Recent polls confirm that the U.S. presidential race is extremely tight between Kamala Harris – supported by the Party of Order, including prominent Republicans such as Bush’s warmongering and powerful Vice President Richard Cheney – and Donald Trump. While many individual capitalists support Donald Trump, the really big money is behind Harris. This gives Harris a considerable advantage. When the big money deserted Genocide Joe Biden earlier this year, he was forced out of the race. The big money wasn’t concerned about his support of Israel’s Gaza genocide. The money bags didn’t believe Biden could win after his disastrous performance in the June 27 “debate” with Trump.
Polls taken on the eve of the September “debate” between Harris and Trump showed the election either even or leaning toward Trump, though Harris took the lead afterward. (1)
Trump, however, can still win. What determines the presidential election in the U.S. is not the popular vote but the vote in the electoral college. The electoral college strongly favors Republicans. There is a good chance that Harris will win the popular vote – though this is far from certain – only to lose to Trump in the electoral college. This is exactly what happened in 2016 when Hillary Clinton defeated Trump by two million votes, but Trump carried the electoral college.
Polls show that abortion is the Democrats’ strongest issue. The Supreme Court took away the right of abortion as a constitutional right in the Dobbs decision. The economy is the Republicans’ strongest issue. The Democrats failed to pass a law making abortion legal. Under these circumstances, how the economy evolves between now and November may play a decisive role.
A ceasefire in Gaza would strongly favor Harris because of the Arab-American and Muslim vote, along with some of the African American, Latino, and youth vote, but only if she can put some daylight between her position and Genocide Joe. As of this writing, Harris has refused to do so. There is no sign that the Biden-Harris administration is putting the kind of pressure on Israel that would be necessary to secure a ceasefire before November 5. This would slow the pace of the genocide, if only temporarily. With the continued absence of a ceasefire in Gaza, any deterioration in the economy could well mean the election goes to Trump. (2)
The current state of the economy
In earlier posts this year, I have expressed skepticism about how many jobs the Labor Department claims are being generated. The department has now admitted that my skepticism was justified. Yahoo Finance – a strong defender of the Biden-Trump administration – was forced to report that “The U.S. economy employed 818,000 fewer people than originally reported as of March 2024, showing the labor market may have been cooling long before initially thought.”
“Yahoo Finance” goes on to write that the U.S. Labor report “released Wednesday morning, showed the largest downward revisions to the professional and business services industry, where employment was revised down by 358,000 during the period. Leisure & hospitality saw the second-largest downward revision of 150,000.”
Polls show that most people believe the U.S. economy is already in a recession. This possibility is ridiculed by the economists and the pro-Harris “Party of Order” media. Could the people looking for and holding on to jobs have a better idea of what is happening than the U.S. Labor Department?
I remain cautious about whether the U.S. economy is already in the early stages of a full-blown recession as opposed to a Kitchin recession, named after British statistician Joseph Kitchin (1861-1932). They are also called inventory recessions, slowdowns or mid-cycle slowdowns, and soft landings. Swings in inventories drive Kitchin recessions – in Marx’s terms, commodity capital. (3)
Unlike major recessions, they are not accompanied by major reductions of business spending on fixed capital — new factories and machinery, etc. The two types of recessions are hard to distinguish in the early stages. All recessions begin with reductions in inventories. In a major recession, inventory reductions lead to reduced spending on fixed capital. In a Kitchin recession, business picks up before a major reduction of spending occurs. This is the soft landing scenario.
While there is no certainty in forecasting the movements of the industrial cycle, there are indications that something more than a Kitchin recession is brewing. As September began, new waves of nervous selling hit the stock markets. This partly reflects that September is traditionally a down month for stocks. For months, the stock market has been buying the soft landing scenario peddled by neoclassical economists who seldom predict recessions in advance. They argue that the Fed’s expected decision to lower the target for the federal funds rate will mark the beginning of a cutting cycle. Lower interest rates encourage inventory rebuilding. The bulls are counting on rebuilding ending the current slowdown before a drop in investment in fixed capital leads to a full-scale recession.
Corporate profits don’t drop much in Kitchin recessions or soft landings, so dividends can increase while capitalized at lower interest rates. They are considered bullish for stocks — unlike full-scale recessions. The recent sell waves on Wall Street indicate that as the moment of truth approaches, market speculators are getting nervous that the soft landing scenario they’ve been counting on may be wishful thinking.
This scenario can only unfold if overproduction — especially of the commodities whose use values constitute fixed capital — has not yet reached a point to trigger a full-scale recession. Under capitalism, recessions force the termination of overproduction. Recessions result from strong investment fueling economic growth, not stagnation and weak capital investment. They are sometimes preceded by a relatively prolonged period of leveling off that resembles a Kitchin recession but can start suddenly without first leveling off.
The leveling-off periods are preceded by strong growth. During the leveling-off period, growing stagnation in the production of items of personal consumption is usually accompanied by strong investment. Businesses are expanding their productive capacity while sales to consumers are stagnant. At some point, they slash capital spending — it makes little sense to build new factories and other enterprises and bleed cash when they can’t make profitable use of the capacity they already have. When this happens, the leveling-off period gives way to a full-scale recession with a sharp rise in unemployment. If capital spending does not decline before the need to rebuild inventory causes business to pick up, we will only have a Kitchin recession.
The period following the 2007-09 Great Recession was prolonged economic stagnation and weak investment. A sluggish rise in non-money commodities was accompanied by rising gold production stimulated by the preceding crisis.
Gradually, capital spending increased. Unprofitable enterprises were shut down, and aging equipment had to be replaced as it wore out or was technologically obsolete. Stagnation in capital investment cannot last indefinitely. Though uneven, the secular stagnation of the 1930s or after 2008 eventually led to accelerating growth, affecting industries and countries differently.
At the beginning of 2020, signs such as an inverted yield curve implied that more than a mere Kitchin recession would likely occur within several years. Then, a unique event occurred, the first of its kind in capitalism. The state ordered large sectors of the economy to be shut down due to the outbreak of the COVID-19 global pandemic. The fear was that the newly evolved pathogenic virus could cause a catastrophic decline in the size of the working class. It killed millions around the world. If the number of people forced to sell — or attempt to sell — their labor power to the capitalist class declines sharply, the position of the remaining workers is strengthened. (4) Competition between them would decline, while that between capitalists seeking to purchase labor power would increase.
Carried far enough, production of surplus value would decline. This would occur not because it was impossible to realize the surplus value in terms of the use value of the money commodity — gold — as happens with a normal recession. It would be because there are not enough workers to produce the surplus value. The lack of competition among the sellers of labor power would be combined with a sharp rise in competition among the buyers of labor power. This would make it impossible to squeeze additional surplus value from the remaining workers. This would be the dreaded “absolute overproduction of capital” that Marx describes in Volume III of “Capital.” (5)
In theory, an absolute overproduction of capital can occur when the capitalists’ demand for additional labor power outruns supply or due to a decline in the number of workers obliged to sell their labor power. The former is unlikely to occur because a relative — to the money commodity — overproduction of commodities develops before an absolute — relative to the number of people obliged to sell their labor power — to the capitalists develops. The latter — a sudden decline in available workers — is possible. It could occur due to a pandemic, a world war, or a climate disaster. As late as the 1940s, it was not yet possible to sufficiently reduce the working class’s size through war to bring about an absolute overproduction of capital on a world scale. This is no longer the case.
Modern medicine supported by science has made a fall in the number of workers due to a pandemic less likely but not impossible. When COVID-19 appeared, nobody knew how many would die or if modern medicine and science — hindered by the profit motive and state-supported pharmaceutical monopolies — could stamp it out. Fortunately, the virus has become less virulent as a result of vaccines as well as prior infections. But we can’t be sure this will continue to be the case. There is constant danger that a new pathogenic organism will emerge that will reduce the size of the human population. Or that a combination of factors, such as war, pandemic, and climate disaster, might do the trick and bring on an absolute overproduction of capital.
The 2020 shutdowns proved effective in stopping the spread of COVID-19. But capital cannot long tolerate the shutdown of capitalist (re)production. The shutdown measures were lifted prematurely, causing cases to spike and deaths to increase again.
The shutdowns did bring a brief but sharp period of underproduction. In the wake of the shutdowns, businesses scrambled to rebuild their inventories and workforces. The sudden scramble for labor power created a favorable climate for the labor unions, the best in decades. The lowest interest rates in capitalist history suddenly spiked as overproduction occurred, stimulated by the previous forced underproduction during the shutdowns. As interest rates spiked, the boom tapered off; big capital spending continued to rise, indicating a continued overproduction of the means of production. Was overproduction slowed down in time by interest rate rises to prevent a major recession at this time? We’ll know soon.
One sign a major — not a Kitchin — recession is approaching is the prolonged inversion of the yield curve. Recently, the yield curve has been disinverted. Is this a sign a recession has been avoided? According to historical evidence, the answer is no. The disinversion of the yield curve occurs as every major recession begins. A disinverted yield curve after a prolonged yield curve inversion is historically a sign that a full-blown recession is beginning. It becomes evident in the statistics within several months.
The Fed takes a big risk
Capitalist economists clinging to a soft landing scenario had great hopes that the Federal Reserve System would cut its federal funds target by 0.25 percentage points (25 basis points) or maybe 0.50 percentage points (50 basis points). In the weeks leading up to the Open Market Committee meeting on September 18, it was believed that the Fed’s target for federal funds would be reduced by .25 percentage points. However, days before the Open Market Committee meeting, reports spread that the cut would be .50 percentage points instead. In the past, the Fed would make a cut of that size only if a major recession was clearly underway and then not always. However, on September 18, the Fed cut by .50 percentage points, although economic reports do not confirm that a major recession is underway.
The decision was not unanimous for the first time since before the 2007-09 Great Recession. Michelle Bowman dissented. Bowman is a member of the Board of Governors and, as such, has a permanent seat on the Open Market Committee as long as she remains a member of the Board of Governors. Bowman wanted a more cautious .25-point cut. With the dollar price of gold fluctuating around an all-time record of $2600, a .50-point cut is extremely risky.
Why did the Fed make this dangerous, outsized cut anyway? There are several possible reasons.
One is memories of 2008. In September 2008, what the Fed claimed was a mere “mid cycle economic slowdown” – a Kitchin recession –was transformed into the “Great Recession” as major banks and insurance companies came under severe pressure and the giant Lehman Brothers investment bank –long a pillar of Wall Street –failed, the stock market crashed, and credit dried up. The Fed believes it could have greatly mitigated that crisis if it had eased earlier. They don’t want to make the same mistake this time.
Second, the Fed may have information that the economy is much weaker than government reports indicate. They, therefore, may have believed that a cut of .50 points is necessary to mitigate what will soon be recognized as a major recession.
Finally, the Fed may have made the outsize cut to improve the chances of the Party of Order candidates –Harris and Walz –against Donald Trump and JD Vance.
One objection to this latter theory is that changes in the Federal Funds Rate affect the economy only with a lag of many months, while the presidential election is only a little more than a month away. However, this overlooks the impact of a cut in an economy that may be on the verge of a major recession but has not yet fallen into one. As I explained last month, stock market crashes tend to occur in October.
The thinking might be that if a stock market crash occurs this October, this would increase the perception on the part of the voters that the U.S. economy is facing a major recession, which might cause a portion of the electorate to vote for Trump that would not do so otherwise. As September began, a wave of selling hit the stock market. However, reports began circulating that the Fed would cut federal funds by .50 rather than .25, and the stock market rallied. The Fed’s cut certainly reduces the chances of an October stock market crash.
The risk is that the outsize cut will trigger a move into gold that could soon turn into a full-scale dollar crisis, leading to a new inflationary surge in dollar prices. This would only increase the chances of a 2008-style crash or worse in the near future. However, the new inflationary surge in dollar retail prices and the subsequent deep recession would not occur until after November 5 – which is too late to affect the election. Let’s examine what would happen if the Fed’s sharp cut in its target for federal funds triggers a dollar crisis. Assume the general overproduction of commodities has reached a critical point. The Fed attempts to stave off a full recession by embarking on a “cutting cycle” before the economy falls into a major recession. We know what will happen: Interest rates drop, gold demand soars, and dollar prices of primary commodities increase. This rise spreads to wholesale and then to retail prices. As dollar prices rise, more currency (additional dollars) are needed to circulate commodities. If the Fed does not further accelerate the rate at which it is creating dollars or does not do it fast enough, higher dollar prices drive up interest rates, reversing the earlier interest rate cuts. The recession the Fed tried to stave off by prematurely lowering the Fed Funds target will begin. (6)
Even worse for the Fed, if it accelerates the rate at which it creates dollars not backed by gold to fight the interest rate increase, it will fall into an inflation trap. In this trap, the Fed must create dollars quickly to slow the rise in interest rates, but it cannot lower it due to dollar inflation. Gold demand is whipped into a frenzy, and a full-scale dollar crisis is brewing. The crisis can only end in higher interest rates followed by deep recession. The cutting cycle fails.
A third possibility: A recession begins, and the Fed prematurely (before overproduction has been liquidated) floods the money market with non-gold-backed dollars. The recession is cut short, and a recovery begins. But within a year or so, a dollar crisis will force interest rates back up, causing a renewed recession. We’ve seen this pattern in 1958, 1967, 1970, and 1980.
Today, the Federal Reserve has to consider various risks as it tries to avoid major recession or at least limit its scope. One risk is Trump, who many politically powerful capitalists consider unqualified to occupy the White House. The U.S. empire faces major challenges in West and East Asia, as well as Europe. In the war over the Donbass between Russia and Ukraine, the Ukrainian Euromaidan army is reeling; it’s clear they are becoming demoralized. The seizure of an area around the Russian City of Kursk by Ukraine — the site of a famous World War II tank battle — was supposed to boost support for the war among war-weary Ukrainians and perhaps more so in the West. For the first time in more than a year, the Western media could write about the pro-NATO forces winning victories against Russia.
However, as the Ukrainian army seized territory, the Russian army continued to advance. With little sign Ukraine can hold its gains in Kursk, this offensive is turning into a debacle for Kiev and its Washington masters. There are rumors of peace talks this fall. But it’s combined with alarming reports that the Biden administration is about to authorize Kiev to make missile attacks deep into Russia. Russia has indicated that if this happens, it will consider itself to be at war with NATO.
Washington may soon have to decide on whether to face defeat in its drive to dominate Ukraine, with Russia driving the Ukrainian army out of Donbass and the fall of the Nazi-ridden Euromaidan regime in Kiev likely to follow. Alternatively, they risk a dangerous escalation that might end in a Russian-U.S.-NATO war in Europe and beyond. This is at a time when Washington also has to worry about war with Iran and conflict with China over Taiwan, with the domination of the world semiconductor market also in play.
Meantime in Germany — the very heart of Europe — opposition to its support of Washington-NATO in the Russo-Ukrainian conflict is being expressed by victories for parties of the left — the Left Party, which’s in decline, and its breakaway party led by Sahra Wagenknecht, that seems to be taking its place — and on the right, the gains of the extreme right-wing nationalist Alternative for Germany Party. The German economy faces big problems due not only to cyclical factors but also because Washington has forced it to stop buying natural gas from Russia and instead purchase more expensive gas from the U.S. The pretext is the need to punish Russia over the war. This has increased cost prices for German industry relative to the United States.
Since the occupation of Germany at the end of World War II, West Germany — after 1989, all of Germany — has had no real sovereignty. The lack of West German sovereignty during the Cold War was compensated for by the fact that Washington was obliged to make West German capitalism successful. At first, this was done to prevent the spread of the socialist revolution in Europe. Later, it was done as part of its drive for counterrevolution in GDR (East Germany), Eastern Europe, and the Soviet Union.
But times have changed. Today, the U.S. sees Germany as an economic rival that must be controlled. Buying natural gas and other cheap raw materials from Russia makes sense for German imperialism. But buying the more expensive supplies from the U.S. makes political, economic, and military sense for the U.S. world empire that dominates Germany.
Forcing the country to buy expensive natural gas from the U.S. makes Germany a market for the U.S. natural gas industry. This weakens German industry and gives U.S. industry a better chance of wrestling away markets lost to German industry during and after the Cold War.
No wonder the pro-U.S. imperialist parties — the Christian Democrats, the Social Democrats, the Free Democrats, and the Green Party — are losing ground in recent elections to parties of the extreme right and left. After the U.S. elections in November, I’ll dedicate a post to these developments in Europe.
To deal with mounting problems in Asia and Europe, the Party of Order wants a person like Kamala Harris in the White House who will listen to their professionals regarding foreign policies rather than that dangerous amateur Trump. This is why the former Republican vice president under George W. Bush, Richard Cheney — considered the architect of the Iraq, Afghanistan, and other West Asian wars — has come out for Harris. Leftists who support the Harris campaign might want to ask themselves why they support the same candidate as Cheney.
The Party of Order has to balance the risks of a dollar crisis against the possible election of the unstable, erratic Trump. Given his age, should Trump be defeated by Harris in November, he will likely be out of presidential politics forever.
If we assume a recession is starting, interest rates will fall without triggering an upswing in the dollar price of gold — there will be no immediate dollar crisis in that case. Once a recession becomes obvious, the demand for the dollar as a means of payment will cause a fall in gold’s dollar price as interest rates fall — as happened in 2008. The stronger dollar will allow the government to increase borrowing without driving up interest rates. The already great danger of war in the West and East Asia, Europe, and the Eastern Pacific will increase.
In the view of the Party of Order, this is no time to have an amateur in charge. Harris indeed has little foreign policy experience, as she was a prosecutor, putting ordinary working people in jail for crimes like violating the now essentially repealed anti-marijuana laws. As president, she’ll be surrounded by professional warmakers. This is why Cheney supports her. The Party of Order supporters on the Federal Reserve Open Market Committee may believe it is worth the risk with the dollar to keep Trump out of the White House in 2025. If the Federal Funds Rate cut proves to be a mistake, they hope there will still be time to correct it before things get completely out of hand.
After 1982
Let’s review how overproduction develops within an industrial cycle and then resolved through a recession in trade, production, and employment. Following a recession marking the end of one industrial cycle and the beginning of another, gold is plentiful relative to non-money commodities. Reflecting this, commercial banks’ ratio of reserves to their loans and deposit liabilities is high. Once inventories have been sufficiently run down — the result of underproduction during the recession — the commodity production expands as inventories are rebuilt and business spending on fixed capital surges.
Whatever monetary system is in effect — the gold standard, gold exchange, or fiat money — the quantity of money available for bank reserves measured in its purchasing power ultimately depends on the amount of gold available to back it up. If the reserves exceed the limits set by the quantity of gold, the currency will depreciate, and the gold’s dollar price will rise. This produces a wave of currency depreciation inflation, reducing the reserves’ purchasing power relative to the quantity of commodities measured in their prices that must be circulated. The quantity of bank reserves limits how much credit money the commercial banks can produce.
As commodity production expands, more currency is put into circulation, or what is largely the case today, more credit money is created based on bank reserves. As long as gold remains plentiful and bank reserves remain ample relative to circulation needs, the quantity of currency expands as the socially necessary quantity of currency expands.
As long as the quantity of gold — commodity money — expands in line with increasing circulation needs, there will be no general commodity overproduction. The more the general price level is below the prices of production, the faster the quantity of gold will expand.
Eventually, the multiplier and accelerator effects create an economic boom. Commodity demand then exceeds the supply, causing prices to rise (measured in the money commodity’s use value). The general price level reckoned in the money commodity’s use value rises above the total production prices of non-money commodities.
Beyond this point, the growth in the quantity of gold can no longer keep up with the sum of commodities in circulation. There are two reasons for this. One, the higher the general price level, the greater the quantity of money necessary to circulate commodities. Second, once the general price level rises above the production prices, the profitability of producing more money material declines absolutely and relatively due to the greater profitability of producing other commodities.
Capital flows out of the money material-producing industry into more profitable non-money commodity-producing industries. At this point, the more money material is needed to circulate more commodities, the less additional money material will be produced. We see the magic of the marketplace in action.
As market prices rise above those of money production, the production of money material begins to slow down while the production of non-money commodities accelerates. At this point, the general relative overproduction of commodities begins. This does not cause an immediate crisis. There are still enough reserves in the commercial banking system to circulate additional currency. However, the additional means of circulation can only be created at the price of reducing the ratio of bank reserves to bank-created credit money.
The other method to postpone the onset of a crisis is to increase the velocity of the circulation of currency. However, the fact that a single unit of currency cannot settle multiple payments simultaneously imposes a limit on how much this circulation velocity can be increased.
These are the two methods capital uses to increase the production of commodities and the surplus value they contain beyond the limits imposed by the capitalist mode of production. Overproduction will continue until a further acceleration of the velocity of circulation becomes impossible and the ability of the credit system to expand on an increasingly stagnant monetary base reaches its limit.
Beyond that point, providing a sufficient quantity of currency to circulate commodities at current prices will no longer be possible. Expanding bank loans can no longer provide adequate circulating media because commercial banks no longer have sufficient reserves to back additional loans. Money is in short supply, and the crisis is on.
As long as gold (or silver) standards or gold-exchange standards are in effect, it appears that it is not economic laws but arbitrary legal limits on the ability of the banking system to issue new loans and create additional circulating media that is the cause of the crisis. Monetary reformers arose, demanding that these legal limits on the ability of the banking system to make additional loans and create additional circulating media be either liberalized or removed altogether.
In the history of capitalism, the British economist John Maynard Keynes (1883-1946) was the most influential reformer of this type. By the 1930s, Keynes wanted to see the monetary role of gold ended once and for all. Keynes and his supporters believed that “the monetary authority” — the central bank — should be free to create additional money to meet the rising circulation needs without being limited by the need to convert banknotes into gold coins or bullion at a fixed rate.
It wasn’t until the 1970s that this reform on a global level was fully put into effect. The crises of 1973-75 and 1979-82 show us what happens under these circumstances. As long as the prices of commodities calculated in terms of gold remain low enough relative to the prices of production of commodities, the quantity of gold expands at a pace adequate to keep pace with the rising needs of circulation.
The demand for gold is low when gold is plentiful relative to non-money commodities. Speculating in the gold market is a losing proposition, while speculating in the stock market is highly profitable. The prices of commodities measured in terms of gold rise.
Investing in an industrial or commercial business during strong gold production is far more profitable if you are an active capitalist. If you are a mere money capitalist, as most capitalists are in modern monopoly capitalism, investing in the bond and stock markets is far more profitable.
Indeed, if we measure profits in terms of the use value of the money commodity, hoarding gold is, by definition, not profitable at all. At best, hoarding gold merely preserves social wealth — measured in terms of the use value of gold — but does not increase it. But the point of capitalist production is not to preserve social wealth measured in terms of the use value of the money commodity but to expand it. As demand for gold declines, money is abundant, and interest rates remain low.
If we look at the graph of golden prices between 1780 and 2009 presented on page 64 of Shaikh’s “Capitalism, Competition, Conflict, Crises,” — we see that prices measured in gold rose briefly after the crisis of 1973-75 but soon resumed their decline. In contrast, after the crisis of 1979-82, they began a sustained rise that would last through the rest of the 20th century. The interest by the capitalists in hoarding gold, which was so strong in the 1970s, faded away in the 1980s and did not return until after the turn of the 21st century.
The plentiful character of gold, accompanied by gold’s falling purchasing power, reduced the absolute and relative profitability of producing gold. Eventually, this led to a new depression in gold production beginning in 2001, which continued to 2008 when a new crisis once again increased the profitability of producing gold.
Starting in the early 1980s, the rising profitability of gold production ended the depression in gold production. This triggered a new period of capitalist growth, which made possible a recovery in the highly depressed golden prices of commodities as market prices rose back toward production prices.
It is capitalist prosperity, not crisis, making gold relatively unprofitable to produce. And capitalist prosperity leads to a renewed overproduction of commodities relative to gold. This is true whether the monetary system is a gold standard, a gold exchange standard like the Bretton Woods System, or today’s so-called fiat money system. A fiat monetary system is a token money system where the currency tokens have a variable exchange rate with gold rather than a fixed rate of exchange.
Under the current monetary system, the Federal Reserve System can legally create any amount of dollars it sees fit. As gold becomes scarce relative to commodities, the demand for gold increases. A rising U.S. dollar price of gold reflects this.
As the rise in the dollar price of gold accelerates — the profitability of producing non-money commodities measured in terms of the use value of gold is replaced by losses in terms of gold — even if production is still profitable in terms of legal tender dollars and to a lesser extent in real terms. Capitalist production is not for nominal paper profits, nor is it a system of expanding wealth in real terms to meet human needs. To think otherwise is to confuse capitalist production with socialist production. Capitalist production is instead a system of expanding wealth without limit measured in terms of the use value of the money commodity.
Demand for gold bullion whipped into a frenzy
During the 1970s, profits were positive in terms of paper money and, to a lesser extent, in real terms but negative in terms of the use value of the money commodity. If the individual capitalists did not fully understand this, they increasingly observed that merely purchasing and holding gold was more profitable when measured in depreciating currency than in any other alternative investment. Capital always flows to the most profitable investment. This whipped up the demand for gold bullion into a frenzy that fed on itself.
Since the Federal Reserve System could not allow the collapse of the dollar, the Fed was forced by the beginning of the 1980s to allow interest rates to rise to whatever level was necessary to break the demand for gold. Any other course would have destroyed the U.S. dollar on the international and even the U.S. home markets.
However, to save the dollar, it was necessary to allow a shortage of dollars relative to the needs of circulation to develop. The shortage of dollars under the circumstances necessary to save the dollar caused interest rates to rise to the level that finally broke the demand for gold bullion. The demand for “hard cash” was redirected from gold to the U.S. dollar. The dollar was saved. This, however, meant falling trade, production, and employment, resulting in mass unemployment. This means that the production of wealth was once again pushed back into the narrow limits imposed by the capitalist relations of production.
Those limits are that the production of wealth occurs only as it increases the quantity of wealth when measured in terms of the use value of the money commodity. As it is more commonly stated, wealth is produced by capital only as long as it is profitable to produce, though we must add profitable in terms of the use value of the money commodity.
To make this more concrete, let’s review what happened during the crisis of 1979-82. By the time Paul Volcker assumed command of the Federal Reserve System in August 1979, it had lost a great deal of credibility. The root cause of the Fed’s loss of credibility was the attempt by the U.S. government and the Federal Reserve System to transform the U.S. dollar into non-commodity money.
Marx showed why this is a utopia under capitalist commodity production. Capitalism is the highest stage of commodity production, in which labor power becomes a commodity. The reason is that social labor is divided under commodity production into many private labors. Once commodity production has reached its highest stage – capitalism – these private labors are directed not by the direct producers but by individual industrial capitalists who hire the direct producers as wage laborers. Each industrial capitalist – the individual capitalists are increasingly collective capitalists represented by hired managers who play the role of the active capitalists – is obliged under the pressure of their mutual competition to maximize their profits.
The private labor used to produce individual commodities can only show itself as a part of social labor by demonstrating on the market that it can be exchanged for the money commodity. Therefore, the price of a commodity must be measured in terms of the use value of the money commodity. Just as importantly, profit, which alone provides the motive for production under the capitalist system, must be measured in terms of the use value of the money commodity.
Assuming that the money commodity is gold bullion, the private labor that produces gold bullion alone doesn’t have to demonstrate that it is a part of social labor by showing that it can be exchanged for the money commodity. The private labor that produces the money commodity enjoys the unique privilege that it alone is directly social labor. But all other private labors that produce commodities can only show themselves as a part of social labor to the extent that it can be exchanged for the product of the labor that produces the money commodity. Under the capitalist mode of production, wealth is social wealth only to the extent that it can be exchanged for gold bullion, the money commodity.
Crises of the relative overproduction of commodities are always crises of the overproduction of commodities relative to the money commodity – gold bullion. When this happens, the convertibility of commodities into gold bullion – money material – begins to break down. Under the gold and gold exchange standards, it appears that the convertibility of commodities into money is breaking down because the central banks that issue currency are hamstrung by laws that oblige them to maintain the convertibility of their currencies into either gold directly or currencies that are convertible into gold – gold exchange standard.
The gold and gold exchange standards create the illusion that if the legal requirement that the central bank – or other money authority that issues the currency – must convert the currency into gold at a fixed ratio is removed, crises would be abolished. By the 1960s, this type of thinking dominated the work of most economists, whether they were followers of John Maynard Keynes, Milton Friedman, or, on the left, the “Keynesian-Marxists” of the Monthly Review school.
The historical significance of the crises of the 1970s and early 1980s
The work of Marx on commodities, value, and surplus value predicts that any attempt to create non-commodity money under the capitalist system would fail. If it is over-issued relative to gold bullion, not only would the convertibility of the paper money on the open market become more and more impaired as measured in terms of a rising currency price of gold. More importantly, the convertibility into gold of commodities overproduced will begin to break down. As currency becomes devalued, the capitalists will attempt to raise prices in terms of the devalued or depreciated currency to compensate for the fall in the currency’s value relative to gold. However, there will not be enough paper currency to fully allow capitalists to achieve this. This was the pattern in the 1970s when the dollar price of gold rose faster than that of commodities.
As the rise in the dollar prices of commodities continued, all remaining hoards of idle currency were drawn into circulation. The ratio of commercial bank-created credit money to their legal tender currency reserves increased. The result was the tightening of the money market reflected in rising interest rates.
When the central bank – the U.S. Federal Reserve System, which acts as the central bank of the entire capitalist world under the dollar-dominated international monetary system – tried to fight the rise in interest rates by creating still more dollars not backed by gold, the rate of the increase of the dollar price of gold accelerated further, leading to accelerating inflation which was still lagging behind the accelerating increase in the dollar price of gold.
We, therefore, had an inflation of prices in terms of the U.S. dollar – and in currencies linked to the U.S. dollar under the dollar system – combined with a deflation of prices in terms of gold bullion. This deflation in golden prices whipped out profits not in dollar terms or real terms but in terms of the use value of the money commodity. As profits turned negative in terms of the use value of the money commodity, this impressed itself on the consciousness of the everyday capitalist by making the hoarding of gold the most “profitable” way of making money in terms of U.S. dollars and other paper currencies.
Every other possible investment appeared to bear an opportunity cost relative to the hoarding of gold. It was this situation which whipped demand for gold bullion into a frenzy. After all, capital always flows to the field of investment that is most profitable, and in the 1970s, the most profitable – dollar terms – field of investment was the hoarding of gold. As more and more capitalists discovered that hoarding gold was more profitable than any other investment, the demand for gold kept rising.
When the central bank – the Federal Reserve System – attempted to fight the rising interest rates by increasing the rate at which it created additional dollars, the demand for gold bullion accelerated even more. The result was that the rate of inflation continued to increase. If this had been carried to its logical conclusion – there had been no Volcker shock – inflation would have continued to increase until the dollar and other paper currencies linked to it would no longer be able to function as money. Gold itself would replace legal tender paper money, and the only credit money that would be able to function would be credit money that is directly convertible into gold itself.
If anything like this ever happens to the central capitalist currency in the future, it would make the early 1930s super-crisis seem like a picnic by comparison. If it had been allowed to happen in the 1970s and 1980s, the U.S. world empire would almost certainly have ended. By 1979, Keynes was “dead.” Volcker’s basic assignment was to get the Federal Reserve System off the inflationary train before it was too late. He accomplished this task and is therefore viewed today as the “savior” of U.S. and world capitalism.
The truth is that every industrial cycle tends towards this inflationary situation when the development of overproduction has reached a certain point. Under gold, or gold-exchange – and earlier sometimes silver – standards, the situation cannot get near a full-scale inflationary collapse where the state-issued currency loses its character as money.
Long before that point is reached, the legally mandated convertibility of the currency into gold will prevent it. However, once a fiat money system is adopted, the safety rail of the legally mandated currency convertibility at a fixed rate into money material is removed. While incontrovertible paper money is hardly new, for the first time in modern capitalist history during the 1970s, the chief global currency – the U.S. dollar – became inconvertible into gold at a fixed exchange rate. The old guardrails were removed, and as a result, for the first time, the purely economic limits of capitalism were bare. (7)
When he became the Fed chief in 1979, Volcker had essentially two choices. He could have attempted to prevent a shortage of paper currency from developing relative to the socially necessary quantity needed to circulate commodities. But, under the circumstances then prevailing, this would have ended in the inflationary destruction of the U.S. dollar. Since this could not be permitted, his only remaining choice was to allow the development of a shortage of U.S. dollars relative to the socially necessary quantity necessary to circulate commodities.
This road led to the highest interest rates in the entire history of capitalism, followed by falling production and the conversion of the heartland of U.S. industrial production into the Rust Belt it is today, along with mass unemployment. But, under the economic conditions that Volcker was facing, this price had to be paid to save the U.S. dollar and the U.S. world empire.
Only after the U.S. dollar was saved could there be a return to traditional Keynesian-type policies within certain limits. After the 1970s, U.S. policymakers have been far more aware of the limits beyond which Keynesian policies fail, even if they can’t describe these limits scientifically. This awareness dictated their response to the next major crisis in 2007-09.
The fluctuations of the industrial cycle serve as a mechanism that prevents the market prices of commodities from drifting too far from their production prices.
As shown on Anwar Shaikh’s graph, the prolonged depression in world gold production that set in with the First World War caused by wartime commodity shortages and inflation resulted in prices in 1920 that were far above the price of production. Such a severe and prolonged deviation of market prices from the prices of production unparalleled in the history of capitalism was made possible only by the World War I war economy that occurred when market prices were already very high relative to the prices of production.
The subsequent depression in world gold production – not as deep as the one that began with World War I – set in around 1970 and lasted until the early 1980s. The highest price level for the entire post-1920 period for U.S. wholesale prices calculated in terms of gold occurred around 1970 when the index rose with the help of the Vietnam War above 150 but remained well below the 200 level reached in 1920. During the 1930s Great Depression, the index fell to 50. The recovery in global gold production that followed this shows that this was well below the total prices of production of non-money commodities.
The sluggish rise in gold production during the post-World War II era shows that prices were once again above the prices of production, which held gold production in check and progressively undermined the post-World War 11 Bretton Woods System. Soon after the crisis of 1973-75 ended, prices calculated in terms of U.S. dollars rose sharply, but the golden prices of commodities resumed their fall. They fell from 50 immediately after the 1973-1975 recession, essentially the level that prevailed during the 1930s.
Then, due to the further depreciation of the U.S. dollar, the golden price index falls below 50. This was even lower than during the worst of the 1930s super-crisis. Since 1780, the prices of commodities in terms of gold bullion have never been lower than they were at the beginning of the 1980s. A severe dollar inflation of prices was accompanied by a severe deflation of prices in terms of gold.
We can assume that these prices were well below the prices of production since the depression in gold production, which set in around 1970, ended in the early 80s. Soon, the output from global gold mines was again setting new records. As a result, over the following years, a considerable change in both the economic and political situation was to occur.
There is no reason to think that the general price level in terms of prices of production is fixed over time — quite the contrary. The general price level, when calculated in terms of prices of production, will rise if the value of gold falls relative to the value of commodities. Production prices will fall when the value of gold rises relative to the value of commodities. When calculated in terms of gold, market prices fluctuate around the prices of production, which, with some modifications, are determined by the labor values. Between 1780 and 1920, gold prices seemed to fluctuate without any clear trend over time. We see a fluctuation of prices around a relatively stable level of production prices.
But after 1920, the long-term trend of prices measured in terms of gold was downward. Since bourgeois Europeans had thoroughly explored the world, the long-term trend toward the depletion of gold mines has outpaced the discovery of rich new gold mines. In contrast, during the 19th century, large areas of the earth were still not fully explored by bourgeois Europeans. Prolonged periods of falling prices in the 19th century ended with the discovery of gold in California and Australia in the late 1840s and early 1850s. In the 1890s, the Klondike gold discoveries ended the long period of falling prices that set in with the crisis of 1873.
However, after the 1890s, there were no discoveries of gold-bearing land on the relative scale of California, Australia, and the Klondike. The deep depression in prices in the 1930s ended not because of any dramatic new gold discovery but because market prices had fallen so far below the prices of production that gold mining had become very profitable, both absolutely and relatively. Instead of discovering rich new mines, improved techniques were developed, squeezing more and more gold out of what would have been considered very poor, unprofitable mines in earlier times.
It seems the general price level in prices of production – which have to be calculated in gold to be meaningful – has been shifting downward since 1920. This forms an essential part of the economic background that led to the 1930s Depression. Though World War I dramatically increased market prices of non-money commodities just as the prices of production reflecting the depletion of the Klondike mines were turning downward, played a decisive role.
Thanks to World War I, market prices and production prices moved dramatically in opposite directions. Such a divergence of market and production prices cannot occur without dire consequences. Never before – or since – have market prices been so far above the prices of production than they were in 1920.
The gradual depletion of gold mines during the 20th century drove the gradual abandonment of the gold and gold exchange standards. Up to the present, it has still proved possible to squeeze ever more gold out of the earth’s crust and, therefore, keep the long-term trend in gold production sloping upward.
But since 1920, this has only been possible because prices, when calculated in terms of gold, have shown a downward trend. In the ancient world, when gold and silver mines became depleted, coins would be debased – containing less precious metal – leading to higher prices in terms of those devalued coins even as prices of commodities fell in terms of uncoined precious metal.
In modern times, we have seen the progressive abandonment of the gold standard and its replacement by today’s fiat money standards. Like in the ancient world, the debasement of currencies was accompanied by a rise in prices in terms of currency due to increasingly depreciated paper currencies. Unlike the ancient world, the depreciation of currencies has been intertwined with crises of overproduction that were not known in ancient times.
As I explained last month, during a short-term “run on gold,” such as we saw in 1979-80, the quantity of gold can be considered almost fixed. But what is true in the short run is not true in the long run. Over a number of years, a rise in gold production, whether as a result of the discovery of rich new mines or a result of a collapse in golden prices such as we saw in the 1930s and again during the 1970s, will make a huge difference in the relationship between the total quantity of gold relative to the total quantity of commodities measured in terms of their price tags. As the prices measured in terms of gold collapsed in 1979-80, the profitability of producing gold sharply increased both absolutely and relative to the rates of profit of producing non-money commodities.
The dollar price of gold fell sharply after it hit $875 in January 1980. This was because the Volcker Fed refused to increase the rate at which it created additional dollars. As prices continued to rise in terms of dollars, the dollars began to grow scarce relative to the quantity of dollars necessary to circulate commodities. This situation briefly caused the federal funds rate to rise above 20% in 1981. At this level of interest rates, the demand for additional gold finally cracked. After that, it was increasing scarce U.S. dollars and not gold that was in demand. By the end of 1982, the dollar price of gold had fallen to about $460. By the end of 1983, the dollar price of gold had fallen below $400; by the end of 1984, the price had fallen to $315.
Though the dollar price of gold had fallen sharply compared to the peaks of January 1980 gold, the dollar gold price remained far above the levels that prevailed at the beginning of the 1970s. A dollar gold price of $315 is very low compared to $875 but very high compared to $35.00 an ounce. Even taking into account the much higher level of dollar prices in the 1980s compared to the 1970s, the price of commodities, when calculated in terms of gold, though higher than the extremely low level of January 1980, was still very low compared to where they had been 1970 (see “See the Price Graph in Capitalism Page 64).
While commodity prices in terms of gold were well above the price of production in 1970 – especially after the Vietnam War era inflation – they were by the early 1980s well below the prices of production. This made gold very profitable to produce relatively and absolutely in the early 1980s compared to the case in 1970.
Rising gold production combined with the effects of the 1970s and early 1980s recessions in reducing the production of non-money commodities meant that the quantity of gold in the world relative to non-money commodities had greatly increased. A rising quantity of gold bullion relative to commodities meant that interest rates could now fall without increasing the demand for gold bullion.
On the contrary, the demand for gold bullion could now be equalized with supply at lower and lower interest rates. Still, it took some years before interest rates could fall to historically normal levels. This shows that confidence in the U.S. dollar had been deeply shaken by the failed attempt to turn the U.S. dollar into “non-commodity money.”
It took many years for the Federal Reserve System to fully regain its credibility, especially since the guardrail of some kind of gold-exchange standard was not restored. As the 1980s progressed without any return to the currency depreciation of the 1970s, confidence in paper money was gradually restored, allowing interest rates to continue to fall.
The downward trend in interest rates meant that the U.S. government could borrow more money, which was spent on increasing armaments, without causing interest rates to rise. For example, on April 11, 1983, right after the crisis bottomed out, the Federal Funds Rate fell to 5.83%.
Though interest rates fluctuated, the general trend was strongly downward, even with the combination of Reagan’s tax cuts for the rich and huge military build-up financed by increased U.S. government borrowing, greatly increasing the federal government’s debt. Republicans arguing for even more tax cuts claimed that Reagan showed that deficits don’t matter. As the 1980s progressed, more than enough loan money was available for the capitalists, the federal government, state and local governments, and consumers purchasing durable consumer goods on credit to go around. By March 2004, the Federal Funds Rate had fallen below 1%.
This period of falling interest rates, a stable and even rising U.S. dollar against gold, and falling interest rates combined with moderate capitalist economic growth was dubbed the “Great Moderation” by capitalist economists. In the U.S., production did not increase as rapidly as between 1946 and 1970. However, in the world’s largest country by population – the People’s Republic of China – production was increasing rapidly.
Despite the rapid industrialization of China and, to a lesser extent, other Global South countries, there was probably less overproduction compared to the 1946-1970 period. There were relatively moderate recessions in 1990-91 and 2000-01, plus a couple of “soft landings” – Kitchin recessions – that were not formally considered recessions. Optimistic capitalist economists claimed that the Federal Reserve System had finally learned to smooth out the “business cycle” and that only moderate recessions and soft landings could be expected in the future.
The whole period, beginning with the collapse of the gold pool in March 1968 and ending with the bottoming out of the 1979-82 crisis in December 1982, can be viewed as one long, drawn-out economic crisis. The U.S. empire tried to get out of this crisis – and end crises of overproduction forever – by demonetizing gold and establishing that the U.S. dollar has world non-commodity money in place of gold.
But this protracted crisis had shown, not in the pages of “Capital” or any other work by Marx, but in real life that the attempt to transform the U.S. dollar into world non-commodity money had failed. As Marxists, we know why this attempt failed and why any future attempts to abolish commodity money without abolishing capitalism will also fail.
The end of the Volcker Shock and the resurgence of U.S. imperialism
In 1981, with the Federal Funds Rate flirting with 20%, it is not surprising there was no recovery in 1981 or 1982. Even the official U.S. Labor Department unemployment rate rose into the double digits for the first time since the Great Depression. However, by November 22, 1982, the Federal Funds Rate dropped to 8.46%, a remarkable decline in such a short period. Unlike the abortive decline in the Federal Funds Rate in 1980, this decline did not set off a new rush into gold because the quantity of gold was accelerating due to rising gold production. This made all the difference.
After three years of the Volcker Shock, many Latin American countries could not pay their debts to U.S. banks. If the Latin American countries defaulted on the debts, this would have brought on a 1931-33 style banking crisis. Volcker moved to bail out the banks and could do so without triggering a new wave of dollar depreciation because due to the rising production of gold combined with years of stagnant or declining industrial production, the ratio of gold to non-money commodities has sharply risen. The consequent rising quantity of loan money enabled Reagan’s deficit-financed “military Keynesianism” to succeed. John Maynard Keynes, who was “dead” in 1979, began to rise from the grave in the form of Reaganite military Keynesianism.
As the quantity of gold bullion rose, the frantic demand for gold bullion that had marked the 1970s disappeared. The increasing quantity of gold meant that the supply and demand for gold bullion could now be equalized at ever-lower interest rates. This situation was to last for the rest of the 20th century. The prolonged economic crisis, which had begun with the collapse of the gold pool in 1968, had run its course.
During the prolonged crisis of 1968-82, the U.S. world empire was highly vulnerable. U.S. imperialism had been driven out of Vietnam as well as Laos and temporarily in Cambodia as well. (8)
The anti-colonial revolution swept away the Portuguese colonial empire in Africa and toppled the Salazarist dictatorship in Portugal. In 1979, the brutal regime of the Shah had been swept away by the Iranian revolution.
The Iranian revolution was not the only revolution in 1979. In July 1979, the Sandinistas overthrew the pro-imperialist Somoza dictatorship in Nicaragua. Earlier in the same year, on the tiny Caribbean Island of Grenada, the New Jewel Movement, led by Maurice Bishop, overthrew the pro-imperialist dictatorship of Eric Gairy. With the dollar plunging as the 1970s progressed, it became increasingly difficult for the U.S. world empire to halt a rising tide of revolutions.
But just as the growing crisis of the U.S. dollar in the 1970s was replaced by renewed dollar strength during the 1980s, the rising tide of revolution of the 1970s was replaced in the 1980s by a rising tide of counterrevolution. This counterrevolutionary wave affected the politics of virtually every nation on earth.
In May 1979, in Britain, inflation was even worse than inflation in the U.S., which swept the Thatcher-led Tory Party into power. Thatcher launched a brutally “monetarist” program parallel to the U.S. Volcker Shock and attacked the working class and its unions. Thatcher’s slogan was “There is no alternative.” The Labor Party-led British workers’ movement, dominated not by Marxism but Keynesianism, crumbled before the renewed capitalist offensive. Then, in November 1980, the Republicans led by the extreme right-wing Ronald Reagan defeated the beleaguered Democratic administration of Jimmy Carter in the 1980 election.
Far from being popular, the Reagan administration during the first two years was very unpopular as the U.S. economy sank into deep recession in 1981 and 1982. However, the recovery, which began in 1983, combined with renewed dollar strength, falling inflation, and interest rates, enabled Reagan and Thatcher to argue that their reactionary policies had turned the economy around.
In reality, the same economic laws that had brought on the prolonged crisis of 1968-82 that sank successive Democratic and Republican administrations alike had given way to a new economic upswing fueled by rising global gold production and consequently strengthening capitalist currencies. The reactionary governments of Reagan and Thatcher were more than willing to take credit for the turn in the global capitalist industrial cycle.
Here, we see an illustration of Lenin’s point when he observed that there is never a hopeless situation for the capitalist class. If the workers are, for whatever reason, unable to resolve a capitalist crisis through their socialist solutions, the capitalists will resolve the crisis through their solutions. Capitalist solutions involve a temporary fall in production and rising gold production, leading to a renewed expansion of the world market combined with a rising rate of surplus value brought on by mass unemployment.
More surplus value is produced, which is realized with the help of rising gold production, leading to a sharp rise in both the rate and mass of profits that revives capitalist production. This is exactly what we had during the 1930s when the deep Depression and the plunging market prices for commodities led to a new boom in world gold production, gradually pulling global capitalist production out of the Depression. The accelerated accumulation of money capital caused by the Depression was used to finance both the World War II war economy and the post-World War II boom. And we saw it again in the 1980s and 1990s. But the results were even more disastrous for the global working class this time.
By far, the worst development in the 1980s was the victory in the Soviet Union of the grouping represented by Mikhail Gorbachev and his pro-capitalist “reformers.” The subsequent collapse of the Soviet Union and the liquidation of 70 years of socialist construction was the greatest defeat that the workers’ movement has experienced in its history.
The effects have yet to be overcome as we approach the end of the first quarter of the 21st century. In the wake of this disastrous development, the workers and their allies among the oppressed nations and non-proletarian working people have been thrown back everywhere. However, not all the gains won by the working class and its allies among the non-proletarian working people and oppressed nations during the seventy years that separated the October Revolution of 1917 and the Russian capitalist counterrevolution of 1985-91 have been lost.
In Russia, neither the Czar nor the semi-feudal economic relations have returned. Nor has China sunk into a new century of humiliation – indeed quite the opposite – despite the best efforts of the U.S. world empire under successive U.S. administrations to achieve this. Nor have the victories of Vietnam and Laos against U.S. imperialism in the 1970s been reversed. Today, a new generation of workers and their allies are fighting to overcome the results of the 1985-91 Russian counterrevolution, not only in nations of the former Soviet Union but in every other country on earth. However, a tough road still lies ahead to complete this task and win new victories that will have to go far beyond the victories won between 1917 and 1985. This is the great task that confronts young people today.
Next, from the “Great Moderation” to the crisis of 2007-09.
(1) I put the word “debate” in quotation marks because the “debates” between the Democratic and Republican candidates for president exclude all third-party candidates. Actually, these are not debates as traditionally defined about contending policies but instead are more like commercial, promotional advertisements aimed at deceiving the listeners. For example, in the September 10 debate, neither Trump nor Harris denounced the U.S.-supported genocide in Gaza. Instead of seriously discussing foreign, domestic, or economic policy in these debates, the rival candidates concentrate on putting their opponent in the worst light possible while trying to drum up enthusiasm for their personal qualities. The Democratic and Republican candidates use deception and, when necessary, outright lies to do this. A poster supporting Harris declares: “Vote Joy 2024.” (back)
(2) The Democrats and their supporters among the “progressives” claim that nothing less than the continuation of U.S. (bourgeois) democracy is at stake in the November 5 election. If Trump wins, the Democrats are claiming, there will be no more elections, and a fascist dictatorship will replace it. If the stakes are so great, and the Democratic Party is so committed to maintaining traditional U.S.-style democracy, why doesn’t the Biden-Harris administration force Israel to halt its genocide in Gaza? If Israel is forced to do this by the Democratic Biden-Harris administration, the chances of Harris defeating Trump would be considerably increased. But apparently, the Democrats consider safeguarding the Zionist entity’s genocide in Gaza as more important than maintaining any pretext of “democracy” in the U.S. Either that, or they don’t believe that a second Trump administration will mean the end of a “democratic” system that among other things was behind the creation of the Zionist entity in the first place, the current genocide, and many other crimes, that are far too numerous to attempt to list in this footnote. (back)
(3) Commodity capital refers to unsold commodities that have absorbed surplus value that has not yet been realized in money form – profit. (back)
(4) This is not to say that the death of millions of workers would be “good” for the working class. What is good or bad for the working class cannot be reduced to the positions of the individual sellers of labor power on the labor market. (back)
(5) In Capital Volume III, Marx used a hypothetical crisis of the absolute overproduction of capital to illustrate how capitalism creates the industrial reserve army of unemployed regardless of the size of the potential working population. If capitalism ever “runs out of workers,” the rate of profit would collapse. Since capitalism is production only for profit, the capitalists would lay off a portion of the employed workers since it would no longer be possible to employ them profitably. Unemployment would then reappear, making it possible to produce surplus value again. And what would be the cause of this unemployment crisis? It would be a shortage of workers!
In the meantime, the growth of the working class population – Marx assumes the working class population would keep growing – would make it possible to produce even more surplus value than before. Once the conditions of producing surplus value were reestablished by mass unemployment, normal capitalist economic growth would resume. Marx was making the point that, under capitalism, surplus population – another name for the industrial reserve army – is not absolute relative to the means of subsistence, as the followers of Malthus claim. Rather, the surplus population is relative to the means of production. (back)
(6) This is essentially what happened during the Volcker Shock. (back)
(7) Inconvertible money is almost as old as coined money. When a piece of monetary metal is coined, the state is saying that it, as the state, is guaranteeing this metal token contains a given weight of monetary metal. It wasn’t long after the invention of coin money occurred about 2,500 years ago before governments began to cheat by reducing the precious metal that the coins contained. The ancient world knew currency depreciation inflation just like the modern world does. What it did not have to deal with were periodic crises of the relative – to the money commodity – of the general overproduction of commodities. Only modern capitalism, with its ability to expand production at a rate undreamed of in earlier epochs, experiences crises of overproduction. (back)
(8) The Cambodian revolution was aborted because of the policies of the anti-Soviet, anti-Vietnamese Pol Pot group that had unfortunately won the leadership of the Cambodian revolution and then proceeded to wreck it through its false policies. As a result, U.S. imperialism restored the Cambodian monarchy and regained at least a partial foothold in that country. This complex and tragic story cannot be dealt with in a mere footnote. (back)
A Critique of Crisis Theory 