As May winds down, the Gaza genocide continues, as do negotiations to end the Russo-Ukraine war, with no clear end in sight as of this writing. The Republican House of Representatives passed a bill now being considered by the Senate aimed at big cuts in government-supported Medicaid and possible cuts in Medicare and Social Security. The bill also features making earlier Trump-Republican tax cuts permanent, as well as adding more.
Liberals and progressives claim Republicans want to cut Medicaid to finance the tax cuts (capitalists don’t like to pay taxes) — but this is not their main motive.
Cutting Medicaid forces more of the poor onto the labor market by making them financially desperate to find a job or go without medical insurance. Nothing is being done to make more jobs available, nor are there plans to force bosses to provide medical insurance or wages sufficient to afford private insurance. They are intended to force people to work for wages that do not even pay the value of their labor power.
The more people are forced into the labor market, the greater the competition among the sellers of labor power, and the better it is for the buyers, the capitalists. The lower the wages, the higher the ratio between the part of the day when workers work for free for the capitalists and the part for which they are paid. Liberals and progressives do not challenge the capitalist system; they don’t talk about surplus value, either because they do not understand it or because they only want to reform the system, not overthrow it. We will examine this more closely later in this post.
Wall Street bankers have become ever more nervous about another tax cut, not because they like to pay taxes, but because of its impact on the already shaky government bond market. On May 23, the ten-year bond closed at 4.5090%, while the dollar price of gold closed at $ 3,357.70. The week before, the ten-year bond closed at 4.4410% and gold’s dollar price closed at $3,205.30. What is the significance of these two facts?
Normally, as interest rates rise, the dollar price of gold will fall. During the week of May 16 to 23, 2023, the yield on the ten-year government bond rose above the significant level of 5.50%, which would generally have lowered gold’s dollar price. Instead, gold rose more than $100. This kind of price increase effectively ties the Fed’s hands when it comes to lowering interest rates.
On tariffs, the Trump administration was obliged to stage a retreat, canceling the prohibitive tariff against China and settling for 30%, because Trump said it would hurt many of his supporters. While it seems unlikely Trump cares about working-class people who have been misled into supporting him, he has reason to believe that the disappearance of cheap Chinese commodities from store shelves as the result of tariffs autocratically decreed by Trump could tear to pieces his “MAGA” movement, along with his attacks on Medicaid. It is now China that raises the slogan of “free trade,” one first raised by Britain during its industrial heyday, then taken up by the U.S. after World War II, showing how the world has changed.
Trump announced that beginning June 1, 2025, a 50% rate will be applied to commodities produced by the European Union, and tariffs on Chinese commodities will be 30%. On May 25, he announced that the tariff would be postponed to July 9 while he attempted to work out a deal. It seems the U.S. cannot live without cheap Chinese commodities, though both Democratic and Republican politicians consider China to be the arch-enemy.
Meanwhile, Europe’s industrial economy is decaying in no small part due to its lack of political and military independence from the US, so there are fewer commodities to be had, and they have a 50% tariff imposed on those produced by the U.S.-NATO allies higher then 30% tariff imposed by Trump on Chinese commodities, though it seems unlikely that this 50% will actually go into effect. In addition, Trump plans to seize Greenland from NATO “ally” Denmark, by force if necessary, in order for U.S. corporations to access its mineral riches. Denmark’s leaders have responded that they are solid allies of the U.S., but as the expression goes: with allies like this, who needs enemies?
The great unraveling of the U.S.-dominated world empire is underway.
April 2025 will go down as a many-faceted month of crisis, which includes the stock market, the currency system, trade tariffs, a political crisis, and a commodity overproduction crisis that is also developing in the background. Together, they point toward the unraveling of the post-1945 world order dominated by the United States. May 2025 marks the 80th anniversary of Germany’s unconditional surrender in 1945, as well as the “rules-based order” (as the U.S. world empire calls itself) that has dominated the globe since then.
From a historical perspective, 80 years is not a long time at all. There are people alive today who are older than the current world order, but it is beginning to unravel. Certainly, the personality of Donald Trump and the people around him have played a role. However, the personalities of individual policymakers are secondary, as they come and go. Instead, these crises are rooted in the contradictions of the capitalist mode of production.
Why is the U.S. empire crumbling when earlier ones lasted for centuries? The answer lies in the unprecedented dynamism of today’s productive forces that is in growing conflict with both capitalist private property and the nation-state.
The rise of the U.S. world empire
The post-1945 world order emerged out of an earlier period of crisis that began in August 1914 and ended with Hitler’s suicide in his Berlin bunker on April 30, 1945, and the atomic bombing of Hiroshima and Nagasaki in August of that year. The crisis that racked the world between 1914 and 1945 was a multi-sided one that included two world wars over 31 years, the Russian Revolution, and the founding of the Communist International (Comintern) in 1919.
The Great Depression started in 1929 and developed into the greatest global economic crisis in history. German fascist leader Adolf Hitler’s political career would likely have petered out without the Depression and its disastrous impact on Germany.
That era ended with the bloodbath of World War II and Japan’s surrender in September 1945. This marks the transition from the British-dominated world order to the U.S. world empire.
The dramatic events of the years between 1914 and 1945 cannot be understood without what Marx called the laws of motion of the capitalist system. I will review these laws (which I’ve been examining throughout this blog) after first discussing tariffs, what they are, and how they work.
First, we’ll take a quick look at how competition between individual capitalists and capitals works within the system. Each capitalist individual and enterprise is driven by competition — the pressure one exerts on another to maximize profits. One capitalist gains profit at the expense of the other members of their class. If a capitalist raises their selling price too high, they lose market share. If the price is too low, our capitalist will not make enough (or maybe any) profit.
Though each capitalist is free to charge any price they want, competition leaves little leeway in this matter. As a rule, a capitalist must charge much the same price for commodities of a given use value and given quality as the competition.
A certain amount of money — the cost price — is needed to produce a commodity; that is, the cost to the capitalist of producing that commodity measured in money terms. The price is then marked up above the cost price by adding a “fair” or” just” profit. This is the price that society must pay for the commodity.
Although the individual capitalist has little choice in setting prices due to competition, if they can figure out a way to reduce the cost price below that of their competitors, they can achieve an above-average profit rate, the aim of every capitalist. Those who succeed win the battle of competition — those who don’t will be crushed.
In addition to real production costs, there are false ones. Perhaps the most important are taxes. A tariff is a type of tax specifically applied to international trade.
One country’s industrial capitalist wants to sell commodities in another country. The industrial capitalist, the exporter, adds up the cost price and then adds the amount needed to ensure an average profit rate. The merchant capitalist, the importer, leaving aside the transportation costs incurred when the commodity comes into the country, buys at the exporter’s price, then adds the amount necessary to realize the average profit rate, the price the final consumer pays for the commodity.
The total profit is shared between the industrial capitalist who produces the commodity and the merchant capitalist who imports it. There can be additional layers of capitalists, such as wholesale and retail merchants. At the end of the day, all capitalists realize the average rate of profit, while the final consumer, on average, pays the price of production.
What happens when the government of the importing country, say the United States, wants to encourage its own capitalists to produce the commodity at home, rather than importing it? Or if a country is alarmed about the rate of development of another country, say China, and wants to slow it down?
One time-tested method is to levy a tariff. The government tells the importer, “You must pay a tax to me to import foreign commodities.” The tariff may apply to all imports or only those from specific countries, such as China.
The Obama administration, both Trump administrations, and the Biden administration have all regarded China as the United States’ most dangerous competitor.
Democratic and Republican administrations alike aim to slow down China’s economic development. China has a much larger population than the United States, and the value of labor power, although it has been rising, is still below that of the United States.
Even if the rates of surplus value are identical, China’s larger population means that much more surplus value can be produced in China. It also means that China can potentially raise a larger army. This fact, though troublesome — the victory of the Chinese Revolution in 1949 took the possibility of a U.S. ground invasion off the table — did not seem too dangerous to U.S. imperialism as long as its productive power in industry and agriculture greatly exceeded that of China, as has been the case until very recently.
China has now surpassed the U.S. as the “workshop” of the world, with the productive power of its industry extending not only to traditional industries like textiles, iron, and steel but also to high-tech sectors, threatening to exceed that of the United States in the near future. U.S. imperialists are becoming increasingly obsessed with slowing down China’s development or reversing it altogether. I agree with Richard Wolff, a retired professor of economics at the University of Massachusetts Amherst and a popular internet vlogger (the New York Times calls him “America’s most prominent Marxist economist”), that today’s China represents the most serious economic competition the U.S. has faced in a century.
Germany was potentially a powerful competitor, but it was geographically small with a smaller population compared to the United States. Japan, like Britain, is an island that has been occupied by the United States since 1945. Its ability to compete with the U.S. either politically, militarily or economically is limited. The Soviet Union, though geographically vast, built a shut-in socialist economy with minimal trade with the capitalist world. The USSR was a threat because it showed that capitalists were by no means necessary for modern industry, but it offered little in the way of economic competition.
In contrast, since 1978, China has developed vast trade and investment with the capitalist world economy. If current economic and commercial trends persist, the days of the U.S. global empire are numbered. The Trump administration is aware of what, for them as the political leadership of U.S. imperialism, is a deadly danger, and is determined to neutralize or eliminate the Chinese threat.
On the other hand, the U.S. working class has no interest in supporting U.S. imperialism in its struggle with China for domination of the markets of the world, whether under the leadership of Trump, Biden, or AOC (Alexandria Ocasio-Cortez), for that matter.
We should instead celebrate the breathtaking achievements of Chinese industry, technology, and science that are laying the material foundations of the communist world to come. Our allies are not the ever more reactionary U.S. capitalists symbolized so well by a Trump or a Musk, but rather the Chinese workers whose labor of the hand and the brain has made possible China’s remarkable achievements. More than ever, the main enemy is at home.
About those tariffs
To return to tariffs, say one is levied on exports of one or more countries by the United States. The importer, a U.S. merchant capitalist, could “eat” the tariff by accepting a lower rate of profit. They might be forced to do this under certain conditions, but you can be sure they won’t be happy about it.
If the tariff is not removed, the importer will start looking around for another more profitable area to invest their capital, which is what Trump’s tariffs are trying to achieve. If the tariff is so high that the importer has to eat all the profit or even operate at a loss, they’ll exit the import business because no capitalist can operate without making a profit for very long. If tariffs are raised beyond a certain point, trade between countries becomes prohibitive, and international trade stops.
What makes a tariff prohibitive? The industrial capitalist producer of imported commodities, who is attempting to find a market for their commodities by selling them to merchants located in a foreign country, does not pay the tariff levied by a foreign government except in the indirect sense of “eating” the tariff. It’s the importer who pays. The importer tells the buyers of the foreign commodities, “I have no choice but to raise my selling price because of my increased tax expenses. If I don’t raise my prices, I will make little to no profit, and I’m in business to make a profit. If you don’t like it, you should ask the government to remove the tariff. Otherwise, pay up or do without foreign commodities.”
The theory of protection
The final consumer has little alternative but to pay the extra amount. The capitalist may decide that, due to the lower cost price, they could not undersell the foreign capitalist before, but once the tariff goes into effect, this will no longer be the case.
Perhaps the local capitalist can beat these artificially raised prices. The consumer will still have to pay higher prices, at least at first. In the future, local capitalists may learn to produce commodities at the same or lower cost than foreign capitalists. Then the protective tariffs will have done their job and can be removed. Under the right circumstances, this can be a powerful tool in developing a given country’s industry.
The downsides of tariffs
Tariffs have downsides. The most obvious involves the consumer in causing raised prices. The final consumer wants to see as much competition as possible so the needed commodities can be bought at the lowest possible price. Tariffs, from this standpoint, are an altogether bad thing, as they reduce competition among sellers while increasing it among buyers.
The final consumer, assuming that commodities are necessaries rather than luxuries, includes members of all classes. How do tariffs affect members of the two classes engaged in production, capitalists and workers? Back in the 19th century, Frederick Engels noted that if a tariff protects industries that produce commodities used as inputs by other industries, it raises the cost price of those other industries.
For example, protecting the steel industry raises the cost price of producing automobiles. The automobile capitalists are the productive consumers of the products they use to produce automobiles. For the industrial capitalist who buys protected commodities to produce other commodities, tariffs are a bad thing. For the commodities they produce, tariffs are a good thing because they reduce the competition they face as the seller of commodities.
On a world scale, tariffs reduce the international division of labor by reducing international trade. For example, tropical fruits cannot be grown outside in countries with temperate climates. They might be grown in greenhouses, but this increases costs and possibly compromises quality.
From the standpoint of the international productivity of labor, workers would be better employed elsewhere than in greenhouses growing tropical fruit in a non-tropical climate. The same can be said for mining on lands where nature has not deposited minerals, or drilling for oil where there is little or none. If you tariff the importer of these minerals in a country that lacks the natural resources to produce them, the country levying the tariff will have to live with few such minerals and fuels.
As capitalism develops, more and more commodities are produced in multiple countries rather than just one. For example, computers and automobiles are assembled in one country with parts produced in many other countries. Ripping apart the world market, as the Trump administration is trying to do, undermines the growth of labor productivity worldwide by reducing the international division of labor, thereby undermining the growth of labor productivity in all countries.
This is why Marx and Engels, as a rule, opposed tariffs. But, they supported the right of underdeveloped countries to impose tariffs as a means of escaping their underdevelopment. For example, Marx said Ireland should impose tariffs so it could industrialize and escape English domination. The last thing Marx and Engels wanted to do was support the continued English industrial monopoly on the world market in the name of free trade.
There is another downside to tariffs. They are tools in the hands of capitalist nation states that, on a large scale, act like city street gangs in a form of international commercial warfare. Today, international politics is increasingly dominated by the U.S. economic war against a newly industrialized China.
Tariffs that seek to limit or eliminate imports have a twin. The twin is the government ban on exports to foreign countries. An example is when the U.S. refused to let the Chinese company smartphone producer Huawei use chips produced, or rather designed, by the Silicon Valley corporations Intel and Nvidia, as well as deny Huawei the right to use Google’s (another Silicon Valley corporation) Android operating system, as well as use Microsoft’s Windows computer operating system.
These moves by the U.S. government, whether under Trump or Biden, have denied Nvidia, Google and Microsoft sales, and we know how capitalists hate to lose sales. We see how the state seeks to represent the interests of the national capitalist class as a whole, not the individual needs of individual capitalists including such giants as Nvidia, Google and Microsoft. . These measures forced Huawei and other companies to develop their own chips to replace those from Nvidia, as well as their own operating system, Harmony, to replace Google Android and Windows.
Instead of international cooperation, we are witnessing fierce international competition. Since Huawei has a commanding position within China’s home market, it is almost guaranteed to maintain its position there and is in a strong position to challenge the U.S. in other nations’ markets worldwide. The outcome of this developing battle for domination of high-tech markets remains to be seen. We can say this: In the high-tech industry, where the U.S. seemed unstoppable not so long ago, U.S. capitalists now have a real fight on their hands.
We now turn to the final problem of tariffs and other neo-mercantilist policies.
As in the days before steam power, manufacturing-era mercantilist policies bred war. (1) Tariffs, as well as their twin, export restrictions, aim to prevent the spread of human knowledge to boost the profits of one nation’s capitalists. This tends to lead to shooting wars sooner or later.
One big difference between today and the mercantilist era is that today’s productive forces have grown beyond levels that could be imagined during the mercantilist era. Several centuries of capitalist development, at great human cost (and with great reward for a few capitalists), have laid the foundation for a communist society where the conditions for the development of one member of the community are the conditions for the development of all its members.
Such a society will know no struggle between classes for the simple reason that there will be no classes. There will be no wars between the nations that will begin to blend into one. But capitalism has also developed the means to destroy human civilization. This is the dilemma that confronts the youth of today as they are forced to fight against the Genocide Joe Bidens, the Donald Trumps, and the other representatives of capital that lord over us today.
Now let’s review how the development of capitalism led us into the situation we now face.
The laws of motion of capitalism
A reader asked why Keynes’ prediction of a shorter working week has not come true. It is the question of questions for all political economy. Economists, including Keynes, treat capitalist production as if it were a system for fulfilling human needs. It is not. Capitalism is a system of production for profit alone. Every capitalist must produce as much surplus value as possible. (2) Squeezing surplus value from workers is a matter of life (in the sense of surviving as a capitalist) or death (in the sense of losing their capital).
What do we mean by squeezing surplus value out of the workers? In 1857, Marx, after studying and writing about economics for about 13 years, made his greatest discovery in economics. Marx began with the assumption that all commodities (including labor power) sell at their value. The value of a commodity is determined or defined by the socially necessary amount of abstract human labor that, under the prevailing conditions of production, is necessary to produce it.
This means that today, commodities of similar use values are far less valuable than they were when Marx wrote “Capital” because they are produced with significantly less labor. Throughout capitalism’s history, especially since the introduction of steam power in the late 18th century, the productivity of human labor has been rising far more rapidly by the standards of anything that came before.
But what about the value of labor itself? Classical political economy stumbled upon this question, and after 13 years of studying political economy, Marx got to the bottom of it.
In 1857, Marx’s interest in political economy was renewed by the global capitalist crisis of overproduction that occurred that year. He realized that labor is not the same thing as labor power, which is the ability to work. In an analogy to computer science: A computer program is a string of 1s and 0s that tells a computer what to do, while what computer scientists call a process is a computer carrying out those instructions. In this analogy, labor power is the program, and labor is the process. If we confuse these two, we cannot explain precisely how surplus value is produced. (3)
Originally, Marx, like Ricardo and classical economists before him, assumed that commodities sell at prices proportional to the quantity of labor needed to produce them. Let’s suppose the workday is eight hours long. If the capitalist pays the workers for the full value of their labor as well as pays for the value of the commodities that must be used to produce the commodities, how can the capitalist make a profit? We can assume that the capitalist pays the worker less than the value of their labor, but in this case, the commodity labor does not sell at its value. Something is wrong here, but what is it?
Marx realized that the capitalist does not buy the labor of the worker but rather their ability to work. Since value is simply a quantity of abstract human labor measured in some unit of time, (abstract) labor is the substance of value, much like gold is the substance of price. But just as gold as the measure of value cannot have a price itself, labor cannot have a value.
Nobody in any human society can live without the labor of other people. In a capitalist society, a person’s ability to work can only be maintained and reproduced by consuming commodities produced through the labor of others. It is this that in a society where almost every use value produced by human labor is a commodity, labor power itself becomes a commodity and acquires a value. The value of labor power is the total value of the commodity the worker must consume to reproduce their labor power.
There can be quite a difference between the amount of labor a worker performs over a given period and the amount of labor the worker actually consumes. Unless a worker performs considerably more labor measured in some unit of time than is represented by the money — a given quantity of the money commodity — that constitutes their wage and the value of the real wage that worker must consume, the worker’s labor power has no use value for the capitalist. (4)
The use value of the commodity labor power for its buyer, the industrial capitalist, is precisely that it produces a value greater than its own, which Marx called a surplus value. Profit, the sole motive force of capitalist production, is the monetary form of surplus value.
According to Marx’s assumptions, the capitalist buys the labor power of the worker at its full value. This is, of course, not necessarily true, but to explain surplus value, we will assume the capitalist does not cheat here. There is no “wage theft,” under Marx’s assumptions, though there often is in the real world.
For workers to live and raise the next generation, they have no choice but to sell their labor power, their ability to work, to a capitalist. This creates the most important market in capitalism, the labor market.
As we have already seen, the use value, to the capitalist as the buyer of the commodity labor power, is to produce surplus value. The use value of labor power to the capitalist is that workers produce more value with their labor than the value of their labor power. In terms of labor as a process, the worker must perform more labor for the capitalist than the labor that is represented by the money the worker receives for their labor.
We can, in our minds, separate the labor that workers perform, which replaces the value of their wages for the capitalists, from the labor that workers perform for free (without receiving any compensation) for the same capitalists. It is this surplus labor that produces surplus value.
Now we come to the greatest difference between Keynesian and Marxist economists. Surplus value is not yet profit. No profit is made if the commodity cannot be sold. This is often the case. However, Marx assumed in explaining surplus value that all commodities are sold at their value. To explain surplus value, we must assume that all commodities sell at their value. (5)
It then becomes clear that without surplus value, not a cent of profit can be made. All the complexities of the relation between values and prices of production cannot change this basic fact.
Unlike Marx, Keynes never asked where profit comes from! Keynesians often imagine that profit somehow arises from “monetary effective demand,” also called profit upon alienation. This was good enough for the mercantilists and Keynes, but it is not good enough for us. Profit requires surplus value, and surplus value arises from the excess of the total labor the workers perform, measured by some unit of time, over the quantity of labor also measured by some unit of time the workers perform for needed consumption goods under pain of not being able to sell their labor power at all.
This means that the less of the total quantity of labor the workers perform in a given period is paid labor, the higher the rate of surplus value (the rate of exploitation) will be. Everything else remaining equal, the higher the rate of profit will also be. That is, the higher the rate of unpaid to paid labor, the better things are for the capitalists. Now we can answer our reader’s question about why Keynes’ prediction about the shortening of the working day has not come true.
The length of the workday imposes very strict limits on the amount of surplus value that can be produced within a given period of time. If the workday is sixteen hours a day (it can obviously not be more than 24 hours), the maximum total quantity of surplus value that can be produced is 16 hours if the worker receives no wage at all — an obvious impossibility.
If, due to decades of class struggle, the workday is reduced to 8 hours, the quantity of surplus value that can be produced per worker per day will be 8 hours of unpaid labor minus the amount that must be paid to the worker. If the workday is reduced to 6 hours, the production of surplus value will be limited to six hours minus what must be paid to the worker.
Capitalists will do all they can to oppose shortening the working day. Under the capitalist system, the only way the workday can be shortened is through class struggle.
After the abolishment of capitalism, the narrow aim of expanding the quantity of unpaid labor will be abolished. Keynes was right about the potential benefits of shortening the workday, but this is only possible after the abolition of the capitalist system he defended to his dying day. Until then, the capitalists will continue to resist any shortening of the workday; they only want to expand it.
During the transition toward full communism after the overthrow of capital, the aim will be to reduce the total quantity of labor that must be performed both by individual producers and the total quantity of labor that all producers must perform until labor ceases to be a burden but becomes the most important human need. (6)
In this context, machine learning is simply the latest step toward the lifting of productive forces to the level that will make a communist system both possible and necessary.
The path of capitalist development
By necessity, capital is divided into many individual capitals. In the course of capitalist development, the profit rate on individual capitals tends to fall due to the growth of the ratio of constant to the variable portion of capital that alone produces surplus value.
At any moment, the system consists of a number of independent capitals. The system reproduces itself and evolves as it does so. The size of the various individual capitals that make up the total social capital increases in both absolute terms and relative to the total. This trend points to the eventual end of capital and its mode of production. The big capitalist fish swallow the small ones. However, if one day an individual capital swallows all the remaining capitals, it would no longer be capital, as capital rests on commodity production.
If there were only one capital, it would not carry out production through the law of value that is driven by the competition among capitals, but rather through a universal plan. At this point, commodity production would be abolished as would capital itself. Capital contains the seeds of its own demise. Capitalism isn’t the only “natural” way to carry out production, as economists claim, but only a phase in the history of production.
The downward tendency of the profit rate means that, on average, any particular capital operating at any particular moment experiences a falling profit rate. The falling rate makes small capitals increasingly nonviable. The more the average rate declines, the more that small capitals have to experience exceptional rates relative to the average.
Exceptional rates of capital attract additional capital, increasing competition among them. This ends up lowering prices and profits. We typically see exceptional profit rates in new branches of industry. However, as Rosa Luxemburg pointed out in “Reform and Revolution,” written at the end of the 19th century, the period during which small capitalists can survive in new branches of industry becomes shorter and shorter.
In “Reform and Revolution,” Luxemburg wrote:
“According to Marxist theory, small capitalists play in the general course of capitalist development the role of pioneers of technical change. They possess that role in a double sense. They initiate new methods of production in well-established branches of industry; they are instrumental in the creation of new branches of production not yet exploited by the big capitalist. It is false to imagine that the history of the middle-size capitalist establishments proceeds rectilinearly in the direction of their progressive disappearance. The course of this development is on the contrary purely dialectical and moves constantly among contradictions. The middle capitalist layers find themselves, just like the workers, under the influence of two antagonistic tendencies, one ascendant, the other descendant. In this case, the descendant tendency is the continued rise of the scale of production, which overflows periodically the dimensions of the average size parcels of capital and removes them repeatedly from the terrain of world competition. The ascendant tendency is, first, the periodic depreciation of the existing capital, which lowers again, for a certain time, the scale of production in proportion to the value of the necessary minimum amount of capital. It is represented, besides, by the penetration of capitalist production into new spheres. The struggle of the average size enterprise against big Capital cannot be considered a regularly proceeding battle in which the troops of the weaker party continue to melt away directly and quantitatively. It should be rather regarded as a periodic mowing down of the small enterprises, which rapidly grow up again, only to be mowed down once more by large industry. The two tendencies play ball with the middle capitalist layers. The descending tendency must win in the end.”
To survive in the face of a declining profit rate, small capitals must become large ones in an ever shorter period of time. A few small capitals become large ones while large capitals invade and take over new branches of industry that small ones previously dominated. Large capitals are compensated for the falling profit rate by the growing mass of profit.”
This process means that the production of commodities must grow rapidly as capitalism develops, which enables the growth in the mass of profit to counteract the fall in the rate of profit. This rapid increase in the mass of commodities produced implies commodity overproduction, not relative to human needs, but relative to the ability of the market to absorb them at profitable prices.
As we have seen throughout this blog, overproduction is no accident; it is inevitable once production reaches a stage of development where the quantity of commodities on the market increases rapidly over a short period of time. This year, 2025, marks the 200th anniversary of the first global general crisis of overproduction that broke out in 1825. Historically, 200 years is not a particularly long period of time. Indeed, it is only two long human lifetimes.
Rapidly increasing capitalist production strains the means of production as it attempts to keep up with market growth that then drives up the (market) prices of commodities above the prices of production. As this process unfolds — remember prices represent quantities of the use value of the commodity that serves as money — production of the money commodity becomes less profitable (both relatively and absolutely).
As this continues, the production of the money commodity becomes unprofitable and will eventually cease, as capitalists will produce no commodity, including the money commodity, if it does not yield a profit. Therefore, long before the production of money material ceases, it will start to lag behind non-money commodity production, defined by the use value of their price tags (imaginary weights of gold), the money commodity, which Marx called “money of account.” It’s called money of account because this money is purely imaginary. Commodity production, by necessity, develops faster than market expansion.
Eventually, the growing contradiction between capitalism’s ability to produce commodities and society’s ability to buy them becomes so great that a general overproduction crisis breaks out. When an overproduction crisis occurs, the relationship between the two main classes of capitalist society, as well as that between nation-states, is aggravated.
Secondary crises arise., Wars break out, perhaps at first fought through tariffs and trade barriers, but eventually by military means, as various states fight over sources of cheap raw materials and markets. If one state seizes markets from another, the first state eases the impact of overproduction on its own country by increasing it on another.
Wars themselves cause more crises, of an economic, social, and political nature, and ultimately of class rule, as the question of which class will rule is posed in the sharpest possible way.
Economic crises caused by war (as opposed to peaceful overproduction) can be triggered by deficit spending, which is paid for through the issuance of paper beyond the production of additional money material or even of the commodities needed for the physical reproduction of society, leading to inflation.
As the means of production develop, wars become more intense, including the physical destruction of the means of production. The production of additional money material is incapacitated by rising prices in measured in terms of physical monetary material – gold – in a way that can far exceed that of the normal development of the industrial cycle as market prices exceed the prices of production in a way that would never occur during a “peaceful” economic boom. This is what happened during World War I (1914-1918).
The long road to the Great Depression of 1929-1940
We can trace the road that led to the Great Depression back to the mid-1890s. The rate of gold production increased significantly in the mid-1890s, following the discovery of gold in the Klondike. The surge gradually lost momentum as the new mines began to be depleted. After a relatively brief crisis in 1907, the global economy sank back into recession in 1913-14, only six years later.
As a result of the recession, global commodity prices began to slip. If World War I had not intervened, lower prices (in gold terms) would have stimulated gold production, leading to a new rise in the industrial cycle. The cycle would have proceeded along its normal course, and there would have been no “Great Depression.” But instead, World War I caused commodity prices to reach the highest levels in history when reckoned in the money material’s (gold’s) use value.
Gold production would have recovered if the 1913-14 global recession had been allowed to run its course. Instead, it tanked. The consequent surge in prices in gold terms occurred when commodity market prices were already above their production prices. By the time the rise in market prices had ended in 1920, the gap between the lofty level of market prices relative to the lower level of production prices was huge. The overproduction of non-money commodities relative to the special commodity that serves as money, prepared for the worst crisis of overproduction in history.
This crisis, however, could not occur immediately after the war because the war economy had hindered the rise in commodity production. The deflationary global recession of 1920-21 led to a sharp decline in prices. The problem was that the stock of commodities was exhausted before their market prices could fall back to their prices of production or below. Instead, the upswing that began in 1921 depended on an unusual degree on the expansion of credit. When the expansion of credit ran into the limit posed by the quantity of monetary material — the global gold shortage — the crisis of 1929 was the result.
When the Depression began in 1929, it gave rise to additional political and military crises, ultimately culminating in the bloodiest war in history, World War II, which ended in 1945 — the hour of global domination by the U.S. empire had struck.
To a lesser extent, the same thing occurred during the decade of the 1960s. The Vietnam-era inflation increased prices that were already above production prices. This led to stagnation and then a decline in gold production during the first half of the 1970s, intensifying the “stagflation crisis of the 1970s.”
The road to World War I
The crisis of 1914-1945 was preceded by the gradual decline of the British-dominated world order that had been in place since the end of the Napoleonic Wars, which culminated in Napoleon’s defeat at Waterloo in 1815. The root cause was the gradual weakening of Britain’s industrial monopoly that ended during the final third of the 19th century.
Particularly important in this process was Germany’s unification and industrialization, and of even greater importance, the rise of U.S. capitalism. By the end of the 19th century, the United States had replaced Britain as the leading industrial country. It took a decade or two before the political and military relationship caught up with the new economic facts. It did catch up, and the world was changed forever.
The world in 1945
Let’s jump ahead to 1945. All other industrial nations were severely damaged financially and/or physically by the slaughter, except the United States.
The socialist Soviet Union, the country that played the biggest role in destroying Nazi Germany, was severely damaged by the war. Its industry, despite the remarkable gains of the 1930s, was far short of the U.S. in terms of total industrial output and the productivity of labor.
The Republic of China, the most populous nation of the time, was going through its century of humiliation. It had very little industry, and its agricultural sector was based on small-scale peasant farming.
In the now financially, industrially, agriculturally, and militarily dominant United States, the normal process of capitalist expanded reproduction had been suspended for fifteen years, first by the Depression and then by the war economy.
The prolonged suspension of the normal process of expanded capitalist reproduction caused an accumulation of idle money capital. This gave the U.S. the ability to maintain a large military after the war economy ended in 1945, and the “American Century” was born.
The capitalist rulers were determined to maintain U.S. domination beyond a mere century (which would take us to 2045, just twenty years from now; this is being written in 2025), indeed forever, if they could. Just eighty years later, though it hasn’t yet fallen, the U.S. empire is in deep trouble.
The root cause of the decline is the erosion of the U.S. monopoly of labor productivity in industry and agriculture. The rapid recovery of capitalism after World War II was made possible by the accumulation of an enormous surplus money capital in the U.S., which was eager for the higher profit rates and interest available in Western Europe, where money capital was much scarcer. The Marshall Plan further accelerated the process.
In 1945, U.S. imperialism was primarily concerned with the fear of the spread of the Russian Revolution and the international Communist movement rather than the threat of economic competition from other capitalist nations. Thanks in no small measure to the military occupation and domination of Eastern Europe by the Soviet Red Army, the communist parties of Eastern Europe came to power and initiated the process of socialist construction. U.S. imperialism was determined to keep the communist parties out of power in Western Europe.
In the Western countries where large communist parties existed, they were kicked out of the coalitions (also known as popular front governments). Initial plans to deindustrialize (West) Germany were abandoned. The U.S. was more concerned about a possible united socialist Germany that might grow out of resistance to forced deindustrialization by a foreign occupier than they were about future capitalist competition from a resurgent capitalist (West) Germany.
The ruling U.S. capitalists had similar attitudes toward other European capitalist countries and defeated capitalist-imperialist Japan. In an era of overwhelming U.S. economic domination, economic competition among capitalist nations took a back seat to what U.S. Marxist Sam Marcy called the global class war between the capitalist and the working classes.
Commercial competition between capitalist countries was what World War I was all about and was a significant factor behind World War II, although in the latter case, there was also a class war war between the USSR and Nazi Germany. The war between the United States and the Japan-Germany Axis in World War II, in contrast, was a purely commercial war.
Between 1945 and 1985, world politics was dominated by the conflict between social systems, with the capitalist camp dominated by the United States and the socialist camp led by the Soviet Union. There emerged a “third world” of developing capitalist countries (with India being the most prominent example) that was able to use the USSR’s socialist camp to pressure the imperialist camp, creating better conditions for capitalism’s development in those countries.
During this period, weapons in the form of the atomic bomb (based on nuclear fission) and the hydrogen bomb (based on nuclear fusion) reached such a degree of destructiveness that it became doubtful that civilization would be able to survive if these weapons were used in a hot war. Before this, despite the unprecedented destruction of World War II, the basic survival of civilization had not yet been threatened.
Overproduction and capitalist crisis
Overproduction represents a phase of the industrial cycle. If it were permanent, it would render capitalism impossible. The downward phase of the industrial cycle prevents this by balancing periods of overproduction with those of underproduction. As we have seen throughout this blog, it is not by accident that once capitalism has developed to the point it had by 1825 as a result of what is called the industrial revolution that it can, in a short time, increase the rate of production of (non-monetary) commodities relative to the money commodity, a crisisgeneral relative overproduction breaks out.. However, external economic and political factors influence these crises.
Crises stop overproduction, allowing capitalism to survive. They begin with currency and credit crises and end with plunging production, employment, and world trade, the weight of which falls on the working class.
During these crises, many remaining small commodity producers, plus the weaker capitalists, go to the wall. The crises are overcome by the destruction of wealth in the form of overproduced commodities and the means of production used to produce them, on the one hand, and the accelerated production of money material on the other.
The accelerated production of money material is the result of the increased relative and absolute profitability of producing it. Recovery appears to be when the central bank lowers interest rates to stimulate the depressed economy, but is really the result of decreased commodity production combined with the increase in the production of money material. No specific overproduction crisis is, by itself, the final one, though there will be one historically as a result of the end of capitalism.
Each particular crisis solves the contradictions that led to it. With barriers to the expanded reproduction now temporarily removed by the preceding crisis, it is followed by a renewal of capitalist expanded reproduction during which the contradictions that led to the crisis are reproduced on an expanded scale, and ends in a new crisis.
Capitalist governments and central banks seek remedies by expanding credit, although in reality, this is a powerful element in the formation of a crisis. Without the modern credit system, the growth of the quantity of non-market commodities relative to money commodities could be solved gradually without crises. The rise of the modern credit system was a precondition for the crises. While further development of the credit system may seem to get society out of depression, it makes it possible for even greater crises to erupt in the future.
By postponing a crisis outbreak, the expansion of credit allows the production of non-money commodities measured by their price tags (given quantities of imaginary money material) to proceed even more before its collapse halts the overproduction.
Replacing convertible banknotes with inconvertible paper money to avoid collapse meant that the subsequent overproduction would provoke a monetary crisis, specifically inflation.
The crisis finally erupts when the central bank stops fighting the rise in interest rates, allowing the recession to unfold, which ends the currency crisis but ushers in a period of depressed production and trade, as well as mass unemployment.
When overproduction crises lead to depression (with mass unemployment and underemployment), governments are discredited. In U.S. history, if a major recession occurs during a president’s first term, there is usually no second term.
The capitalist political system strives to make the president or prime minister, and their party, appear responsible for any crisis that occurs during their tenure. This way, the anger and discontent that arise are drawn away from the capitalist economic system and its political system and onto individual politicians who can be replaced.
Examples from U.S. history include the 1893 economic crash, which occurred under President Grover Cleveland, discrediting the Democratic Party and leading to the Republican Party’s renewed dominance for a generation. Only the split in the Republican Party between William Howard Taft and his predecessor, Theodore Roosevelt, who ran for president on a third-party ticket, allowed the Democrat Woodrow Wilson to win the 1912 presidential election. Wilson was the only Democrat to hold the office of president between 1897 and the 1933 assumption of office of Franklin Roosevelt.
As a result of the 1929-33 super-crisis, Herbert Hoover was personally discredited, as was the Republican Party as a whole. It became a cliché in subsequent elections that Democrats were running against Herbert Hoover, much like an earlier generation of Republicans had run against Grover Cleveland.
From a ruling class perspective, it was better to blame an individual or a party than to blame the capitalist system as a whole. Democrat Cleveland could give way to Republican William McKinley, and Republican Hoover could give way to Democrat Roosevelt, while capitalism remained in place.
If an overproduction crisis is severe enough or if it interacts with other preexisting crises, class rule itself can be called into question. The classic example of this is early-1930s Germany. Due to a shortage of raw materials, Germany experienced an economic crisis – that was not a crisis of overproduction during World War I.
Germany’s defeat by the rival imperialist bloc (made up of Britain, France, and the United States) led to the formation of workers’ and soldiers’ soviets in Germany. This was a crisis of class rule in the form of the (aborted) German Revolution of 1918. It overthrew the Hohenzollern dynasty and replaced it with the formally more democratic Weimar Republic. In reality, as all the reactionary cops and judges remained, the German capitalist state survived with basically cosmetic changes.
Then came the 1923 French occupation of the Ruhr Valley, followed by hyperinflation and an abortive working-class insurrection, called by and then called off by the Communist International.
Adolf Hitler staged his own insurrection in the form of the abortive fascist “beer hall putsch” in 1923, modeled on Mussolini’s fascist “March on Rome” that brought the Italian fascist party to power the previous year. Until that time, Hitler and his small fascist party were considered a mostly Bavarian phenomenon, little known outside the area. While the putsch failed miserably, Hitler used his treason trial to transform himself into a national political figure.
Following the stabilization of the revived German Reichsmark, loan money flowed in from the United States, seeking higher interest rates, which helped stabilize the economic and political situation for a time. Both the revolutionary German Communist Party and the counterrevolutionary National Socialist German Workers’ Party (called Nazis by their enemies) receded to the margins of politics. The German Communists received around 10 percent of the vote during the 1924-29 Weimar period of “prosperity.”
Unemployment remained high compared to the pre-1914 years, as Germany was heavily in debt due to reparation obligations and the substantial borrowing required to reestablish its currency system following the disastrous hyperinflation of 1923. Between 1924 and 1929, German capitalist society was walking on financial, economic, and political eggshells.
Any new crisis was sure to destabilize the country. The new crisis arrived in 1929 in the form of a general commodity overproduction crisis.
Before then, Weimar Germany was muddling along, and it seemed it would continue to do so indefinitely. Before the brief period of Weimar prosperity, the chaos of the immediate post-World War I era led to clashes between the reactionary, proto-fascist Freikorps militias and militias associated with the nascent Communist and Social Democratic parties.
During the brief prosperity, Hitler consolidated the so-called National Socialists as a small fascist party complete with its own brown-shirt militia or stormtroopers. They received only a few percent of the votes in the 1928 election, being the smallest party with any representation in the Reichstag (the German parliament).
The Communist Party and its immediate predecessors were seen as serious contenders for power during the chaotic period between the end of the war in November 1918 and the stabilization of the German mark at the end of 1923. During the prosperity that followed, the majority of the working-class vote went to the conservative Social Democratic Party, which supported the Weimar Republic against any attempt to replace it with a right-wing dictatorship, a restored monarchy, or, especially, a communist government (the dictatorship of the proletariat).
That changed as the super-crisis of 1929-32 hit Germany with full force. German prosperity, such as it was, depended on a steady flow of loan money from the United States.
The U.S. stock market and, more importantly, its industrial production were booming in 1928. This surge proved to be overproduction. The German capitalist economy found itself in direct competition with Wall Street and U.S. capitalists for credit, which, on a global scale, was becoming increasingly scarce— a sure sign of an approaching crisis. By the second half of 1929, the recession had arrived, and in October 1929, the United States had its famous market crash.
The Smoot-Hawley tariff and the coming of Adolf Hitler to power
The first phase of the crisis, triggered the release of loan money from the stock market and the real economy, led to a decline in interest rates as the New York money market relaxed, causing the loan money to return to Germany. At this point, it looked like the usual every-ten-years or so recession until President Herbert Hoover signed the Smoot-Hawley Tariff in June 1930.
At that time, tariffs had to be passed by a majority of Congress and signed by the president before they could become law, unlike today, when Trump simply decrees tariffs by declaring fake “national emergencies.” Compared to today, this seems like relative sanity when presidents were not yet autocrats when it came to tariffs. (The issue of whether or not presidents can simply decree tariffs is now going through the courts and will almost certainly go before the Supreme Court.)
Despite the apparent prosperity of the 1920s, there were signs of an approaching crisis some years before it arrived in late 1929. In 1920-21, U.S. agriculture sank into depression. But automobiles affordable to the middle class and better-paid working class became available for the first time. Modern electric marvels, such as washing machines, also appeared — purchased mainly on credit.
Despite these new commodities, industry as a whole struggled to find expanding markets. There was widespread downward pressure on prices, especially those in agriculture. With the gold standard in place, dollar depreciation was out of the question; therefore, prices in gold terms and dollar terms were essentially the same, unlike today.
Today, the remarkable industrial and technological prowess of countries like China has, over a relatively very short historical period, significantly undermined the entire economic basis of the world order established in 1945.
It is sometimes stated that the U.S. produces nothing anymore. This is an exaggeration, as U.S. industrial production is currently estimated at 15.87% of the total worldwide, compared to around 50% in 1945. The U.S. empire that emerged from the 1914-45 crisis is not over, but it is steadily unraveling. The economic conditions that led to its rise have steadily eroded. We are now in a period closer to the earlier crisis of 1914-1945 than any time since 1945. The great unraveling has begun.
To be continued.
(1) In this context, manufacturing does not refer to general industrial production but the kind of manufacturing — hand production — that preceded the large-scale introduction of machinery operated first by steam engines and then by electric motors. Marx and Engels referred to modern industry as the large-scale use of steam-driven machinery that followed the period of manufacture proper. It began in late 18th-century Britain, and we refer to it today as the Industrial Revolution. (back)
(2) The competition between industrial capitalists leads to an ironic result: the communalization of capital. The capitalist is compelled to maximize profit to survive as a capitalist. This is why active capitalists (bosses) as individuals tend to be nasty people. Competition itself does not produce a single atom of surplus value; it merely redistributes it among the capitalists. This competition tends toward a state where all capitals earn equal profits in equal periods of time. Marx ironically referred to this as the communism of capital. (back)
(3) After Marx realized the distinction between labor and labor power, he found that while classical bourgeois economists were aware of surplus value, they didn’t distinguish between labor and labor power. They could not express it in a precise way, never gave surplus value an actual name, and just described it as rent or interest, which are actually separate fractions of the total. No one before Marx treated surplus value as an economic category (the most important one). He wrote “Theories of Surplus Value” on the history of political economy. (back)
(4) We assume all prices are equal to values. Under this assumption, the value of the money wage — a quantity of the use value of the money commodity — and the value of the “wage goods” the workers must consume to reproduce their labor power are identical. (back)
(5) We assume all commodities sell at their value or direct price. We don’t have to worry about the prices of production that equalize the profit rate among the different capitals when we examine surplus value. Bringing in production prices only gets in the way of explaining the essence of surplus value. (back)
(6) In the “Critique of the Gotha Program,” Marx describes the stages society will pass through once the working class seizes political power. He divides this period into three stages, which are often misunderstood. The first stage is the transition between capitalist and communist society (in this work, Marx does not use the term socialist society). During this transition, the class struggle continues, and the state is the dictatorship of the proletariat. The ruling working class must be careful that the capitalist class does not regain political power, or the transition will be aborted as happened in the Soviet Union and Eastern Europe.
The second stage is the first stage of communism. Classes disappear, but communism is still imperfect. Workers will be paid, with some qualifications, according to the quantity of work they perform, as is the case under capitalism.
Where many socialists over the decades have slipped up, though it is the same principle, as under commodity production, the law of value no longer operates. This point is crucial. The rule of the law of value has already ended, and the products of human labor are no longer commodities.. Since commodity production has already disappeared by this stage, labor power is no longer a commodity.
Since there is no commodity production, there is no money in the proper sense of the word, since, as we have seen before in this blog, the relationship of production is inconceivable without commodity production. However, the mode of distribution remains bourgeois: those who produce more receive more. Material incentives are still necessary.
This communism, with its bourgeois mode of distribution, is imperfect because the needs of individuals are not proportional to their ability to work. It is incorrect to say that under the first stage of communism, people work according to their ability and will be paid according to their work. Can it really be said that people who are forced by economic necessity to toil in the fields, factories, mines, and even in the offices are really working according to their true ability? Not at all. There will still be injustice, and to use Lenin’s terminology, the need for a “bourgeois state without the bourgeoisie,” which protects this injustice.
Humans will only be able to work according to their true abilities when the productivity of human labor has risen to such levels as will allow that — levels that cannot be achieved under capitalism because it strives not to economize labor as a whole but only to economize paid labor. Indeed, it does all it can to maximize unpaid labor (surplus value) by maximizing surplus (unpaid) labor. Only in the second higher stage of communism will individuals finally receive from society according to their needs and work according to their true ability. When this is achieved, labor will become people’s highest need, and not the painful “toil” it is today.
This is not the same thing as society paying people equally because people are not equal and have different needs. Even the radical demand of the revolutionary bourgeoisie for equality will now be left far behind, as will Lenin’s “bourgeois state without the bourgeoisie.” The progress in artificial intelligence and machine learning is increasing the chances that not only is full communism possible in a not-too-distant future, but as the history of production continues to unfold will become a necessity. (back)
A Critique of Crisis Theory