The Fed Meets and Congress Investigates January 6

In June 2022, the news in the United States was dominated by two stories. One was the decision of the Federal Reserve System to raise its target for the federal funds rate by 0.75%. The new rate range is between 1.50% and 1.75%. The second story broke the same week: The congressional hearings into the events of January 6, 2021. On that date, a right-wing mob, supported and inspired by President Donald Trump, broke into the U.S. Capitol. It was an attempt to force Congress to reverse the 2020 presidential election results. Is there a connection between these two? Yes, even if it isn’t a direct one.

Let’s begin with the Federal Reserve story. For most people, Federal Reserve operations are a mystery. The federal funds rate is the interest rate charged on overnight loans that U.S. commercial banks make to one another. The law, as well as financial prudence, require commercial banks to maintain a certain minimum of ready money to cover their deposit liabilities. Many are surprised to learn that under the fractional reserve system, commercial banks maintain only enough cash on hand to redeem a small portion of the money the public has on deposit. If all depositors were to try to withdraw all their money at the same time, every bank would fail. The reason? Most of the money on deposit does not represent actual cash in the form of legal tender — bills and coins — but is imaginary money created by the banks themselves through their loans and discounts. To prevent collapse, a minimal cash amount backs up deposit liabilities.

Commercial banks are for-profit enterprises. To maximize profits, cash on hand is kept to a minimum as it earns no interest. To put it in more scientific terms: The cash commercial banks must keep on hand to redeem deposits does not entitle the bank’s shareholders to a portion of the unpaid labor — surplus value — performed by the working class. (1)

At the end of the business day, some banks are short of the minimum required by law. Other banks have a surplus. Those with a surplus loan money overnight to banks with a deficit. The interest rate charged to banks with a deficit is the U.S. federal funds rate.

The federal funds rate is set by the market, not the Federal Reserve System. In short, the Federal Reserve System manipulates the federal funds rate by buying and selling short-term government obligations to commercial banks. The Federal Reserve open-market committee sets a target range for the rate. If the market drives the rate above the target, the open-market committee tells the Federal Reserve Bank of New York to purchase more government securities. This increases the banks’ cash reserves. If the rate falls below the target, the New York Federal Reserve Bank sells some of the securities previously purchased back from the banks, reducing their cash reserves.

The source of the money used to purchase government securities is where the mystification begins. Introductory textbooks claim the Federal Reserve creates this money “out of thin air.” How does this happen?

Recessions occur when the Federal Reserve System restricts the growth of the quantity of money created to force banks to curtail loans and discounts. Then only the most credit-worthy borrowers can get loans — at high interest rates. Creditors get nervous and begin to call in loans. Suddenly, spending, in general, must be cut back. Would-be homeowners can’t get mortgages, so newly built houses remain unsold. Automobiles become hard to sell — people can’t get the financing needed. Car production is cut and workers are laid off.

As spending falls, commodities pile up in warehouses. Merchant capitalists cut back on orders they place to industrial capitalists. Commodities piling up force a reduction in production and lay-offs of workers. The newly unemployed are forced to reduce spending, leading to more fall in demand. The economy sinks into recession while unemployment soars.

If money can be created out of thin air, why do recessions have to occur at all? When money gets “tight,” can’t more be created before there’s a recession? In the past, the Federal Reserve System and other central banks were prevented from doing this by the “gold standard.” Gold was used as cash. Gold cannot be created out of thin air. It’s created by the labor of workers in the gold mining and refining industries. The classic gold standard required that every banknote and deposit liability be redeemable in gold, coin, or bullion (uncoined gold).

Under the gold standard, if central banks created too many banknotes and cash liabilities to avoid recession and mass unemployment, they would face a “run” on their gold reserves. Over the decades the gold standard was progressively relaxed. The last vestiges were finally abolished by Richard Nixon in August 1971. Yet recessions have not ceased since then, they’ve gotten worse.

Labor unionists and their progressive allies often say that recessions continue to happen because central bankers want to increase unemployment. When unemployment increases, competition for remaining jobs increases among workers. Competition for workers among the bosses drops, driving down the price of labor (power) or wages. Because those appointed to the open-market committee represent the bosses, many labor union progressives believe that is the reason we have recessions. By this logic, appointing pro-labor representatives to the open-market committee would stop recessions. (2) Labor union progressives complain that the Fed is again focused on increasing unemployment to halt the resurgent labor-union struggle and stop or slow further increases in wages. The Federal Reserve agrees that is exactly what they are trying to do, though they say, weakly, this can be done without a full-scale recession.

Fed officials falsely claim inflation is caused by wages rising faster than the growth in labor productivity. Rising wages drive up the cost price of commodities which then forces business to raise prices to maintain their profits. This view was refuted long ago by Ricardo and Marx. (See Karl Marx’s Value, Price and Profit.) If it becomes harder for workers newly entering the workforce to find jobs, the Fed claims, the rise in wages will slow and the inflation rate will fall back to the aim of a 2% annual rate. This allows, the Fed claims, for the fastest growth of real wages in the long run as price stability allows labor productivity to grow rapidly. Rising productivity the story goes allows real wages to rise while allowing the profits necessary to finance continued capitalist economic growth and rising employment. (3)

Progressives answer that profits have never been higher. After 40 years of real-wage stagnation, it’s time for a raise. They say that it’s not higher wages driving today’s inflation but corporate greed for profits. However, corporations are no more greedy for profits in these inflationary times than they were before the COVID-19 pandemic when inflation was considered low. Truth be told, corporations are always greedy and know no limit. This is a basic feature of the capitalist system. Assigning inflation to corporate greed sounds radical, and has agitational value, but it explains nothing.

The real causes of today’s high inflation

When COVID-19 hit in March 2020, lock-down orders by capitalist governments believing they could quickly stamp out the pandemic quickly caused production and sales to plunge. Commodities not produced cannot be sold. People resisted going to stores for fear of infection, further depressing sales. The Federal Reserve System increased the number of dollars and other currencies to stave off a credit crisis caused by underproduction. To head off unrest, the government sent money to workers sheltering in place at home and laid off. But COVID did not go away. Governments relaxed and then ended the shutdowns. Widespread, if inadequate, vaccinations reduced the fear of getting sick. Unemployed workers were called back to work and people returned to the stores and began spending money again.

The 2020-2021 COVID economic depression represented a period of extreme underproduction. The commodity shortage – relative to monetary effective demand for these commodities – created a classic inflationary situation where the demand exceeds the supply at existing prices. As the COVID economic depression ended, prices began to soar.

Industrial capitalists reacted by stepping up their purchasing of commodities needed for their own production before prices rose even more. Merchant capitalists increased their stocks of merchandise before prices rose for the same reason. Commodity sellers postponed selling wares as long as possible – the later they sold them, the higher the prices would be. This process caused commodity shortages as the normal supply chains broke down. (See How the COVID aftermath boom breeds inflation.”)

When there are commodity shortages relative to demand, capitalists worry about losing sales because they could not supply what their customers demand. They fear customers will shift to rival capitalists in search of scarce goods. The increased spending level by the capitalists increased the demand for labor power. The spending of the newly hired workers raised the demand for consumer goods, leading to more workers being hired. Then shortages intensified relative to supply. The result: the strongest demand for labor power in decades. This created a favorable climate for labor union organizing. But the rise in wages has lagged behind the rise in the cost of living, causing hourly real wages to drop. At the same time, the purchasing power of the working class is rising due to the increased hours of work and the rising number of employed workers.

Earlier, both the Fed and the Biden administration predicted inflation would fade away as rising production ended commodity shortages. This has not happened. The rising level of spending increases demand, encouraging capitalists to withhold commodities from the market to drive prices even higher. Rising prices for essentials such as food and gasoline, shortages of others, e.g. baby formula, and declining real wages caused Biden’s approval ratings to plummet to 40% and less. With their failure to pass promised reforms as well as the soaring inflation, Democrats face major losses in the coming mid-term election. Under the two-party system, the reactionary Republican Party is considered the only alternative to the governing Democrats.

This brings us back to the other big June news story, the January 6 hearings. These document what was, in effect, an attempted coup by President Trump to keep himself in office after he clearly lost. The U.S. Constitution was written in the late 18th century. It contains a provision where the vice president, in the capacity of president of the Senate, reports the results of the Electoral College vote to a joint session of the two houses of Congress. The Electoral College itself doesn’t meet since traveling to a central meeting place was difficult in the 18th century, a time before cars, air travel, and even railroads. Instead, electors meet in state capitols and the results are mailed to Washington. Nowadays, the votes of the electors in their respective state capitols become known immediately. Tabulating and reporting the results by the vice-president to the joint session is considered a formality or was before 2021.

In November 2020, when it became clear Trump was defeated for re-election, Trump, instead of congratulating the victorious Biden, as long-established tradition demanded, claimed Biden’s victory was the result of fraud. Trump and his supporters demanded that Pence, as president of the Senate, throw out the allegedly fraudulent Electoral College votes and announce that neither Trump nor Biden had won a majority. Under the Constitution, the election would then be thrown into the House of Representatives where, though Democrats have a slim majority, Republicans have a majority of the state delegations. Under the law, each state delegation — not individual members of Congress — gets to cast a vote if the election is thrown into the House. Trump hoped congressional delegations from each state would meet and “elect” him to another four-year term.

Most constitutional scholars and lawyers specializing in these questions agree that the vice president acting as president of the Senate has no authority to decide whether the Electoral College delegates were duly elected. That is the job of the state legislators. Despite Trump’s claims of fraud, the election of the electors was duly certified by the state legislatures. Pence explained to Trump that he did not have the legal authority to throw out the votes of the duly elected and certified electors.

An enraged Trump, in the style of a mob boss, told Pence that he would no longer be his friend. On January 6, Trump made an inflammatory speech to a mob led by members of two fascist groups — the Proud Boys and the Oath Keepers. Many members of these fascist groups have backgrounds in the military and the police. Using professional military tactics, they led the mob into the Capitol building. They succeeded in breaking up the meeting of the assembled members of Congress preparing to carry out their constitutionally-mandated job of certifying the result of the Electoral College election of Joseph Biden to the office of President of the United States and Kamala Harris to the office of Vice President of the United States.

Members of the mob clearly intended to kill not only Democratic congressional leaders like Nancy Pelosi and progressives like Alexandria Ocasio-Cortez but also Mike Pence, who they viewed as a traitor to the Trumpist cause. Trump used his position as commander-in-chief to make sure the Capitol building was left unprotected by the National Guard. There have been many examples in U.S. history where the cops absent themselves from left-wing demonstrations which are then attacked by right-wing mobs. But this was the first time the U.S. Congress, a branch of government that is co-equal with the executive branch under the constitution, received this treatment. (4)

A gallows with a full noose was even erected by the mob outside the Capitol which some intended to use to hang the vice president. Congressional members and staff as well as Vice President Pence barely escaped as they were whisked to safety by the capitol police and Secret Service bodyguards. Pence finally managed to call the National Guard to the Capitol, overriding the President’s authority. Hours later a badly shaken Congress was finally able to reconvene and perform its constitutionally mandated duty.

A majority of the U.S. capitalist class, though not the actual political leaders, both Democrats and Republicans — on this blog I have dubbed them the “Party of Order” borrowing the term used by Karl Marx in his “Class Struggles in France” and the “Eighteenth Brumaire of Louis Bonaparte” — favored the re-election of Donald Trump. But when Trump refused to concede the election many capitalists who had supported him until then began to turn against him. More turned against him when he tried his own version of the “Eighteenth Brumaire” — the French coup of 1851 by Louis-Napoléon Bonaparte — on January 6 in a last-ditch attempt to remain in office. By refusing to play by the rules of the game established over two centuries, capitalists feared Trump was undermining the legitimacy of their rule in the eyes of the people.

Now we come to the indirect connection between the Federal Reserve’s decision to raise its federal funds rate by 0.75% and the January 6 congressional hearings. The Party of Order assumed the post-COVID shutdown aftermath boom would cement the popularity of Biden and his conservative pro-business Democratic Party allies. With the racist demagoguery, a regular feature of the Trump administration, gone from the White House, the liberals would be satisfied and there would be no need to pass any progressive legislation. Instead, Biden, who turns 80 this year, or perhaps Kamala Harris if the president decides not to run for a second term, would be able to run on prosperity and full employment. This has happened many times in U.S. history.

Under conditions of prosperity, the Party of Order expected Trump to fade from the political scene. There would be no need to investigate Trump’s role in the January 6 coup attempt and perhaps more importantly investigate the role of the police, secret police and the Pentagon in allowing the coup attempt to go as far as it did. January 6 and Trump would be yesterday’s news.

But inflation has refused to go away. A whole new inflationary factor was thrown into the mix with the outbreak of the Russo-Ukrainian war. The war was provoked by the Biden administration’s policies of arming the Ukraine’s Euromaidan government and encouraging it to attack the Peoples Republics of Donetsk and Lugansk. Biden’s war policies have been supported by all factions of the Party of Order. Unfortunately, these policies have been supported by a majority of progressives. In the recent vote to approve $40 billion of military and other aid to Kiev, every Democrat, including every progressive in Congress, voted yes on war. The only opposition came from a minority of right-wing pro-Trump Republicans. What passes for the left in U.S. electoral politics thus handed anti-war sentiments to the extreme right wing.

The Biden administration tried to force Europe to stop buying oil and natural gas from Russia. Predictably, capitalists worldwide scrambled to buy up all the oil and natural gas they could. This drove prices of these commodities up even more from the elevated rates of the aftermath boom. At the same time, sanctions against Russia and the disruption of production in Ukraine resulting from the war could lead to major food shortages next year. This threatens to send food costs soaring. This could lead to famines in many countries of the Global South. Globally, people will be forced to spend more money on necessities such as food and heat, with less to buy other commodities.

Progressives complain that by raising interest rates, the Federal Reserve System will slow production with a likely result of a nasty recession or worse. They are correct about the recession threat. Since the inflation was triggered by supply chain issues – commodity shortages – progressives propose that instead of the Fed raising interest rates, the problem of shortages should be attacked head-on. As increasing interest rates would only slow production, the Fed should keep interest rates low to encourage increased production, ending shortages and thus lowering or ending inflation. That’s the proper way to fight inflation. It’s common sense, isn’t it?

Is this confusing? We are told by economists and the Fed leaders that the biggest problem we face today is commodity shortages. Jerome Powell and other economists prescribe raising interest rates. However, they agree this will slow production. The only debate is how much production will have to slow to lick the shortages! The cure for inflation: Produce less! In a backhanded and shamefaced way, it is admitted that the real problem — from the viewpoint of capitalist profits — isn’t shortages but overproduction!

What progressives overlook — the threat of overproduction to capitalist profits

Progressives call on the Fed not to raise interest rates. What they don’t realize is that from the capitalist viewpoint the real threat to profits now is not shortages, but overproduction. If the Fed fights an interest rate increase dictated by growing overproduction by creating still more paper dollars, non-money commodity production will continue to increase relative to the quantity of money material existing in the world. Today’s overproduction crisis is simply the inevitable outcome of the previous underproduction crisis of the COVID shutdown depression. The current overproduction developed as shutdowns were ended, concealed behind the surface appearance of shortages. Apparent shortages are increasingly not the result of underproduction, but rather of the credit-fueled over-trading concealing overproduction. As the aftermath boom ends, individual capitalists’ speculations are trying to squeeze the last penny of profit out of the dying boom.

The real job of the Federal Reserve System, under the current circumstances, is to halt overproduction before it wipes out profits. The mere fact that surplus value is being produced does not guarantee it can be realized in terms of money material – gold bullion. It’s a basic economic law of capitalism that flows from the role of (commodity) money as the measure of value that profits must be measured in terms of some unit of weight of gold bullion. Profits that are not positive in terms of gold bullion are not true capitalist profits at all.

If halting overproduction means a deep recession with mass unemployment, then this is the price capitalist society must pay to minimize the damage done to profits. Capitalism is overproduction, not relative to human needs, but to capitalist relations of production.

If the dollar price of non-money commodities continues to increase faster than the dollar price of gold, gold bullion production becomes less profitable, both relative to other branches of industry and absolutely, to produce. The capitalists react to such a situation by producing less money material (gold bullion). A shortage of gold then develops. Capitalists then attempt to load up on gold as they did in the 1970s. At that point the “price” of gold soars which is just a way of saying that prices measured in terms of gold fall and profits calculated in terms of gold bullion are wiped out. (5) Stagflation begins. When that arrives, economic growth stops as the Fed can’t hold interest rates down even in the short term.

Once stagflation develops, if the Fed tries to counter it by holding down interest rates by printing dollars, the result is hyperinflation which could doom the dollar system, precipitating the fall of the U.S. empire. The hyper-inflationary collapse of the dollar, while it is still at the center of the global monetary system, would also imply a Depression even worse than that of the 1930s. The only alternative to avoid this disaster would be another “Volcker shock.” Under current circumstances, this would lead to a recession deeper than the 1980s recession which followed the original Volcker Shock as relative debt is far higher now than then. The best solution from the Fed’s vantage point is to halt overproduction now before more damage is done to the capitalists’ profits. (6)

The Biden administration has added a new and dangerous element to the mix. It has further undermined the dollar by freezing the bank accounts of the central banks of countries it’s targeting for regime change. This includes the Bank of Russia and tomorrow could include the People’s Bank of China, which holds more U.S. dollars than any other entity in the world. The Chinese government and central bankers must be wondering how safe the dollar reserves China uses as backing for its own currency are, especially if there is a showdown with U.S. imperialism either over Taiwan, Korea, the South China Sea, or anywhere else.

When a crisis of overproduction is pending, there are no alternative choices available for the capitalist system except a recession-depression with mass unemployment. This was true in the days of the 1980s Volcker Shock, the period preceding the crash of 2008, and it’s true once again today. For the working class, however, we can and must choose the option of a socialist transformation of society to end the system of recurrent economic crises and war.

Why capitalists and their economists can’t tell the truth about crises and overproduction

Fed leaders and capitalist economists cannot explain it in these terms, not only because they lack the Marxist tools to do so. To explain what is happening honestly would expose the capitalist system in all its bare nakedness. They would have to say that there could be prosperity for all but because we insist on the continued private ownership of the means of production, this won’t happen. To maintain the system where a few super-rich multi-billionaire capitalist oligarchs get rich at the expense of billions of wage workers and other working people, it requires the sacrifice of the victims of capitalist exploitation. Tens of millions of working people must sacrifice their jobs, farms, small businesses and more to maintain the capitalist system. Only by making these sacrifices can we continue to be exploited by Jeff Bezos, Bill Gates, Elon Musk and a few others who are piling up fortunes, now worth over $100 billion and rising.

As the aftermath boom with its low unemployment rate continues, the high inflation rate and falling real wages, combined with a lack of any meaningful reforms, have dropped Biden’s approval ratings to under 40% in the polls. Thus, massive Republican gains are expected in the November 2022 mid-term elections. (7) If by 2024 a deep recession and massive unemployment replace the aftermath boom, how can either Biden, Kamala Harris (whose approval ratings are lower than Biden’s), or any other Democrat, prevail against the Republican candidate?

From the Party of Order’s viewpoint, this is no problem – as long as Donald Trump is not the Republican candidate. But Trump is still the most popular candidate among the Republican base, though hated by many more. Others acceptable to the Party of Order, relative to Trump, are interchangeable gray blurs.

The problem confronting the Party of Order is how to get Trump to not run in 2024. If he doesn’t run, a Republican fully acceptable to the Party of Order will be nominated and likely elected. This is where the January 6 hearings come in. The Party of Order does not want to see Trump charged with sedition and treason and imprisoned, an outcome without precedence in U.S. history.

Such a trial might expose the real nature of the government and its military and security forces, as was last threatened during the Watergate hearings. Then-President Gerald Ford pardoned Richard Nixon so he wouldn’t have to stand trial. For this act, Ford was hailed a hero of the system. Ford was willing to sacrifice his presidency so Nixon wouldn’t be tried in court, airing the dirty laundry of the U.S. government.

Trying Trump in court could expose the system, but also would anger and radicalize his supporters. It would further polarize U.S. politics. The Party of Order would pay a heavy price to keep Trump out of the White House. Far better to allow him to fade away unpunished. The Party of Order hopes the limited revelations of the current hearings will convince Trump to drop further attempts to regain the White House. Trump would gain by staying out of jail and avoiding massive legal expenses and possible heavy fines. (8) And the Party of Order gains as well: Trump stays out of the White House. If he insists on running, the Party of Order hopes the revelations of the January hearings will cause him to lose to one of the gray blurs in the primaries. If he wins the primaries, they hope he’ll lose to the Democrat candidate.

Unfortunately, I am running out of space for this month. I must now return to Shaikh and begin my examination of his theory of money and non-commodity money with its considerable relevance to the economic and political storm now developing.

Money, Marx, and Anwar Shaikh

Last month we explored John Maynard Keynes’ 1936 “General Theory” on mercantilism. By then, Keynes had abandoned the Quantity Theory of Money and what I call the strong form of Say’s Law. Supported by Ricardo, it claims that a general overproduction of commodities is impossible because commodities are the means of purchasing other commodities. It only allows overproduction of some commodities, to the extent that other commodities are underproduced.

There is a weak form of Say’s Law that was supported by Keynes. It acknowledges that a general overproduction of commodities is possible. Assuming non-commodity money, the capitalist state plans the quantity of non-commodity money. It therefore can create enough to avoid commodity overproduction. It admits the possibility of overproduction if the state fails to create a sufficient quantity of money.

As long as money is based on gold (commodity money), commodity overproduction is seen as inevitable. Overproduction crises are caused not by the overproduction of all commodities, but by the general overproduction of non-money commodities relative to the money commodity.

Since industries producing the money material form a small part of the capitalist economy, the effect is largely the same as general commodity overproduction. You get overproduction of all commodities but one relative to a single commodity. Keynes was aware that the commodity character of money makes commercial wars among nations inevitable. The factor that can reduce their frequency as long as money remains a commodity, is a situation where one capitalist nation-state (such as Great Britain between 1815 and 1914 and the United States beginning in 1945) becomes more powerful than any other state. However, due to the law of uneven development, such relatively peaceful epochs are followed by a period of world wars. These will continue until a new dominant nation emerges.

The Seven Years’ War of 1756-1763, a true world war, and the one that followed the French Revolution ended with the victory of Great Britain. The key to Britain’s victory was the superior degree of labor productivity of its manufacturing industry, thanks to the industrial revolution. The end of that monopoly made another epoch of world wars inevitable. Then followed the 20th century’s two world wars, ending with the dominance of the United States. Like Britain, it achieved superiority in its manufacturing industry. This paved the way for the relatively peaceful – in the sense there was no worldwide shooting wars – era beginning in 1945. Again the law of uneven development has eroded the U.S. industrial monopoly, leading to a new epoch of world wars.

Today we have another factor – the existence of nuclear weapons. If fully used in war it would mean the destruction of all nation states. Wars can be fought by other means which may or may not involve shooting wars. These include economic sanctions, tariffs, and other trade barriers, financial warfare such as freezing central bank financial assets, as well cyber warfare. However, there is always a danger that any war could escalate into a nuclear one.

However, Keynes believed that if non-commodity money was possible, wars can be avoided among capitalist nations

This is where Keynes placed his hopes. If the state can create non-commodity money, it should be possible to plan so the correct amount is created to purchase all the commodities produced in a particular nation. If all countries adopt a system of planned non-commodity money, called in the 1930s a “managed currency,” it should be possible to create the correct amount to purchase all the commodities produced by the entire world. Then there would be no need for nation states to fight over markets.

Marx believed only a system of planned production to meet human needs can eliminate both periodic economic crises of overproduction and commercial wars. Keynes believed all that is needed is to replace the national and world monetary gold-based systems with one of planned non-commodity money. By avoiding world war, non-commodity money would make it possible to retain both capitalist private ownership of the means of production and the system of nation-states. While Marx drew a revolutionary conclusion from his critique of classical capitalist political economy, Keynes drew conservative conclusions from his shallower critique of neoclassical economics.

Keynes died in 1946. He didn’t live to see the situation where civilization is only minutes away from destruction. But wars were destructive enough even then, and the idea of building an atomic bomb was under active discussion by the 1930s. Keynes lived to see the atomic bombing of Japan by the United States in August 1945.

Keynes realized that the continued existence of the system of capitalist private property in the means of production and nation states depended on the possibility of non-commodity money. This explains what Keynes’ biographers called the “Babylonian madness.” He studied the records of ancient Mesopotamia to prove that the traditional view that money arose out of barter was false. He was attracted to the German pre-World War I theory that money originated from state power. Keynes realized the future of his beloved capitalist system and its nation-states depended on what we now call Modern Monetary Theory.

Modern Monetary Theory versus Marx

According to MMT, money originated when the state imposed taxes on its subjects. This put the subjects into debt to the state. The state said: Either pay up or face the consequences. The state then provided a medium to pay the debts. To obtain these “get out of jail cards” called money, people had to produce and sell commodities. According to MMT, the state came first, then money, and finally commodity production and markets. MMTs get out of jail cards — money — might or might not be commodities.

The state might require taxes be paid in gold or silver, making these precious metals money. Or it could create these tokens out of any substance or replace physical tokens with bookkeeping entries. Keynes, in a way few others realized, placed his hopes on the correctness of the chartalist view of the origin and nature of money. He searched Mesopotamian records in hopes of proving the state origin of money. For those who didn’t understand his preoccupation with the records of ancient Babylon, Keynes appeared “mad.” But he wasn’t mad. He needed to prove chartalism correct — if it wasn’t, capitalism and its nation-states were doomed.

The unpopularity of Marx’s commodity theory of money

Today there are only two consistent theories of the origin, nature, and future of money. One is Marx’s theory, and the other is the chartalist or MMT theory of money. All other theories are a muddle. To be frank, Marx’s theory of money is unpopular even on the left, one could say particularly on the left. (9)

A reason is its difficulty. All those yards of linen, coats, bibles, and bottles of whiskey, can make your head spin. There is also that pesky dialectical Hegelian logic. Quantity versus quality, units of measurement, differentiation, the unity of opposites, the negation of the negation. Not casual, light evening reading.

But this isn’t the main reason Marx’s theory is unpopular. The main reason is that it points to the inevitable, violent end to capitalist society. Left-wing people, as a rule, despise violence. Aren’t we striving for a society without violence? We are. A theory pointing to the violent end to our present social order is unattractive to those who dream of a peaceful society.

Chartalism and its present form in MMT point to endless possibilities of reforms within the current framework of capitalism. For those hoping to reconcile the antagonism between the two main classes of modern society, the capitalist and the working class, through cross-class alliances (aka popular or peoples fronts) MMT is a necessity. It is no accident that Monthly Review magazine, whose editors advocate cross-class alliances, features a link to an MMT site called “Money on the Left” on the masthead of every digital edition. With its promises of reforms at home that peacefully reconcile capitalist and working-class interests, and the possibility of peace among capitalist nations if only enlightened by MMT policies, MMT is very popular among leftists. However, if the Marxist theory is correct, capitalism — whose whole history is marked by violence — will inevitably end in even more violence. The only question remaining is whether this violence will mark the birth pangs of a new society without violence, or whether the violence combined with the destruction of modern weaponry will end modern society.

Where does Anwar Shaikh, I believe by far the best economist of his generation, stand on the Marxist theory of money? Shaikh’s basic theory of crisis is rooted in the work of Henryk Grossman. Grossman is most well known for his demonstration of a system of capitalist expanded reproduction with a rising organic composition of capital, a fixed rate of surplus value and its consequent falling rate of profit, leading to breakdown after a certain number of cycles. I call models of economic crises based on Grossmans extension of an earlier Otto Bauer’s model of expanded reproduction with a rising organic composition, Bauer-Grossman crises. The crises discussed in Shaikh’s “Capitalism” are Bauer-Grossman crises.

The Bauer-Grossman model of breakdown crises sees crises arising when an inadequate quantity of surplus value is produced. In these crises, money plays a subordinated role. In his early work, Shaikh largely ignored the role of money in crisis theory. The mature Shaikh of “Capitalism” takes a more nuanced view. In U.S. and British academic circles the view that modern money is non-commodity is widely accepted.

Though Shaikh was born in the part of British India that became Pakistan, he has spent his entire academic life teaching at the New School in New York City. In places in “Capitalism,” Shaikh comes to the brink of breaking with the consensus that non-commodity money is possible and modern money is non-commodity. But elsewhere he confirms a view that modern money is not non-commodity money. His treatment of money in “Capitalism” is both complex and contradictory.

Marx versus Shaikh on money

In “Capitalism,” Shaikh begins by defining the three essential functions of money. They are “medium of pricing, medium of circulation, and medium of safety.” (“Capitalism,” p. 168) This is not a very promising start. For Marx, the main function of money is to measure the value of commodities. Marx traces the money relationship of production back to barter, where the value of one commodity is measured in terms of the use value of another. Marx calls this relationship the simple form of value. Within it, the commodity whose value is to be measured is called the relative form. The commodity serving as the “measuring stick” is called the equivalent form.

Marx’s analysis is not a reconstruction of how money emerged historically but a logical analysis. He begins with the simple commodity and examines how one commodity can be compared with others. All commodities must have something in common, but what? It is not use value. Use values differ from each other qualitatively and cannot be compared quantitatively. The thing they have in common is that they are all products of human labor. Concrete human labor-producing use values can be reduced to abstract human labor, a common social quality. Abstract labor has a homogeneous substance with a definite unit of measure, time. Commodities are products of definite quantities of abstract human labor. Value is abstract human labor embodied in a commodity.

Because commodity producers are engaged in private labor for their own account, they can only be guided by their own individual material interests. They behave this way not because they are selfish, but because their mode of production leaves them no alternative. Value, the amount of human labor measured by some unit of time, cannot be measured directly — the producers have no idea whether or not there is any need for their products. They can only determine this to the extent they can exchange for other commodities of equal value. Value must take the form of exchange value. Exchange value is the value of one commodity measured in the use value of another. At this point in the analysis the logical impossibility of non-commodity money, called “pure fiat money” by Shaikh, is revealed.

According to Marx’s theory of value, the essence of value is some quantity of human labor measured in some unit of time, what he calls the immanent measure of value. Under all forms of commodity production from the simplest barter to the most advanced capitalism, value isn’t measured directly in terms of its immanent measure, some unit of time, but takes on the form of exchange value. It is only through the act of exchange that the private labor of producers working for their own account can demonstrate it forms part of the social labor of society.

Marx then expands his analysis to what he calls the expanded form of value. As long as we remain within the simple form of value corresponding to barter, each commodity is simultaneously in its relative and equivalent form. At this stage, all commodities are money because no commodity is money. The money form of the commodity has not yet differentiated from the commodity form in general.

Then Marx introduces what he calls the expanded form of the commodity. He takes one commodity and creates a series of equations where one commodity, he chose linen, is used to successively measure the value of a list of other commodities. This list can be extended to every commodity minus one, the commodity whose use value serves as the measuring stick, in this case, linen. Marx measures the use value by a unit of length, the English yard. Now he can measure the value of all commodities in terms of yards of linen. In this example, the value of a given commodity assumes the form of exchange value. Linen becomes the independent form of exchange value. What he has done is to logically separate out one special commodity to measure the value of all commodities in terms of their own use value – yards of linen. The logical differentiation of money-form out of commodity-form has begun.

Next, Marx used yards of linen to measure the value of all other commodities, called the general form of value in a single equation. Now linen confronts all other commodities as their independent value form. As with the expanded form, the value of other commodities is measured in terms of yards of linen. He then replaces linen, never historically used as money, with gold. Marx gave the general form a new name, the money form of value. The change is that the value of other commodities is measured in terms of some unit of weight, such as troy ounces, of gold bullion instead of some unit of length. Glittering gold as money now confronts all other commodities as the independent form of exchange value. The source of the mysterious power of gold over individuals and society is laid bare.

Standard of price

Assuming gold is the money commodity, a price is simply a quantity of gold measured in some unit of weight. The producer of a commodity assigns a specific weight of gold called a price to the commodity and hopes to find a buyer on the market. Currency units begin as units of weight. For example, a shekel of silver was a unit of weight used in the ancient Near East. The British pound began as a pound of sterling silver, hence the British currency was called the pound sterling. Eventually, the names of currencies became separated from the names of units of weight. As long as currencies remained on the silver or gold standard, their names corresponded to fixed quantities measured in some unit of weight of precious metal.

Under the present system of floating exchange rates, the quantity of gold a dollar, euro, yen, yuan, ruble, etc., represents varies. Instead of a mathematical constant, we have a mathematical variable. This variable cannot be allowed to vary too much — at least regarding the main world currency, currently the U.S. dollar — without the world economy disintegrating into chaos.

Money as a standard of price

Whether fixed or variable at any given moment, a half dollar represents half the weight of gold that a dollar represents, a quarter represents a quarter of the weight, a dime represents a tenth, and a penny represents a hundredth. A dollar and its various fractional units function as a standard of price. The same is true of other currencies.

Ultimately currency units symbolize value – definite quantities of abstract human labor measured in some unit of time. But for the reasons explained above, currency units of abstract human labor cannot do so directly as academic Marxists who refer to the Monetary Equivalent Labor Time – MELT – believe. (10) Their basic mistake of claiming that today’s money is non-commodity money is they treat private labor – which can only manifest itself indirectly as social labor – as though it was direct social labor.

As long as capitalism continues, units of currency can represent quantities of human labor only through the mediation of a definite physical quantity of a money commodity (gold) measured in some unit of weight (troy ounces, grams, etc). Another consequence of money being a commodity even if a currency (such as the dollar) is fixed in terms of the quantity of gold it represents (as under various forms of a gold standard) the value a dollar represents has to vary because the quantity of abstract labor socially necessary to produce a given weight of gold bullion is constantly changing. A currency unit representing a fixed quantity of human labor under capitalism is a utopia.

Over time gold emerged as the universal money commodity because first, a given amount of gold contains a relatively large amount of value. And two, it is a physically homogeneous substance down to the atomic level. It corresponds to a homogeneous social substance of abstract human labor that can be subdivided to the point of infinity. Physical gold cannot be subdivided to the point of infinity, because it is made up of atoms, but for economic purposes, it comes close enough. Chemically, gold reacts with few other elements. It is durable and does not tarnish. Gold can be melted down and made into coins of various weights and national currencies. Coins can be melted down and remade again and again.

Money of account

If we look at the balance sheet of business enterprises, commodities listed under assets are given monetary values. Whether the commodities can fetch these prices if they are unloaded on the market is another question. Here no money need be present. Factory buildings, machines, and stocks of raw materials are treated on the balance sheet as though they were sums of money. Only by giving them monetary values can material things consisting of different use values, each with quite different units of measure be quantitatively compared to one another. We call this function of money, money of account. Explaining how commodities of different qualitative use values can be compared quantitatively with one another remains an ultimately unsolvable problem for contemporary bourgeois political economy.

While the official bourgeois political economy racks its brains over this puzzle, the problem does not exist in Marx nor for our practical capitalists. As Marxists, we can compare commodities of different qualitative use values with one another because they represent different quantities of abstract human labor. To do this we first reduce concrete labors of different skills to one common social substance: abstract human labor. We take concrete human labor and abstract out everything that distinguishes one type of labor from another as well as the labor of one individual from another. What’s left is simply labor or abstract labor. Ever since the first commodities were exchanged this reduction has been unconsciously carried out.

Practical capitalists don’t consciously reduce concrete human labor into abstract human labor. They use money to compare commodities of qualitatively different use values. Different qualitative commodities can be compared quantitatively to one another because they represent different quantities of money.

Marx’s rich and subtle analysis of money, going beyond Ricardo, can hardly be summarized by calling money a medium of price, as Shaikh does in “Capitalism”.

Shaikh writes that “Section III begins with classical theories of money and the price level and moves to Marx’s arguments on these issues.”

He says, “It is noted that Marx himself restricts his analysis to the case in which tokens directly or indirectly represent a money commodity (he promises to analyze pure fiat money and bank credit at a later date but does not live to do so).” Unfortunately Shaikh does not indicate what passage he has in mind where Marx “promises to analyze pure fiat money” — non-commodity money — “at a later date.”

Marx did analyze cases of nonconvertible (into gold) monetary tokens, frequently referred to as paper money in his writing. In the 19th century and earlier, paper money notes were given the name of a gold or silver coin which was, in turn, contained when newly minted a legally determined weight of gold or silver bullion. For example, the U.S. dollar was an actual coin. There were actually two: the gold dollar and the silver dollar containing a legally defined weight of gold or silver bullion.  The silver dollar was the first to be used and was later replaced by the gold dollar when silver became the cheaper coin.

If paper currency was not convertible into gold or silver, it meant you couldn’t go to a bank or the treasury and change your paper dollar for a full-weight gold or silver dollar, nor could you exchange it for a given weight of bullion. In that case, the real value of a paper currency was determined by the amount of bullion you could purchase with it on the open market. In practice, this is the monetary system we have today.

Before paper currency, the value of a coin was determined by the amount of bullion that could be purchased on the open market. Marx called this type of currency – as old as coined money itself – “token money.” Today’s money is simply a variant of this ancient form. If the U.S. dollar price of gold is $1,800 a troy ounce, for example, that dollar represents the quantity of abstract human labor that is necessary to produce 1/1800 of a troy ounce of gold under the present conditions of production.

When the (gold) dollar represents a legally defined weight of gold, any rise in the currency price of gold bullion on the open market represents a depreciation of the dollar. If the government reduces the weight of the quantity of gold defined as a dollar, as the Roosevelt Administration did in 1934, the dollar is legally devalued. A currency unit like the U.S. dollar did not have to be coined to determine the amount of gold it represented.

Between 1934-1971, the U.S. dollar was legally defined as 1/35 of a troy ounce of gold, though the government did not mint any gold dollars at that time. To the extent the price of gold bullion on international markets was above $35 an ounce, the dollar depreciated. After 1971, the dollar was officially devalued twice when the official dollar was raised first to $38 an ounce, and then to $42, where it officially remains to this day on the books of the U.S. Treasury and the International Monetary Fund.

But even if the official price of gold was abandoned and gold ceased to be coined, the actual value of the U.S. dollar would still be determined by the amount of gold bullion it buys on the open market. It would not become non-commodity or pure fiat money. It would be a form of token money symbolizing value only through the mediation of the actual money commodity.

Shaikh thinks Marx refers to pure fiat money, non-commodity, somewhere. Marx promises to analyze it but does not live to do so. But Shaikh fails to indicate what passage he has in mind where Marx refers to pure fiat money measuring the value of commodities directly rather than through the medium of a money commodity.

Perhaps Shaikh is thinking of the following passage found in Section 2 of Chapter 3 of “Capital”:

“Money based upon credit implies on the other hand conditions, which, from our standpoint of the simple circulation of commodities, are as yet totally unknown to us. But we may affirm this much, that just as true paper money takes its rise in the function of money as the circulating medium, so money based upon credit takes root spontaneously in the function of money as the means of payment.”

Shaikh apparently believed that Marx was referring to “pure fiat — non-commodity” when he used the term “true paper money.” Or perhaps he believed Marx was referring to non-commodity money when he referred to “money based upon credit.”

Shaikh no doubt had beliefs about the possibility of non-commodity money drilled into him during his economic studies and the general academic environment in which he spent his entire career. He has apparently been misled by the words “true paper money” and “money based upon credit,” into believing Marx refers here to non-commodity money.

Credit money is a certificate of debt that can circulate from one person to another person. Whoever owns the certificate of debt is the creditor of the person or entity issuing the certificate of debt. If they use that certificate to make a purchase or settle a debt, the new certificate owner becomes the new creditor of the entity that issued the certificate. While such certificates can function as means of purchase or means of payments — hence the term credit money — they cannot replace commodity money in its primary function as the measure of value. The very existence of such certificates presupposes the existence of another more basic form of money. That form can either be legal tender paper money, itself a form of token money, or a legally defined quantity of the money commodity itself.

That Marx was referring to token and credit money and not some mysterious instrument that can measure the value of commodities directly without representing a definite money commodity is made clear by footnote 36 that Marx made to the passage that apparently confused Shaikh. The footnote begins with “The mandarin Wan-Mao-in, the Chinese Chancellor of the Exchequer, took it into his head one day to lay before the Son of Heaven a proposal that secretly aimed at converting the assignats of the empire into convertible bank-notes.”

Assignats is a reference to the incontrovertible paper money issued by the French government during the French Revolution. In other words, the Chinese Empire had a system of paper money like the U.S. empire has today. Wan-Mao-in apparently proposed to make the Chinese currency convertible into silver as it was the standard money metal of the Chinese Empire. This would be equivalent to the U.S. Secretary of the Treasury proposing to make the U.S. Federal Reserves Notes – dollar bills – convertible into gold as they were before March 1933.

Marx indicates he will examine credit money elsewhere but limits himself to a few remarks in Chapter 3. The examination of the capitalist credit system, including credit money, did not logically belong in Volume I of “Capital.” Marx does deal with the credit system and credit money in detail in notebooks published by Engels after his death which constitutes our Volume III of Capital. But you won’t find there any discussion of pure fiat money, aka non-commodity money, because the logical impossibility of non-commodity money is established by Marx in the first three chapters of “Capital”.

Marx’s footnote 1 to Chapter 3 of “Capital” makes it clear that non-commodity money is impossible under the capitalist system. In addition, this footnote establishes that the non-commodity money which will exist under socialist production is not money in the proper sense. I reproduce here the footnote: “The question — Why does not money directly represent labor-time, so that a piece of paper may represent, for instance, x hours’ labor, is at bottom the same as the question why, given the production of commodities, must products take the form of commodities? This is evident, since they’re taking the form of commodities implies their differentiation into commodities and money. Or, why cannot private labor — labor for the account of private individuals — be treated as its opposite, immediate social labor? I have elsewhere examined thoroughly the Utopian idea of “labor-money” in a society founded on the production of commodities (l. c., p. 61, seq.). On this point I will only say further, that Owen’s “labor-money,” for instance, is no more “money” than a ticket for the theater. Owen pre-supposes directly associated labor, a form of production that is entirely inconsistent with the production of commodities. The certificate of labor is merely evidence of the part taken by the individual in the common labor, and of his right to a certain portion of the common produce destined for consumption. But it never enters into Owen’s head to pre-suppose the production of commodities, and at the same time, by juggling with money, to try to evade the necessary conditions of that production.” (Karl Marx, Capital, Volume One, Chapter Three: Money, Or the Circulation of Commodities, on the Marxists Internet Archive)

Bottom line: Commodity money arises from commodity production. Capitalism is the highest form of commodity production where labor power has become a commodity. If you want to get rid of commodity money with all its consequences, capitalist production must be transformed into communist production.

Means of circulation

Shaikh combines Marx’s means of circulation and means of payments under “means of circulation.” Yet there is an important difference between these two roles.

While Shaikh is aware of money’s role as a means of payment, he lumps money’s role as a means of circulation and payment together under “means of circulation.” Marx separates them. Money’s role as a means of circulation is expressed in the formula M-C-M. Circulation is the constant repetition of this operation. A person has a sum of money M, of a certain value. It is exchanged for C, a commodity of equal value to M. C can then be converted back into money M of the same value. This metamorphosis of money into commodities and commodities back into money is what Marx means by circulation.

Money’s role as a means of payment can come into contradiction with its role as a means of circulation. Commodities can be purchased either with actual money or with credit (a promise to pay) at a later date. If the hoard of idle money held in the banking system becomes depleted, as during periods of overproduction, the increased purchase of commodities with credit allows the demand for commodities to continue growing independently of the growth of hoards of money centralized in the banks. But sooner or later debts come due and must be settled in money.

Then money is drained from the circuits of circulation to those of payments. Creditors become nervous about being able to collect their debts and pay their creditors. The chain of debts begins to break. The circuits of circulation are drained, and society is gripped by a general money famine as monetary effective demand for overproduced commodities relative to money materials contracts.

Overproduction causes the economy to move from a system where money is the means of circulation, to a credit system. When the crisis hits, the economy shifts back to a monetary system with money again being the means of circulation. This process happens in every recession. It took its most extreme form during the super-crisis of 1929-1933. During World War II and the years following, the U.S. economy was largely a cash economy. But as prosperity continued, the economy shifted away from the cash system to the credit economy we are familiar with today.

Bourgeois economists generally believe the periodic expansions and contractions of credit are the essence of the business cycle. They try to find ways of preventing the inflation of credit during booms and check its contraction during downturns. What they ignore is that behind the periodic expansions and contractions lie the general overproduction of commodities relative to the production of the money commodity. The periodic overproduction of commodities relative to money is itself rooted in the contractions of commodity production through the full development of the contradictions of highly developed capitalism. These contradictions dictate the differentiation of a money commodity from others. For this reason, the analysis of crises and the proposed remedies produced by bourgeois economists are superficial and doomed to fail in practice.

Money as a means of safety

Now to deal with Shaikh’s final function of money as a means of safety. This is where Shaikh comes to the brink of breaking with the claim that modern money is non-commodity money. He realizes that gold retains its role as a means of safety. We will look at this in a later post. We should note here that gold is more than a means of safety. It is also a means of accumulation.

In the days before the modern proletariat was born as a class, the possibilities of transforming money in the form of hoards of gold or silver into capital (M-C-M’) were limited. In those times money as the general form of wealth – because it can be converted into other forms of wealth – could be accumulated without limit. In contrast, the accumulation of non-money commodities was limited by the ability of their owner to personally consume them as use values as well as by their durability. The ancestor of modern capitalists with their drive to accumulate capital without limit was the miser with an unlimited drive to accumulate gold and silver.

The rise of capitalism made it possible to accumulate non-money commodities not limited by their owners’ ability to consume them. This does not mean the money material, increasingly gold alone, does not have to be accumulated anymore. Side-by-side with the accumulation of real capital, money material must continue to be accumulated. At bottom, a general overproduction crisis is nothing but the market’s way of reminding capitalists that they are accumulating too much of their capital in the form of real capital (factory buildings, mines, oil wells, machinery, farms, labor power, etc.) and too little in the form of gold bullion. How well Shaikh understands this — or fails to — we will see in future posts.

Finally, in these days of total hybrid war, we should remember another function of money that only gold can perform: the role of coin of last resort. In Marx’s time, gold played the role of universal coin. A gold sovereign in Britain would be shipped to the United States, melted down into gold bullion, and coined into U.S. gold dollars. Gold bullion was the universal form of money while gold dollars, sovereigns, etc., circulating then within individual nation states were the local “uniform” that money wore.

Today, the U.S. dollar circulates as world coin. But this system is unstable. The decision of U.S. authorities to freeze the Bank of Russia’s dollar and euro deposits has made the dollar appear as a very unreliable currency. It is one thing to freeze the dollar reserves of the Bank of Afghanistan, as great a crime this is against the Afghan people. But there was a general impression that deposits of the central banks of all the “great” nations are safe. But it turned out Russia was not great enough to avoid having its central bank reserves frozen.

Could the Peoples Bank of China be next? What happens if U.S. authorities decide China is no greater than Russia? Defenders of the U.S. world empire proclaim that there is no alternative to the U.S. dollar as an international currency. But there is such an alternative — gold, the coin of last resort. If the dollar fails, either a credibility loss due to U.S. policy of freezing the deposits of countries Washington doesn’t approve, or because of mismanagement of the dollar, there remains the coin of last resort — gold bullion.

Next month we will examine Shaikh’s critique of Modern Monetary Theory


(1) Since 2008, the Federal Reserve Banks pay a low rate of interest on money commercial banks keep on deposit with them. The commercial banks get no interest on the vault cash they keep on hand to meet daily withdrawals from depositors. The Federal Reserve Bank’s interest rate paid on commercial bank deposits is less than the interest rate commercial banks earn from other loans, discounts and government bonds. If the Fed wants to increase economic activity, it can lower the interest rate it pays on the bank deposits in one of the 12 Federal Reserve Banks. This encourages the banks to grant more loans and discounts. If the Fed wants to slow the economy, it can increase the interest rate paid on commercial bank deposits with the Fed encouraging them to cut back on their loans and discounts.(Source: Interest on Reserve Balances (IORB) Frequently Asked Questions, Federal Reserve System) (back)

(2) All seven governors of the Federal Reserve Board plus five out of 12 presidents of the Federal Reserve Banks make up the open-market committee. The presidents of the Federal Reserve Bank of New York is always on this body. The president of the 11 other Federal Reserve Banks serves on a rotating basis. All that is necessary to abolish recession, labor union progressives believe, is to ensure a majority of the members of the open-market committee are pro-labor progressives, not the conservatives who have dominated the committee up to now.

Progressives argue this shows the importance of supporting progressives in Democratic Party primaries and elections. If a pro-labor progressive president is elected, they hope pro-labor people will be nominated to serve on the Board of Governors of the Federal Reserve System. With enough pro-labor people elected to the Senate, they will confirm the pro-labor nominations to the open-market committee. Members of the Board of Governors form a majority on that committee. (Source: Federal Open Market Committee, About the FOMC) (back)

(3) To the extent the rising productivity of labor causes the value of commodities entering into the real wages of the workers to fall, it is possible to raise real wages without reducing the rate of surplus value. The claim that rising labor productivity is needed to raise real wages presupposes the rate of exploitation of the working class can never be reduced. (back)

(4) U.S. history classes usually teach that in the Constitution there are 3 co-equal branches of the government – the legislative, the executive, and the judiciary. However, in 1803 (Marbury v. Madison) it was determined that the judiciary, that is, the Supreme Court, holds supreme authority over the decisions and actions of the elected members of Congress and the president. Justice Sonia Sotomayor noted last December that “there is not anything in the Constitution that says that the Court, the Supreme Court, is the last word … [and yet] from the structure of the Constitution that’s what was intended.” The undemocratic Court is rooted in slavery and protecting the slavocracy, as intended by the majority of slaveowners who wrote the Constitution. (back)

(5) Once profits in terms of gold are wiped out, it becomes more profitable in dollar terms to hoard gold than to produce surplus value. Beyond this point, the demand for gold feeds on itself, and dollar inflation increases at an accelerating rate. The central bank loses control of interest rates. Then the central bank has to allow interest rates to explode upward if hyperinflation with all its consequences is to be avoided. During the Volcker shock of 1979-1982, dollar hyperinflation and the collapse of the dollar system were avoided only by the Fed’s policy of allowing interest rates to rise to whatever level necessary to stabilize the dollar. (back)

(6) Capitalist economists and central bankers do not think in these terms. To them, the problem is inflation and the only way to prevent it from getting worse is to halt it now. But when we use the sharp tools of Marxist analysis we see it is not inflation but capitalist overproduction they are dealing with. It is the role of ideology — and capitalist political economy is the supreme ideology of our time — to hide not only from the oppressed class the capitalist system’s real nature and contradictions but also to hide them from the ruling class. Our job is to use Marxist science to lay bare these contradictions. (back)

(7) Democrats are now trying to take advantage of the decision of the U.S. Supreme Court, delivered as I was putting the finishing touches on this post, that throws out the right to have abortions. This right was established by an earlier Supreme Court decision 50 years ago. The Democrats failed to pass a bill that would have established the right to abortions on a federal level that would have overridden the Supreme Court decision. If Trump is again the Republican candidate for President in 2024, Democrats will use this infamous Supreme Court decision against Trump, who nominated the most anti-abortion Supreme Court Justices. But will this be enough to defeat him, especially if the economy is in deep recession by 2024? (back)

(8) This factor has special importance to Trump’s family who are looking forward to the day they will inherit his fortune. By threatening Trump with criminal prosecution, the Party of Order is hoping that in an attempt to preserve the Trump fortune, his family will be able to persuade the “old man” to put his dreams of returning to the presidency behind him. (back)

(9) Today the advocates of a return to the gold standard are found mostly on the extreme right-wing of capitalist politics. Progressives almost without exception hate any idea of a return to the gold standard. (back)

(10) Money can be represented by tokens — coins or today’s legal-tender fiat money — or circulating promises to pay represented by checking accounts, but neither credit money nor token money can represent value — abstract human labor embodied in commodities. Claiming that today’s money is “non-commodity” money or that modern money is based on MELT, is in basic contradiction to Marx’s theory of value and reality. (back)