Modern Money (Pt 4)

U.S. political crisis deepens

On September 5, The New York Times published an op-ed by an anonymous author who claims to be a top official of the Trump administration. The author describes him- or herself as a representative of the “resistance” among high officials working within the Trump administration. The author makes clear that this “resistance” is not “the popular ‘resistance’ of the left.” Instead, the author represents the resistance of the Republican wing of what I call the “Party of Order.”

What is the program of this “resistance”?

The op-ed author hails Trump’s “effective deregulation, historic tax reform, a more robust military and more.” This is the program of the Republican faction – and to a considerable extent the Democratic faction as well (2 ) — of the Party of Order. It includes an increase in the freedom of capital to pump more carbon dioxide into the atmosphere while leaking additional methane through his “relaxation” of regulation of the natural gas industry.

All these policies aim at increasing the rate of profit for the owners of capital at the expense of the working class and Mother Earth. The author also “supports” deep tax cuts for the rich with the intention of undermining social security, unemployment insurance, Medicare and Medicaid. Again, the aim is to raise the rate of profit on invested capital.

And not least, the op-ed writer supports spending more on the already “robust military,” as the author put it, so the U.S. empire can continue to terrorize the world. So if our Party of Order author is so enthusiastic about Trump’s policies, why “resist” Trump at all?

Trump versus free trade

The official complains that Trump’s “impulses are generally anti-trade and anti-democratic.” Notice the order. The biggest problem with Trump is that he is “anti-trade,” and as a kind of afterthought he is also “anti-democratic.” One is reminded of the words from the Communist Manifesto: “It [the capitalist class — SW] has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom — Free Trade.” So that’s the real problem with Trump. He is against “free trade.”

Our op-ed writer further complains, “In public and in private, President Trump shows a preference for autocrats and dictators, such as President Vladimir Putin of Russia and North Korea’s leader, Kim Jong-un, and displays little genuine appreciation for the ties that bind us to allied, like-minded nations.”

Modern Money (Pt 3)

In this post, I contrast the analysis of foreign trade found in Professor L. Randall Wray’s book “Modern Money Theory” to the analysis of foreign trade that logically emerges from Marx’s theory of commodities, money and capital.

From trade war to war?

The August 10 on-line edition of the British rag The Express has a headline blaring, “China Fires SIX WARNINGS to US Navy in South China Sea.” When Chinese air force planes demanded the U.S. aircraft leave the area, the U.S. pilots arrogantly answered, according to The Express, “I am a sovereign immune United States naval aircraft conducting lawful military activities beyond the national airspace of any coastal state.” Notice, this occurred in the South China Sea near China and not anywhere near the U.S.

Now, if this was an isolated incident, it might not mean much. But the incident occurred against the background of the growing trade war between the U.S. and China. The Trump administration has made it clear that it is determined to reduce China’s share of the world market, especially but not only the U.S. part. If Trump’s policies are successful, it will bring China’s era of rapid development of capitalism to an end. Though China has made amazing progress and now has the highest level of industrial production in the world, it has about four times the population of the U.S. To reach a level of development equivalent to the U.S., China would need to have about four times the industrial and agricultural production of the U.S.

Another weakness of Chinese industry is that Chinese factories are dependent on high-tech components manufactured in South Korea, Taiwan and the United States. In addition, patents for these components are owned by Silicon Valley and British companies. Recent sanctions imposed by the Trump White House against the Chinese mobile phone manufacturer ZTE for allegedly violating U.S. sanctions against Iran and North Korea threatened to destroy the company because its phones depend on high-tech components that are not manufactured in China. Later, the Trump administration backed down amidst rumors that ZTE had to pay a bribe to Trump personally. The fact that a major Chinese company can be shut down at will by a U.S. president shows just how vulnerable Chinese industry is.

The productivity of labor in China, whether in industry or agriculture, is still far lower than that of the U.S. While wages have been rising in China, they are still far lower than the wages of U.S. workers or workers in the other imperialist countries. This means that industrial capitalists in China are far more likely to choose “labor-intensive” as opposed to “capital-intensive” methods of production. Or to use the more precise terminology of Marx, the organic composition of capital of Chinese industrial enterprises is much lower than those in the United States and other imperialist countries.

Modern Money (Pt 2)

Political madness sweeps Washington

As of mid-July, the U.S. media and bourgeois politics appear to be swept by a wave of political madness, both on the side of supporters of President Trump and his “liberal-establishment” opponents. Trump calls the “mainstream” organs of the U.S. media such as The New York Times and Washington Post enemies of the people. This heated rhetoric is more reminiscent of the “reigns of terror” associated with certain stages of the French and Russian revolutions than the more normal polite discourse of U.S. Democratic and Republican Party politicians.

The “establishment media” counter Trump’s charge by claiming that Trump is working for “team Russia” rather than “team USA.” The Democrats are now engaged in a debate whether they should charge the president with “treason” because he failed to denounce President Putin at the mid-July summit meeting in Helsinki, Finland, for “Russian intervention” in the 2016 election.

The problem for the Democrats is that if Trump is actually guilty of treason, they – being the great patriots they are – should move to impeach him in the House of Representatives. Treason, after all, is an impeachable offense. However, up to now the Democratic leadership, both in the House and the Senate, opposes impeachment.

Behind the heated rhetoric – false and demagogic on both sides – is a growing conflict. That is the conflict between the need for the further development of a society where production is carried out by the socialized labor of the workers of the entire world, on one side, and the continued rule of capital over production and the nation state, on the other.

Trump and his supporters in the ruling class believe that U.S. imperialism can no longer afford the costs of the U.S. empire in its current form. They demand a major re-division of the markets of the world in favor of U.S. capitalists at the expense of capitalists of U.S. “allies” in Europe and Asia, as well as the People’s Republic of China. If this is not achieved in the near future, the Trumpists believe, the U.S. world empire will crumble.

Under current arrangements, the U.S. guarantees the European imperialists – above all, Germany – access to world markets and raw materials. Meanwhile, the Trumpists complain, Germany and other European imperialist powers are “freeloading” on the costs of the “defense” of the U.S. empire, which as a result fall disproportionately on the U.S.

Trump therefore wants to restructure the empire so that the European and Japanese satellites of the U.S. get a smaller share of the global market while paying more for the empire’s defense against the exploited and oppressed peoples of the world. And he wants this achieved now! Not surprisingly, German Chancellor Angela Merkel prefers the status quo, which indeed has turned out quite nicely for the German capitalists that Merkel serves.

The Chinese leaders, in order achieve their goal of a moderately developed China by mid-century, need a much larger share of the world market than China has at present. To put things in perspective, Germany with a population of a little more than 80 million, has about the same share of world trade as China with a population of over 1 billion. If Trump achieves his goal, China will be locked into a situation of permanent underdevelopment.

Modern Money

By the time of the U.S. presidential election in November 2020, historical experience and the condition of global money markets suggest that the current global economic boom will probably have run its course. While the latest government economic figures show the current boom continuing in the United States and Europe, serious crises have already hit the currencies of Argentina and Turkey.

The dollar after a period of weakness has begun rising against the euro and other currencies and against gold. This sudden dollar strength is not only the result of rising U.S. interest rates. Trump’s threat to impose high tariffs on a whole range of commodities starting on July 6 has set off a flight into the dollar due to its role as the international means of payment. We have seen many such flights into the dollar over the years whenever a crisis threatens, whether political, military or economic.

If no compromise is reached by July 6 and Trump’s tariffs – and the retaliatory tariffs of competing nations – go into effect, it is possible that some commodity sales will fall through, which could trigger an international credit crisis. If severe enough, such a crisis would quickly throw the global capitalist economy into recession. This is all the more likely given the very late stage in the current industrial cycle, which has made the global credit system increasingly fragile even in the absence of a trade war. Whatever happens in the short run, Trump’s economic nationalist “America First” policies are undermining the entire world order that has prevailed since 1945. But that is the subject for another post.

Because capitalist economic crises tend to manifest themselves first in the spheres of currency and then credit, many reformers have sought cures for crises through reforms to the currency and credit systems. This creates the illusion in the minds of middle-class reformers, who stand between the two main class camps of modern society, the capitalist class and the working class, that the contradictions of capitalist society can be overcome through reforming the credit/monetary system. The U.S., in particular, has produced numerous monetary reform movements.

Three Books on Marxist Political Economy (Pt 17)

Apartheid planet and the new racism

John Smith in his “Imperialism in the 21st Century” sees imperialism as evolving towards a form of global apartheid. Under the rule of the U.S. world empire, the freedom of capital to move across national boundaries in its endless search for the highest rate of profit has expanded. However, workers do not have freedom to cross national borders in search of the highest wage.

Since World War II, the nation-state, the cradle of the capitalist mode of production, has been in decline. One example of this decline is the limited sovereignty of Germany and especially Japan since World War II. Even the sovereignty of countries that were allies of the U.S. in World War II, Britain and France, has been severely restricted within the NATO “alliance,” and in the case of Britain within the “special relationship.”

The U.S. and its imperialist satellite states of Western Europe and Japan have opposed every attempt to establish new strong independent nation-states – though with mixed results – since World War II. In the pre-war era, the then-politically divided imperialist countries sometimes gave limited support to nationalist movements in their rivals’ colonies and semi-colonies. Since World War II, the entire imperialist world has been united against national liberation movements in the oppressed world.

Taking the world economy as a whole, the productive forces have long outgrown the nation-state. This was already shown by the outbreak of World War I more than a hundred years ago. In recent years, the revolution in communications represented by the rise of the Internet and the smartphone is increasingly breaking down global, linguistic, and cultural boundaries.

But the nation-state has refused to peacefully fade away into the sunset as the productive forces have outgrown it. In the period between the two world wars, there emerged within the imperialist world a counter-tendency of resurgent economic nationalism, which found expression in increased tariff and other trade barriers. Economic nationalism was accompanied by growing political nationalism, racist anti-immigrant movements, and racism within the imperialist countries. These trends found their most extreme manifestation in Nazi Germany.

Today in the imperialist countries, we once again see a rise of economic and political nationalism accompanied by anti-immigrant movements and growing racism. This extremely dangerous tendency is currently represented by President Donald Trump and his supporters in the U.S., where it is now in power; the current government of Austria; the National Front in France; the Alternative for Germany in Germany, where it is the official opposition party; and their counterparts in other imperialist countries. Though they are not imperialist countries, similar movements dominate governments of many of the ex-socialist countries of eastern Europe such as Poland, Hungary and the Czech Republic

Trump’s recent decision to move the U.S. Embassy in Israel to Jerusalem and recognize Jerusalem as Israel’s “eternal” capital was accompanied by Israeli massacres that have left more than a hundred Palestinians dead and thousands wounded in Gaza. Trump’s move cannot be separated from the broader racist trend that Trump personifies.

Israel itself is the product of an earlier wave of racism that accompanied the economic and political nationalism of the period between World War I and World II that ended with Nazi Germany’s attempt to physically exterminate the entire European Jewish population. Zionist Israel, therefore, links the “old racism” with the new.

Is a kind of global apartheid system emerging, as Smith suggests, that is replacing the increasingly outmoded bourgeois nation-state? Today’s political and economic trends suggest the answer could be yes if the coming period does not result in a victory of the global working class.

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

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

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

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

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

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

Post delayed owing to May Day

Part 2 of the analysis of the current phase of the industrial cycle, due to be posted today, will be delayed one week owing to preparations for and participation in May Day 2018, International Workers’ Day.

Editors

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

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

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

Three Books on Marxist Political Economy (Pt 16)

Lenin on the defining features of imperialism

V.I. Lenin in his famous from 1915 pamphlet “Imperialism the Highest Stage of Capitalism” lists the following five features of what was then the new, imperialist stage of capitalism.

(1) The concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life;

(2) The merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital,” of a financial oligarchy:

(3) The export of capital as distinguished from the export of commodities acquires exceptional importance;

(4) The formation of international monopolist capitalist associations which share the world among themselves;

(5) The territorial division of the whole world among the biggest capitalist powers is completed.

How Lenin’s defining features of imperialism have held up a century later

Virtually all Marxist and indeed all serious students of economics accept feature No. 1—the concentration of production and capital—as a fact of life of present-day capitalism. Indeed, the concentration of capital and production is much higher than it was on the eve of World War I, the period Lenin analyzed.

Feature no. 4—the formation of monopolist capitalist associations which share the world among themselves—is accepted by Marxists and indeed many non-Marxists as even more descriptive of today’s conditions, when all large corporations operate on a multinational scale.

Feature no. 5—the territorial division of whole world among capitalist powers—was completed around the turn of the 20th century and is a statement of historical fact accepted by all.

The division of the world among the imperialist powers meant that further expansion of the colonial empires and “spheres of influence” could not occur without the various powers colliding. There was, however, on the eve of the “great war” a school of thought that held that a major war between the imperialist states was unlikely. This was based on the notion that economies had become so intertwined that the capitalist ruling classes would oppose any move toward war. Related to this, a view held that a major war among the imperialist powers was unlikely because it would be financially ruinous. (1 ) These arguments, answered by the events of August 1914 and subsequently, are more than a historical curiosity, since occasionally we still run into them today.

Thanks to the Russian Revolution of 1917, a major part of the globe was largely withdrawn from the sphere of capitalist exploitation. (2 ) However, since the 1990s, as the result of the Russian bourgeois counterrevolution that restored capitalism but not the czarist feudal military empire, combined with the powerful upsurge of capitalist development in China and Vietnam, the world now looks more like that on the eve of World War I than the situation that prevailed during most of the rest of the 20th century.

However, the rest of the 20th century proved to be richer in world wars and revolutions and counterrevolutions than any preceding century in recorded history. As a result of these titanic developments, along with the inevitably uneven nature of capitalist development, the division of the world among the imperialist and other countries engaged in capitalist production has taken quite different forms than those that prevailed on the eve of World War I.

Three Books on Marxist Political Economy (Pt 15)

Reader Manuel Angeles commented: “In Cambridge (UK) in the 1970s, a whole slew of them rejected marginalist theory. Joan Robinson, in fact, frequently ridiculed it, in spite of Keynes´s chapter in the General Theory.”

Angeles refers to the so-called Cambridge Capital Controversy, which pitted economists from Cambridge, Mass., led by Paul Samuelson against Cambridge UK-based economists led by the Italian-British economist Piero Sraffa (1898-1983). Paul Samuelson (1915-2009), who was considered perhaps the leading (bourgeois) U.S. economist of his generation, defended marginalist theory. Samuelson combined marginalism with a watered-down Keynesianism that he called the “Grand Neoclassical Synthesis.”

Sraffa and his supporters clearly came out on top against the Samuelson-led marginalists. Sraffa’s attack on marginalism is contained in his short book “Production of Commodities by Means of Commodities,” where he exposed logical and mathematical paradoxes in marginalist theory.

But what value theory did Sraffa and his generally left Keynesian supporters propose in place of marginalism? Nothing, really, beyond that, given free competition, prices will tend toward levels where capitals of equal size earn equal profits in equal periods of time. The Sraffians also claimed that, with a given level of productivity of labor, wages and “interest rates”—by which is meant the rate of profit—will vary inversely.

Whatever he may have thought in private about the labor value schools of Ricardo and Marx—Sraffa was a great admirer and scholar of Ricardo and was well acquainted with Marxism having been a sympathizer of the Italian Communist Party in his youth—”neo-Ricardian” followers of Sraffa’s work have often used it against Marx’s labor value and surplus value theory. Once we accept the “neo-Ricardian” “price of production school” in place of Marxist value theory, we are forced to draw the conclusion that constant capital—machines and raw materials—as well as land produce value and surplus value.