Diesel, world war and the rise of U.S. imperialism, 1865–1918

The trap of the two parties

On October 17, more than 3,000 actions were held to mobilize people to vote, and vote early, in the upcoming November 3 elections. In a message sent to my email, the liberal-progressive organization MoveOn wrote, “Vote early events took place across the country with people joining together with neighbors, friends, and family, and family members to promote voting early because we know how important this election is.” MoveOn didn’t explain who we should vote for, though in the U.S. political context, where there are only two realistic choices — Democrats or Republicans — with few exceptions, the answer is clear: vote for the Democrat. These types of liberal-progressive organizations prefer to avoid saying it out loud, as many view the Democratic Party not as better than the Republican Party but as the lesser evil.

Anybody who has been around the left for a while knows it’s a standing joke that when the Communist Party USA explains how crucial it is to vote for the Democratic candidate because there has never been an election as critical, they say this about every election, no matter how ho-hum. If we are realistic about the current political situation, many millions, perhaps tens of millions, will vote for Democrats, not so much because they like them, but to vote against the Republicans.

And no wonder. First, there is the genocide in Gaza. After two years of Trump, it’s easy to forget about the last Democratic president, “Genocide Joe” Biden, and all the Democrats before him. Then there is the war against Iran, where Trump has been saying since he attacked on February 28, 2026, that Iran is about to surrender. Somehow the war goes on. A memorandum of understanding signed in the summer of 2026 began to unravel almost immediately, and there are rumors that Trump is planning an escalation right after the November election. There are rumors he might even use nuclear weapons.

There are also new attacks from the right on healthcare, including the addition of “workfare” requirements for the first time nationwide for those of working age who receive help through the Medicaid program for the poor, as well as soaring insurance premiums for those who receive medical insurance through the Obamacare program. There is also the fact that the right to abortion has been lost in many Republican-dominated states, thanks to the Republican-appointed justices on the Supreme Court, three of them appointed by Trump.

Then there are the ICE raids that have led to the arrests, even deaths, of U.S. citizens, the racist statements by Trump against the U.S. Somali community, his attempts to put his name or portrait on monuments and currency, his “jokes” (are they jokes?) about serving a third term, his threats to denaturalize U.S. citizens, his enthusiasm for the death penalty, and the widespread belief that he engaged in improper sexual relationships, among other things.

All this against the sky-high prices at grocery stores and gasoline stations that have worsened due to Trump’s tariffs — many of which have been declared illegal even by the current reactionary Supreme Court.

In a word, most Americans want Trump gone and don’t want another Congress dominated by the Republican Party. Given the narrowness of U.S. democracy, even compared to other imperialist bourgeois-democratic systems, people see no other choice but to vote for Democrats, who they hope against hope won’t be as bad as the Republicans.

The problems in U.S. society go deeper than the Republican Party and are rooted in the decline of the capitalist system. To vote for Democrats is to remain mired in the same capitalist swamp. Instead, we must organize a party of the working class. Once Democrats are back in office, their support will erode, paving the way for the return of the Republicans. The question is how to escape from the trap of the two parties. We will examine this question next month, when the election results are in.

Diesel crisis

On October 11, President Donald J. Trump announced an “energy ceasefire” between Russia and Ukraine. The effects of war in eastern Europe (the Russo-Ukrainian war) and West Asia (the U.S.-Israeli war on Iran) have combined to put upward pressure on the price of oil, especially diesel fuel. Both Russia and Ukraine have attacked each other’s fossil-energy-producing facilities. This is in contrast with the situation that prevailed before the rise of Mikhail Gorbachev. Then, Russia and Ukraine, along with other Soviet nations, were building socialism together. This is an example of the disastrous long-term effects of the Russian capitalist counterrevolution of 1985–1991. But this is not our main concern here now.

While all U.S. presidents lie, when a “normal” one announces a ceasefire agreement has been reached with Russia, it can be assumed the bare fact of a ceasefire is probably true, no matter how out of context. Not so with Trump. It appears his administration is merely allowing Russia to sell some diesel to the U.S. market in hopes it will cause a price fall in the weeks before the November midterm election. All polls suggest that Republicans will suffer massive losses to the Democrats.

Republicans have responsibility for the attacks on medical care, the war against Iran, and inflation (especially the rise in gasoline prices). Democrats also have responsibility for the increasingly unpopular support for the genocidal Zionist entity. (1) Since the Gaza genocide, on which every smartphone user can get information, it is not as easy for Democrats to get away with their support for Israel as it used to be.

All 435 House of Representatives seats are up for election this year. Though surprises are possible, it appears likely, in light of Trump’s rock-bottom poll ratings, that the razor-slim Republican majority in the House will be replaced by a large Democratic one.

The Senate situation is less favorable for Democrats. Only one-third of the 100 seats are up for election, and electoral arithmetic is favorable to Republicans. (2) But Trump is not a normal president, and the current elections, with the wars raging in eastern Europe and West Asia, are not taking place in normal times. It’s possible the Democrats might win a modest majority, but this is far from certain at the time of this writing.

The diesel shortage could have consequences going beyond the electoral struggle. Let’s look at the economics. Commodities not only have to be produced, but they also have to be transported from the point of production to the final consumer. According to Marx, the value of a commodity consists of the labor socially necessary to produce it as well as the labor socially necessary to bring it to the consumer. The labor physically necessary to bring a commodity to the consumer shouldn’t be confused with the labor of buying, selling and bookkeeping, which, unlike the labor that physically transports the commodities, does not produce value.

What is diesel fuel?

Like ordinary gasoline, diesel is refined from crude oil. Oil is formed from the remains of plants that grew and died hundreds of millions of years ago. Like plants today, they used energy from sunlight to create sugars, food that stores energy. Ultimately, this energy comes from nuclear fusion, the merger of hydrogen nuclei into helium nuclei that occurs in the Sun. When you merge hydrogen into helium, the mass of the helium is slightly less than the combined mass of the hydrogen nuclei. A certain percentage of the mass is converted into energy according to Einstein: E = mc². (3)

When using fossil fuel, you’re ultimately using nuclear fusion energy with the Sun serving as the reactor. Oil can be refined into the gasoline used by most automobiles. When it comes to the transport of commodities, diesel is the most used fuel. This is true of trucks, many railroad locomotives and, increasingly, the ships transporting commodities on the oceans. The shortage of diesel fuel puts upward pressure on the price of all commodities that have to be transported to the final consumer.

While the price of all fossil fuels is under upward pressure (their continued burning has disastrous consequences for the earth’s climate system, but that’s another story), the diesel shortage has been particularly severe. Because diesel is important for commodity transport, the capitalist monopolies that produce and market it are in a particularly strong position to raise prices to the maximum to make as much profit as possible in terms of both the mass and the rate of profit. How much profiteering and monopolistic manipulation is involved beyond the “normal operation” of capitalism can only be exposed by thoroughgoing workers’ control of production in the energy industry. It is likely that the monopolistic manipulation is substantial. After all, the laws that govern capitalist production require capitalists to do everything they can to maximize profits. So whenever the opportunity arises to do so, they will. From the capitalists’ perspective, things like patriotism and sacrifice during wartime in the greater interests of the country are for suckers, not for them.

Here I want to examine what happens when a particularly important commodity that, as we saw above, plays such a central role in production suddenly appears in short supply. Most economists explain that whenever the demand for a commodity exceeds the supply at a given price, whatever the reason, competition between its buyers and sellers shifts in favor of the sellers. The result: The price of the commodity (diesel) climbs until supply and demand are again equal at the current (higher) prices.

With diesel, this means, everything remaining equal, higher profit for diesel-producing capitalists and higher transportation costs that lower profit for all other commodity-producing capitalists. If this persists long enough, more capital will be invested in diesel production and less in other production. Over time, assuming diesel’s price rise doesn’t reflect a permanent change in its value relative to other commodities, this again lowers diesel’s price, causing the extra profit to disappear and prices to return to previous levels. This is an example of how the law of value regulates the proportions of production within the unplanned system of capitalist production.

If monopolistic manipulation is the cause of diesel’s price increase, this might take a long time (years, even decades), though if the extra profit persists, new capital, taking advantage of the super-profits (defined as profit above and beyond the average rate), will sooner or later break the monopoly. The current price increase involves war, specifically two wars. One is the Russo-Ukrainian war in eastern Europe; the other is the war raging in West Asia. The one in West Asia includes the wars waged by the Zionist entity in Lebanon and Syria, the continuing Israeli genocide in Gaza (if you want to call this genocide a war), the fighting in Yemen, as well as the war of the United States and its Israeli helpers against Iran.

The trend toward a third world war and diesel

Since the eastern Europe and West Asia regions are geographic neighbors, there is a tendency for the two wars to merge together. The July 25 attack by Ukraine on an Iranian ship in the Caspian Sea is a manifestation of this dangerous tendency, driven by the U.S. world empire, which seeks to dominate both regions, with Russia the ultimate eastern European target and the Arab world plus Iran in West Asia.

A recent development in the Russo-Ukrainian war is the increasing number of attacks by the Kiev regime using drones against Russian oil refineries physically located in Russia itself. Russia, for its part, has attacked Ukrainian energy facilities. We don’t have to look far for the cause of the rise in diesel prices. It is tied to the increasingly widespread warfare in eastern Europe and West Asia in which the U.S. is involved directly (e.g., Iran) or indirectly (eastern Europe), but is still the driving force.

While the peasant China of yesterday could be relatively indifferent to what happened in West Asia, today’s industrial China can no longer afford this luxury. The U.S. drive to reduce West Asia to the status of a colony is a threat to the energy supplies of today’s China.

Can China stay out of this war? There is little doubt that it wants to stay out. It has nothing to gain and a lot to lose. East Asia is now the most peaceful part of the world, and China has not fought a war in forty-seven years. But how long will the energy-hungry nation be able to stay clear of the growing struggle around energy access? If the current wars keep escalating, it will be only a matter of time before they grow into a third world war, raising the nightmarish threat of nuclear weapons.

Even if only in the form of a temporary truce, the growing conflict can be de-escalated, and some type of agreement can be worked out. This can buy time, but the nightmarish threat of World War III will not and cannot end until a world socialist revolution creates a unified world economy where the interests of one are the same for all, where the interests of one nation are the interests of all.

Assuming a temporary or partial truce can be reached, it might take time before diesel prices return to normal. Even in the most optimistic scenario, it will take time to repair the damage to the refineries in the Persian Gulf, in Russia and in Ukraine. What are the economic consequences of a temporary but violent disruption of global diesel production?

A sudden rise in the price of diesel will raise the cost price of most other commodities once we take transportation costs into account. Capitalists will try to compensate by raising their prices — will they be able to? That depends on conditions in the money market. As a general rule, such a change reflects the changing phases of the industrial cycle. If the money market is easy, there is a good chance the capitalists can raise prices. As prices rise, more currency must circulate to finance the higher prices. Where will this extra currency come from? If there is idle money capital in the banks, that’s where.

What happens if there is little idle money in the banks? Then, as the capitalists try to raise prices, the demand for loan money capital rises. This causes interest rates, especially short-term rates, to rise. The result is a contraction of credit and commodity demand. This is followed by an accumulation of unsold commodities, and industrial and commercial capitalists reduce inventories (commodity capital). Production and employment decline, and unemployment and underemployment rise along with idle capacity and stocks of raw materials — in other words, recession. If the amount of idle money capital is low in the banks, the economy declines. Assuming a shortage of money, the economy will already be close to an overproduction crisis. The recession that was on its way regardless comes earlier than it otherwise would and is more severe.

Once a recession breaks out, the drop in demand causes commodity prices to fall. The drop in demand for our scarce commodity, diesel fuel, also causes its price to decline. This provides time to fix the underproduction of the commodity in short supply. The recession that follows is caused basically by a commodity overproduction relative to the money commodity, but it also reflects an underproduction of the desired commodity (here it’s diesel, due to the war) relative to other commodities. This underproduction represents a form of disproportionate production.

Paper money and inflation

But wait. Assuming there is a shortage of idle money, can’t the central bank just issue more currency? Well, if there’s plenty of gold on the market, it can. In this case, the money shortage is purely artificial, due to an overly tight “monetary policy” by the central bank. But if gold itself, the money commodity, is in short supply relative to non-money commodities, and the central bank issues more currency to deal with the high price of diesel (and other fossil fuels), it causes the dollar price of gold to soar. In other words, the dollar will be devalued — an increase in gold’s dollar price is a fancy way of saying that a dollar represents less gold than before.

The rise in diesel prices triggers a recession before it can create inflation, as long as the Federal Reserve holds off on issuing the dollars to finance the inflation. Alternatively, once the capitalists conclude that the Federal Reserve has allowed the dollar to drop in value by issuing new currency, they start raising the dollar prices of other commodities, not just fuel. They hold commodities off the market to help drive prices up further. Both happened after the oil supply shocks of the 1970s, tied to the Arab oil boycott of 1973 and the Iranian revolution of 1979: first inflation, as the Federal Reserve financed the price rises, then recession, when it stopped. Whether or not to finance the rise in fuel prices to stave off recession gives Kevin Warsh and his fellow members of the Federal Open Market Committee a lot to think about. If Trump decides to start World War III (or if he simply stumbles into it), civilization could be destroyed. If the war doesn’t go nuclear, Warsh will have no choice but, like the central bankers before him, to finance the war no matter what the inflationary consequences.

From slavery to wage slavery

Starting with the end of the slaveholders’ rebellion in 1865, the southern states, the former so-called Confederacy, entered an economic transition between modern chattel slavery and capitalism based on wage slavery. The chief form of the transition was the sharecropping system. Since the land previously owned by slaveholders was not nationalized, it remained the private property of the former slaveholders or of the moneyed people who bought up the land from them. Former slaves worked this privately owned land, renting it through in-kind payments by sharing the crop with the landowners.

A more slave-like system was maintained in the form of prison labor. African Americans, now formally free persons, would be arbitrarily charged with various crimes, then be forced to work for landowners and capitalists. As they were convicted of crimes (by white juries and judges), they were forced to labor without having to “voluntarily” sell their labor power (to a capitalist). As under slavery, those workers could be forced to perform labor for other private persons as well as the state. The notorious chain gangs were part of this system. The use of prison labor has never ended. The system is used against all prisoners, people of color as well as whites, but still disproportionately against African Americans.

Whole volumes could and should be written on the transition between modern slavery and the capitalist wage labor system. Certainly we can’t fully understand American politics without studying it. Of course, much has been written about this in various places, but we can’t do it here in any depth. We can still see elements of the transition today. The disproportionate number of African Americans in the bloated prison system, the brazen racism involved in it, and the labor performed by them remain a remnant of the system of modern slavery that poisons politics to this day.

In the post-Civil War period, it was clear modern slavery would never again be the dominant mode of production in the U.S. In addition to the by-now dominant capitalist mode of production, the only other was the one associated with family farmers. Family farmers own their own land and other means of production and work it through the labor of themselves and their own families. Over time, family farming has declined in the face of competition from capitalist agriculture and the growing ability of a few large farms to meet the demands of the market. Since 1865, capitalism has reigned as the unchallenged economic system in the United States.

What the North’s victory won for capital

Let’s briefly review what the defeat of the slaveholders’ rebellion accomplished for U.S. capitalism. First and most importantly, the unity of the vast U.S. internal market was preserved. There would be no internal tariffs or other trade barriers within the country. In addition, the labor power of African Americans could be purchased by the capitalist buyers of labor power. This was pure gain from the perspective of the capitalist class. When people were the private property of slaveholders, they could not sell their labor power to capitalists, nor could capitalists buy their labor power.

Another gain for capitalists was that they no longer had to take into account the conflicting interests between themselves and the slaveholders when it came to tariffs. As a rule, industrial capitalists, in competition with often more advanced British capitalists, supported high tariffs. The South, which sold cotton to the British mill owners, was for free trade. The slaveholders were not in competition with British cotton growers because cotton cannot be grown in the British climate.

Another gain was the policy of “internal improvements,” subsidies for the canals and railroads needed to move commodities to their final consumers.

The national banking system

Another big gain was the national banking system. Before the Civil War, individual commercial banks issued their own banknotes. Though there was a common coined currency, there was no common banknote currency. The monetary system that dominated before the slaveholders’ rebellion, based on the right of commercial banks to issue their own banknotes, is called a “free banking system.”

Slaveholders feared central banking and the rise of a modern currency system based on a central bank’s monopoly on issuing banknotes, as it would tend to centralize state power in Washington, D.C. They feared it would only be a matter of time before state power would fall into the hands of the northern industrial capitalists. Slaveholders wanted to keep the central government as weak as possible.

The national banking system that came out of the northern victory ended the right of commercial banks to issue currency backed by their own credit. There were several forms of currency under that system. One was U.S. notes, nicknamed “greenbacks” because the back side was printed with green ink, and the nickname continues to this day. They were first issued by the Treasury during the war with the idea that they would be redeemed in gold or silver coin after the conflict ended. In 1879, greenbacks were allowed to be redeemed on demand in gold. The notes continued to be issued in limited amounts until 1971, when they were discontinued. After that, the Treasury stopped issuing paper currency. Today only the twelve Federal Reserve Banks have the right to issue legal-tender currency notes called Federal Reserve Notes.

In the absence of any form of gold standard, the Treasury — the government (in U.S. terminology, the administration) — if it is given the right to issue legal-tender currency and is faced with serious financial difficulties, will sooner or later succumb to the temptation to debase the currency, with all the consequences that follow. This presents the need to have another monetary authority separate from the government, not elected by the people, to (hopefully) prevent this. Experience shows that even an independent monetary authority such as the Federal Reserve eventually succumbs to the temptation to debase the currency. This is particularly true during wartime. I’m sure Kevin Warsh could tell you a lot about these pressures if he could speak honestly, which, of course, as a central banker, he cannot.

U.S. notes, the original greenbacks, not issued by any type of bank but directly by the Treasury, helped pay for the operations to put down the slaveholders’ rebellion. Free silver coinage was discontinued in 1873 and later denounced by small family farmers and other indebted small business owners who wanted to pay their debts in cheap silver rather than gold. They called the discontinuation of the free coinage of silver the “crime of ’73.” (4)

Another form of currency was national banknotes. Commercial banks could purchase special bonds that carried the circulation privilege. The bank could then go to the Treasury and receive banknotes the Treasury printed with the name of the bank on them. Unlike the banknotes issued by the banks before the slaveholders’ rebellion, national banknotes were backed by the credit of the United States. The Treasury was responsible for making sure they remained convertible into gold dollars on demand. National banknotes were discontinued in 1935.

In addition, there were gold and silver certificates. After 1873, silver was minted only in limited quantities. The Treasury exchanged gold in unlimited amounts for gold certificates. Certificate owners could exchange them for gold on demand, but silver certificates were limited. Gold certificates were discontinued in 1933. The New Deal expanded the issuance of silver certificates the same year. Silver certificates were not discontinued until 1964.

While the currency system was complex, it followed one rule. If gold flowed into the U.S., the quantity of paper dollars would expand. If gold flowed out, the quantity of dollars would contract. This was similar to the situation of countries with a central bank. Over time, as the amount of mined gold increased, markets grew. But as we have explored throughout this blog, once capitalism reaches a certain degree of development, commodity production tends to grow faster than the market, whose expansion is ultimately determined by the expansion in gold production.

In general, the national banking system worked relatively well for the capitalist system except during periods of acute crisis. It had one big defect. Since there was no central bank, there was no way to increase the quantity of banknotes during a crisis when abnormal demand for banknotes developed. This was similar to the situation in Britain under the Bank Act of 1844. Indeed, the genius of the Bank Act was to have the British banking system, with a central bank, act like a system without one. The Act could be suspended in a crisis. When this was done, the frantic demand for banknotes would be broken, usually without even having to issue extra banknotes. (5) Later on, it became clear that the Bank Act would be suspended whenever an abnormal demand developed in a crisis, so the panic demand for banknotes during crises no longer occurred.

It was different under the national banking system. A central bank cannot be created in a crisis that moves with lightning speed, while the 1844 Bank Act could be suspended. Under the National Banking Act, the best that could be done in a crisis was creating clearing house certificates. This wasn’t as effective as giving the central bank the right to issue more banknotes. Unlike the British economy, the U.S. economy was hit by panic-driven demand for currency in 1873, 1893, and 1907.

The sharpness of crises caused by the lack of a central bank under the national banking system did not halt the rapid growth of capitalism. Indeed, the sharpness of the crises brought about a thoroughgoing clearing of overproduction that led to powerful industrial upswings. During crises, the unemployed could return to family farms (the U.S. as a whole was still largely a country of family farms).

Capitalism and the family farm

The family farm system was built on the ruins of the agricultural systems of the Native peoples. After the family farm system was established through settler colonialism, the development of capitalism led to a progressive decline, first relatively and then absolutely, in the number of farms. The absolute level of agricultural production grew as modern production techniques were applied. This is similar to what happens in non-agricultural industry.

Around the turn of the 20th century, the revisionist movement inside the German Social Democratic Party claimed that tendencies toward concentration and centralization of capital were absent in agriculture. Tendencies toward concentration of production and centralization of capital were far more obvious in industry than in agriculture. Nobody could make these kinds of arguments today. The evolution in agriculture under capitalism is best illustrated in the U.S.

According to the USDA, the number of farms in 1850 (about a decade before the slaveholders’ rebellion) was about 1.5 million. That number increased to about 6.8 million in 1935. This seems to support the German revisionist claim that while the number of independent enterprises may decline in industry, it increases in agriculture. But after 1935 the number of farms began to decline, falling to around 2 million, not much higher than in 1850. The rate of decline slowed after 1970 in the face of declines in manufacturing employment, but has continued.

Historically, in the course of capitalist development, farmers who are used to hard physical work are the source for new workers in large-scale industrial enterprises. After 1979, the number of workers began to decline in U.S. manufacturing as the process of deindustrialization took hold. This caused hard-pressed farmers to cling to their farms as relatively well-paid industrial jobs that had attracted earlier generations began to dry up, though the number of farms still declined. Today the total number of farms in the U.S. is only slightly more than in 1850, though the population, according to Wikipedia, has risen from 23,191,876 in 1850 to 331,499,281 in 2020.

Compared to 1850, individual farms today are far more productive and have much more land: from an average of around 200 acres in 1850 to around 469 acres in 2025. But the term “average” is misleading because the great majority of farms, the small ones, are barely holding on, while modern agricultural production is dominated by industrial mega-farms. Today, one-tenth of all farms work half the farmland.

U.S. industry overtakes Britain

After the defeat of the slaveholders’ rebellion, the U.S. share of global industrial production expanded rapidly, and the productivity of labor increased absolutely as well as relative to that of Great Britain. One reason was that a lot of British industrial enterprises were old and not in a position to take full advantage of the most advanced industrial techniques. Another reason was that the U.S. had a relative shortage of labor.

This meant that the value of labor power and wages, the price of labor power, were higher than in Britain and other capitalist countries. It was more profitable to use machinery in the U.S. than elsewhere. The industrial capitalist who has the lowest cost price, defined as c, the constant capital used up in production, plus v, the purchased labor power used in production, wins out in competition. If wages rise, it becomes cheaper to use more machinery: c rather than v. The more c is used, the less living labor overall is needed to produce the commodity. As long as the rise in c, the constant capital used up, is less than the drop in v, the purchased labor power, the total cost price, c + v, will drop.

This obliged the U.S. industrial capitalist to develop labor productivity faster than the European capitalist. By the end of the 19th century, the value of U.S. commodities, the total quantity of human labor needed to produce them, was lower than that of those produced in Britain. Measured by the stimulation that U.S. capitalism gave to the productivity of labor, in the years after 1865 U.S. capitalism was more progressive than European capitalism. There wasn’t anything progressive about the virulent racism against the former slaves and their descendants, further intensified after Reconstruction was defeated, or about the policies toward Asian immigrants or the Native population. And despite the higher value of their labor power, U.S. workers were still exploited by industrial capitalists. Nor was the oppression of women ended.

The U.S. was geographically a much larger country than any in Europe, with the exception of Russia. Unlike the post-1865 U.S., Russia was not a bourgeois national state; it was still a semi-feudal autocratic bureaucratic empire that oppressed many nations and nationalities. Also, much of Russia is in the Arctic or subarctic zone, while the U.S. (with the exception of Alaska) enjoys a far more temperate climate. Alaska itself was a Russian colony purchased by the U.S. in 1867.

As a result, U.S. industry and agriculture enjoyed all the advantages of a large home market. In addition, the country was rich in many raw materials and agricultural land. All of this encouraged a more rapid development of capitalism than anywhere else. U.S. capitalism also acted as a safety valve for European capitalism, because if things got too bad for workers in Europe, they immigrated to a labor-hungry U.S. In this period, it was said in Europe that America’s streets were paved with gold.

1898 and the turn to empire

Before the slaveholders’ rebellion, the South was eager to grab territory in Latin America with its warm tropical climate favorable for the growth of cotton and sugar cane. This was seen as ideal for expanding production based on modern slavery; during the 1850s, southern politicians and pro-slavery politicians in the North aimed to annex Cuba. After the defeat of the slaveholders’ rebellion, the separate southern ruling class that based itself on modern African chattel slavery was gone. U.S. capitalists, basing themselves on wage labor, felt themselves the masters of the North American continent and developed their own expansionary designs to extend production based on wage labor, not slave labor.

In 1898, the U.S. seized large swaths of the Spanish empire in the Spanish-American War. Spain was no match for the U.S., which had replaced Great Britain as the chief industrial country in the world. The U.S. seized Cuba, Puerto Rico, and the Philippines, and though the U.S. had always been expansionist, this marked the beginning of modern U.S. imperialism based on monopoly capitalism. It now had a colonial empire of its own beyond the North American continent. In 1900, along with the chief European powers and Japan, the U.S. participated in putting down what is known in the West as the Boxer Rebellion in China. In this operation, all three emerging imperialist powers worked together to quash a rebellion by a “Global South country,” to use today’s terminology, that we became so familiar with after 1945, after two world wars had resolved any previous contradictions among them.

From the Spanish-American War to World War I

By the time of the Spanish-American War, which, according to Lenin, was the first war carried out by modern finance capital, the stage of capitalism he called “imperialism,” big capital was based on the merger of large-scale banking and industrial capital. The Spanish-American War was a continuation in a new form of earlier commercial wars based on the domination of industrial capital under free (not perfect) competition and the commercial wars of the mercantile period dominated by merchant capitalists. These capitalists exploited the early capitalist mode of production based on manufacture that preceded the large-scale use of steam-powered machinery, as well as pre-capitalist modes of production. The Spanish-American War was the logical result of the rapid development of U.S. capitalism after 1865 during what historians often call the Gilded Age. It was dominated by robber barons (as the emerging monopoly capitalists were called) and marked the beginning of the transformation of industrial capitalism based on free competition into monopoly capitalism. The Gilded Age was crowned by the Spanish-American War, but a much bigger war was coming.

At this time, a newly unified Germany, emerging from the Franco-Prussian War, was coming into conflict with the rapidly expanding British Empire. Britain had lost its early- and mid-19th-century industrial monopoly based on its labor productivity to the U.S. and to the newly unified Germany. This in and of itself made war between Britain and Germany inevitable. Since the “anti-Jacobin” (Napoleonic) wars, Britain had followed a policy of not allowing a single European state to dominate the continent. Now the newly industrial Germany was driving toward just that. But the enormous commercial and financial pressure of the U.S., whose industrial power dwarfed the power of any European capitalist state, was pushing old Europe toward war and revolution.

The crisis of 1907 and the formation of the Federal Reserve

During the late 19th century, the U.S. could get away without an organized central bank. The closest things to it were the New York Clearing House, which issued certificates during periods of acute crisis, and the private bank of J.P. Morgan. During the crisis of 1907, J.P. Morgan personally acted as the de facto U.S. central banker. For example, Morgan decided that the newly organized Morgan-dominated U.S. Steel Corporation would take over the Tennessee Coal, Iron and Railroad Company. This illustrated the need for a U.S. central bank. Morgan demanded that U.S. “trust-busting” President Theodore Roosevelt go along with the takeover he claimed was needed to stop the crisis. Morgan combined his role as de facto central banker with his own private interests as a capitalist.

Even the House of Morgan realized this could not go on much longer. Now that the U.S. was the center of global industrial production, it would only be a matter of time before New York would replace London as the center of the world money market.

Opposition to central banking was rooted in the strong small-farmer, small-producer, shopkeeper mentality of many Americans who dreamed of growing rich in the “new world.” But the prospects of any individual doing this, particularly if they weren’t backed by big capitalists, were gradually diminishing with the progress of capitalist development. This opposition had been whipped up in the early and middle parts of the 19th century before the slaveholders’ rebellion. London dominated the global money market just as Britain dominated the markets for manufactured commodities. There was fear that a U.S. central bank would be dominated by London financiers, as the First and Second Banks of the United States were seen to have been, and you can find echoes of these ideas today.

These ideas were still strong when the crisis of 1907 hit the U.S. money market, briefly paralyzing credit and causing an industrial recession that sent unemployment soaring. In the wake of that crisis, the leaders of U.S. finance capital agreed that the creation of a U.S. central bank could not be put off. The widespread populist hatred of bankers meant it had to be done in a conspiratorial way. A secret meeting of top finance capitalists was organized at Jekyll Island in November 1910 that drew up plans for what became today’s Federal Reserve. To appease widespread populist anti-banking sentiment, the Federal Reserve had and still has a complex and baroque structure. Instead of one Federal Reserve Bank, twelve were created to obscure the fact that a single central bank was in reality being created, not twelve independent banks. Of these twelve, the Federal Reserve Bank of New York was and remains the most powerful. It is no accident that it is located in lower Manhattan, near Wall Street. (6)

Even today, the twelve district Federal Reserve Banks issue their own Federal Reserve Notes, which form the paper currency of the United States. Nowadays, this is a mere technicality, as the U.S. Federal Reserve System acts as the central bank not only for the United States but for the entire world. As we have explained throughout this blog, maintaining the dollar system and the role of the Federal Reserve is crucial to maintaining the U.S. global empire.

World War I

The outbreak of World War I at first involved a declining Britain and its empire, France, and the decaying Russian Empire on one side, and Germany, the decaying Austro-Hungarian Empire and the dying Ottoman Empire on the other. This meant that the world order dominated by Britain since the defeat of Napoleon at Waterloo was over. What was left open was the nature of the world order that would succeed it. While everything pointed to U.S. domination and a shift of the main axis of world trade from the Atlantic basin to the Pacific that has come to fruition only in our own time (Marx and Engels predicted this in the middle of the 19th century), this still left many details open. How would the other imperialist powers relate to the United States? And how and through what institutions would the United States exercise its dominant role? In the summer of 1914, nobody knew the answers to these questions.

There was a potential alternative to the global domination of Imperial America: the rule of the world proletariat.

World war and world revolution

In the summer of 1914, the world Marxist movement was organized into what was called the Second International. The International Workingmen’s Association (IWA), organized in 1864 with Marx personally playing the leading role, is now called the First International. In 1871, for more than two months, the working class ruled the city of Paris, though not France as a whole. The Prussian and French armies, which had been fighting a war with each other, united to crush the world’s first working-class government. Until the 1917 Russian Revolution of October 25 (old style), or November 7 (new style), the Paris Commune was considered the highest point the workers’ struggle had ever reached. The defeat of this first workers’ government was followed by a period of reaction that brought the IWA to an end.

By 1889, the era of reaction following the defeat of the Paris Commune was lifting enough to make possible a new attempt to create a global international working-class organization. By then, Marx had died, though his co-worker Frederick Engels was still alive and was the most important individual leader of the new international until his own death in August 1895. National sections, as a rule, called themselves Social Democratic parties, and the name adopted by the international’s leading section was the German Social Democratic Party.

Engels did not like this name. “Social Democratic” implies that the aim of parties of the Second International was to create a socialist democratic, or workers, state. The program of Marx and Engels went beyond this, since the workers’ state, making the working class the ruling class, was not an end in itself, but a necessary step on the road to creating a society without classes or the state in any form. Even the most democratic state is still an organization whereby one class holds down another. The word “democracy” implies the state continues to exist in the form of a democratic republic. The continued existence of the state implies the continuation of classes and class rule in one form or another. In Engels’ (and Marx’s) view, the aim of the working-class movement is a society without classes or the state in any form, better described as communism, a society without private property in the means of production, social classes, class struggle, and the state.

In the world of the late 1880s, when the Second International was formed, the word “communism” was, as the expression goes, beyond the pale, but social democracy or socialism was more respectable. In the U.S. during the “Cold War,” even the word “socialism” was considered beyond the pale. Republicans regularly accused Democratic opponents of being “socialists.” The Democrats would explain they were liberals, not socialists in any sense, and to that extent they were telling the truth.

Today we have a similar situation in the United States, with a whole layer of Democratic politicians, often associated with the Democratic Socialists of America (DSA), who consider themselves to be “democratic socialists.” They reject dictatorship in any form, especially the “dictatorship of the proletariat.”

Engels went along with the policy of calling sections of the Second International “Social Democratic” rather than “communist,” but he was not particularly happy about it.

The seizure of power by the Bolshevik faction of the Russian Social Democratic Labor Party on October 25 (in the modern calendar, November 7) in Petrograd, then the Russian capital, created the second workers’ government (after the Paris Commune) in world history. The Bolshevik faction of the Russian Social Democratic Labor Party soon changed its name to the Communist Party.

Later, when the Third International, also known as the Comintern, was founded in 1919 after the Russian Revolution, it made no such concession on the name. The leaders of the new international, in which Lenin was the most influential figure, insisted as a condition of membership that all national sections call themselves Communist followed by the name of the country they operated in. In contrast, parties of the Second International that opposed the Russian October Revolution generally continued to call themselves Social Democratic.

There was now only one alternative to an era of U.S. domination, and that was a world socialist revolution that would bring the world communist party, the Third International, to power. The choice confronting the world on the morrow of World War I was between a world communist workers’ government — a world dictatorship of the proletariat allied with the oppressed working peasantry and other working people — and the dictatorship of U.S. imperialism allied with every oppressing institution in the world. It is important to explore the history of the Russian Revolution, the Soviet Communist Party, and the Third International in the decades that followed. However, this is not the focus of this blog.

What drove the U.S. to seek world domination? It isn’t the personality of any particular president, nor even the venal character of Democratic and Republican politicians (not to deny their venal character), nor is it the nature of Christianity or any other religion — not Judaism, not Islam, not Buddhism — nor any particular political ideology. The U.S. was driven to strive for world domination by the laws governing the capitalist economic system that we explore throughout this blog.

Let’s briefly review these laws here.

The capitalist mode of production has greater potential to increase production than to expand the markets that absorb the products produced at profitable prices. This means that individual industrial capitalists find they must “crush the competition” or themselves be crushed. Each capitalist nation-state represents its own national capitalist class in competition with other states representing theirs. Every state must do all it can to expand its share of the world market. At the state level, the methods are political, diplomatic, and especially military.

For individual industrial capitalists, the key to gaining a larger market share is producing commodities of a certain use value and quality at a lower cost price. The cost price is that paid by the industrial capitalist, not what society pays for the commodity. Society, the final consumer, has to pay the price of production, defined as cost price plus average profit. Important in determining this are the price of labor power (wages) and the price of raw materials and access to them. The more territory a capitalist nation-state controls militarily and politically, the better are the chances its capitalists can access the raw materials needed to produce commodities at lower cost prices than competitors.

A capitalist state as large as the United States, in terms of geography and population, with a highly developed capitalist economy, could not, at a certain stage of development, resist striving for world domination. Compared to it, Europe (with the exception of Russia), due to various historical factors, is carved into relatively small nation-states. The U.S. already possessed many natural resources not produced by human labor but by nature: lands that provide conditions rich in agricultural capacity, minerals, and energy sources such as oil and coal. This gave big advantages to the early U.S. over its European competitors. The biggest problem it faced was the shortage of labor, an issue that is also tied up with the problem of modern African slavery and its aftermath.

The labor shortage led to a higher value of labor power, forcing 19th-century American capitalists to utilize machinery that couldn’t be used profitably in Europe. In the long run, this meant that American-produced commodities had an overall lower individual value than those produced elsewhere. This allowed for lower cost prices and therefore lower selling prices (i.e., lower national prices of production).

Far from satisfying the American capitalists, it only whetted their appetite to control more territory, sources of raw materials and markets. They were increasingly driven to extend their domination of the North American continent to the entire globe. By the dawn of the 20th century, the U.S. ruled a huge chunk of the continent and, as a first step toward world empire, had seized the Philippines from Spain and was reaching out to claim a generous share of the China market under the slogan of the “open door” policy.

This was not enough. The U.S. saw itself as heir to the British Empire, then the largest empire the world had ever seen. When World War I erupted, the U.S. financed Great Britain and opposed Germany. It didn’t want a dynamic Germany to win the war but rather a decadent Britain. This pro-British stance was especially supported by the powerful House of Morgan, the forerunner of today’s JPMorgan Chase. (7) During the 19th century, the House of Morgan channeled the capital of British money capitalists into U.S. industries. This allowed the House of Morgan, which towered above Wall Street, to gain particularly close ties to the ruling British financial oligarchy. Just as Venice had financed the rise of Holland, and Holland had financed the rise of British industry, now British money capitalists, through the House of Morgan and other lesser banks, were financing the rise of industrial America.

The end of World War I

President Woodrow Wilson was a racist Democrat who had gotten elected in the 1912 election due to the split in the Republican Party between former President Teddy Roosevelt and his Republican successor William Howard Taft. Roosevelt formed the Progressive Party, popularly known as the “Bull Moose” Party. It took many votes away from Taft, leading to the election of Wilson. After running for reelection in 1916 on a platform of “He kept us out of war,” Wilson brought the U.S. into the war in April 1917. (8) The then-deadlocked war now swung in favor of the Allies — Britain, the U.S., France and, until late 1917, Russia. After the Bolsheviks came to power in November 1917, Russia withdrew from the war. Germany agreed to an armistice in November 1918 when its generals, mostly Prussian landowners, feared a repeat of the Russian Revolution if the war continued. A wave of revolutions swept away the centuries-old Russian Empire, the German Empire, the Austro-Hungarian Empire, and the Ottoman Empire. The British Empire did not fall and indeed reached its greatest geographical extent, but it was financially undermined. The U.S. was greatly strengthened. A new world order was taking shape as the U.S. reached out for world domination.

To be continued.

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NOTES

(1) A wing of the Republican Party has begun to criticize U.S. support for Israel, which until recently was solidly backed by Democratic and Republican politicians alike. We’ll have to examine the newly minted opposition from the political right to U.S. support for Israel as the 2028 presidential election approaches. (back)

(2) When more Democratic senators are up for reelection in competitive states, as is the case this year, the situation is more favorable for the Republicans, since those up for reelection run the risk of losing to the Republicans. (back)

(3) Scientists and engineers have long tried to find ways to carry out fusion reactions (not fission) in a controlled way so fusion energy can be used right here on Earth. Some capitalists are trying to find a way to use controlled fusion reactions to produce energy for profit. Uncontrolled fusion reactions have been carried out since the 1950s with the hydrogen bomb, far more destructive than the atomic bomb, which depends on uncontrolled fission. A hydrogen bomb is set off by an atomic bomb as its trigger. (back)

(4) Free silver coinage means that any owner of silver bullion can go to the mint to have the silver made into a full-weight silver dollar of 26.73 grams (a gold dollar was minted at 1.67 grams). In the early 1870s, due to advances in mining technology that reduced the socially necessary quantity of labor, the value of silver was falling relative to the value of gold. As a result, free coinage of silver was discontinued in many countries, while gold coinage continued or commenced as more and more countries moved away from the silver and bimetallic standards in favor of the gold standard. (back)

(5) Only in the crisis of 1857 were banknotes beyond the limit set by the Bank Act actually issued, and then only briefly. (back)

(6) The Jekyll Island meeting is at the center of conspiracy theories to this day, now promoted by the far right. The meeting was secret, but it was ordinary ruling-class politics, not the “secret bankers’ cabal” of antisemitic conspiracy theory. (back)

(7) In the early 20th century, the U.S. was dominated by two powerful banking houses: J.P. Morgan & Co. and banks associated with the powerful billionaire oil family headed by John D. Rockefeller Sr. (a billion dollars in those days went a lot further than today). A century later, in December 2000, J.P. Morgan & Co., by then a publicly traded corporation, merged with Chase Manhattan, combining the two most powerful financial empires, long viewed as rivals, into a single mega-bank: JPMorgan Chase. This is a dramatic example of the centralization of capital. (back)

(8) Wilson presented the war as one for democracy, and ever since, every U.S. conflict has been a “war for democracy.” It would have been hard to present a coalition of powers that included Czarist Russia as a coalition for democracy against the “autocracy” represented by Germany. The Czar had just been overthrown by the Russian Revolution of March 1917 (new style), so Russia could now be included in the ranks of “democracies” by Wilson. (back)