Israel’s relentless genocide against the people of Gaza continues without letup as I write these lines. In recent weeks, U.S. imperialism has tried to create the impression they’re putting some distance between themselves and the Israeli regime. For example, the Democratic Senate majority leader Charles Schumer said, “As a lifelong supporter of Israel, it has become clear to me: The Netanyahu coalition no longer fits the needs of Israel after October 7. The world has changed, radically, since then, and the Israeli people are being stifled right now by a governing vision that is stuck in the past”.
Schumer is right about one thing: The world changed after October 7 as massive protests broke out across the globe, including within the United States. It isn’t only Schumer. Genocide Joe’s administration, after vetoing every ceasefire proposed in the UN Security Council, introduced a resolution of its own, the nature of which was summarized by Russian representative Vassily Nebenzia.
“Nebenzia further described the vote as a ploy to throw [U.S. voters in support of a ceasefire] a bone’ with a false ceasefire call,” the web publication Truthout reported.
Democrats fear that Arab American, Muslim American, African American, Latino, and younger voters of all nationalities — who Democrats need to prevent a Republican landslide victory in November — will vote for a third party or just sit out the election.
But the parties have a bigger fear. By supporting Israel’s shocking genocide against the Palestinian people, the real nature of U.S. imperialism is exposed to hundreds of millions of people across the globe like it hasn’t been since the 2003 invasion of Iraq and the Vietnam war a half a century ago.
And this is a U.S. presidential as well as a congressional election year.
The real nature of their policy was revealed when, in the words of the publication Mondoweiss, “Congress has passed a $1.2 trillion spending bill that will continue a ban on funding to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) until 2025.”
President Genocide Joe, as expected, signed the bill into law. The Israeli genocide is being carried out not only by dropping 2000-pound bombs on buildings, killing people directly, and burying them under the rubble. It’s deliberately denying survivors water, food, and medical care by destroying hospitals and the medical system.
Mondoweiss reports, “In January, the State Department announced that it was temporarily pausing additional funding to the agency, after the Israeli government accused twelve of its employees of being involved in the October 7th Hamas attack. Israel has yet to prove any of their claims publicly. ‘We’re talking about 1.1 million people,’ Andrea De Domenico, head of the UN’s Office for the Coordination of Humanitarian Affairs in the Occupied Palestinian territory, told ABC News. ‘If you compare to other contexts—at the peak of the famine in Yemen, for example—we had 150,000 people in Phase 5. Here, we’re talking about 1.1 million. So, it’s unprecedented.’”
The attempts of Democrats to put distance between themselves and the Israeli government’s crimes ring false. In reality, this could be stopped by the U.S. telling Israel that all financial aid and military supply shipments are halted immediately and won’t be resumed until the genocide ends.
To avoid misunderstandings, I want to stress that all anti-imperialist fighters worthy of the name support a permanent suspension of all financial and military support for the Zionist entity, even should the Israeli government halt the genocide. I’m just explaining what the United States could do if it really wanted to stop the immediate genocide Gazan Palestinians are being subjected to right now.
The State of Israel’s Zionist leaders bear full responsibility for their crimes, as does every individual who willingly participates in them. We are all responsible for our individual actions. But those who bear the ultimate responsibility are those who created Israel in the first place and today finance the killing and supply the weapons through which it is being carried out.
These are the leaders of the imperialist powers — above all, the leaders of U.S. imperialism of both parties.
Over the last few months, I paid little attention to the immediate economic situation, but its evolution is becoming clearer, and I’ll examine it more closely this month. I’ll then shift back to examining the evolution of the economic situation between the political and military financial crisis of May-June 1970 and the subsequent run on the dollar that led to the collapse of the Bretton Woods dollar-gold exchange standard in August 1971.
This occurred during a critical stage of Vietnam’s and the other peoples of Indochina’s struggle for independence against U.S. imperialism. Of course, there are many differences between the situation faced by Vietnam fifty years ago and the situation confronting the Palestinians today in their struggle for a Palestine free from the river to the sea. However, how the contradictions of the capitalist economy came to aid the Vietnamese people is of great importance for Palestinians and those who support their struggle to regain their homeland.
No soft landing in sight
On March 20, 2024, the Federal Reserve System announced it was holding its target for the federal funds rate between 5.25% and 5.50%. A few weeks earlier, there was growing optimism on Wall Street that the Fed would lower the target range to between 5% and 5.25%. That would send interest rates lower.
With inflation falling and as yet no full-scale recession, this meant the Fed would have pulled off a soft landing where inflation declines without a recession and an associated rise in unemployment. The section of the media supporting Biden for reelection against Donald Trump was delighted with the prospect of a March federal funds target cut. They believed Genocide Joe could run on a record of declining inflation and record-low unemployment. (1)
In the few weeks before the March 20 meeting of the Fed’s open market committee, which sets the target range for the federal funds rate, the Fed leaked out it wouldn’t reduce interest at the meeting after all. Yahoo Finance reported, “Nine officials who offered forecasts on Wednesday see the central bank needing to cut rates three times this year; five officials believe two cuts will be needed.”
These are forecasts of what the officials think will be needed by the capitalist system. The truth is neither they nor anyone else knows when, to what degree, or in what direction the Federal Reserve System will change its federal funds rate target.
The hope and expectation of Wall Street “bulls” is that the Fed’s open market committee will reduce the target before a full-scale recession develops as early as its scheduled June meeting. They think interest rates will soon fall without a recession in sight. The Biden administration and most capitalist economists predict that many years of economic prosperity with full employment, low inflation, rising real wages, and, importantly for Wall Street, rising corporate profits will fuel rising stock market prices for years. There are reasons to believe this optimistic outlook is unlikely.
In earlier posts, I explained that the yield curve measuring the relationship between long-term and short-term interest rates is inverted. Usually, short-term interest rates are lower than long-term. In the period preceding recessions, short-term rates rise above long-term interest rates. When this happened in the past, an economic recession followed within a few years. Most capitalist economists now claim this time is different.
We’ve heard that one before from capitalist economists, most recently just before the Great Recession when the economy crashed worldwide in September 2008. The inverted yield curve isn’t the only economic warning optimistic capitalist economists choose to ignore.
Using Friday closing quotes, the dollar price of gold hasn’t closed below $2000 per ounce since November 18, 2023 (at $1983.50). Before then, it couldn’t stay above $2000 for any length of time. Recently, the dollar price spiked to above $2100.
How long it will stay at this level remains to be seen. The dollar gold price usually moves inversely to the interest rate. Has a drop in interest rates caused the most recent price spike? No, not this time.
The last time the interest rate on the U.S. ten-year bond was below 4% was January 13, 2024, when it closed at 3.95%. Since then, the long-term interest rate has been above 4%. This upward drift has not been enough to push the price of gold below $2000 and, most recently, couldn’t prevent it from rising above $2100.
On Friday, March 9, the dollar price of gold closed at an all-time high of $2186.20. The price of gold fell slightly the following week, closing Friday, March 15, at $2159.40. During the same week, interest rates on the ten-year bond rose from 4.089% to 4.304%. As measured by the ten-year bond, this sharp weekly rise in interest rates pushed gold’s dollar price slightly. By the week ending on March 29, the rate on the ten-year bond had dropped back 4.21%. That was all it took to push gold to another record closing of $2254.80.
The dollar and the currencies linked to it under the international monetary system are falling against gold even though the Fed has not yet lowered the interest rate by lowering the target for the federal funds rate. The mere halting of Federal Reserve System actions to raise the federal funds rate has been sufficient to push the dollar to record lows against real money – gold bullion.
Believers in non-commodity money say the dollar price of gold doesn’t matter because the Federal Reserve targets the inflation rate, not the price of gold. As long as inflation rates keep falling, the Federal Reserve can lower interest rates before a full-scale recession sets in. But here, too, the latest numbers are not reassuring.
While inflation declined for a while as the inflation-breeding 2020 commodity shortages caused by government-mandated factory shutdowns faded, the decline seems to have halted, leaving the rate still above the Fed’s target of about 2%.
In February 2024, the U.S. reported that consumer prices rose 0.04%, about a 4.8% annual increase. Though still below the immediate post-COVID shutdown inflation rate, this is above the target of 2%.
The news was worse for producer (wholesale) prices. The movement of producer prices can foreshadow changes in consumer prices. Producer prices for February rose by 0.06% or an annualized rate of about 7.2%, above the target. Buried in these statistics, there’s a more ominous number. The prices of final demand goods, as opposed to services, rose 1.2% in February. On an annualized basis, this is about a 15.49% inflation rate.
These numbers suggest we have entered a transition between the demand-pull inflation characterizing the COVID aftermath boom to currency depreciation inflation. Demand-pull inflation occurs when the quantity of commodities is less than demand at current prices. Demand can only be equalized with supply by increasing prices. Currency depreciation inflation occurs when a unit of currency, such as one U.S. dollar acting as the price standard, represents a smaller quantity of the use value of the money commodity.
If prices remain unchanged when measured in currency, commodity prices fall when measured in terms of the use value of the money commodity. However, since each dollar represents less real money — gold bullion — dollar prices tend to rise in terms of the depreciating paper currency.
As explained in earlier posts, industrial and commercial capitalists stepped up commodity purchases, fearing they’d have to pay more if they waited. Such buying panics often occur at the end of a war economy that restricts civilian production. Once the war economy ends, underproduction of civilian commodities gives way to overproduction as industrial and merchant capitalists scramble to rebuild inventories to meet demand. This led to what I call a reset recession like those of 1920-21 and 1948-49.
The sudden underproduction of 2020 led to an aftermath boom similar to that of post-World Wars I and II. The shutdowns hit as the industrial cycle that began with the 2007-09 recession was reaching its peak. The shutdowns only partly replaced the normal cyclical recession. The aftermath boom that broke out as the shutdowns were lifted set the stage for a recession that resets the industrial cycle.
While the COVID shutdowns reduced business inventories, they were too brief to dent business capital spending. The overproduction of capital goods, new factories, and machinery that developed during the upswing in the industrial cycle after the 2007-09 Great Recession was further encouraged by the low interest rates after that recession. Even lower interest rates during and immediately after the shutdowns further stimulated this capital spending boom. The result is an ongoing capital spending boom, with its overproduction of the means of production accelerated.
Overproduction of capital goods then points to a compensating drop in business capital spending whenever the next full-scale recession arrives. Because of this, the coming recession could be unusually deep, though its exact timing and full extent can’t be predicted.
Inflation since COVID
As industrial production increased from the depressed levels of the shutdowns, merchant and industrial capitalists scrambled to rebuild their workforces and inventories. This increased demand for commodities, capital, and consumer goods, causing commodity prices to rise both in terms of U.S. dollars and other paper currencies and gold. As new commodity production increased, inflation-breeding shortages faded. This misled bourgeois economists into believing the economy had achieved a soft landing, where inflation declined without a recession and a rise in unemployment.
The aftermath boom made up for the underproduction of the shutdown period. It also led to massive overproduction supported by over-trading associated with credit inflation made possible by the Federal Reserve System’s easy money policies during and after the shutdowns. Overproduction causes prices in dollars (and currencies linked to the dollar) to either decline — classic deflation — or currency depreciation against gold, where prices calculated in terms of the actual money material (gold) decline even if dollar prices keep rising.
Currency depreciation inflation occurred in the 1970s and early 1980s and started again during the first phase of the Great Recession, preceding the September 2008 crash. However, when the Fed failed to create a sufficient quantity of dollars not backed by gold to support a long period of stagflation at the start of the recession, the resulting crash ended the incipient stagflation, replacing it with deep recession instead.
Surges in commodity prices caused by shortages — demand-pull inflation — set the stage for currency depreciation inflation. Demand-pull inflation causes commodity prices to rise in currency and gold terms, making further production of gold less profitable — relative to the production of other commodities and absolutely once commodity market prices reckoned in the use value of gold rise above the production prices of commodities.
This leads to a growing gold shortage that boosts the demand for gold. If growing demand isn’t checked by a sufficient rise in interest rates, a panicky flight from currency into gold develops, causing the currency to depreciate at an accelerating rate, whipping up inflation: Demand-pull inflation gives way to currency depreciation inflation.
The fact that the dollar has recently fallen at an accelerating pace against gold implies that if the Federal Reserve System lowers its target for the federal funds rate to achieve the soft landing, it could trigger an inflation-breeding panicky flight into gold. The Fed can still avoid this, but to do so, it has to resist political pressure to lower the fed funds rate before a recession develops in order to help Genocide Joe defeat Trump in November.
In addition, the Biden administration wants the Fed to “print” lots of money so it can continue financing the Israeli genocide and prop up Kiev’s faltering war effort against Russia in the Donbass without causing a recession-triggering surge in interest rates.
The Federal Reserve System still has time to stop the incipient currency depreciation inflation, as it did in 2007-08. To do so, the federal funds rate must be kept stable or, if necessary, raised further. Higher interest rates reduce the demand for gold while increasing the demand for dollars as a means of payment.
As in late 2008, when the dollar’s gold value recovers, a full-scale recession will break out. A combination of recession and a recovering dollar means that inflation will fade and could even give way to deflation. Recession means a period of slumping global industrial production, soaring unemployment, and downward pressure on wages. It also causes waves of business bankruptcies and very possibly a banking crisis worse than in 2023.
In the long run, lower wages are good news for profits. (2) Once the recession passes, it becomes possible to realize increased surplus value production in the form of higher profits — unless workers can use the crisis to end the capitalist system once and for all.
If the Fed attempts to force interest rates down by creating more dollars not backed by gold before a recession ends with the liquidation of ongoing overproduction, the markets will lose faith in the dollar, the dollar gold price will soar, and so will the prices of other commodities calculated in dollars. To save the currency and the credit system that relies on it, the Fed will have to stop fighting the rise in interest rates as it did during the Volcker shock of 1979-82. This means that after a period of stagflation, recession follows with all its consequences.
Neither the Federal Reserve nor any other capitalist central bank can prevent the coming economic crisis. The Fed can either move too quickly to halt the ongoing credit-fueled over-trading supporting the ongoing overproduction by not cutting the Fed funds rate, or it can increase it further until a major recession is underway. Or it could allow a 1970s-like stagflation to develop.
In the first case, we get a short but sharp economic crisis stabilizing the capitalist system economically, followed by economic recovery. In the latter case, we get a longer-drawn-out crisis with real wage-lowering inflation mixed with high unemployment over a more extended period of time.
We don’t know how the Fed will react to the conflicting economic and political pressures that are bearing down on it. To understand what could happen in the years ahead, let’s examine what happened at an earlier time of overproduction when economists tried to put John Maynard Keynes’ advice into practice and establish a system of non-commodity money. If non-commodity money were possible under capitalism, it would allow the Federal Reserve to lower interest rates whenever a recession loomed.
The end of Bretton Woods
As early as the late 1950s, it became clear to some bourgeois economists that the Bretton Woods international monetary system was headed for collapse. Perhaps the leading one was the Belgian-American economist Robert Triffin (1911-1993). Triffin worked at various times for the Federal Reserve and the International Monetary Fund and was considered an expert on the International Monetary System.
“In 1959 Triffin testified before the United States Congress and warned of serious flaws in the Bretton Woods system. His theory was based on observing the dollar glut, or the accumulation of the United States dollar outside the U.S. Under the Bretton Woods system, the U.S. had pledged to convert dollars into gold, but by the early 1960s, the glut had caused more dollars to be available outside the U.S. than gold was in its Treasury,” Wikipedia says.
The year 1957 brought the first real cyclical downturn in the world capitalist economy of the post-Great Depression-World War II era. To prevent the downturn from turning into a major global depression, the Federal Reserve wasted no time flooding the banking system with newly created dollars.
The policy seemed successful, with an economic recovery in early 1958. But there was a problem.
As interest rates tumbled partly as a result of the recession as well as in response to flooding the banking system with newly created dollar reserves, money capital flowed out of the U.S. in search of higher interest rates. Dollars began to pile up in foreign, primarily West European, central banks.
What would happen if those banks, fearing the dollar’s devaluation (a rise in the dollar price of gold above $35 an ounce), tried to redeem their dollars for gold?
The chance of an immediate crisis was limited after World War II as Western European countries and their economies fell under U.S. domination. The United States liberated them from Nazi Germany — and took its place.
The U.S. used political pressure to make them hold onto dollars rather than redeem them for gold. Even an insolvent bank doesn’t go belly up as long as its depositors don’t withdraw their money. Some countries were more under the U.S. thumb than others. France had more independence than West Germany; in theory, France was a victor in World War II while (West) Germany was defeated.
However, unlike central banks, which are limited by political considerations, individual money capitalists are bound only by personal self-interest. As long as capitalists believed the dollar’s exchange rate against gold would stay at $35, they had no reason to buy it, as gold does not yield its owner an atom of surplus value.
As long as the danger of a dollar devaluation seemed remote — as it did until the 1957-58 recession — it was better to park idle cash in low-interest-bearing bank accounts or government securities than to hold actual gold that bears no interest. Once the dollar devaluation began to appear likely and then inevitable, nothing could prevent them from buying gold.
They couldn’t appropriate surplus value from it, but they preserved the value of their money capital from devaluation. The more devaluation seemed inevitable, the greater the thirst for gold. The very thing money capitalists feared thus became a reality.
The deficit in the U.S. balance of payments
During this time, the U.S., with a superior level of labor productivity in industry and agriculture, ran a balance-of-trade surplus. Unless U.S. payments abroad exceeded the receipts in the part of the balance of payments that doesn’t consist of the balance of trade, money would drain out of other countries, leading to the collapse of their economies.
The Bretton Woods monetary system virtually required the U.S. to run a balance-of-payments deficit. Wikipedia’s entry on Robert Triffin explains: “In the post-war era, the U.S. had to run deficits on the current account of the balance of payments to supply the world with dollar reserves that kept liquidity for their increased wealth.”
During these years, the needed deficit was provided by U.S. capital flowing abroad in search of higher interest rates, plus the huge military expenditures of the U.S. in foreign countries, especially Western Europe and Japan. The resulting inflow of dollars from the U.S. made the expansion of the European and Japanese domestic money supplies possible after World War 2, enabling the expansion of their home markets.
This would not have been a problem if the quantity of gold had kept up with the quantity of dollars in the possession of the U.S. Treasury. But as happens in periods of capitalist prosperity, the production of new gold lagged behind the expansion of the growth of world commodity circulation and world trade.
As a result of the prolonged interruption of normal capitalist expansion brought on by the Great Depression and then World War II, the U.S. Treasury accumulated so much gold there was more than enough to cover the newly created dollars. In contrast, during the post-war prosperity, the growth rate of the number of dollars the world economy needed to meet the rising needs of expanding commodity circulation exceeded the new gold production rate. It was only a matter of time before the quantity of dollars held by foreign central banks would exceed the amount of gold held by the Treasury.
Triffin saw the fundamental problem threatening to blow up the Bretton Woods system as the contradiction between the dollar’s role as a national currency and its role as the world currency. He thought the solution was to develop a type of world currency other than gold whose quantity could be expanded in line with the needs of the expanding international commodity circulation.
He believed the Federal Reserve would then be free to make the dollar scarce enough to fight inflation without plunging the whole capitalist world into recession because U.S. Federal Reserve-created dollars would no longer be the world currency. A world central bank separate from the Federal Reserve would create the world currency to be used as a reserve to back up the national currencies issued by the national central banks. This global currency would come to be dubbed “Paper Gold.”
In reality, Triffin’s analysis was superficial. The contradictions that eventually destroyed the Bretton Woods System lie much deeper.
Behind the contradiction between the dollar’s role as a domestic currency and as the main international currency was the problem of capitalist overproduction.
When the global capitalist economy expands, it’s inevitable that commodity production will grow faster than the production of gold (or whatever commodity serves as money).
Why is this so? Let’s assume the quantity of gold grew faster than the quantity of commodities. (3)
This floods the banking system with money, interest rates tumble, and markets grow faster than production. Capitalist expanded reproduction is whipped up, limited only by the quantity of raw and auxiliary materials on one side and the quantity of additional labor power—unemployed or underemployed workers—on the other.
Demand soon exceeds the supply of commodities at existing prices. Then prices rise as competition between sellers declines and competition among buyers heats up. As prices rise, the profitability of gold mining and refining declines as prices and profits are measured in terms of the use value of the money commodity.
If commodity prices continue rising in terms of the use value of the money commodity, the production of the money commodity becomes unprofitable. It is, therefore, a basic economic law that in every capitalist boom, the production of the money material eventually lags behind the need for more money to circulate the growing quantity of commodities. This is the definition of the general relative overproduction of commodities.
During the Depression-WWII era, commodity overproduction was not a problem. Production was held down first by the Depression, which resulted from the earlier overproduction that caused the Depression, and then by World War II. During the war, only the means of destruction were overproduced, while all other commodities, relative to human needs, as well as the money commodity, were underproduced.
After World War II, with capitalism expanding again, the problem of relative overproduction reappeared first in the form of the dollar glut (actually a shortage of gold relative to the quantity of new dollars being created), which alarmed Triffin. These dollars, though excessive relative to gold, were needed to circulate the growing quantity of commodities pouring out of global capitalist industry.
The problem was not so much the need to convert dollars into gold but to convert the growing quantities of commodities on the world market into gold. Bourgeois economists like Triffin are required to take a superficial view because they support capitalism.
They seek a solution to the problem of periodic overproduction crises in the sphere of currency and circulation. The solution involves trying to create non-commodity money that can be created in any quantity necessary to meet the needs of circulation and the ever-growing quantity of commodities. Triffin was no exception.
Triffin: “A fundamental reform of the international monetary system has long been overdue. Its necessity and urgency are further highlighted today by the imminent threat to the once mighty U.S. dollar”.
What was actually necessary was the end of the capitalist class’s private appropriation of the production of the ever-more-socialized labor of the worldwide working class, a reform neither Triffin, Keynes before him, or any other bourgeois economist was willing to consider. Whenever capitalist political economy runs into the problem of not enough gold relative to commodities, it turns toward trying to establish non-commodity money.
The attempt to establish non-commodity money in the 1970s
One of gold’s monetary functions is serving as world money. Under the international gold standard, gold coins were used to settle international debts when payments did not cancel out. If, for example, British capitalists paid U.S. capitalists in gold sovereigns, once in the U.S., the sovereigns were re-minted as dollar gold coins. The same universal money in gold form appeared in different countries wearing their own national uniforms.
Under the Bretton Woods System, gold was no longer coined, but it retained its role as a means of international payment when dollars were exchanged for gold at the Treasury gold window. (4)
As the world capitalist economy expanded after the war economy ended in 1945, gold became increasingly scarce relative to (non-money) commodities. As the decade of the 1960s drew to a close, the financial press claimed that gold, a form of commodity money at the base of the world monetary system, was about to be replaced by non-commodity money created by the International Monetary Fund in whatever amount needed to meet the rising demands of world commodity circulation.
While the growth in the quantity of gold was limited by the absolute and relative profitability of the mining and refining industry, the IMF would issue “paper gold” to meet needs in whatever quantity necessary. Bourgeois economists imagined this would reduce or end the industrial cycle with its periodic booms and busts. Instead, there’d be unending capitalist prosperity.
John Maynard Keynes (1883-1946) wanted a world money system based on non-commodity money set up at the 1944 international monetary conference in Bretton Woods, New Hampshire. The then gold-rich U.S. had shown little interest.
By the late 1960s, the Treasury itself faced a growing number of liabilities payable in gold in the form of dollars held by foreign central banks. Thanks to post-war overproduction, the U.S. was feeling the pinch of a gold shortage. Past gold shortages, in reality the same as a general relative overproduction of commodities, were overcome by overproduction crises that depressed the production of non-money commodities, lowered their prices in gold terms, and increased gold production. (5)
By the late 1960s, economists convinced themselves these periodic crises could be eliminated if the Treasury-controlled International Monetary Fund could just create as much “paper gold” through a stroke of a pen as needed to back the growing number of dollars being created by the Federal Reserve (that in turn backed up other national currencies). This way, the problem of redeeming the dollar to foreign central banks on demand in world money other than the dollar would be solved.
If this had been possible, it would have been possible for the national central banks, backed by a world central bank—perhaps the IMF—to continue creating the currency needed to circulate the growing quantity of commodities in circulation throughout the capitalist world. It would also have made it much easier to continue financing the war against the people of Vietnam and Indochina.
Instead of the Treasury competing with banks, non-bank corporations, state and local governments, consumers, as well as foreign governments, banks, and corporations for a limited quantity of money, the IMF would issue the world money and the Federal Reserve and other central banks could see to it there was plenty of money to finance the circulation of commodities and the Vietnam war, the goal of LBJ’s guns and butter policies.
The logical conclusion to these policies was the creation of a single global currency. However, capitalist governments, even those subordinate to the U.S., were unwilling to give up their sovereign right to issue their own currencies. A single global bank issuing a single world currency was off the table.
But perhaps it would be possible to create some kind of reserve asset to be used only by central banks alongside and eventually in place of both gold and dollars to back up the national currencies they issued. This was Triffin’s hope.
What capitalist policymakers came up with was the IMF’s Special Drawing Rights or SDRs (sometimes called XDRs). SDRs are a half-hearted attempt to create a pure world currency that was not gold or a national currency like the dollar.
In 1969, the IMF distributed additional SDRs that the central banks held as reserve assets alongside gold, dollars, and, to a lesser extent, a few other currencies. Are SDRs money in the sense that the dollar represents gold in circulation? And if not, what purpose do they serve?
When the SDR was introduced, the financial media treated it as a historic step toward creating an international money that made it possible to retire gold from any monetary role. A favorite topic in those days was explaining how the SDR would end in the complete demonetization of gold.
When first created in 1969, they were defined as one dollar (then 1/35 of an ounce of gold), so the SDR was defined as 1/35 of an ounce of gold. As the SDR itself was defined in gold terms, this wasn’t yet gold’s full demonetization, but they hoped it would be an important step in this direction. (Neither in 1969 nor 2024 is there such thing as an SDR note you can hold in your wallet.)
SDRs are purely bookkeeping entities, not held by private individuals or corporations but only by official government entities, mostly central banks. They can’t be used to purchase commodities or pay off private debts. So what are they good for?
Central banks hold gold and foreign currencies to back their currencies. If, for some reason, the exchange rate of a central bank currency drops on the international currency market, the central bank can use its reserve assets to purchase its own currency, pushing up its exchange rate on the international market at the price of draining its reserves.
If the pressure continues, the central bank has to halt the drain by making its currency scarce and raising interest rates on its domestic money market. The higher domestic interest rates then attract loan money in search of higher interest rates from abroad, ending the drain but often with the risk of throwing its economy into recession.
Can a central bank sell SDRs on the open market, like dollars, to push up the exchange rate of its currency? The answer in 1969 and today is “no.” Only public institutions like central banks are allowed to own SDRs. They cannot be sold for foreign currencies, used to purchase commodities, or used to make payments in the private economy.
So, what can a central bank do with its SDRs? It can go to the IMF to arrange a swap for some foreign currency in exchange for the SDRs. The foreign currency can then buy back some of the central bank’s currency on the international market.
SDRs are not “paper gold” and are useful as an international reserve asset only to the extent they are converted with IMF help into an actual national currency. If the IMF can’t find a country willing to swap its currency for SDRs, it will redeem the SDRs out of its own reserve national currencies. Unlike gold, which can be used as reserves because it’s the money commodity, SDRs must be backed by national currencies.
Another function is that SDRs can be a unit of price. As mentioned above, the SDR originally was worth one dollar or 1/35 of an ounce of gold. Today, the SDR represents a market basket of national currencies.
How currencies are weighted changes every five years. Today, the currencies making up one SDR are the U.S. dollar, the euro, the Chinese yuan, and the Japanese yen. Prices quoted in SDRs are more stable than prices quoted in dollars.
Still, world-traded commodities are generally quoted in dollars, not SDRs. Unlike the SDR, the dollar can be exchanged for actual commodities and functions as an international means of payment.
“Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton Woods system of fixed exchange rates. After the collapse of that system in the early 1970s, the [SDR] has taken on a less important role. Acting as the unit of account for the IMF has been its primary purpose since 1972. The IMF itself calls the current role of the SDR-XDR ‘insignificant’,” says Wikipedia.
Then and now, the SDR is far from the world currency envisioned by Triffin. Establishing an actual world currency requires establishing a global capitalist state to replace the nation-state as a form of capitalist class rule. Such a global state could create a single world currency we could carry in our pockets. Rates of exchange between different national currencies would be a thing of the past.
Such a world currency would function as money only to the extent it represented gold — or some other money commodity — in circulation. One exchange rate would remain — the exchange rate between the global currency and the money commodity.
Such a world currency would not solve the problem of the periodic overproduction of non-money commodities relative to the money commodity. If it ever becomes possible to create a world capitalist state and a single currency issued by that world state, the periodic overproduction of non-money commodities relative to the money commodity would be brought to its highest point by eliminating the restrictions on global capitalist production and world trade imposed by the system of separate nation-states.
A change of the guard at the Federal Reserve
In February 1970, the long-time chairman of the Federal Reserve System, William McChesney Martin (1906-1998), stepped down and was replaced by Arthur Burns (1904-1987).
Today, Martin and Burns are remembered as different types of Federal Reserve bankers. Martin was a classic tough-as-nails central banker who zealously safeguarded the Fed’s independence from the White House. Presidents of both parties want the Fed to create money so the economy booms and the Treasury can borrow money to finance wars and other federal spending without driving up interest rates.
In contrast, Martin believed the job of the Fed chairperson is — when the supply and demand for gold requires it — to resist pressure from the White House to lower interest to stimulate the economy. Or, as he (in)famously put it, “to take away the punch bowl just as the party gets going.”
Even under Martin’s leadership, the Federal Reserve eased too rapidly when recession hit in late 1957, causing the first gold drain since 1931. He moved quickly to correct his error by making dollars scarce again, raising interest rates — causing the economy to fall back into recession in 1960. His recessionary policies also liquidated enough overproduction left from the 1950s boom to set the stage for the long economic boom of the 1960s.
The year 1960 was a recession year as well as a presidential election year. The Republican candidate for president, Vice President Richard Nixon, lost by a narrow margin to the Democratic candidate, John F. Kennedy. Though the 1960 recession set the stage for the long 1960s boom, it cost Nixon the White House.
As 1970 began, Nixon feared a long recession could cost him a second term. With Martin retiring, Nixon wanted a Fed chief who would do his bidding and deliver a booming economy in time for the 1972 election. He nominated veteran Republican economist and business cycle expert Arthur Burns as Martin’s successor.
Burns delivered the booming economy Nixon wanted in 1972. But today, he is remembered in financial circles as one of the worst Fed heads because he gave in to Nixon’s demands for booming conditions for the election year at the expense of the long-term stability of U.S. capitalism.
Far from taking away the proverbial punch bowl, Burns allowed the guests to consume so much booze-laced punch they almost died of alcohol poisoning. The alcohol-laced punch was a credit inflation supported by reckless currency inflation courtesy of the Burns Fed that ended up in a much deeper overproduction crisis that did enormous damage to U.S. and world capitalism.
But Burns’ mistake was not an isolated one. In the wake of the Depression and World War II, gold was abundant relative to non-money commodities. This kept in check the demand for still more gold despite low interest rates. By the late 1960s, years of prosperity and associated overproduction, gold was getting scarce relative to (non-money) commodities. When gold is perceived as scarce, interest rates must rise to hold demand in check for still more gold as the moment of truth approaches. (6)
Keynesian policies worked fine as long as there was lots of gold to back it. But for the first time since the 1920s, the world experienced a gold shortage, and bourgeois political economy returned to its traditional proposed remedy for the problem of overproduction — non-commodity money.
The search for “paper gold”
In Triffin’s vision, the World Central Bank could create enough currency to back whatever was necessary to prevent global recession. “Paper Gold” — world non-commodity money — would be created as needed to keep the world economy going while leaving plenty left over for the governments to maintain the high level of military spending necessary to confront the socialist block led by the Soviet Union and fight whatever wars they wanted, such as the one against Vietnam, to keep the rest of the world subordinate to the U.S. world empire.
Triffin’s dream of a world currency came into existence in the form of the IMF’s dysfunctional SDR. The SDR’s failure to become a “Paper Gold” was evidence of the utopian character of the search.
There’s another way to do this: Have the dollar itself function as world non-commodity money.
Bourgeois economists claimed the unparalleled productivity of U.S. industry and agriculture is what backs the dollar, not gold bars in Fort Knox. Since World War II, the U.S. has had a dual nature—a capitalist nation-state and the seat of a worldwide empire. Why can’t its dollar have a dual nature as a national legal tender currency of a particular nation-state and act as the global currency, replacing gold as universal money?
Washington policymakers and economists thought this could be achieved by demonetizing gold and replacing it with the dollar, disguising it for political reasons, by the IMF’s SDRs. Taken to its logical extreme, making the dollar serve as world currency meant the world would use dollars and only dollars as currencies, and other national currencies would disappear over time.
The process by which the dollar crowds out national currencies on the domestic market — instead of acting as the central bank’s reserve to back up the national currency—is called dollarization. It typically begins when a national currency is hit by hyperinflation.
The nation’s capitalists can’t calculate profits in their hyperinflating national currency but must use dollars. They begin demanding payment for their commodities directly in dollars, even on the home market. Of course, they are more than glad to pay their workers in the increasingly worthless national currency.
Governments of countries crushed by U.S. imperialism sometimes abandon their currency entirely and declare the dollar legal tender. When this happens, the government gives up the right to issue its own currency, abandoning an important element of national sovereignty. Today, Argentina’s far-right government of President Javier Gerardo Milei wants to dollarize the economy. These extreme neoliberal policies face strong opposition.
Other countries, such as China and Russia, are moving in the opposite direction. They are reducing their central banks’ dollars held as reserves, replacing them with gold and other currencies. This process has increased since the U.S. weaponized the dollar by freezing the Bank of Russia’s reserves. China cannot count on its dollar reserves if it finds itself in a war over Taiwan or anywhere else.
China, Russia, and independent governments of the Global South are building up gold reserves to reduce the dollar’s role in the international monetary system. Despite many progressives and academic Marxist economists’ claims that the 1970s scheme to demonetize gold succeeded, the growing number of countries increasing gold reserves shows the failure of the 1970s demonetization attempt, predicted by Marxist theory. (7)
If gold had been successfully demonetized, no central bank would want to hold it today. Gold is not money because the central banks hold it; central banks hold gold because it is money.
Fed chief Burns was supposed to preside over gold’s demonetization. He saw no contradiction between the transition to non-commodity money and ensuring a booming economy in time for Nixon’s 1972 reelection campaign.
The idea was to gradually reduce gold’s role, considered increasingly residual in the 1960s and 1970s, to zero. The imperialist countries, their central banks, and the IMF agreed not to add more gold to the reserves but to reduce their holdings in favor of dollars and SDRs.
Marginalist, neoclassically-trained economists reasoned that commodities have economic value because they’re scarce relative to the demand for an additional unit. The economists reasoned that if you reduce the demand for a commodity, its value drops. Historically, gold’s chief use has been as money (though it has other use values). They thought that if gold were demonetized, it would end the demand for it as money and reduce its value. They saw the value of gold as being artificially supported because the Treasury paid $35 an ounce for it. They wanted this price support withdrawn and believed its value would drop.
Keynes as well as Milton Friedman (leader of the anti-Keynesian counterrevolution), were strong supporters of demonetization. They wanted the Treasury to sell off its gold hoard.
No longer having to worry about a possible gold drain, Friedman reasoned the Federal Reserve would be free to create the dollars necessary for full employment without exceeding the desired rate of inflation of about 2% a year. Though there are differences between Friedman and Keynes, they were united in their desire to eliminate gold’s monetary role and establish non-commodity money in its place.
Today’s supporters of Modern Monetary Theory, who peddle their theory as replacing Marxism for the left, advocate that the Treasury sell off its gold reserves as Friedman did half a century ago.
The Nixon administration hesitated to take what these economists saw as the logical next step until a crisis forced their hands. Even then, they didn’t follow Friedman’s advice to sell off the reserves. Instead, the U.S. Treasury defaulted on its promise to exchange dollars for gold.
The crisis of August 1971
The tensions in the money market during the May 1970 crisis, followed by the Penn Central bankruptcy the following month, meant a turning point had been reached. If the Fed hadn’t flooded the commercial banking system with newly created money, an old-fashioned deflationary crash would have occurred, making the mild 1970 recession into a deflationary depression.
This would cause the unemployment level, already rising, to reach levels not seen since the 1930s. Nixon, facing reelection, knew such a depression would kill his chances for a second term.
Political and financial leaders were determined to avoid another depression that could accelerate the end of the capitalist system. Many bourgeois economists of the time, whether Keynes or Friedman supporters, believed it was time to create a new international monetary system built on non-commodity money.
This was a real-world experiment pitting Karl Marx’s view that non-commodity money was impossible under the capitalist system against the bourgeois economists’ view that it was possible.
Burns’ Federal Reserve flooded the commercial banking system with newly created dollars. The recession of 1969-70 bottomed out by the end of 1970. By December 28, the federal funds rate fell to 3%, a big drop over a short period from August 4, 1969’s 10.50%.
Unemployment rose above the levels of the soaring 1960s, though official unemployment didn’t rise much above 6%, which is considered low for a recession. This seemed to be another success for Keynesian economics. During the year 1970, the price of gold on the free market stayed below $40.
Normally, the demand for gold moves inversely to the rate of interest. Rising interest rates usually reduce the demand for gold, and prices fall.
While the interest rate moves inversely to gold when all things remain equal, all things were not equal. A crisis increases the demand for currency as a means of payment independent of the movement of the interest rate. Where paper currency is the basis for payment, the effect reduces the demand for gold even if interest rates — within certain limits — fall.
Increased demand for currency as a means of payment also means increased demand for currency as a means of hoarding. When capitalists fear their outstanding debts are likely to be called in and/or they might not be able to borrow additional money to cover immediate demands for cash payment at interest rates they can afford, they build larger cash reserves than they would do otherwise.
As the saying goes, in a crisis, cash is king. The rising demand once a crisis breaks out means the central bank can create, within limits, additional currency not backed by gold without the currency immediately depreciating against gold. From this, we derive the economic law that once a crisis erupts, the interest rate can fall considerably in the short term without provoking an increase in gold demand.
This economic law was at work in 1970. In May-June 1970, the world capitalist economy came very close to a crash, which increased the demand for cash worldwide, especially dollars, the primary payment means on the world market.
Crashes are generally viewed as calamitous events to be avoided, but periodic crashes play a necessary role in capitalism. Crashes drive down the prices of commodities measured in the use value of gold. Falling commodity prices increase the profit rate of the gold mining and refining industries both absolutely and relatively to the profit rate in other industries.
A crash leads to a period of recession/depression, temporarily reducing the production of most commodities as it temporarily reduces or eliminates production at a profit. A crash also increases gold production by raising the absolute and relative profitability of producing it. In the long run, this is how the law of value sees to it that a sufficient quantity of money material is produced to circulate commodities and make payments available at market prices close to the price of production of commodities.
The law of value works in such a way that market prices cannot long deviate too far from production prices. Remember, production prices are those where profits of capitals of equal sizes, in equal periods of time, yield to their owners equal profits. This definition includes capitals invested in the production of money material whose use value measures both prices and the profit rate. As Ricardo and Shaikh point out, production prices, though not equal to values, are not far from prices that do. Through this mechanism, the law of value keeps production prices close to the actual values of commodities over time.
If the demand for cash payment allows the central bank to issue additional currency not backed by gold in the short run, the increase in gold production following a crash means there is enough gold to back increased currency issue in the long run.
In the wake of a crisis, the increased gold production allows interest rates to fall relative to the profit rate and stay there for years as commodity production expands. True, lower interest rates work in the direction of increasing gold demand, but the post-crisis increased gold production meets that demand. It holds the demand for additional gold in check by making it abundant relative to non-money commodities.
If just as a crisis starts, the central banks flood the commercial banking system with newly created currency not backed by gold to such an extent the crisis is aborted — as happened in 1970 — the process by which prices are brought into line with market prices is also aborted. Market prices will remain above production prices, and gold production won’t increase. Recovery begins, but the demand for gold will soon increase unless it’s held in check by a new rise in interest rates and the staved-off economic crisis breaks out anew.
The 1970s provide a classic illustration of that economic law.
In obedience to these laws, dollar prices of gold fell in May and June 1970 as the nearing financial crash increased demand for the dollar as a means of payment and hoarding. When the Burns Federal Reserve aborted the crisis, the dollar price of gold bounced right back.
Still, gold’s free market dollar price closed the year at $37.60, slightly above the par value of $35. If gold’s dollar price had stayed around these levels, the Bretton Woods System would have survived.
However, because the 1969-70 recession was so mild, the demand for gold resumed, and the stability of the dollar gold price ended in 1971. Starting in June 1971, the price began to rise steeply. By August, it had risen above $44. Central Banks began looking at redeeming their dollars for gold.
From the Wikipedia entry on the “Nixon shock”:
“In May 1971, West Germany left the Bretton Woods system, unwilling to sell further Deutsche Mark for dollars. In the following three months, this move strengthened its economy. Simultaneously, the dollar dropped 7.5% against the Deutsche Mark. Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $50 million in July. France acquired $191 million in gold. On August 5, 1971, the United States Congress released a report recommending devaluation of the dollar, in an effort to protect the dollar against ‘foreign price-gougers’. On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system. The pressure began to intensify on the United States to leave Bretton Woods.”
Backed by centuries of experience, traditional financial orthodoxy would have dictated that the Federal Reserve reduce the dollar reserves in the commercial banking system and allow the federal funds rate and other interest rates to rise to whatever level necessary to break the demand for gold.
For reasons we have explored above, the Nixon administration and its servants in the Burns’ Fed refused to do so. The conservative Republican administration instead adopted a series of policies advocated by Keynes’ progressive supporters. Central to these policies was the attempt to demonetize gold and establish the dollar as non-commodity money in its place.
According to Wikipedia:
“On the afternoon of Friday, August 13, 1971, these officials, along with twelve other high-ranking White House and Treasury advisers, met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately, Nixon, relying heavily on the advice of the self-confident Connally (8), decided to break up Bretton Woods by announcing the following actions on August 15:
- Nixon directed Treasury Secretary Connally to suspend, with certain exceptions, the convertibility of the dollar into gold or other reserve assets, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold.
- Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices to counter inflation. This was the first time the government enacted wage and price controls since World War II.
- An import surcharge of 10% was set to ensure American products would not be at a disadvantage because of the expected fluctuation in exchange rates.”
Measure 1 temporarily ended the dollar’s convertibility into gold. In reality, the temporary suspension was meant to be permanent. The attempt to establish the dollar as non-commodity money had begun.
Measure 2 was in line with Keynes’ claim that the level of money wages determines the general price level. Practical capitalists didn’t particularly care about what Keynes said about the determination of prices. Still, they were happy with the wage freeze as it made it easy to raise the rate of surplus value, though they weren’t happy about the government telling them they couldn’t raise prices. As we’ll see next month, capitalists had plenty of ways to nullify the price freeze, and it was soon abandoned.
Measure 3, which was to reestablish the trade surplus and reduce the overall balance of payment deficits, was soon abandoned.
Speaking on television on August 15, President Nixon said:
“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. Now, what is this technical action, and what does it mean for you? Let me lay to rest the bugaboo of what is called devaluation. If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. The effect of this action, in other words, will be to stabilize the dollar.”
Nixon, the “man you wouldn’t buy a used car from,” told the people of the U.S. that the devaluation of the dollar would have no effect on their internal purchasing power and that ending gold payments would stabilize the dollar. These assertions were about to be put to the test.
The Bretton Woods System was one of fixed exchange rates. The most important was the Treasury’s exchange of $35 for an ounce of gold. As of August 16, 1971, that exchange rate was gone.
Wikipedia continues:
“Although Nixon’s actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative. While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the current regime based on freely floating fiat currencies de facto replaced the Bretton Woods system for other global currencies.”
As the business day began on August 16, 1971, Bretton Woods was dead for all practical purposes, and the attempt to establish non-commodity money was underway. Next month, we’ll begin to examine the evolution of the capitalist world economy and international monetary system as the attempt to establish non-commodity money unfolded and how this led to the final victory of the struggle of the Vietnamese people in their war of liberation against U.S. imperialism.
(1) We shouldn’t accept the claims that U.S. unemployment is at or even near record lows. According to Gary Wilson, writing in the socialist publication Struggle-La Lucha, “The BLS also reported that in February 2024, there were 132.9 million full-time jobs and 27.9 million part-time jobs. That’s a drop in full-time employment. A year ago, in February 2023, there were 133.2 million full-time jobs. The new jobs are part-time jobs, that have increased by 921,000 since February 2023, when it was 27.1 million.”
Over the last year, the number of full-time workers has declined, not increased. Only part-time jobs have increased according to Labor Department estimates. Neither have real wages increased. Wilson writes, “Last month, Biden tried to back up his ‘best economy’ claims with a BLS report showing that over the 12 months ending in January 2024, average weekly wages increased by 3%, while the average price of consumer goods rose by 3.1%. Even if we take these numbers at face value wages have almost, but not entirely, caught up with inflation.” What Biden and the media claim is the best-ever economy features stagnant industrial production, eroding full-time employment, and eroding real wages. No wonder even before the Gaza genocide, Biden’s popularity, according to the polls, was so low. (back)
(2) Many progressives and academic Marxists believe the Federal Reserve System raises interest rates because it wants to raise unemployment to lower wages and raise the profit rate. Their mistake is they accept the claim that the Fed’s interest-raising policies during periods of prosperity and overproduction represent a policy choice.
The Federal Reserve System and other central banks are periodically compelled to permit interest rates to climb, driven by the looming threat of currency destruction due to capitalist overproduction. Faced with the potential collapse of the entire currency and credit system, central banks are left with little choice. Consequently, progressives and academic Marxists erroneously attribute recessions to central bank interest rate hikes, failing to recognize that the true culprit lies in the general relative overproduction of commodities.
The failure to understand this crucial point gives rise to the illusion that if a government run by progressives is elected, it will appoint a Federal Reserve Board that will follow a policy of keeping interest rates low. Unlike the current board, the one progressives imagine will be appointed will desire higher wages and never raise interest rates. If, however, an ongoing overproduction of commodities forces interest higher, any attempt by a pro-labor Board to lower interest rates would produce an inflationary disaster, ending in higher interest rates and a worse recession.
The cure for periodic overproduction crises and all their consequences is not to lower interest rates but to end the wage system under which members of the capitalist class appropriate the product of the ever-more-socialized labor of the worldwide working class. (back)
(3) This happens in every recession. During recessions, the quantity of commodities declines while the quantity of gold doesn’t shrink; it continues to expand. When prices measured in the use value of gold decline, as happens in major recessions, gold production accelerates as the circulation of non-money commodities declines or stagnates, causing a fall in interest rates. (back)
(4) Gold is coined today as so-called bullion coins. These coins do not circulate but rather serve as a convenient way for members of the capitalist class to accumulate gold. Because of repeated devaluations and depreciations of paper legal tender currencies since the end of the Bretton Woods System, there has been a growing demand for gold as a means of accumulation — hoarding. Modern bullion coins circulate only in the shadowy world of illegal transactions. They will only circulate generally if and when paper currencies become completely discredited. (back)
(5) New geographic discoveries of gold in California and Australia in 1848-51 and again in the Klondike in the mid-1890s also temporarily alleviated the shortage of gold relative to non-money commodities. (back)
(6) As of March 2024, we’re in such a situation unfolding right before our eyes. The dollar price of gold is soaring well above $2000 an ounce while interest rates are not falling. This indicates to the Fed leadership that it should raise interest rates to reduce the demand for gold and stave off currency depreciation inflation. However, the Fed is reportedly on the verge of lowering interest to end the recession threat and secure a soft landing. This is the kind of contradiction that occurs on the eve of every major economic overproduction crisis in the history of capitalism. (back)
(7) Why do progressives and most academic Marxist economists insist, contrary to the facts, that the attempt to demonetize gold succeeded? The answer is found in the intermediate class position they occupy. Instead of attempting to replace the rule of the capitalist class with the rule of the working class, the class that stands between the two main classes wants to use non-commodity money to generate capitalist prosperity. The middle class — or petit bourgeoisie, to use old-time Marxist terminology — believes if business is good, profits will rise while the full employment that goes with good business will allow wages to rise at the same time. This way, the middle-class reformers believe capitalist prosperity generated and maintained by non-commodity money capitalism will overcome the contradictions between the two main classes, the capitalists and the working class. (back)
(8) This is a reference to John Connally (1917-1993), Nixon’s Secretary of the Treasury. Connally gained national fame in 1963 because he was in the limousine with President John F. Kennedy when he was assassinated in Dallas, Texas, on November 22, 1963. Connally was wounded during the assassination, giving a boost to his political career. Initially a conservative Texas Jim Crow Democrat, he, like many other Southern Democrats of his generation, turned Republican later in life. In Connally’s case, the shift occurred in 1973. It’s interesting to observe that this traditional conservative Texas politician played such a crucial role in the failed attempt to establish non-commodity money in the 1970s. (back)
A Critique of Crisis Theory 