On November 8, Senate Democrats made a deal with Republicans to end the government shutdown. The deal was attacked by many podcasters allied with the Democratic Party’s progressive wing.
Led by President Trump, Republicans threatened to cut or end funding for the SNAP (food stamps) program. In 2024, some 41 million people depended on the program.
In the face of court orders, they backed down, but the Supreme Court allowed them to go ahead with the cutoff. Hours before eight Democrats caved to Republican demands and announced they’d vote to end the government shutdown on Republican-Trump terms.
As this is written, Trump is still trying to cut SNAP benefits. Interestingly, none of the Democratic senators who announced they would end the shutdown are up for reelection next year. Chosen in advance, they’re either retiring or won’t have to run again until 2028 or later. Senate Majority Leader Charles Schumer announced he would vote against the deal to end the shutdown.
Schumer is seen as the architect of the shutdown deal. Progressive Democratic podcasters complained that Schumer showed incompetence in handing Republicans a victory, and he should immediately resign as leader. This ignores one thing — class. Republican demands coincide with the class interests of the ruling capitalist class. The Republican Party is a capitalist one, as is the Democratic Party.
The Democrats’ job is to defend the interests of the ruling capitalist class while pretending to defend those of the working class majority. Schumer pretended to oppose the offensive of the capitalist class by Republicans against the working class, pretending to defend working- and lower-middle-class interests. He voted against the deal but ensured that it passed in the interests of the capitalist class he serves. It’s what he’s paid to do. It’s progressives who cling to their illusions about the Democratic Party as a party that defends the working class who were duped. This is an old story in politics.
Attack on healthcare advances
As part of the deal to end the shutdown, both parties agreed to put off the question of cutting government subsidies for working-class people to help them purchase health insurance from private, for-profit insurance companies. Most observers agree that, come December, the subsidies will be cut as the Democrats have given up all leverage they might have had.
Again, Democrats are not interested in defending access to healthcare; they serve the class interests of the capitalists just as Republicans do. Assuming subsidies are cut, this will have dramatic consequences for millions of U.S. workers who depend on them to get medical insurance. This is on top of the millions who will lose access to the government Medicaid insurance program for the poor.
Republicans claim these moves are necessary to finance the latest round of tax cuts that are part of the “great big beautiful bill.” They claim that these tax cuts for the rich and the corporations will so increase the after-tax profit rate that there’ll be a surge in capital investment, leading to the creation of tens of millions of new jobs, high profits in the form of dividends and interest payments, and rising stock market prices for the capitalists. Republicans claim that workers and capitalists are equally interested in high profits because when profits are high, capitalists create new jobs for workers.
As explained in earlier posts, the real aim of cutting healthcare is to increase the number of desperate people who are forced into the labor market, thereby driving down the wages of all workers and increasing the rate of surplus value within the country. (The rate of surplus value is the ratio of paid to unpaid labor.)
Capitalists do this because, as the once-colossal U.S. lead in applying science and technology to production melts away, they find that the only way out of their economic problems is to cut wages to increase the exploitation of workers. Republicans are interested in increasing profits, not jobs. Both parties are capitalist, even if they use different arguments.
For example, let’s assume a married couple with two teenage kids. Mom and Dad can barely meet their health insurance premiums and put food on the table as it is. Due to reduced subsidies, the insurance premiums they pay to get healthcare will double.
What can they do? One is to drop the insurance and hope that nobody gets sick. Or the parents may tell the kids to get jobs after school to help pay the premiums. The kids are forced onto the labor market. If they’re lucky (no guarantees), they’ll find jobs and the family will have health insurance for another year.
When this happens to millions of families at the same time, this tilts the labor market in favor of the bosses, and that is what the capitalist political parties want. This keeps the teenager’s wages low (assuming they find work) while Mom and Dad’s wages decline, as well as the competition for jobs increases. The result: a rise in surplus value and profit rate for the capitalist class.
Ironically, perhaps not coincidentally, the deal to end the government shutdown came right after stellar results for the Democrats in the off-year elections held on November 3, 2025. While no House or Senate seats were in play, many state and local offices were. The most important was the fight for the mayoralty of New York City. This deserves special treatment, which we do below.
An important election result was the victory of Proposition 50 in California. Earlier this year, the state of Texas announced a redistricting plan that’s expected to increase the number of Republicans in the already Republican-dominated congressional delegation by five.
What the Texas Republican Party, the heir to Jim Crow Democrats of old, under Trump’s urging, did was to violate an unwritten provision of the U.S. Constitution. This provision holds that redrawing congressional districts should occur only in census years. The written constitution mandates a nationwide census every 10 years, which determines the number of congressional seats and electoral college votes each state receives. This is followed by redistricting, which revises congressional districts.
Under the unwritten rule, state congressional districts remain unchanged until a new census is held. The written provisions of the constitution have the force of law that unwritten ones do not.
An example of this is the tradition that presidents can serve only two elected terms. The original written constitution does not mandate this, but since the first president, General George Washington, served only two terms and then retired, it created a taboo against any of his successors serving more than two terms. It became an unwritten tradition and lasted until 1940. President Franklin D. Roosevelt served two terms and had concentrated more power in the hands of the executive than any other, with the possible exception of Abraham Lincoln during the war of the slave owners’ rebellion, the U.S. Civil War.
In 1940, World War II was raging in Europe, and it was obvious that the U.S. would be drawn in. U.S. imperialism faced the transition from being one imperialist country among others, in a world now called a multipolar one, into a true worldwide empire.
A strong hand was needed to guide this transition, and there was no stronger one available at the time than FDR. Under those extraordinary circumstances, his supporters decided to disregard the unwritten tradition and have him run for a third term. No court could stop him because there was nothing written in the Constitution or any other law that prohibited it. He ran for a third term and won, then in 1944 he ran for a fourth term and won again. In effect, FDR became “president for life” until his death in April 1945.
After his death, the ruling class shrank from the prospect of a lifetime presidency. They passed the 22nd Amendment to the Constitution, which limited a president to two terms in office, transforming the unwritten rule into law.
There has been talk that Trump (assuming he’s alive in 2028) will seek a third term, though only a constitutional amendment will make this legal , an unlikely scenario. If he manages to find a way to stay in office beyond January 20, 2028, he’ll have to seize dictatorial power and overturn the Constitution.
Redistricting states to favor the governing Republican party, though not illegal, does involve violating an unwritten provision of the Constitution. Emboldened by Texas’s move, other Republican states are considering following its example. If successful, this maneuver around the unwritten rule will increase the chances of the Republican Party’s control of the House of Representatives beyond the 2026 mid-term elections.
Under the two-party set-up that has dominated U.S. politics since the war of the slave-owners’ rebellion, the two parties often divide up congressional seats using a political cartel arrangement called “gerrymandering.” As the Constitution states, each state gets two senators regardless of population, the cartel arrangement is therefore used only in the House.
Bizarre districts are drawn up to guarantee that Democrats win Democratic districts and Republicans win districts allocated to Republicans. Gerrymandering is named after early 19th-century Massachusetts Governor Elbridge Gerry.
The Constitution stipulates that the term for a member of the House of Representatives is two years. This year, 2025, no House or Senate (federal) seats were up for election; only state and local offices were on the ballot.
Next year, there will be elections for all House seats. In mid-term elections (in the middle of the president’s term), the party in office as a rule loses seats, especially in the House. An unpopular president like Trump, a Republican, is traditionally expected to lose many seats. This happened in 2018 after Trump attempted to “repeal and replace” Obamacare.
Trump fears, with good reason, that the 2026 elections will repeat 2018 history and the House will be dominated by Democrats. It is less likely, but a Democratic Senate could also be in reach.
During Trump’s first term, he was impeached twice by the Democratic House. He fears that he could be impeached a third time by a Democratic House, and considering his tendency to ignore written laws, perhaps even be convicted and removed by a two-thirds vote of the Senate.
To avoid the danger, Trump wants to preserve the already narrow GOP majority and, if possible, expand it. To achieve it, he has encouraged state Republican organizations to do something that violates unwritten rules (but not the written constitution): to redistrict their states before the 2026 congressional election, though no new census is scheduled until 2030. Trump wants Texas and other Republican states to redistrict to gerrymander congressional districts to increase the number of Republicans in their congressional delegations.
Gavin Newsom enters the fray
Under the rules of California’s state constitution’s term limits, the ambitious Democratic Governor Gavin Newsom will have to give up office after his second term. He has recently made it clear that he is planning to run for president and move into the White House on January 20, 2029.
Newsom is eager to give the impression to the Democratic base that he, unlike the Democratic leadership, is the one who is really fighting the Republicans. Newsom, therefore, opposed Trump’s sending National Guard troops into Los Angeles earlier this year. He decided that if Texas could gerrymander congressional districts to favor Republicans, strongly Democratic California could do the same thing to favor Democrats.
Gerrymandering is seen as undemocratic in terms of the principles of bourgeois democracy, namely the one-person, one-vote principle, and is banned by California state law. State law can be overruled via propositions put to the voters, so Newsom put forward Proposition 50, to allow gerrymandering, saying that if Texas Republicans don’t back down on their plans to gerrymander their congressional seats, California Democrats will do the same.
In the November 3 elections, Proposition 50 won easily as California voters showed their opposition to Republicans’ attempts to retain control of the House, the principles of (bourgeois) democracy be damned. In a show of cynicism on November 13, Trump’s Justice Department brought a lawsuit against California to stop the proposition.
The most important office in play in the 2025 election was the mayoral race in New York City, by far the biggest U.S. city in terms of population. For centuries, New York City has had a large immigrant population, and since the late 19th century, a large Jewish population. (More on this below, as in light of current world politics, this has special importance.) The victor was Democrat Zohran Mamdani. No ordinary Democrat, Mamdani was born in 1991 in Uganda to parents of Indian ancestry. His family moved to the U.S. when Zohran was seven.
By religion, Mamdani is a Muslim, a fact of particular significance in light of New York City’s large Jewish population. Politically, in addition to being a Democrat, Mamdani is a member of the Democratic Socialists of America.
Until recently, being a socialist (in the European sense, a Social Democrat), no matter how moderate, was considered a bar to holding any U.S. electoral office. This wasn’t always the case. In the early 20th century, members of the U.S. Socialist Party were elected to many offices, including city mayoralty and House of Representatives seats.
Later, during the Cold War, it became impossible for any type of socialist to be elected to any office. Republicans regularly attacked their Democratic opponents as being “socialists”, who would deny it, explaining they were simply liberals who believed completely in the “free enterprise” system.
In recent decades, the taboo against electing declared socialists has been breaking down. The election of Bernie Sanders as a Representative from Vermont in 1990, and then as Senator in 2007, was a major breach against the taboo. In 2016 and again in 2020, Sanders was seen as a serious candidate for president. His election to the presidency in 2016 didn’t seem beyond the realm of possibility.
The election of Barack Obama, though he was no socialist, broke another taboo — an African American president. Today, the well-known Representative Alexandria Ocasio-Cortez, another avowed socialist, is being discussed as a possible 2028 Democratic presidential candidate. At this point, AOC is a long shot, but in a new political climate, that might change. (1) If AOC became president, she would be both the first avowed socialist and the first woman to hold the office
There is an important difference between the current group of socialist office-holders and those from the early 20th century. The earlier generation ran on the U.S. Socialist Party ticket, whose acknowledged leader was Eugene Debs. The current generation of socialist officeholders are members of the Democratic Party. Technically, Sanders is not a member of the Democratic Party, but he “caucuses” with them, ran twice for president in Democratic primaries, and is considered by most who follow politics to be a Democrat.
In the early 20th century, when people voted for socialist politicians, they voted for the individual as well as for the Socialist Party as a working-class party that ran against the parties of the capitalist class, the Republicans and the Democrats. As mentioned above, today’s socialist office holders run as Democrats. Voting for these politicians does not mean voting for a working-class party in opposition to the two parties of the capitalist class.
If Mamdani’s avowed socialism was no longer an obstacle to his election as mayor of New York City, a city with no prior history of socialist leadership, he still had a problem. He is Muslim and has spoken up against Zionism. To be sure, in his run for mayor, he’s moderated his opposition to Zionism, but didn’t drop it entirely. This is against the background of the Israeli genocide in Gaza. Conventional wisdom held that a Muslim, especially one opposed to genocide, could not be elected mayor in light of the city’s large Jewish population.
The origins of New York City’s Jewish population can be traced to the decline of the Czarist and Austrian-Hungarian Empires. As these feudal empires declined in the late 19th century, waves of anti-Semitism swept through these countries.
The wave of Jewish immigrants that came to U.S. cities in the early 20th century, in contrast to earlier migrations, had a strongly left-wing, socialist orientation. Unlike other immigrant groups of the time, in large numbers, Jews refused to vote for the corrupt Tammany Hall Democrats that dominated New York City politics since the 19th century. They elected members of the Socialist Party to local offices and Congress.
During the 1930s, many New York Jews were members or supporters of the U.S. Communist Party and supported the popular front (“fusion”) as it was called, the New York administration of Fiorello La Guardia, New York City’s most left-wing mayor until now. (2)
Like other Jewish communities, reactionary Zionist politics took over the Jewish community from the 1940s onward. Reactionary Democratic and Republican politicians alike had long engaged in competition with each other as to which was the most pro-Zionist.
Historically, Jews found refuge in Muslim countries from Christian persecution in European countries. During the Middle Ages, Jews fought side-by-side against the crusaders who terrorized the “Holy Land” (Palestine) in search of gold and other loot in the name of Jesus Christ.
As Zionism took over Jewish politics from the 1940s onward, in opposition to real history, Muslims were portrayed as akin to German Nazis, as the ultimate enemies of Jews. The idea of New York City Jews voting in significant numbers for a Muslim, especially one who has spoken out against the plague of Zionism, would have seemed as far-fetched as voting for an avowed Nazi.
Without a significant number of Jewish votes (not necessarily a majority), nobody can hope to be elected mayor. However, this was before the Gaza genocide. But the genocide has occurred, and we are living in a new political world.
The horrible beyond words U.S.-supported genocide — under both Biden and now Trump — over the past two years has profoundly shaken U.S. politics and the consciousness of people around the world. For the first time, a majority of the Democratic Party’s base has turned against Israel and Zionism.
The new generation sees Zionism for what it has always been: a scheme to establish an imperialist-backed European-Jewish colony in Palestine while rendering the Palestinian people homeless. This necessarily implies the ethnic cleansing of the Palestinian population at best, and their outright physical genocide at worst.
We have seen the horrible consequences playing out on our phone and computer screens over the last couple of years in the world’s first televised genocide. Since World War II, opposition to Zionism within the U.S. Jewish community was largely confined to members of the small post-World War II socialist movement.
Now, large numbers of young Jews who identify with their community are horrified to discover that the Zionist entity, supported by imperialism, is committing the same type of crimes in their name against the Palestinian people — people who did not, and could not have, participated in the Nazi Holocaust.
In the end, Mamdani won with just over 50% of the vote in a three-man race (there were no women candidates). The current mayor, African American Eric Adams — a corrupt, career police officer — saw his already-weak base of support collapse. He needed Trump’s pardon simply to stay out of jail. The official Republican candidate was Curtis Sliwa, who first came to prominence in the 1970s as a leader of the Guardian Angels, a vigilante group ostensibly organized to fight crime. By the end of the first quarter of the 21st century, there was no serious interest in Sliwa.
With neither Adams nor Sliwa seriously in play, the official establishment rallied around Democrat Andrew Cuomo, who comes from a venerable New York City political family. He served as governor of New York during the COVID pandemic, at a time when Trump was trying to pretend that the deadly virus was no big deal. For a brief moment, Cuomo was even considered a potential Democratic presidential candidate in 2020.
It later emerged that Cuomo had been placing COVID patients into nursing homes whose residents were primarily elderly people with weakened immune systems; reports indicated that more than 15,000 were killed by this policy. Cuomo was then found to have violated state and federal law by sexually harassing 11 women, leading to his resignation under threat of impeachment.
Trump, for his part, endorsed Cuomo rather than the official Republican candidate, Sliwa, and denounced Mamdani as a “Muslim-Communist,” even threatening to withhold federal aid from the city if Mamdani were elected. In a bid for the Jewish vote, Cuomo promised to visit Israel as soon as he became mayor. This sort of appeal once worked—and may still work with older voters—but not with the younger generation. A majority of older white voters, reflecting the old politics, supported Cuomo, while Mamdani won an overwhelming majority of younger voters.
The far right and Zionism
The shifts in U.S. and world politics are affecting the Republican Party. For decades, the extreme right emphasized its support for Israel. Some rightists see it as a model for what they would like to see in the U.S. They think that non-white people should be treated like the Arabs are in Israel, as they often were in the past and still are in the U.S.
The Trump base, dubbed MAGA (Make America Great Again), aside from its capitalist supporters, represents the most politically backward section of the population. Many are small- or medium-sized business owners who strongly identify with the U.S. capitalist (“free enterprise”) system. Others are working-class people, including trade unionists, who are trapped by their upbringing and relative geographic isolation into supporting the backward, racist views they have been exposed to throughout their lives.
Heavily influenced by right-wing Christianity, they also tend to hold racist and anti-Semitic attitudes. Liberals and progressives often complain that these people “vote against their class interests” when they vote for Republicans, while forgetting that those who vote for Democrats are doing the same.
Despite this backwardness, when they get the truth thanks to modern communications, they cannot help but share the outrage that anybody with human feelings experiences when exposed to scenes of women and children — not soldiers — being slaughtered in Gaza. This outrage combines with any anti-Semitic tendencies they may have.
In a post at the start of the Gaza genocide, I warned that, among other things, this would lead to an increase in anti-Semitism. We must distinguish between the political backwardness of the lower-middle class and especially the working-class part of the MAGA base, and the reactionary capitalist politicians who manipulate it for their own personal and class interests of the capitalist class they serve.
To clarify, let’s take the example of early 20th-century Russia and present-day USA. Early 20th-century U.S. and the present-day U.S. differ in many ways. In Russia, Lenin was convinced that it was on the eve of a major peasant revolution with the potential to overthrow the Russian landlords, but not yet the Russian capitalists. The peasants had many backward sentiments, including anti-Semitism. The Russian Social Democratic Party was divided into two main factions: the Bolsheviks, led by Lenin, and the Mensheviks. The Mensheviks were largely composed of what, in today’s terms, we would call liberal/progressive urban intellectuals. Many of them remembered the history of European peasant uprisings that often attacked Jewish communities.
Instead of looking toward a peasant revolution, the Mensheviks sought to work with the liberal business community in the approaching bourgeois-democratic revolution. They reasoned that the coming revolution was a bourgeois revolution that would usher in accelerated capitalist development, not a socialist one. Big urban capitalists were seen as cultured and, compared to the peasantry, were viewed as free from the backward and anti-Semitic ideas common among the uneducated Russian peasant masses. The Mensheviks argued that the Social Democrats should orient toward educated bourgeois liberals as allies and keep the peasants out of it as much as possible, seeing them as a kind of Russian MAGA.
Lenin and the Bolsheviks believed it was necessary to fight against backward attitudes, especially anti-Semitism. When peasants took action against landlords, the Bolsheviks wholeheartedly supported them, regardless of their prejudices. Returning to present-day USA, the backward attitudes of many workers and lower-middle-class people cannot simply be wished away. Lenin understood that it was through the class struggle that working people — including peasants — free themselves from the backward ideas instilled in them through centuries of class oppression. (3) In Russia, it was the Bolsheviks who ultimately came to power, going beyond the bourgeois revolution as foreseen by Lenin.
Let us contrast this with what happened in Germany at the same time. There was a far more powerful Social Democratic Party than in Russia, and unlike Russia, Social Democrats worldwide believed that conditions were ripe for socialism in highly industrialized Germany. However, in the internal struggle within Social Democracy, it was the German equivalent of the Mensheviks — not the Bolsheviks — who prevailed.
The German Revolution that broke out in 1918 stopped halfway. Neither the landlords nor, of course, the capitalists lost their property under the “democratic socialist government” established by the German “Mensheviks.” Fifteen years later, Adolf Hitler came to power—and the rest is history.
The majority of people in the U.S. want to get rid of Trump and the Republican Party. Trump now owns the Gaza genocide and continues his efforts to gut Obamacare. The situation is even worse now, as the previous system had no work requirements for the Medicaid program for the poor, as there are now.
For the first time under the Trump–Republican “great big beautiful bill,” millions of working-class people face the loss of medical insurance. Their distaste for the current administration was vividly demonstrated by the huge turnout — more than 7 million — for the second No Kings protest, as well as by the election results in November.
Bull market in gold
The past year has seen the strongest bull market in gold since 1979. The dollar price of gold has risen, with occasional corrections, since 2022. In market lingo, a bull market refers to generally rising prices, while a correction refers to a sharp but brief drop in the price of an asset within it. (A bear market refers to generally falling market prices.) The recent rise in the dollar price of gold has occurred at an accelerating pace.
On October 21, the gold market was hit by a massive correction. What causes corrections? And does the correction that began in gold mark the end of the bull market?
When an asset — whether the stock market as a whole, a particular stock, an industry, a commodity (gold is a commodity), land prices, and so on — rises at an unusually high rate, more people begin buying the asset on credit in hopes of getting rich quickly. The rise then feeds on itself.
In market terminology, when such a rise goes beyond a normal bull market, it is called a “mania.” Manias lead to “bubbles,” in which the price of an asset, whether a particular one or an entire class of assets, rises to levels that cannot be maintained in the long run. Whenever this occurs, there are always market gurus who proclaim that we are in a new era where the old rules no longer apply — supposedly justifying the high prices.
Manias and bubbles have occurred throughout the entire history of markets. A recent example is the bubble in dot-com stocks at the end of the 1990s. Technological revolutions are often accompanied by manias and bubbles, because when a major one begins, nobody yet knows the potential or limits of the new technology.
A clear example is the Internet revolution that began in the 1990s. Over the last thirty years, the internet has transformed communications and access to information. For example, the first genocide broadcast continuously and in real time across social media and global networks.
If we look at the history of technological revolutions, it often happens that one lays the foundations for the next. An example is the widespread introduction of electricity — “electrification” — which began at the end of the 19th century. This led to a bubble that burst in 1900, but the bust did not mark the end of the electrical revolution.
Electrification paved the way for a new technological revolution in the form of radio, which later developed into television. During the 1928–29 stock market bubble, the stock of the Radio Corporation of America (RCA) became the object of massive speculation. It was proclaimed that radio was going to transform the world. And it has!
As the monopolistic producer of early radios, RCA was in a position to cash in. No matter how high its stock rose, market bulls of the time proclaimed that it would go still higher — and for a while, they were right. Eventually, as we know, the stock market crashed in October 1929, and many speculators seeking to get rich quickly in radio lost their shirts. Radio technology — and, after World War II, its outgrowth, television — revolutionized communications and changed the world. Ultimately, the electrical revolution also made it practical to build modern computers. (4)
Electronic computers, in turn, first gave rise to the text-based internet and, in the 1990s, to the graphical internet connected by hypertext. Hypertext is a system in which a document contains links to other documents, allowing a user to jump from one document to another by clicking them. By the end of the 1990s, it was possible for owners of inexpensive home computers to connect to the internet and use the graphical interface and hypertext links to access information in ways that would have been barely conceivable before.
I witnessed this transformation in my own lifetime. In the 1990s, shortly after the invention of the World Wide Web connected through hypertext links, a wild wave of speculation broke out in internet stocks. The prophet of this mania in internet stocks was Amy Joseph Cohen, a stock market expert for the Goldman Sachs investment bank.
While other market experts were more cautious and warned that dot-com company stocks were getting out of hand, Cohen correctly proclaimed that the internet and World Wide Web were only just beginning — and in that, she was right.
But then she misstepped. She concluded that the “bull run” in internet stocks was only at its start and that it would be years before a “bear market” appeared.
Many investors began buying internet stocks on margin. Any slight drop in the market forced many of these highly leveraged speculators — believing they had found the road to easy wealth, encouraged by experts such as Cohen — to sell. The corrections were brief, and the bull market resumed, rising to even greater heights.
In the so-called “new economy,” it was claimed that all one had to do was buy stocks in dot-com companies, hold onto them through the occasional corrections, use the corrections to buy more – buying on the dip – , and one would become rich.
As soon as the mania resumed in the wake of momentary corrections, another layer of people thirsting for easy wealth bought dot-com stocks, driving prices to new heights. As this process continued throughout 1999 and into 2000, Amy Joseph Cohen appeared to be a genius who had recognized that in the “new economy” (as it was called by the financial press), the old rules no longer applied. Everyone could now supposedly become rich. The technological revolution centered on the internet was said to guarantee prosperity for decades to come.
The market bubble cheered on by Cohen reflected a parallel development in the real economy. At the beginning of a technological revolution — such as that produced by the convergence of cheap personal computers, the internet, and hypertext — adventurers are encouraged to try their luck.
Rather than limiting themselves to speculating in stocks, they created new enterprises of their own. They could do this as long as they could get their hands on some money, whether by inheriting it, borrowing it, stealing it, or any other means. Eventually, the 2000 crash came, and the speculators who could not get out in time — an overwhelming majority, including those who were entrepreneurs and not simply stock market speculators — were wiped out.
Today, we are seeing the same phenomenon develop around what is being called artificial intelligence, or AI. The current AI mania — centered on machine learning, or ML (not Marxism–Leninism) — refers to a specific type of artificial intelligence. ML programs are written like any other computer program, but they are designed to simulate a neural network.
In animal brains, including the human brain, learning occurs as different neurons form connections with one another, with these connections strengthening as learning proceeds. At first, you may struggle to grasp an idea; after a while, it becomes so obvious that you cannot imagine how you didn’t see it from the beginning. If you do not use what you have learned, the connections among the neurons weaken — the brain both learns and forgets.
Artificial neural networks simulate neurons in software, giving them the ability to form stronger or weaker connections with other simulated neurons.
To create a neural network in software involves two steps. First, you write a program in a computer language such as Python or C++ that simulates the neural network. So far, this is traditional programming. The second step is to train the neural network.
The simulated network learns a task by forming connections among the simulated neurons. To do this, you run the program that simulates the neural network, and to obtain meaningful results, you need enormous amounts of data. The only place to find such data is the internet; without the internet, today’s machine learning would be impossible.
You take the simulated neural network that performs the task you are training it to do the best — or, at the beginning of training, the least badly, even though it still has no practical use — and use it to generate a new series of networks, only a few of which improve slightly. You select the best of these and repeat the process again and again. Eventually, after repeating this many times, you obtain a simulated neural network that performs the task extremely well, though not always perfectly.
Unlike traditional programs written by humans, nobody really knows how neural networks actually work. A whole new branch of computer science is emerging that aims to figure out how these computer-generated simulated networks function internally.
The current boom in artificial intelligence would not have been possible without the internet boom of thirty years ago. Will the current AI boom end in a crash, as the internet boom did? I think the question should be rephrased as when the AI bubble will crash, not if. As was the case thirty years ago with the internet, all kinds of entrepreneurs — and outright swindlers — are trying their luck, driving the stock prices of AI companies, many of which have yet to earn a cent in profit, to ridiculous heights. This situation has always ended in a crash, and it will do so once again.
Many of the more naïve speculators believe that “this time it is different.” Other, more experienced speculators realize that a crash is coming but believe they will know when to get out before it arrives. Few, however, will exit in time, because they will reason that if they stay in just a little longer, they will be even richer when they finally do get out. Like a drug addict injecting more drugs into their system, it is hard to resist this impulse. By the time they realize it is time to get out, it will be too late.
A more interesting question is what the long-term consequences of this new technology will be — consequences that will persist long after the coming crash is history. Will it open the door to developments no more foreseen than those envisioned by the long-ago Australopithecus who, in a flash of insight, struck one stone against another to make a cutting edge? (5)
Is ML technology overhyped? What are its limits? Could it get out of hand and destroy humanity, as some fear? This is a vast subject, and the truth is that nobody really knows the answers. There are good reasons to believe, however, that if it is linked with new revolutions in energy, the creation of machines capable of learning will help create the material conditions for a communist society.
From speculation in railroad stocks in the 1840s, to the stocks of the newborn radio industry that crashed in 1929, to the internet stock crash of 2000, new industries have always produced new types of commodities made possible by preceding technological revolutions. A common thread can be traced: the shakeout not only wipes out the majority of speculators seeking to get rich with no work on their part, but it also eliminates the majority of would-be entrepreneurs who try their luck in emerging industries. The tiny handful not eliminated by the shakeout — such as Henry Ford in automobiles and Steve Jobs in personal computers — then become colossally rich.
What about the gold boom that has been gaining momentum through 2024 and 2025? Gold is not a new commodity; it is one of the oldest in the world. We saw a series of waves of gold speculation in the 1970s, a smaller wave leading up to the crash of 2008, and we are seeing it again today. In the 1970s and in the pre-crash period of 2008, these waves of gold speculation were followed by double-digit unemployment, even by official government measures.
To understand why gold demand periodically soars, we should look at the basic expression of expanded capitalist reproduction: M–C…P…C′–M′. In this expression, M stands for money, and C stands for non-money commodities. The movement begins with money. This is not an arbitrary way to describe a circular process. Historically, capitalism itself began with an increase in the quantity of money capital, represented by the rich gold and silver mines discovered in the Americas in the 16th century.
It is the same process in the history of individual capitals. A would-be industrial capitalist must raise a sufficient quantity of money before launching a new enterprise. If they cannot, they will not become an industrial — or any other type — of capitalist. The money might come through savings; it might be borrowed, inherited, or stolen; but one way or another, it must be raised.
We see this in the evolution of every industrial cycle. Following the crisis phase, there is an acceleration of gold production. This leads to an accumulation of idle money capital in the banks, reflected in a period of low interest rates. Only after a considerable amount of idle money has accumulated does a new cycle of accelerated accumulation of real capital begin.
To return to the expression of expanded capitalist reproduction, we next arrive at C. We assume that C has the same value as M. We can envision M as a pile of gold coins, while C represents the means of production and labor power.
Unlike the means of production, labor power has the power to create new value — value that both replaces the capital it consumes and produces surplus value.
We then come to P, the actual act of production. Production occurs in two senses: first, the physical act of producing a use-value by combining the labor of the worker(s) with the non-human means of production; and second, in terms of value, the point at which additional value is created. This additional value can be divided into two parts. One part is the value consumed by labor power, which replaces the value they destroy through paid labor. (6)
Crucially, in addition, the workers also produce surplus value—the whole point of capitalist production.
We then come to C′. Like the earlier C, C′ consists of non-money commodities (we assume the industrial capitalist produces a commodity other than the money commodity). In terms of use values — except in the case of seed grain — C and C′ consist of commodities with different use values, a qualitative difference. If we look at it in terms of value, there is no qualitative difference — value is value — but there is a quantitative one. C′ means that the value of C′ is greater than the value of C. The difference between C′ and C represents the surplus value that has been produced. But surplus value is not yet profit.
To become profit, C′ must be sold as M′. The difference between M′ — the sum of money the capitalist ends with — and M — the sum of money the capitalist starts with — is the profit. If we assume that money is made up of full gold coins, the industrial capitalist ends up with a greater sum of gold coins than they began with. Whether or not gold coins are used as currency, the profit must be measured in terms of the use value of the money commodity, which we assume here is gold.
We cannot subtract the use values of different quantities of commodities with different use values, but we can subtract one quantity of a single commodity’s use value — here, the money material — from another quantity of the same commodity’s use value — for example, gold.
The expression implies that both the quantity of (non-money) commodities and the quantity of the money commodity must grow in the course of (re)production. If you assume that money need not be a commodity, this poses no problem: the central and commercial banking system can gradually increase the quantity of money as the quantity of commodities in circulation increases during expanded capitalist production. But if money must be a commodity (and it must), then we have to ask: how does the market ensure that capitalists produce the money commodity in the proper proportions to guarantee continued expanded capitalist reproduction?
To achieve this, capitalists must avoid two possible pitfalls.
One danger is that too little gold will be produced, causing a crisis of reproduction as the realization of the surplus value embodied in the new commodities fails. The other is that a huge quantity of the labor time available to society will be squandered producing gold rather than the commodities required for expanded reproduction, thereby weakening expanded capitalist reproduction.
A capitalist who produces gold as a product does not have to find buyers, because the commodity is already money. So you might think every capitalist would want to produce gold — but if that were true, capitalist society would come to an end. Therefore, there must be a mechanism within the system to prevent this. That mechanism is the tendency for the rate of profit among capitals invested in different branches of production to equalize.
As prices defined in gold terms rise, gold loses purchasing power. For purposes of simplification, I will assume that all gold is used as money. The expression of production for gold is M–C…P…M′. As prices rise, more and more gold on the left-hand side of the expression is required to produce M′ on the right-hand side, the quantity of which we assume remains unchanged. Eventually, the M on the left will equal the M on the right. At that point, the motive for capitalists to produce additional gold — the profitability of the operation — disappears.
If prices continued rising, it would take a larger quantity of gold represented by the M on the left than the M on the right. While the total quantity of gold in existence would still increase, the industrial capitalist producing gold would be losing money.
Since production occurs only for profit, the production of additional gold will cease. Gold production declines as it becomes less profitable to produce gold than other commodities. Capital begins to flow out of the gold-producing industry and into branches yielding higher profit rates, causing gold production to fall.
In the long run, the law of value — through the equalization of the rate of profit — ensures that gold is produced in the proper quantities, sufficient to circulate commodities and maintain a necessary reserve, but no more.
However, the production of the quantity of gold necessary for capitalist society to reproduce itself on an expanded basis can only be achieved through successive periods of overproduction and underproduction. The overproduction of gold implies an underproduction of non-money commodities, and the reverse. In this way, the cyclical movement of the industrial cycle is imposed on expanded capitalist reproduction once it has sufficiently developed. This ensures that gold is produced, over time, in the proper proportions necessary to guarantee the continued progress of expanded reproduction.
Here we see a purely internal barrier to capitalist expanded reproduction. There are also external factors that can disrupt it — examples include trade wars, shooting wars, natural disasters (hurricanes, earthquakes, floods, etc.), and the class struggle itself.
If the capitalist class loses confidence in the integrity of capitalist reproduction, it may withhold money from the process. They will do this when they fear that the dangers of losing capital (measured in the use value of the money material) exceed the prospects of expanding their capital. When they withhold money from circulation, expanded reproduction is further disrupted.
If the capitalists panic, as happens when the disruption of reproduction reaches a sufficient level, money demand rises to intense levels. Depending on circumstances, this demand may take the form of a demand for the actual money material or for the currency that normally represents the money material in circulation. When this happens, commodities lose their exchange value — what Marx called the presence of their independent value-form. To quote Marx:
“Whenever there is a general and extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere: money alone is a commodity! As the hare pants after fresh water, so pants his soul after money, the only wealth. In a crisis, the antithesis between commodities and their value-form, money, becomes heightened into an absolute contradiction. Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank notes.”
— Economic Manuscripts: Capital, Vol. I, Chapter Three
Money versus currency
Insofar as money acts as currency — meaning that capitalists do not accumulate it but immediately throw any of it that passes through their hands back into circulation — the means of circulation do not have to consist of the money material. In fact, it is better that they do not, because using the money commodity directly as currency gives rise to problems such as the lightening of gold coins in circulation.
Nowadays, money as currency increasingly consists not of paper notes but of mere electronic entries, appearing to be completely non-material. Means of circulation made of something other than the money material are not good means of accumulation, because means of circulation that ultimately depend on state-issued notes are subject to devaluation and debasement over time. The temptation of governments — ancient or modern — to devalue currency is simply too great to resist.
Therefore, if you want to accumulate wealth in the form of money over substantial periods, it must be in the form of the actual money material: gold coins, gold bars, or gold jewelry. Coins made of cheaper metals, paper notes declared “legal tender” by the governments that issue them, or today’s electronic entries and digital currencies can serve as good currencies, but they are not good means of accumulation.
When industrial capitalists are engaged in the expanded reproduction of capital and things are going well, they will throw any money that appears in their bank accounts back into circulation as quickly as possible. To hold onto money any longer than necessary is to incur an opportunity cost in the form of lost interest or profit not earned.
Since the monetary tokens that represent money are merely passing through the hands of capitalists, it does not matter that these tokens will lose value over time. As a capitalist, as long as the business is profitable, you can get rich far more quickly by engaging in capitalist production than by building an ever-larger pile of gold coins locked away in a vault, as the miser does.
Only a small portion of the capitalist class’s total wealth is in the money form, and an even smaller portion is in the form of the money material. What is true is that all wealth in capital form is measured in terms of the use value of the money commodity.
When the inevitable crisis arrives, the capitalists attempt to convert their wealth, measured in money, into actual money.
Is this actual money the money material — gold — or is it legal-tender currency? The forms that monetary crises take depend on the monetary system in effect.
The international gold standard was based on a policy in which the state and its central bank kept the value of their banknotes stable against gold. In the heyday of the international gold standard, the devaluation of the currency against gold — inevitable in the long run — appeared to be vanishingly small in the short run.
A gold standard cannot work unless the monetary authorities succeed in creating the impression that devaluation, or even serious depreciation of the currency, is not an option. Under the gold standard, the “price of gold” in terms of currency is fixed by the monetary authorities, while the prices of commodities other than gold are allowed to fluctuate freely. In reality, the term “price of gold” is a slang expression; strictly speaking, there is no such thing as the price of gold.
From the beginning of commodity exchange, long before the rise of capitalist production, the value of one commodity was measured in terms of the use value of another. Once a special money commodity emerged, its own use value served to measure the value of all other commodities, expressed in a unit of measurement appropriate to the use value of the commodity serving as money.
Let us assume that the dollar “price” of gold is $4000 per ounce. We can write a simple equation: one ounce of gold = $4000 USD. On the left-hand side, we have an ounce of gold; on the right, we do not have a commodity but rather a monetary unit of account, the United States dollar. But the dollar is not a commodity — it is simply a unit of account representing 1/4000 of an ounce of gold.
When the price of gold was $35 per ounce, the dollar represented 1/35 of an ounce of gold. If we go back to before FDR was president, the so-called price of gold was $20.67 per ounce, or 1/20.67 of an ounce. What we have is not a price but rather a rate of exchange between the dollar and the commodity gold at a moment in time.
Once a precious metal emerges as the money commodity, the price of a commodity is measured in terms of a unit of weight of gold. Today, on the internet, you can check the price of gold. For example, at www.kitco.com, you might find the current “price” of gold listed as $3,900 or $4,100 per ounce. If you wait a couple of minutes, you will see that the price has changed by a few dollars — up or down — and the website will show a graph tracking the movements of the gold “price” over the preceding hours.
Let’s leave the gold market for a moment and hit the supermarket floor. The price of a frozen dinner might be $11.49. Here is the equation: 1 frozen dinner = $11.49. On the left side of the equation is a product of human labor, a frozen dinner, equated to a sum of money, $11.49. We know, whether economists realize it or not, that assuming the dollar price of gold is $4000 an ounce, $11.49 represents ((1/4000 of an ounce) × 11.49). But what is being equated here?
If we assume the supermarket price of frozen dinners sells at its value, we’re saying that on average it takes the same amount of human labor to produce a frozen dinner as it takes to produce ((1/4000 of an ounce) × 11.49 ) of an ounce of gold. It’s not the gold (though in this case it’s a tiny amount) that dazzles, but the frozen dinner that will satisfy my hunger, something gold cannot.
So 1/4000 of an ounce of gold and one frozen dinner, though completely different in terms of use value, represent identical quantities of a common social substance: abstract human labor.
What we are equating in this exchange are quantities of the same social substance. We can equate a frozen dinner with a certain amount of gold, not because of their use values (which are entirely different) but because both are products of human labor.
How the gold standard worked
Under the international gold standard, governments and central banks stabilized the rate of exchange between their currencies and gold. In that case, a rising quantity of gold in the central bank’s vaults signaled that the bank should either maintain its discount rate or even cut it.
But if gold was flowing out of the bank, this was a signal to raise its discount rate. As long as there was plenty of money in the world relative to the amount needed to circulate commodities (the normal state of affairs), only minor changes in discount rates were required.
During a boom, for reasons explained throughout this blog, the quantity of commodities relative to the total quantity of gold in the world would increase until the possibility of realizing the surplus value embodied in the value of non-money commodities was thoroughly undermined.
On the surface, this would appear as a global shortage of gold. Central bankers would find themselves in growing competition with one another for the remaining gold. The weapon they employed was competitive increases in their discount rates.
As long as the international gold standard appeared solid, capitalists assumed that a devaluation or depreciation of the major currencies was unlikely in the foreseeable future. Under these conditions, the growing thirst for an increasingly scarce quantity of money was met by capitalists attempting to convert their bank deposits into bank-issued banknotes. Such notes were viewed as “as good as gold.” On the home market, there was no sharp increase in the demand for actual physical gold.
To prevent a rise in demand for physical gold, the banks found it necessary to raise their (re)discount rates. They also had to progressively reduce the rate at which they created new banknotes, or even allow the quantity of banknotes in circulation to fall. Rising interest rates on the home market kept the demand for physical gold in check.
This put the continued smooth convertibility of bank deposits into question. At some point, capitalists might panic, fearing that commercial banks would run out of central-bank-issued banknotes.
Capitalists were converting their bank-deposit money not into gold but into legal-tender banknotes. As the for-profit commercial banks lost reserves, they were forced to restrict loans and call in existing loans under the threat of bank runs and bankruptcy.
At this point, the credit system contracted, making it difficult or impossible for capitalists to obtain new credit. Nobody was willing to lend, or they demanded extremely high interest rates. The quantity of credit money contracted, and the circulation of commodities contracted with it, causing unsold commodities to pile up in warehouses.
Overproduction was now out in the open. Industrial and merchant capitalists laid off workers, causing unemployment to increase dramatically in a short period of time.
As unemployment increased, so did competition among workers for jobs, while competition among capitalists for workers vanished, causing wages to fall. This meant a rise in the rate of surplus value.
This did not immediately raise capitalists’ profits, because they could not sell all the commodities they were producing without cutting prices, and thus were forced to sell at a loss. The fall in prices led to a decline in the cost of living, providing some relief for working people. Capitalists responded by slashing production, since they will only produce if they can sell at a profit.
Eventually, as they reduced production, inventories fell, and capitalists could begin to increase output again. By then, for reasons explored earlier, gold production would increase, and the banks would be flooded with reserves of idle cash. Instead of stretching the credit system, capitalists could now sell commodities for cash, making the economy sounder. This eventually led to an economic recovery, then to renewed overproduction, a shift from a cash system back to a credit system, increasingly reckless extensions of credit, and finally a new crisis.
The end of the gold standard
Capitalist economists, most famously John Maynard Keynes, concluded that the problem lay in the requirement that central banks maintain a fixed rate of exchange between gold and their currencies. To do this, central banks had to keep enough gold on hand to prevent any rise in gold demand from threatening the convertibility of their banknotes.
Keynes reasoned that the central banking system, working with commercial banks, could keep the quantity of money expanding as industrial capitalists produced ever more commodities, provided that the legal requirement for banks to redeem their banknotes in gold was rescinded.
Keynes was known for his hatred of gold; he wanted to eliminate its monetary role — or the role of any money commodity — entirely. This perspective gave rise to today’s theories of non-commodity money, which are especially popular among academic Marxists.
Without a gold standard, once the overproduction of non-money commodities relative to gold has developed sufficiently, the increased money demand takes the form — at least initially — of increased demand for gold itself, not for paper legal-tender currency tokens or their electronic representation. This causes the so-called price of gold in currency terms to rise.
I will use the U.S. dollar as an example, since for now it remains the world reserve currency, with other currencies functioning as satellites. Whenever gold demand rises, these reactions are triggered.
The price of non-money commodities begins to rise in dollar (and satellite-currency) terms. The turnover of dollars accelerates as their holders try to get rid of them before they lose more purchasing power. Finally, interest rates rise as money capitalists seek to protect themselves against growing dollar depreciation — depreciation that causes prices to rise faster than the central bank creates new dollars.
Carried to its logical extreme, this process would culminate in the end of the dollar’s ability to function as money. Long before that point, inflation would accelerate, leading to a drop in real wages — and an even sharper drop when measured in gold and value terms.
The collapse of the dollar’s role as money on both the world market and the home market would result in an economic crisis worse than anything possible under the gold standard. Such a collapse will not occur without a preexisting severe political crisis within the U.S.
In the absence of such a crisis, the Federal Reserve Board will stop trying to hold down interest rates by creating dollars in increasing quantities. Interest rates will then shoot up, reducing gold demand while increasing dollar demand. At that point, the dollar price of gold will plummet.
Inflation fades, and interest rates fall, but only at the cost of declining production and rising unemployment. Eventually, as under the gold standard, inventories of overproduced commodities are liquidated, while the worldwide production of new gold increases as the profits of producing it rise relative to the production of other commodities.
The economy begins to recover — but not before whole industrial districts collapse, and the living standards of workers plummet due to inflation and a soaring unemployment rate. This unemployment increases competition among the sellers of labor power, the workers, while competition among the buyers of labor power, the capitalists, dries up. The crisis eventually resolves. Once again, commercial banks are flooded with idle cash, interest rates drop, business begins to pick up, and the cycle repeats.
There are various tactics the government and central bank follow when a crisis can no longer be staved off. In the 1970s, as soon as signs of recession appeared and the dollar price of gold began to rise — but before a crash — the Federal Reserve flooded the banking system with new dollars, while the Treasury stepped up deficit spending (as John Maynard Keynes urged).
A full-blown crash was avoided, but the dollar price of gold rose, and within a few years (not a full ten-year industrial cycle) a new crisis broke out. By the end of the 1970s, confidence in the dollar was so undermined that it threatened to get completely out of control. Only the “Volcker shock” saved the system — but at the cost of great economic damage to the U.S. and Western imperialism before the economy was finally stabilized.
By 2007–2008, the economy again faced a similar situation, though this time the Federal Reserve followed a different strategy. As signs of crisis appeared in the summer of 2007, gold’s dollar price was rising. The Federal Reserve gave the impression that it was taking unprecedented, bold steps to stave off the crisis. The media initially called it the “subprime mortgage crisis” to create the impression that it was confined to a limited sector of the economy and had been contained by the Federal Reserve’s bold policies.
None of this was true. The Fed was merely moving money around, but unlike in the 1970s, it refrained from printing more money. In September, full-scale panic broke out with the failure of the venerable Lehman Brothers investment bank and several smaller ones.
The depreciation of the dollar against gold was halted, but the already stagnant economy fell into a deep recession as official Labor Department unemployment figures soared to over 10%—faster than during the 1970s. The Fed reacted to this by printing dollars as never before.
This stopped the crisis before it reached the proportions of the early 1930s in industry and trade. But the cost was that global overproduction was not thoroughly liquidated like it was during the 1930s. The recovery was weak. Official unemployment was held down largely because workers dropped out of the labor market. The economy recovered only slowly.
The production shutdowns associated with COVID in 2020 liquidated some overproduction. But the recent rise in gold’s dollar price shows that a new overproduction crisis cannot be staved off much longer.
The second Trump administration’s response has been to launch a massive tariff war, aiming to shift the weight of the overproduction crisis onto other countries, especially China, which Trump views as his most dangerous commercial rival.
However, the U.S. has become too dependent on these other countries for this strategy to succeed. The policy under Trump, then Biden, and now Trump again is to force China to develop high tech along independent lines — a subject we will examine in future posts.
The coming months and years will reveal what the Federal Reserve will do. Whatever its course, it cannot escape the contradiction that once overproduction develops to a certain point, any attempt to whip up demand by printing money and having the Treasury borrow it triggers a run on gold, which in turn brings disastrous inflation and sends interest rates soaring.
If this remains unchecked, it leads toward full-scale global hyperinflation, which, if it fully develops, would be followed by unprecedented unemployment rates and, under today’s conditions, the end of the U.S. world empire. If the Fed instead defends the dollar, deep recession and mass unemployment are still triggered. The only real solution is to acknowledge the socialized nature of modern production and shift from a system of production for profit to one of production for need. But the capitalist class will do anything other than this, since a shift to production for need would mean the end of the capitalist class itself.
NOTES
(1) So far, however, no woman has ever been elected to the U.S. presidency, though Hillary Clinton won the popular vote in 2016 running against Donald Trump. (back)
(2) In New York City, left-wing voters often supported Republican candidates and worked within the local Republican Party in opposition to the corrupt Tammany Hall Democrats. The 1930s “fusion” meant a combination of anti-Tammany Hall Republicans, Democrats, Socialists, and the U.S. Communist Party in support of the left-wing reform La Guardia administration. (back)
(3) Russian industrial workers were recruited from the ranks of the peasantry. (back)
(4) Charles Babbage (1791–1871) and his co-worker, the woman mathematician Ada Lovelace (1815–1852), who foresaw the principles of modern computer programming, envisioned what was in essence the modern computer in the 19th century. However, the only form of energy available to run the proposed machines was steam, and using it to power a digital computer proved impossible in practice. It took the technological revolution in electricity to make it possible to build and program workable computers. (back)
(5) The consequence was the rise of the human species. (back)
(6) The value of the means of consumption passes into the workers’ ability to work — that is, into their labor power. Labor power cannot transfer its value to other commodities. As the value of the worker’s labor power is consumed in the process of production, it disappears. As the value of labor power disappears, the workers’ paid labor — necessary labor — replaces the value that is destroyed as labor power is consumed by its capitalist buyer. With unproductive labor, for example, the labor of a soldier or a domestic servant, this does not happen, and the value of the worker’s labor disappears without being replaced. (back)
A Critique of Crisis Theory 