U.S. law prevents the federal government from allowing its debt to rise beyond a specific limit. As of May 2023, the limit is $31.4 trillion though this will be raised in the coming weeks. If either or both houses of Congress don’t, the federal government will be forced to reduce expenditures and forced into default. Finance capital won’t allow that.
On January 19, 2023, the day the legal limit was reached, the debt ceiling was not raised because of various technical loopholes in the law, but they are not unlimited. This is not the first time for this kind of artificial government debt crisis, which has become a regular feature of U.S. politics since the Obama administration. Treasury Secretary Janet Yellen estimates that the legal wiggle room (technical loopholes) will be exhausted by June 1, 2023. So while an over-the-weekend theatrical default is possible, the chance of an extended default is less likely than the Vatican announcing its conversion to Judaism or Islam.
Is the federal debt crisis just for show? Not at all. A bill will be passed within the next few weeks, raising the current $31.4 trillion debt limit. To become law, the bill must be passed by both houses of Congress and signed by the President. The Democrats narrowly control the Senate, but the House of Representatives has a slim Republican majority. The House already passed a bill to raise the debt limit, but it contains provisions cutting the budget. Of course, cutting the war budget is off the table — instead, the GOP wants to gut social programs. The most important provision is to attach work requirements to Medicaid and food stamps benefits, as well as measures to promote the production of more fossil fuels. They also want Biden’s limited student debt forgiveness canceled.
In the past, the GOP used these artificial crises to push for similar reactionary measures. The Democrats then negotiated with them and agreed to some reactionary proposals to avoid default. The Democrats then told their working-class supporters, “We didn’t want to do this but had no choice.” They’re trying to do it again. Biden’s administration is negotiating over how many reactionary demands to accept, with one difference.
In the past, the artificial debt ceiling crises did not correspond to a general crisis of overproduction. However, according to all indications, such a crisis is very near, but it has not yet broken out with full force.
The federal government is in increasingly severe competition with the rest of the economy for the scarce supply of additional loan money. The more the federal government borrows under these conditions, the less loan money is available for consumers, local and state governments, as well as industrial and commercial businesses. Under these conditions, growing federal deficits do not stimulate the economy but rather work to accelerate the developing crisis.
The massive overproduction resulting from the COVID aftermath boom has pushed the economy to the brink of what could become a deep recession. This is shown by the collapse of four regional banks, as well as by leading indicators such as the relationship between short- and long-term interest rates, called the yield curve — and measures of the money supply, dollar bills, coins, and bank deposits, that function as currency. The yield curve has not been so inverted — short-term interest higher than long-term — since the early 1980s. The global money supply, a predictor of approaching recession, has also been contracting at rates not seen since the super-crisis of the early 1930s.
If this was not enough, the dollar price of gold has been above $2,000 for several weeks as I write these lines on May 13, 2023. Its significance is that if the Federal Reserve System tries to stave off the crisis by moving to reverse the contraction of the global money supply, a run on the dollar could develop that has the potential to sink the dollar-denominated international monetary system, the financial foundation of the U.S. empire. Many countries have already built up gold reserves and taken other steps to reduce their dependence on the dollar.
Whenever a global crisis of the overproduction of commodities approaches, governments come under pressure to limit their borrowing and spending. When plenty of money and credit is available, central governments can borrow without reducing the quantity of loan money available to the rest of the economy. But when loan money starts to dry up, as it does just before a recession, government borrowing accelerates the credit crunch in the economy.
An obvious way to reduce the pressure on the money market created by ongoing federal deficits is to reduce war spending. But U.S. imperialism doesn’t want to do this as it faces growing economic and political competition from the BRICS (Brazil, Russia, India, China, and South Africa) countries, especially the People’s Republic of China. The one area where U.S. imperialism enjoys overwhelming domination is its war machine’s sheer size and technological superiority.
What the GOP (and the capitalists it represents) is doing is using both the fake debt crisis and the real developing overproduction crisis to raise the rate of surplus value — the ratio between the labor we’re paid for during the working day and the unpaid labor we’re forced to perform for the bosses. For example, the Republicans want food stamp recipients to work to receive food stamps. This proposal is made just as the developing economic crisis indicates a return to mass unemployment soon. This way, the capitalists will be able to use the whip of hunger — not figuratively but literally — as rising unemployment forces workers to compete with one another for jobs still available. The goal is to drive wages down to those of the Global South. If they achieve this, they can invest their capital here as profitably as there.
A false question
Will Biden and the Democrats stand up to the GOP’s demands and call their bluff? This is the wrong question. Both parties are the same team because they represent the same class.
In the name of avoiding default, a compromise will be struck between the two, moving things closer to what the capitalists really want — Global South wages and working conditions in the U.S. It includes using child labor domestically.
The question is: Can the working class mount an effective resistance? This alone can force the capitalists and their political representatives to back off. However, if the resistance is to be effective, it must be based on a struggle by the global working class against global capital’s drive to use the whip of hunger to push down wages toward the biologically determined minimum necessary to reproduce the working class. As long as the wage system forces even one worker anywhere to go hungry today, no worker can be sure they won’t face the same fate tomorrow.
By next month the artificial debt will be resolved one way or another, and we’ll be able to examine what the capitalists got away with. But the developing overproduction crisis will be far from resolved.
But now, I must return to the various Marxist theories of the monopoly stage of capitalism.
Last month I explained there are two basic theories of monopoly capital. One is the Hilferding-Lenin theory based on Marx. The other is the Monthly Review school rooted in the neoclassical analysis of perfect versus imperfect competition. The classic exposition of the MR school of monopoly capitalism is Baran and Sweezy’s 1966 book “Monopoly Capital.” The contending theories are based on capital’s increased centralization. (See “Perfect Competition.”)
The neoclassical theory of perfect competition requires that capital be so decentralized that capitalists acting individually cannot affect prices by increasing or decreasing their production. Each individual capital must command a share of the total market for the type of commodities it produces that approaches the mathematical limit of zero. Baran and Sweezy assumed that neoclassical perfect competition reflected the conditions prevailing through the mid-19th century. After that, increasingly centralized capital undermined perfect competition and changed how the system operated. According to Baran and Sweezy, a new theory is needed to analyze the monopoly-dominated economy to replace both the neoclassical and Marxist analyses valid only for “competitive capitalism.”
A third position among Marxist economists is what MR school supporters call the fundamentalist position. This position denies monopoly capitalism exists. Anwar Shaikh is the leader of this school. I don’t like the term fundamentalist in this context. It’s borrowed from theology and implies they stick to the letter of Marx’s writings regardless of reality, much like religious fundamentalists do with the Bible and the Quran. I use the term fundamentalist in this context with quotes. To their credit, the “fundamentalist” school takes Marx’s law of the value of commodities more seriously than the MR school. In reality, “fundamentalists” don’t fully grasp Marx’s value theory since theirs is closer to Ricardo’s than to Marx’s. The MR school’s criticisms of “fundamentalists” are off the mark.
What Shaikh and others miss in value theory is Marx’s concept that the value relationship of production includes a form of value. The form of value, once fully developed, becomes independent of the commodities whose value it measures. The independent value form we call money. It must always be a special commodity that measures the value of commodities in terms of its own use value.
Far from following Marx to the letter, “fundamentalists” fail to understand that price consists of a definite quantity of the use value of the commodity that serves as money. It has a consequence — profit — that must be measured in terms of the use value of the money commodity (measured in a unit appropriate to it — for example, a definite unit of weight of precious metal). Neither “fundamentalist Marxists” nor the MR school understands the value form — money.
Both claim to adhere to Marx’s value theory. But in analyzing prices, the MR school ignores value. The same is true with their analysis of profit and what they call the surplus. They apply neoclassical price theory, believing it compatible with Marx’s theory of value, surplus value, and profit. The MR school doesn’t reject the law of the value of commodities. Rather, it ignores it when analyzing concrete economic phenomena, pleading that Marx analyzed competitive capitalism while they’re analyzing monopoly capitalism.
“Fundamentalists,” in contrast, keep the law of value in mind to the extent they understand it and defend Marx’s laws as the tendency of the profit rate to fall due to a rise in the organic composition of capital, a necessary consequence of Marx’s law of value. The MR school instead defends the alleged law of the tendency of the surplus to rise, a law that’s incompatible with Marx’s law of value, as we will see.
The “fundamentalist” position is not without weaknesses, as pointed out by the MR school. The most developed exposition of their position is Shaikh’s 2016 book “Capitalism Competition Conflict Crises.” What Baran and Sweezy’s “Monopoly Capital” is to the MR school, Shaikh’s “Capitalism” is to the “fundamentalist” school.
According to Shaikh, the nature of capitalist competition has mostly stayed the same since the days of Adam Smith. His competition is not the perfect competition of the neoclassical school but what he calls real competition. He rejects the idea that capitalism has entered a monopoly phase, claiming, incorrectly, in my opinion, that all theories of this phase of capitalism are rooted in neoclassical perfect competition. Shaikh is correct that Baran and Sweezy and the MR school are rooted in neoclassical theory, but this is not true of the Hilferding or Lenin analyses.
John Bellamy Foster’s critique of the ‘fundamentalist’ school
In a 2015 interview with Benjamin Feldman, John Bellamy Foster explained that “given the marginal and dependent position of radical economists in the academy,” academic Marxists tend to “adopt views that paralleled those of the mainstream.” (“Baran and Sweezy’s Monopoly Capital, Then and Now,” an interview with John Bellamy Foster)
This is a shrewd observation. The mainstream he refers to — the “hired prize-fighters” (to use Marx’s expression) — defend the interests of capital in the name of impartial scientific investigations. This is the essence of the neoclassical school dominating university economic departments. Having spent most of his active intellectual life in academia, it doesn’t seem to occur to Foster that serious work in economics is possible outside it, though Marx, Engels, Hilferding, Lenin, and Paul Sweezy, after 1947, to name a few, all worked outside the academy. (1)
Foster’s observation is correct for those Marxists who are obliged by circumstances to work in the academy rather than within the workers’ movement, the real home of Marxists. There’s a tendency for Marxists working in institutions not connected to the workers’ movement to echo the views of the bourgeois economists dominating the academy.
Like other institutions in a capitalist society, such as the state and the media, the academy has a definite capitalist ruling-class character. Foster explains, “The success of workers in obtaining slightly higher real wages, together with the supposed slowdown in productivity growth at the peak of the 1960s boom (corresponding to the peak of the Vietnam War), was erroneously seen by radical political economists too as constituting the ’cause’ of the crisis, which was then diagnosed as a ‘profit squeeze.'”
A wage squeeze on profits — a “profit squeeze” — during economic booms is when the increased demand for labor power raises the price of labor power — wages — and reduces both the rates of surplus value and profit. Eventually, the rate of profit falls so low that investment declines, causing a crisis.
The theory proceeds from the correct view that investment is only undertaken if the capitalist expects the investment to yield a profit. There will be little or no profit if an inadequate quantity surplus value is produced.
In “Capital, Volume III,” Marx called an economic situation where most people not part of the capitalist class and capable of working are employed an absolute overproduction of capital. In such a situation, the number of workers producing surplus value can no longer be increased in the short run, nor can the production of surplus value. Instead, the demand for labor power is so strong that competition among capitalists for workers causes wages to rise to such an extent that the quantity of surplus value produced declines, causing an economic crisis. The crisis then replenishes the reserve army of the unemployed, making it possible to increase the production of surplus value again. According to the profit-squeeze theory, real-world cyclical economic crises are those of the absolute overproduction of capital. (2)
As workers know, bosses blame high wages when profits are low. They say that if the unions were more reasonable, there’d be plenty of jobs for all wanting work.
Neoclassical theory takes this age-old complaint and puts it into mathematical language. They hold that when wages rise above the value of the marginal product created by the workers’ labor, the boss has to lay off workers. For academic Marxists not connected to the workers’ movement, it’s easy to blame a period of high unemployment on a wage-profit squeeze that preceded the unemployment. Their neoclassical colleagues dominating the department are saying this in a slightly different language.
Foster correctly distinguishes the wage profit-squeeze theory from the “fundamentalists” who hold that the basic cause of the periodic economic crisis and mass unemployment is the fall in the profit rate caused by a rise in the organic composition of capital.
“Fundamentalists” hold that during the boom, the increased demand for labor power makes it impossible for capitalists to increase the rate of surplus value. With the rate more or less frozen, by high boom time demand for labor power — the rise in the organic composition of capital — causes the profit rate to fall. Eventually, the rate falls so much that the capitalists reduce their investments, starting the crisis.
Foster points out that though the fundamentalists’ analysis is superior to the profit-squeeze theory, their concrete conclusions are similar. The only way out of a capitalist crisis is to increase the rate of surplus value until the rising profit rate is sufficient for capitalist investment to increase again.
The question of monopoly and the realization of surplus value
Foster explains, “Meanwhile, the whole ‘back to Marx’ movement of fundamentalism, which was superior in many ways to the radical profit-squeeze perspective, resulted in a retreat back into nineteenth-century conditions that denied historical development. The whole notion of monopoly capitalism as developed by thinkers such as Lenin, Luxemburg, Hilferding, Veblen, and Baran and Sweezy was thrown out as not consistent with Marx’s ‘Capital,’ despite the fact that Marx and Engels had placed great emphasis in their time on the concentration and centralization of capital.”
Foster correctly explains that the back-to-Marx movement denied a monopoly capital stage and echoed Say’s Law when it claims capitalists have no problem realizing the value embodied in commodities as long as surplus value is produced in adequate quantities. In real terms, this means that crises occur because the means of production are produced in inadequate quantities to support continued capitalist growth and prosperity.
These views echo those of the pro-Reagan supply-side neoclassical economists of the 1980s. They’re also the views of most of today’s “fundamentalist” Marxist economists, and of the younger Shaikh, with the difference that the Marxists see socialism as the answer while the supply-side neoclassicals want even higher rates of capitalist exploitation, which they claimed would restore capitalist prosperity.
What makes him so impressive, Shaikh breaks with “fundamentalism” on this point. But he then fails to carry it to its logical conclusion. In “Capitalism,” but not his earlier work, Shaikh acknowledges that the realization of value and surplus value can be a problem independently of surplus value production. He points to the effects of the gold discoveries in California in 1848 and Australia in 1851 in accelerating the economic growth rate over the next two decades. This period is referred to by historians as the mid-Victorian boom. According to the younger Shaikh’s “fundamentalist” views, gold discoveries should not affect economic growth, as they believe correctly that the profit rate determines the economic growth rate. The profit rate in this view is determined only by the rate of surplus value and the organic composition of capital. Demand — the market — plays no independent role. Solving the problem of producing adequate amounts of surplus value causes investments to rise, solving the problem of markets.
As the gold discoveries had little effect on the surplus value rate or the organic composition of capital, they should have had little effect on the overall economic growth rate. By acknowledging the stimulative effects of the gold discoveries on demand — the widening of the market — Shaikh shows awareness that it’s not enough to produce surplus value in adequate quantities — that is only the first step for capitalist production. Once the surplus value has been produced, selling the commodities at profitable prices is also necessary. Adequate markets must be found. This is an advance over the views he expressed in earlier work and puts Shaikh head and shoulders above most other “fundamentalists.”
After making this advance, Shaikh then negates this step forward by the claim that thanks to the development of pure fiat money, or non-commodity money, an expansion of the money supply engineered by the monetary authority, combined with the workings of the fractional reserve banking system, will have the same market expanding effects as an expansion of gold production.
With this in mind, Shaikh rates John Maynard Keynes, along with Adam Smith, David Ricardo, and Karl Marx, as one of four of the greatest economists to have ever lived. The younger Shaikh would not have rated Keynes so highly, and other “fundamentalists” do not. As we saw in earlier posts, Keynes was well aware that his hopes of solving the problem of mass unemployment within the limits of capitalism depended on the establishment of non-commodity money.
Shaikh agrees with Keynes’ view that non-commodity money is possible under capitalism. He believes modern pure fiat money to be non-commodity money. However, he qualifies this with the view that commodity money — gold — retains its role as a means of safety during crises. (3)
He retains the “fundamentalist” view that an insufficient production of surplus value causes crises. As long as surplus value remains high, the demand for gold as a means of safety remains low. However, an insufficient production of surplus value — in real terms, an insufficient production of the means of production necessary to employ the growing population — is the root cause of modern capitalist crises.
As Foster points out, these views echo the claims of right-wing bourgeois economists who claim that recessions and stagnation are caused by an insufficient rate of surplus value. Of course, right-wing supply-side economists don’t use those terms. Shaikh sees one way to reconcile the capitalists’ and workers’ interests. If labor productivity can increase fast enough, the workers can win higher real wages but will have to tolerate a higher ratio of unpaid-to-paid labor. The “fundamentalist” theory is not very useful for building what Foster calls cross-class alliances. (4)
What all three schools — Foster’s MR school based on Baran and Sweezy’s “Monopoly Capital,” the wage-profit squeeze school, and the so-called fundamentalist school which receives its highest development in Shaikh’s book — have in common is a failure to understand the cyclical capitalist crises — that breeds monopoly and excess capacity — are crises of the relative overproduction of commodities, including the commodities that make up real capital. But they are not crises of the absolute overproduction of capital. The failure to understand that economic crises are those of the general relative overproduction of commodities are rooted in the acceptance by both the MR and the “fundamentalist” schools of the claim that modern money is non-commodity money. This shows that neither school has understood the advances Marx made in value theory beyond Ricardo.
The theory of price in ‘Monopoly Capital’
Baran and Sweezy used the term monopoly in a specific neoclassical way. Monopoly doesn’t mean cartels where independent capitalists agree to divide a market and set prices. Nor does it mean a single firm is the sole producer of a commodity. The neoclassical concept assumes perfect competition. Competition is perfect only when decisions on how much of a commodity of a given use value and quality to produce by an individual firm have no measurable effect on its price. This can only be the case where the total percentage of the commodity produced by the individual firm approaches the mathematical limit of zero.
If any firm has a market share that exceeds this level, it means there is a “degree of monopoly,” as Michal Kalecki put it. Therefore monopoly in the neoclassical sense is the origin of profit. The greater the degree of monopoly — the larger percent of the market the individual firm controls — the greater the profit.
This Kalecki-MR analysis differs from Marx’s explanation of the origin of profit on the assumption that commodities that have absorbed surplus value sell at their value. There is no need to bring in monopoly — aside from the class monopoly of the means of production by the capitalists — as the MR school does. Marx was aware that capital in a monopoly position could yield super-profits. But super-profits don’t explain why capitalists, as a rule, realize not only the interest on capital but the profit of enterprise.
In neoclassical theory, as long as the economy is in equilibrium, capital only realizes interest but no profit beyond the working capitalist’s wage and the interest on capital. In equilibrium, the active capitalist earns a wage equal to the value of the marginal product of their entrepreneurial labor and an interest on any capital they own, but no more. There’s no actual economic profit in equilibrium.
However, if an individual firm gains enough market share so its decisions on how much to produce have a measurable effect on prices, a profit beyond the interest on capital and the wage of the active capitalist, a monopoly profit arises. Competition has become imperfect if economic profits beyond interest and entrepreneurial wages persist. The greater the degree of monopoly, the higher the profit. The economic profit of neoclassical economics becomes the surplus of the MR school. For Marx, profit — interest plus the profit of enterprise — arises as a result of commodities selling at their values. For the MR school, the surplus arises as a result of commodities being sold above their value.
‘Some Theoretical Implications,’ an unpublished chapter
In a 2012 “Monthly Review” article, “Some Theoretical Implications,” one of two chapters that were part of the original manuscript but not included in the 1966 book, “Monopoly Capital,” another factor comes into play. The article assumes that during the competitive era, wages equal the minimum biologically determined level necessary to keep the worker alive and able to raise a new generation of workers — but nothing more. Even if that era’s capitalists had monopoly power (MR says they didn’t because this was the era of near-perfect competition), any attempt to raise prices above the value of commodities would fail because the workers’ real wages would fall below the level required to reproduce the working class.
In the monopoly era, real wages in imperialist countries rose above the subsistence level, making it possible to lower real wages by selling commodities at prices above their value without destroying the working class’s ability to reproduce itself. This, combined with a growing degree of monopoly, gives rise to a surplus. Sweezy wanted to call the extra profit from capital’s ability to sell above commodities’ value surplus value. For him, this includes all wages paid to workers above that necessary to biologically reproduce workers and their labor power. But Baran thought a new term was necessary. In his view, the extra profit earned through profit upon alienation exceeds the limits of surplus value. The MR school believes the real form of these extra profits tends to take the form of “waste.” (5) A rising surplus means increased production of waste.
Surplus value, the Monthly Review school holds — profit earned by selling commodities at their value — is the most important category of competitive capital. But it’s transformed into the surplus under monopoly capital because the capitalists gain the ability, on average, to sell commodities above their value. So instead of the tendency of the profit rate to fall, valid for capitalism based on near-perfect competition, the tendency of surplus to rise is valid for monopoly capitalism.
The history of prices between 1780 and 2010
As every school child knows, price is the amount of money paid to purchase a given commodity. To understand price, we must understand money. According to the law of commodity value, money is a commodity.
Did Baran and Sweezy realize this when they wrote their book? They ignored the nature of money in the portion of the manuscript that Sweezy published in 1966. Gold — commodity money — is, however, mentioned once in “Some Theoretical Implications.” The authors write, “To be sure, such progress as has been made in a number of branches of academic economic theorizing has led to the dissolution of a number of misconceptions that not too long ago still constituted the normal stock-in-trade of economics teaching: the role of gold, the nature and significance of the public debt, the infallibility of the market — to mention some prominent examples.”
As we know, post-World War II economists attempted to eliminate the monetary role of gold while retaining the capitalist system of generalized commodity production. We also know this failed effort led to the stagflation of the 1970s, after “Monopoly Capital” was written. Contrary to what the article’s authors believed, the belief that it is possible to eliminate gold’s role without abolishing the capitalist system was hardly an advance. In reality, as long as capitalism survives, money remains a commodity, and prices must be measured in terms of the use value of the money commodity. Since gold has been the primary money commodity throughout the capitalist era, prices consist of some unit of weight of gold.
If the analysis of “Monopoly Capital” is correct, prices in gold terms should be higher in the monopoly capitalist era than in the previous one. Does the history of prices support the book’s predictions? On page 727 of “Capitalism,” Shaikh produces a history of prices in gold terms beginning in 1780 and ending in 2010. We need to separate the age-old phenomena of devaluation and depreciation of currency from the effects of monopoly on the general price level. “Monopoly Capital” implies that the growth of the degree of monopoly — centralization of capital — causes prices defined in gold terms to be higher in the monopoly era, the era of imperfect competition, than in the competitive era where near-perfect competition prevailed. If the upward price trend reflects the depreciation of the value of the currency in expressed prices, there should be no upward price trend once we calculate prices in terms of gold.
Between 1792 and 1834, the gold dollar was defined as 1/19.75 of an ounce of gold. In 1834, that gold dollar was slightly devalued to 1/20.67. This was not changed until 1934, when it was lowered to 1/35 of an ounce. This lasted until the two-tier dollar gold price was established in 1968. This meant that while the official dollar price of gold remained at $35, the free market dollar gold price representing the real gold value of the U.S. dollar was allowed to rise above that price. After the official dollar price of gold was increased slightly to the current $42.22 in 1973, where it remains today, it lost all contact with the market dollar price of gold recently (May 2023), fluctuating around $2,000 an ounce.
The movements of dollar prices and golden prices were basically the same until 1933, except during the Civil War era, which saw the temporary depreciation of the paper dollar. After that, they began to diverge in the 1930s but moved in the same direction until the 1970s when prices in dollar terms and economically real prices expressed in gold terms moved, at times, in opposite directions.
The law of value dictates that while prices will seldom directly express the value of commodities — direct prices — the extent to which market prices can diverge from the levels where prices directly express values is limited in both extent and time. (6) If market prices as a whole rise sharply above the underlying value of commodities in one period, they’re expected to drop below that in the following period. If prices in terms of the use value of the money commodity fall below the value of commodities in one period, they’re expected to rise in the following period.
This law of prices applies only to prices expressed in the use value of the money commodity — quantities of gold. The law of value stipulates that the movement of prices expressed in units of currency that are allowed to vary in the amount of actual money material they represent is mathematically indeterminate. A continuous rise in prices in terms of the use value of a commodity is ruled out unless the value of the commodity functioning as money continuously falls relative to the value of other commodities. If such a fall occurs, it leads to the replacement of the money commodity by another. In the late 19th century, silver was replaced by the more valuable commodity, gold.
The law of value doesn’t prevent a regular price rise in terms of a currency unit that’s continuously devalued or depreciated against the money commodity. The history of currency shows that since the invention of coined money about 2,500 years ago, the history of currencies is one of the devaluations of currencies.
According to the law of value, the only real prices are those expressed in the use value of the money commodity measured by some unit appropriate to that use value. For most of the evolution of money, this has been a unit weight of precious metal. The consequence of the fact that real prices must be expressed in terms of the use value of the money commodity is that the most important category in capitalist production — profit — must also be calculated in terms of the use value of the money commodity. For capitalist production to continue, it must be profitable in terms of the use value of the money commodity and not just in an arbitrary unit of currency like the dollar or in real commodity terms, as Shaikh believes.
The history of prices
In 1896, prices were about as low as they ever got during the competitive era. The year also represents the end of the competitive era. Between that time and 1920, prices in terms of dollars, British pounds, and gold rose as predicted by the theory of “Monopoly Capital.” But before World War I (1914), prices remained below the levels before 1873. For the first period of Baran and Sweezy’s monopoly capitalism, prices remained below those prevailing during the competitive era while showing a rising tendency. After 1914, prices rose to all-time highs, above those of the competitive era. This accords with the predictions of “Monopoly Capital.” However, the high prices of that time can also be explained by the war economy of World War I.
“Monopoly Capital” predicts that prices after 1920 should have remained on a high plateau or even risen higher. But that’s not what we see. Instead, prices collapsed between 1920 and 1921 at a rate that has no parallel with the competitive era, though remaining above the levels that prevailed during that era. But that stabilization of prices was short-lived. After 1929, prices collapsed again, both in gold and dollar terms, to a level below that of the competitive era. How can these price declines be explained by a theory that ignores the law of value, and claims that price competition withers away under monopoly capitalism?
In gold and dollar terms, prices rose from the Depression lows of the early 1930s. However, they remained below the average level that prevailed during the competitive era, though now well into the era of monopoly capitalism.
Starting with the World War II war economy, prices began an ascent and rose above the average levels that prevailed during the competitive era, around 1950. Measured in gold, prices peaked in 1970 at a level above those of the competitive era but below the peak of 1920. Then, in 1980, gold-terms prices collapsed, reaching the lowest point on record for the entire period of 1780-2010, not what “Monopoly Capital” predicted.
After 1980, golden prices recovered, reaching a peak in 2001. While generally above the competitive era levels, they remained below the 1970 levels and well below the 1920 all-time high. By 2010 they fell back below the average levels of the competitive era, the end of the series. Between 1780 and 2010, calculated in gold terms, prices show no trend to rise whatsoever. Once we calculate prices in gold terms, price rises in one era are balanced out by falls in prices in the next era, just as the law of value predicts. If we calculate from 1920, golden prices show a definite downward trend.
The bottom line: as we calculate prices in terms of gold, price fluctuations become more violent as the gold standard gives way to today’s unstable token monetary system, where currency units like the dollar have been periodically depreciated against gold. The price rise calculated in gold terms predicted by “Monopoly Capital” does not appear. If we use the dollar as our measure of prices, the rise in prices predicted does appear, but only after 1940, about 40 years later. Even in dollar terms, the most dramatic general price-level declines have occurred within the era of monopoly capital, 1920-1921 and 1929-1933, not the “competitive era.”
The post-1940 rise of prices in dollars (not gold) has confused Shaikh. He believes this indicates that the dollar has been established as non-commodity money replacing gold. On the other hand, Baran and Sweezy thought the monopolies didn’t learn to not engage in price competition until about 1940. Both explanations violate the law of the value of commodities that dictates that commodity prices be calculated in terms of the use value of the money commodity and can’t keep rising above the value of commodities.
After the period of very low prices in the 1930s, there was upward pressure on price levels defined in gold as well as dollar terms, in accordance with the law of value. The law of value holds that if prices fall below the values of commodities in one period, they’ll rise back to and then above their values in the next. How did this law drive prices back up after the Great Depression?
Gold production spiked in the early 1930s due to the falling cost price of gold plus an unparalleled collapse of profits — both in dollar and gold terms in most other branches of production outside the branch producing the money material — gold. The production of money material was one of the few profitable branches during the Depression, and in full accordance with the law of value, it increased during that time.
Contrary to the predictions of Ricardo’s quantity theory of money — predicting the expansion in the quantity of money in terms of both gold and dollar reserves accumulated in the banking system — it didn’t lead to a price rise as long as the economic stagnation of the 1930s continued. Instead, a quantity of idle money capital accumulated in the banks. This drove the interest rate to the lowest level in the history of capitalism up to that time. Under these conditions, Keynes wrote “General Theory,” which became the theoretical bible of Keynesian economics. It was also the period in which a young Paul Sweezy began forming his economic ideas, a generalization of the economic conditions of the Depression.
The hoard of idle money capital accumulated during the 1930s represented a large amount of potential new purchasing power. But during the 1930s, this potential was frozen in bloated reserves in the banking system. As the World War II war economy replaced the Depression, this frozen purchasing power was unleashed, and prices began to rise. After the war, prices rose or plateaued at high levels as the previously frozen purchasing power flowed in. After the war, it was unleashed to finance renewed capitalist expanded reproduction that had been interrupted for about 15 years. This interruption of expanded capitalist reproduction is unmatched up to the present (May 2023) in either extent or time in the history of capitalism.
By the early 1970s, the combination of the post-war booms crowned by the inflationary Vietnam era boom — financed by government borrowing supported by the accommodative policies of the Federal Reserve System — led to the overproduction of commodities relative to gold, whose production was not keeping pace with the rising production of other commodities. These were the opposite of Depression-era conditions. Rising prices of commodities in gold (as well as dollar) terms made gold production and refining unprofitable relative to other branches of production. The prices of commodities again rose above their values. Gold production fell as prices rose during World War II. It rose after World II, but the increase in production after the war remained below Depression-era levels. The early 1970s saw this growth halted, then declined until the 1975 recession, when it stabilized. This was in accord with the law of value. As a result of the prolonged rise in prices, gold production became increasingly unprofitable, opposite to the situation during the Depression.
The combination of an expansion of commodity production, rising prices, and by the late 1960s, stagnant gold production exhausted the fund of idle money capital built up during the Depression. This was expressed by the rise in the interest rate characterizing the post-1945 era. Interest rates can’t rise forever, as Marx, Keynes, and Shaikh are aware since the average interest rate can’t long exceed the average profit rate. This pointed to a coming era of new economic crises and lower prices.
Drunk on Keynesian economics, wrongly given credit for the post-war booms by many economists, including many Marxists, policymakers attempted to maintain prosperity by establishing the dollar as non-commodity money. (7) At that time, the financial press was full of articles on how gold was being demonetized and replaced by “paper gold.”. Economic policymakers believed that the depleted reserve fund of idle money capital could be renewed not by newly mined gold but rather by newly printed dollars or their bookkeeping equivalent. They thought that newly printed dollars not backed by gold could prevent the deflation and depression that was inevitable with a retained gold standard. Printing dollars did prevent a classic deflation. But the series of dollar devaluations and the deprecations afterward was followed first by inflation, then by recessions and unemployment.
In “Capitalism,” Shaikh considers the 1970s stagflation a great depression, like the deflationary depression of 1873-1896, the Great Depression of 1929-1940, and the post-2007 years. During the 1970s, prices in dollar terms — and in other paper currencies linked to the dollar under the international monetary system. — rose rapidly. But in gold terms, the general price level fell more during the 1970s than at any other time in the history of capitalism. As Shaikh points out, one thing all these depressions have in common is a fall in the general price level in terms of gold.
By the beginning of the 1980s, golden prices — economically real prices — plunged to all-time lows below the levels seen between 1780 and 2010, contrary to the predictions of “Monopoly Capital.” And worse for the U.S. and global capitalist economy, during the 1970s, interest rates rose to all-time highs due to the erosion of confidence in the dollar and currencies linked to it. Declining confidence in the dollar whipped up demand for gold, which, according to the press and the media, was being demonetized to an extent that had never before been seen.
The frenzied demand for gold shows that the attempt to demonetize gold failed, confirming in practice the correctness of Marx’s view that the law of the value of commodities makes non-commodity money impossible under capitalism. Baran and Sweezy’s “Monopoly Capital” no more explains the post-1940 rise in dollar prices than it does the rise of prices in the Roman Empire as successive emperors reduced Roman coins’ gold and silver content.
But the failure to calculate prices and profits in gold terms isn’t the only problem with Baran and Sweezy’s theory. Monopoly capitalists can achieve a rise in prices if they restrict production and keep competitors out, realizing super-profits. But even if successful for a while, this doesn’t solve the profit problem for long.
If a capitalist corporation restricts production by failing to (re)convert a portion of the profit it doesn’t pay out in dividends into new productive capital, a growing portion of the capital will lie idle in the form of money capital. The profit rate is calculated on the total capital, productive, commodity, and money capital. Since corporations won’t allow capital to lie idle — where it doesn’t function as capital — it will throw it on the money market directly or through the banking system. In this way, the corporation throws the realized super-profits of yesterday on the money market so it can at least realize the rate of interest.
Except for brief periods of crisis, the average interest rate must be below the average profit rate. If capital is only accumulated in the form of interest-bearing, as opposed to productive, capital, the profit rate on the total capital will fall through the average profit rate toward the mathematical limit of the interest rate. This defeats the purpose of monopoly pricing, which is to realize super-profits beyond the average profit rate.
The need to find new markets
The only solution for the monopoly capitalist, as it was for its competitive predecessor, is to find new markets. Only then will super-profits be transformed into new capital with any chance of yielding profits above the average rate. This means monopoly corporations must expand their existing production or invest in other branches of commodity production. Unless adequate markets are found, the increased flow of capital into these branches of production will bring down the profit rate toward the average, then below, and end in outright losses. Even in branches of production with highly centralized capital, it can’t escape the law of equalization of the profit rate. The most that monopoly can achieve by restricting production is to delay the inevitable collapse of super-profits.
Baran and Sweezy knew that if monopoly capitalists simply sat on swollen profits, the result would be stagnation and depression, causing the surplus earned by selling commodities above their value to vanish and be replaced by losses — making the surplus disappear. New markets must be found, or, in the language of “Monopoly Capital,” “The surplus must be absorbed.” Baran and Sweezy — influenced by Joseph Schumpeter, the bourgeois economist of innovation — believed the surplus could be absorbed by the rise of a great new industry, such as the railroad in the 19th century or the automobile in the 20th century. Or it could be absorbed by unproductive third consumers who are neither workers nor capitalists, found partly in the army of salespeople, but most importantly, the state and its dependents.
Baran and Sweezy theorized that the 1930s Depression occurred due to a lack of a new industry capable of adequately absorbing the surplus. The railroad industry became stagnant after the 1907 crisis. The automobile and associated industries were able to take up the slack after World War I but were unable to keep on absorbing sufficient surplus at an adequate rate. Baran and Sweezy argued that though the incompetent policies of Herbert Hoover contributed to the violence of the Depression, the U.S. and world capitalist economies were destined to sink into stagnation because that was the natural tendency of monopoly capitalism in the absence of the rise of a great new industry. Such an industry might emerge in the future, but this was far from certain, as even the auto and associated industries hadn’t been able to absorb sufficient surplus to prevent the Depression. But monopoly capitalism still has a way out: have the government and its dependents absorb the surplus.
They write, “Where there is unemployed labor and unutilized plant, government can create additional demand even with a balanced budget. A simple numerical example will illustrate the point, without omitting any essential factors. Suppose that total demand (Gross National Product or GNP) is represented by the figure 100. Suppose that the government share of this is 10 which is exactly matched by taxation of 10. Government now decides to increase its purchase of goods and services — say for a larger army and more munitions — by another 10 and to collect additional taxes of the same amount. The increased spending will add 10 to total demand and collect taxes to the same amount. The increased spending will add 10 to the total demand (since there is idle labor and available) to total output as well. The other side of the coin is an increase of income by 10, the equivalent of which can be drained into the public treasury through taxation without affecting the level of private spending. The net result is an expansion of GNP by 10, the exact amount of the increase in the government’s balanced budget. In this case the ‘multiplier’ is equal to 1.” (Monopoly Capital, p. 144).
But does this operation provide the markets needed to continue making profits? First, society must hand over money to the state through taxes. Then, to pocket this money, monopoly capitalists supply the state with commodities. This way, the government provides the missing markets, and the surplus is absorbed.
According to Baran and Sweezy, in the earlier period of near-perfect competition, the problem of markets did not exist because, under perfect competition, the economy tended toward full employment of workers and machines. Ricardo and neoclassical economists assumed the economy operates at full capacity. Ricardo didn’t believe all workers would be employed. Neoclassical economists, however, claim that the normal state of a perfect competition economy has plant, equipment, and workers fully employed. Baran and Sweezy then attribute the same views to Marx — who said the opposite.
Baran and Sweezy wrote, “In the older theories — and here we include Marxian as well as classical and neoclassical economics — it was normally taken for granted that the economy was operating its plant and equipment at full capacity so that anything that government might take from the total output of society would necessarily be at the expense of some or all of its members.” (p. 142, Baran and Sweezy) It’s true that the Ricardian school and neoclassical economics hold such views. But Marx didn’t believe the capitalist economy normally operated at full capacity, and he criticized Ricardo for such a view. Here Baran and Sweezy lump neoclassical economics, in which they were trained, with the views of Marx. This passage shows a gap in their knowledge of Marx’s work. Marx criticized Ricardo for this and also criticized him for his support of Say’s Law which holds that a general glut of commodities is impossible. Marx was writing about the capitalism of Ricardo’s time, which lay within what Baran and Sweezy consider the competitive era.
But let’s get to the substance of the passage: “Where there is unemployed labor and unutilized plant, government can create additional demand even with a balanced budget.” First, this equates supply with demand. If there is full utilization of labor and plant, any increased demand created by the government or otherwise will mean demand will exceed supply at existing prices. Since there’s already full employment, demand and supply can be equalized in the short term only through higher prices. This reduces demand back to supply. Neoclassical economists then conclude that any government attempt to increase demand is harmful and inflationary.
In reality, the normal condition of a capitalist economy, even in “the competitive period,” is an amount of unemployed labor combined with excess industrial capacity. If demand is increased by government action or otherwise, increased production can absorb the increased demand without increasing prices. Keynes stressed this in the 1930s. However, this still doesn’t tell us where the increased demand comes from. The mere fact that it’s physically possible to increase production doesn’t necessarily mean the government can increase demand, and if it could, how. It merely tells us that if demand increases, it won’t necessarily lead to inflation.
Baran and Sweezy claim government can increase demand by raising taxes and then spending the revenue. Does money raised by taxes — not deficit spending — really have a multiplier of 1, as claimed in the quoted passage? According to “Monopoly Capital,” for each dollar the government raises in taxes and spends, demand will rise by $1, a multiplier of 1. That means the capitalists will be able to increase production by $1 without cutting prices to sell the increased product. Let’s assume to maintain full employment, the capitalists need to expand the market by 5% in a given year. Assume this 5% is represented by $300 in some unit of currency. You can add whatever amount of zeros you need to make the following calculations realistic without affecting the essence of the matter.
Baran and Sweezy don’t ask the question in the quoted passage about who is to be taxed, so we have to do this for them. We assume that capitalist society is divided into classes: workers who sell their labor power and produce surplus value, and capitalists who buy the workers’ labor power and appropriate surplus value in the form of commodity capital which they then must sell in order to realize monetary profit.
To create additional markets, all the government has to do is raise taxes so they bring $300 of additional revenue, then spend that money on commodities produced by the capitalists who need $300 in additional markets to fully utilize their capital and the available supply of labor power — variable capital. But who does the government tax? Since the government represents big business, it taxes the workers. The collective workers must hand over $300 in taxes to be spent by the government. It’s assumed that the workers, unlike the capitalists, have to spend all their wage income on survival. As a result of the new tax, they’ll have $300 less to spend.
As a result, their expenditures over a year drop by $300. This drop is counterbalanced by a rise in demand from the state and/or its dependents. As a result, there’ll be more demand for some commodities — those for the government — but this will be offset by less demand for commodities produced by the workers. The total demand for commodities won’t be affected.
This assumes the workers can’t raise their pre-tax wages to compensate. But wages have to more or less equal the value of labor power. If below their value, labor power won’t be adequately reproduced. The reproduction of labor power is necessary for an expanding quantity of surplus value to be produced. Without it, it’s impossible to expand the amount of profit as profits are surplus value realized in money form.
Higher taxes on workers leads to higher pre-tax wages. Though taxes directly fall on the workers, they ultimately fall on the capitalists. What happens if the capitalists, not the workers, are taxed, which seems to be what Baran and Sweezy have in mind? Let’s find out.
Now the capitalists are taxed the $300. To get back that money, the capitalist must provide the government or its dependents with $300 in commodities. Assume the capitalists spend $100 on “c” (used up constant capital) and $100 on “v” (variable capital) to produce commodities for the state. Assuming a rate of surplus value of 100%, the capitalist has produced $100 in surplus value. The capitalists now have $300 in commodity capital, but they’re out $100 in used-up constant capital and $100 in used-up variable capital. However, the $100 representing surplus value has cost them nothing. At this point in the transaction, capitalists are out $300 in money capital they were forced to pay the state, plus $200 in productive capital. However, they have $300 in newly produced commodity capital they must hand over to the government to get back their original $300 in money capital. If neither the government nor anybody else buys the $300 in commodity capital, the capitalists will be in the red to the tune of $500. If the state comes through and buys $300 in commodity capital, this reduces the net loss from $500 to $200. They have neither increased nor decreased their money capital as a result of the transaction, but they’re in the red $200 in terms of real capital. From the capitalists’ viewpoint, this isn’t a profitable transaction since they lost $200 in real capital while having the same, but no more, money capital.
It’s still possible for the capitalists to gain indirectly. For example, if the $300 represents increased means of transportation in communications — railroads, and canals, for example — the reduced turnover time of capital will make possible an increased production of surplus value over a given period, paying for itself many times over. But this isn’t what Baran and Sweezy have in mind. They assume the products sold to the state are munitions. The consumer of the munitions is the state. The munitions will be consumed by either gathering dust in a warehouse or being blown up in war. In either case, these commodities will not reenter reproduction upon their consumption by the state. Consequently, the total transaction is a dead loss for the capitalists.
To imagine that this transaction results in a multiplier of 1 — create 300 in additional markets — Baran and Sweezy must make a series of unlikely assumptions. First, they have to assume the $300 in money capital would otherwise have remained unspent by the capitalists. Second, they have to assume that a loss of $200 in the value of their capital will have no negative effect on their spending either in their personal or productive consumption — investment. The latter seems an unrealistic assumption since capitalist investment is about expanding the value of capital, not reducing it.
The most that could be said of this transaction is that it might tend to reduce overproduction because taxes on the capitalists reduce the quantity of capital and, thus, commodities. It’s the growth in the number of commodities that leads to crises of overproduction that then result in periods of stagnation. If the government applies this method in the example given by Baran and Sweezy in an attempt to avoid economic stagnation, they’ll achieve stagnation directly through high taxes, making production less profitable, rather than indirectly through a crisis caused by overproduction. The bottom line is that the monopoly capitalists cannot solve their need for additional markets by paying the government to buy products from them.
Marxist as well as Keynesian economists would reject Baran and Sweezy’s analysis. The Keynesians insist that it’s deficit spending by the state that increases demand. They reason that if the deficit is growing, the contribution of the state to demand is positive. If it’s shrinking, the state contribution to demand is negative. To the extent the state borrows money from capitalists who would otherwise sit on it, more money is thrown into circulation. Yes, the money will have to be paid back — or if the money is borrowed by the state, it’s paid back by borrowing more money, and interest on the debt will have to be paid.
Keynesians explain that the multiplier and accelerator effects create additional demand for commodities well beyond the deficit-financed increased expenditure by the government, which brings about a recovery with a rise in taxable profits. In this way, the deficits pay for themselves. And when the increased taxation becomes necessary, it might be useful to cool the economy back down, and, though the Keynesians don’t say this, increased taxation reduces overproduction and postpones or reduces the intensity of the next crisis. Or, as they say: the business cycle is smoothed out. During a period of depression/stagnation, they say a period of increased deficit spending by the central government primes the pump. However, this pump priming is no substitute in the long run for the forces that govern the expansion of markets, which is necessary if capitalism is to survive.
Pump priming
How does pump priming accelerate recovery from depression, and what are its limitations? Normally capitalism maintains a reserve fund of money within the banking system just as it maintains a reserve industrial army of unemployed workers as well as a margin of idle plants. The reserve fund size varies with the phase of the industrial cycle, just as the reserve army of unemployed workers does. The reserve fund is largest in the depression following a crisis and smallest during the boom just before a new crisis. During a recession — this also applied to the COVID shutdown crisis though it wasn’t a crisis of overproduction — the reserve fund swells to a level beyond the average, and money falls out of circulation and accumulates in the banks. Just as crises replenish the reserve army of unemployed workers, it replenishes the reserve fund of money in the banking system. During depressions, the state can borrow more money without driving up interest rates and crowding out other borrowers than during a boom because the demand for credit by other borrowers is reduced, and interest rates fall..
However, deficit spending can’t avoid a crisis because, on the eve of the crisis, the reserve monetary fund falls below its average level, as shown by the rising interest rate that occurs as the boom unfolds. Any attempt to keep the boom going by having the central bank create more money not backed by gold leads to the depreciation of the currency, whose consequences we have examined throughout this blog. Keynesian stimulus policies lose their effectiveness once the reserve fund of idle money capital built up during the preceding crisis and depression has been exhausted. The decade of the 1970s is the classic example of this.
During a depression, Keynesian policies can accelerate a recovery that’s coming anyway, within limits. The longer the depression and stagnation last, the larger the fund of idle money capital that’ll be available for the next expansion. If the central government forces a recovery too soon, before a reserve fund has been adequately built up, the new expansion will be limited in extent and time. This is why, to take a recent example, the deficit spending of the Obama administration after the Great Recession was too small to bring about a full recovery. Because the recovery was so slow, interest rates remained low, and a new general crisis was avoided until the COVID shutdowns of 2020. The fund of idle money accumulated during this long slow recovery, further expanded by the large amounts of money that fell out of circulation during the COVID shutdown, created the reserve that made possible the strong boom of 2021-2022. This boom saw unemployment fall to the lowest level in decades. For Keynesian policies to create permanent prosperity, as it aims to do, non-commodity money is needed. But non-commodity money is forbidden by capitalism’s law of the value of commodities.
In “Monopoly Capital,” Baran and Sweezy went astray because they ignored the law of the value of commodities to give its full name, which rules the birth, growth, and demise of the capitalist mode of production. In contrast, Shaikh’s work produces brilliant results as long as he follows the law of value, which he doesn’t fully understand. He doesn’t understand that value must take the form of exchange value and that form of value must take an independent form in the shape of a special money commodity whose use value must measure both prices and profits.
Next month I’ll examine Shaikh’s criticism of the theory of the monopoly stage of capital in “Capitalism.”
(1) Paul Sweezy resigned from his teaching post at Harvard in 1947 when it became clear he wouldn’t receive tenure due to his opposition to U.S. imperialism and the developing Cold War. In 1949, he founded “Monthly Review” magazine as an independent socialist magazine. (back)
(2) Since capitalism is international, a true absolute capitalist overproduction would develop on a world scale. Even if full employment is achieved in one country, its ruling capitalist class would respond by liberalizing or removing restrictions on immigration. Only when full employment is worldwide, so increased immigration can’t increase the number of workers employed in one country without reducing the number in other countries, would a true absolute overproduction of capital exist. (back)
(3) Shaikh has little to say in “Capitalism” about the cyclical crises that crown the more or less ten-year industrial cycle. Instead, he emphasizes downturns in the long waves he believes occur about every 25 years. During long-wave prosperity, he argues, the rising demand for labor power makes it more or less impossible to increase the rate of surplus value. At the same time, the organic composition of capital rises, reducing the rate of profit. As the profit rate falls, at a certain point, the capitalists begin to convert some of their capital into gold to conserve their capital. They use gold as a hedge against crises rather than pure fiat money because they know that fiat money will almost certainly depreciate as the government attempts to fight the crisis by increasing demand. According to Shaikh, gold retains one function of money as a means of safety. This is a valuable insight.
Here, Shaikh stops his analysis. He believes that because gold acts as a means of safety, prices in gold terms — not pure fiat money — reproduce the same wave-like trend that prices calculated in gold terms (before pure fiat money replaced gold money) as the medium of price around 1940. If Shaikh had followed the logic of his argument, he would have concluded that gold not only retains its role as the medium of price after 1940 but, most importantly, retains its role as the measure of profit. (back)
(4) Cross-class alliances, alliances between the working class and the more enlightened wing of the capitalist ruling class against the most reactionary wing of the capitalists, have been known since the mid-1930s as Popular, Peoples, or All-Peoples Fronts. Throughout its history, “Monthly Review” magazine has championed the attempt to build a Popular Front in the post-New Deal U.S. without much to show for it. (back)
(5) The concept of the surplus originates with Paul Baran. He applied it to the economies of oppressed capitalist nations. He pointed out that even if you subtract from the surplus product the goods necessary to maintain the ruling class at a reasonable standard of living, the surplus that remains is large. The problem is that instead of using this surplus to expand production, it’s wasted by the ruling class in extravagant personal consumption or other unproductive ways.
In “Monopoly Capital,” Baran and Sweezy extended this analysis to the imperialist countries. The real form of the surplus includes all those commodities whose use values are unnecessary or downright harmful to society and individuals that consume them. They call this waste. Waste includes luxury commodities consumed by the capitalist class but not the working class, commodities consumed by people engaged in the sales effort as well as commodities consumed by the working class in the imperialist countries but not necessary for the actual reproduction of the working class, and most importantly, munitions and other means of war. As the surplus rises, so does the production of waste. According to Baran and Sweezy, the production of waste prevents a deep economic Depression by keeping the order books of the corporations full, but it could turn out to be worse than a Depression if the weapons are ever used in a nuclear war. Developing the analysis of “Monopoly Capital” further, John Bellamy Foster sees the growing production of waste as the underlying cause of the climate crisis whose consequences could, like nuclear war, be far worse than any Depression. (back)
(6) Prices diverge from values — direct prices — because of different organic compositions of capital and turnover periods. In addition, the constant fluctuations of supply and demand cause prices either above or below the value of commodities. As a result, chances are small that the market price of the head of lettuce you bought this week at the supermarket will equal its direct price. The extent to which market prices vary from their direct price is limited in degree and time. Extraordinary circumstances such as war, extreme economic crisis, pandemic, etc., might cause prices of commodities to diverge from their value more than usual. Still, within a relatively short time, prices will return to levels closer to their actual values or direct prices. (back)
(7) Despite the overwhelming evidence to the contrary, most academic Marxists insist the effort to demonetize gold and establish fiat money as non-commodity money succeeded. (back)
A Critique of Crisis Theory 