The Current U.S. Economic Boom in Historical Perspective (Pt 1)

U.S capitalism has been in decline for decades. Within that long-term trend, U.S. capitalism continues to experience cyclical booms. During its dramatic rise between 1865 and 1929, the U.S. economy experienced three major financial panics—1873, 1893 and 1907—along with numerous lesser recessions. However, the increase of the number of workers employed in manufacturing—which represents the core of capitalist production and the core of the working class—that occurred during the industrial booms of that era was greater than the declines that occurred during recessions. In the years 1945-1979, though the number of workers in manufacturing began to decline relative to overall employment—a symptom of capitalist decay—that number continued to grow in absolute terms.

However, since the recession 1979-82, known as “the Volcker shock,” the pattern has reversed. The U.S. economy has continued to experience cyclical booms—defined as periods of above-average business activity in terms of industrial production, manufacturing, and overall employment and trade—as well as recessions. But the rise in manufacturing employment during booms—if any—has been far less than the declines during recessions. Therefore, the year 1979, which marks the beginning of the Volcker shock recession (1), represents the most important turning point—not excepting 1929—in the history of U.S. capitalism.

In July 1979, the U.S. faced a major crisis involving the U.S. dollar, which was steadily losing value. The falling dollar stirred up an inflationary storm that put enormous upward pressure on interest rates worldwide and threatened to bring down the entire U.S. dollar-centered international monetary system.

In order to deal with this crisis, President Jimmy Carter nominated the veteran banker and economist Paul Volcker on July 25 to be chairman of the U.S. Federal Reserve’s Board of Governors, the most powerful post in the U.S. and—under the dollar system—the world central banking system. As required by the U.S. Constitution, the Senate confirmed Volcker on Aug. 2, 1979, and he assumed office on Aug. 6. In the month Carter nominated Volcker, employment in U.S. manufacturing stood at 19.4 million, a number not exceeded since.

Volcker’s solution to the monetary crisis was simple. Instead of trying to hold them down, he allowed interest rates to rise to whatever level was necessary to stabilize the dollar and the U.S. dollar-centered international monetary system. Indeed, when Volcker removed the “lid” on interest rates, they exploded upward. For example, the Federal Funds rate—the annualized rate of interest at which banks loan each other reserves overnight—rose from 11.2 percent when the Volcker shock began to 20 percent, a far cry from the 1.50 to 1.75 percent range the Fed is targeting today.

Volcker’s policy did end the dollar crisis and to that extent was successful. But there was a price in the form of the 1979-82 recession. This turned out to be no ordinary recession, not so much for its severity but rather what happened after it ended.

Starting in August 1979—the very month Volcker assumed office—the secular rise in manufacturing employment dating from the beginning of industrial capitalism in the U.S. was replaced by a secular decline. By the bottom of the Great Recession of 2008-09, U.S. manufacturing employment had dropped to 11.5 million, the lowest level since 1941, which marked the transition from the Great Depression to the World War II war economy.

By February 2018, the most recent data available as of this writing, employment in manufacturing has recovered slightly and now stands at 12.6 million, according to the U.S. Labor Department. This level is well below that achieved during the Bush “boom” in August 2006, when 14.2 million persons were employed in U.S. manufacturing.

The industrial cycle—called the “business cycle” in the U.S. and the “trade cycle” in Britain—affects all nations that engage in international trade. In the modern world, that means every nation. (2) However, it affects different nations in different ways. Agricultural countries are not affected the same way as industrial countries. Rising industrial countries, such as the U.S. between 1865 and 1929, are affected differently than declining industrial nations, such as Britain from the late 19th century onward.

What happens during the boom phase of the industrial cycle?

During the boom phase of the industrial cycle, a greater than average percentage of the existing forces of production available worldwide—most importantly the labor power of workers, who alone produce surplus value—are set in motion. This occurs because in boom times those productive forces—factories, mines, farms and the labor power of the members of the “reserve army of the unemployed” that are normally held in reserve by the capitalists—are put into motion.

As the margin of “excess capacity” shrinks, productive forces held in reserve, including the “last hired workers,” can finally be deployed profitably by the capitalists. When this happens, industrial capitalists are obliged to construct more factories, install new machinery in existing ones, open up new mines and farms, and hire additional workers. The industrial capitalists are forced during the boom to do this under pain of losing market share to their competitors.

If industrial capitalists lose market share, they will likely face fatal consequences once the boom gives way to the inevitable recession. If an individual capitalist is unable to meet existing demand, the customers will go elsewhere, and there is no guarantee they will return once the boom is over. Faced with this danger, every industrial capitalist attempts to hold a margin of productive capacity in reserve in order to meet the sudden rise in demand that occurs with the onset of a boom.

During the initial upward phase of the the industrial cycle, a combination of rising demand and the destruction of surplus forces production—the permanent destruction of factories that can no longer function as capital—the stagnation phase of the industrial cycle gradually reduces the margin of excess capacity. At a certain point in the course of every industrial cycle, the reduction of available excess capacity reaches a critical point that obliges numerous individual industrial capitalists to carry out large investments to expand capacity—at the same time.

When this sharp rise in business investment occurs, it has an explosive effect on the state of business. Keynes-inspired macro-economists (3) have coined a name for this—they call it the “accelerator effect.” When the accelerator effect takes hold, which occurs to varying degrees in the course of every industrial cycle, the industrial boom is on. And here we come to a major paradox.

During the accelerator effect-fueled boom, the attempts by industrial capitalists to increase their margins of excess capacity fail. If an individual industrial capitalist attempts to increase the margin of excess capacity in the absence of similar actions by other industrial capitalists, there is no boom as yet, and the industrial capitalist will be successful. However, in a boom most industrial capitalists move to expand their forces of production at the same time. Masses of previous idle money capital are “dumped” on the commodity market causing demand for commodities to increase so rapidly the industrial capitalists cannot keep up with it at prevailing market prices. They are obliged to deploy their remaining surplus productive forces into active production.

What determines the length of the industrial cycle?

The history of industrial cycles shows that they in general—though with many individual variations—last about 10 years. Suppose factory machines—not all but a great many—last about 10 years. After 10 years, machines are either too worn out to be worth the expense of repairing or simply too obsolete to continue to function as capital. If 10 years have passed since the last economic boom, a lot of machines throughout many industries will have to be replaced at more or less the same time. This, through the operation of the accelerator effect, triggers the next economic boom.

Once the boom is under way, why doesn’t it simply continue until it has devoured the resources first of the Earth and then the rest of the solar system? Instead of this happening, the booms collide with a barrier that brings them to a crashing halt, throwing the accelerator effect into reverse in the form of a slump in business investment. The point where the boom collides with the barrier is the crisis, which marks the transition between the boom and the next stage of the industrial cycle, the recession.

What is the barrier that brings every successive industrial boom to a halt? Here our modern macro-economists run into a huge difficulty. However, Marx and Engels from the 1840s, when their joint work began, until Engels’ last writings in the 1890s gave a clear answer. The barrier the rapidly growing capitalist production of the boom collides with is the inability of the market to absorb the growing quantity of commodities at profitable prices.

After the boom has been going on for awhile, the capitalists discover that there is simply not enough monetarily effective demand for them to sell all the commodities they are producing at profitable prices. The reason this happens, according to Marx and Engels, is that the laws that govern the ability of the world market to expand operate far less vigorously than the ability of the industrial capitalists to expand industrial production.

The only way out of these periodic collisions between production and demand according to the founders of Marxism—as long as capitalist production is maintained—is periodic crises of general overproduction followed by more or less prolonged periods of depression-stagnation with accompanying mass unemployment. By reducing production and destroying surplus productive forces—from the viewpoint of profit making—the long-term growth of production is brought back into line with the ability of the market to grow.

While the classical Marxist explanation of periodic capitalist crises is elegant and accords with the facts, bourgeois economists hate it. The reigning economic theory that dominates the academy, known as neoclassical marginalism, denies the very possibility of crises of general overproduction. Even the minority of professional economists who reject the neoclassical marginalist theory are reluctant to blame capitalism itself for crises. Surely, these reform-minded economists believe, there must be some solution other than abolishing capitalism to deal with the crisis problem.

If crises occur anyway, the economists hold that they must be caused by some factor other than a general relative overproduction of commodities. Perhaps, some economists suggest, crises are some mysterious “black swan” events, or maybe the bankers became greedy and made “too many” bad loans, or maybe it was because the government followed the wrong fiscal policy, or maybe there was “too much” or perhaps “too little” governmental regulation.

A favorite explanation of many Keynes-inspired macro-economists used to be that unions were too powerful and caused “wage inflation” that led to general inflation, forcing the central banks to raise interest rates to bring wage-led inflation back under control leading to recession. This case is much harder to make now because of today’s extreme trade union weakness, but that will not necessarily stop some bourgeois economists from dusting it off, especially if inflation suddenly increases. Alternately, the central bankers simply “miscalculated” and raised interest rates too much and/or too fast. The central bankers will learn from their mistakes and do better next time, is always the pious hope.

Today’s Marxists who are economically educated and teach in the universities also, with few exceptions, avoid the “overproduction” theory of crises, or even reject it outright. Armed with “modern money” whose quantity is not tied to the quantity of gold held as central bank or Treasury reserves, these Marxists argue, how can crises of overproduction still occur when the state can create as much demand as it wants by simply expanding the money supply. The overproduction theory of crises might have seemed reasonable back in the days of Marx and Engels when the hands of the central bankers were tied by the gold or sometimes silver standards, but it can’t be correct today.

Perhaps, these Marxists reason, crises are caused by rising wages that reduce the rate of surplus value and thus the rate of profit. Falling profits then lead to falling business investment, which throws the accelerator effect into reverse. Or perhaps the rising organic composition of capital periodically causes the rate of profit to fall in the course of the industrial cycle to the point that it kills the incentive for the industrial capitalists to invest, leading to falling investment and a business slump. And it is true that Marx did discover that the rising organic composition of capital creates a long-term tendency for the rate of profit to fall, which Marx called the most important law of political economy.

Other modern Marxists hold that capitalist governments sometimes artificially move to reduce demand in order to increase unemployment with the aim of disciplining the workers, who then accept lower wages so the rate of profit stays high. However when the government/central bank move to artificially curb the growth in demand, they can miscalculate to the point that things get out of hand and recession occurs.

Though the crisis theories of modern Marxists who reject Marx and Engels’ overproduction theory of crisis differ, they can ultimately be pretty much reduced to the claim that the barrier that halts every successive capitalist economic boom is the supply of workers. According to this family of crisis theories, and it has many variants (see here, here and here), “full employment” and labor shortages lead to a fall in the rate of profit. This happens either directly by reducing the rate of surplus value or indirectly by stimulating the growth in the organic composition of capital, eventually resulting in a crisis that replenishes the reserve army of unemployed and restores the rate of profit to a level adequate for capitalism to continue.

During the depression that follows the crisis, there are as everybody knows plenty of workers competing against one another for jobs. Competition among these workers is intense and the buyers of labor power—the capitalists—can choose only the kind of workers they feel are appropriate for a particular job. Therefore, the capitalists and their personnel departments offer jobs to workers only with the right degree of experience, that belong to the gender considered appropriate for that particular job, or are the right age, the right nationality, and not least the right race.

For example, the bosses usually consider white or Asian people good fits for high-paying high-tech jobs. As a rule, the racist bosses believe only people of these “races” can handle jobs that require the high levels of intelligence occupations such as computer programing require. Hispanic or African-Americans, on the other hand, are considered ideal for fast food. There is little danger that the racist high-tech industry will offer Hispanic or African American workers jobs outside of janitorial, cafeteria or security guards, even when the economy is booming and there is a shortage of computer engineers such as Silicon Valley is experiencing at present.

The shortage of high-tech workers would have to become extreme indeed before Apple or Microsoft started offering fast-food workers coding classes in preparation for high-tech careers. These bosses figure that since Hispanic and African-American workers are highly unlikely to be offered high-tech jobs or traditional skilled jobs such as machining, these workers will have little alternative even in the best of times to accepting whatever wages are being offered by the fast-food industry. (4)

But it is true that as the demand for labor power grows during a boom, the labor market gradually becomes less favorable for the capitalist buyers of labor power and more favorable for the working-class sellers. The bosses may still have many applicants for the jobs they offer but fewer than before. They are therefore, from their point of view, forced to buy labor powers of lower quality. For example, the bosses may have to hire workers for a particular job with less experience, consider workers of the “wrong” gender or even sexual orientation, workers with felony convictions, workers with problems with alcohol or drugs, and workers lacking good “work habits.”

The poor bosses might have to consider hiring Latinos and African-American men and then, even worse, Latinx and African-American women for high-tech jobs such as computer programming, though everybody—among racist capitalists and their personnel departments, that is—”knows” that, while African-Americans and Latinxs make passable fast-food workers, they are simply not up to the high-paid, intellectually demanding occupations such as computer programming, system administration, and network engineering. And worse of all, from the bosses’ perspective, as the boom progresses they are forced to offer these “inferior” workers more money.

Therefore, at the first sign of a boom, the (bourgeois) economists and the media pundits start to claim that the economy is at, or at least fast approaching, the vicinity of “full employment.” The bourgeois macro-economists are aware that whenever business has been “this good” in the past, a recession has soon followed. Therefore, they figure the economy must be at, or at least very near to, “full employment.”

Keynesian economists, who have a strong influence in macro-economics and frequently influence progressives, begin to fear that money wages will start to rise faster than productivity, and that will lead to inflation. They preach that “labor” should keep its wage demands “within reasonable bounds” so the boom can keep going. It is much harder, however, to make this argument today than it used to be.

What is true is that if an economic boom continued long enough, all potential workers would at some point find jobs. Here I am referring to a situation of genuine full employment—that is, full employment from the viewpoint of all the potential sellers of labor power, including skilled, unskilled, high quality or low quality, regardless of sex, sexual orientation, those with empty rap sheets and not so empty rap sheets. Marx in Volume III of “Capital” called such a hypothetical situation “the absolute overproduction of capital.”

If this ever occurred, competition between the sellers of labor power—workers—would virtually cease, while competition among the buyers of labor power—the capitalists—would become white hot. Individual bosses would be constantly telling individual workers—not a few highly skilled workers but “ordinary” workers as well—that they should quit their current jobs and work for me because I will offer you a far better deal in terms of pay and benefits as well as more interesting work.

How close is the U.S. economy to an absolute overproduction of capital? If this were ever to occur, the fierce competition among the capitalist buyers of labor power would cause the rate of surplus value and with it the rate of profit to collapse. Capitalist investment would dry up throwing the accelerator effect into reverse and industrial production and economic activity would plummet restoring mass unemployment and capitalist profits.

Is the U.S. economy in any danger of such a “disaster” today? If you believe the media hype about “near to record low unemployment,” the U.S. economy would seem to be in imminent danger of an absolute overproduction of capital and a disastrous crisis of profitability.

However, let’s examine the most recent report on unemployment released by the U.S. Labor Department on March 9, 2018, which claimed that 313,000 jobs were created in February. This is much better than the approximately 200,000 that have been typical of the current industrial cycle, which began with the Great Recession of 2008-09. These figures give some support to the thesis that the rate of economic growth in the U.S. is rising as a result of the accelerator effect, further encouraged by the Republican-Trump tax cut passed in December 2017. Even if the economy is now experiencing an accelerated boom, however, it doesn’t mean that the U.S. is anywhere near an absolute overproduction of capital.

While more time will have to pass to confirm the thesis that the U.S. is experiencing an accelerating economic boom—and more recent figures reporting weak retail sales and declining housing starts seem to undermine it (7)—it may be true. Or—and this is quite likely the case—we may be in the early stages of the boom turning into a recession. Rising industrial production with hints of inadequate monetarily effective demand for the increased volume of commodities being produced is exactly what one would expect during the final phase of a boom. I will examine this question more closely next month when more data will be available.

The official unemployment rate and ‘reserve army’

Assuming 313,000 new jobs were really created by U.S. bosses in February, you would think that there would have been a decline in the rate of unemployment. Interestingly, according to the U.S. Labor Department statistics this did not happen. Instead, the official unemployment rate held at 4.1 percent.

On the other hand, “The participation rate,” Sho Chandra reported March 9, “increased to 63 percent, the highest since September [2017], from 62.7 percent the prior month” as “the number of employed people in the workforce rose by 785,000. … ” (

Understanding how a relatively large rise in the number of workers employed can fail to reduce the rate of unemployment is key to grasping the difference between what Marx called “the reserve industrial army” and what capitalist governments mean by “the rate of unemployment.” They are not the same thing.

If the U.S. Labor Department statisticians—and their counterparts in other countries—calculate that the unemployment rate is say 6 percent, the White House or the government of the day in other countries and the mass media together work to create the misleading impression that the economy is at or near “full employment.”

The key way this is done is by defining unemployment in an extremely narrow way. An unemployed person is defined as one who in the last four weeks looked for a job but didn’t find one. In addition, if an unemployed person desperate for money to meet urgent expenses such as paying for groceries or paying the landlord enough to stave off eviction manages to find some part-time work—for example, mowing a neighbor’s lawn for an hour in exchange for $10—that person is counted as employed.

The U.S. Labor Department does maintain statistics on people who are employed part time but desire full-time work, but the capitalist media usually ignores these numbers. For example, in February 2018 the unemployment rate counting as unemployed people who have found some part-time but desire full-time employment was 8.2 percent. While a rate of 4.1 percent can be panned off as a low rate of unemployment, a rate of 8.2 percent does not sound so low. But even if we used the higher rate, we would still be nowhere near the true size in the U.S. of the “reserve army” that in February 2018, after almost nine years of cyclical expansion, was available to U.S. capitalists.

For example, if persons were jobless in a given four-week period but didn’t actively look for work, they are counted as “not in the work force” and therefore not unemployed. There are many reasons why a person might not have looked for work in a given four-week period. The most common is that people, usually for good reason, believe that they have little chance of getting work. They have sent out resumes and have gotten no responses. Or they have gotten a few interviews but have received no job offers.

After awhile, they draw the reasonable conclusion that the bosses clearly consider their labor power to be of “too low quality” or simply not the right kind under existing economic conditions. “Advice columnists” in the capitalist media explain that to really search for work you have to pound the streets 40 or more hours a week knocking on every door, as well as send your resume to every possible employer around the country and maybe around the entire capitalist world. At some point, people run out of potential employers, stop looking for work, and “drop out of the workforce.” From this point on, they are not counted as unemployed by the capitalist government but are very much part of the reserve army.

However, if the economy improves even a little, such people will start hearing of people with similar qualifications—which include not only real skill but race, nationality, sex, sexual orientation, and age as well as actual experience and skill—have landed jobs. They are therefore encouraged to begin the job search once again. If they still don’t find a job within a reasonable period of time, they will drop out of the work force once again until there are more signs that they might find a job.

One figure that tends to reveal the real size of the reserve army is the trend in wages. If the labor market is really “tight,” the price of labor power will rise, just like the price of any other commodity in short supply at its current price. Therefore, if the U.S. is really close to “full employment,” as the media, the economists, and of course the Trump administration claim, wages should now be soaring.

However, “Growth in worker pay has been modest during most of this expansion, especially relative to how tight the job market is running,” Chandra wrote in the previously quoted Bloomberg piece. And, “Average hourly earnings rose 0.1 percent from the prior month following a 0.3 percent increase, the [Labor Department] report showed.”

These miserable increases—especially when the rate of inflation is beginning to pick up—are hardly what one would expect in a “hot” labor market. Wall Street responded as would be expected by anyone who understands Marx’s theory of surplus value. The Dow Jones Industrial Average rose a hefty 400.53 points on the Labor Department report.

Even if the U.S. really was approaching “full employment”—which it clearly is not, and the same applies to the other imperialist countries as well—all the capitalist governments would have to do to ease the labor shortage would be to back off on the anti-immigrant campaigns that Donald Trump and bourgeois politicians in Europe have been pushing so hard—unfortunately getting a measure of support from unemployed or severely underemployed workers who lack class consciousness.

In reality, the bulk of the reserve army of unemployed persons available to the capitalist class today is actually located outside the imperialist countries. Before the U.S. and other capitalist countries can be considered to be facing such a looming “disaster” as an absolute overproduction of capital, hundreds of millions of people around the world either marginally employed or completely unemployed and willing to work would have to drawn into employment. If the next recession is caused by an absolute overproduction of capital, it lies decades in the future. The same, however, cannot be said if the next recession is caused by a relative overproduction of commodities.

Gold production in the current industrial cycle

Ultimately, the ability of markets to absorb an increasing quantity of commodities at profitable prices is determined by the the level of gold production, which increases the total quantity of gold in the world and makes it possible for the monetary authorities to increase the means of circulation measured not in dollars, euros, pounds, yuan, rubles and so on but in terms of real purchasing power.

Unlike what capitalist governments hope and the supporters of “modern monetary theory” naively believe, this is an economic law and cannot be changed or overthrown by any government as long as capitalist production is retained.

Keeping the above in mind, an important factor that has been working in the direction of a full industrial cycle of 10 or more years, in contrast to the abbreviated one that occurred between 2000 and 2007, has been the increased level of gold production. In the seven years preceding the outbreak of the Great Recession, world gold production had been steadily declining. Between 2005 and 2008, global yearly output of gold fell from 2,407 to 2,280 metric tons. It is therefore no surprise that the industrial cycle of 2000-2007, which included in contrast to the current one a relatively mild recession, turned out shorter than average.

Nor is the rise in gold production that we saw in the current cycle accidental. During the crisis, the profitability of gold mining and refining, both relative to other branches of capitalist production as well as absolutely, became more profitable. When this happens in a particular branch of industry, capital flows into it causing output to expand.

Capital that had been flowing out of gold mining and refining due to low profits at the turn of the current century began to flow back into gold mining and refining after 2008. As a result, production rose from 2,407 metric tons in 2008 to 3,150 in 2017, an all-time high. The combination of the severity of the preceding crisis and the weak recovery plus a higher level of gold production has enabled the current economic cycle to last considerably longer than its predecessor.

The record level of gold production is one of the reasons why the central banks, led by the U.S. Federal Reserve System, have been able to create a huge amount of new means of circulation without triggering inflation and a new monetary crisis that would quickly lead to a new recession. Whether these factors—relatively slow increases in commodity production worldwide during this cycle and relatively rapid growth in money material—are sufficient to allow the current industrial cycle to continue much longer remains to be seen. The current industrial cycle is now approaching the historical maximum length, and there are signs that world gold production is leveling off.

The current U.S. boom in historical prospective

If you follow the way the media has been reporting the recent employment/unemployment numbers coming out of the Labor Department, you would be forgiven if you believed the U.S. at least has been experiencing one of the greatest economic booms—perhaps the greatest—in its history, though you would get the same impression the way the capitalist media report every other boom. Booms, just like recessions, vary greatly in intensity. Recessions range from so-called “mini-recessions” or “slowdowns” that capitalist statisticians say are not really recessions to the super-crisis of 1929-33. The same variability is true of booms.

How can we measure the intensity of a particular boom in a particular country? A statistic that in the U.S. is issued by the Federal Reserve Board measures the intensity of booms pretty reliably. That is the capacity utilization figure. As we saw, an economic boom is characterized by a decline of the level of excess capacity that unleashes the accelerator effect. The smaller the remaining idle forces of production is, the stronger the boom.

The capacity utilization figure has the further advantage that, unlike the highly politicized employment/unemployment figures, this number is reported only on the back pages of the newspapers—or in obscure websites—and is unknown to the general public. As a rule, only the “experts” pay much attention to it.

The Federal Reserve Board estimated that U.S. industry broadly defined (5) used as of February 2018 78.1 percent of its available capacity. (The figure is preliminary, which means it will likely be revised but only slightly.) Put in another way, 21.9 percent of U.S. productive capacity was still being held in reserve after almost nine years of a cyclical expansion. This compares to 66.7 percent capacity utilization at the lowest point of the current industrial cycle, which occurred in 2009.

At the bottom of the Great Recession, using the Fed’s estimate, U.S. industry had idle productive capacity of 33.3 percent. The cyclical improvement since 2009 is therefore undeniable, but it is still quite modest for the ninth year of an economic expansion. As a rule of thumb, macro-economists consider that the accelerator effect does not kick in in a powerful way until the margin of excess capacity drops to around 15 percent. How do these figures compare to those of earlier boom periods?

Between 1972 and 2017, capacity utilization averaged 79.8 percent. That is, average excess capacity during those years, including both booms and recessions, averaged 20.2 percent. After nine years of cyclical expansion, when the industrial cycle should be approaching its peak, the U.S. economy has yet to reach the average level of capacity utilization that prevailed between 1972 and 2017.

Comparing booms

Let’s compare the current situation with the 1980s economic boom. At the peak of that boom, which occurred in 1988-89, capacity utilization reached 85.2 percent, well above the current figure. At that time, the margin of excess capacity had fallen to 14.8 percent, about the level the accelerator effect (6) kicks in. However, this level occurred only at the very end of the Reagan-Bush I boom and was not maintained. At that time, the U.S. economy got to the foot of the mountain of a classic industrial boom that would have reversed the long-term decline of manufacturing employment but then slipped back.

The next cycle of prosperity was the “Clinton boom” of the 1990s. How does that boom compare to the 1980s boom and the current situation? In that boom, capacity utilization peaked at 85 percent between 1994 and 1995. At that time, the margin of excess capacity had just about shrunk to the point where the accelerator effect should begin to kick in in a powerful way, but then capacity utilization slipped again and never regained that peak during the remainder of the Clinton “prosperity.”

Still, the figure was far better than what prevails today. It is also worth noting that the best capacity figure reached during the Clinton boom of 85 percent was slightly lower than the 85.2 percent reached during the 1980s Reagan-Bush I “boom,” though the difference is small. In both cases, the economy came right up to the point where a powerful wave of investment should kick in but was unable to maintain it.

How does the current level of capacity utilization compare to the low point of recent industrial cycles? After almost eight years of cyclical upswing, capacity utilization is actually still equal to what it was at the bottom of the two recessions that preceded the Great Recession. The lowest point in the 1990s industrial cycle occurred in 1991, when capacity utilization fell to 78.8 percent, or a margin of excess capacity of 21.2 percent, a figure only slightly lower than what prevails today. So, it has taken the U.S. economy nine years to regain the level of capacity utilization that marked the low point of the industrial cycles of the 1990s.

What about the situation on the eve of the Great Recession? The “best” figure for capacity utilization in the period preceding the worst recession since the Great Depression was 81.3 percent. This was below the level of 85 percent, generally considered the level where a powerful “accelerator” kicks in. While the industrial cycles of the 1980s and 1990s at least got to the foot of mountain before they fell back, the industrial cycle immediately preceding the Great Recession never got beyond the foothills.

The Bush II boom—which was only a “boom” in a highly technical sense of the word— was one of the weakest in U.S. history. It was probably the weakest boom since the Civil War and in all probability since the gold discoveries of 1848-51, though we don’t have reliable statistical data going back far enough to prove it. So unless the current boom lasts for several more years or suddenly dramatically accelerates, it will be even weaker as measured by capacity utilization, though it will still have the “advantage” of being longer lived than its Bush II counterpart.

The relative and absolute decline of the U.S. steel industry

At the beginning of March 2018, President Trump announced that he was imposing a 25 percent protective tariff on steel imports and a 10 percent tariff on aluminum imports. This led to a sell-off on Wall Street with the exceptions of steel and aluminum stocks, which rallied.

Trump was able to impose tariffs, which normally under the U.S Constitution would have to be approved by Congress, without congressional approval. Over the years, the U.S. Congress has ceded more and more of its constitutionally mandated power—including the crucial ability to declare war—to the executive branch in the name of “national security.” Trump took advantage of this to the horror of “free traders” in both the Democratic and Republican parties.

The ability of Trump to ignore Congress and act like an autocrat unchecked by any parliamentary body reflects a trend toward Bonapartism that has occurred since the rise of the U.S. world empire, where all real power is increasingly concentrated in the hands of an all-powerful executive presidency at the expense of legislative and judicial branches of the state power.

The full scope of the steel and aluminum tariffs is not clear as of this writing—and Trump just announced a new wave of tariffs against Chinese imports to the tune of $60 billion. U.S. “allies” such as Germany are scrambling to make permanent their exemptions from the tariffs, and politicians of the Republican as well as the Democratic parties are putting pressure on Trump to pull back from the brink of a trade war.

A real return to full-blooded U.S. protectionism, inherent in Trump’s economic nationalism, would have such grave consequences, and an analysis of its potential impact will have to be left to next month’s post. Here I will take a look at the evolution of the U.S. steel industry since 1967. No other industry tells the story of both the rise and decline U.S. capitalism more clearly.

The ‘free traders’ attempt to answer Trump’s economic nationalism

The steel industry is particularly important because it is the heart of “heavy industry” and belongs to what Marx called Department I—the industries that produce means of production as well as raw and auxiliary materials for other industries. (8) The state of the steel industry in a particular capitalist country is a good mirror of the state of the capitalist industry as a whole. This is, however, denied by what could be called the “party of free trading world order”—or “party of order” for short.

This party includes former President Barack Obama and Hillary Clinton, as well as Republicans such as House Speaker Paul Ryan. Ryan has increasingly emerged as the real leader of the Republican Party and has long nursed his own presidential ambitions.

In 1992, Dana Milbank, now a columnist for the extremely anti-Trump Washington
Post and a certified member of the party of order, was a young reporter covering the steel industry for the Wall Street Journal. At that time, the U.S. economy was just emerging from the early 1990s recession, and the steel industry was suffering its effects. The steel barons were demanding protection just as they are today.

The steel industry has since its inception always been highly sensitive to the state of the global industrial cycle. The cyclical swings in the steel industry and other Department I industries are much wider than those in most Department II industries. Industrial capitalists who provide the market for steel can get by without steel ingots for years at a time while people have to eat in both boom and recession times.

However, since the Volcker shock one thing has remained constant. The number of jobs in the steel industry has continued to shrink. The steel barons blame foreign competition and support Trump’s protectionist economic nationalist approach. The young Milbank in 1992 in the pages of the Wall Street Journal—the organ of the stock exchange—from an orthodox “free trade” position lectured the steel industry and the steel workers on “the real cause” of disappearing jobs. According to Milbank, it had nothing to do with the decline of U.S. capitalism but rather reflected “technological change.”

The technological change allegedly destroying steel according to Milbank—and the “free traders” in general—takes two forms. One is the amazing rate of growth of the productivity of human labor employed in steel. A metric ton of steel can be produced with ever smaller quantities of human labor. In Marxist terms, the value of steel has fallen sharply. The second factor is that steel is a commodity of the old industrial economy that is far less in demand in today’s far more advanced “high tech” economy. Thanks to this technological advance, the U.S. today simply doesn’t need very much steel.

Technological progress can indeed greatly reduce or totally destroy the demand for certain commodities. For example, the demand for typewriters collapsed in the late 20th century due to the rise of the personal computer and modern computerized word processing. Likewise, the demand for horse-drawn carriages dried up with the rise of the internal combustion engine and the modern automobile. The development of the transistor and LED displays has pretty much finished off the vacuum tube industry. Milbank claims that the technological obsolescence that destroyed these industries has shrunk the steel industry into a shadow of its former self as well.

Milbanks writes: “Americans consume far less steel—little more than half as much per capita compared with the 1970s [the decade before the Volcker shock, something Milbank “leaves out”—SW] — as improved technology means automobiles and other applications require less of it. At the same time, improved steel making productivity means the industry requires dramatically less labor. Steel production is down by a third since the 1970s, but employment is down by about three-quarters.”

But what about the steelworkers and former steelworkers who for several generations worked in steel and knew no other way of making a decent living. According to Mr. Milbank, just like workers in the typewriter industry—and in the carriage-building industry a century earlier and more recently in the vacuum tube industry—it is just tough luck. The steelworkers—or former steelworkers—should get over it. “The better answer,” Milbank writes, “all along, has been for government to help steelworkers (and coal miners and other industrial workers who face a similar situation) to retrain and otherwise adapt to the inevitable.”

The problem is the steelworkers who are clinging to a past outmoded way of life, producing a commodity for which there is ever less demand and a president—Trump—who uses the plight of steelworkers for his own political interests. Milibank is right about that.

But now comes the slight of hand. Milibank is careful to examine the evolution of production, supply, demand, productivity and employment only in the U.S. He assumes that as far as steel production is concerned the rest of the world simply doesn’t exist. But to check the validity of Milbank’s argument that the collapse of employment in the U.S. steel industry is the result of technological change that is not only radically reducing the amount of labor necessary to produce steel but the need for steel in the first place, we have to take a look at the world economy. If technological change is rendering steel ever less necessary like it has typewriters, the vacuum tube, and horse-drawn carriages, the U.S. decline in steel production should be mirrored world wide.

Global economic statistics are often harder to obtain than national economic numbers, but fortunately the steel industry is an exception. The figures we need to check Milibank’s analysis are provided by the World Steel Association. They begin in 1967, when the old U.S. industrial economy was still very much intact, and continue up through 2017—covering a half century of economic evolution.

Importantly, the steel production numbers are presented not in terms of U.S. dollars or dollars of “constant purchasing power” but in use-value terms, which have remained the same over the 50-year period we will examine. The use-value unit of measure used is millions of metric tons of crude steel. A metric ton of crude steel in 2017 is pretty much the same thing in terms of use value—though it represents far less value—as a metric ton of crude steel in 1967.

We now have the hard data to put to the test Milbank’s implicit claim that the decline in U.S. steel production and the collapse of steel employment is not an indication of anything wrong with the U.S. capitalist economy but rather the inevitable result of technological change. In the year 1967, 12 years before the beginning of the Volcker shock, the old U.S. industrial economy was still very much intact even if it was growing more slowly than the rapidly rising industries in Western Europe and Japan. In that year, according to the World Steel Association, 497.2 million metric tons of crude steel were produced. Of this, the U.S. produced 115 million metric tons, representing 23.1 percent of the world’s total output.

By 2017, which was a cyclically favorable—not a depression—year for the steel industry, the U.S. produced only 81.6 million metric tons of crude steel, about 71 percent of what it produced in 1967. However, in 2017 the world produced 1691.2 million metric tons, a 340 percent increase compared to 50 years earlier. This is hardly a picture of an industry dying of obsolescence.

During the last half century, capitalist industry has expanded across the globe, and steel production has expanded with it. If the U.S. steel industry had increased its production by 340 percent instead of cut it by 29 percent, the number of steel workers would not have increased by 340 percent, but it certainly would not have dropped by 75 percent either. Total employment in the steel industry would have grown around 80 percent or more despite the dramatic increase in productivity of human labor and consequent sharp fall in the value of a metric ton of crude steel. We would see Marx’s economic laws of motion governing the evolution of capitalism in action.

As the accumulation of capital occurs in the steel industry, constant capital—such as steel mills, furnaces, coke, iron ore, and electric power, on one side—and variable capital—the number of workers toiling in the mills—on the other, increase. But the rate of growth of constant capital has been far higher than the growth of variable capital—the actual work force.

This law of motion is observed to varying degrees in all capitalist industry. But if the U.S. steel industry had expanded as fast as the steel industry has done worldwide, the variable capital—workers whose labor power has been purchased by the steel capitalists—would, while shrinking relatively, have—and on a world scale it has—still expanded absolutely. Certainly, if the U.S. steel industry had expanded at the same rate that the world steel industry has expanded over the last 50 years, the variable capital—number of workers employed in it—would not have contracted by three-quarters. Instead, it would have grown, though at much slower rate than the constant capital.

At the end of the day, the industrial capitalists in the steel industry are interested in producing profits, not steel. For them, producing steel is merely a means to an end—profit. And profit is nothing but surplus value—unpaid labor of the working class—realized in the form of money.

In 1967, the U.S. produced 23.1 percent of all the world’s crude steel. In 2017, the U.S. produced only 6.8 percent of the total. What we see is both the relative and absolute decline of the U.S. steel industry but not of the world steel industry. Perhaps some day due to future technological change steel will go the way of the typewriter, the horse-drawn carriage, and the vacuum tube, but it clearly did not happen between 1967 and 2017.

Milibank does point out “that Americans [but not the world—SW] consume far less steel—little more than half as much per capita compared with the 1970s. … ” He insists that this is because ” … improved technology means automobiles and other applications require less of it.” It is perfectly possible that automobiles and “other applications” require relatively less steel than they did in 1967. That would be a subject for another day. But the world figures on steel production show beyond a shadow of a doubt that worldwide the absolute demand for steel grew dramatically over the last half century. Why hasn’t the U.S. shared in the worldwide trend?

Department I industries of which steel is the classic example are those industries that make the means of production—or inputs—necessary for other industries. Department II industries are those industries that produce items for personal consumption, the kind of things you buy in Walmart, Home Depot, Target, your auto dealer, the computer store, or the supermarket and nowadays on Amazon. You won’t find steel ingots sold in any of these stores real or on-line. Only industrial capitalists and perhaps the government for some purposes but not private individuals would ever purchase steel ingots.

Therefore, the real cause of the decline in demand for steel in the U.S.—but not the world economy—is the stunning decline of U.S. capitalism, not the decline of the steel industry. Related to the decline of U.S. steel production is the disastrous state of U.S. infrastructure. Trump won votes by promising a huge infrastructure renewal program, which he has so far failed to deliver on, instead concentrating on his $1.5 trillion tax cuts for the rich that along with his insistence on a massive military buildup will make it difficult if not impossible to finance a real infrastructure program.

Many infrastructure programs such as bridges require huge amounts of steel. As U.S. factories have shut down inside and outside the “rust belt” and been rebuilt in low-wage countries while U.S. infrastructure has declined, the demand for steel in the U.S. economy has also declined. But the subsequent decline in U.S. demand for steel is not “technological change” but the decline of U.S. capitalism. Similarly, the decline of 75 percent in the number of U.S. steelworkers is caused not by technological change but by the same decline of U.S. capitalism.

One of the consequences of the destruction of the U.S. steel industry, built up by generations of U.S. workers—and workers of other nationalities—was the election of Donald Trump as white steelworkers desperately sought a way out. The claims of Hillary Clinton and other Democratic Party leaders that the U.S. economy was doing wonderfully under Democratic and mainstream Republican management because the stock market was at all-time highs no longer cut ice when what would have been the new young generation of steelworkers was forced to look for jobs at Walmart or in fast food, assuming they could get jobs at all. No doubt many more workers would have voted for Trump if he had not been a racist demagogue.

President Trump takes action

In recent weeks, President Trump has accelerated the turnover of those who have worked within his administration since he became president on Jan. 20, 2017. Among those most recently let go was his “free trade” economic adviser former Goldman-Sachs President Gary Cohn; his secretary of state, former Exxon-Mobil (Standard Oil) chief Rex Tillerson, replaced by the “hard-line” hawk Mike Pompeo. Most sinister of all, “national security advisor” General H.R. McMaster—no dove—is to be replaced by the uber-hawk and pro-war Islamophobe John Bolton. Trump, who at first seemed somewhat dazed finding himself unexpectedly president, which he had not really expected, is hitting his stride, and the world order is shaking.

Trump, the right-wing demagogue that he is, has taken the approach that the decline of U.S capitalism, which he unlike the “establishment” at least acknowledges, is not the result of the inevitable uneven development of the world capitalism that arises from the fundamental laws discovered by the classical economists and above all Marx. Rather, he claims, it reflects the fact that his predecessors sold out U.S. interests. This is what he promises to correct with his economic nationalist, America First approach. Whether Trump really believes this or is just engaging in demagoguery will be a problem for future Trump biographers to explore.

On March 1, President Trump announced that he would impose protective tariffs of 25 percent on all steel and 10 percent on all aluminum imports. It was then announced that the tariffs would not immediately go into effect on steel and aluminum produced in Canada—the country from which the U.S. imports most of its steel—and other countries but would be exempted “temporarily.” Then, the “temporary” exemptions were extended to the European Union (which includes Germany), Brazil, South Korea and Australia. Significantly, the “exemptions” did not include Japan, whose current far-right government has been going out its way to ally itself with Trump. On March 22, the Japanese government was duly rewarded for its servility.

The numbers presented here on manufacturing employment since the beginning of the Volcker shock in August 1979, capacity utilization figures, and the relative and absolute decline of the U.S. steel industry show that very real economic pressure and not the unpleasant personality of a “mad” U.S. president is what is pushing considerable sections of the U.S. capitalist class down the protectionist road despite its potentially disastrous consequences.

The problem that confronts the disoriented “free-trade Washington establishment” as it tries to deal with an increasingly “out of control” Trump is that if they stick to “free trade” the results for the class they represent could prove just as disastrous for them as Trump’s economic nationalist road.

To be continued.

1 U.S. President Jimmy Carter on July 25,1979—the same month that U.S. manufacturing employment reached its all-time high—nominated his fellow Democrat the veteran banker and economist Paul Volcker to be chairman of the Federal Reserve Board of Governors, the most powerful post within the U.S. and world central banking system. Approved by the U.S. Senate on Aug. 2, Volcker assumed office on Aug. 6. Carter appointed Volcker to deal with the U.S. dollar’s dizzying decline and associated soaring inflation that had brought the U.S. paper dollar-centered international monetary system to the point of collapse. Volcker saved the dollar system by surrendering to the market and ending the Federal Reserve System’s resistance to rising interest rates.

It should be remembered that President Carter appointed Volcker only after all other attempts to stabilize the dollar system and end the 1970s stagflation had failed. While the Volcker shock was successful in halting inflation and saving the dollar system, the “side effects” triggered the collapse of much industry and industrial employment in the U.S., Britain, and other imperialist countries.

Unlike earlier crises, including the 1929-33 super-crisis and ensuing Depression, the destruction of much of industry and the loss of industrial jobs within the U.S. proved to be permanent. Indeed, the loss of industrial jobs and production in the imperialist nations actually intensified and spread further in the decades that followed. It is important to understand that Paul Volcker as an individual is not personally responsible for these disastrous results. Rather, there really was no alternative within the framework of the capitalist system that were available to him, the system he loyally served through his entire adult life. (back)

2 Even the USSR was gravely affected by the super-crisis of 1929-33, though it was a workers’ state engaged in socialist construction. The global capitalist super-crisis greatly lowered the price of grain, which was then the USSR’s main export, relative to the price of industrial machinery that the USSR needed to launch socialist construction in earnest. The result was a disastrous aggravation of the fragile relationship between the working class and the peasantry, which as Lenin warned would gravely undermine the political foundations of the workers’ state.

Notwithstanding this, the USSR succeeded in vastly increasing industrial production and employment in the face of the unprecedented capitalist crisis due to its planned economy. Though the super-crisis of 1929-33 had very grave effects on the USSR, these were obviously quite different than the effects on the two most powerful capitalist countries of the time, the United States and Germany, where industrial production declined by more than 50 percent and industrial and other employment contracted sharply, the opposite of what was occurring in the USSR. (back)

3 Since the “Keynesian revolution” of the 1930s, bourgeois political economy has split into two parts.

Microeconomics is essentially the same old neoclassical economics that has dominated bourgeois economics since the late 19th-century marginalist revolution. Using increasingly complex and specialized mathematics, microeconomics concentrates on proving how “perfect competition” creates an “optimal distribution of products” that maximizes the “welfare” of every person and guarantees “full employment.” If the real economy bears little resemblance to the picture painted by microeconomics, so much the worse for reality.

Macro-economists, following the example of Keynes, are interested in developing policy prescriptions for capitalist governments and central bankers they hope will avoid deep cyclical downturns and long economic depressions with the massive unemployment that threatens the political stability of capitalist class rule and can lead to wars—both trade wars and hot wars—among capitalist states.

For this reason, unlike micro-economists, macro-economists are interested in examining the concrete mechanism of the industrial cycle and provide valuable empirical descriptions of its drivers—for example, investment and the accelerator effect. When necessary, macro-economists modify, ignore and even reject marginalist theory. This causes the micro-economists to dismiss macroeconomics as a soft theory, unlike their more mathematically grounded “hard” pseudo-science. Though some of the work of the macro-economists can be empirically valuable, they remain very much bourgeois economists and reject the work of Marx and his theory of value, surplus value, money, and price, the only foundation on which you can build a really scientific theory of the capitalist economy.

However, the stabilization policies macro-economists have developed since the days of Keynes have to take into account, in a pragmatic way to be sure, the actual laws of capitalism that can be explained in a scientific way only through the work of Marx. Next month, I will deal with the policies that are being developed by the Trump administration on trade-protective tariffs, fiscal policy-tax cut and social spending cuts, as well as the monetary policy options available to the Jerome Powell Fed. (back)

4 Discriminating according to race, nationality, gender, age, and so on is often illegal, but this doesn’t prevent the bosses and their agents favoring some workers over others on this basis. The vile prejudices that often determine hiring decisions are deeply ingrained in capitalist society and are used by the bosses to keep the working class divided and impotent. (back)

5 The Federal Reserve Board issues more narrowly defined figures on manufacturing, but the broader figures show the same tendencies, so to avoid criticism that I put too much emphasis on manufacturing and am therefore missing the “strengths” of the “post-industrial” U.S. economy, I use the broader figures. (back)

6 If the U.S. economy could rise above the 85 percent utilization rate like it often did before the Volcker shock, the secular decline of manufacturing jobs would begin to be reversed. (back)

7 I will examine these as well as any new data that comes in the next month. (back)

8 In Volume II of “Capital,” Marx divided capitalist industry into Department I that produces the means of production and Department II that produces the means of personal consumption. (back)