In January 2026, the Trump administration launched additional attacks on the Federal Reserve System’s independence. This caused the gold market to go into a frenzy, with the dollar gold price spiking to over $5,500 an ounce. The price then plunged back below $5,000 after Trump announced the nomination of veteran central banker and Wall Street favorite Kevin Warsh to head the Fed after chair Jay Powell’s term ends in May. As of early February, the price has fluctuated around $5,000. While this may seem obscure to laypeople, it points to the economic roots of crises that have erupted on many fronts.
We’ll begin with Iran, then turn to the general strike in Minnesota on January 23.
Washington threatens war against Iran
January saw major new threats from Washington against the Islamic Republic of Iran, where demonstrations against the government, some peaceful and some violent, broke out. One was by merchants who peacefully complained against the downward movement of the Iranian currency, causing inflation that authorities claimed was engineered by Washington.
It’s been claimed that the Israeli Mossad and the CIA were involved in other violent demonstrations attacking mosques and police stations, burning them down and killing many people. The government attempted to separate the peaceful action by the merchants from the violent ones that were plainly aimed at overthrowing it. It’s clear that the violent actions were part of a regime change attempt by the Trump administration and were used as a pretext to threaten Iran with military attack. The peaceful demonstrations were not progressive. The root cause of the currency problems is the U.S. sanctions aimed at preventing Iran from buying or selling commodities to strangle the country. If I had to make a suggestion to the merchants (I am, of course, not a spokesperson for them), I’d suggest they direct their demands against U.S.-NATO imperialism, not the Iranian government.
The unrest appears to be part of Trump’s broader attempt to bring down the governments of Venezuela and Cuba. The Trump administration has made it virtually impossible for Cuba to get oil to buy or sell anything else on the world market. For the last 66 years, Washington has dreamed of overthrowing the Cuban revolution. If Trump succeeds, he’ll be praised for succeeding in what administrations from the Eisenhower era onward have failed. If Venezuela or Cuba is crushed, Sandinista Nicaragua will have little prospect of surviving.
I admit I don’t know all the facts about the Iranian demonstrations, and news about them is contradictory. Is it really true that thousands of people were killed? Is the violence exaggerated by imperialist propaganda? What role did the CIA and the Mossad play in these events? Is the Iranian government exaggerating or falsifying the extent of Mossad and CIA involvement to cover up its own failures?
Within leftist circles inside imperialist countries (and I know this through long experience), whenever anti-government demonstrations, strikes, or riots break out in countries that are in Washington’s crosshairs, there’s an immediate impulse for sections of the left to support them. According to Western media, demonstrators, strikers, or rioters are demanding democracy in opposition to dictatorial rule. These may range from the right to form “free labor unions”, freedom of expression or for minority nationalities, and sometimes for the majority nationality, for a religious community, or for human rights.
Sometimes, the imperialist-supported movements make perfectly reasonable demands that we should support. An example in Iran is the right of women not to be forced to wear the head covering that Islamic law (and, for that matter, Jewish law and supported in some New Testament passages and interpretations of Christian religious law) insists on. Naturally, we correctly oppose attempts by governments to impose their own religious beliefs on people who may not share those particular beliefs. The Islamic Republic of Iran, as its name suggests, does not recognize the separation of church and state, which is a basic principle of bourgeois democracy. They consider it a legitimate government function to enforce Islamic religious law.
Another example of state religious enforcement is the decision by the U.S. Supreme Court to throw out the right to abortion in the United States at the federal level. Certain religious groups, such as the Catholic Church, have long opposed abortion rights that church leaders consider counter to God’s laws. They have the right to this belief, and nobody should force Catholic women to have abortions they don’t want due to religious belief. But under the principles of bourgeois democracy, the Catholic Church has no right to use state power to deny women their right to abortion. Yet this is the situation women in many U.S. states face today.
Any movement to get rid of such laws is progressive, is it not? For example, aren’t the protesters in Iran struggling against their government, just like we struggle against ours? Dissidents of the world unite! Sounds good, doesn’t it? But this leaves out one thing: If a protest movement in a country targeted for regime change by the U.S.-NATO world empire fails to criticize the empire or show solidarity with oppressed people who struggle against imperialism, we should have doubts about the character of the movement. If the opposition movement is supported by imperialism (Trump has made clear that he supports the Iranian protest movement and threatens to start a war in the name of defending it), no matter how reasonable and progressive their demands may appear to be, such pro-imperialists are, in fact, not progressive. As in Harlan County, “there are no neutrals” in the struggle against imperialism. (1)
If such movements support imperialism or fail to strongly support the Palestinians in their struggle against U.S.-imperialist-Zionist genocide, as appears to be the case with many of the Iranian protesters, the Western left should not support them. We can’t claim that Iranian protesters lack information about Palestine — the whole world knows about it at this point. Instead, we should demand that the world empire keep its hands off Iran, lift the blockade/sanctions, cease all measures against the currency, and stop interfering in its politics. The U.S. government should immediately withdraw all the military forces it has been massing against Iran, as we do in the case of Venezuela, Cuba, and Nicaragua.
Pro-imperialist forces in these countries base their hopes for regime change and democracy precisely on a continued economic and financial blockade and threatened military measures by the U.S.-NATO world empire. Leaving aside some misled dupes, pro-imperialist forces within countries being targeted for regime change hope for U.S. intervention, so if they come to power, they will be able to enrich themselves as compradors once “liberated” from their current anti-imperialist regimes. Today, we see this process unfold in Syria and elsewhere.
Fortunately, Iranian patriots have mobilized in the streets in the millions against the pro-imperialist demonstrators and rioters, and this appears to have weakened it at least for now. This welcome development has reduced (though not eliminated) the danger of new U.S.-Israeli military attacks in the immediate future.
A tale of two general strikes
On January 23, there was a general strike and a massive demonstration (estimated at 50,000 to 100,000 people) in the city of Minneapolis, with temperatures of around 10 degrees below zero on the Fahrenheit scale (around 23 degrees below zero on the Celsius scale used in most countries).
It was not the first general strike in the history of Minneapolis. A previous one lasted between May 16 and August 22, 1934, revolving around organizing the area’s truck drivers into the American Federation of Labor (AFL) Teamsters union. The same year saw two other city-wide general strikes, one in San Francisco, California, (it grew out of a drive to organize longshore workers into the AFL International Longshoreman Association, that later developed into the Congress of Industrial Organizations (CIO) International Longshore and Warehouse Union) and the other in Toledo, Ohio, (that began as a campaign to organize auto parts workers into what became the United Auto Workers Union-CIO).
This is not the place to write about the history of these strikes or the political tendencies that led them. This would fill volumes, take us into the Russian Revolution, and involve no small part of the history of the 20th century. We can say the tradition of the 1934 general strike in Minneapolis made it easier to organize the one on January 23.
In the union struggles in the United States in the 1930s, the key issue was making the transition from craft unions to industrial ones. A craft union is organized along craft lines: one union for fitters, another for machinists, another for plumbers, painters, and so on. Industrial unions organize workers according to industry regardless of their craft or skills: auto industry workers are organized into a single union, steel workers into a steel union, mine workers into a mining union, and so on.
The rapid growth of large-scale industry in the late 19th and early 20th century made the transition to industrial organization increasingly urgent for the labor union movement.
The AFL, with few exceptions, was based on craft unions, and its leaders were opposed to the transition to industrial unions. Worse yet, the crafts reflected national differences. Workers of color, especially African Americans, were largely excluded from the unions. As in the Southern states, Jim Crow laws dominated the AFL of Samuel Gompers and his heirs. Unskilled and semi-skilled workers were also largely excluded.
While the movement to replace craft organizations that, by their nature, pitted workers of different crafts and nationalities/races against one another, the industrial form of organization united larger masses of workers against the bosses. Though the union struggles of the 1930s (the Minneapolis general strike was a high point) raised important political questions, these strikes remained economic ones.
Economic strikes involve workers’ right to organize labor unions (criminal syndicalist laws were on the books in many U.S. states, which outlawed unions of any kind). Once the right to organize was won, this enabled economic strikes over wages (the rate of surplus value/the rate at which workers are exploited), working conditions, and hours of labor. Political strikes involve a range of social-political questions, not just those at the point of production. While economic strikes usually involve the struggle of a group of workers against a particular boss, political strikes involve workers and their allies against the capitalist government that represents the entire capitalist class.
Traditionally, U.S. workers’ strikes have been mostly economic, reflecting the conditions of the time. During the 19th century through the first 70% of the 20th century, conditions were more favorable for economic strikes and less so for political ones.
During the days of the CIO, there was a frequent refrain, “You can’t strike against the (federal) government.” Pro-Democratic party CIO leaders said economic strikes, yes; political strikes, no. They argued that, unlike Czarist Russia, the U.S. was a democracy in which the people choose leaders through free elections and that political questions are resolved through elections rather than strikes.
This idea reflected the prevailing economic conditions. Through the 19th and 20th centuries, U.S. capitalism built an economic machine second to none. The productivity of labor was higher in U.S. industry and agriculture than in any other country in the world. According to the law of value, this meant that an hour of labor performed in a U.S. enterprise counted for much more than an hour of labor on the world market. This meant U.S. bosses could pay more for labor power than those in other countries and still make the average rate of profit. Naturally, U.S. bosses would have preferred to lower wages, but militant economic strikes could and did force the higher wages that the capitalists could afford to pay.
This led to an atmosphere of labor union militancy that reached its highest expression during the CIO years, from the mid-1930s to 1955. The U.S. had the largest number of labor union members in the capitalist world, yet its level of political class consciousness was among the lowest in the world.
Most U.S. workers supported the so-called Cold War against the Soviet Union without realizing they were helping saw off the branch they were sitting on. The reason: the successes of the Soviet Union pressured bosses to pay U.S. workers relatively high wages. This enabled the capitalist class to contrast the standard of living of workers in the Soviet Union with the much higher standard of living of U.S. workers. In the 1950s and 1960s, the propaganda machine blared out the message that thanks to free enterprise, workers could enjoy washing machines, refrigerators, air conditioners, automobiles, televisions (then color televisions), large apartments and homes, and Soviet workers either had to do without or enjoyed them in smaller quantities and qualities.
Today, these favorable conditions no longer exist. The productivity of labor in the U.S. is no longer higher than that of Western Europe and Japan, while China’s is rapidly catching up, and other countries in the Global South are beginning to close the gap.
How did the United States get there? We need to go back and trace the history.
After experiencing rapid capitalist economic growth in the late 1800s through to the 1920s (punctuated by occasional financial panics and recessions) with periodic massive, if temporary, unemployment, the U.S. economy, to the astonishment of people then alive, suddenly collapsed in the early 1930s.
Throughout the 1930s, there were ups and downs, but the downs largely balanced out the ups, and by the end of the decade, U.S. industrial production was about where it had been in 1929. But this time there was mass unemployment, and for a while it looked like the good times might never return.
Workers were beginning to embrace socialist ideas. Then came World War II, with wartime mass chauvinism, and the prosperity of the post-1945 years, with their refrigerators, automobiles, suburban housing, and more.
The Great Depression was one of unprecedented severity and duration. Like other lesser downturns, this one passed as well. After 1945, the post-war recessions, cushioned by government unemployment insurance and by more generous schemes that the strongest industrial unions had created in the 1930s, combined with individual corporate monopolies, made life more bearable for many workers.
Around 1970, things began to change. Real wages stopped rising, though not as dramatically as in the 1930s. Economic conditions continued to fluctuate from year to year in accord with shifts in the stages of the industrial cycle. But the good times of the pre-1970s never came back.
Good industrial union jobs organized by the CIO in the 1930s and 1940s began to disappear; industrial centers became the Rust Belt, and more people faced cyclical unemployment without the prospect of returning to their jobs once the recession ended. Now it was a lifetime of unemployment, low-paying jobs, or occasional part-time work that led nowhere. This lasted year after year, decade after decade.
Republicans — Richard Nixon, Gerald Ford, Ronald Reagan, George H.W. Bush, George W. Bush, and Donald Trump — set the general trajectory in the White House for decades. As for the Democratic presidents — Jimmy Carter, Bill Clinton, Barack Obama, and Joe Biden — despite initial talk that each would be the next FDR, they changed little or made things worse. Clinton ended “welfare as we know it.” The disappointment that followed each successive Democratic president, helped along by a political system that favors the election of Republicans, led to the election of yet another Republican president, each one worse than his predecessor. For example, Donald Trump was followed by “Genocide Joe” Biden, who was then followed by an even worse second Trump administration.
Something had to give. In Minneapolis on January 23, 2026, it finally did.
The difference between economic and political strikes is that economic strikes are aimed at a particular capitalist, corporation, or a group of capitalists operating in a particular industry, like those in the automotive industry. A political strike targets the central federal government. The central government represents the capitalist class as a whole.
The murder by federal police of a white, female, U.S. citizen, Renee Good, pushed things to the breaking point. The mass of the people of Minneapolis realized that action had to be organized against the federal government that was shooting down people in the streets of their city. On January 24, the day after the general strike protest, another white person, Alex Pretti, an ICU nurse working for the Veterans Administration, was killed in the streets when he tried to come to the aid of a woman being attacked by Border Patrol agents.
The people need a leader, not in the sense of an individual, but leadership of the class, the working class. The working class’s traditional mode of struggle, economic strikes against particular capitalists, is naturally extended to a political general strike aimed at the Trump government that represents the capitalist class as a whole. A general political strike forms between economic strikes seeking concessions from individual capitalists and a struggle for political power between the two major classes of capitalist society.
To pursue the struggle further, the working class will have to organize its own political party to fight for power. As capitalism declines, this question will be posed in sharper forms.
The eye of the storm
Besides the general strike in Minnesota, January 2026 has been marked by additional crises. There was the kidnapping of Venezuelan President Nicolás Maduro and his spouse Cilia Flores on Trump’s orders and their incarceration in a New York City jail as if they were common criminals; grave threats of attack by the U.S. and Israel against Iran; the murders of Renee Good and Alex Pretti by federal agents in Minneapolis; renewed threats to seize the Danish colony of Greenland by force; renewed threats of an invasion of Cuba; and possible military operations against Mexico. Any one of these events would, in and of itself, have warranted major attention from this blog. In the background, the Russo-Ukrainian war grinds on, and the genocide in Gaza continues despite Trump’s promise to end it quickly.
There is one story that stands out like in the eye of a hurricane. Within the eye, the weather is calm and sometimes even sunny. But around the eye, the storm’s destructive winds and torrential rains rage.
Before we get into the details, let’s review the influence the central banking system exercises within the industrial cycle. Under the present-day monetary system, the power of the central bank, the Federal Reserve, flows from its monopoly on the issuance of legal tender currency. U.S. currency — legal tender Federal Reserve notes and coins — is issued not directly by the Treasury, though the U.S. Mint, an arm of the Treasury, produces the paper notes and coins, but through the Federal Reserve System. As long as there is sufficient money material — gold — the Federal Reserve can create additional currency.
If there’s an insufficient quantity of money material, there are major economic limits. While there have not been any legal limits on how many notes and promises to pay notes at the demand of commercial banks that maintain accounts at the Federal Reserve banks, there are objective limits to how much currency can be issued, with the currency depreciating. Money material is the material substance of the commodity that serves as money. For millennia, the money material has been precious metals. In principle, this can consist of whatever commodity functions as money. The reason gold has served for so long is that its natural properties come closest to the ideal.
These ideals are that since a small amount, say an ounce, requires a great amount of human labor to produce, it contains a large quantity of value in a small physical space. The ideal money commodity would have no other use value other than its role as money — no commodity meets this requirement. Because gold has high value, this hinders its potential use value in other areas. As a soft metal, it can be physically divided into small quantities. The ideal could be divided into infinitely small quantities — none meets this requirement due to the laws of physics, but gold is, in chemical terms, an element, not a compound. It’s homogeneous down to the atomic level.
One function of the money commodity under capitalism is to serve as a means of accumulation. The ideal money commodity should be immortal in the sense of being durable on the time scale of the lifetime of the capitalist mode of production. To be durable, a commodity has to consist of an element that chemically reacts with few others. An ideal one would react with no others. Gold does not quite meet this requirement, but it comes close.
As we have explained elsewhere on this blog, the accumulation of real capital must be accompanied by a parallel accumulation of money capital. The production of the elements of real capital and their accumulation must proceed in certain proportions. When the accumulation of real capital exceeds these proper proportions, a general relative commodity overproduction results, which lies behind cyclical capitalist crises. This overproduction is not relative to human needs, but relative to the money commodity. In the long run, the necessary proportionality between the accumulation of real capital and money capital is maintained through successive overproduction of non-money commodities and underproduction of the money commodity. (2)
An overproduction crisis represents a transition from a condition in which non-money commodities are overproduced relative to the money commodity to its opposite: a situation in which the production of the money commodity exceeds that of non-money commodities. This produces the industrial cycle. The solution to these crises proposed by capitalist economists is to replace commodity money with a state-issued non-commodity money. But ultimately, for reasons explained elsewhere in this blog, this is not possible under capitalism. As overproduction develops, the system of purchase by cash gives way to purchase by credit, with payment in cash put off. When credit can no longer be extended further, the state — through the Federal Reserve — is tempted to issue paper currency not backed by gold. Instead of debts being paid with gold-backed currency, they are paid with nonconvertible paper money. Under capitalism, if non-commodity money were possible, this would work. But non-commodity under capitalism is impossible.
The private labor that produces a particular commodity can demonstrate that it constitutes a fractional part of total social labor only by showing on the market that it is convertible into the money commodity at a rate such that the labor socially necessary to produce the money material exchanges for that commodity in a quantity more or less equal to the socially necessary labor required to produce it. This means that only the private labor that produces the commodity serving as money — gold — is directly social. The labor that produces all non-money commodities can show itself as part of social labor only to the extent that the commodity it produces can be exchanged for gold. Under the capitalist system, social wealth can be measured only in terms of the use value of gold, the money material.
This is the secret of the apparently supernatural power of gold under capitalism and the obsession with money that characterizes the system (and, to a lesser extent, pre-capitalist systems that already had highly developed commodity-money relations). In the old labor song “Solidarity Forever” (sung to the tune of “John Brown’s Body”), there is the line: “In our hands is placed a power greater than their hoarded gold.” The reason this is true is that capitalists can treat only the labor that goes into one use value — the production of the money commodity — as directly social labor. Workers, who already produce wealth socially, will, once they have shaken off the dead hand of capital’s rule, be able to treat all labor as directly social labor. When this happens on a global scale, the apparently supernatural power of money — the seemingly mysterious power of gold over the economy — will be broken forever.
Without the safeguards of the old international gold standard — the last stage of which was the Bretton Woods system that collapsed in August 1971 — when an overproduction crisis approaches, demand for gold rises. This causes other primary commodities, first silver and then others, to rise as well. If the process continues, prices measured in paper dollars rise, while prices measured in gold fall. As dollar prices rise faster than the rate at which the Federal Reserve expands the total quantity of dollars (and indirectly other currencies that function as satellites of the dollar under the dollar system), the velocity of circulation of the dollar increases. This reduces the amount of idle money held in commercial bank vaults. As these reserves shrink relative to the sum of the prices of all commodities in circulation, interest rates rise.
Rising interest rates reduce the demand for gold and trigger recession. At this point, things come to a head. If the Fed allows interest rates to keep rising, recession breaks out, unemployment soars as production is cut back, and world trade falls. As the crisis proceeds, rising interest rates cause the dollar price of gold to fall, inflation to fade, and the velocity of circulation to decline. This rebuilds idle money capital in the banks, causing interest rates to fall again. This is the price the Federal Reserve has to pay to save the dollar. This last happened in 2007–09.
In 2020, production was cut back, unemployment soared, and world trade fell. This was not caused by an overproduction crisis, although signs of one approaching were present, but by government-ordered shutdowns of large portions of the world economy in an attempt to stamp out the COVID-19 pandemic. Capitalists feared the pandemic could lead to a decline in the size of the global working class, which in turn could reduce the production of surplus value, possibly for years. This was a serious crisis, but it was not triggered by global commodity overproduction. The 2020 crisis led to a reduction in world commodity production and was followed by a surge in economic activity when the government-mandated shutdowns were lifted. Capitalists then had to increase production to meet commodity demand. That production surge began to taper off in 2023, but the crisis associated with the COVID-19 shutdowns postponed the outbreak of a new crisis of relative overproduction.
After the 2007-09 crisis, a new crisis was also postponed by the unusually weak nature of the recovery that followed the crisis.
As we move further into this decade, a new global general overproduction crisis cannot be postponed much longer. This is shown by the soaring dollar price of gold and the rapid decline in the amount of gold that each dollar represents. In January 2026, the gold market went wild. The dollar price of gold suddenly soared above $5,000 an ounce and briefly rose above $5,500. We have not seen anything like this since 1979–80, at the end of the stagflation period.
At this point, Trump announced that he had nominated Kevin Warsh, a Wall Street–respected central banker, to succeed Federal Reserve Board of Governors Chair Jerome Powell, whose term expires on May 15, 2026, though Powell remains on the Board until 2028. Will Warsh prove to be a new Paul Volcker? (3)
It is premature to jump to that conclusion. This, along with the tendency for markets to “correct in the opposite direction after they make extreme movements,” led to a wave of selling in the gold and commodity markets on January 30, causing gold to drop to just above $4,400. Since then, gold has moved up and down like a yo-yo around an axis just below $5,000. On February 13, one troy ounce is $5,013.60 on the COMEX, once again above $5,000. By the time you read these lines, the dollar price of gold will likely have moved sharply up or down from this level.
Short-term movements in the gold market are hard to predict even in normal times, and these times are anything but normal. These movements indicate that an economic crisis cannot be postponed much longer. The Fed could try to stave off recession by continuing to hold down the federal funds rate. Under current circumstances, by all indications, this would mean a rapid acceleration of inflation, with implications for workers’ standard of living. Alternatively, Warsh, assuming he is confirmed by the Senate, could reverse Powell’s policy of cutting the federal funds rate. The dollar price of gold would then drop, at the cost of recession and mass unemployment.
A third possibility is that the Fed could raise the federal funds rate, then lower it as soon as unemployment begins to soar. The dollar price of gold would begin to rise, then interest rates would rise again, causing the dollar price of gold to drop again, and so on — a repeat of the 1970s. Presumably, this would end with a new Volcker shock, bringing mass unemployment and the collapse of many sections of the economy.
There are important differences from the 1970s. After decades of deindustrialization, the U.S. economy is weaker relative to other nations than it was then. In addition, though the political leadership of U.S. imperialism was not especially impressive at that time, it was still stronger than it is today.
Trump desperately wants an economic boom, not a recession. He has pressed the Federal Reserve to make new cuts in the federal funds rate to keep the prosperity going. But he has other problems: political instability around issues such as ICE killings and deportations, the Minneapolis general strike, his massive drop in public opinion polls, and continued Republican losses in off-term elections.
There remains the possibility that a combination of the current peak in the industrial cycle, the long-term decline in U.S. commodity production as a share of the global total, and increasing instability in the domestic political situation could lead to a collapse of the dollar’s role as the world’s reserve currency. In that case, the collapse of the U.S.–NATO world empire could occur — not to say it will — sooner than previously seemed likely.
On Sunday, January 11, Federal Reserve Chair Jay Powell announced that the Justice Department had opened a criminal investigation into the Federal Reserve that could lead to his incarceration. Powell, a Republican, was nominated by Trump on November 2, 2017, during his first term, to succeed Democrat Janet Yellen. Apparently, Powell is being investigated over a $2.5 billion renovation of the Federal Reserve building in Washington, D.C.
At first glance, while this is of considerable importance to Mr. Powell, since he could go to jail, it is not out of step with similar investigations and indictments of other high officials in recent months. If you hold a high position in state or federal government, it might be a good idea to retain a criminal lawyer, just in case. Among the officials indicted are former FBI head James Comey, Trump’s own national security adviser and supreme war hawk John Bolton, and current New York State Attorney General Letitia James. The charges filed against these former and current high federal and local officials have been flimsy at best, and many have been thrown out.
Of course, some of these officials have undoubtedly been guilty of grave crimes against the people of the United States and/or the world, but Trump’s Justice Department is not interested in those kinds of crimes. The charges brought are simply part of the “lawfare” the Trump regime uses to intimidate officials and politicians, whether Democrats like Ms. James or Republicans like Mr. Bolton and Mr. Comey, who, for various reasons, are considered Trump’s enemies.
On the face of it, it seems unlikely that Powell will be convicted and sentenced to prison. If it happens, he would be the first Fed chair in history to face this fate, though he would not be the first government official, as senators and state governors have served time. Trump himself, now the highest law enforcement official in the land, is a convicted felon under New York State law. It seems unlikely that Powell was weighing a possible prison sentence when he agreed to serve as chair of the Federal Reserve System.
That Powell may eventually go to prison seems unlikely at this time, but then again, there has never been a president like Trump. There is, however, a precedent from Germany.
In January 1939, the government of Adolf Hitler fired the head of the German Reichsbank, the central bank, Hjalmar Schacht. Schacht was no ordinary banker, any more than Adolf Hitler was an ordinary chancellor. He had served as head of the Reichsbank once before, from 1923 to 1930, and played a central role in stabilizing the German mark after its infamous collapse in 1923. In the early 1930s, he used his enormous influence in the German business community to help bring Hitler to power. Hitler reappointed him to head the Reichsbank in 1933 and turned to him to finance the massive rearmament program that would prepare Germany for war. After he was fired by Hitler, he retained his seat in the cabinet. He was arrested after the failed attempt to oust and assassinate the dictator on July 20, 1944.
The military officers and politicians involved in the assassination attempt were convinced by then that Germany could not possibly win the war against both the Soviet Union and the imperialist bloc led by the United States and Britain. They wanted to save German capitalism and landed property by making a deal with the imperialist West at the expense of the Soviet Union. The plot failed, and Schacht was arrested under suspicion of sympathizing with the plotters and sent to a concentration camp. Later, in 1946, he was tried at the Nuremberg trials and acquitted.
As a ‘financial engineer,’ if I may use the term, Schacht’s accomplishments far exceeded anything Jay Powell has done in the world economy. To rearm Germany on such a scale, the government needed to borrow huge sums of money.
Under the Treaty of Versailles, the size of Germany’s armed forces was strictly limited. Hitler was determined to overthrow the treaty but wanted to avoid a premature confrontation with Britain, France, and the United States before the German armed forces were ready for a major war.
Economic barriers
In the post–World War I period, commodity prices defined in terms of weights of gold were high relative to labor values and prices of production. High prices at the time meant that gold was in short supply relative to the needs of global commodity production. This global monetary shortage discouraged large-scale spending by imperialist governments on war.
The United States had largely dismantled the huge war machine built up during its intervention in World War I, easing some of the pressure on the world money market for a while. But the economic boom of 1928-29 began to break the fragile 1920’s era credit system. The super-crisis of 1929–32 was capitalism’s solution. Through a combination of lower commodity prices in dollar terms and the dollar’s devaluation by Roosevelt in 1933–34, the crisis radically lowered commodity prices in gold terms. As a result, gold’s purchasing power increased between 1929 and 1934.
Even more importantly, the fall in commodities’ gold prices, along with the collapse of the profitability of producing non-money commodities beginning in 1930, led to a sharp rise in global gold production that lasted through the remainder of the 1930s. As the decade proceeded, the result was an increasing quantity of money, much of it lying idle in the banks. This removed the financial barrier to war that had existed in the 1920s.
Germany was still in a tight spot. It had lost most of its money capital as a result of World War I, followed by the hyperinflation of 1923. It had to borrow money capital from the United States. Despite the increased quantity of money in the 1930s, it was still in short supply in Germany relative to the financial needs of the rearmament program. Hitler’s government had two problems. One was the need for rearmament to fight the war it was planning. The second was the need to conceal these plans for as long as possible.
Mefo Bills
Hitler turned to Schacht, the head of the Reichsbank, to deal with this twin problem. Schacht devised a scheme to finance the arms buildup while concealing its full extent. A dummy corporation was set up, called in English the Metallurgical Research Corporation, with the major German metal monopolies as stockholders.
This company conducted no business, nor did it carry out any research on metals or any other subject. The Mefo bills, though formally the IOUs of a private entity, were in fact essentially equivalent to Treasury notes. The so-called Mefo bills paid an interest rate of 4.5 percent, which was a good return considering market interest rates and money market conditions during the Depression decade. The bills could be discounted at commercial banks, and the banks could then rediscount them at the Reichsbank, transforming the Mefo bills into Reichsmarks.
The whole point was to discourage the transformation of the Mefo bills into actual Reichsmarks as much as possible in order to stave off inflation. This was achieved by the 4.5 percent rate of return on the bills. Although originally issued for six months, the bills could be extended.
In this way, the German government could hide its growing debt without a large expansion in the quantity of Reichsmarks that would have led to their rapid depreciation — a sharp drop in their value in gold terms and relative to other major currencies such as dollars and British pounds.
This would have led to a new wave of inflation in Germany at a time when the hyperinflation of the early 1920s was still a fresh memory. Such an outcome would have undermined Hitler’s ability to finance the war he was planning. The extension of the duration of the Mefo bills could not continue indefinitely without destroying the credit of the German government. In 1939, the maturity of the Mefo bills was capped at five years.
Germany faced another economic problem. Massive military spending provided a major “Keynesian” stimulus to the German economy on a scale that exceeded government stimulus programs in other imperialist countries. This meant that Germany’s imports grew faster than its exports. That created the danger that a trade imbalance would cause the German mark to crash on the foreign exchange and gold markets. The Hitler government dealt with this danger by taking control of German foreign trade.
This was no monopoly of foreign trade like that possessed by the Soviet Union. As in other capitalist countries, German foreign trade was carried out by private, for-profit companies. To conduct foreign trade, a company had to obtain government permission, which was not granted automatically. Trade was subordinated to the drive to rearm and prepare for war. Imports of consumer goods, or of the raw materials needed to produce them, were greatly restricted. As the 1930s progressed, high-quality consumer goods became scarce. Using its control of foreign trade, the Hitler government encouraged only those imports necessary for rearmament.
Unemployment fell more rapidly in Germany than in other imperialist countries. By the end of the decade, Germany was as close to full employment as any capitalist economy ever is in peacetime, while the U.S. economy still had double-digit unemployment. Hitler and his supporters boasted of how effective National Socialist (Nazi) economic policy was compared to Roosevelt’s New Deal program. Some intellectuals claimed that Germany’s low unemployment showed that its economy was no longer capitalist but instead represented some kind of post-capitalist, totalitarian managerial command economy that would replace capitalism globally.
In reality, Germany was drifting toward a financial crisis that by 1939 threatened to crash the Reichsmark and unleash a wave of inflation. There were two ways to deal with this. One solution, favored by Schacht, was a policy of deflation and austerity. The rearmament program would have to be cut back, and the Reichsbank would have to tighten its monetary policy. This would bring on a recession that would cause unemployment to rise to levels close to the mass unemployment prevailing in other major imperialist countries. It would have meant not merely postponing the war; it might have shaken the stability of the fascist Hitler government.
Hitler had other ideas. Before World War I, Germany had a relatively modest empire in Africa and Asia compared to France, not to speak of Britain. After the war, it completely lost its overseas empire to Britain and France. In 1923, the mark collapsed. Schacht, making use of U.S. loans, was able to reestablish it.
But the mark remained shaky, dependent on continued U.S. loans. By the time Hitler took power in 1933, the greatest economic crisis in the history of global capitalism — in contrast to the lingering Depression that followed — had run its course. Interest rates were low, and capitalist currencies were stabilizing. World finance was entering a more robust phase.
Against this background, Hitler’s strict control of foreign trade, rising global gold production, and a favorable phase of the industrial cycle all worked to facilitate the war drive. While this bought time, the scale of the peacetime rearmament policies could not be sustained indefinitely. The Mefo bills, which ran for six months and could be renewed, were now capped at five years, after which they would have to be paid in Reichsmarks. The time Hitler had bought with the help of the Depression ran out.
If Germany could build a new empire in Eastern Europe, the demand for Reichsmarks would expand, since within the empire, its currency would be in demand both as a means of circulation and as a means of payment. Instead of paying for raw materials in pounds or dollars, thereby draining scarce foreign exchange, Germany could pay in marks rather than with scarce foreign exchange and gold. Germany could increase exports, earning much-needed foreign exchange and gold, where it could not pay for imports in marks. As the empire expanded, the Reichsmark would become the chief reserve currency from the Urals to the Atlantic. From Hitler’s point of view, Schacht’s policy of a general agreement between a strengthened Germany and the other imperialist powers had outlived its usefulness.
The financial problems Germany faced in 1939 and those the United States faces today have one thing in common. The central bank — the German Reichsbank and the U.S. Federal Reserve — was at the center of each. There is an echo between the position of Reichsbank chief Schacht in 1939 and that of the Federal Reserve chief today. There are many important differences, however, and we should examine them.
First and most important, the United States today is the center of a world empire, while Germany in 1939 was not. Germany had taken over German-speaking Austria in 1938 and Czechoslovakia in 1939. Austria was a German-speaking nation, so Hitler argued that it made sense for the two ethnically German nations to unite. Hitler himself was an Austrian German. It was only the pressure of Britain and France that had kept them separate up to that point.
Czechoslovakia had an ethnically German region, though this was not true of the rest of the country. (4) It was becoming clear that German ambitions went beyond merely uniting all ethnic Germans within a single state, an objective that had seemed reasonable to some during the 1930s. This was a far cry from the U.S. global empire today, or even from the British or French empires in 1939.
Another important difference is the stage of the global industrial cycle. In 1939, the global industrial cycle was climbing out of the Depression caused by the unprecedented super-crisis of 1929–32. The fall in commodity prices in gold terms, the stagnation of commodity production, and the rise in global gold production meant that the world economy became liquid; there were great masses of idle money in the banks, especially in the United States, in 1939. Today, the world economy is less liquid, and it appears that a major global overproduction crisis is approaching, whereas in 1939, the crisis of overproduction of the early 1930s was in the rearview mirror.
As a result, the dollar is under pressure against gold for both structural reasons — the decline in the U.S. share of total global commodity production — as well as cyclical reasons. In 1939, the evolution of the global industrial cycle was not a problem for German rearmament; it was instead a positive factor.
There are a few similarities. In the late 1930s, the German government, to use a term heard in Washington today, was running the economy “hot.” This means the government runs central government deficits, and the central bank (the Reichsbank then, the Federal Reserve today) creates “paper currency” to finance the “hot” economy.
As we have seen above, these policies have the effect of staving off recession, though at the risk of a run on the currency. The Trump administration, like Hitler in 1939, wants to continue running the U.S. economy hot. But like Schacht in 1939, a growing number of Federal Reserve bankers are becoming nervous about this, particularly with the dollar price of gold flirting with $5,000 an ounce.
The soaring dollar price of gold shows that the dollar is in real trouble, for both structural and cyclical reasons. Like Hitler in 1939, Trump wants to find a way to increase demand for the dollar. An increase in demand would stabilize the dollar price of gold without interest rates rising and make it possible to continue running the economy “hot” for a while longer, thereby avoiding a rise in unemployment. Then Trump can continue to boast about the “greatest economy ever.” ..
Like Germany in 1939, some U.S. central bankers think it is time to “cool” the economy — to face the inevitable recession now rather than a more severe economic crisis later. We can say that within German imperialism, there was a party of Schacht that believed Germany should avoid war, and a party of Hitler that believed war was the only way out of the looming crisis.
Trump has used economic war in the form of tariffs and the threat of tariffs, as well as war or the threat of war, against oppressed countries such as Venezuela, Iran, and, for a time, Greenland–Denmark. Trump may not be planning a full-scale world war like Hitler, but he uses the threat of military action in the hope that increased power will boost demand for dollars and prop up the shaky, dollar-dominated international monetary system.
Other powerful sections of the capitalist class believe that Trump’s policies of economic warfare against so-called allies, and military warfare against Iran, Venezuela, Cuba, Nicaragua, and even Mexico, are a recipe for disaster. Broadly speaking, we can speak of a “party of Powell,” not because Powell is the leader of a moderate wing of the capitalist class, but because of his position as head of the central banking system; and a party of Trump, which is not necessarily seeking to launch an all-out world war, but is moving toward using state power — in the form of tariffs and military actions — to prop up the dollar system and the empire. In the worst case, it could still lead to a massive global war. And now nuclear weapons are in play.
The role of an independent central bank under present-day capitalism
Since the rise of modern currency systems in the 19th century, two major methods have been used to guard against the threat of currency collapse. One method was the gold standard, and in some cases, the silver standard. Under a metallic standard, the central bank’s banknotes represent not token money but credit money. Banknotes are promissory notes issued by the central bank that are payable on demand to the bearer in gold or silver. As long as this system is in effect, there is no way to run the currency into the ground.
With the decline and eventual end of the international gold standard, what is to stop the central bank and/or the government from overissuing paper currency?
What has replaced the gold standard is the doctrine of the independence of the central bank. This, in effect, transforms the central banking system into a branch of the state independent of the government proper. During periods of overproduction, the government — especially, though not only, when facing elections — is tempted to run the economy “hot.” This makes the monetary system prone to periodic currency crises and eventual collapse. If the government has no control over the central bank — and central bankers — do not have to face elections, they can take the necessary measures, including periodically adopting deflationary policies, to keep the currency stable. The central government — for example, the president and cabinet — can do nothing about it.
It is interesting to compare the positions of Hitler in 1939 and Trump in 2026. By 1939, Hitler had smashed any organized political opposition in the country. The capitalist class had used Hitler’s fascist militias to wage civil war against the workers’ movement, especially against the KPD (the Communist Party of Germany, the German section of the Third International), but also against the SPD, the Social Democratic Party, and even the Catholic trade union movement.
As long as the German communist movement remained strong, it would have been difficult for the capitalists to wage war against the Soviet Union. If at any point the war against the Soviet Union had gone badly, Germany’s capitalist class would have faced the immediate prospect of being overthrown by its working class. Before a war against the Soviet Union could be waged, a civil war had to be waged against the workers’ movement.
The super-crisis of 1929–32 and the resulting mass unemployment created the conditions for Hitler’s so-called National Socialists to raise what amounted to an army — the Brownshirts, recruited largely from a desperate middle-class youth— to wage civil war against the organized workers’ movement and its allies.
Though there were members of the ruling class who were concerned about the decision to go to war, they were in no position under conditions of fascist dictatorship to organize any real opposition. When Hitler decided to remove Schacht from his position as head of the Reichsbank, that was that. With Schacht’s removal, the Reichsbank lost whatever independence from the government it might have had.
Trump in 2026 is in a different position. He has not crushed the political opposition, as shown by the success of the Minneapolis general strike. Trump’s MAGA (Make America Great Again) movement is not organized into a powerful, centralized militia movement waging civil war in the streets and workplaces of the United States, as Hitler’s storm troopers were doing in Germany.
This does not mean he is not powerful and dangerous. He is far from crushing either his capitalist or his left-wing opposition. Unlike Hitler in 1939, Trump must operate within the traditional political system, even as he takes unprecedented steps to break out of it. And the economic crisis has not yet hit. Once it breaks out with full force and runs its course, capitalist currencies, including the dollar, will likely be stronger for a few years. For now, the shaky position of the dollar and the currencies linked to it under the international monetary system limits U.S. imperialism’s power.
According to a January 22 CNN report, the Supreme Court, including some right-wing justices appointed by Trump himself, appears poised to reject his attempt to fire Lisa Cook, a member of the Federal Reserve Board of Governors and its only African American. Even Justice Brett Kavanaugh appears to be leaning toward voiding the action. As a servant of the capitalists, the Federal Reserve is expected to safeguard the dollar, even if that interferes with a president determined to run the economy hot. Another fact that might concern the justices is that if the Federal Reserve loses its independence from the White House, will the Supreme Court be next?
What is behind the Federal Reserve System crisis?
The idea of running a capitalist economy “hot” is rooted in the economic theories of John Maynard Keynes. The argument is as follows: As long as the economy is operating below its physical capacity, with many unemployed workers and idle fixed capital and raw materials, the capitalist state should run budget deficits to finance government spending. Deficit spending creates demand, raises total employment, and reduces idle fixed capital and raw materials. As long as there is plenty of idle money capital (as is the case after a crisis), this policy works.
But what happens when money capital is scarce? The government then finds itself in competition with private enterprises borrowing on credit, consumers of all classes purchasing goods on credit, and local governments borrowing money. As long as loanable funds are plentiful, the central government can borrow without creating upward pressure on interest rates. This is when Keynesian policies work well.
When money is scarce, any move to increase government borrowing intensifies competition for credit among the private sector, consumers, and local governments, while for the central government, this increased competition puts upward pressure on interest rates and increases the number of would-be borrowers who cannot obtain credit at all. As a result, some potential commodity purchases do not occur, neutralizing the stimulative effects of deficit spending.
In Keynesian theory, the job of the central bank is to create additional money so the government can carry out deficit spending without competition for loanable funds between the government and other borrowers, and without causing a rise in interest rates that would neutralize the stimulative effects of deficit spending. This is where the theory of money plays a crucial role. Keynes assumes that paper notes (or their bookkeeping equivalents) are money, so that the central bank can create as much as it wants. If there is unemployment of real capital and workers, the central bank can do this without risking inflation.
But according to Marx’s theory of value and money, the central bank or other monetary authority has no such power. The central bank can create additional paper money, but only if there is a corresponding increase in the physical quantity of the money commodity that matches the growing supply of paper money or its bookkeeping equivalent.
What happens if the increase in the quantity of metallic money (gold) is insufficient to back an increase in paper money? Then the paper currency will depreciate; that is, the price of gold in terms of the currency will rise. This causes inflation to accelerate, drives up interest rates, and undermines demand. Eventually, the central bank is forced to reverse this policy under pain of total currency collapse. When this happens, the state finds itself under pressure to increase taxes, reduce spending, or some combination of both — a policy called deflation or austerity — which reduces the demand for commodities.
Claims, common among academic Marxists, that modern money is non-commodity money imply that Keynesian policies can work as long as there is a sufficient quantity of idle fixed capital, a sufficient supply of labor (power), and an adequate rate of surplus value. This view is most strongly expressed by supporters of Modern Monetary Theory. A full Marxist analysis shows that there must be an adequate quantity of gold money. This means an adequate level of gold production relative to that of non-money commodities. Modern Monetary Theory is false at its roots.
In this blog, we are interested in how economic, political, and war crises interact with one another. Even before Trump assumed office and began his trade war, the dollar price of gold was in a strong upturn. The last such upturn occurred between 2001 and 2008, right before the last major cyclical crisis in September 2008. Before that, to find a comparable rise, we have to go back to the stagflation decade of the 1970s, half a century ago.
Trump’s second administration has been more disruptive than his first (2017 to 2021). Trump was returned to office by the right wing of the Republican Party. His capitalist supporters see him as a more extreme version of Ronald Reagan. These reactionaries claim that Trump’s hardline capitalist policies — including attacks on unions; support for the anti-Palestinian genocide; attacks on people of color, Muslims, and other non-Christians; and, not least, immigrants of color (though white immigrants from South Africa are favored) — are a good thing. Trump has made it clear that he is a racist, misogynist, homophobe determined to gut the limited government support for healthcare that exists in the country, and an extreme U.S. chauvinist.
Trump himself, and perhaps more importantly, his capitalist supporters, desperately want an economic boom — not only to make a lot of money (no small point), but also to show that the higher the rate of exploitation of workers and nature, the more the economy booms. They believe this will prove their claim that what is good for capital is in the interest of all. Reagan supposedly proved this in the 1980s, and pro-Trump capitalists now claim that another great economic boom is coming.
If even an ordinary cyclical recession occurs, let alone a more serious one, it will blow these arguments out of the water, as happened to the Herbert Hoover administration. Trump wants a Keynesian policy to keep the economy running hot. This is what lies behind the attack on Jay Powell, the Republican Federal Reserve chief.
Trump is running into resistance in Venezuela, Iran, Greenland, and, not least, Minneapolis. If the long-delayed crisis finally erupts soon, the far-right politics that have been dominant in recent years will be discredited in a way not seen since the early 1930s. With interest in socialism rising and the dominance of far-right reaction contracting in the face of growing resistance to Trump’s policies in the streets, the door may be opening for the rise of a militant socialist workers’ movement unlike anything previously seen in the United States. Trump-supporting capitalists are pushing policies that could soon produce a disastrous currency crisis, radically accelerating the decline of the U.S. global empire.
We will be examining this in the coming months.
NOTES
(1) There is a famous U.S. labor song about coal miners’ struggles in Harlan County, Kentucky, that includes the line that “there are no neutrals” in Harlan County. (back)
(2) The proper proportions between the money material and non-money commodities in a commodity economy can be achieved only through competition among commodity producers who produce privately, without any general plan. They recognize only one authority: their mutual competition. The right proportions are achieved through successive underproduction and overproduction of money material relative to non-money commodities. (back)
(3) Paul Volcker (1927–2019) is (in)famous for his tight monetary policies between 1979 and 1982, which stabilized the dollar and ended double-digit inflation at the cost of double-digit unemployment and the transformation of major industrial districts into the Rust Belt. (back)
(4) Czechoslovakia was reestablished in 1945 and became a socialist country as a result of the workers’ revolution of 1948. It was dissolved following the 1985–91 Russian–Eastern European counterrevolution. (back)
A Critique of Crisis Theory 