Former President Donald Trump was acquitted on an insurrection count on Feb. 13 in his second impeachment trial, though 57 senators out of a hundred, including seven Republicans, voted to convict him. However, this was short of the two-thirds’ majority required to convict a federal official or ex-official on an impeachment count.
Senate Republican minority leader Mitch McConnell admitted that, while Trump was guilty, it was unconstitutional for the Senate to try a former official on an impeachment count after the official had left office. This was despite the fact that there was precedent to do so. (1)
In the days leading up to the five-day impeachment trial, Trump had blackmailed the Republicans by threatening to form a new far-right “Patriot Party.” Such a party would split much of Trump’s MAGA base away from the Republicans, which would make many, perhaps most, Republican politicians unelectable.
Besides the acquittal, the trial was notable not only for its brevity — particularly considering the gravity of the count — but by the agreement between the Republicans and Democrats to not call witnesses.
The issue was not simply Trump’s incendiary speech to a MAGA crowd of tens of thousands gathered in front of the White House on Jan. 6. It could be argued that Trump’s speech, however despicable its content, was protected speech under the First Amendment. You can be sure that if a U.S. president can be convicted in an impeachment trial for exercising his right of free speech, Black Lives Matter activists, leftists of all types, trade unionists, and other progressive activists can be convicted at a criminal trial for exercising the same right.
What made Jan. 6 a failed putsch rather than a right-wing demonstration that got out of hand was not the content of Trump’s speech. It was the fact that National Guard and police forces were withheld for hours even though the Pentagon and FBI as well as the police knew that a dangerous armed demonstration was planned. Indeed, Washington, D.C., Mayor Muriel Bowser had specifically requested on Jan. 5 that National Guard forces be called to the capital in case needed to prevent the impending violence.
The real question is whether Trump deliberately withheld the National Guard and arranged to have the needed police protection withdrawn from the Capitol in a bid to prevent Congress from carrying out its constitutional duty of certifying the Electoral College vote of Dec. 14. If Trump didn’t arrange to leave the Capitol unprotected, then who did? Did any military officers obey an illegal order from Commander-in-Chief Donald Trump in violation of their oaths to uphold the Constitution? Did any police officials collude with the illegal actions of Trump or his supporters?
But — and this was the most revealing part of the impeachment trial — the Democrats and Republicans cut a deal not to call witnesses. The purely political “acquittal” of Trump now makes a criminal prosecution of Trump and other officials and military officers far more difficult. Their defense attorneys can point to Trump’s acquittal as evidence that no crimes were committed by any government officials, police officials, or military officers on Jan. 6.
Instead of the impeachment trial being the first step to bring out the truth of the events of that day, it instead became part of the cover-up. But why is the Democratic Party and indeed some Republicans — the intended victims of the crimes of Jan. 6 — now emerging as leaders of the cover-up?
Bourgeois democracy, Bonapartism and fascism
Since Trump first emerged as a candidate for the U.S. presidency, liberals, progressives and the left have engaged in a debate about whether Trump is a regular “democratic” bourgeois politician or some kind of fascist. Since Jan. 6, the view that Trump is indeed a fascist has gained considerable support, but there are still some who insist that Trump is nothing more than a rather distasteful bourgeois-democratic politician.
This confusion is partially the result of the abuse of the term “fascist” by many leftists over the decades. It has become a widespread practice to use “fascist” as a term of abuse against any bourgeois politician you particularly dislike, or even at times against rival leftists. But many leftists assume that capitalist class rule must take the form of either bourgeois democracy or fascism.
In reality, many capitalist governments while very far from bourgeois democracy are not fascist. What is often missing — especially among those leftist currents descended from the post-Lenin Communist International, such as the Communist Party USA — is the old Marxist political category of Bonapartism. What exactly is Bonapartism and how does it differ from bourgeois democracy on one side and fascism on the other?
Bourgeois parliamentary democracy, Bonapartism and fascism are not mutually exclusive categories. They are all forms of and tools of capitalist-class rule. In its “pure” form, which in the real world is always realized imperfectly, bourgeois democracy requires that a parliament elected by the people exercises both executive and legislative power. The top executive officer, generally called a prime minister, is subordinated to parliament and can be removed through a vote of no confidence at any time. Under modern conditions, a full-fledged bourgeois-democratic parliamentary system requires a multi-party system where at least one party represents the interests of the working class.
Bonapartism means that the executive power has succeeded in stripping both parliament and the judiciary of all real power. Such a regime rests on the military, police and bureaucratic apparatus. Unlike the parliamentary regime dominated by the capitalist class, the Bonapartist regime appears independent of the various classes. In reality, the Bonapartist regime is dependent on the money market. It is, after all, the capitalist class that pays the bills and therefore is the class the Bonapartist regime must serve.
The Democrats and Republicans kept Trump’s impeachment trial down to only five days and agreed to call no witnesses because they know that the capitalists they serve under need a huge military, the police, and bureaucracy to protect them from the working class and their allies and the oppressed working people of the entire world. This is the real reason why the Democrats and the Republicans agreed to cover up the crimes of Jan. 6 that put their very lives in danger.
Fascism versus Bonapartism
Fascism unlike Bonapartism starts as a mass political as well as militia movement. It recruits primarily from members of the middle class who due to a deep economic and social crisis fear losing what property they have and sinking into the ranks of the proletariat. By property, I don’t mean items of personal use but rather property that entitles a person to a share of the surplus value produced by the unpaid labor of the working class. Examples of such property are small businesses that employ only a few workers, stocks and bonds, bank certificates of deposit, money market funds, mutual funds, as well as the land underneath homes that entitle their owners to a small but definite quantity of ground rent.
Fascism lifts up this layer of the population and organizes it into a movement that wages civil war against the proletarian organizations while claiming to represent “the people” and even “the workers.” When fascism comes to power, parliament is reduced to a “rubber stamp,” while the judges under pain of imprisonment or death carry out the will of “the Leader.” All workers’ organizations are banned and replaced by mass organizations controlled by the fascist party. The other bourgeois parties are either banned or forcibly merged into the fascist party. Even bourgeois newspapers and other media are transformed into mouthpieces of the ruling fascist party.
Once in power, fascism can be seen as a form of Bonapartism of a special type. The fascist regime is the product of a civil war where the forces of capitalist reaction organized by the fascist party are victorious over the proletariat and its organizations and allies. The fascist party, while retaining the traditional military, bureaucratic, and police apparatus of the capitalist state, supplement this apparatus with a series of mass organizations created by the fascist party. These include special militia and intelligence organizations, local fascist party branches, “unions,” youth organizations, and block committees. The mass organizations created by fascism sniff out any hint of opposition and keep the political police well informed. No legal opposition is tolerated, and it is extraordinarily difficult to organize an illegal opposition as long as the ruling fascist party retains its middle-class base.
Just before Mussolini and Hitler came to power, a weaker type of Bonapartism emerged in Italy and Germany. As civil war raged in the streets and factories between the fascist gangs and the workers’ organizations, the executive freed itself from parliamentary control and balanced between the fascist gangs on one side and the workers’ organizations and its allies on the other. This weak type of Bonapartism lacked the mass base to carry out massive repression on its own. A type of transitional Bonapartism was created that could not have lasted long. It had to give way to either the victory of the workers and their allies over the fascists, opening the door to socialist revolution, or a full-scale fascist dictatorship.
The case of the U.S.
How does this relate to the U.S. in the wake of the events of Jan. 6? The U.S. has never been a classic parliamentary democracy. Instead, it has been a presidential system based on the division of powers between the executive, legislative and judicial branches. This system largely reflects the system that prevailed in Britain when the U.S. Constitution was written in 1787. At that time, the Crown still controlled the executive power. The king not only reigned but was expected to rule. But parliament had already gained “the power of the purse” while the judiciary was able to check the power of the Crown on one side and parliament on the other through the system of case law known as the “English constitution.” (2)
The authors of the U.S. Constitution (which unlike the English is a written constitution) replaced the hereditary monarch with a president elected by an electoral college originally chosen by the state legislatures. The U.S. president served a four-year term, unlike the British monarch who serves for life.
The U.S. system, therefore, contained an element of Bonapartism from the beginning insomuch as the president during his or her four-year term exercises autocratic control over the executive branch. However, unlike the case with full Bonapartist governments, the U.S. executive is checked by Congress with its “power of the purse.” It is also checked by the power of Congress to declare war and make laws, on one side, and by decisions of the judicial branch that interprets the Constitution and the laws, on the other.
U.S. history has been marked by Bonapartist tendencies inherent in the executive presidency, and the resistance to these tendencies of both Congress and the judicial branch plus the democratic and, most importantly, working-class opposition to the capitalist government. In the U.S. context, full Bonapartism would mean the victory of the executive presidency over the Congress and its power of the purse, and the ability of the judges to interpret the law.
One crucial element of Bonapartism that was lacking in the U.S. before 1945 was a large peacetime standing army. However, this changed decisively after 1945. During the epoch of the U.S. world empire, the executive power of the presidency has grown tremendously relative to the power of Congress and the judiciary. Particularly notable has been the surrender of the power to declare war by Congress to the executive branch. At the same time, the power of the bureaucracy, the police and political police, and above all the military has grown astronomically. Today, the U.S. spends more on its military machine than the other top 10 military powers added together.
The result is that, especially after 1945, the element of Bonapartism, present from the time the “Founding Fathers” created the executive presidency, has grown tremendously. It was only a matter of time before a president would attempt to establish a full-scale Bonapartist regime by destroying the power of Congress to act independently of the White House and then break the independent power of the judges. On Jan. 6, Trump faced with the determination of both Congress and the judiciary to deny him a second term, was determined to crush the resistance of both.
While this first attempt to establish a full-scale Bonapartist dictatorship in the U.S. was fortunately unsuccessful, all the elements of such a regime, including the large standing army, bloated police, and political police forces with their networks of informers, now reinforced by the modern means of electronic surveillance, are now in place.
The middle class
We learn in high school and college history and political science classes that a stable democracy requires a large and contented middle class. What is not explained is that “democracy” refers to capitalist class rule. What is the role of the middle class (3) in propping up capitalist rule?
In his economic analysis, Marx and his successors often assume that there are two classes in capitalist society — the capitalist class, which owns the means of production, and the working class, which has only one commodity to sell, its labor power. Those who have only their labor power to sell are called proletarians. The more that capitalist society approaches this pure two-class model the more unstable capitalist class rule becomes because the proletariat, which then forms the great majority, have “nothing to lose but their chains.”
Therefore, to secure its class rule the capitalist class finds it necessary to build up a large middle class made up of small property owners. The middle class, though it can never come to power, functions as a buffer between the proletariat and the capitalist ruling class. The stronger and more prosperous the middle class is in a particular capitalist country the more stable is capitalist class rule.
The classic middle class, or “petty bourgeoisie,” consists of small business people including working farmers. The pure working farmers-peasants possess another type of private property. (4) Leaving aside the land, which farmers-peasants often rent from landowners, it consists of the means of production they own themselves. If the farmers-peasants do own land, as a rule this will only entitle them to a share of the value produced by their own and their families’ labor.
Therefore, means of production including land owned by small commodity producers do not entitle their owners to a share of the surplus value produced by the global working class. Instead, it merely protects its owners to a certain extent from having to perform unpaid labor — produce surplus value — for the capitalists. This type of private property, which was once widespread in the U.S., has steadily declined with capitalist development.
Urban small business people differ from small capitalists in that they cannot afford to retire from the active management of their enterprises and hire professional managers. Store owners who sell commodities produced by capitalist enterprises are entitled to a small portion of the surplus value contained in the commodities they sell to the public. If small businesspersons make their products or services with their own labor, they are in the same position as the small farmer who employs no wage labor. They are in a sense like the small farmer their own capitalist.
In reality, they like the small farmer are exploited by capital in many ways and are thus only partially protected, just as is the case with the small farmer, from having to produce surplus value for the capitalists. These non-proletarian working people are potentially the closest allies of the working class. However, the capitalist class employs a whole bag of tricks to turn the mass of the non-proletarian working people against the proletariat.
With the development of capitalism, the role of the small working farmers and business people declines. Today the role of “small business” in the U.S. economy is monstrously exaggerated by U.S. government statistics that count as small business people owners of enterprises that hire and exploit up to 500 workers! If you can afford to hire and exploit 500 workers, you are not a small businessperson but a full-scale capitalist, even if you are not in the ranks of the billionaires.
The middle class, traditionally called by the French term “petty bourgeoisie” in Marxist literature, also includes all those people who have some “property income.” Members of the “liberal professions” such as engineers, software engineers, medical doctors, accountants, lawyers, money managers, real-estate brokers, and tenured university professors are examples of people in this category. Even if they work for a salary, their income is usually high enough to enable them to acquire income-producing property such as bank certificates of deposit, shares in money market funds, mutual funds, government bonds, and perhaps corporate bonds and stocks. While the old middle class of small farmers and shop owners has shrunk relatively and absolutely in the course of capitalist development, the “new middle class,” at least up to recently, has grown.
In the present-day U.S., the most widely owned form of property is home ownership, sometimes called “the American Dream.” It is not the home itself that entitles a person to a small but definite share of surplus value but rather the land under it. (5) And unlike the small farmer, homeowners can use their land as a means of production to produce commodities.
Especially since World War II, the better-paid, unionized mostly white industrial workers were expected to purchase their own homes. As the homeowners build up equity in the homes as a result both of paying down the mortgage and the increasing value of the land under the home (6), they realize property income by renting out a room or two to boarders or Airbnb guests. More commonly, however, the property income is realized when the home is sold for a considerably higher price than when it was bought.
The property income can also be realized in the form of second or third mortgages, which banks are willing to grant as the first mortgage is paid down and the price of land under the home rises in value. The more powerful the U.S. empire the more land prices in the U.S., and with them “home values,” rise. The workers who own homes and the land under it, though they are still far from capitalists or capitalist landowners who can live off the proceeds of ground rent, are not entirely proletarians either. They feel they have a stake in the system. A true proletarian has to rent the land on which they live. Rising land rents — the same thing as rising land prices — mean to the proletarian only higher house rents.
But to homeowners, rising land prices mean rising equity values of their homes. Therefore, the upper, well-paid layer of the working class, even if they work in a large factory and are trade union members but own their own homes, are not full proletarians. Their economic situation is contradictory and they have mixed economic interests. Often such people also own shares in the money market or mutual funds and even some stocks and bonds. They are “middle class.”
U.S. trade union leaders are proud of the fact that their members are “middle class” and can realize the “American Dream” through home ownership. They aim to safeguard the middle-class status of their members and if possible enable them to rise further into the ranks of the middle class. When these trade union leaders by exception attempt to organize low-wage workers who are truly proletarian, they hold up the promise that if they join the union they will in the future be able to purchase homes and rise into the middle class.
This perspective of raising union workers into the ranks of the middle class is the opposite of the Marxist perspective. The Marxist movement sees the workers’ movement not as a means to raise some members of the working class into the middle class but rather raise the proletariat to the rank of the ruling class and collective owner of the means of production. The aim is to transform capitalist production into socialist production and thereby abolish classes entirely.
However, the status of middle-class working people is in jeopardy as soon as they become unable to sell their labor power for any period. If through injury or illness, business depression, long-term economic stagnation, or their particular type of labor power becomes redundant due to automation, or the capitalists decide that it’s cheaper to produce abroad, they are unable to sell their labor power, their middle-class status can disappear.
When I was young, I remember hearing the argument that American capitalism had been refuted Marx because, while Marx predicted that the middle class would disappear in America, it had instead greatly expanded. It was indeed hard to imagine the increasingly conservative home-owning — and sometimes stock and bond-owning — AFL-CIO workers rising and overthrowing the U.S. capitalist class.
Today, however, you read that the middle class is disappearing. When people’s homes are foreclosed or they are forced to sell before the equity has entirely disappeared, they will soon be under pressure to sell any mutual funds shares, stocks, bonds, and so on to stave off starvation for at least another day. Then they are forced to take low-wage jobs or fall under the mercies of the capitalist welfare system.
Yesterday, they may have voted for Republican politicians who promised to crack down on “welfare cheats.” Today, they find themselves sitting next to those who are dependent on welfare like they are. They have sunk into the ranks of the very proletariat they thought they had left far behind.
In a country where capitalism is developing quickly, such as in Russia in the years preceding the revolutions of 1917, proletarianization takes the form of poor peasants losing their land and getting jobs in large factories. Losing the pride of being small property owners, they in time gain the pride of being proletarians who are members of an industrial union and perhaps a working-class political party. In revolutionary Russia, an increasing number of workers were proud to be members of the proletariat, a class that has the future in its hands, as opposed to being a “petty bourgeois,” which became a term of abuse.
But in a decaying capitalist country like today’s United States, proletarianization means a nightmare of welfare office dependency, search for low-paying jobs in fast food, Walmart, or Amazon, or temporary casual jobs to avoid the welfare office or the “disgrace” of living on food stamps. Bourgeois sociologists call this process of proletarianization “downward social mobility.” The social basis, in addition to racism, for both the Trumpist “MAGA movement” and classical fascism is the fear, and increasingly the reality, that confronts members of the middle class of sinking into the ranks of the despised proletariat. (7)
Political and economic perspectives
If U.S. and world capitalist expanded reproduction — economic growth — can be restored to a healthy clip without destroying the environment, it will be possible to rebuild the middle class. As the middle class grows again, class — and racial — tensions will ease. Proletarians of all races and nationalities will again become convinced that if they work hard they can rise into the middle class. Is that not the “American Dream”?
Under those conditions, the capitalist ruling class will have less need for Bonapartist repression, and the potential mass base for fascism will dry up. Of course, all the basic evils of capitalist class rule will remain, but it will be tolerable for enough people so that the stability of capitalist rule is restored.
“There is indeed,” Gilbert Achcar writes in the Feb. 19 edition of The Nation, “a clear and undeniable correlation between the neoliberal onslaught that started in the 1980s, led by Margaret Thatcher and Ronald Reagan — an onslaught that made ‘deregulation’ one of its main goals, along with privatization, reduction of social spending, and tax cuts for the rich — and the rise of phenomena such as neofascism and religious fundamentalism after decades of marginalization.”
Achcar believes that the economic and social decay feeding the growth of fascist or proto-fascist movements like Trump’s MAGA movement can be traced to the reactionary policies pursued by the governments of Margaret Thatcher in Britain and Ronald Reagan in the U.S. The solution, according to Achcar, is a return to “the Keynesian democratic solution that discarded the idea of ‘the self-regulating market.’”
Achcar’s argument comes down to stating that Keynesian “democratic policies” worked well after 1945 but were mistakenly abandoned in the 1980s, presumably for ideological reasons. This, Achcar believes, was a grave mistake. But now we have an opportunity to abandon these mistaken policies. If the Biden administration returns to the post-1945 Keynesian policies, capitalism can be made to work once again in the interest of the great mass of the people and the fascist danger will fade away in the imperialist countries.
Ian Harnett makes a similar point in an article in Financial Times [paywall]. “After the second world war,” he writes, “the Fed engaged in financial repression, keeping rates low to help fund the national debt, while the Treasury engaged in greater fiscal activism. The result was dynamic economic growth, with nominal GDP growth peaking at eight to 10 per cent three times through the [1950s] decade.” The U.S. federal government should pump huge amounts of purchasing power into the economy through deficit spending and the Fed should create enough “fiat money” to keep interest rates low low. It worked well in the 1950s, Harnett believes, why wouldn’t it work now?
Anwar Shaikh observed in his “Capitalism: Competition, Conflict, Crises” that back in the 19th century Thomas Tooke, the author of “The History of Prices” and founder of the “Banking School,” noted that the sharp increase in the money supply brought about by the California Gold Rush did not result in a similarly sharp increase in prices with no effect on economic growth, as the quantity theory of money supported by Ricardo would have predicted. Instead, though prices did increase, the increases were relatively moderate. However, there was a sharp increase in economic growth that is referred to by economic historians as the “mid-Victorian boom.” The result was that capitalist rule, shaken in Europe by the revolutions of 1848, was stabilized for decades.
The question is raised whether the expansion of fiat money by the Federal Reserve System and other modern central banks not backed by a comparable expansion in the production of gold can have similar results. Anwar Shaikh in “Capitalism” and elsewhere answers this question in the affirmative. Since the Biden administration is expected to pump trillions of dollars into the U.S. economy over the coming few years, and Jerome Powell, head of the Federal Reserve System, seems willing to provide the fiat money to finance the deficits while holding interest rates at a low level, many economic journalists are convinced we are on the eve of a historic boom in capitalist production. Such a boom if it occurs would revive the middle class.
Rick Newman, writing in the Feb. 19 edition of Yahoo News, notes that if Congress approves $1.5 trillion of President Joseph Biden’s proposed $1.9 trillion stimulus plan, it will mean that $6 trillion in stimulus will be pumped into the U.S. economy. With this huge inflow of money, Newman is confident that “by summer or fall, barring surprises, the economy could be roaring ahead like a cartoon Joe Biden smiling in a shiny convertible, behind his gleaming aviators.”
If stimulus policies can indeed produce such results not only for a few months or a few years but for decades to come, there will be little possibility of a socialist transformation during the lifetime of the current young generation. Just as the COVID-19 vaccines will hopefully end the current pandemic by producing herd immunity, a new wave of capitalist prosperity produced by correct government policies will, to borrow Achcar’s analogy, provide herd immunity against fascism.
Assuming such prosperity is achieved, many of today’s young proletarians, including those with black and brown skin, will advance into the ranks of the middle class in the years ahead. Many progressives hope that these policies can also be combined with government-directed moves to nudge the U.S. and global economy away from its carbon base, making the new boom environmentally sustainable. If this can be achieved, the current young generation can look forward to a prosperous and increasingly middle-class future.
If “stimulus programs” have the power to transform growing economic semi-stagnation into long-term sustainable — not just short-term cyclical — capitalist prosperity, the job of the left is to build a “cross-class alliance” with “farsighted” members of the ruling class, as the Monthly Review editors put it. The aim should be to help Senator Sanders and other progressive Democrats push Biden and the Democrats to left.
The biggest danger under these assumptions is that the Biden administration and the Democratic Congress will provide “an insufficient stimulus” like progressives generally believe was the case with the Obama-Biden administration after the Great Recession. This would, the progressives believe, lead to an unnecessarily weak recovery from the current COVID-19 enhanced economic disaster, with mass unemployment lingering for many years. Another historic opportunity to reverse the proletarianization of the middle class will then be lost just as it was lost after the 2008 crash.
In the worst case, Donald Trump will again sweep the Republican primaries and win the presidential election and defeat Kamala Harris or some other Democrat (8) in 2024, if not in the popular vote then in the Electoral College. This would, the progressives figure, be a lot like a person deciding that one shot rather than the recommended two shots of the COVID-19 vaccine was enough and then coming down with COVID after all.
An alternative ‘Greater Depression’ perspective
But what happens if the stimulus programs that will be pumping trillions of dollars of purchasing power into the economy over the next few years produces not a great boom but instead a return to the 1970s “stagflation” followed by a “Greater Depression” such as economist Nouriel Roubini fears? In that case, the strategy of reviving the middle class through a massive stimulus program will prove to be a dead end. This will mean the working class during the lifetime of the current young generation has to be prepared to take power and initiate the socialist transformation of production during their lifetimes, or we will face something far worse than we experienced during the Trump years and their Jan. 6 climax.
If you think that today’s money is “non-commodity money,” there is no reason why the stimulus programs based on deficit spending, combined with policies by the central banks designed to keep interest rates low, cannot work as progressives are hoping as long as they are carried out on a large enough scale. True, when the “great boom” arrives, the vastly increased demand for the commodity labor power will, as Anwar Shaikh points out, raise wages not only in nominal terms but in real terms as well as in value terms. This will then cause the rate of surplus value and with it the rate of profit to fall.
The fall in the rate of profit will then be aggravated as the capitalists replace variable capital (labor) with constant capital (machines) causing an accelerating rise in the organic composition of capital and a fall in the average rate of profit. Since it is profit and profit alone that drives capitalist production, the falling rate of profit will eventually become a big problem for the capitalist economy. But considering the vast size of the industrial reserve army in the world today — not simply in any particular capitalist country — this is a problem lying many years in the future. And we in the workers’ movement have never been concerned about maintaining a high rate of profit. Rather, we have been waging a struggle against the rate of profit.
But what will happen if gold is still the money commodity, and there is not enough gold to support the huge amount of borrowing and spending by the U.S. federal government, other capitalist central banks, state and local governments, corporations, and consumers necessary to initiate and then sustain the boom? In that case, the need for the socialist transformation of production far from being off the table for the current generation of youth will be an urgent necessity. And if the workers’ movement is unable to rise to the occasion during their lifetimes, the results will be disastrous and very likely fatal to modern society.
So I must return to the question raised by Fred Moseley in 2004. Must money be a commodity, or is non-commodity money under the capitalist system not only a possibility but a reality in today’s world?
Note: The following involves the so-called “transformation problem” and will be difficult for those who are not well-versed in the problems of classical bourgeois political economy and Marx’s critique of it. Its significance for political problems that we face today will become apparent in future posts.
Fred Moseley, like many Marxist economists, believes that the total prices of production must equal the total direct prices. As we saw last month, that isn’t true. If the gold production industry has a lower-than-average organic composition of capital, the sum of direct prices will be less than the sum of prices of production. If the gold industry has a higher-than-average organic composition, the sum of direct prices will be greater than the sum of prices of production.
In his 2016 book “Money and Totality,” Moseley explains that assuming “non-commodity money” — that is if we assume that all commodities function equally as money so that no special commodity is money — the difficulties that he encountered trying to prove the equality of the sum of direct prices and the sum of prices of production disappear. But here I believe we engage in a mere tautology. All that is being said boils down to equating the total value of all commodities to the total value of the individual commodities added together.
The heart of the transformation problem
This month I want to examine another question. Is it true as Moseley insists that assuming that gold is the money commodity the total profit measured in terms of direct prices must always equal the total profit measured in terms of prices of production?
Notice I say direct prices rather than values. If we compare values to prices, we are equating hours of abstract human labor to a quantity of gold bullion. Value — abstract human labor embodied in commodities — is a social substance measured in some unit of time. Gold bullion is a physical substance measured in some unit of weight. How can we equate two different substances that have two different units of measure?
However, if we use direct prices we are comparing the weight of a quantity of gold bullion that in its role as money of account represents the total profit measured in terms of direct prices to another quantity of gold bullion, also acting as money of account, that represents profit measured in terms of prices of production.
Will the quantity of gold bullion that represents the total profit in terms of direct prices be equal to the quantity of profit measured in terms of prices of production? Or will they be only approximately equal? If we take what he wrote in his notebooks that became Volume III of “Capital” in their totality, I believe Marx was saying that they would be approximately equal. They will be approximately equal because the difference between the direct prices and the prices of production of individual commodities will tend to offset one another. However, Moseley and many other Marxist economists believe that these two quantities of gold bullion must be exactly equal. They believe that Marx’s labor theory of value requires this equality
The other question involves the rate of profit. The value rate of profit can be defined as the total surplus value divided by the value of the total social capital. Strictly speaking, this ratio isn’t a rate of profit because profit must always be measured in terms of money material and not hours of abstract human labor. However, for lack of a better term — the capitalists are unaware of their rate of profit in value terms and therefore have not invented a special term for it — I will use the term value rate of profit.
We can also calculate the value rate of profit in terms of direct prices, which converts it into a profit rate proper while leaving its numerical value unchanged. However, in this case, even if we leave aside for reasons of simplification the different turnover periods of capital, assuming different organic compositions in different branches of industry will have unequal rates of profit. In the industries working with capitals of below-average organic compositions of capital, the rate of profit will be higher than it will be in industries working with capitals of above-average organic compositions.
However, since competition won’t allow this, we must instead calculate a general rate of profit where the rate of profit is equal in all branches of production regardless of their different organic compositions. To do this, we must use prices of production both to calculate the prices of commodities that serve as inputs as well as the prices of commodities that serve as outputs. The reason we must do this is that the industrial capitalists, assuming that all commodities sell at their prices of production, will have to buy their inputs at their prices of production and not at their direct prices. The question is now whether the rate of profit on the total social capital remains unchanged after we make the transformation from direct prices to prices of production. Again, Moseley answers this question in the affirmative.
But Moseley has a powerful opponent here — mathematics. To get around the math, Moseley is obliged to use prices of production when he should be using either values or direct prices. He also repeatedly talks about the “consumption of money capital” though, in reality, it is the real capital and never the money capital that is consumed. He is forced to do this because the math is simply not on his side.
L. von Bortkiewicz in 1906, Paul Sweezy in 1942, and in our own time Anwar Shaikh in his work “Capitalism” and elsewhere, demonstrated that once values are transformed into prices of production Moseley’s exact equalities will hold only as long as all commodities participate equally in reproduction. Otherwise, the mass and rate of profit measured in terms of direct prices and prices of production will only be approximately equal. But why only approximately equal? Is the law of value only approximately correct?
Once it is assumed that some commodities function as luxury goods that are consumed only by the capitalists and thus do not enter reproduction, it is not hard to build mathematical models that assume either the mass of surplus value in terms of direct prices equals the mass of surplus value in terms of prices of production or assume that rate of profit in terms of direct prices equals the rate of profit in terms of prices of production. But the models won’t maintain both equalities at the same time. In the real world, neither of these equalities will hold exactly but only approximately.
It is at this point that the knowledgeable bourgeois economists see an opening. Marx insists that surplus value arises from the unpaid labor of the workers and not in the sphere of circulation. Nor according to Marx is surplus value produced by constant capital. However, after the transformation of values into prices of production both variable and constant capital yield the same rate of profit to its owner. It appears that constant as well as variable capital are producing surplus value.
The epoch-making importance of Marx’s theory of surplus value
In contrast, Marx basing himself on the classical bourgeois economists demonstrated that surplus value is produced neither by constant capital nor land. All value, and thus all surplus value, is produced only by human labor in the production process and not in the circulation process. Just as individual prices are the form of the values of commodities, profit including ground rent is nothing but the form of surplus value.
Bourgeois economists hate this conclusion because it reveals that even if commodities exchange at their values and workers sell their labor power at its full value, the workers are still forced to perform unpaid labor for the capitalists, the landowners, and their hangers-on. Marx demonstrated this by distinguishing between the value of labor power, determined by the value of the means of subsistence that workers must consume to reproduce their labor power, and the labor workers perform in the course of the working day.
The labor that workers perform must always be greater than the labor necessary to produce the means of subsistence the workers must consume to reproduce their labor power. If it is not, the workers’ labor power loses its use value to the capitalists. The use value of labor power to the industrial capitalists is precisely that it produces surplus value. Therefore, we don’t need wage theft (9) to explain unpaid labor, surplus value, and exploitation.
Generations of class-conscious workers have been taught by socialist educators that Marx’s theory of surplus value proves scientifically what workers have always known in their gut. That is, they are exploited by their capitalist bosses, who are taking more from them in the form of the value created by their labor than they are paying back to them in their wages. Marx’s theory of surplus value is, therefore, the foundation of scientific socialism. With Marx’s theory of surplus value, socialism became a science.
If, however, either the rate of profit or the mass of profit or both differ when calculated in prices of production from their numerical values when calculated in terms of direct prices, the economists believe they have shown that Marx’s claim that profit arises from the unpaid labor of the working class has been refuted.
The door is then opened to the bourgeois holy trinity, whose modern form is that the value of the marginal product of each factor of production — labor, capital and land — determines the distribution of the net social product. According to this doctrine, as long as perfect competition prevails, each factor of production is rewarded in direct proportion to the value it creates. This, the modern economists proclaim, proves that no factor of production exploits another factor of production. This comes down to claiming that under perfect competition no social class exploits another social class. If you take a college economics course in micro-economics, that is what you will be taught.
Moseley and many other Marxist economists believe that to defend Marxism against this bourgeois attack and thus save scientific socialism, it must be proven that total profit in terms of direct prices exactly equals total profit in terms of prices of production. Also that the rate of profit in terms of direct prices exactly equals the rate of profit in terms of prices of production.
In Volume III of “Capital,” Marx begins assuming these equalities. He transforms values into prices of production. But he didn’t transform the inputs. But don’t the industrial capitalists buy their inputs from other industrial capitalists at their prices of production rather than at their direct prices? They obviously do.
There are enough passages in the notebooks that became Volume III of “Capital” to indicate that Marx was well aware that a complete solution would have to involve the transformation of input prices into prices of production. What Marx tried to demonstrate is that the transformation of values into prices of production merely redistributes the surplus value among the different capitalists, neither increasing nor reducing it.
Volume I of “Capital,” where Marx demonstrates that surplus value arises only from the unpaid labor of the working class, retains its full validity. In some passages quoted by Moseley in his book “Money and Totality,” Marx assumes exact identities between rates and the mass of profit calculated in terms of values (direct prices) and prices of production. But in other passages, Marx shows awareness that these will be only approximate equalities. How would Marx have handled this difficulty if he had lived longer? Perhaps he would have assumed exact identities in Volume III of “Capital” but in a future work would have explored the transformation of these exact equalities into approximate equalities.
For example, in a notebook written sometime in 1864 or 1865 that is part of Volume III of “Capital” dealing with the transformation of values into prices of production (which Marx called “cost-prices” but later replaced with “prices of production”) Marx noted, “it is necessary to bear in mind this modified significance of cost price, and therefore to bear in mind too if the cost price of a commodity is equated with the value of the commodity of the means of production used up in producing it, it is always possible to go wrong.” (Quoted from Moseley’s “Money and Totality,” page 161.)
Profit as the value form of surplus value
People who have read Volume I of “Capital” — or some popularization of it — but have not gone beyond Volume I, often equate the value and price of commodities. However, we know that value is measured in terms of a social substance — abstract human labor. The unit of measure of abstract human labor is some unit of time such as hours, minutes, and so on. Price, however, must be measured in terms of a specific quantity of money material measured in terms of the unit of measure appropriate to the use value of the money commodity — for example, weights of a precious metal such as gold.
We can imagine the total profit yielded by the total social capital in a year as a gigantic quantity of gold coins or gold bars that can be locked in a strong box or at least in Fort Knox. Not so with surplus value. It is a social — not a physical —substance always measured in terms of some unit of time. We cannot carry around a social substance in our pocket or store it in a strong box or at Fort Knox.
The real solution to the transformation problem
Anwar Shaikh explains in various articles and his monumental “Capitalism: Competition, Conflict, Crises,“ (Oxford University Press, 2016) that the exact equalities between profit in terms of both the rate and mass of profit calculated in terms of direct prices and prices of production are transformed into approximate equalities due to the difference between the expenditure of profit as capital and as revenue.
When industrial capitalists transform a portion of their capital into new capital, they must purchase commodities that function as raw materials, auxiliary materials, and means of production (factory buildings, machinery, and last but not least labor power, which alone produces surplus value). For the transformation of profit into capital to proceed successfully, these items must be found on the market.
If these elements are not found on the market, the process stops right there. In the case of the commodity labor power, there must be enough potential workers obliged to sell their labor power to live. Once employed, these workers must be able to find the means of subsistence on the market that is necessary to reproduce their newly employed labor power. The result is that the “cost of labor” to one capitalist is another capitalist’s revenue.
If one group of capitalists buys any of the commodities that make up their capital including labor power above their direct prices they will suffer a loss in terms of profit. If, however, they manage to purchase labor power below its direct price because the workers get to buy their means of subsistence at prices of production below their direct prices, our capitalists will realize an extra profit.
The same is true of the commodities that make up the capitalists’ constant capital. If our capitalists have to purchase oil at an inflated price — relative to its direct price — they will suffer inflation of the cost price of their products. Therefore, unless they can somehow also sell their commodities above their direct prices, they will suffer a reduction in profit.
However, one capitalist’s loss here is always another capitalist’s gain. If the capitalists lived on air — and accumulated no gold — and spent their profits only as capital, the rate and mass of profit would be identical in terms of direct prices and prices of production. The same would be true of the total mass of profit.
However, the deviation of prices of production from direct prices of those commodities that enter the circuits of revenue — that is, those commodities that enter the personal consumption of the capitalists — do not cancel out. This is what causes the deviation between direct prices and prices of production in the mass and rates of profit.
The industrial capitalists like every other person must buy means of subsistence as well as means of luxury if they are to live at a standard of living befitting a capitalist. The capitalists might use their profits to buy mansions, Gulf Stream jets, McDonald’s cheeseburgers, apples at the supermarket, cheap wine, or wine aged in old chests (10)
Therefore, when capitalists buy commodities intended for their personal consumption at prices of production that happen to be above their direct prices, the capitalists’ cost prices are in no way increased, and their profits are in no way reduced. However, the capitalists do suffer an increase in their cost of living. Perhaps Mr. Trump has to be satisfied with only seven mansions and five condo apartments rather than eight mansions and six condo apartments.
However, the capitalists who sell him these commodities above the direct prices will indeed enjoy a greater profit both in terms of mass and rate of profit than they would if they sold these commodities at their direct prices. In this case, their total profit will be increased, since the profit increase will not be offset by increased cost prices elsewhere in the economy.
However — and this is crucial — the fact that our capitalists have to pay more than the direct prices for some of the commodities they consume, though it does increase the total profit in the economy, in no way increases the value of the commodities that capitalist consumes. The values of the commodities the capitalists consume in their personal lives are the same whether they are sold to them at prices above, equal to, or less than their direct prices.
It is important to realize that the capitalists do not consume the money they spend to purchase the commodities whose use values make up their personal consumption. Even if they spend some of their profits to purchase gold bullion because they suspect that the paper currency is likely to devalue shortly, they are accumulating, not consuming, the gold bullion. When capitalists consume a commodity that functions as an item of personal consumption, they consume the value of the commodity consumed and not the value of the money they spend to purchase it.
Therefore, the fact that the total profit measured in terms of money material of a capitalist that sells another capitalist a commodity destined to be used as an item of personal consumption at a price above its direct price is increased does not in the slightest increase the surplus value of the capitalist who purchases the item.
The inverse is also true. What happens when our capitalists purchase commodities that function as items of personal consumption below their direct prices. To the extent that some capitalists sell a capitalist such items below their direct prices, the profit of the seller is reduced. However, the profits of the capitalist buyers are by no means increased. Our capitalists may enjoy greater personal satisfaction because they can consume more of these commodities but their personal satisfaction is not profit. Mr. Trump may get his eight mansions and extra condo apartments after all. However, profit is always reckoned in terms of money material, never in terms of non-money commodities. This is true though both the money commodity and all other commodities have value and surplus value.
At the same time, the values of the commodities sold to capitalists are not reduced by the fact that they happen to be sold at prices below their direct prices. The amount of value that capitalists destroy when they consume commodities is the same whether they purchased the commodity at prices below, equal to, or above their direct prices.
Therefore, except under the special condition that the proportion of each commodity that capitalists consume in their personal lives is exactly the same as the proportion of the commodities produced in the economy as a whole — which will never be the case — the total mass of profit and the rate of profit calculated in terms of direct prices will inevitably deviate somewhat from their magnitudes when calculated in terms of prices of production — or real-world market prices.
If we ever find ourselves teaching elementary classes on Marxists economics such as those by generations of socialist educators on surplus value, how do we respond to a widely read student who asks, doesn’t the “transformation problem” prove that Marx’s theory of surplus value has been refuted, or is at best only approximately true? Our student who has begun to understand might suddenly feel the cold wind of doubt.
If we ever face such a situation, we should explain that the transformation problem involves advanced questions in Marxist economics and is not appropriate for an introductory class. There is a lot more to learn than what can be taught in an introductory class. This is generally true of all sciences. However, we can assure our students that if they continue their studies and become advanced students, they will find what was learned in our introductory class will not have to be unlearned and retains its full validity.
To be continued.
1 In 1876, Secretary of War William Belknap faced impeachment in the House of Representatives on charges of financial corruption. He resigned but the House went ahead and impeached him anyway. Like Trump, he was acquitted in his Senate trial. (back)
2 Unlike most countries, Britain lacks a written constitution. (back)
3 Marx and Engels used the term “middle class” somewhat differently. Nineteenth-century European countries had a titled aristocracy of feudal origin that was considered the upper class, the capitalist class was considered the middle class, and the proletariat the lower class. What we today call the “middle class” (the working farmers, the small-business people, the professionals, and so on) were called the “petty bourgeoisie” in contrast to the capitalists, who were called the “haute bourgeoisie” or “upper-middle class.” In contrast to Europe, the U.S. never had an “upper class” in the sense of a titled feudal aristocracy. (back)
4 At the turn of the 20th century, Russia was the classic country of the small peasant who owned some of their means of production but little else. Lenin distinguished sharply between peasants who owned their means of production but never employed wage labor and the rich peasants — called kulaks, or “fists” in Russian — who employed a few “hands” and therefore exploited some labor.
Today in the U.S., examples of working people who do not employ labor, in addition to the few remaining working farmers who never employ labor, are Uber drivers who use their privately owned cars as taxis and truck drivers who own their rigs but do not employ any labor but their own.
U.S. building trades craft unions often require that their members own their tools. This requirement is designed to keep the full proletarians who cannot afford to purchase their own tools out of the “building trades” to keep labor (power) scarce and wages high. In the building trades, though the boss (contractor) owns most of the means of production, the workers privately own their own tools and therefore still own some of their means of production. (back)
5 In the U.S. South especially, workers frequently own their own homes in the form of trailers, or mobile homes, but must rent the land under them in trailer parks. These workers are true proletarians because they own neither their means of production nor any property that entitles them to even a small share of surplus value. Because they own no property, they are called “trailer trash,” a derogatory term for “proletarian.” (back)
6 The term value of land is a bit of economic slang. It refers to the price of the land, which is itself also economic slang because unimproved land is not a commodity. The price of the land is simply a form of capitalized ground rent, which itself is the money form of a portion of the surplus value. Proletarians are obliged to rent the land they live on as part of the house rent. The ground rent comes out of their wages.
However, homeowners to the extent they have paid down their mortgages own the land under the houses and do not have to pay ground rent. Instead, they can realize the ground rent to which they are entitled as very small landowners in various ways. These include renting rooms to boarders, the rise in the price of the home — actually the land under home — that is realized when the home including the land on which it is built is sold, as well as the ability to borrow against the “value” of the home as long as land prices are rising. To the proletarian, rising land prices mean higher house rents. To the homeowner who owns the land underneath the home, it means a rising equity value in the home. (back)
7 In the U.S., full proletarian status is disproportionately the fate of the people of color. However, as U.S. imperialism decays, white people are anything but immune. Pride that one is “middle class” often mixes with pride that one is white. Therefore, when ruined, former members of the middle class are forced to apply for low-wage jobs that usually employ people of color, or find themselves in the welfare office sitting side by side with people of color and feel doubly humiliated. (back)
8 Biden, who will be 82 in 2024, is not expected to run for a second term. Vice-President Kamala Harris is the most likely Democratic nominee, but she may be challenged by other Democrats in the 2024 primaries. (back)
9 This doesn’t mean that wage theft never occurs. But when it does, it leads to super-profits and is therefore a form of super-exploitation. The trade unions can, at least in principle, abolish wage theft without abolishing either profit or capitalism. (back)
10 Wine aged for many years in “old oak chests” sells for very high prices. This is because the capitals that produce these wines have very long turnover periods and therefore their owners must sell their wines at prices well above their direct prices if they are to make a rate of profit equal to the general rate of profit in a specific period, say a year. This gives rise to the illusion that the wine aging in chests is itself producing “interest” — surplus value — much like money held in bank accounts that over many years also seem to produce interest. However, when the capitalists consume the wine, they are consuming the actual value of the wine and not the value of the large amount of money they were obliged to pay for it. (back)