The Current U.S. Economic Boom in Historical Perspective (Pt 2)

Trump’s attempts to reverse the decline of U.S. capitalism

In April 2018, the U.S. political world was shaken by the news that Paul Ryan, the Ayn Rand/Austrian school-inspired Republican speaker of the U.S. House of Representatives, would not be running for re-election in this year’s mid-term race. Ryan claimed he was retiring at the age of 48 from politics “to spend more time with my family.”

It is widely believed, however, that Ryan is retiring from Congress because he fears a humiliating defeat at the hands of his Democratic Party opponent, the construction worker, trade unionist, and “Berniecrat” Randy Bryce. Over the last year, many of Ryan’s constituents were no doubt shocked to learn that their handsome, genial congressperson wanted to take away their health insurance.

It seems likely that Ryan, who is believed to harbor presidential ambitions, plans to lie low, make lots of money in the private sector, and count on the public forgetting (with the assistance of the mass media) about his attempt to throw tens of millions of people off their health insurance. At a later day, Ryan will be poised to reenter electoral politics and ride a new Republican wave, perhaps all the way to the White House.

But how could there be another Republican wave in the aftermath of the ever-growing debacle of the Trump presidency and the self-exposure of the Republican Party on the health insurance issue? To assume that a Republican comeback is impossible, would be to ignore the lessons of the last great “progressive” victory in U.S. politics—the election in November 2008 that brought into the White House the first African-American president, combined with solid Democratic majorities in both houses of Congress. However, at the end of Obama’s triumph lurked the racist Donald Trump, backed by Republican majorities in both the Senate and the House.

But for now, increasingly optimistic progressives are once again rallying around the Democratic Party, hopeful that the nightmare of the Trump presidency and the Republican Congress will soon be a thing of the past. It is largely expected that the Democrats will regain control of the U.S. House of Representatives—despite the combination of racist voter suppression and gerrymandering that gives the Republicans a built-in advantage. A Democratic Senate, though not beyond the bounds of possibility in the event of a Democratic sweep, is considered less likely, because only one-third of that body is up for reelection. And the senators up for reelection in 2018 are disproportionately Democrats. So again, the Republicans have a built-in advantage.

However, in 2020 in addition to a presidential election, there will be another election for the House, plus one-third of the Senate will once again be up for reelection. Assuming current political trends continue, progressives expect that a Democratic president backed up by both a Democratic House and Senate will initiate a new era of social reform for the U.S. starting in January 2021.

But this was exactly what was supposed to happen in 2009 when Barack Obama and a Democratic Congress assumed office. Yet only eight years later came the nightmare of the racist demagogue President Donald Trump backed up by a Republican Congress. What will prevent history from repeating itself in the 2020s?

Hillary Clinton loses against the most unpopular ‘major party’ candidate in U.S. history

It wasn’t easy for Hillary Clinton to lose to Donald Trump, who polls showed was the most unpopular major party—Democratic/Republican—candidate since modern polling began. Yet Clinton, much to the astonishment of many, including it seems Donald Trump himself, with a little help from the undemocratic archaic U.S. electoral system, which allowed her to lose the presidency while still winning almost three million more popular votes than Trump, managed to pull it off.

During the 2016 campaign, Clinton countered Trump’s “Make America Great Again” with the conservative slogan “America Is Already Great.” (Both Trump and Clinton meant by “America” U.S. capitalism—SW.) Clinton not only failed to oppose Trump’s national chauvinism with her slogan, she positioned herself as the status quo conservative candidate.

During the election, I compared Clinton to the conservative Republican candidate William McKinley (1843-1901), who in 1896 ran against the pseudo-populist and racist Democratic demagogue William Jennings Bryan (1). The difference was that the conservative McKinley ran his victorious conservative campaign during the rising phase of U.S. capitalism and won. Clinton, in contrast, ran her losing conservative campaign during the declining phase of U.S. capitalism and lost.

During the Republican primaries, Trump had promised, in direct opposition to all the other Republican candidates, not to cut either Medicare or Medicaid. He also promised to replace the unpopular “Obamacare” legislation (Affordable Care Act) with a program providing everybody with cheap, affordable medical insurance, which the ACA had failed to do.

Sounded good didn’t it? The only problem was that Trump was vague on details, to experienced students of politics a sure sign of demagoguery.

For its part, the arch-reactionary Republican establishment complained that Trump was “not a real conservative,” which is exactly what made him popular among many working-class and lower-middle-class white voters, especially in the South and the Midwestern “rust belt.” In the rust belt, unemployed and underemployed white workers were impressed by Trump’s promises to bring back basic industry and relatively good-paying (union) industrial jobs—though Trump never emphasized the union part—which had vanished by the millions in the years following the 1979-82 “Volcker shock.”

Trump would have gotten many more votes and defeated Clinton in the popular vote as well as the electoral vote if it hadn’t been for Trump’s racist demagoguery, which prevented most—though not all—non-white and non-Christians from voting for him.

The ‘class balance sheet’ of the Obama years

While Clinton hailed the “new U.S. economy” based on “services, finance and information technology,” Trump pointed to the stunning decline of U.S. basic industry. Here are some numbers that tell the tale.

During the Obama years, the Dow Jones Industrial Average (DJIA) rose from around 12,325 shortly after Obama took office in the depths of the Great Recession to 17,888 on the Friday before Trump was elected the 45th president of the United States and the Republicans swept both houses of Congress.

If we compare the highest stock market prices, as measured by the DJIA, in October 2007, just before the Great Recession, to the prices on the eve of the 2016 election, we see a rise of about 27 percent. From the viewpoint of large shareholders—the capitalist class—who measure the success of the economy by the appreciation of stocks in their portfolios, the U.S. economy under Obama had not only completely recovered from the Great Recession but went on to add another 27 percent on top of that.

Despite the fact that most large stockholders are Republicans, they couldn’t deny that from the viewpoint of their class Obama had done a pretty good job as president. However, if we look at the recovery in manufacturing jobs that occurred during Obama’s eight years in the White House, we get a very different picture. Even during its thriving days, U.S. manufacturing jobs—manufacturing in this context refers to basic industry—were always a minority of the jobs offered by the capitalist class to the working class.

However, basic industry historically is more likely to be unionized, and workers in basic industry form the core of the workers’ movement. Therefore, these “heavy battalions” of labor play a decisive role in the position of the working class as a whole relative to the capitalist class as a whole. The positions of unions outside of basic industry, such as in services, government and education, to no small extent depend on the strength of the heavy battalions of labor.

Compared to the pre-Great Recession peak in U.S. manufacturing—basic industry—jobs, which occurred in March 2006, the number of workers employed was still off by 12 percent when the election was held in November 2016. So here is the balance sheet of the Obama years: plus 27 percent for the stock market (capitalist class) and minus 12 percent for jobs in basic industry (working class). With such a class balance sheet, no “progressive era” was possible.

Clinton assumed that the “blue collar” vote simply had no other place to go but to her. That is why she didn’t campaign in Wisconsin, which observers assumed would go Democratic. She also took for granted the African-American vote, which she counted on turning out in the same massive numbers that they did for Obama.

Clinton also expected to make large gains among upper-middle-class, college-educated suburban white voters, who she assumed would be turned off by Trump’s “low-brow” demagoguery. In addition, she counted on winning many votes among traditionally Republican white female voters because she would be the first female president.

However, these privileged, highly conservative, white, largely college-educated voters, who form the heart of the Republican voter base, by and large voted for Trump and then cast their ballots as usual for the “down-ballot” Republican candidates.

The U.S. economy under Trump

Now Trump is in power. Exactly how does he propose to keep his promise to reverse the U.S.’s stunning industrial decline? One solution Trump is definitely not considering is replacing capitalism with socialism—the only real solution. Essentially, the Trump program to restore U.S. industry has four planks.

1) Trump is counting on the combination of his huge trillion-dollar tax cuts for the rich, combined with tens of billions in additional military spending, to pump trillions of dollars in extra demand into the U.S. economy over the next few years.

If his upcoming summit meeting with Korean leader Kim Jong-un goes well, and Trump improves U.S-Russian relations in the face of the warmongering “Russiagate” campaign being whipped up by the Democrats, the Republicans will be well positioned to pose as the party of peace as well as the party of strength. This combined with the current cyclical boom—if it continues through election day—makes a Democratic House, still less a Democratic Senate, far from a sure thing come January 2019.

2) Trump is also removing regulations on industry. For example, pollution controls and regulations to limit the emissions of carbon dioxide and other greenhouse gases fueling global warming are being cut back or eliminated. Trump’s withdrawal from the Paris Climate Accord, the toothless promise to reduce emissions without specifying how this is to be done—now signed by every country in the world except the U.S.—symbolizes this.

The centerpiece of Trump’s plan for industrial revival is simply the traditional GOP program of doing everything possible to increase the competition of workers for jobs in order to drive down wages and further weaken what is left of the unions. Success on this front will raise the rate of surplus value and the rate of profit of U.S.-based industrial production. Trump counts on a rising rate of profit, both in absolute terms and relative to the rate of profit globally, leading to a return of at least a certain amount of industrial production to the U.S. (2)

As part of these policies, President Trump initiated the repeal of an Obamacare requirement that forced Americans to purchase private health insurance or face substantial fines. The repeal of the “individual mandate,” as it was called, was included at the last minute in the tax cut for the rich legislation. The individual mandate—adopted by Obama and the Democrats as a “market-oriented” alternative to single-payer health care—was the single most unpopular feature of Obamacare. As the Republicans retreated in the face of massive popular opposition from a full-scale “repeal and replacement” of Obamacare, they attempted to repeal just the individual mandate, but this too failed last summer, only to pass as part of the tax cut in December.

The idea of the “skinny repeal,” as it was called, is that young and healthy people are now again free to go without health insurance, leaving less funds available to subsidize private insurance plans to make them more affordable. The resulting increase in health insurance premiums will hit especially hard millions of older workers between 50 and 64 who are not yet eligible for Medicare. Many will now be forced to go without health insurance altogether or buy “junk plans” that provide completely inadequate coverage—not all that the Republicans were hoping to accomplish but a big step in that direction.

Trump is not satisfied with the skinny repeal of Obamacare. He also proposes to sneak in the full “repeal and replace” through his budget proposals. These proposals would reduce subsidies that help four out of five people afford private health insurance. He proposes to transform Medicaid from an entitlement program to one with capped federal payments encouraging states to slash Medicaid payments and forcing people to work for low wages in order to receive the benefit.

If these proposals become law, Ryan’s hated American Health Care Act, as the House version of “repeal and replace” was called, will be in place for all essential purposes.

Trump has also targeted workers’ right to eat. He has proposed a cut in the Food Stamp program amounting to $213 billion over the next 10 years.

The threat of hunger is the capitalists’ most dreaded weapon, playing the same role as the lash under chattel slavery. Centuries of class struggle have forced the capitalists in the imperialist countries to retreat from using the threat of hunger in the literal sense—though less in the U.S. than in other imperialist countries where workers have historically been organized in parties, not just in trade unions.

Now Trump is trying to expand once again the “whip of hunger” in the most literal sense. The idea is that if unemployed workers or members of their families are hungry themselves, they will have to accept jobs at extremely low wages and under horrible working conditions. Up will go the rate of surplus value and therefore the rate of profit and stock market prices.

All this, Trump hopes, will make carrying out industrial production an attractive—that is profitable—proposition in the U.S. as opposed to countries of the “global south.”

What Trumpism adds to the traditional Republican program is an extra dose of national chauvinism and racism beyond the “dog whistle”-type racism practiced by “ordinary” Republicans since the Barry Goldwater campaign of 1964. In all other essentials, at least as far as domestic policies are concerned, the Trump program is simply the Goldwater-Reagan program—economic neo-liberalism on steroids. It turns out the shady billionaire businessman from New York does not have a populist bone in his body.

3) The third plank in Trump’s program is to use the threat of imposing tariffs to grab more of the U.S. home market—the most important component of the world market—for U.S. industrial capitalists at the expense of industrial capitalists carrying out production in other countries, many of whom are actually U.S. capitalists (including Trump, by the way).

4) Finally, Trump and the soon-to-be retired Paul Ryan hope to “restore family values”—by which they mean that women should act as baby-making machines, having as many children as biologically possible, and not that men should practice monogamy and be faithful to their wives. For this reason, Trump, Ryan and Mike Pence (Trump’s vice-president and successor if Trump should be ousted) want to end once and for all the right to abortion. From the point of view of Trump, Ryan and Pence, a woman’s body does not belong to her but to the capitalist class.

The hope of Trump, Ryan, Pence et al. that with U.S. women raising larger families the number of workers will over time grow at an accelerating rate, further shifting the balance of forces toward the capitalist buyers of labor power at the expense of the worker sellers of labor power on the U.S. labor market.

The hope—particularly important for Republican electoral strategists—is that these future workers will be to a considerable extent white, therefore staving off the dreaded day when the U.S. ceases to be a white majority nation. A further advantage of this approach for U.S. capitalists is that if this can actually be carried out they will be less dependent in the future on immigrants for their future workers. Historically, immigrants have brought with them dangerous—that is, socialist—ideas. For example, the revival of May Day beginning in 2006 as International Workers’ Day.

One part of Trump’s program that sounded good to many voters, even some progressives, was his promise to carry out a huge $2 trillion public works program to rebuild U.S. infrastructure. However, this has proven to be a total fraud. During the campaign, Trump had talked about such a program to renew and expand the U.S.’s aging and deteriorating infrastructure. But the program he actually proposed as president foresees a “least amount” $1.5 trillion,” down from $2 trillion. But the real kicker is that only $200 billion will come from the federal government. The rest supposedly will come from state and local governments, Native American tribes, and private capital.

What Trump’s so-called infrastructure program amounts to is the privatization of much of the U.S. infrastructure, including roads and bridges. If Trump has his way, many U.S. roads will be converted into privately owned toll roads like many were in the early 19th century. Supposedly, their new private capitalist owners, guided by the profit motive, would then rebuild them. Those hoping that Trump would prove to be enough of a populist to fight for a New Deal-like, WPA-type program have been sorely disappointed.

Trump’s pro-cyclical tax cut and the approaching economic crisis

Late last year, as mentioned above, the Republican Congress passed a highly regressive tax cut expected to add $1.4 trillion to the national debt over the next decade. The tax cut was originally supposed to go into effect in 2019. But with polls showing that the Republicans were facing an electoral rout next year due to Trump’s racism and endless personal scandals, combined with Republican attempts to throw millions of people off their health insurance, it was decided at the last minute to implement the tax cut immediately. The vote was along strict party lines with all GOP senators and almost all GOP members of the House voting for it and all Democrats voting against it.

The GOP calculation is that pumping hundreds of millions of dollars of extra purchasing power into the U.S. economy this year will strengthen the current boom and ensure that it doesn’t turn into a late 2018 recession. If it does—combined with everything else—Republican candidates will fall like flies in the November 2018 election.

The centerpiece of the tax legislation is a cut in the corporate tax from 35 to 21 percent. In reality, U.S. corporations paid far less than 35 percent under the previous tax code because of numerous loopholes. Despite promises to the contrary by the GOP, the new legislation is also full of loopholes. The winners will be members of the capitalist class, who own the great bulk of corporate stock and will benefit from rising stock dividends and the resulting further rise in stock prices. Taxes for estates between $5.6 million and $11.2 million will be eliminated entirely, and overall government taxes on estates will drop by one-third, making it easier for the capitalist class to pass on their capital to the next generation.

Republicans pretended that the new tax cut would really benefit the “middle class” and give workers a few extra dollars in their take-home pay. However, Julia LaRoche, writing in the Feb. 28 Yahoo News, hardly a progressive or pro-labor news outlet, admits that “American workers will see only a small portion of the massive windfall of money going to companies following corporate tax reform. … ”

The tax legislation does include a series of small temporary tax cuts for “middle income” families that over the next decade turn into tax increases. The real personal tax cuts benefit wealthy families and the corporations they own.

Since the tax cut is “pro-cyclical,” it will actually intensify the coming recession(s), which will add additional billions, maybe trillions, of dollars to the federal deficit over the next decade. The extent of this effect cannot be precisely calculated even retrospectively, because it is impossible to quantify all the factors that determine the resulting severity in terms of depth, length, and the amount of unemployment.

Factors that determine the severity of recessions

For example, the severity of the next recession will be affected not only by the tax cut but changes in the level of gold production, the fluctuation in the prices of energy-bearing commodities, the movement of raw material prices, the outcome of Trump’s threats to start a trade war, and not least by the threat of major “hot” wars with Russia, China and/or North Korea. As regards this last point, I have shown how World War I, though it brought the global recession of 1913-14 to a quick end, created the conditions that led to the super-crisis of 1929-33 and the associated Great Depression.

The only type of international conflict that would really eliminate capitalist economic crises for good would be a full-scale nuclear war, only because such a war would destroy civilization and with it, along with much else, the capitalist system that makes periodic crises of general overproduction inevitable. If a major new hot war beyond the ongoing colonial wars but short of a civilization-destroying nuclear war were to cause a major rise in “golden prices,” (3) that could set the stage for a super-crisis and resulting Depression II like happened in the 1930s.

Assuming, however, that a major hot war is avoided for now, how will the tax cut affect the timing and severity of the next cyclical crisis?

Capitalist stabilization policies and the Marxist attitude toward them

Marx was not interested in reforming capitalism, though from Marx onward Marxists have supported struggles for reforms in the interest of the working class and other oppressed groups. Modern “stabilization” polices” developed by capitalist macroeconomics grew out of the “Keynesian Revolution,” which swept bourgeois economics during and after 1930s Depression.

The champions of stabilization policies, beginning with Keynes himself, believed that through manipulation of fiscal policies (the tax and spending policies of the central government) and monetary policy (of the central bank) the capitalist industrial cycle could be virtually eliminated and permanent “full employment” at whatever level was optimum for capitalist society could be achieved without the need to abolish the capitalist system. Keynes supported stabilization policies because he believed that “full employment”—permanent capitalist prosperity—would reconcile the working class to capitalism.

Keynes also believed that stabilization policies could eliminate the struggle for markets among rival capitalist states that had often led to war. This second reason is taking on new importance in light of Trump’s economic nationalism combined with rising economic nationalism in other capitalist countries.

These hopes—as this blog has shown, and more importantly experience has proven—are, however, utopian. What Keynes, for all his intelligence, was prevented from understanding due to his support of capitalism was that the ability of the capitalists to increase industrial production faster than the market for commodities can grow is built into the commodity foundations of the capitalist system itself. No stabilization policies can overcome this basic contradiction as long as capitalist production is retained.

That said, reckless fiscal and monetary polices by central governments can become a source of additional instability, making the already unstable capitalist system even more unstable. The valid core of capitalist stabilization policy, stripped of its utopian hopes of “taming the business cycle,” is to help government and central bank policymakers avoid policies that create additional instability on top the basic contradictions of the capitalist system.

Fiscal policy and stabilization policy

During the boom phase of the industrial cycle—and this is what interests us now—stabilization policy teaches that the central government should raise taxes and restrain the growth of its spending. The deficit of the central government during boom times should be reduced and ideally eliminated and the national debt paid down.

Higher taxes on businesses restrains investment, limiting crisis-breeding overproduction of commodities and the means of producing commodities. At the same time, by reducing or eliminating borrowing by the central government, competition between the central government and other borrowers is reduced, allowing interest rates to rise more gradually, which lengthens the boom.

At a time when demand for credit by the private sector is expanding, when capitalists and middle-class and better-paid workers—consumers with access to credit—are increasing their demand for credit, and state and local governments are doing likewise, the central government should lean in the opposite direction by reducing its demand for credit and holding back on its own spending. Such a policy is called in the language of bourgeois macroeconomics “counter-cyclical.”

Counter-cyclical versus pro-cyclical policy

Above all else, stabilization policy warns against a pro-cyclical policy by the central government during times of boom. If the central government cuts taxes and increases its borrowing and spending during a boom, it is not countering the over-trading, overproduction and speculation of the boom but rather feeding them. The result will be a more severe cyclical crisis of overproduction. Instead of extending the life of the boom by restraining it, a pro-cyclical policy during a boom may well accelerate the arrival of the crisis rather than postpone it.

The Trump administration and the GOP—supported by Democrats who have also lent their support—have now implemented the pro-cyclical measures that stabilization policy warns against. Therefore, if the current boom phase does not soon give way to one of the worst crises in the history of capitalism, this will not be for lack of trying by the Trump administration as well as the Republicans and Democrats through their demands for increased war spending.

We must remember, however, that the basic cause of the coming economic crisis is not the reckless fiscal policies now pursued in Washington—the Democrats will make this claim as they attempt to profit politically from the next recession—but the general overproduction of commodities that is the basic feature of all capitalist economic booms.

What is unique in the current cycle is the pro-cyclical fiscal policies, which will tend to worsen the coming crisis, while the Federal Reserve System is committed to a counter-cyclical policy of restraining the growth of the money supply, allowing interest rates to rise.

The dollar system, U.S. monetary policy, and the Powell Fed

The other part of stabilization—monetary policy—is not carried out by the government proper but by the central bank. Under the dollar system, the U.S. Federal Reserve System acts as the central bank not only for the U.S. economy but for the entire global capitalist economy. The “price of gold” (4) is quoted in terms of U.S. dollars on the London gold market—linking the U.S. dollar to gold at a “floating” exchange rate just as it did in the days when the dollar was convertible into gold at a fixed rate. Gold bullion is at the center of the monetary universe despite the claims, unfortunately supported by many Marxists who should know better, that “modern money” is non-commodity money. In turn, all other currencies are quoted against the dollar.

The dollar revolves around the money commodity gold, which in terms of its use value measures the value of all other commodities, like the planet Jupiter revolves around the sun. The “satellite” currencies, including the euro, revolve around the U.S. dollar much like the moons that revolve around Jupiter.

The Federal Reserve System has no control over the level and changes in the level of gold production, which is determined by the ever-fluctuating rate of profit—both absolute and relative to other commodities—in the gold-mining and gold-refining industries. What the Federal Reserve System does control is the U.S. dollar “monetary base,” also called “high-powered money.”

High-powered money is defined as all “pocket money”—paper notes and coins, in other words what the lay public considers to be money—plus deposits of commercial banks at the central bank. Bank money—credit money created by commercial banks through bank loans—is payable on demand to the deposit owner in legal-tender high-powered money. Therefore, the greater the quantity of high-powered money in the hands of banks and other lenders the more credit money and credit in general they can create. Therefore, the more the quantity of high-powered money grows—measured in terms of real purchasing power—the faster the market can grow.

The U.S. dollar monetary base is high-powered money in another sense. While the U.S. keeps most of the reserves that back the U.S. dollar in gold bullion, other central banks use the dollar as the reserve behind the currency they issue. The U.S. dollar is a gold-based currency—even though it isn’t convertible at a fixed rate into gold at the U.S. Treasury or the Federal Reserve banks like it once was—while the other currencies are dollar-based currencies indirectly tied to gold through the dollar.

When the dollar reserves of the non-Federal Reserve System central banks grow,
the ability of these central banks to create their own local high-powered money denominated in their local currencies expands with it. On the other hand, when the U.S. dollar is scarce, the ability of the other central banks to create their own high-powered money is curtailed. The U.S. Federal Reserve System therefore has a relationship with other central banks comparable to the relationship central banks have traditionally had with the commercial banks of their respective countries.

A change in leadership of the Federal Reserve System

After some hesitation, U.S. President Donald Trump decided not to re-appoint the Democratic macroeconomist Janet Yellen to her position as chairwoman of the U.S. Federal Reserve Board of Governors. Yellen was the first woman to occupy the most powerful position within the international monetary system.

Instead, following his general policy of reducing the role of women and people of color in government, Trump nominated and the Senate confirmed the wealthy Republican banker Jerome Powell to the chairmanship—the title will again be chairman. Powell is reported to be the wealthiest person ever to head the Federal Reserve System. This is in accordance with Trump’s policy of appointing only very wealthy individuals to government positions. A mere millionaire like Yellen, besides being a woman, was simply too poor to make the cut.

Yellen followed a policy of monetary “normalization”—slowing the rate of growth of the dollar-denominated monetary base to something like its historic rate of growth after the unprecedented explosion of the monetary base that occurred during and after the panic of 2008 under Yellen’s Republican predecessor, Ben Bernanke. In order to keep the rate of growth of the monetary base at something close to its historic rate—a necessity in the long run if the dollar-centered international monetary system is to continue—Yellen had planned to reduced its size, though not all the way back to the levels that prevailed before September 2008. This has been dubbed “monetary normalization.”

This is necessary if the dollar price of gold, which actually measures the quantity of gold bullion that a U.S. dollar represents on the world market, is to be kept around the current level of $1,300 an ounce, give or take a few hundred dollars. Above all, the Fed cannot allow the wild devaluation of the dollar against gold that occurred in the 1970s under pain of bringing down the U.S. dollar-centered international monetary system and with it the U.S. empire.

Therefore, Powell is expected to continue the monetary normalization policy. But he will be under political pressure to modify this policy in order to finance the U.S. federal deficit now growing rapidly owing to the Trump-Republican tax cut combined with the Republican-Democratic increases in war spending. The recent sharp fall in the bond market—a result of the ballooning deficit—is sure to add to this pressure. However, Powell and other Fed leaders can yield to this political pressure only at the risk of a major dollar crisis that could bring down the whole financial structure of the U.S. world empire.

A graph that shows the coming recession

If you look at the graph that illustrates the growth of the U.S. dollar monetary base, you see an interesting pattern. The curve on the graph, which shows the rate of growth of the monetary base, explodes upward beginning in September 2008—when the giant Wall Street investment bank Lehman Brothers failed, marking the beginning of an all-out panic—but then levels out. As “normalized” monetary policy is implemented, growth of the world market will sooner or later slow down just as the growth of world industrial production accelerates. The inevitable collision between increasing industrial production and a slowing growth of the world market will lead to the next global crisis of overproduction, marking the end of the industrial cycle that began with the Great Recession.

Flattening yield curve indicates that global recession is not far off

How close are we to the next global economic crisis? No one can know for sure, but an indicator that has historically proven to be reliable has been the relationship between long-term and short-term interest rates. Normally, long-term rates are higher than short-term rates because the lenders—money capitalists—have to be compensated for the greater risk incurred by parting with their money for longer periods. But as a crisis of overproduction approaches, the combination of the need to finance growing inventories—overproduction of commodity capital—plus an increase in the number of hard-pressed companies and individuals attempting to arrange short-term lines of credit to stave off imminent bankruptcy causes the short-term rate of interest to rise against the long-term rate. When short-term rates rise above the long-term rate of interest, the yield curve is said to be inverted. Once the yield curve inverts, the outbreak of a crisis of overproduction is imminent.

“After widening in early February,” Liz McCormick writes April 9 on Bloomberg, “the trend has reversed with yields on two-year notes approaching those on 10-year securities again.” She continues: “Thats put the risk of an inverted curve … back on analysts’ radar. JP Morgan Chase & Co. strategists say a slight inversion seen already in money-market forward rates that serve as a proxy for the federal funds rate means it might only be ‘a matter of time’ until the overall curve turns on its head.” In other words, the crisis is approaching.

Another sign that the crisis is not far off is that as interest rates have risen the yield curve has “flattened”and the dollar price of gold has stayed stubbornly above $1,300 an ounce. This means that if the Powell Fed attempts to postpone the approaching crisis by flooding the banking system before the outbreak of the crisis with newly created dollar reserves, the dollar price of gold will soar, with all the disastrous consequences that such a development would hold for the dollar system and U.S. empire.

This is where the Trump/Republican policy is making things more critical. Especially interesting is the relationship between the rate on the 10-year U.S. Treasury bond and the dollar price of gold. On Nov. 4, 2016, just before Trump’s surprise election, the rate on 10-year Treasury bonds was 1.78 percent, while gold bullion was quoted at $1,305.20 a troy ounce. At that time, the overwhelming consensus in the market was that Hillary Clinton would win the presidency and the Democrats would take the U.S. Senate, making a major tax cut unlikely.

When Trump won and the Republicans held on to the Senate as well as the House, a
large tax cut suddenly looked probable. The markets immediately responded. By Nov. 11, the rate on 10-year bonds rose to 2.15 percent while the dollar price of gold fell sharply to $1,226.90. The rate of interest on the 10-year bond continued to rise, peaking on Dec. 16, while the dollar price of gold fell to $1,136.80. The fact that in textbook fashion the dollar price of gold had fallen in the face of rising interest rates indicated that the Fed still had room to expand the money supply and a recession was not imminent.

As is usually the case, the markets “overshot.” The Trump/Republican “repeal and
replacement” of Obamacare bogged down in the face of mass opposition. This had the effect of postponing the tax cut, which the Republicans had been counting on to partially finance through the “repeal and replacement.” The rate on the 10-year bond fell back but remained above 2 percent, while the dollar price of gold rebounded. On Sept. 8, 2017, with the “repeal and replacement” of Obamacare on the brink of failure in the Senate, putting passage of the tax cut in doubt, the rate on 10-year bonds had dropped to 2.06 percent while the dollar price of gold, moving as it usually does in the other direction, rose to $1,351.00

But then the Republican tax cut for the rich did pass when the few Republican senators who had voted against the “repeal and replacement” of Obamacare decided to vote for the tax cut, which now included the “skinny repeal” of Obamacare. The markets immediately responded. On Dec. 15, the week before the tax cut passed but with its passage increasingly likely, the rate on 10-year government bonds had already recovered from their September low of 2.06 percent to 2.36 percent, while the dollar price of gold had dropped to $1,255.80 per troy ounce.

The following week, the Republican tax cut passed and in a last-minute change the Republicans decided to have it go into effect immediately. The markets immediately responded. Within a week, the rate of interest on the “10-year” hit 2.49 percent, and very significantly the dollar price of gold did not respond in the textbook way by falling but rather rose to $1,279.10 per troy ounce. This reflected the combination of an approaching cyclical crisis and the reckless pro-cyclical tax cut that now was to go into effect immediately. This was the first sign that the pro-cyclical tax cut had begun to destabilize the economy.

Since then, the situation in the money markets has continued to progressively deteriorate. On April 20, 2018, the rate on 10-year government bonds rose to 2.95 percent with the dollar price of gold at $1,337.60. This was actually down compared to the previous week—April 13—when it closed at $1,348.60 but only because the rate on the “10-year” had risen from 2.83 to 2.95 percent, an unusually large rise over a one-week period. At these lines are written, it seems that 2.95 percent on the 10-year bond represents the level above which the price of gold begins to fall, a much higher level than was the case before the tax cut passed.

The ‘privatization’ of taxes

While it is claimed that up to two-thirds of all workers have received slight increases in take-home (after tax) pay thanks to the temporary—for workers—tax cuts, these figures fail to take into account the increases in the rate of interest that are partially the product of the tax cuts. As we have seen, overall interest rates have increased since Trump and the Republican Congress were elected, making a tax cut likely.

The result has been that many working Americans are paying slightly less in taxes to the federal government but more in interest payments to their bankers and other creditors. In effect, a portion of their taxes have been privatized. But the privatization of the taxes does not end there. Once the crisis hits, interest rates will again decline but working Americans will then pay through the loss of additional jobs that will be lost due to the increased severity of the recession caused by the pro-cyclical tax cut for the rich. The resulting increased competition of workers on the labor market in search of jobs will result in lower wages for those who still have jobs or an increase in the rate of surplus value. Then the “privatization of taxes” will take the form of an increase in the “taxes” workers pay to their bosses in the form of unpaid labor.

Great dangers ahead

There are great dangers ahead. One possibly is that the combination of deep tax cuts, reckless war spending, and ongoing colonial wars in Syria and elsewhere, combined with the approaching cyclical crisis of overproduction, will lead to an acute financial crisis.

Such a crisis may take the form of something like what happened in the fall of 2008. But if the Powell Fed does not raise interest rates fast enough, the crisis might at first take the form of a dramatic decline of the U.S. dollar against gold and probably other currencies—a dollar crisis or crisis of the international monetary system. This would be a worst-case scenario, but given the turbulent financial, war and political climate it is far from impossible.

If this were to happen, the bankers will descend on Washington and demand emergency action to combat the international monetary crisis. The emergency action would include dramatic interest rate hikes by the Fed to halt the dollar devaluation—somewhat like the “Volcker shock”—combined with some combination of deep cuts in the federal budget and perhaps some rolling back on a temporary basis of the tax cut.

With the Fed forced to “tighten” much faster than planned, the bankers will explain to Trump (or Pence if Trump is forced out) that the federal government has no alternative but to reduce its borrowing in order prevent the complete “freezing up” of credit for the private sector and the resulting deep depression. The bankers will agree to some temporary rollback of the Republican tax cuts but the main blow, they will explain, has to come on the spending side.

The Republicans and the war-mongering Democrats both agree—with the Democrats often more extreme—that with the combination of Russian “aggression” against the Syrian “revolution” and the “gas” and other attacks by Syrian President Bashar Assad “against his own people,” along with Russia’s aid to “the animal Assad” (to use Trump’s phrase) and continued “aggression” against Ukraine, combined with the growing power of China, Iran—and Assad’s threat to apartheid Israel, the only “democracy” (5) in the Middle East, and to “our good friends” in Saudi Arabia—we have to maintain the “strength of our armed forces.” This the Republican and the Democrats will argue, in addition to the continued grave threats of “terrorism” by Al Qaeda, ISIS and other terrorist groups, this is no time to cut “defense” spending. Somehow, it never is.

The Democrats will add that we have been very concerned about President Trump’s ties to Russian “dictator” Putin, but in the “current crisis” we have to stand together as Americans. In crisis times, we are not Democrats or Republicans but Americans! Let “the aggressors,” the Democrats and Republicans will proclaim, know that Americans are one against “any foe” that hopes to take advantage of the crisis of the international monetary system.

So the burden of cuts, the Democrats and Republicans will insist, will have to be borne by “entitlements,” read Social Security, unemployment insurance, Medicare, Medicaid, and food stamps—the right to eat. Republicans will do this for “ideological reasons”—their belief in “small government” that does nothing for the people—but at the same time in big government that holds down the people. The less ideological Democrats will do this for “practical and patriotic reasons,” but the results will be the same.

Though Trump’s days in the presidency may be numbered and Paul Ryan is retiring from Congress, only an explosion in the streets will in the event of an acute crisis in the international monetary system prevent repeal and replacement of what is left of Obamacare, combined with sharp additional cuts in Medicare, Medicaid, Social Security, and unemployment insurance on top of that—just as unemployment is once again soaring.

Best-case scenario

That is the “worst-case scenario,” but let’s take a look at the best-case scenario. The best case is that a severe crisis, whether a repeat of a 2008-type panic or even worse a crisis that begins as a crisis of the international monetary system as described above is avoided. Instead, there is only a “normal”—which the media will describe as a “mild”—recession. What will happen if the current industrial cycle ends in this “benign” way?

According to Cathleen Decker writing in the April 9 Los Angeles Times, “The Republican tax-cut plan and increased government spending voted for by Republicans and Democrats alike, will cause the federal budget deficit to exceed $1 trillion by 2020 and its debt burden within a decade to approach rates not seen since the aftermath of World War II, the Congressional Budget Office said Monday. … The national debt will rise from nearly $16 trillion at the end of 2018 to almost $29 trillion by 2028, the nonpartisan office said.”

It should be pointed out that the U.S. government could carry a huge deficit after World War II because the private debt both in the U.S. and worldwide was vastly lower than it is today.

In reality, these estimates are too optimistic because they assume that the U.S. economy will not experience a recession between now and 2021, which in terms of historical experience and the current condition of global money markets is extremely unlikely. Herein lies the danger.

Perhaps an acute financial crisis will not occur at the end of the current industrial cycle despite the reckless fiscal policies that invite it. Working in this direction is the rise in gold production that has occurred since the Great Recession. In contrast, the Great Depression and, to a lesser extent, the Great Recession were preceded by falling gold production. Generally, great financial crises in the history of capitalism occur only every two or three decades, so perhaps a major new crisis isn’t due before the 2020s or 2030s.

So let’s assume that despite the current pro-cyclical policy, things follow this more “favorable” path with only a normal—so-called “mild”—recession, not a Great Recession or the long-dreaded Great Depression II between now and 2021.

However, even a “mild” recession will mean that the federal budget deficit will increase to levels far above the CBO estimates by the year 2021. All indications are that President Trump’s extreme unpopularity and ever-growing scandals involving both his private and public life, combined with the hatred the GOP has earned for attempting to take away health insurance from tens of millions of people last year, will lead to Democratic control of both chambers of Congress and the White House come January 2021. This is not inevitable—the Democrats’ ability to lose to Republicans should never be underestimated—but at this time, a Democratic Party-controlled Congress and White House in 2021 appears likely.

So let’s assume, as progressives are expecting, the Democrats are once again in solid control of the U.S. government—with the exception of the judicial branch—come January 2021, just as they were in January 2009. The new Democratic administration and Congress will face a huge federal budget deficit thanks to the Trump/Republican tax cuts, reckless war spending supported by both Republicans and the Democrats, and even more red ink as a result of the next cyclical recession.

The Democrats, led by the new Democratic president, will say that we opposed Trump’s tax cuts but if we raise taxes now we will undermine the recovery from the latest downturn and even throw the economy back into recession. In light of the shaky economy, the Democrats will “explain,” we simply can’t raise taxes now.

The key to getting out of the hole the Republicans led us into, the Democratic president will claim, is to increase the rate of economic growth in order to create more good-paying jobs. As the next cyclical recovery gains momentum, the economic “experts” will explain, the only way to keep interest rates and the recovery on a firm footing while maintaining the U.S. military commitments to “freedom” abroad, while meeting the huge interest payments on the swollen national debt, is to radically cut the “unsustainable” budget deficit and move, much like President Clinton did in 1990s, toward a balanced budget.

Therefore, there is no alternative but to finally tackle the problem of entitlements. This requires, to paraphrase former Democratic President Bill Clinton, ending Social Security, unemployment insurance, Medicare, and Medicaid as we know them. Faced with the realities of the 21st century, the Democrats will argue, we simply can no longer afford these 20th-century “big government” programs.

The Democrats will announce, just like President Clinton did in the 1990s in the wake of Reagan’s tax cuts, that the age of “big government” is over. Just like the Clinton boom was fueled by the Internet, the Democrats will tout the boundless prospects opened up by a truly 21st-century boom fueled by artificial intelligence, robots and green energy. As long as we move toward a balanced budget, just as President Clinton did in his time, Democratic leaders will claim, permanent prosperity and “full employment” will be assured.

Who, the Democrats will argue, will need Medicare-Medicaid when everybody—including senior citizens—will have great jobs and employer-provided private health insurance. We simply don’t need Obamacare any more, the Democrats will declare—and would not have needed it in the first place if it weren’t for the recessions brought about by Republican mismanagement. Paul Ryan couldn’t say it any better as he prepares his 2024 campaign for the presidency. The progressive wing of the Democratic Party will be appalled but will be afraid to push their criticisms too far for fear of a Republican comeback. Isn’t this exactly what happened in the 1990s?

Milton Friedman, the best-known modern “neo-liberal” macroeconomist always advocated tax cuts. Not so much for their own sake, Friedman explained, but with the aim of creating large federal deficits. Friedman knew that there is always opposition to cutting social program—as the Republicans found out once again to their sorrow in 2017. But there is always far less, if any, opposition to tax cuts. Then when the tax cuts create big scary federal deficits, it becomes possible to argue that there is simply “no money” for social programs.

A kind of division of labor emerges between the Democrats and Republicans. The Republicans carry out big tax cuts that overwhelmingly favor the rich but then face massive opposition led by progressives when they propose cuts in social spending. This is exactly what we saw in the first year of the Trump administration. Then, when they return to office in the name of cutting the budget deficit while maintaining “a strong defense,” the Democrats carry out the cuts in social spending that Republicans with their far more limited social base are not able to carry out. Trapped in the logic of the two-party system, progressives are then rendered impotent. This is the vicious circle that U.S. politics moves in under joint Democratic and Republican rule.

Trump and tariffs

This brings us to Trump’s program to revive U.S. industrial production by imposing, or at least threatening to impose, tariffs so that domestic U.S. industrial production can grab a larger share of the world market. This is largely aimed at newly industrialized China but also at other oppressed countries developing their own industrial production. It also threatens to hit many U.S. “allies”—the imperialist satellite countries—that Trump has treated with contempt.

‘Intellectual property’

Trump expressed great concern that the Chinese were stealing the intellectual property of U.S. corporations. The concept of intellectual property is actually one of the most repulsive features of modern monopoly capitalism. It treats human knowledge accumulated through the work of generations of scientists, inventors and engineers—financed by the surplus value created by the working class as a whole—as the private property of the capitalists, who contribute nothing to the creation of that knowledge.

As U.S. capitalism has declined, the asset side of the balance sheet of U.S. corporations increasingly consists of patents and copyrighted computer programs (software). U.S. corporations have used their state-supported monopoly of knowledge—ultimately enforced through NATO and its associated “special security treaties”—to extract huge amounts of surplus value created by the workers of other countries, mostly located in the “global south.”

The industrial capitalists of these oppressed countries (which includes China) are only allowed to engage in industrial production to the extent they agree to pay huge tributes to the owners of “intellectual property”—the stockholders of U.S.-based corporations and the corporations based in the imperialist satellite countries. The answer of the global working class to Trump’s complaints that China has been stealing “our”—that is, billionaire-owned—”intellectual property” is, to the extent this is true, that it is a good thing. Human knowledge should not be the private property of billionaire U.S. capitalists or any other capitalists but the common property of all humanity.

While U.S. monopoly capitalists are united in the defense of the their “intellectual property”—except where they “steal” it from each other, as they regularly do—Wall Street has shown a lack of enthusiasm for Trump’s tariff threats. Every time Trump gets on his “twitter machine” and escalates the tariff war threat, the stock market plunges by hundreds of points, forcing administration spokespeople to explain that the erratic U.S. president is only trying to open up negotiations. The market then rallies, but the “bull party” (6) on Wall Street lives in fear of Trump’s next “twitter storm” on the subject of trade that will send stock prices plunging once again.

The April 11 Bloomberg News has an interesting article about a coalition against tariffs that was formed by a broad coalition of U.S. capitalist interests. Retail, agriculture, technology, manufacturing and other industries “say the tariffs on $150 billion in Chinese goods are counterproductive to the goal of holding Beijing accountable for intellectual property theft and other trade practices,” Bloomberg reporters Lindsey Rupp and Mark Niquette write. The groups, they say, are “seeking to keep specific products off the U.S. list and trying collectively to keep levies from being imposed at all.”

Let’s break this down. The retail industry deals in commodities that are largely made—or at least assembled—in China. If tariffs are imposed on Chinese commodities, the retail industry will be forced to raise its prices or accept lower profits. When prices are raised—all things remaining equal—demand drops and profits also decline. No wonder Jeff Bezos, now the world’s richest person with a net worth in excess of $100 billion and owner of the on-line retailer Amazon, is not a great fan of the current U.S. president

Technology—that is Silicon Valley—has its own reasons to be concerned about Trump’s policy. While Silicon Valley companies own the “intellectual property”—patents and computer code—the production of the machines that run that code is, with the exception of some high-end components, carried out not in “the Valley” but in China and other mostly Asian countries. It is well known that the products of Silicon Valley’s richest company, Apple, are assembled in the huge factories—mostly by young women workers fresh from the farms—owned by Taiwan-based Foxconn, or Hon Hai Precison Industry Company. Though Taiwan is legally part of China, it has been a de facto colony of the U.S. since 1949.

Apple takes a generous cut of surplus value produced by the Chinese workers at Foxconn and by smaller Chinese industrial capitalists, much as the old East India Company did centuries ago. The difference is that, unlike in the days of the East India Company, Chinese commodities are produced in the largest factories that have ever existed by hundreds of thousands of workers, giving them vastly greater potential social power than the peasants of old China ever had. If relations between China and U.S. deteriorate, China could seize the Foxconn plants and tell them to stop producing for Apple and instead produce under a Chinese brand name.

China’s leaders certainly do not want to do this. An iPhone has many components such as a CPU and other chips that it would be difficult and expensive for the Chinese to duplicate. And it wouldn’t be easy for the Chinese to build up a brand name with the following that Apple has.

But a Chinese seizure of Foxconn plants would be very bad for Apple, forcing the huge Silicon Valley-based monopoly to find alternative workers—and the giant plants—to produce the iPhone and its other products. This is not something that can done overnight. If Apple were to lose access to the factories of China, the resulting shortage of smartphones and similar “high-tech” products would open a door for Apple’s competitors to move in. For this reason Apple—and many other Silicon Valley companies—want to bring Trump’s trade war threats against China and other countries to an end.

What about agriculture? China has made clear that if Trump’s threatened tariffs go into effect, China will impose tariffs on U.S. agricultural commodities such as soybeans. A lot of soybeans that the U.S. produces are grown in Midwestern states that voted for Trump. The farmers of these states, however much they want to “make America great again,” do not want do it at the cost of a trade war with China—or the European Union. They fear the loss of their markets in China and elsewhere would send the price of soybeans, corn, and other agricultural commodities they grow plunging on world markets.

But what about manufacturing industry? Wouldn’t hard-pressed U.S. manufacturers—industrial capitalists—be expected to welcome Trump’s protectionist policies designed to revive U.S. industry at the expense of their fellow industrial capitalists in the rest of the world? Well, not as much as you might think. Marx’s coworker Frederich Engels explained in 1888 why this is and his arguments are more relevant than ever.

Marx and Engels as free traders

In 1888, Frederich Engels wrote an introduction to a speech Marx was scheduled to deliver at a Brussels conference in 1847 in support of free trade but in the end wasn’t allowed to deliver. Marx a free trader? Well, Marx and Engels were “free traders” but with a twist, which is why Marx was not allowed to deliver his speech.

In an introduction to a reprinting of Marx’s suppressed speech, Engels explained that Marx supported free trade because it would allow the fastest possible development on a global scale of the capitalist system. Marx and Engels reasoned that the faster the development of capitalism, the sooner would come the “social deadlock” in the form of increasingly severe crises of overproduction and what we now call “secular stagnation,” and the resulting mass unemployment that would lead to a workers’ revolution finally ending the misery and unemployment created by the capitalist system forever. In this sense, and this sense only, Marx and Engels, unlike many progressives today who, in contrast to Marx and Engels, seek to slow down the development of capitalism, were indeed free traders.

Later, Marx and Engels did modify their “pro-free trade” position somewhat. Marx did this after he concluded that a democratic revolution for Irish independence against Britain was a necessary precondition for a British socialist revolution. As part of this new perspective, Marx came to advocate protective tariffs for Ireland that would allow Ireland to develop its own industry and thus break Britain’s industrial monopoly over its economy.

By extension, we should support the right of developing countries to impose tariffs to protect their emerging industries. But despite Trump’s hopes to the contrary, protective tariffs cannot revive moribund capitalism of the U.S. and other imperialist countries. At most, a policy of protective tariffs might prolong the death agony of some capitalist industries while accelerating the decline of industry as a whole in the “old” capitalist countries.

In his 1888 introduction to Marx’s suppressed “pro-free trade” speech of 1847, Engels explained why this is so. Because the output of one industry—like steel—is an input of other industries—automobiles, for example—”protection,” in Engels’ words, “is at best an endless screw, and you never know when you have done with it. By protecting one industry, you directly or indirectly hurt all others [emphasis added—SW], and have therefore to protect them too. By so doing you again damage the industry that you first protected, and have to compensate it; but this compensation reacts, as before, on all other trades, and entitles them to redress, and so on ad infinitum.”

“But,” Engels wrote, “the worst of protection is that when you once have got it, you cannot easily get rid of it. Difficult as is the process of adjustment of an equitable tariff, the return to Free Trade is immensely more difficult.”

Engels writing in 1888 did not live to see exactly how difficult the return to “free trade” would be in practice. It turned out the road back to “free trade” required two world wars with their tens of millions of dead, not to mention such little things as the political career of Adolf Hitler that were byproducts of these wars.

Only with the rise of the U.S. empire, made possible through these world wars, was “free trade”—which Engels considered inevitable—finally more or less restored. If the world economy again gets tied up in a protectionist knot—which Trump’s economic nationalist policies are leading towards—what will be the price the next time of restoring “free trade.” A global nuclear war? But that will not end with the restoration of “free trade.” It will be the grave of civilization. It seems that many—though not all—U.S. industrial capitalists seem to understand the logic of what Engels called the “the screw.”

Unfortunately, the same can’t be said of the leaders of many U.S. trade unions. And many progressives—though they oppose Trump’s policies in general—support Trump’s threat to impose protective tariffs. The line between the “Party of Free Trade” and the “Party of Protection” does not correspond to the Democratic-Republican divide. Indeed, there are probably more “protectionists” in the Democratic Party today than in the Republican Party. Trump’s sinister arch-trade hawk, the warmongering anti-China agitator Peter Navarro, is a Democrat, not a Republican. Of even greater interest to class-conscious workers is why many trade-union leaders support economic nationalism and protectionism.

Pure and simple trade unionism versus revolutionary trade unionism

A reactionary attitude on foreign trade is inherent in trade unionism as long it remains, in the words of American Federation of Labor founder Samuel Gompers, pure and simple trade unionism. Gompers used this term to contrast his brand of trade unionism with socialist or revolutionary trade unionism. Revolutionary trade unionists do not ignore the daily struggle unions must wage over wages, hours and working conditions. But they also realize the limitations of these “guerrilla” actions. Revolutionary trade unionists see as the main function of unions to prepare the overthrow of capitalism and in the future to become administrative organs that will manage the socialist economy.

In contrast, pure and simple trade unionists, whose horizons do not extend beyond capitalism, see the function of their unions as ensuring that members sell their labor power at the highest price possible. Or as Gompers put it, the program of the pure and simple trade unionist can be reduced to the demand “more!”

The pure and simple trade unionists—and socialists as well as long as they are more of pure and simple trade unionists than socialists—reason that it is in their interest for their particular boss to make as high profits as possible. The boss can then, with suitably applied pressure, be forced to share some of his super-profits with his workers in the form of higher wages. If, on the other hand, the boss is making less than the average rate of profit, the boss will sooner or later close up shop and the workers will lose their jobs. The pure and simple trade unionists can’t do much in this situation, since their program does not extend beyond capitalism.

Assuming the boss is making a super-profit when contract renewal time comes around, the pure and simple unionists can say to the boss that since you are doing so well—and we are very glad you are—we demand that you share some of your super-profits—not necessarily all—with us in the form of higher wages, benefits and working conditions. We, the pure and simple trade unionists, are in conflict with you only on exactly how much of the super-profits you share with us and how much you get to keep for yourself. On this point, we are in conflict, but we can come to a compromise, perhaps after we test our relative strengths in a strike. But on all other questions, we are united with you.

Following this philosophy, Samuel Gompers and his AF of L supported the U.S. in World War I against its imperialist rivals—the central powers led by Germany—and then bitterly opposed the Russian Revolution. In the 1960s, Gompers’ heir, AFL-CIO President George Meany, supported the U.S. war against the Vietnamese and other Indochinese peoples.

Pure and simple unionism played a crucial role in the downfall of the Second International. The growing ascendancy of pure and simple trade unionist thinking within the German Social Democratic Party—and most of the other socialist parties of the Second International—led them to support their “fatherland” against other “fatherlands.”

It cannot be denied that sections of the working class can makes temporary—sometimes considerable—gains in their living standards with this approach. It is vulgar economic determinism and not Marxist historical materialism to believe that immediate economic interests of every individual group of workers at all times corresponds with the historical interests of the working class as a whole. If that were true, we would have had the socialist revolution long ago. But in the end, the gains made by individual groups of workers at the expense of the historical interest of the working class as a whole are temporary as well morally and politically disastrous.

The history of the German workers’ movement after World War I provides examples. The decision of the German SPD under the influence of trade union leaders strongly inclined toward a Gompers mode of thinking, though unlike Gompers they paid lip service to socialism, to vote for war credit on August 4, 1914, is one horrible example. Among the many negative consequences of this was the rise of Adolf Hitler to dictatorial power over Germany in the 1930s, which among other things led to the Holocaust of the European Jews, which in turn led to the victory of Zionism and dispossession of the Palestinian people that occurred 70 years ago this year—2018.

When you read about the horrors now unfolding in Gaza—just today, I read that Israelis killed four more unarmed Palestinian demonstrators, including a 15-year-old child—keep this in mind. One imperialist horror leads to the next imperialist horror. A child’s coldblooded murder by Israeli soldiers in Palestine in 2018 can be traced back in part to the consequence of the practice of pure and simple trade unionism by German trade unionists in violation of their nominal socialist principles more than a century earlier.

But Germany does not provide the only example of the disastrous consequences of pure and simple unionism. Gompers had hoped that the grateful U.S. bosses would reward the AF of L unions for their services during the war by agreeing to widespread unionization and wage increases after the war ended. Instead, after World I the U.S. trade-union movement entered a period of extreme weakness that didn’t end until the great union upsurge of the 1930s that led to the CIO.

Gompers and other AF of L leaders’ support of nationalism, chauvinism, racism and male supremacy had been taken so far that it had completely undermined the elementary sense of solidarity among workers that is the essence of any type of trade unionism. Indeed, the 1920s were the first “boom period” in U.S. history that did not see an upsurge in trade unionism. Fat with super-profits, the U.S. capitalists after World I preferred to keep the super-profits for themselves.

After World War II, the situation was somewhat different. The U.S. bosses were even fatter with super-profits with their main capitalist competitors in smoking ruins but were faced with a victorious Soviet Union and emerging socialist bloc. The U.S. bosses feared the further spread of socialist revolution in Europe and elsewhere and even more the growth of socialist ideas among U.S. industrial workers that were now members of powerful industrial unions organized in the CIO.

However, the pure and simple trade union approach was still alive and well among many CIO leaders. This was especially true of the right-wing CIO leaders who supported U.S. imperialism in its newly launched “cold war” against the Soviet Union and the newly emerging socialist countries. This provided the opening that the bosses needed and quickly took advantage of.

Right after the end of the war, a vicious purge was launched by the right-wing CIO leaders against left-wing leaders who were associated with the U.S. Communist Party. The purge against the Communist trade unionists quickly spread to trade unionists associated with the Trotskyist Socialist Workers Party as well. The right-wing CIO leaders during their struggle with their left-wing rivals explained to the bosses that you better give in to our demands for big wage increases and private health insurance plans for our members. If you don’t, our members will turn to the Communists for leadership. For awhile, this gave the right-wing CIO leaders considerable leverage.

As the years went by, the bosses were able to picture “organized labor” as simply a “special interest” run by corrupt “union bosses.” AFL-CIO President George Meany’s enthusiastic support of the Vietnam War seemed to confirm in the eyes of many young sixties radicals Baran and Sweezy’s dismissal in “Monopoly Capital” of any revolutionary potential for the U.S. working class. Therefore, at the peak of their power the unions were already morally and politically undermined.

Today it is clear that economic gains made by the right-wing-led U.S. trade unions for their members were temporary. As the bosses have increasingly shifted industrial production abroad in search of ever higher rates of surplus value, the once powerful U.S. industrial unions have shriveled away, becoming mere shadows of their former shelves. Today the grandchildren and great grandchildren of CIO workers are forced to take low-wage jobs in fast food, warehousing, and retail—though now many of these retailing jobs are beginning to disappear as on-line purchases are replacing traditional retailing—assuming they are lucky enough to finds job at all.

The alternative to the failed pure and simple unionism approach is for the working class to identify not with “their” country but with their class on a global scale. The only way out of the increasingly unsustainable centralization of the world’s wealth in a few hands, combined with environmental destruction in general and global warming in particular, is for the socialist reorganization of the world capitalist economy into a global socialist economy. Any flirtation with “economic nationalism” courts disaster.

Next month, I will finish my review of Smith where I will examine the crucial question of immigration and how modern computerized communication is gradually breaking down the idea of an alliance to one’s nation just like earlier stages in the history of production broke down the alliance of the individual to one’s clan and tribe. Then for the upcoming summer—winter for those down under—season, I will examine Modern Monetary Theory economically and its political implications.


1 In 1896, the Populist Party, based on indebted farmers, decided to support the Democratic presidential candidate William Jennings Bryan (1860-1925), who claimed to embrace the Populist program, which had many progressive planks. However, Bryan emphasized only one issue during his campaign, the demand for the resumption of the free coining of silver at a ratio of 16 to 1. This meant that the silver dollar would weigh 16 times as much as the gold dollar.

While this demand was highly popular among indebted small farmers, who hoped that the devaluation of the U.S. dollar and resulting inflation would reduce their debts, it was unpopular among wage workers who had no desire to see the medium in which they were paid—based on the gold dollar—replaced by devalued silver. While indebted small farmers voted in great numbers for Bryan, wage workers voted overwhelmingly for the conservative “gold” Republican William McKinley. Today, a new scheme of monetary reform based on “Modern Monetary Theory” is gaining support among progressives. (back)

2 Progressives, most of whom have no understanding of Marx’s theory of surplus value, emphasize how the tax cuts backed by massive cuts in social spending are putting trillions of dollars into the hands of corporations. The Republicans answer that these trillions will be invested in the economy, increasing productivity and generating tens of millions of additional jobs. The increase in productivity and jobs, the GOP claims using the assumptions of marginalist economic theory, will lead to a rise in real wages, or as progressives ironically like to put it, cause the wealth to “trickle down.”

Progressives point out correctly that many corporations are using the tax cuts to buy back their own shares, causing their price to rise on the stock exchange, or are simply paying larger dividends to their shareholders. While this is all true, it misses the main aim of the tax cuts. The capitalists do appreciate the trillions of dollars the tax cuts put into their hands directly. But these trillions are nothing compared to the tens of trillions in additional surplus value they expect to squeeze out of the U.S. working class as a consequence of the tax cuts and the cuts in social spending that the tax cuts will lead to, which the bosses expect to cause a sharp increase of competition for jobs among U.S. workers. (back)

3 I borrow the term “golden prices” from Anwar Shaikh. Golden prices are prices calculated directly in terms of weights of gold bullion as opposed to currency units like dollars, euros, yen, rubles, yuan and so on. (back)

4 The term “price of gold” is economic slang because prices in the real economic sense are always prices in terms of weights of gold bullion. Since gold is the universal “standard of price,” it has no price. This has significance for the “transformation problem.” Many Marxists insist that the prices of production must equal total direct prices—keeping in mind that the price of labor power can be reduced to the prices of wage goods that are assumed to sell at their prices of production. But these “literal-minded” Marxists—who are more “Marxist” than Marx himself on this point—forget that not all commodities have prices. The money commodity by definition does not have a price. Therefore, the total number of commodities that have prices is always N-1, where N is the total number of commodities. (back)

5 It is a basic feature of U.S. politics that Democrats and Republicans compete with one another on who is the more pro-Israel. Many progressive Democrats, especially the younger ones, are increasingly critical of apartheid Israel but find themselves powerless against the pro-Israel leadership of the Democratic Party. (back)

6 Speculators in the stock market and other financial markets are divided into two “parties.” One party bets that stock prices are going to rise—the bulls—and the other predicts stock prices are going to fall—the bears. (back)