Law and bonapartism in US politics
First published at Critique of Crisis Theory.
The economic contradictions of the capitalist system are coming to a head. This happens just before a universal crisis of general commodity overproduction. It’s particularly marked this time due to the frenzied character of the COVID aftermath boom. We’re seeing the contradiction between the capitalist system’s drive to continuously expand production and the limits on production imposed by the market’s ability to absorb commodities at a profit.
The Federal Reserve System is trying to slow the U.S. economy to a sustainable pace without sending it into a politically damaging recession. It says it wants less hiring and a slower expansion of production to fight inflation. Inflation is seen to be the result of too little commodity production relative to demand. How does reducing the number of people employed and slowing the production rate reduce inflation? Shouldn’t the answer be to produce more and employ more?
The capitalist economists and media explanations for the current problems are a tangle of contradictions. They’re a distorted reflection of the objective contradictions of capitalist production. This post can be seen as an introduction to the last part of my critique of Shaikh’s work, which represents the best of contemporary academic Marxism.
The economic contradictions coming to a head are reflected and intertwined with U.S. political contradictions. The presidential elections held every four years are designed to legitimize capitalist class rule and guarantee a smooth power transfer. (1) The Constitution grants power to the President to function as the armed forces commander-in-chief. While the other two branches of the state power — the legislative and judicial — have many members, the executive branch is run by a single individual. The modern U.S. presidency is a military, bureaucratic, and espionage machine dominating the U.S. state apparatus and much of the world. The person of the presidency personifies a centralized machine of military force, police repression, and espionage necessary to hold the U.S. world empire together.
While centralized state machines are not new, the presidency wields a potentially destructive power beyond anything dreamed of in an earlier age. If this apparatus of repression got out of control, it would have disastrous, perhaps fatal, consequences for society. For this reason, as the U.S. evolved into a world imperialist empire, it developed elaborate laws, some unwritten, to choose a president, determine the extent and limits of the office’s power, and pass that power from one president to the next.
A handful of veteran politicians, usually senators or governors of populous states, declare their candidacy every four years. Some belong to the Democratic Party, and some to the Republican Party. They run in primaries in their respective parties and are formally nominated at their party’s convention. Electors pledged to the Democratic and Republican candidates run against each other. People imagine they’re voting for one of the candidates. (2)
The candidates’ names and their running mate for vice president are printed on the ballot. In actuality, it’s the electors who are getting the votes. Confusing? Yes, to say the least. The votes are counted state by state, and the electors with the most votes then vote in the electoral college to elect the president.
In addition to the complex written laws, a series of unwritten laws and rituals must be followed. As soon as the electoral college winner — not necessarily the winner of the popular vote — is determined, the losing candidate congratulates the winner and pledges support to the winner for the next four-year term. The outgoing president attends the inauguration of their successor whether or not they are members of the same party. If they are of different parties, inauguration day becomes a display of bipartisan unity around the winner. It’s a reminder that the Democrats and Republicans are united on vital issues regardless of secondary differences. These are two: upholding the class rule of the U.S. capitalist class and advancing its interests worldwide. (3)
The presidential system has come under growing strain in recent decades. The corrupt — even by U.S. standards — Richard Nixon administration was swept away in a series of scandals in 1973-74. Nixon was forced to resign in August 1974 — so far the only one to do so — due to the Watergate scandal. His “law and order” vice president, Spiro Agnew, had resigned the previous year because he was taking massive kickbacks from government contractors going back to his time serving as governor of Maryland. As Vice President Agnew crime-baited the African-American community as well as the anti-war, progressive, and left movements of the time, he declared: there should be no coddling of criminals either in the inner cities or on college campuses!
As the Watergate scandal deepened in 1973, it became likely Nixon would have to either resign or be removed from office by impeachment in the House and conviction in the Senate. This would have made Agnew president. Agnew, though viewed by the “establishment” as a useful sidekick to Nixon, was also considered unqualified for the presidency. At first, Mr. Law-and-Order Agnew refused to resign until it was explained that the alternative was a trial, almost certain conviction, and many years in prison. He got cold feet and took a plea deal. He pleaded no contest to one count and resigned without having to serve a day in jail. He had railed against this type of plea deal when the “criminals” were from inner cities or college campuses.
When Agnew was removed, he was replaced by the leader of the Republican Party in the House — and Party of Order (4) favorite — Representative Gerald Ford. Problem solved! In 1974, Nixon resigned, and Ford became President. This raised the question of whether former President Nixon would be tried in criminal court. The Justice Department had a policy of not seeking an indictment against a sitting president on the grounds that dealing with serious felony charges while presiding over the world empire is too much for one person.
What about a former president? Retired from the responsibilities of running and expanding the empire, they’d have plenty of time to deal with any felony charges. Ford stepped in and used the constitution’s power granted to the president to pardon Nixon because a trial of a former president would divide the country. More importantly, Ford feared it could reveal the government’s real motives. The Party of Order has long hailed Ford as a great man for pardoning Nixon and “putting Watergate behind us,” though it most likely cost him the 1976 presidential election.
Presidents couldn’t be prosecuted while in office, and with Ford’s pardon precedent, couldn’t be prosecuted for crimes against the ruling class and its state after leaving office, effectively putting them above the law. Recently, however, in the face of Trump’s renewed candidacy, some in the media have had second thoughts about whether Ford’s pardon was such a good idea after all.
The 2000 presidential elections put the system of transferring presidential power under further strain. Democratic candidate Al Gore narrowly won the popular vote, but the electoral vote depended on the state of Florida, where George W. Bush supposedly won by a tiny margin. As the vote count continued, Bush’s alleged victory in Florida shrunk to a dozen or so votes. A recount was scheduled, and Republicans, with good reason, feared it would show Gore had won Florida and the electoral college. Then the “Brooks Brother riot” by Republican staffers occurred in front of the office where the recount was occurring, and it was suspended. The Supreme Court’s Republican majority, instead of demanding the recount be resumed, sustained it. This handed Florida electors and the presidency to Bush.
Gore accepted the Supreme Court’s patently undemocratic decision and congratulated Bush on his “victory” in the 2000 election. Only African American representatives in Congress protested. This seemed like a great outcome to the Party of Order at the time because though Gore, as a right-wing Democrat, was entirely acceptable, most capitalists preferred Republican Bush. As it turned out, the Brooks Brothers riot was a dress rehearsal for January 6, 2021.
I’ve written before about the Trump presidency and its tendency toward Bonapartism. Bonapartism is a situation where the state’s chief executive, taking advantage of the class contradictions between the capitalist and working classes, seemingly rises above the contending classes by playing on the capitalists’ fear of the working class. Though such Bonapartist rulers are ultimately obliged to serve capital, they use their executive authority to follow policies that may appear irresponsible to other ruling class figures. Bonapartist rulers also use their power to enrich themselves and their family members at the expense of the other capitalists.
Unlike earlier presidents, Trump never held a position in Congress, federal, state, local government, or military before assuming office. Once in office, Trump had little idea what powers the president had or didn’t have according to written and unwritten laws. In foreign policy, he interfered in Party of Order plans by attempting to improve relations with Russia and North Korea. He tried to end the war the U.S. is still fighting in northeastern Syria.
While U.S. politicians have used racism throughout history to divide and weaken the working class, Trump took it to an extreme. Under Trump, the majority of the American people found themselves part of some minority — based on race, nationality, or sexual orientation, and under attack from the White House. In contrast, Adolf Hitler concentrated on demonizing the Jews as the sole source of everything the German right-wing considered evil. Jews were blamed for democracy, socialism, communism, the ideas of the equality of the races, homosexuality, as well as the evils of international financial capitalism. Since Jews were a small minority in German society, Hitler’s demonization enabled the government to unite the majority of the people behind itself and the capitalist ruling class it represented.
On the other hand, Trump’s racist and bigoted attacks were uniting the majority of the people against the White House and potentially against the ruling class that Trump represented. Racism, homophobia, as well as misogyny all have their places in the ruling class toolkit. But if taken too far, they end up uniting the majority of people against the government and the capitalist class it represents.
Still, most of the capitalist ruling class, especially their less politically sophisticated members, supported Trump, who they viewed as a kind of second Reagan with rough edges. That is until Trump refused to concede his electoral defeat to middle-class Joe Biden.
Biden can be better described as “Corporate Joe,” and that’s how I’ll refer to him throughout the rest of this post. First, Trump refused to concede and congratulate Corporate Joe after “The “New York Times” declared Biden the electoral college winner — there was no doubt that Biden had won the popular vote. In 2016, Party of Order favorite Hillary Clinton defeated Trump by about two million votes in the popular vote but lost the electoral college. However, Corporate Joe defeated Trump by seven million votes and won the electoral college.
In the following weeks, Trump claimed the vote had been rigged, and he really won by a landslide in both the popular and electoral vote — and he didn’t stop there. He began to consider options for what amounted to a coup to keep himself in power. This had never happened in the United States before.
Determined to have his version of the “18th Brumaire,” he had a murderous mob seize the Capitol building dispersing Congress just as it was preparing to carry out the ceremonial role of certifying the electoral vote. The National Guard and police forces supposed to guard Congress and defend the building from the mob were absent! If the FBI, police, and National Guard had done their job, they’d have had no trouble containing the January 6 mob. The ceremonial electoral college certification required by the Constitution would have proved uneventful.
The coup attempt collapsed only when the military and police forces failed to join it actively despite widespread sympathy for it in their ranks, and the top Pentagon generals labeled it an insurrection. Trump was obliged to leave office on January 20 but never apologized for the coup attempt or conceded the election. Biden refused to invite him to his inauguration — and Trump probably would not have shown up anyway. Washington, D.C., was an armed camp as Corporate Joe was inaugurated as the 46th President of the United States on January 20, 2021. The normal show of a peaceful and friendly transfer of power was shattered.
The Party of Order would have happily allowed Trump to fade from public view as they had Agnew decades earlier. But Trump refused to fade. He’s announced his candidacy for the Republican nomination for president in 2024 and has launched a campaign even more racist, misogynist, and homophobic than his first. And much to the chagrin of the Party of Order. Trump has remained ahead of all his rivals, most of whom are attempting to get to the right of him (indeed a tall order).
As with Agnew, they’ve turned to the criminal justice system to get Trump out of politics once and for all. The hope: if Trump is charged with felonies, he will drop in the polls allowing another more acceptable Republican to win the primaries and face off against Corporate Joe in November 2024. The Party of Order would win either way. If some Republican other than Trump defeats Corporate Joe, there’d be a friendly, peaceful transfer of power on January 20, 2025. It’s hoped this will repair the damage done to the presidential system in 2020-21.
But so far, filing felony charges in New York and then at the federal level hasn’t driven Trump out of politics. After the felony charges for financial crimes were filed in New York, Trump held steady in the polls. At the same time, his main early rival in the primaries, Party of Order favorite Florida Governor Ron DeSantis, has faded. The legal campaign against Trump escalated when Special Prosecutor Jack Smith got a grand jury to indict him on 37 charges, centering on Trump’s alleged violations of the World War I era Espionage Act of 1917. This reactionary law was used to execute the Rosenbergs in 1953 and more recently used against whistle-blowers as well as Julian Assange.
Using it against Trump is ironic because, during the 2016 campaign, Trump demanded the criminal prosecution of Hillary Clinton for keeping classified emails on a home server while she was Secretary of State under Obama. At his rallies, Trump promised to prosecute Clinton if he got elected for endangering state secrets, and the crowd would chant, “Lock Her Up.” Once in office, the Trump administration never attempted to indict Clinton for her allegedly loose attitude toward guarding state secrets. Now, though, the Biden administration has indicted Trump on felony charges involving state secrets that could send him to prison for years. The federal indictment alleges he illegally retained classified documents he had no right to possess as a private citizen once he left office. When the federal government requested that he return the documents, he refused.
After the January 6 coup attempt, Trump still had fourteen more days in office, during which he legally retained the full powers of the president. The House of Representatives impeached him. A majority of the U.S. Senate voted to convict him in a hastily arranged Senate trial, but it wasn’t the two-thirds majority necessary to remove him from office and prevent him from holding any federal office in the future, including the presidency.
The incoming Biden administration and Pentagon officials feared that Trump might start a war by ordering an attack on Iran as a last-ditch attempt to retain office. So special orders of dubious constitutionality were given to the generals and admirals to ignore any orders from Commander-in-Chief Trump for such a war. These were similar to the precautions taken during the removal of Richard Nixon from office in 1974. No evidence has surfaced that Trump made any further coup attempts or tried to order an attack on Iran or any other country during his final two weeks in office.
In June 2023, the media played a tape where Trump complained he was charged with planning to start a war with Iran when, in reality, the Pentagon had drawn up plans. We hear what sounds like rustling paper, and it’s implied that he’s showing the classified war plans to people with no security clearances for these sensitive documents. According to the media, the big danger is that the Iranian government might have learned of the document’s contents and adjusted its plans for defense against a U.S. attack. Even if the Iranian government has not learned about the documents’ contents, the Pentagon has to assume they have and is forced to redraw its attack plans.
What the media has ignored is the question: What gives the Pentagon the right to draw up attack plans against a foreign country that is militarily incapable of attacking the United States in the first place? The existence of any plan to attack Iran can only be to engage in a war of aggression. At the 1946 Nuremberg trials, top Nazi leaders were executed on charges of planning an aggressive war. How are Washington officials any different? Shouldn’t Pentagon leaders be at least investigated for planning an aggressive war? Now that would be interesting for special prosecutor Jack Smith to investigate, wouldn’t it? But, of course, nobody expects he will.
Recession threat and the coming presidential elections
Despite claims to the contrary by some bourgeois economists and stock market gurus, financial indicators continue to point toward a global recession that will likely be in full swing by election day in November 2024, if not before. Both the inverted yield curve — short-term higher than long-term interest rates — indicating that business is scrambling for credit to finance high inventories of unsold commodities and a shrinking money supply strongly point to a near-term recession are at levels rarely seen in the history of these indicators. And it’s been reported (July 2023) that consumer spending stalled out in May as retail inventories piled up and industrial activity previously stagnant declined in a recessionary way in June.
Corporate Joe and his progressive supporters have pointed to the strong economy — and low unemployment they hope will lead to his reelection. Despite the strong economy, Corporate Joe has a miserable approval rating pointing toward his defeat.
However, polls also show the majority of the U.S. reject Trump. Biden might defeat Trump in the popular vote if the economy somehow holds up through November 2024. Whether he would also prevail in the electoral college that strongly favors the Republicans is another question. But if we factor in a recession, especially a severe global one with mass unemployment, it’s hard to see how Corporate Joe will win the popular vote, let alone the electoral college.
If the Party of Order is to keep Trump out of the White House, they need to force him to drop out of the race. He didn’t budge when he was indicted in New York on financial crimes, and so far, he hasn’t budged in the face of the more serious federal charges involving state secrets. So the Party of Order’s plan seems to be to hit him with even more indictments involving his attempt to remain in office illegally. This involves tricky ground for the ruling class because a trial around the January 6 events could expose the FBI’s and the Pentagon’s roles — both having many Trump supporters in their ranks — in the coup attempt. The Party of Order hopes that as criminal charges and potential prison time pile up, Trump will accept a plea deal as Agnew did in 1973.
Trump might plead no contest to a few federal charges with no prison time and no fines more than the billionaire Trump could easily afford. It would be expected that the state(s) that filed felony charges against him would follow the federal lead in dropping most of their charges. Perhaps he would agree to plead guilty to a few felony counts with no jail time. In return, Trump would drop his campaign for the Republican nomination. Then another more acceptable Republican could run. Problem solved. But Trump has proven to be stubborn and has so far not budged.
Can the recession be postponed until after November 2024?
Can the Federal Reserve System and the Biden administration take action to mitigate a global recession, or at least postpone it until after the election? This would allow corporate Joe to run and possibly win on a platform of “prosperity and high employment.” From the ruling class’s viewpoint, this would be a better course of action if it’s possible compared to sending a former president to prison and risking significant revelations about the role of the Pentagon, police, and secret police in the events of January 6.
On June 14, the Open Market Committee of the Federal Reserve System announced it’s keeping its target for Fed funds at between 5% and 5.25%. The committee indicated it would likely resume its campaign to raise the fund’s rate next month. This was a confusing move. But it reflects contradictions of the capitalist system that are usually hidden.
Economists are divided into two camps on what the Fed should do next. One camp sees the immediate danger of a deep recession in the months ahead. They believe the Fed should have halted moves to raise the Fed funds rate several months ago and should now move to lower its target. The other camp believes the greatest danger is that inflationary expectations will become entrenched. They believe the Fed’s decision to pause its campaign to raise the Fed funds target was an error.
Among the latter is economist Larry Summers: “This meeting felt like it was driven as much by the internal political dynamics of the Fed, as by any consistent and coherent reading of the economic situation and that was a bit disturbing to me.” He thinks the Fed should consider a major rate hike in July to stave off the danger of an overheated economy.
Though bourgeois economists like Summers won’t say it openly, the real danger is that credit-fueled over-trading and the overproduction it supports will continue unchecked in the near future. This wouldn’t remove the threat of recession; just postpone it, leading to a more disruptive recession a bit later. It would also give the working class a little more time to revive their labor unions before mass unemployment returns.
Leaving aside post-war reconversion crises like 1918-19 and 1946 and the effects of the COVID shutdowns of 2020, recessions set in when the credit system contracts due to a shortage of ready cash. This forces business to cease over-trading and overproduction and shift to liquidating previous overproduction. Journalist Brian O’Connell reports, “The data from the most recent CNBC Supply Chain Survey pointed to multiple negative issues on the retail management front. … At the top of the list are huge inventories that are forcing retailers to move store products at a steep discount, a trend that dates back to last year when Walmart and Target surprised analysts with excess inventories that forced the big box titans to significantly mark down prices.”
The excess inventories wouldn’t exist unless factories around the world overproduced commodities. To get inventories — unsold commodities — back in line with the market’s ability to absorb them at profitable prices, retailers have to reduce their orders directly or through wholesalers. When they do this on a big scale, a recession occurs. But so far, they haven’t cut enough to cause a full-scale recession, though the boom has slowed. There’s been enough credit available until now to allow retailers, wholesalers, and industrial capitalists to hold onto and finance excess inventories. However, the glut is forcing retailers’ hands: “67% of survey sources say they expect consumers to be looking for steep discounts, and more an half of new inventory orders are expected to be promotional items with products used as gifts to attract more customers.”
Selling commodities at discounts or giving commodities away to attract more customers means taking losses. But before retailers can again make profits — the reason they’re in business — they’ll first have to work down the inventory glut. If credit can be further expanded, operating at a loss can be postponed. Then retailers can temporarily hold on to their inventories, hoping that improving business will let them see profits again. If credit card debt can be further inflated through the crucial Christmas season, the consumer might “rescue” the retailers by buying the unsold commodities at a profit. This is what retailers are hoping for. National Retail Federation Chief Economist Jack Kleinhenz stated hopefully, “What we’ve learned over the last several years is don’t count the American consumer out, at least not yet.” What he’s really saying is don’t count the credit system out yet … until it breaks.
The problem: if credit card debt is further inflated, the consumer’s ability to keep spending will reach a limit as the cards become maxed out. Even if this Christmas season is saved, the retailer, wholesaler, and in the end, the industrial capitalist may be lost next year. When the credit chain breaks in a thousand-and-one places, it means not only a wave of retail bankruptcies, but empty factory order books worldwide. When the order books are empty, production is cut, and workers are laid off — not because society is too poor, but because it’s too rich. Too rich not from the viewpoint of people’s needs but from that of capitalist profits.
The Federal Reserve System, with its illusory ability to create money out of thin air, seems to hold the key to continued credit expansion and demand. Under the dollar standard, the Fed seems to have a magical ability to take government debt and transform it into cash. The Fed’s created money held in commercial banks can then be used to “roll over” accounts payable held by retailers and enable credit card debt limits to be increased and new cards issued. Retailers don’t need to cut their orders. The order books remain full, and factories around the world need to hire new workers. The industrial and commercial capitalists — wholesalers and retailers — keep making profits, stock market prices keep rising, the workers keep earning wages, and the next generation can find jobs. And just maybe Corporate Joe can even get reelected in 2024.
This is what progressives hope for to stave off the prospect of Trump or another far-right Republican taking up residence in the White House come January 20, 2025. If this happy scenario is to unfold, Jerome Powell (a Republican, by the way) and the Federal Reserve Open Market Committee will have to overcome their inflation fears. Though prices are high relative to wages, the rate of inflation has been declining for months. Why are they taking so long to lower the fed funds rate and are indeed indicating a further rise in the federal funds target in the coming months?
The Fed explanation
Powell and his colleagues answer their critics on the left by explaining that if the Fed funds target rate is reduced too soon or even stalled at the present rate, inflation will rise again. Because the target was kept too low for too long during and immediately after the COVID shutdowns, inflation accelerated. And though total employment recovered rapidly, prices soared, lowering real wages for every hour of labor performed. Before the Fed insists real wages can rise again, inflation must be down to 2% and stay there. To achieve that, the rate of increase in money wages must be lowered even more than the lowering that’s already happened.
To make sure real wages rise (according to the Fed), unemployment must rise to make money wages decline and real wages rise. If money wage increases don’t slow down enough, the Fed claims, the rate of price increases won’t fall to the 2% target. Then we’ll have to raise the Fed funds target even more, increasing the risk of deep recession.
So if we believe the Fed, the economists, and the media, money wages must be frozen now so that real wages can rise again in the future!
The metal barrier to capitalist production
Karl Marx analyzed capitalism more deeply than anybody else. He explained that a commodity’s value is determined by the amount of socially necessary labor time needed to produce it. Both Adam Smith and David Ricardo held the same view. But Marx went beyond Ricardo in explaining that value must have a value form. For Marx, the value relationship of production requires that the value of one commodity be measured by the use value of another.
This is what Marx meant by value form. Not only does every other commodity consist of both a use value and a labor value, but its labor value must be measured in terms of the use value of another commodity. When a single or a few commodities emerge whose use value the value of other commodities is measured, the commodity whose use value serves as the measure of value is called money. The value of commodities measured in terms of the use value of the money commodity is called price.
While the essence of value is measured in terms of a certain quantity of abstract labor measured in some unit of time, the form of value is a certain quantity of the use value of the money commodity — for example, a weight of gold. Prices can be above or below the value of the commodity. If the price stands above, the value of the gold representing the commodity’s price is greater than the value of the commodity. If the price is lower than the commodity’s value, the value of the weight of gold representing the price of the commodity is less than the commodity. If the value of the commodity and the value of the gold representing the commodity’s price is equal, the commodity’s price equals its value. Anwar Shaikh calls it the direct price. In reality, prices of commodities seldom equal the commodity’s value but rather fluctuate around an axis close to the commodity’s value.
Coins made of base metals, legal tender paper money, and bookkeeping money can replace gold in circulation. As a circulating media, various tokens are superior to gold because gold coins lose their value as they become light in circulation. But coins made of base metal, paper money, or bookkeeping money cannot replace gold as the measure of the value of commodities. In the future, gold might be replaced by another commodity in its role as the measure of value, but it can’t be replaced by a mere token — non-commodity money.
The world’s money is divided into various currencies. They are exchangeable only because they represent different quantities of the same substance, a social one (abstract human labor), represented by a physical one — gold. This may seem to be the most philosophical and difficult aspect of Marx’s economic theory, with little practical consequence. But to believe that would be a mistake. Profit is the only motive for a capitalist to carry out production. Of what substance is profit made? Profit is measured in terms of money. If you ask any practical businessperson why they do business, they’ll say it’s to make a profit. Then ask how they measure profit, and they’ll say money. If you ask what unit of measure they use to measure the money making up profit, they’ll say dollars (or euros or rubles or some other unit). If engaged in international business, they’ll say we measure profits in both local currency and dollars. (The more the local currency is prone to depreciation — inflation — the more likely that profits will be measured in dollars.) But whatever currency they mention, these units of currency represent weights of gold.
Profit is the money form of surplus value — the labor we’re forced to perform free of charge for the capitalists. Profit is measured in money terms. Money is the use value of gold (the money commodity measured by some unit of weight). Ultimately profit is measured in terms of some unit of weight of gold. We can imagine all the real wealth of capitalist society as consisting of two piles. One pile consists of all the use values of the non-money commodities in the world, representing the bulk of the world’s wealth. The other smaller pile consists of the use value of the real money — gold.
The use value of all the world’s gold is measured in a unit of weight called a metric ton. How are all the other commodities measured? We could measure them in terms of their use values — but then we can’t compare them to each other. It’s the old apples and oranges problem: We can’t measure the use values of the quantity of apples in terms of oranges. However, since money’s primary function is to measure the value of commodities in terms of its own use value, we can measure the value of all the world’s non-money commodities in terms of their prices. And since prices are measured in terms of weights of gold, the value of the world’s commodities is measured not by their use values but by their prices consisting of imaginary quantities of the use value of gold.
During an economic boom, the weight of a pile of imaginary gold — all the world’s non-money commodities — grows faster than the weight of the pile of the world’s real gold. This is a situation of relative overproduction. If too many non-money commodities are produced (not relative to human need but to the existing gold in the world), we don’t have an absolute but relative overproduction of commodities. This happens for two reasons. One: the actual quantity of commodities measured by the use values of each type of commodity grows as capitalism develops. Two: the prices of commodities in gold terms rise during a boom as demand exceeds supply. As the pile of imaginary gold grows faster than the pile of real gold, gold will, at some point, be perceived as scarce. It’s grown scarce not in some absolute sense but relative to the growing pile of the prices of all other commodities. This relative shortage of gold is the other side of the coin of the relative general overproduction of all other commodities.
Since physical gold is never destroyed, the equilibrium between the total quantity of gold and the total quantity of all other commodities is periodically destroyed not by the contraction in the quantity of gold but rather by the increase in the total quantity of the prices of non-money commodities — imaginary gold — relative to actual physical gold.
When this happens, the price of commodities in terms of the use value of gold will drop. And if we use gold as the measure of profits — indeed, this is the only correct way of measuring profits — they’ll collapse even if the conditions for the production of increasing quantities of surplus value remain favorable. Then additional surplus value can be produced but can’t be realized in money terms (gold) because too many commodities have been produced relative to the quantity of available gold.
Assuming capitalism is retained, what is the way out of a crisis of overproduction? We have to reduce commodity production while increasing gold production. The faster the quantity of gold increases, the faster the crisis and the depression that follows can be overcome. But it takes time to increase gold production as its mining and refining take time, especially if additional gold-bearing lands must be discovered and new mines developed.
As this process unfolds, the balance between the quantity of real money and non-money commodities is restored. Fewer non-money commodities appear on the market, and their prices in gold terms get lower while the total quantity of physical gold — real money — increases at an accelerating rate. This causes interest rates to fall. With lower interest comes a rise in the profit of enterprise relative to interest. Interest rates fall because money is abundant relative to commodities. What was impossible before — the ability to realize an increased quantity of surplus value — is now possible. With the profitability of capitalist production restored, production and employment increase again. This continues until the next boom leads to a new crisis of overproduction.
Though periods of crisis and depressions are an economic necessity for the ruling class, they cause big political problems for the capitalists. Crises and the lingering stagnation that follows involve a period of higher-than-average unemployment. This causes the working class (and some intellectuals) to question the continued existence of the capitalist system. During the post-crisis depression/stagnation phase of the cycle, increased competition for markets occurs. And unlike during the boom/crisis phase, there’s plenty of idle money to finance war.
In the inner cities, gangs of youth lacking meaningful employment opportunities are forced to sell habit-forming drugs to make a living. Fierce competition for drug markets between various gangs results in gang wars. The global capitalist class is organized in gigantic street gangs we call nation-states. The difference is that, unlike the inner city gangs, the capitalist ruling class takes the entire globe — and now starting to extend into space! — for markets. In periods of increased competition for markets, capitalist nation-states engage in heightened competition among themselves — leading to war. Here lie the biggest dangers for even the most powerful “gangsters” we call capitalists: The workers, sick of unemployment, underemployment, the threat of unemployment, and poverty amidst abundance and war rise up against the warring “gangsters” — and overthrow their system of class rule.
Enter John Maynard Keynes. Keynes knew that gold standard capitalism contained what Marx called the “metal barrier.” The need of the Bank of England and other central banks to safeguard the gold bars in their vaults by periodically raising interest rates was causing terrible crises of mass unemployment. But Keynes considered Marx’s concept of value and the “form of value,” or even Smith’s and Ricardo’s simpler concept of labor value on which Marx based his more profound theory, nonsense.
Instead, Keynes agreed with what we now call Modern Monetary Theory. There is no reason why the tokens we call currency (the British pound and the U.S. dollar) can’t serve as the measure of the value of commodities and the measure of profit. We don’t need gold or any other commodity to measure value and profit. Keynes believed the gold standard was based on old superstition and was a “barbarous relic” in the modern world. He believed the metal barrier to capitalist production could be eliminated by doing away with the gold standard that requires the monetary authority to exchange its currency for gold at a fixed rate of exchange.
Marx’s response would have been that the metal barrier represents the barrier that capital represents to production. Any attempt to remove the metal barrier without abolishing capitalist production will fail. Only the form that the metal barrier takes under the specific conditions of the gold standard would change. The metal barrier isn’t just based on a legal need to convert currency into gold at a fixed rate. It’s based on the need to convert commodities into gold at their value — or rather, market prices close to their prices of production. This is an economic law and can’t be changed by legislation.
The metal barrier after the gold standard
Much to Keynes’ disappointment (he died in 1946), the U.S. did not attempt to demonetize gold right after World War II. The U.S. government had accumulated a huge amount of gold, reflective of its trade surpluses and the flight of gold to the U.S. for safekeeping as the war approached. Later the U.S. gold hoard shrank due to declining trade surpluses that couldn’t fully cover war expenditures abroad, coming to a head during the Vietnam War era. Then the government took up Keynes’ suggestion and tried to demonetize gold and establish the dollar in its place as “non-commodity money.” The idea was that, unlike before, the dollar wouldn’t represent a quantity of gold but would be money in its own right. This meant prices, and profits, would no longer be measured in gold terms but instead in dollar terms.
During the 1960s and 1970s, policymakers believed this would allow them to create for the first time policies to eliminate recessions in a way not possible in earlier times. Policymakers believed that if money were created not by for-profit gold miners and refiners but rather by the Federal Reserve, it would be possible to create enough additional money to circulate an ever-expanding quantity of commodities at slowly rising prices.
The business or industrial cycle would be rendered extinct. If there was too much demand at existing prices and inflation rose above the 2% desired level, the monetary authority — the Federal Reserve and satellite central banks in other countries — would reduce the growth in dollars and other paper currencies backed by it. If rising interest rates threatened recession, the Fed and its satellites would create more dollars.
In the lead-up to the 1970s, high market commodity prices relative to underlying values and production prices measured in gold terms, gold mining and refining became increasingly unprofitable. As a result, global gold production declined. This, combined with the end of the surplus in the U.S. balance of trade , aggravated by the inflationary effects of the Vietnam War, finally bought the gold-dollar-exchange standard to an end. Behind it all was the growing scarcity of gold relative to the total quantity of commodities in circulation in terms of their “golden prices.” Commodity overproduction relative to gold marks the end of an era of prosperity under the capitalist system.
With the Keynes-inspired policies of allowing the Fed to create dollars not backed by gold, this, the economists claimed, would not be the problem it would have been in earlier times. However, with gold increasingly scarce relative to commodities and the growing numbers of dollars, the capitalists realized it was more profitable in dollar terms to buy gold and hold it than to engage in other business activities, even the production of surplus value.
Since production was still profitable in dollar terms, it continued to expand slowly. But gold demand exploded as capitalists discovered how profitable buying and hoarding gold was. With gold being demonetized as just another commodity, this wasn’t supposed to be a problem. But as the dollar price of gold soared, so did the dollar prices of other commodities, if to a lesser extent. This meant that while commodity prices in dollar (and other currency) terms rose, the prices in gold terms fell. The convertibility of commodities into gold was breaking down, and more importantly, the profit rate, though still positive in dollars, was negative in terms of gold. According to the law of the value of commodities, capitalist production must be positive in terms of the use value of the commodity that serves as the universal equivalent — gold.
But business people believed that if they were making profits in dollar terms, they were making profits. This is what Keynesian policymakers were counting on. Indeed, real wages declined as inflation accelerated, wages in gold declined even more, and the rate of surplus value was rising. As a gap opened between the rate at which the Fed was creating new dollars and the rising price level, the velocity of currency circulation rose to fill the gap.
But rising currency velocity can only go so far because one unit of money can’t settle more than one payment at a time. As it approached its limit, the commercial banks were running down their dollar reserves as they scrambled to meet the growing demand to meet circulation needs. Bank reserves burned away in the inflationary storm. While the Fed-created quantity of dollars and the commercial banks’ credit money increased, the rising quantity of dollars was falling behind the dollar price level, and dollars were growing scarce. This was reflected in rising interest rates.
Keynes’ supporters tried to explain 1970s inflation by pointing to special factors. A favorite explanation was to blame the OPEC oil cartel. By forcing up oil prices, energy costs for all branches of production drove up inflation. But the main target of the “pro-labor” Keynesians was the workers. According to Keynes, the general price level is governed by the level of money wages. If the workers would moderate their demands for higher money wages — or if forced to by government wage and price controls — inflation would go away without a recession and mass unemployment. Then Keynes’s promise of recession-free capitalism would be realized.
Under the current monetary system, the interest rate spike, as with the gold standard, marks the transition between boom and overproduction, and recession when accumulated overproduced commodities of the previous boom are sold off at a loss. This eventually restores the conditions of profitable production. Remember there are two conditions for profitable production: First, it must be possible to produce surplus value on an expanding scale by exploiting more workers. Second, there must be enough monetary effective demand to sell the commodities containing surplus value at prices that not only realize their cost price but surplus value as well.
Once capitalism is established, where most of the population has nothing but its labor power to sell, it’s the second condition most likely to be absent. It’s harder for capitalists to realize the surplus value contained in commodities than to produce the surplus value. There are exceptional conditions when surplus value production emerges as the chief barrier. A classic example is the COVID shutdown crisis of 2020. The pandemic threatened to kill or disable a large number of workers, which would undermine the production of surplus value. This is why capitalist governments imposed lockdowns to try to stamp out the pandemic. But the lockdowns crippled surplus-value production as well as creating difficulties in its realization. This is why the lockdowns were abandoned even as COVID continued to spread.
Under the present monetary system based on central-bank-created currency that’s not convertible into gold at a fixed rate by the monetary authority but at variable rates on the open market, the rise in interest rates reduces the demand for gold, causing its currency price to fall. This is because capitalists who’ve been buying gold, often on credit, are now forced to sell it for currency to pay their debts. As the sale of commodities slows, the role of the dollar as a means of payment becomes central, causing the demand for dollars to soar as the demand for gold drops. As this happens the Fed can expand the quantity of dollars again, lowering interest rates without increasing the demand for gold.
Under the present monetary system, profitability can only be restored in gold terms by first destroying it in dollar terms. As the currency is stabilized, profitability in gold and then in dollar terms is restored. Only when profitability in both gold and dollar terms is restored can the recovery begin. There’s no way to achieve this without liquidating overproduction — the cause of the crisis to begin with. The process of liquidation of overproduction means a period of reduced production and employment — a recession. Liquidating overproduction alone allows the capitalists to make profits in terms of gold, the dollar, and other currencies again while further improving the conditions which allow for the production of still more surplus value.
Can the recession be postponed beyond November 2024?
The ruling class has the problem called Donald Trump. Capitalists as a class don’t care whether the next president is a Democrat or Republican or which party controls Congress — though most capitalists personally prefer Republicans. Both parties are branches of the “Party of Order.” The Party of Order of the ruling class is made up of leading Democrats and Republicans who represent the general interests of the capitalist class. The “Party of Order” has concluded that Trump must never again be allowed to serve as president.
One way to keep him out of the White House is to maintain the current prosperity through the 2024 election. Then even if he wins the Republican primaries — polls show that he would easily if held today — there’s a good chance Corporate Joe could defeat him. Biden is taking personal credit for the current prosperity and low unemployment, as has happened many times in the history of presidential elections. As a rule the incumbent wins as long as there’s a reasonable degree of prosperity and no ongoing “quagmire” war like Korea or Vietnam. But if the recession hits before November 2024, mass unemployment will make that difficult. If Biden wins and a recession hits right after the election, Trump won’t be able to run again until 2028, when he’ll likely be too old (if he’s still alive). Problem solved. That raises an interesting question. Can the government and the Fed postpone the recession until after the election?
From the view of the Fed’s Open Market Committee, the best way to postpone a recession is to lower the Fed funds rate. It also means postponing undoing its “qualitative easing” by failing to replace long-term bonds as they mature. The danger is if they do this, demand for gold would rise and drive up the dollar price of gold. For example, during the U.S. summer of 1979, gold’s dollar price fluctuated around $300 an ounce. That autumn, gold’s dollar price rose, hitting $875 in January, five months later. Within five months, the dollar lost more than half its gold value!
Gold’s dollar price has recently been fluctuating just below $2,000 an ounce. If a 1979-80 “run on the dollar into gold” occurs between September and January, a dollar gold price below $2,000 in August would rise to around $5,000 or $6,000 in January 2024. If this happens, any progress against inflation would vanish, and it would soar into the double digits. Unlike in 1979 when gold was supposedly being demonetized, many countries, fearing the U.S. would freeze their reserves held in dollars — or euros as happened to Russia — have built up their gold reserves. If a 1979-80 style run on gold was to occur under present conditions, the dollar-centered international monetary system and the U.S. world empire could be toast.
This is why Powell’s Fed is promising to keep money tight and interest rates high until inflation is “wrung out of the system.” The fear of another 1979-80 is constraining the Fed, to the chagrin of liberals and progressives who hope against hope that Corporate Joe can be reelected — not because they like him, but because they fear Trump or another far-right Republican will win 2024.
Since the early 1970s, when the gold-dollar-exchange standard gave way to the dollar standard, every big crisis has seen the dollar stabilize at a lower level against gold. This meant that after each crisis, commodity prices fell in gold terms compared to before the crisis, even though they were higher in dollar terms. In terms of production prices — defined as the set of prices that equalize profit rates in all branches of production, including in gold mining and refining — every major crisis that’s occurred under the dollar standard, as under the gold standard, left market prices below production prices.
The result has been a renewed rise in gold production relative to the temporarily stagnant production of other commodities. Just as each business is obliged to rebuild its cash balance after every crisis, capitalist society on a global basis is obliged to rebuild its cash balance in the gold form relative to the production of all other commodities.
During the period of prosperity, capitalist society — which produced too much wealth in the form of non-money commodities and too little wealth in the form of the money commodity — must, for a while, produce more wealth in the form of the money commodity and less of in the form of non-money commodities — real wealth. This way, the money famine marking the crisis is transformed into its opposite, a money glut, which is the necessary pre-condition for a new period of prosperity.
The main symptom of a money glut is a low interest rate. Low interest rates encourage capitalists to act as industrial capitalists instead of money capitalists. A spirit of speculation that precedes the crisis gives way to a renewed spirit of enterprise. Under the current monetary system, the Fed’s Open Market Committee knows the process has run its course when it can create more dollars, lowering interest rates without plunging the dollar against gold. In the minds of the Fed’s leaders, the Fed has effectively “rung inflation out of the system.”
The chances of extending the current prosperity through November 2024 would improve if the Open Market Committee lowered its target for the federal funds rate right now. Rising bank reserves would “de-invert” the yield curve and encourage the banks to keep lending to businesses and consumers long while borrowing short. (5) Even if it’s too late to avoid a slowdown altogether, it could still be a relatively soft landing, and Corporate Joe might, with the aid of the media, the labor unions, and progressives, defeat Trump in 2024.
But the risk is that if the Fed seems to be moving in this direction, the demand for gold will soar. The progress against inflation would reverse with stagflation setting in by 2024 or soon after. This would be a dangerous course of action. Even if it succeeded in postponing a major economic crisis until after the election (allowing Trump’s defeat), the chance of a run on the dollar after the election — that would bring down the financial foundations of the U.S. empire — would increase. (6)
In a final attempt to prevent the dollar price of gold from spiking, the Treasury could sell off a portion of its remaining gold reserves and pressure its allies to do the same. This would be all the easier as the U.S. is already in physical possession of a large percentage of its allies’ gold stored for safekeeping.
With gold flowing out of Fort Knox and the vault under the Federal Reserve Bank of New York, the dollar price of gold would be expected to fall for a while. The Treasury could then spend the dollars it would earn by selling off the gold, and with the dollar price of gold falling, the Fed could be able to create more dollars and drive down interest rates. The threat of immediate recession would pass, and the economy would surge as dollars earned by Treasury’s gold sales are pumped into the economy, creating ideal economic conditions for Corporate Joe to defeat Trump.
The problem is that such policies can only be maintained until the gold runs out. Though prosperity could be maintained through November 2024, the depletion of the remaining gold reserves combined with extra overproduction represented by the renewed economic boom would prepare the way for a worse crisis not long after. Even worse, from the viewpoint of Washington’s “Party of Order” strategists, the People’s Republic of China and other countries that are targets of U.S. imperialism would be more than happy to buy the momentarily depreciated gold to build up their gold reserves. The dollar system might not be able to survive for long after November 2024. It seems unlikely the Biden administration and the Fed will follow this course.
Instead, the Party of Order seems to keep adding new federal and state felony charges until Trump drops out of the race. This would pave the way for the Republican Party to nominate a candidate who’ll be more acceptable. This way, the leaders will be able to sleep well on election night, knowing they’ll win no matter how the election turns out. That’s democracy U.S.-style!
And if Trump refuses to accept a plea deal, that’d mean dropping out of the presidential election? Well, we’ll have to wait and see.
(1) Some historians believe that the failure of the Roman Empire to solve the problem of smoothly passing power from one autocratic emperor to another eventually led to the downfall of the Empire. Marxists would see the contradiction between chattel slavery that dominated production in the empire and the need to further develop the productive forces as a fundamental reason for the empire’s collapse. These contradictions were reflected in the problems of passing autocratic power from one emperor to the next.
(2) Sometimes, there are third-party candidates, even socialist and communist ones. But there are restrictions on those who run against the Democratic-Republican duopoly, and their campaigns get little coverage from the media. The media makes it clear that there are only two candidates with any chance of winning.
People are told, and most believe, that a vote for a third-party candidate means throwing away their vote. This system restricts formal bourgeois democracy compared to multi-party parliamentary systems. From the viewpoint of the capitalist ruling class, the presidential system represents the ideal compromise against excessive democracy of multi-party parliamentary systems and the dangers of personal dictatorship.
(3) Worldwide in the 21st century means planet Earth and the solar system, which contains vast natural resources.
(4) I borrow the term “Party of Order” from Karl Marx’s “Class Struggles in France, 1848-1850” and “The Eighteenth Brumaire of Louis Bonaparte.” These works describe the class struggles that enabled French President Louis Bonaparte to stage a coup in December 1851, allowing him to remain in office after his legal term expired. Marx referred to the political parties and factions of the ruling French capitalist class as the “Party of Order” that lost when President Bonaparte’s December 1851 coup allowed him to seize dictatorial power at their expense and extended his term of office beyond the constitutional limit. President Bonaparte soon declared himself Emperor Napoleon III and remained in office until the 1870 Franco-Prussian war (that he had started) forced him into exile in Britain. Despite the differences in epochs and results, parallels between Bonaparte’s successful December 1851 coup and Trump’s unsuccessful January 6, 2021, coup aimed at keeping himself in office beyond his legal term are striking.
(5) Banks borrow short — deposits — and often lend long. The yield curve inverts when a sharp increase in the demand for short-term credit occurs as industrial and commercial capitalists seek to finance their build-up of unsold commodities. The inversion in the yield curve causes the profitability of bank lending to shrink or disappear. Banks react by curtailing lending, causing bank credit to shrink. The contraction of bank credit then leads to a contraction of commercial credit, forcing industrial and commercial businesses to liquidate their accumulation of unsold commodities.
(6) This happened after Richard Nixon’s reelection in November 1972.