On Friday, Feb. 28, 2026, the government of Donald Trump, along with the Zionist entity, launched a full-scale military assault on Iran. Trump indicated that, as he did during the so-called 12-day war in June 2025, the attack aimed at killing top Iranian leaders.
This time, the targets included Iran’s “supreme leader” — as the expression is translated in the West — Ayatollah Ali Khamenei. The 86-year-old was the religious leader of Shia Islam based in Iran, and other Muslims respected him as well. Millions of Iranians were outraged, as millions of Catholics and other Christians would be if a powerful nation bombed the Vatican to kill the pope. A U.S. airstrike on a girls’ elementary school killed, according to one estimate, almost 170 people, mostly schoolgirls. A brilliant example of U.S. military technology and power!?!
In addition to joining the assault, the Zionist entity has gone even further. It launched a massive attack on Lebanon, intending to drive out all Arab people from the southern part of the country. If that isn’t enough, it tightened its food blockade against Gaza, escalating the genocide, while the assault on Iran diverts the attention of the world. The war on Iran raises many questions, including the relationship between the Zionist entity, the so-called State of Israel, and the U.S.-NATO world empire.
One idea being repeated on the non-Marxist liberal-progressive left is that the Zionist entity has gained control of the U.S. government. This is variously explained as having been achieved through bribing or blackmailing politicians, or through revelations from the late Jeffrey Epstein’s international sex-slave operation.
According to this theory, Israel is using its control of U.S. military power to build a Greater Israel empire in West Asia and North Africa to achieve the biblical injunction to take the land “from the river of Egypt to the great river, the river Euphrates.”
Translated into modern geographical terms, this means from Cairo to Baghdad. These progressives seldom criticize or even acknowledge the existence of U.S. imperialism, instead seeing the U.S. itself as a victim of alleged Israeli domination. Were the Vietnam War or the Korean War also the result of alleged Israeli-Zionist domination? This is not only wrong but dangerous.
First, when was this alleged control established? In just the last few years? Or perhaps at the time of the Iraq war, which, according to many progressives, was also fought on behalf of Israel?
Or maybe when the Zionist entity was formally created in 1948? Or earlier, when Zionists allegedly succeeded in getting the U.S. to declare war on Germany in 1917, or when the Federal Reserve System was created in 1913-14, allegedly by Zionist Jewish bankers on Wall Street? Such ideas have been associated with antisemitism for decades.
There is a basic reason why we should oppose these ideas: they are not true, and they cover up the real criminals. This false analysis whitewashes U.S. imperialism. Zionism is indeed a great evil; it is thoroughly genocidal toward Palestinian Arabs, Arabs in general and Muslims in general, and it is racist through and through. But Zionism is the product of imperialism/monopoly capitalism, like its ideological twin, German “National Socialism” (Nazism), not the other way around. (1)
This reminds me of the debate within the movement against the war in Vietnam. In those days, liberals and progressives held that the Vietnam War was a big mistake by certain leaders, or perhaps was the result of the terrible personalities of Lyndon Johnson and Richard Nixon.
It’s pretty clear from historical accounts and biographers who have studied these two presidents that they were indeed terrible people. We Marxists had no trouble working with these liberals and progressives in the movement because we all opposed the war. If we had limited the antiwar movement to those who had a Marxist understanding of the true causes of the war, the movement would have been tiny.
Naturally, the same principle applies in opposing the current war and building as large a movement as possible against it. But as Marxists, not just opponents of the war, we have to be clear on the basic cause of the war as well as the real relationship between U.S. imperialism and the Zionist entity.
That the Zionist entity wants to grab new territory, extend its area of control and make it a formal part of the State of Israel isn’t in any doubt. The United States is a country of almost 350 million people occupying a large part of the North American continent. The Zionist entity has fewer than 7 million Jewish residents and occupies a tiny portion of West Asia. According to Wikipedia, the United States has a GDP of about $32 trillion, and Israel has a GDP of about $550 billion.
The dollar is the world’s leading reserve currency, while the Israeli shekel is not. The Israeli military is powerful and has some atomic bombs, largely because of U.S. aid, but it depends on Washington’s world-spanning war machine. The relationship between the two countries is not one of equals economically, politically, or financially.
While Israel began as a British colony during World War I, it is now essentially a colony of the United States. In 1956, a rare split emerged between the U.S. on one side and Britain and France on the other. France was waging a war in North Africa against Algerians fighting for their independence, and Great Britain was eager to hold on to the Suez Canal, which gave the Zionist colony some wiggle room. The new pan-Arab Nasser government in Egypt had moved to nationalize the Suez Canal.
Israel, taking advantage of the split, attacked Egypt without U.S. permission and occupied Egypt’s Sinai Peninsula.
The U.S. forced Britain and France to withdraw from Egypt. All the U.S. had to do to show who was boss was briefly cease propping up the declining British pound and make a few threatening military moves to force Britain and France to withdraw and Israel to leave the Sinai. Today, Israel, the Zionist entity universally reviled by the people of the world, has no alternative but to serve the interests of U.S. imperialism.
This doesn’t mean Israel has no will of its own or won’t occasionally come into conflict with the United States. The two countries spy on one another. However, the Zionist colony is thoroughly hated by the tens of millions of people who surround it and by the Palestinian Arabs who are forced to live within it. Beyond its expanding borders, hundreds of millions of Arabs and the world’s two billion Muslims, as well as the majority of the world’s non-Muslim people, despise it. The chances that Israel will ever achieve any independence like the thirteen late-18th-century British colonies in North America, to take one historical example, are slim.
Israel’s leaders have the power to propose and advocate anything they want. Netanyahu and other leaders have agitated loudly for a full-scale war against Iran for at least 30 years. But if Israel controls the U.S. government, why didn’t the U.S. launch the current war long ago?
The real relationship between them is more like a cop with a vicious police dog. The dog is trained to rip anyone to pieces as directed. The master has to be careful to make sure his canine tool, in its aggressive frenzy, doesn’t take a nip out of the cop himself. The dog, too, has a will of its own.
At the end of the day, the dog can only launch an assault as directed by the master. Israel is indeed building an empire, but its empire is only a part, though an important one, of the U.S. empire. The inevitable end of the Zionist entity will be a disaster for the empire.
The U.S. will continue to defend what it sees as its vital West Asian colony of Israel. But the headquarters of the empire is in Washington and on Wall Street, not in Tel Aviv or Jerusalem, which in the final analysis function as branch offices, though important ones, of the empire.
One feature of the current war is that all pretense that the U.S. and Israel are not fighting side by side has been abandoned. This has not always been true: When George H.W. Bush (Bush 1) launched the Gulf War against Iraq in January 1991, U.S. imperialism insisted that the Zionist entity not formally enter the war. This made it possible for Arab states to support U.S. aggression without openly fighting on the same side as the Zionist entity.
In 1991, it was Saddam Hussein who attempted to draw Israel into the war by hitting Israel with Scud missiles. Scud missiles, unlike modern precision computer-controlled missiles, can only be launched in a general direction. They can do a lot of damage and kill a lot of people only if they land in the right place. They did little damage to Israel during the Gulf War. Today’s computer-controlled missiles, being used by all sides in the current war, can hit specific targets, even when launched from thousands of kilometers away.
At the outset of the Gulf War, Iraq attacked Israel. Did this draw Israel into the war? No. Israel stayed out at Washington’s insistence. Today, the mask is off.
During the June 2025 12-day war, Israel carried out the actual bombing, with the exception of strikes aimed directly at Iran’s nuclear energy program, which the U.S. Air Force carried out in a single air raid.
In the current war, all pretexts are dropped. The U.S. and Israel are attacking Iran directly without any pretext. U.S. imperialism and its genocidal Zionist attack dog fight as one against the Arab people in Palestine, Lebanon, and elsewhere, as well as the people of Iran.
The real cause of the war
During the current century, the world economy has undergone an epoch-making change. The People’s Republic of China has replaced the United States of America as the world’s leading industrial nation. We have yet to fully absorb the significance of this shift.
For now, the U.S. retains its status as the world’s leading financial country. This situation is inherently unstable and won’t last. The dollar remains the world’s leading reserve currency. The U.S. is determined to check further growth in China’s industrial production and technological development before the dollar loses its status as the global reserve currency. If this happens, it will mean the fall of the U.S.-NATO-Israel world empire.
If the U.S. succeeds in setting up a puppet regime in Iran, it will order it to stop selling oil to China. The same is true in Venezuela, whose lawful president, Nicolás Maduro, sits with his wife, Cilia Flores, in a New York City jail as this is written.
The U.S. wants to bully Venezuela into stopping oil sales to China. Just this morning, March 4, 2026, I read that U.S. forces of some type are fighting in Ecuador, supposedly against drug cartels. And, oh yes, by the way, Ecuador just so happens to be a major oil producer and exporter.
If these moves succeed, China’s industrial growth — already slowing, as the world market is not expanding rapidly enough to absorb an increasing volume of Chinese commodities — will slow further still.
In 1949, at the time of liberation, Chinese industry represented a tiny percentage of global production. To understand this, we have to keep in mind the law of exponential functions. If China had managed to double its production in the first year after liberation, it would still have controlled only a tiny percentage of global production.
Today, China is by far the greatest industrial power in the world. If, over the coming year, China were to double its industrial production, the world’s markets would be so glutted that the whole global economy would crash into the most massive overproduction crisis in history.
We have now reached the point where preventing China from gaining a greater percentage of the total world commodity market has become an existential problem for U.S. capitalism. If the U.S. could successfully cut off the flow of oil and other raw materials necessary for commodity production to China, it would slow the rate of its industrial development further.
The U.S. wants to take control of the world oil market, and other markets as well, as a result of the current war, combined with the wars U.S. imperialism is fighting in South America. If successful, this would ensure that oil and other crucial commodities will be sold only for dollars, not gold, Chinese yuan or anything else.
U.S. imperialism figures that Russia could then be bullied into accepting dollars for payment for its oil. The U.S. is working to break up the Russian Federation and replace it with U.S.-controlled regimes, which is what lies behind the continuing war in Ukraine. Imperialism hopes to give the dollar-dominated international monetary system a new lease on life, using it to crush Russia and finally China. This would guarantee the rule of the U.S. world empire for at least a century to come, or as it’s said in Washington, a second American century.
Herein lies the danger that the U.S.-Israel-Iran war could escalate into World War III. If U.S. aims are achieved, this would undo the conquests of China’s 1949 revolution that freed it from its century of humiliation, as well as the achievements of its amazing economic growth of the post-1978 period. In the worst case, China could face a new century (or centuries) of humiliation.
China has vital commercial, political and military interests in ensuring its right to purchase oil and other commodities freely. The survival of an independent Iran is an important question for Beijing.
China’s leaders have no desire to fight a war with the global U.S.-NATO-Israel empire. Such a war could wipe out the gains of the 1949 revolution and the economic progress it made possible.
The question is whether or not they can avoid such a war. Iran, too, had an interest in avoiding war after its 1979 revolution, and it did so for years. But in the end, its efforts failed, as might China’s efforts.
I think this is why China scrapped the two‑term limit for its state president, a rule introduced under Deng Xiaoping’s reforms in the early 1980s to prevent another lifelong personal dictatorship. In the United States, the informal two‑term tradition was broken by Franklin Roosevelt’s third and fourth elections in 1940 and 1944, and only afterward did the Twenty‑Second Amendment, ratified in 1951, formally limit presidents to two terms.
If the U.S. and its Zionist stooges can be forced into a ceasefire on terms acceptable to Iran in the coming weeks, this will buy time, though it is questionable how much. If the war continues to escalate, only a workers’ revolution can save us from the disaster of a Third World War.
I generally write these posts by writing some parts that can be used no matter what happens in the news. This was especially true with this month’s posts. It was pretty clear when I began this about four weeks ago that war could soon break out. The ships massing near Iran were an ominous sign, as it is expensive to maintain such military forces unless there are plans to use them. This was the biggest show of U.S. military forces since the invasion of Iraq under George W. Bush in March 2003.
But nothing is certain with these matters until it happens. With the dollar price of gold having risen above $5,000 an ounce, this was an argument that this was not the best time for U.S. imperialism to start a war. From a purely financial point of view, it would have made more sense to apply a policy of deflation to create what I have been examining in recent posts, a deep recession.
First, this would have created a larger pool of unemployed labor that, in wartime, would make it possible to recruit more troops before the draft needed to be reinstated. Second, a recession would create a mass of idle money capital in the banks, helpful to finance a war. And a more expensive war could be fought before mass deficit spending would send soaring the interest rates the federal government must pay on borrowed money. And third, the war could last longer and/or become larger, before the dollar price of gold would explode upward, unleashing wartime inflation or, in the worst case, a full-scale currency and financial collapse for U.S. imperialism. (2)
For various reasons, the Trump administration was unmoved by such arguments. Just before the war’s launch, the administration was reeling politically.
We had the general strike in Minnesota against ICE violence and increased resistance to Trump’s brutal and violent deportation policies, as well as growing opposition to the increasingly violent, racist, and Islamophobic rhetoric. Only hard-core racists are buying into this rhetoric, as the administration’s MAGA coalition threatens to split over the Gaza genocide and Trump’s continuing support of Israel.
Online liberal and progressive commentators are openly speculating that Trump is mortally ill, and it’s pretty clear they hope he will indeed drop dead. The most recent sign, according to these commentators, is a rash on the president’s neck and hands. Since I am not a doctor, I have no idea what these symptoms mean or what they say about the seventy-nine-year-old Trump’s likely life expectancy.
Trump’s horrible policies go further than his awful personality. If nature removes him in the near future, his disappearance will not end our current nightmare. Any attempt to assassinate him or any success in doing so by an act of individual terror will solve nothing and only make a bad situation worse.
We are not dealing with an individual tyrant on top of a basically healthy political and socio-economic system, but a crisis-ridden monopoly capitalism system. Trump is only the symptom, not the disease.
From the financial side, Trump has prepared for war in the worst possible way. He and the Republican Congress initiated yet another big tax cut for the rich in the form of the “big beautiful bill,” not a good way to prepare for war. At best, this is a repeat of what turned out to be the disastrous consequence of another tax cut just before the long and expensive Vietnam War, the Kennedy-Johnson tax cut of 1964.
Trump is afraid that a deep recession and gold’s high dollar price, which make a deep recession more likely than not over the next few years, will discredit his arch-reactionary domestic program, such as the Medicaid/Medicare cuts, attacks on labor rights, and tax cuts for the rich, combined with extreme racism.
He has been betting heavily on a renewed economic boom over the next few years that will keep unemployment low by capitalist standards — something he imagines will dampen opposition. This is why he has been trying to intimidate the Federal Reserve into keeping the federal funds target relatively low and has even threatened Federal Reserve Chair Jay Powell with criminal charges.
Trump counts on an economic boom to reduce unemployment to allow the Republicans to run on “prosperity” in the 2026 midterm elections and somehow allow them to maintain their slim House majority without more-than-usual electoral shenanigans.
Trump counts on Iran’s rapid collapse: The anti-government, pro-imperialist demonstrations in Iran this January encouraged him to believe that the war would only last a few weeks without the need for U.S. ground troops. By the time of the midterm elections, Trump hopes the war will be largely forgotten by the American public. If the Iranian people move to defend their country — and that is what is happening — Trump is in a good deal of trouble. There is already talk of American ground troops and a possible draft.
The current war compared to other recent wars
During the first five days of the war, we already see an important difference from other recent wars, especially the two against Iraq in 1991 and the one that began in 2003. First, in those wars, the two Presidents Bush enjoyed a temporary surge of support, a phenomenon observed at the start of most wars. It was observed in czarist Russia in the summer of 1914. It was a different story three years later.
In this war, there is no sign so far in the U.S. of any “rallying around the flag.” One reason is that the Trump administration made no attempt to make it appear that Iran somehow attacked the United States. At the beginning of World War II, Hitler staged a fake attack by Polish forces on the German-Polish border. (3)
There was a fictitious attack on the U.S. Navy by Vietnamese forces in August 1964 known as the Tonkin Gulf incident.
George W. Bush was able to use the Sept. 11 attacks to justify his invasion of Afghanistan in 2001, a war that lasted for twenty years and ended with the Taliban back in power.
Bush was also able to use the Sept. 11 attacks when he launched his unprovoked invasion of Iraq in March 2003, falsely claiming that Saddam Hussein was behind the attacks when in fact he had no connection to them. The current U.S. war against Iran is what the imperialist media calls a war of choice, meaning a war of undisguised naked aggression by the United States.
In the months leading up to the war’s outbreak, there were some interesting movements in the commodity markets. Despite the largest increases in the dollar price of gold and many non-money primary commodities since 1979, the dollar price of oil failed to rise, meaning the price of oil fell in terms of gold.
In the past, OPEC would react to a rise in the price of gold and other primary commodity prices by reducing oil production and raising the price of oil. I took note of this in a previous post. Someday we’ll know what was behind this. It seems likely that the U.S. put pressure on OPEC, dominated by the Gulf oil monarchies, especially Saudi Arabia, not to reduce production but rather to flood the world with oil. The world oil market was glutted.
On November 19, Trump received Saudi Crown Prince and de facto ruler Mohammed bin Salman at the White House. According to the website Times Now, “The president and Prince Mohammed walked slowly on the White House Colonnade, where Trump has hung portraits of all the presidents except one — Biden — in gold frames, with gold ornamentation above them and large gold letters on the wall that say in a curly script: ‘The Presidential Walk of Fame.’ In place of Biden’s portrait, Trump has hung a picture of an autopen signing the former president’s name. Trump showed it off to Prince Mohammed before they headed to enter the Oval Office together.”
What the Saudi ruler thought of this bizarre display we don’t know, but it’s hard to believe that oil production levels and prices were not high on the meeting’s agenda. Whatever the cause, the oil glut has only reduced the immediate results of gold’s high dollar price and made it easier for the Federal Reserve to keep the federal funds rate relatively low and stave off recession for a while longer.
The two Gulf wars by the U.S. against Iraq in 1990-91 and 2003 raised fears that the wars would disrupt the oil trade and raise the price of oil. There was a speculative upward movement in the price of oil in the prelude to the wars. But after they broke out, it became clear there would be no big disruption in oil production or shipping, and the price quickly fell back. But not this time.
Military technology has changed since then. It’s become increasingly cheap to produce computer-guided missiles and the cost [price of production] of producing drones has become low.
The growth of computer technology means not only cheap but powerful desktop computers, but also cheap and powerful computer-controlled missiles and drones. Iran, partly due to these changes in technology, has far more powerful technology than Iraq had in 1991 or 2003.
Iran has been able to launch effective attacks on U.S. bases and oil and natural gas processing facilities located in the Gulf oil monarchies, something Iraq was unable to do. Iran has been able to largely halt oil shipping through the Strait of Hormuz.
This has sent oil and gas prices soaring during the first week of the Iran-U.S.-Israel war. Rising oil prices cause gasoline prices to rise. In addition, oil is important to the production of fertilizer, which will affect food prices across the globe in the coming months. If this lasts only a few weeks, memories of the price uptick will probably fade by November. But if they keep going up through the northern hemisphere’s summer and into autumn, this will be bad for Trump’s hope of retaining Republican majorities in the two houses of Congress.
If prices stay high for a long period of time, this would also affect the profitability of global gold production, reducing the ability of the world market to expand over the coming years. We have examined these questions throughout this blog and will continue to follow how these developments affect the evolution of world economics.
For this month, I am running out of time and space. What follows was written before the war’s outbreak in light of gold’s high price, which was then just over $5,000 an ounce. It provides important background information.
Value and price and war
The capitalist mode of production is ruled by the law of the value of commodities. The law operates as soon as commodity exchange begins, but only under capitalism does it fully develop with all of its consequences. The law’s most naive version is that the price of commodities is determined by the quantity of labor used to produce them, and this is true as far as it goes.
To improve this formulation, we have to say socially necessary labor. If a producer of a given use value of a given quality takes more time than average to produce a commodity, the producer isn’t creating more value. Similarly, under the same circumstances, if a producer uses less than the average (socially necessary) labor, this doesn’t mean that they create additional value.
We have to distinguish between the commodity’s individual value and its social value. We also have to distinguish between simple and complex labor. I won’t dwell on this here, but it is worth mentioning and must be grasped to fully understand the value-producing power of human labor.
As capitalism develops, a distinction emerges between prices that directly express the commodity’s value — the direct price — and the production price necessary if all capitals of equal size, in equal periods of time, including the capital producing the money commodity, are to yield equal profits.
No capitalist will willingly accept a situation where the capital invested in the business yields a smaller profit than where a capital of equal size yields a higher profit. (4)
Over time, capitalists will shift their capital from a business yielding below-average profits to one with higher profit.
There has never been a period in the history of capitalism when commodity market prices equaled production prices. The tendency of market prices to move toward their production prices is well established. As Anwar Shaikh showed in Chapter 9 of his “Capitalism,” production prices are close but never equal to direct prices.
Under capitalism, prices are not arbitrary. The more market prices deviate from production prices, the stronger the forces that drive them back toward their production prices. There are also powerful forces that drive market prices away from production prices, but eventually the forces driving them back will be stronger and eventually prevail.
Another question many Marxist economists have stumbled over is in what medium prices — whether direct, production, or market prices — are measured. These include the prices you pay at the supermarket. The naive answer to this question is money, and it is actually the correct one. So far so good.
But what is money? That is a harder question. Money is the social relation of production — this is correct, but it lacks specificity. Who creates money, and how is it created? The widespread belief among academic Marxists that modern money is noncommodity money shows how easy it is to get this question wrong.
We have shown that money is a commodity. Before a use value can serve as money, it must first be a commodity. I won’t belabor this point here, but failure to understand it shows that one has not fully understood the law of value.
I am tempted to write “Marx’s law of value,” but this expression is not correct. Long before Marx, the law of the value of commodities was operating as an objective one and would be operating today if Marx had never existed. The fact that money must be a commodity is an objective law that governs commodity production (not all production), and that money must be a commodity is a necessary consequence of the law of value, which is also an objective law.
Once we grasp this, we realize that price is simply a quantity of the money commodity measured in the appropriate unit of weight for that commodity. In practice, for thousands of years, this has been some unit of weight of precious metals. It is important to emphasize that prices of production must be calculated in terms of the use value of the money commodity, gold, and not arbitrary currency units such as dollars, pounds or yuan.
It is no great secret that the motive to engage in capitalist production is profit.
Profit is the difference between the price at which the commodity is sold and the money price the capitalist had to pay — the cost price — to produce it. We know — though bourgeois economists as a rule, and many academic Marxists, do not — that money must be a commodity and that prices consist of definite quantities of the use value of the money commodity measured in the unit of measure appropriate to that commodity. To calculate profit, we must subtract one price — the cost price — from another price — the market price — something that every child knows.
The two numbers must represent different quantities of the same substance, that being the use value of the money commodity measured in some unit of weight. This means that profit, the very motive of capitalist production, must itself be measured in terms of the use value of the money commodity.
For example, a profit must consist of a definite weight of gold measured in some unit of weight. Profit is the money used to purchase the social surplus product, but it is not the same as the social surplus product. This is an important economic law that is a necessary consequence of the broader law of value, and is unfortunately understood by few.
Profit is the form but not the essence of surplus value. Surplus value is the unpaid labor performed by the working class, measured in units of time, while profit is a quantity of the money commodity — a weight of gold.
It is possible to have surplus value (the workers have been exploited and surplus product made) without having profit. Profit is a derivative phenomenon that is impossible without surplus labor — surplus value — and surplus product, but it is possible to have both without profit when markets are glutted.
Capitalist production cannot continue for long under these conditions. Surplus value and surplus product are necessary but insufficient conditions for profit. Capitalist profit depends on production carried out in proportional physical terms as well as in terms of value proportions.
This is particularly important when studying the war economy. If an insufficient quantity of raw or auxiliary material is produced, commodity production will be hobbled.
The proportions of production must also be proportions in terms of values — and more strictly in production prices. In addition, as commodity production develops, even before the rise of capitalism, labor power becomes a commodity (commodities become divided between non-money commodities and the money commodity that, in terms of its own use value, measures the value of all other commodities).
Once a money commodity emerges, the only way the private labor that enters into commodity production can demonstrate that it is a fraction of the total social labor is by showing that it is convertible on the market into the use value of the money commodity. If there is an insufficient quantity of the money commodity, trade withers and commodity production declines.
The contradiction between the private nature of production and the social nature of labor is expressed through the contradiction between the commodity that serves as money and all other commodities that become absolute during an overproduction crisis. The commodity acting as money material must be produced in the proper proportions to make possible the realization of value in general and the surplus value of commodities.
Too little gold produced means the realization of the value and surplus value of commodities breaks down. Too much gold means banks become glutted with idle money, and interest rates drop. This makes possible the financing of a new economic boom, though it also makes possible the financing of war. This is what was seen in World War II (and should be kept in mind as the current war unfolds).
The huge accumulation of idle money, mainly in U.S. banks as a consequence of the 1930s Depression, made the financing of World War II exceptionally easy.
In the long run, these laws prevent commodity market prices from deviating too far for too long from prices that directly express the value of commodities and, more precisely, the prices of production. Or to put it even more precisely, from the prices that equalize the rate of profit in all branches of production, including the branch that produces the money material.
Real versus fictitious profits
As we have seen throughout this blog, prices must be measured in terms of the use value of the commodity that serves as money. This means that profits must be measured in weights of gold. Weight is the unit of measure appropriate for gold and forms the price standard.
The simple bookkeeping definition of profit is the difference between a commodity’s selling price and its cost price. Since the selling and cost prices are measured in terms of the use value of the money commodity, the difference between them must also be measured in terms of that commodity (weights of gold).
Since all prices (including selling prices, for example, the price you pay at the supermarket) and cost price (the price the capitalist has to pay to produce commodities) are the difference between two prices.
For profits to be “real,” they must be so in gold terms. In other words, the degree to which an investment is profitable is measured by its profit relative to a miser who keeps wealth in the form of gold coins. Only if an investment makes its owner richer relative to the miser is the investment profitable.
There are two types of fictitious profit. One is where capitalists sell commodities on credit. They make a sale and assume that the debt will be paid by the buyer. The capitalist becomes the creditor, and the buyer is the debtor. If the debt is paid, the capitalist earns a profit; if the buyer-debtor defaults, the capitalist-creditor incurs a loss.
In every crisis, many of the profits earned leading up to the crisis turn out to be fictitious. When profits are fictitious, the workers have still been exploited, and surplus value has still been produced. If the commodity has not been sold, or if it has been sold on credit but the debt is not paid, the value and surplus value are not realized (or only partially realized).
In addition to fictitious profits arising due to credit overextension, there are those that arise out of currency depreciation. Normally, the capitalist calculates profits in terms of legal tender currency or, in today’s world, in terms of dollars if the local currency lacks credibility.
This works out fine as long as the dollar is stable against gold. The advantage of the international gold standard was that currencies were stable relative to one another as well as relative to gold. Profits made in currencies, as long as they were genuine (no bookkeeping tricks) and debts were paid, were real profits. When the profits are made in rapidly depreciating currencies, that’s a different story.
Anwar Shaikh and many lesser economists believe that as long as industrial capitalists can expand the scale of production, they are making “real” profits. But we have seen that profits exist only in terms of the use value of the money commodity. To think otherwise is to confuse capitalist with socialist production.
If prices in currency terms rise between the time of production and the time the commodities are sold, the increase is added to nominal profit.
Are these profits real? If profit is positive in gold terms, they’re real. The capitalists started out with a sum of money (gold or something that represents it) and ended up with more. The capitalist will be richer in gold terms than a miser who has locked up some gold in a safe.
What happens if the dollar price of gold rises so fast that the capitalist ends up poorer in gold terms than a miser who simply held gold? In that case, the profit is actually a loss.
True, the capitalist is richer in use-value terms, but have they made a profit? This profit won’t be as large as it would be if we didn’t take inflation into account. But still the capitalist made a profit, or so it seems.
The capitalist has made a profit in terms of particular use values, but not in gold terms, which alone measure social wealth in a capitalist economy.In gold terms, the capitalist is poorer in terms of social wealth than the miser who simply holds gold coins in a safe. So the answer is that the capitalist has not made a profit.
The above analysis is based on Marx’s writings. But isn’t this all theoretical? So our capitalist in Marx’s terms would not have been considered a “good” one, but what are the practical consequences? Shaikh is considered a fundamentalist by the supporters of the Monthly Review school. Aren’t I taking Marxist fundamentalism one step further? Let’s look at the practical consequences.
As we know, capital flows from areas of lower profits — or outright losses — toward areas of higher profit. Assume the locking up of a sum of gold coins in a safe is more profitable in terms of the chief world currency, the dollar, than investing in any branch of production. The miser has “made more money” in dollar terms than the capitalist.
If hoarding gold (being a miser) becomes more profitable than most other competing fields of investment, more and more capital will be “invested” in hoarding gold.
We assume that real-world capitalists have not read Marx (or this blog) and don’t know they have to calculate profits in terms of gold. They do know they have to make profits or will sooner or later lose their capital. As long as hoarding gold is the most profitable activity, an increasing number of capitalists will move their capital into this activity.
We know that in reality, the capitalists are not making any profits, but merely preserving their capital. Once capital begins moving into gold on a large scale, the rise in its currency price begins to feed on itself.
As the currency price of gold takes off, the prices of other primary commodities soar as well. If it continues, the rising prices in terms of currency will spread to wholesale and finally retail prices. Inflation then begins to bite into real wages — calculated in terms of the commodity use value that makes up real wages of workers.
Rising prices in terms of currency draw increasing amounts of currency into circulation because the higher commodity prices are in currency terms, the more is needed to circulate a given quantity of commodities. This tightens up the money market, and interest rates rise.
If the central bank provides the currency needed to keep this process going, the rate at which it is being created must accelerate. If the central bank doesn’t, interest rates spike. This breaks the demand for gold, and inflation disappears. But in industrial production, employment falls as recession hits and unemployment spikes upward.
So the fact that profits must be measured in terms of the use value of the money commodity is not a theoretical point but is essential to understanding how capitalism and the industrial cycle work in the real world.
The long road to recovery
To prevent currency-depreciation inflation from turning into hyperinflation, the depreciation of currency against gold must be halted. This is what the Volcker shock of 1979-82 accomplished. This means that inflation-driven pseudo-profits calculated in legal tender currency also disappear. The disappearance of pseudo-profits is necessary for eventual recovery.
As pseudo-profits vanish, the production of gold — not the hoarding of gold — appears as one of the few highly profitable branches of production. At this point, gold production rises. It takes time to accumulate the quantity of gold necessary to support a lasting recovery.
Since confidence in paper currency has been shaken, this — combined with the time needed to accumulate sufficient gold to support a lasting recovery — means interest rates fall only gradually. After the 1970s dollar-depreciation-driven stagflation, it took years for interest rates to return to normal levels. Eventually, the combination of reduced production of non-money commodities and increased production of the money commodity leads to a new sustained upswing in the industrial cycle.
The rate of interest and the quantity theory of money
As understood by Ricardo, the quantity theory of money claims that if the quantity of gold increases more slowly than the quantity of non-money commodities, commodity prices calculated in gold terms will decline. Conversely, if the quantity of gold increases faster than that of non-money commodities, prices calculated in gold will rise.
This is a generalization of the view of classical political economy that if more of a commodity is produced than society needs, its market price will drop below its “natural price” (value or price of production). If too little of a commodity is produced, the market price will rise above the value or price of production.
When market prices rise above the value of commodities, the branch of industry that produces it will make super-profits, and more capital will flow into that commodity. Classical theory says that the reverse occurs when a given branch of production produces more commodities than society demands. The market price of that commodity drops below its value or natural price. Capital flows out of that branch and into those making more than the average rate of profit. In this way, a decentralized capitalist economy produces commodities in the proportions necessary to reproduce capitalist society.
In its classical Ricardian form, the quantity theory of money extends to the production of gold, the money commodity. If too little gold is produced, prices of non-money commodities will fall below their values. This means the gold industry will make super-profits, causing capital to flow into it. Gold production will rise, causing commodity prices to increase.
As the rate of profit equalizes among the branches of production, including that of the money commodity, gold production will in the long run be around the level necessary to keep the general price level equal to the value (or production prices) of commodities. Ricardo assumed that fluctuations of market prices around production prices would in no way disrupt commodity production. It would just mean that when commodity market prices happen to be above their production prices, gold production will fall, and when the commodity prices fall below the value of commodities, gold production will rise, which then keeps prices in line with values (or production prices).
Ricardo applied this version of the quantity theory of money to his theory of comparative advantage of world trade. If, due to its superior productivity of labor, a nation runs a trade surplus, gold will flow in, causing its domestic money supply to expand. Then prices will rise while falling elsewhere, causing its trade surplus to shrink and be replaced by a trade deficit. Gold will flow in and out, causing prices to rise and fall.
Over time, the happy consequence will be that gold will distribute itself among the nations engaged in world trade such that global trade will balance and no country will have a lasting trade surplus or deficit. Free trade is in the interests of countries with higher and lower labor productivity. According to Ricardo and his followers in the “currency school,” the central bank (the Bank of England) should issue currency such that its quantity rises and falls in accordance with the rise and fall of the quantity of gold in the bank’s vaults. This would keep price changes calculated in British pounds in sync with those calculated in weights of gold.
Is anything wrong with the Ricardian quantity theory of money and world trade? What he left out was the effect of changes in interest rates on gold demand (or whatever commodity serves as money). If we calculate the interest rate — that portion of profit paid to the money lender — we must calculate it in gold terms, since interest is simply a portion of profit that, as we saw above, must be calculated in terms of the use value of the money commodity. This means that interest on hoarded gold itself, assuming gold is the money commodity, is by definition zero.
All else being equal, a rise in the interest rate reduces the demand for gold because of the increased opportunity cost of hoarding gold (interest income not earned). If interest rates fall, the opportunity cost drops, causing gold demand to rise. If the quantity of gold rises relative to that of commodities, interest rates fall, reducing gold demand. This economic law falsifies the quantity theory of money.
When commodity overproduction occurs, interest rates rise. Instead of a painless fall in prices, we get tight money and rising interest rates. Higher interest rates reduce gold demand. As overproduction continues, prices remain high and go higher until a crisis breaks out. Only then do interest rates fall.
Similarly, when overproduction of gold lowers interest rates, this keeps gold demand from collapsing. Remember, everything remaining equal, a lower interest rate means a higher demand for gold. It is this that, in the final analysis, prevents the quantity theory of money and its associated Ricardian law of comparative advantage from operating within a capitalist economy.
Are the 1970s coming back?
Keeping these laws in mind, what is the economic outlook for the next couple of years? It seems clear that since the last major cyclical economic crisis hit in 2008, a new crisis cannot be staved off much longer. It has been staved off this long because: (1) the recovery that began in 2009 was weak, and (2) the COVID shutdowns in 2020 carried out some of the work of a crisis by reducing production.
With production shut down, the total quantity of commodities was reduced. The sharp drop in production reduced the quantity of non-money commodities in circulation, but had little effect on the total quantity of gold. This is true because gold is so durable that short-term fluctuations in its production have little effect on its total quantity. Most of the gold that has been produced in the entire history of production still exists. This is true because gold is so durable that short-term fluctuations in its production have little effect on its total quantity. This is not true of the mass of non-money commodities, because many of them are perishable, while others are quickly withdrawn from circulation and consumed. Any sudden reduction in production increases the quantity of gold relative to that of non-money commodities. In contrast, gold persists over the lifetime of the capitalist mode of production and longer.
Any sudden reduction of production increases the quantity of gold relative to that of non-money commodities. The COVID shutdowns were followed by a period of soaring production, while commodity prices rose sharply in both dollar and gold terms. Profits (again in dollar and gold terms) soared, and the production of commodities snapped back. All these factors worked to postpone a new overproduction crisis. The shutdowns caused a serious economic crisis that produced mass unemployment (more than most cyclical crises) and disrupted – and ended – lives in many other ways. But it wasn’t an overproduction crisis — it was a period of state-enforced underproduction that postponed the next overproduction crisis.
Now, time is running out. Once overproduction has reached a critical point — and it appears we have now reached that point — continuing to run the economy “hot” causes profits to vanish in gold terms.
As we explained above, capitalism cannot go on without positive profits in gold terms — making them in commodity terms is not enough. The rapid rise of commodity currency prices drives up interest rates. If the central bank allows events to take their natural course, rising interest rates will reduce gold demand again — at the price of a deep recession.
This allows profits in gold terms to return. Or the central bank can attempt to hold down interest rates by accelerating the rate at which it issues (prints) new currency. Taken to its logical conclusion, this leads to a hyperinflationary collapse of the currency. In today’s world, this means not hyperinflation within the U.S., but the collapse of the global U.S.-NATO empire, not to speak of the worst global economic collapse in world industry, exceeding that of the Great Depression.
The surging price of gold, which drove the dollar price of gold in January 2026 to over $5,500 an ounce, is rooted in the Federal Reserve’s attempt under Jay Powell to stave off a recession. The gold market is telling the Fed that, under the dollar-dominated international monetary system that acts not only as the U.S. central bank but also as the global central bank, it should be increasing its federal funds target, not cutting it. This is the only way to restore positive profits in gold terms.
Trump and the men — and a few women — around him want to show that Republican policies of tax cuts for the rich, reducing government support of healthcare — such as the imposition of work requirements on Medicaid imposed by the ‘big beautiful bill’ — and above all the attacks on labor unions, will create a rising rate of surplus value and an economic boom that will create plenty of new jobs for U.S. workers.
Republicans insist that in this way workers won’t need programs like Medicaid and Medicare because they will get health insurance through their bosses. True, this will mean that workers will be more exploited than ever, but at least they will avoid the horrors of unemployment.
If, instead of a new economic boom, the coming period brings recession and mass unemployment, the Republican argument will be turned on its head. For this reason, the Trump administration has been leaning on the Fed to ignore the message coming from the gold market and keep cutting the federal funds rate until the economic boom arrives.
Marxist theory and economic history say that this will fail, and the Fed will, in the not-too-distant future, be forced to radically change its policy and begin to increase the fed funds target rate until the recession arrives to avoid accelerating inflation and heading toward hyperinflation. When it does, the combination of higher interest rates (not the boom fueled by lower interest rates that Trump and his supporters are counting on) and the increased demand for dollars as a means of payment, as creditors call in loans and demand repayment in dollars, will cause the dollar price of gold to drop.
As we have explained throughout this blog, the tight money phase that precedes and reaches its climax when the crisis hits, limits the government’s ability to engage in deficit spending. The reason is that the government finds itself in competition with the private sector for credit.
The more the government borrows, the less credit is available for others, and the crisis intensifies. Once it has passed, the accumulation of idle funds in the bank backed by rising gold production reduces competition for the funds, allowing the government to borrow on an increasingly massive scale that then accelerates the recovery. It is during this phase that Keynesian policies of easy money and stimulating the economy through government deficits actually work — at the cost of shortening the time before the next crisis. Unless all restraints are abandoned, however, the next crisis is still years away.
What happens if the government allows the crisis to begin but then intervenes to stop it before it can fully do its work? In that case, the premature recovery begins but soon aborts, the story of the 1970s. If the Federal Reserve lowers its fed funds target rate too fast, the demand for gold goes up. Inflation then comes roaring back within a year or so. First, the dollar price of gold soars, and then inflation accelerates again.
In 1968 (the year of the Tet Offensive), there was a run on the gold pool, causing its collapse. President Johnson announced he would not run for reelection. Interest rates rose, and steps were taken to reduce the government deficit. The dollar price of gold fell from around $40, and by the spring of 1970, it was back to the par value of $35 an ounce. That same spring, as student strikes swept campuses nationwide, President Nixon escalated the Vietnam War by taking it into Cambodia, the money market seized up, and the stock market crashed.
The Fed then reversed policy and flooded the money markets with newly created dollars. The crisis subsided with only a mild recession, but the dollar price of gold began to rise again. By 1971, the dollar price of gold was again at record levels. The economic improvement allowed Nixon to win reelection by a landslide in November 1972. Inflation erupted at the beginning of 1973, forcing the Fed to tighten again and by late 1974, the dollar price of gold fell, but only because the economy was in a deep recession. The recovery had failed.
Again, the Fed intervened and succeeded in ending the recession by the second quarter of 1975. The dollar price of gold continued falling, but only because the Treasury was dumping gold on the market. This halted in 1976 to prevent a further drop in the size of the gold reserve, and the dollar price of gold renewed its climb. By 1979, things were getting out of hand as gold’s dollar price hit $300 an ounce, and President Jimmy Carter reacted by appointing Paul Volcker as Fed chairman. The Volcker shock was on.
In principle, the approaching crisis can be resolved in three ways (assuming, of course, capitalism survives). The first: we could have a single deep recession, such as occurred in 2007-2009. The second: we could have a series of deep recessions followed by brief aborted recoveries, presumably crowned by a new Volcker shock. The third: the Trump administration and any successor could attempt to strengthen the dollar and stave off the crisis for a few more years by forcing countries to use the dollar by threatening or going to war. Trump has demanded that all countries continue to use the dollar as their reserve currency.
While this would still not prevent a crisis, it might postpone it to some time after January 2029, when, according to the constitution as amended, he will have to leave office. This could be called the “Hitler solution,” where what unfolds is not only the evolution of the industrial cycle but also how the cycle interacts with the political and military situation and, above all, the class struggle.
March 15 — The above was written before the outbreak of war. To conclude, perhaps within a few weeks, some kind of ceasefire will be worked out between U.S. imperialism and Iran. Or alternatively, U.S. ground troops will be brought in and the war will be turned into a Vietnam-like “forever war.” Or perhaps due to miscalculations by the Trump administration (not the greatest leadership U.S. imperialism has ever had, in my opinion) and other governments, the current war could lead to a full-scale world war between the U.S., Israel, and the U.S. European satellites on one side and the Russian Federation and the People’s Republic of China on the other. Other variants are possible as well. In any case, in the coming months, this blog will examine the economic consequences as they unfold.
NOTES
(1) As an ideology, Zionism is the twin of German fascism. Theodore Herzl, considered the founder of political Zionism, was a Viennese journalist, while the young Hitler spent much of his youth in Vienna, the capital of the Austro-Hungarian Empire. Austria-Hungary was dominated by the German nationality and oppressed other nationalities (mostly Slavic) living within the empire. Though all those living within the multinational empire were white, Germans looked down on the other nationalities. Both Herzl and the young Hitler absorbed the racist atmosphere of Austria-Hungary within a thoroughly racist Europe. Antisemitism was rampant and was focused particularly on Eastern European Jews who were attempting to escape the rabid antisemitism and pogroms of the declining Czarist empire. Antisemites wanted all Jews removed from Europe in general.
Herzl agreed with the antisemites on this point. He advocated the creation of a Jewish colony somewhere in the world, with Uganda in Africa, Argentina in South America, and Palestine as possibilities. Herzl, not himself religious, was open to all these options. Vienna was both the cradle of what became Nazism and modern political Zionism as well. Hitler and Adolf Eichmann, among other Nazis, were natives of Austria. The rest, as they say, is history. (back)
(2) Here we see a parallel in the struggle between Hitler and Germany’s central banker, Dr. Hjalmar Schacht, in 1939. As we saw last month, Schacht advocated a policy of deflation as the solution to Germany’s mounting financial difficulties. Hitler decided instead to solve them by policies of war and conquest. Trump seems to have decided to solve the current growing financial problems involving the dollar the same way, war and conquest, instead of deflation. (back)
(3) There are different dates given for the beginning of World War II. In the West, the beginning is generally given as September 1, 1939, when Germany invaded Poland. Others see the beginning as the massive Japanese invasion of China in 1937, and some see it as when Japan invaded Manchuria in 1931. (back)
(4) Different risks and many other circumstances will modify the equalization of the profit rate. (back)
A Critique of Crisis Theory 