form, ground rent. Because the U.S. lacks a feudal past, the capitalist and landowning classes have always been in the U.S. thoroughly intertwined. We can therefore for political purposes treat them as a single property-owning class that lives off surplus value. (2)

John D. Rockefeller and Donald Trump are examples of capitalists who are also prominent landowners. Rockefeller owned oil-bearing and other mineral-bearing lands, while Trump owns urban real estate. We know that profit — interest, dividends, profit of enterprise, as well as rents — comes down to the various fractions of the money form of surplus value, the unpaid labor of the working class. If you can live off property income — profits, interest and rent — at a level exceeding that of a skilled worker without having to hold a job, you are a member of the capitalist ruling class.

If a nuclear family has $10 million in property-earning income and earns 4 percent a year on their property income, which includes profits on businesses, dividends, interest income, as well as capital gains (rises in the value of corporate stocks and real estate they own), they will have a before-tax income of $400,000 without having to earn an additional wage or salary income. Such a family can live reasonably well on such an income, though not as well as the billionaires at the top of the capitalist class, and can therefore be considered to be small capitalists and, in the sense that Smith, Ricardo and Marx used the term, are members of the capitalist ruling class.

One fraction of the capitalists is the actual business people and entrepreneurs, what Marx called “active capitalists.” These include heads of banks and other financial corporations as well as the CEOs of industrial and commercial enterprises. The active capitalists are those people who manage large and medium-size businesses. Small business people generally have net assets of less than $10 million even if they hire and exploit wage workers. That means they can’t retire from the active management of their business and hire professional managers to run it — carry out the “labor of superintendence” — and still enjoy an upper-middle-class lifestyle. They must at the very least perform the labor of superintendence if they are to live such a lifestyle and are therefore not full members of the capitalist class even if they exploit hired labor.

At the bottom are the smallest business people who cannot even hire workers and must depend on their labor and the labor of their family members. This category of business owners — which includes small family farmers — shades off into the semi-proletariat who must hire themselves out part-time to avoid extreme poverty. At its highest levels, it shades off into the capitalist ruling class.

In theory, it is possible to be an active capitalist without personally being a capitalist. If you are the CEO of a large corporation but don’t own stock in the corporation or you have a net worth of less than $10 million, you are an active capitalist who represents the stockholders who make up the collective capitalists who own the business but still are not personally a capitalist. In practice, however, the amounts of money represented by the salaries, stock options, and so forth paid to CEOs of the larger corporations are so high they are or will quickly become full-scale members of the capitalist class in their own right if they weren’t full-scale capitalists before. (3)

In large corporations, the CEOs don’t usually own anything close to a controlling interest in the corporation. But if they have net assets exceeding $10 million, they can live quite well even if they lose their corporate positions. They are therefore both active capitalists who represent the owners of the corporation as well as being money capitalists in their own right through their ownership of capital.

How to become a capitalist

How does a person become a capitalist? The easiest way is to be born into a capitalist family. That is how Donald Trump became a capitalist. (4) But what if you aren’t born into a capitalist family? There are various roads into the capitalist ruling class that would-be capitalists can attempt to follow.

One way is to start a business with whatever money you can borrow, steal, or otherwise obtain. Once your capital reaches about $10 million, you will if you wish be able to hire professional managers to run the business, relieving yourself of the need to perform the labor of superintendence. Even if you continue to run the business as an active capitalist, you are a capitalist because you no longer need the salary the manager who runs a business is entitled to. You can live off profit alone and retire any time you choose.

If you start a business in a new branch of industry such as, for example, oil in the late 19th century as was the case with John D. Rockefeller, or the early years of the 20th century as Henry Ford did with cheap mass-produced automobiles, or in the late 20th century as Steve Jobs did with cheap personal computers, you cannot only become a capitalist through starting your own business but a dollar billionaire many times over. You are not only a capitalist but a very big capitalist near the top of the capitalist class. Very few people manage to pull this off though many try.

Let’s say you are not interested in starting a business but desire to become a money capitalist. Most such people become money capitalists by carefully choosing the right parents. This is the preferred method. Large money capitalists are for the most part — but not entirely — the descendants of the large active capitalists of yesteryear who now live off the earnings of family trust funds. These are the “old families” — or “old money” as it is called — who dominate the country clubs and form the backbone of “society.” Many smaller money capitalists — mere millionaires as opposed to billionaires — are descendants of the smaller active capitalists of yesteryear. Anybody with a net worth of around $10 million or higher can be considered a capitalist since they can live quite nicely on dividend, interest, and rental income without having to hold a job.

While choosing the right parents is by far the easiest way, there are other ways to become a money capitalist. One method, which many try but few succeed at, is to win the lottery. Or — only a few people can pull this off — you can play the financial markets, and with great luck as well as learning to read between the lines of corporate balance sheets you might eventually, starting with a relatively modest sum of money, reach the $10 million mark in terms of net worth.

Another way to become a money capitalist is to become a professional sports or Hollywood superstar or otherwise earn a very high salary. This might be called the “high salary” route into the capitalist class. One way to do this is by using an extraordinary athletic ability to become a sports superstar or an acting ability combined with great sex appeal to become a Hollywood superstar, or to “climb the corporate ladder.” For example, if you become the head of a large bank, insurance company, or large “non-financial” corporation — which makes you an active capitalist as long you maintain that position — you will earn high salaries and bonuses much of which is paid in company stock or stock options. Even if you didn’t come from a full-blown capitalist family, you will almost certainly be a money capitalist in your own right by the time you retire.

The same is true of politicians who hold high political offices such as governors, U.S. senators and congresspeople, and above all the U.S. presidency. High-ranking politicians, especially former presidents, earn high fees by simply making a few speeches or receive high earnings by writing — or hiring ghostwriters to write — a few books. And there are many other ways top politicians can earn the extra money necessary — legal and some not so legal — to make them permanent members of the capitalist class by the end of their political careers even if they weren’t born into a capitalist family. A very few successful novelists can also enter the capitalist class through high royalties from best sellers and/or selling movie rights.

Another road into the capitalist class is through such liberal professions as medicine, accounting, journalism, and the law. The most successful medical doctors, accountants, journalists and lawyers as well as engineers will even if they don’t come from capitalist families become full-scale money capitalists by the time they retire. In Silicon Valley, many young programmers from upper-middle-class but not entirely capitalist families land jobs with “startups” with the promise that they will be paid in company stock when the company “goes public.” (5) They hope that the startup will then be bought by a large corporation eager to acquire the startup’s product (so-called intellectual property). In that case, the hope is that their shares and stock options will be exchanged for the corporate stock of the buying corporation and be worth $10 million or more.

Or even better, though far less likely, a startup will itself grow into a mega-corporation like Apple, Microsoft, and more recently Google and then Facebook has. In that case, the stock options you receive as part of your salary as a programmer can rise well above the $10 million mark after only a few years of long hours and hard work. Many a 20-something Silicon Valley programmer works long into the night typing in code fueled by this hope. Of course, more likely the startup will “go bust” and by the time you reach 40 you are washed up as a programmer with relatively little to show for it. This road into the capitalist class is anything but a sure one.

Yet another method of entering the capitalist class is to become a high-ranking officer in the military, police, and “intelligence and counter-intelligence” agencies where you earn high salaries and have access to many other sources of income. For example, retired military officers often become members of corporate boards that do business with the Pentagon. By the end of their careers, they will be worth $10 million or more and will be a full-scale member of the capitalist class.

Being a leader of organized crime — for example, dealing in illegal drugs where very high risk also brings very high rates of profit — offers yet another road into the capitalist class. This is a very dangerous road, however, since you are more likely to end up dead or in prison for decades before you finally get to “clean up” your money and become a “legitimate” member of the capitalist class. Again, some people have beaten the odds and pulled it off.

Finally, and often interlocked with organized crime, you may become a corrupt “labor leader.” The prospects of pulling this one off are, however, more limited today than was the case when the unions were stronger. In the U.S., union presidents can earn high salaries and can have other sources of income that allow them to accumulate a sufficient mass of capital to become full-scale money capitalists by the time they retire. It is no accident that trade unions led by people who make huge salaries and earn additional income through corrupt and illegal methods and have ties to organized crime do not fight the capitalists very hard even on “bread and butter” issues. They view themselves as at least candidate members of the capitalist class if indeed they are not already full-scale money capitalists.

But there is another layer of the capitalist class I am most interested in here. These are the intellectuals who devote their lives to devising policies that advance the interests of a particular national capitalist class as a whole. Unlike the active capitalists, who think in terms of enriching a particular capitalist enterprise, these capitalist intellectuals seek to advance the interests of the national capitalist class of a particular nation-state. These intellectuals are an important part of the capitalist class and interlock with the top bankers, central bankers, military, intelligence agencies, electoral politicians, academics, journalists, and “opinion makers.”

They are likely to hold degrees from Ivy League universities in political science, journalism, or economics with a specialty in macroeconomics. While many but not all these people are recruited from the ranks of the capitalist class, they are all well paid for their work as they move between the private sector and top government posts. By the time they retire, they have amassed enough “savings” to become at least small money capitalists in their own right even if they weren’t born into capitalist families.

The capitalist political vanguard

Just as the working class needs a political vanguard in the form of a communist party that unites working-class fighters with the most dedicated Marxist intellectuals if it is to capture and hold political power, the capitalist class also needs a political vanguard to advance its general interests as a class. Therefore, if you are not born into a capitalist family but are gifted with high intelligence, you can through hard study become a member of the political vanguard of the capitalist class. If you are willing and able to do this, you will be rewarded with membership in the capitalist class.

On this blog, I have sometimes called the capitalist political vanguard the Party of Order. This is the term Karl Marx used to describe the political vanguard of the French capitalist class during the era of the revolution of 1848 and the rise of Emperor Napoleon III. I also refer to the fact that the political vanguard of the U.S. capitalist class was the architect of the current “world order” and is determined to defend and extend this order.

By tradition, some members of the Party of Order are Democrats and others are Republicans. However, the difference between the Democratic and Republican parties pales into insignificance compared to the differences that separate the Party of Order from the working class and its allies among the toilers but also from the “upstart” capitalists of Asia and other historically oppressed nations. The international working class threatens capitalism itself. Upstart capitalists of historically oppressed nations that threaten U.S. capitalists because they are taking markets away from them are in different ways threats to the “world order” that has prevailed since 1945. This molds the political vanguard of the U.S. capitalists into an unofficial but very real political party.

Donald Trump has another name for the political vanguard of the U.S. capitalist class. He calls these people the “deep state” and increasingly views them as his bitter enemies. From his point of view, he is right to do so.

The great majority of U.S. capitalists — leaving aside their political vanguard — prefer the Republican Party and generally support Donald Trump. Trump’s sense of privilege, his entitlement born of inherited wealth, his contempt for “losers and suckers” — all who are not members of the capitalist class — his racism and general bigotry, are also theirs.

But as individuals, the “rank and file” members of the capitalist mob are not necessarily politically sophisticated. They tend to complain that their political leadership — the Party of Order — is making way to many concessions to their class enemies or rival capitalists of other nations. They therefore in their majority support the Republican Party over the Democratic Party and tend to be delighted with Donald Trump. This is reflected in the huge sums of money flowing into the Trump re-election campaign. But even leaving aside the Party of Order, there are more than a few capitalists who oppose Donald Trump for various reasons.

Some — but not all — of the minority of the capitalist class that consists of people of color, which includes the relatively few African-American capitalists, the somewhat more numerous “brown” capitalists that include the Hispanic, Muslim, Indian (in the sense of India, not Native American) capitalists, as well as the Jewish capitalists, fear the racism that Donald Trump represents. They fear that one day they might share the fate of the Jewish capitalists under Adolf Hitler.

The majority of U.S. capitalists, on the other hand, are white and come from “Christian” families, so they do not feel personally threatened by Trump’s racism. Even if this racism were to one day reach the levels of Nazi Germany, they feel they will not be endangered by it and might even profit by it. (6) Indeed, they feel superior to the “losers” within their class who were not “smart” enough to be born into white Christian families. Some of the non-white, non-Christian capitalists, however, also support Trump betting that the racism he has done much to encourage will never reach such levels that it will endanger them or their families personally.

But what is true of the majority of the capitalist class, which does support Trump but is relatively politically unsophisticated, is not true of the highly sophisticated, educated, and experienced political vanguard of the capitalist class. This political vanguard, whether Democrat or Republican, has concluded that Trump’s political course is disastrous for the U.S. capitalist class, even if the majority of people that make up the capitalist class do not understand this, and that Trump must go.

In 2016, some of the capitalist political vanguard still hoped that if Trump became president he would “grow into the office” — that is, listen to his politically far more educated Party of Order advisors. But Trump, as many of them feared from the beginning, has not done this. It is the politically active vanguard of the capitalist class that dominates most — though not all — of the capitalist media. In the 2020 elections, the political vanguard of the capitalist class, even more than it did in the 2016 election, is rallying around the Democratic ticket of Joseph Biden and Kamala Harris. It is they who form the heart of the “people’s front” determined to oust Trump through the 2020 presidential election.

The Party of Order opposition to Donald Trump

We frequently hear complaints from the Party of Order and its supporters that, unlike earlier presidents, Donald Trump is “not uniting us but dividing us.” Joseph Biden, in contrast, will if he is allowed to become president work like all earlier presidents to “unite us.” But who exactly is “us”? To Marxists, the answer begins with what class “us” refers to.

Trump for his part attempts to unite “white” people of all classes against “brown” and “black” people of all classes. In the past, U.S. capitalists and their political leaders have attempted to unite “white people” against African-Americans. Instead of the basic division in U.S. society being a class division between the owners of capital and the working class, generations of capitalist politicians have attempted to convince the American people that the basic division is between white people and black people. As long as the white majority bought this — and they largely did — African-Americans, who represent about 10 to 13 percent of the U.S. population, could never win (7) their struggle against white racism, and the rule of capital in the U.S. over the working class could not be seriously challenged.

In the U.S. today, “brown people” means above all immigrants from Latin American countries and their descendants but also can mean people from Muslim countries and other people from south and southwest Asia. “Black people” refers mostly to African-American descendants of African slaves, but it can also mean actual emigrants from Africa.

In the past, the majority of the U.S. working class was indeed overwhelmingly “white.” (8) But there were still many “ethnic” divisions among the whites. The “core members” of the white working class were descendants of English settlers, sometimes called “Anglo-Americans.” Their ancestors colonized what we now call North America, stole the land of the native peoples, and committed genocide against them. The slave owners of the pre-rebellion South were also mostly Anglo-Americans. They enslaved and kidnapped Africans, who were forcibly brought to North America via the trans-Atlantic slave trade.

Later on, after the U.S. was established, new white immigrants arrived from other European countries, such as Ireland, Germany, and eastern and southern Europe. Beginning in the mid-19th century, immigrant workers first from Germany and then eastern and southern Europe introduced Marxist socialist ideas to the U.S.

In pre-slave owners’ rebellion America, the Republican Party and its forerunner Whig Party received the votes of the “Anglo” working class while the Democratic Party specialized in winning over immigrant workers, first from Ireland and later from eastern and southern Europe. The “old” Americans, therefore, tended to be Whigs and then Republicans while the “new” Americans tended toward the Democrats. As workers first from Germany and then from eastern and southern Europe became “Americanized,” they abandoned socialist ideas and adopted “American values” and conservative politics. They like the “Anglo” workers increasingly identified as “white” Americans counter-posed to the “Negroes,” who always remained at the bottom.

This enduring conservatism of the great majority of white American workers was made possible first because wages in the U.S. were far higher than those in Europe and secondly because in later generations many of the immigrants were able to “rise into the middle class” and a few into the capitalist class. Cheap land also played an important role because workers could buy small farms and even acquire them for free and later on purchase homes that included the land underneath. As the mortgages were paid down and the land appreciated, the homeowners grew richer. It is not for nothing that home ownership is considered the foundation of the “American dream.” All this was dependent on the continued growth of U.S. capitalism, which was taking an ever greater percentage of an expanding capitalist world market.

Under these conditions, radical and socialist workers’ movements such as the Socialist Labor Party, Industrial Workers of the World, the Debs-led Socialist Party, and the pre-Depression era U.S. Communist Party were largely based on European immigrant workers. The majority of the U.S. working class, however, though often militant in the trade union sense, remained politically conservative identifying with the white American nation rather than the international working class.

This remained true during the 1930s, even if somewhat less so. The consciousness of most of the white majority of the Congress of Industrial Organization — industrial as opposed to craft union workers — did not during the 1930s develop beyond industrial unionism and New Deal reformism. The U.S. world empire would never have prevailed in its struggle with the socialist bloc led by the Soviet Union if it had not enjoyed the support of the great majority of the overwhelmingly white U.S. working class.

Now as the brown working class moves toward becoming the majority of the U.S. working class for the first time, the ruling class confronts the challenge of getting these brown workers — who bring radical and often socialist ideas from Latin America and elsewhereto adopt the conservative politics that have long dominated the American working class. This, however, is now much harder to do than in the past. The U.S. capitalist class as a whole is under much greater pressure to increase the rate of exploitation — the rate of surplus value in a world where the U.S. no longer enjoys the overwhelming and assured superiority in labor productivity it once could count on — and the rate of expansion of the capitalist world market as a whole has slowed down. Also, the once low price of land in the U.S., that other foundation of U.S. working-class conservatism, as everyone is reminded when they pay their monthly rent — assuming you can pay your rent — is no longer cheap.

Under the new conditions, Trump’s policy of appealing to the traditional racist conservatism of white workers, increasingly becoming a minority of the working class, threatens to backfire by radicalizing the emerging black-brown majority of the U.S. working class. The danger from the viewpoint of the Party of Order is that the U.S. could end up with a majority socialist working class as the black workers combined with the brown workers become the majority of first the working class and then the general population and their socialist ideas spread to growing numbers of the younger white working class as well.

This is what the leaders of the Party of Order like Democratic presidential nominee Joseph Biden and vice presidential nominee Kamala Harris mean when they complain that Trump is “dividing us rather than uniting us.” The leaders of the Party of Order fear, not without reason, that as Trump attempts to divide the U.S. racially as was done so successfully in the past, it will end up under the new conditions dividing the U.S. people along class lines rather than racial lines.

The Party of Order’s policy is to try to prevent such an outcome by “Americanizing” enough brown workers so that the U.S. working class remains racially divided, with brown divided from black as well as black divided from white, and therefore remains in its majority politically conservative and impotent. To achieve this, they believe that the Republican Party, which has used the “Southern strategy” — appealing to white racism — since the Barry Goldwater campaign of 1964, now needs to find ways of reaching the more conservative sections of the brown and African-American population. To continue let alone deepen the Southern strategy as Trump is doing, the Party of Order fears is the road to disaster not only for the future of the Republican Party but for the entire system of U.S. capitalist class rule.

But finding ways to “reform” the Republican Party so it is no longer so dependent on the racism of whites to win elections is a long-term project. In the fast-approaching presidential election of 2020, the Party of Order of both Democrats and Republicans believes that the Joseph Biden-Kamala Harris Democratic presidential campaign offers the only real hope of stopping the growth of socialist ideas among larger sections of the U.S. working class. (9)

There is one other related reason why the Party of Order believes that Trump must go. The U.S. empire that emerged from the bloodbath of World War II was based on a compromise between the U.S. capitalist class and the national capitalist classes of the other imperialist nations. As the U.S. armed forces moved to occupy Berlin and Tokyo, the American capitalists were tempted to dismantle the industries of Japan and above all the powerful capitalist industry of Germany, which represented the most serious capitalist threat to U.S. domination of the world market. Indeed, this was the official policy of the U.S. government in 1945. However, the emerging Party of Order, sometimes called the “Wise Men,” which included figures like General George Marshall, Dean Acheson, and George F. Kennan, opposed this policy. (10)

The Wise Men feared that if the U.S. government attempted to dismantle the capitalist industries of Germany and Japan, the workers of these countries would be forced to struggle against the U.S. occupiers, a struggle that could have ended in a socialist revolution. True, if the German and Japanese capitalist industry had been successfully dismantled in the post-World War II period without triggering European and Japanese socialist revolutions, the profits of the U.S. capitalist industry would have been much greater than they were.

However, a policy of the forced dismantling of the livelihoods of millions of German and Japanese workers could have led to a united socialist Germany and a socialist Europe as well as a socialist Japan. If that had been realized, the continued existence of American capitalism would have been put in deadly danger. As World War II gave way to the Cold War, where the international working class as a whole and not rival national capitalists was the enemy, the Wise Men argued that American imperialism needed allies among the non-U.S. imperialists.

Today, the supporters of Donald Trump argue that even if the policy of the Wise Men was correct for the late 1940s when the U.S. capitalists enjoyed an unchallenged monopoly on the world market, then entering a phase of rapid expansion after the Great Depression and bloody world war, it is no longer the correct policy for U.S. capitalism today. Unlike in 1945, the U.S. capitalists are facing fierce competition not only from their old rivals in Germany and Japan but from the upstart capitalists of mainland Asia.

True, American capitalists can share in these profits by investing in China, Vietnam, as well as Indonesia, Malaysia, the Philippines, South Korea and tomorrow maybe North Korea as well. But this is a dangerous game because it builds up the capitalist industry of rival nation-states. Today’s changed conditions mean, the supporters of Donald Trump argue, the U.S. must abandon the policies of the Wise Men of the 1940s and use the power of the U.S. state and military to advanced the interests of the U.S. capitalists against the capitalists of other nations. This is true whether they are “enemies” of the United States such as China or “allies” such as Germany. The only secure profits for the U.S. capitalists, the Trumpers argue, are the profits squeezed out of the workers at home. This is why the Trumpers hold that the “de-industrialization” of the U.S. economy must be reversed.

The Party of Order rejects these arguments. The order they built after 1945 and extended after 1989-1991 may not be working — for the American capitalists, that is — as well as it once did, but the Party of Order believes that it is still very much worth saving. If Trump’s policy prevails, they believe, their beloved order will dissolve in chaos. And what will replace it? The Party of Order fears that the world will descend into the kind of political and military anarchy that was last seen between August 1914 and August 1945. If, or rather when, the current world order breaks down, the resulting anarchy will end in either a world socialist revolution that will end profit-making once and for all, or alternately, in a world war that would end human civilization and, among other things, profit.

Despite some limitations on the profits of U.S. capitalists, leaders of the Party of Order such as Joseph Biden never tire to point out that the years after 1945 saw the greatest prosperity the world has ever seen. That is, since 1945 the world’s capitalists including the U.S. capitalists have appropriated a greater mass of profit as measured in terms of gold bullion, representing the unpaid labor of hundreds of millions of workers and other toilers, than in any earlier epoch.

This is the “golden order” that the leaders of the Party of Order feel needs to be tweaked to adapt it to changing conditions but not wrecked, which is exactly what they believe Trump’s policies are doing. The world order built by the Wise Men was already deeply undermined before Trump’s rise to the presidency by the decline of the U.S. capitalist economy relative to the national capitalists of other countries combined with a decades-long reduced rate of expansion of the world market. Leaders of the Party of Order fear that their beloved golden order may not survive four more years of Donald Trump.

Who is right from the viewpoint of the U.S. capitalist class? Is it Trumpers or the Party of Order represented by the Biden-Harris ticket? The problem facing U.S. and world capitalism today is that they are both right. The current world order is straining the resources of the U.S. today and will be beyond the ability of the U.S. to maintain it tomorrow. But the alternative to the current “order” is either world socialism or a new world war that will likely end human civilization and with it profit. Neither the Party of Order nor their Trumper rivals offer a viable solution. Herein lies both the possibility and indeed the necessity for a U.S. socialist revolution in the coming historical period.

Meeting at ‘Virtual Jackson hole’

The other important event of an eventful month was the annual meeting of central bankers at the Jackson Hole, Wyoming, mountain resort. Every year, the leading central bankers of the world meet there, but this year’s meeting like so much else had to be “virtual.” As it always is, the big question discussed was what policies to follow to prop up an increasingly shaky international monetary system centered on the U.S. dollar without throwing the world into a “Greater Depression,” also known as “Depression II.” (11)

It is the dollar’s role as the main means of international payment that allows the U.S. to run balance of trade deficits year after year. The supporters of Modern Monetary Theory “explain” to U.S. progressives that this is a good thing because it means that more material use values are flowing into the U.S. in the form of imports than are flowing out in the form of exports. This, MMT supporters point out, means a higher standard of living for the American people. This is quite correct. But for the rest of the world, it means the opposite. (12)

As internationalists, this should be enough reason for us to reject Modern Monetary Theory. How much longer can the U.S. run trade deficits before a dollar crisis ends the dollar system? Once the dollar system is gone, the ability of the U.S. to maintain its historically high though even before the COVID-19 crisis already declining standard of living — for most people outside of the capitalist class — will be gone. Once again, storm clouds have been gathering on the horizon.

In the July 17 edition of the on-line edition of Bloomberg News, Rich Miller and Maeve Sheehey quote Janet Yellen, former chairwomen of the Federal Reserve System, telling a congressional committee that “it would be a ‘catastrophe’ if Congress decided not to continue enhanced unemployment insurance due to expire at the end of this month. ‘We need the spending that those unemployed workers can do,’” Yellen explained. Yet why has the U.S. Congress and the Trump administration so far chosen to follow the course Yellen called — and tens of millions of unemployed would surely agree with her — a “catastrophe”?

First, we must ask, a “catastrophe” yes but for what class? A catastrophe for the workers is an opportunity for the capitalists to increase the rate of surplus of value. Even if depressed economic conditions, for now, prevent the capitalists from fully realizing surplus value in money form — that is, in the form of profit — they can smell the profit bonanza to come as long as they can use the current mass unemployment — whose immediate cause is the COVID-19 pandemic — to lower wages and increase the rate of surplus value. Wall Street stock market speculators have indeed been betting on a sharp rise in the rate of surplus value and rate of profit as shown by the bull market in stocks that we saw this Northern Hemisphere summer.

But are there other reasons why Congress failed to pass legislation to extend the enhanced unemployment benefits and eviction moratoriums? As we have seen, “expansionary fiscal policy” — defined as central government deficits that pump demand into the economy — must as a rule be backed up by an expansionary monetary policy from the central bank. If it is not, interest rates rise as the Treasury competes for scarce loan money with industrial and commercial capitalists and private consumers. Therefore, according to the classic Keynesian prescription, the job of the central government during a period of depression is to borrow and spend money while the job of the central bank is to create the new money necessary to prevent interest rates from rising until the economic recovery is well underway.

But the current COVID-19 depression is not the only problem facing the central bankers. Even before the exceptional conditions of the COVID-19 pandemic ended the 2007-2020 industrial cycle, central bankers had been exploring new ways to pull the U.S. and global capitalist economy out of its prolonged “secular stagnation.” Some central bankers and economists, noting that cyclical recessions are preceded by a rise of short-term interest rates relative to long-term rates, believe that the key to staving off recessions is to push down the short-term rate relative to the long-term rate. Bloomberg’s Rich Miller and Maeve Sheehey report, “‘It is possible, though not certain,’ that the Fed will implement yield-curve control,” former Fed chiefs Ben Bernanke and Janet Yellen “wrote on the Brookings Institution website, laying out testimony delivered Friday to the House Select Subcommittee on the Coronavirus Crisis.”

Bourgeois economists including former Fed chiefs Bernanke and Yellen reason that an “inverted yield curve” reflects investors’ “expectations” that a recession is approaching. Believing that a recession is coming, money capitalists sell off corporate stocks and buy long-term government securities because they expect that dividends on risky corporate stocks will fall relative to the rate of interest on long-term government bonds. This causes a drop in long-term interest rates relative to short-term rates, which causes the “yield curve” (which normally reflects higher interest rates on riskier long-term loans relative to short-term to become “inverted.” That means long-term interest rates fall below short-term rates. Such a situation, the bourgeois economists believe, reflects a growing desire on the part of the capitalists to avoid risk. (13) The declining willingness of the capitalists to take on risk, the economists claim, then brings on the very recession they fear.

If the “expectations” of the capitalists can be changed, economists like Bernanke and Yellen suggest, the willingness of the capitalists to take on risks can be kept high and recession can be avoided until the economy “runs out of workers.” Or as Marx put it in Volume III of “Capital,” there is an absolute overproduction of capital.

One way to change the expectations, economists like Ben Bernanke and Janet Yellen believe, is for the central bank — the Federal Reserve System — to cap short-term interest rates. The Fed’s Open Market Committee should instruct the Federal Reserve Bank of New York to buy short-term government bonds in such quantity that short-term interest rates won’t rise relative to long-term rates, thereby preventing the yield curve from inverting.

This way the capitalists won’t “expect” a recession and therefore a recession won’t come before the economy reaches the natural barrier set by the number of potential surplus-value producers. Instead, Bernanke and Yellen believe, the boom driven by the multiplier and accelerator effects will keep on gaining momentum and won’t stop before the capitalists run out of more workers to exploit. Economists like Ben Bernanke and Janet Yellen think that by preventing a recession before the economy runs out of workers, the growing secular stagnation that was affecting the economy well before the COVID-19 pandemic will be cured.

The absolute overproduction of capital

What happens when an absolute overproduction of capital occurs, or in plain language when the capitalist economy runs out of workers? Marx on one side and Bernanke and Yellen on the other give different answers. Marx proved that the labor power of workers alone produces surplus value. Therefore, once the economy runs out of workers, new investments of capital will yield no additional profit, since profit is nothing but the money form of surplus value.

Once all workers are fully employed — and by all workers we mean all workers who are available on the world market through migration and not necessarily in a particular country — the balance of forces on the labor market favors the workers as the sellers of the commodity labor power over the buyers of labor power the capitalists. Competition among individual workers vanishes while competition among the capitalists for additional workers becomes red hot. Under the conditions of an absolute overproduction of capital, individual capitalists can increase the size of their labor force only by luring workers from their fellow capitalists by offering higher wages or better working conditions. Under the conditions of the absolute overproduction of capital, the success of one capitalist in expanding his or her workforce is marked by a contraction of the work force of another capitalist.

Under these conditions, money wages rise, but also the part of the working day when workers work for themselves rises relative to the part of the working day when the workers work for the capitalists. As a result, when there is an absolute overproduction of capital both the rate of profit and the total profit on capital advanced will fall, and if the situation persists even disappear. Since capitalist production is not undertaken, at least not for very long, unless it’s profitable, capitalist factories, mines, and farms are closed down and investment collapses. An economic crisis is on.

Mass unemployment now appears. Ironically, under the conditions of an absolute overproduction of capital, “genuine full employment” becomes the cause of renewed mass unemployment. The return of mass unemployment once again increases the competition among individual workers for jobs while reducing and then eliminating competition among individual capitalists for workers. The rate of surplus value and with it the rate of profit rises again, and the capitalist economy “returns to profitability” ending the economic crisis. (14)

Bourgeois economists, especially those who like Bernanke and Yellen are influenced by Keynes, tell a different story about the consequences of an absolute overproduction of capital. These bourgeois economists hold that when a shortage of workers develops money wages rise. So far the bourgeois economists and Marx agree. But, in contrast to Marx, the bourgeois economists claim that since higher wages increase the overall cost price of commodities the capitalists pass on their higher (labor) costs to consumers in the form of higher prices. This, these bourgeois economists claim, leads to a wage-price spiral.

At this point, Marx (and Ricardo) disagree with the Keynes-influenced economists. (15) It is true both Ricardo and Marx agree that higher wages increase the purchasing power of workers. At the same time, by reducing profits, higher wages reduce the purchasing power of the capitalists. However, total purchasing power — the combined purchasing power of the workers plus the capitalists — remains unchanged. What will happen, according to Marx (and Ricardo), is that there will be a drop in the rate of surplus value and therefore a drop in the rate of profit. However, a fall in the rate of profit does not cause a general rise in prices.

What will happen instead, Marx (and before him Ricardo) explains, is that in branches of industry where the ratio of constant to variable capital is lower than average the rate of profit will fall more than in branches where the ratio of constant to variable capital is higher than average. The rate of profit will now be unequal between these industries. However, as individual capitalists driven by competition seek the highest possible rate of profit, the rate of profit will once again move towards equality though now at a lower rate.

In the event of a general rise in wages, capital will therefore flow from branches of industry where the ratio of constant to variable capital is lower than average to branches of industry where the ratio of constant capital to variable capital is higher than average. This will continue until the rate of profit is again equalized.

While the prices of commodities that are produced by capitals with a lower than average ratio of constant to variable capital will indeed rise as capital flows out of these industries, it will be matched by a drop in the prices of commodities produced by capitals with an above-average ratio of constant to variable capital. Therefore, a rise in wages will cause some commodity prices to rise and other commodity prices to fall but the overall price level should be unaffected.

In contrast to Marx and Ricardo, Keynes-influenced bourgeois economists like the former central bankers Bernanke and Yellen believe that an absolute overproduction of capital causes accelerating inflation that the central bank must at some point check by artificially reducing demand through “tight money” policies that then lead to recession.

Marx in contrast holds that a labor shortage — an absolute overproduction of capital — will cause an economic crisis by preventing capital first from raising the mass of surplus value and through a collapse in the rate of surplus value that reduces both the mass and rate of profit that will destroy the incentive of the capitalists to produce. Capitalists produce only to make profits and profits are nothing but surplus value realized in money form. Therefore, there is no need to bring in the central bank and its monetary policies to explain the resulting recession.

However, Marx, Bernanke and Yellen all agree that an absolute overproduction of capital — genuine full employment — will lead under the capitalist system to recession and unemployment. Some Marxists also believe that the idea of the development of an absolute overproduction of capital during cyclical economic booms was Marx’s underlying theory of the industrial cycle. I don’t believe that this is true, since Marx and Engels in many passages from their early writings in the 1840s right down to Engels’ death in 1895 held that before the rising phase of the industrial cycle stumbles upon the barrier of the absolute overproduction of capital, it ends with the “relative overproduction of commodities.” The relative overproduction of commodities — the flooding of markets with unsold commodities — is not the same thing as the absolute overproduction of capital.

The boom collapses not because the total supply of potential workers is anywhere near exhaustion — in particular if we look at the globe as a whole and the potential to increase immigration into “labor short” countries — but because the markets for commodities have become glutted. This is where Marx and Engels differ from most modern bourgeois economists as well as many of the post-Marx and Engels Marxists. In contrast, modern bourgeois economists like our former central bankers Bernanke and Yellen deny that the general relative overproduction of commodities is the cause of cyclical crises. They believe that recessions that break out before an absolute overproduction of capital develops are due to either faulty central bank (monetary) or government (fiscal) policies or accidental “outside shocks” such as the current global COVID-19 pandemic.

Generally, modern Keynes-influenced stabilization theory holds that central bankers should reduce the rate of growth of the money supply whenever a general labor shortage threatens. In this way, it is hoped that a full-blown general absolute overproduction of capital can be avoided through an artificial reduction in the rate of growth of demand brought about by the central bank monetary policy. However, economists believe the central bankers can make, and up to now always have made, mistakes in their “demand management.”

For example, Keynesian-minded bourgeois economists hold that the government agencies that estimate unemployment may define unemployment so narrowly that central bankers may be misled into believing that they are facing a labor shortage well before such a situation develops. This might be because the Fed’s Open Market Committee has been misled by the ludicrously low U-3 estimates of unemployment by the U.S. Department of Labor. They, therefore, make the mistake of reducing demand to avoid inflation through “tight monetary policy” well before the “need” for such a policy arises. The result is that the economy grows far below its “potential” and a situation of secular stagnation develops.

In reality, the capitalist economy experiences a more or less severe “credit crunch” caused by the relative overproduction of commodities and falls into a general recession about every 10 years. The recessions occur well before the natural barrier set by the number of potential workers — producers of surplus value — is reached. Therefore, it is a general relative overproduction of commodities and not either the absolute overproduction of capital, still less a reduced appetite for risk by the capitalists indicated by an inverted yield curve, that is the real cause of cyclical capitalist crises.

Treating symptoms but not the disease

Having the Federal Reserve System move to flatten the yield curve is a classic case of treating the symptoms of a disease but not the disease itself. What would happen if the Fed did follow a policy of preventing inversion of the yield curve by having the Federal Reserve Bank of New York step up its purchase of short-dated government securities to push down short-term relative to long-term interest rates?

The Aug. 26 edition of FX Empire tells us what would happen. The Fed minutes released that day failed to mention any Fed action to prevent a yield curve inversion, and the dollar price of gold dropped. The currency markets were in effect breathing a sigh of relief that the Fed might not after all follow a “reckless” policy of forcibly preventing a yield curve inversion from developing. Writing in FX Empire, James Hyerczyk explained: A “factor weighing on gold prices is the steepening of the yield curve. Longer-term U.S. Treasury yields were higher on Tuesday and Wednesday and a closely watched part of the yield curve steepened. … ” In other words, by allowing the yield curve to “steepen,” not moving to purchase short-term government securities — at least on those particular days — “pressure” was exerted on dollar gold prices. Or, to put it in plain language, the gold value of the dollar increased because the money market was not easing as much as many gold speculators believed it would.

If, however, the Fed had increased its purchase of short-term securities, which is what Bernanke and Yellen suggest they should do, the dollar price of gold would in all probability not have fallen but risen. At the end of the industrial cycle, if the Fed — or other central banks — attempts to prolong the boom by preventing the yield curve from inverting, the result will be rising currency prices of gold, followed by inflation turning into stagflation and higher interests rates ending in an even more “inverted yield curve.” This would be followed by a severe recession, the only way for capitalism to escape from stagflation once it has begun.

As reported in the Aug. 19 edition of Bloomberg News, the Fed released minutes indicating that “U.S. central bankers backed off in July from an earlier readiness to set a clearer bar for raising interest rates, a step that would underscore their commitment to an extended period of ultra-loose monetary policy.” This implies that the conservative forces who fear inflation within the Federal Reserve System have been winning the argument against the school that believes economic growth can be considerably increased if the Federal Reserve System increases the rate of growth of Federal Reserve-created dollars. Following the release of the minutes, the dollar price of gold fell below $2,000 for the first time in several weeks indicating that fears of a massive inflationary devaluation of the dollar were easing.

Inflation targeting

Another approach the central bankers have been considering is modifying the policy of “inflation targeting.” Under inflation targeting, if the rate of inflation is below a given target — now about 2 percent — the Federal Reserve is supposed to follow an easy monetary policy to push down interest rates. If inflation rises above the target, the Federal Reserve System — or other central banks — is supposed to tighten monetary policy to nudge up interest rates. If the annual inflation rate is at or near the target, the Fed is to leave interest rates and monetary policy unchanged.

Inflation targeting grew out of the neo-Keynesian (16) school that along with Milton Friedman’s modified quantity theory of money school has competed with each other for the domination of bourgeois macroeconomics since the 1970s. Friedman believed that it would be relatively easy for the central bank to control the rate of inflation since he believed that the capitalist economy was naturally extremely stable. All that was necessary was to calculate the annual rate of growth of the working population, add to that the annual rate of increase in labor productivity, and then add the desired annual rate of inflation. The central bank should then increase the money supply at a rate determined by adding together these three variables.

The neo-Keynesians approach the question differently. They hold that the rate of inflation is a function of how closely the capitalist economy is to an absolute overproduction of capital. As the economy approaches “overfull employment” — as the neo-Keynesians call an absolute overproduction of capital — the rate of increase in money wages accelerates leading to rising inflation. They, therefore, conclude that the aim of monetary policy should be to set a rate of inflation that is below the level that would represent an absolute overproduction of capital but still close enough to “full employment” to avoid the social and political crises associated with chronic mass unemployment. Most of today’s neo-Keynesian economists believe that the desired rate of inflation is around 2 percent. So in recent years, the Federal Reserve System has set an “inflation target” of 2 percent.

In reality, neither the Federal Reserve System — nor any other capitalist central bank — can set the rate of inflation. The central bank does control the rate of growth of the monetary base defined as legal-tender paper money and base metal coins plus central bank money (a promise by the central bank to pay commercial banks in legal-tender paper money and base metal coins on demand). However, the relationship between the rate of growth of the monetary base and the rate of price increases (or decreases) that Friedman claimed was stable is in reality extremely variable.

First, the central bank does not control to what extent cash and coin are deposited in commercial banks or used as currency to purchase commodities and pay debts. Second, the central bank cannot control to what extent the commercial banks use their reserves of paper money, base metal coins, and deposits with the central bank (central bank money) to create additional credit money. This latter variable is largely determined by the demands for loans by the non-banking public, which is outside of the control of the central bank. Finally, the central bank has no control over the rate of turnover of the currency created by the central bank plus the commercial bank-created credit money.

Therefore, a given rate of growth of the monetary base, which is all the central bank really controls, is compatible with widely different rates of inflation and deflation. The problem with “inflation targeting” is that the Friedmanite claim that the capitalist economy is extremely stable and the neo-Keynesian claim that the rate of inflation is determined by the rate of increase of money wages are both false.

In recent years, especially since the crisis 2007-09, the inflation rate has tended to be stubbornly below the level desired by the Fed despite the Fed’s attempt to nudge this rate higher by maintaining a high rate of growth of the monetary base. The danger is that when the rate of inflation does rise, it won’t simply rise to the Fed target of 2 percent but shoot far above it. (17)

Now the Fed is signaling that it is modifying its inflation-targeting policy. Instead of aiming to set the rate of inflation on an annual basis, it will target an average rate of inflation over a number of years. Since in recent years the rate of inflation has been below the “target,” the Fed will tolerate inflation running at a rate above the target for a number of years. Naturally, this policy is doing nothing to stabilize the value of the dollar relative to other currencies and more importantly to gold.

Cecile Gutscher and Anchalee Worrachate write in Sept. 15 on-line edition of Bloomberg News: “The dethroning of the dollar from its pandemic supremacy is changing the trading game across stocks, emerging markets and commodities. … The dollar’s decline has also helped thrust gold onto center stage, since the two are considered to typically move in opposing directions. Though the relationship isn’t straightforward, the greenback’s descent as real yields plumb fresh lows is being met with outsize demand for gold.”

In other words, as the Fed accelerates the rate of growth of the dollar-denominated monetary base in an attempt to push the annual rate of U.S. dollar inflation towards and now above the 2 percent mark, a move away from the dollar and towards gold bullion (the actual money commodity) has been developing. How much further can things go before the rate of inflation surges far above the target leading to first stagflation and then a new “Volcker shock” and the long-feared Greater Depression?

Today the bourgeois macroeconomists are divided between those who like Bernanke and Yellen believe that the economy since the 1979-82 Volcker shock and especially since 2008 has been growing well “below its potential,” and more conservative voices. The slow growth and chronically high unemployment and underemployment are behind the rise of racist Trumpism on the right and the growth of the Black Lives Matters movement and increasing interest in socialism by workers and young people on the left. The Keynesian wing of the U.S. economic profession believes that the Federal Reserve System should be less afraid of labor shortage-breeding inflation but rather focus on achieving a rate of growth that would allow the economy to grow at its “full potential.”

Other capitalist economists disagree. They believe that Keynesian-influenced economists like Bernanke and Yellen overestimate the long-term ability of the capitalist economy to grow. They claim that if the Federal Reserve System attempts to increase the rate of economic growth by increasing the rate of the growth of the dollars that the Fed creates, the result will not be faster economic growth but increased inflation and then stagflation such as happened in the 1970s. Instead, these economists in the spirit of the late Milton Friedman believe that the way to increase the rate of economic growth is to cut “entitlements” like Social Security, unemployment insurance, and Medicare-Medicaid. This will cause more desperate people to flood the labor market and drive down wages. This is the only way, these bourgeois economists believe, to pull the U.S. economy out of its secular stagnation.

Though the Fed seemed to back down from preventing the inverted yield curve at virtual Jackson Hole, Powell and other Fed leaders promised years of low interest rates. As a result, in the weeks following virtual Jackson Hole, though the dollar price of gold remained below $2,000 an ounce, it didn’t fall much below that level. For now, overproduction is being held in check by the continuing if somewhat reduced economic effects of the continuing COVID-19 pandemic plus the withdrawal of much of the stimulus including the expiration of expanded unemployment benefits and soon the eviction moratorium.

But the problem of overproduction will inevitably reemerge once the COVID-19 pandemic runs its course. However, the attempt by the Federal Reserve System to force a recovery by radically expanding the monetary base — designed to prevent the COVID-triggered stoppage of the economy from leading to a massive credit crisis — is reducing the confidence in the future of the U.S. dollar and the dollar-denominated system.

The consequent increased demand for gold reduces the possibilities for the capitalist world market to expand over the coming decade. The more the Federal Reserve moves to reduce pressure on the credit system the more it increases pressure on the U.S. dollar and the dollar-centered international monetary system. However, in the light of growing federal budget deficit, the Fed is under pressure to continue to expand the U.S. dollar monetary base even at the risk triggering an inflation breeding — and interest rate raising — run on the dollar into gold.

The Federal Reserve’s job has been eased somewhat by Congress’s failure to extended the extra unemployment payments and eviction moratoriums. And if that increases the misery of the working class, well it also increases the rate of surplus value and the rate of profit. However, there are already indications that these policies have reduced if not ended the “economic recovery” (18) that was underway due to the premature, to say the least, “reopening of the economy” that has been pushed so hard by President Trump. And once the “realization difficulties” are overcome by cyclical forces — which could take years — it will increase not only the rate of profit but the class tensions that add further fuel to the increasingly explosive political situation, further fueled by the approach of the 2020 elections.

Next month I want to examine the strategy of a people’s front as a method to combat Trump’s dictatorial Bonapartist tendencies, police violence, and the fascist danger.

To be continued.


1 The Revolutionary Communist Party emerged out of Students for a Democratic Society, the main organization of left-wing U.S. college students in the 1960s. After the purge of the faction of the ruling Chinese Communist Party called the Gang of Four by its opponents in October 1976, the Revolutionary Communist Party announced its support for the “Gang of Four.” They charged that the post-Mao leadership had overthrown the Chinese socialist revolution led by Mao Zedong and restored capitalism. The RCP considers itself to be a supporter and continuer of not only Marx, Engels, Lenin, and Stalin but above all Mao Zedong, who the party holds brought Marxism to an entirely new stage of development. Members of the RCP therefore proudly call themselves Maoists. (back)

2 Marx always stressed that the fact that surplus value is produced by the unpaid labor of the working class is of primary importance while the question of how this surplus value is distributed, though it must be examined, is of secondary importance. (back)

3 The term “capitalist” was originally applied to large money capitalists and financiers rather than the manager-owners of industrial and commercial enterprises. It was Marx who stressed that the owner-managers of industrial enterprises were also capitalists. For example, Henry Ford who was the leading industrial capitalist of the early 20th century U.S. was just as much a capitalist as the Wall Street “Jewish bankers” Ford hated. (back)

4 Many progressives claim that Trump, who is an active capitalist through his control of the Trump Organization, is an incompetent businessman who is not the billionaire he claims to be. For anybody who opposes Trump because he as the U.S. president above all represents the U.S. capitalist system, this is a rather odd criticism of Trump. (back)

5 That is, the company stock will be sold on the stock market meaning that its stock can be purchased by anybody with the desire, money, or credit to do so. (back)

6 Many an “Aryan” German capitalist was enriched by buying up enterprises owned by Jewish capitalists for a song. (back)

7 This didn’t mean that African-Americans couldn’t win partial but important victories. The end of legal “Jim Crow” segregation laws in the U.S. South combined with the winning of the right to vote for African-Americans in the South were important victories. But these reforms, as important as they were, fell far short of uprooting the special oppression that African-Americans continue to experience in the U.S. both in the South and the North. (back)

8 We also should mention the special oppression of Asians, both south Asians, Chinese Americans, and other east Asians. The U.S. state of Hawaii is populated by a minority of native Hawaiians — a minority because about 90 percent of the native Hawaiians were exterminated by white American settlers. The majority of present-day Hawaiians are descendants of Japanese and Chinese immigrants who were forced to work on plantations owned by white U.S. settlers who overthrew the native government and colonized the islands. Today, though Hawaii is formally a state, it has many characteristics of an oppressed nation ruled by the U.S.

Nor should we forget the super-exploitation of Chinese workers in the U.S., especially in California, or the “Asian Exclusion Act” against Asian immigrants. It is perhaps no coincidence the Nation of Islam black-nationalist religious sect out of which Malcolm X emerged was founded by a man of south Asian heritage. However, even taking into account Asian and Hispanic immigrants to the U.S. throughout the 19th and 20th centuries, the U.S. population in general and the U.S. working class, in particular, remained overwhelmingly white. (back)

9 Naturally, this does not imply any support of Trump or the Republican Party whatsoever. The path being followed by the U.S. Socialist Workers Party, seen by many as giving backhanded support to Trump and other Republicans against the Democrats, is the road to disaster. (back)

10 General George Marshall (1880-1959), who served at different times as secretary of state and secretary of defense (war) under Harry Truman, is best known for “the Marshall plan,” which kick-started the recovery of West European capitalism after World War II. Dean Acheson (1893-1971), who was also a secretary of state under Harry Truman, was a major architect of the Cold War. George F. Kennan (1904-2005) was a Russian and Soviet expert and U.S. diplomat who was a major advocate of the “containment policy” to prevent the spread of the socialist revolution after World War II. Kennan predicted that if the socialist revolution was prevented from spreading, the Soviet Union would be brought down without the need for a full-scale shooting war against the USSR. (back)

11 What is meant is not an “ordinary” global economic depression but a Depression equal to or greater than the Depression of the 1930s. (back)

12 However, those living in the U.S. when it comes to COVID-19 are not so lucky. Indeed, as of this writing, the number of U.S. victims of the pandemic has passed 200,000, the highest in the world. (back)

13 For example, if stock market speculators believing that stock market prices will fall sell their stocks and invest in government bonds. This increases the demand for long-term government bonds causing their yield or interest rate to fall. In reality, the rise in short-term interest rates relative to long-term rates seen near the end of the industrial cycle is caused by the overproduction of commodities, or commodity capital defined as unsold commodities that contain surplus value. (back)

14 Marx, I believe, gave the example of an absolute overproduction of capital in Volume III of “Capital” not because he believed that it was the mechanism of the actual cyclical crises that crown each successive industrial cycle but rather to demonstrate why “full employment” is a utopia under the capitalist system. Marx assumed that the economy would recover from a hypothetical crisis caused by an absolute overproduction of capital because the continued growth in population would increase the total number of potential workers. (back)

15 Ricardo, and then Marx, proved that a general rise in money wages, everything else remaining equal, will not cause a general rise in prices but rather a rise in real wages and a fall in profits. There are two traditions within economics on this question. One trend represented by Adam Smith, Thomas Robert Malthus, John Maynard Keynes, and the Keynesian-Marxists of the Monthly Review school holds that higher money wages result in higher prices with no effect on profits. These arguments imply that trade union activity can never raise real wages, only money wages. The Ricardo-Marx school, on the other hand, believes that all other things remaining equal, a general rise in wages will lead to a fall in the rate of profit and a rise in real as well as in money wages. This implies that trade unions can under favorable conditions defend and indeed raise real wages and not only the money wages of the working class. (back)

16 Conservative pro-capitalist Keynesian macroeconomics is often called “neo-Keynesianism.” Neo-Keynesian economists have great influence in policy-making circles today, while the influence of the followers of Milton Friedman has generally declined since “stagflation” ended in the 1980s. The neo-Keynesian economists attempt to reconcile Keynes’s work on macroeconomics with neo-classical marginalist economic theory, which allegedly offers an accurate description of “micro-economics.” Post-Keynesian economists, to which Modern Monetary Theory is closely related, draw far more radical and even socialist conclusions from Keynes’s work and are popular among non-Marxist progressives. (back)

17 This is an example of the Hegelian law of transition of quantity into quality. The central bank increases the rate of growth of the monetary base in an attempt to raise the rate of inflation to a specific target — let’s assume 2 percent. Despite the quantitative increases in “money supply,” the rate of inflation remains stubbornly below the target. But then the rate of inflation suddenly accelerates to a rate of inflation far above the 2 percent target. Quantity has been transformed into quality. In modern physics and atmospheric science, the Hegelian law of the transformation of quantity into quality has been rediscovered as a “phase transition” or a “tipping point.” For example, more and more carbon dioxide is pumped into the atmosphere but there is only a subtle change in the climate. But then a little more carbon dioxide in the atmosphere leads to disastrous effects such as vast wildfires, terrible heat waves, droughts, floods, and hurricanes. (back)

18 The slowing pace of the “recovery” is behind the weaker stock market performance that occurred in September. This underlines the fact that profits depend on both the production and realization of surplus value. If no surplus value is produced, no profit. But if surplus value is produced but not realized — commodities containing surplus value are produced but not sold, or are sold at reduced prices — also no profit. (back)