Hamas political leader Ismail Haniyeh was killed by an Israeli-planted explosive device on July 31 in Tehran, Iran. Haniyeh was in Iran to attend the inauguration of the new president, Masoud Pezeshkia. Haniyeh had been heavily involved in diplomatic activity for some kind of ceasefire to partially pause the Israeli genocide in Gaza. I say partially because disease, hunger, and thirst will continue to take a toll even when the bombing stops. His murder occurred just weeks after Netanyahu, addressing Congress, received standing ovations as tens of thousands of demonstrators flooded the streets of Washington, D.C., demanding Netanyahu’s arrest.
Haniyeh’s murder shows that the Zionist entity wants to keep on bombing, a campaign that’s killed tens of thousands of Palestinians — many women and children — as long as they can get away with it. They aim to kill as many Gazans as possible while forcing the remainder to leave Palestine.
As they did last April, after the Israeli attacks on Iran’s embassy in Syria, Tehran promised retaliatory attacks. Unlike April’s response of largely demonstrative attacks, this time, they’ve hinted the attacks will cause real damage to Israel. So far (as of August 18, 2024), there have been no attacks while the diplomatic activity continues.
The United States could halt the Israeli genocide anytime it wants to by cutting off military aid. The now lame duck president, Genocide Joe Biden, refuses to do this, claiming an imminent ceasefire. This has been going on for months. It’s hard to imagine any greater diplomatic provocation than literally murdering the lead negotiation partner of the other side.
Far from moving to halt or even slow down the genocide, the Biden administration has done the opposite. It’s been announced that it’s rushing an additional $20 billion in aid to Israel. U.S. ships are again on the move to defend Israel, and its armed forces do all they can to shoot down any missiles and drones that might be launched against Israel. Under these conditions, Netanyahu and other leaders of the Zionist entity see no reason even to slow down the pace of their genocide.
Many progressives are putting their hopes on Democratic presidential candidate and current vice-president Kamala Harris. It is rumored that Harris is more reasonable than Genocide Joe and will get rid of Biden’s Secretary of State, Anthony Blinken, and National Security adviser Jake Sullivan. In public, Harris has done nothing to differentiate herself from Biden.
How likely is it that a Harris — or a second Trump administration — will change policy in Palestine and West Asia in general? We can be sure that there will be no fundamental change as foreign policy is driven by class and commercial interests and not the personalities of particular presidents. Such interests don’t change with the coming and going of presidential administrations.
No matter how well-meaning, this is what non-Marxist progressives accept as they lack a class compass. They are easily fooled by the promises and sometimes mere hopes that the next president will be better. In this blog, I am interested in exploring the class and commercial interests that determine foreign policy, including the criminal decisions to create the Zionist entity in the wake of the holocaust against the European Jewish people after World War II.
Among the consequences of the economic laws governing the capitalist mode of production is that the U.S. government, representing the ruling capitalist class, cannot tolerate the emergence of a strong Arab or Iranian national state in West Asia or North Africa, even if that state is created on a capitalist basis.
This, not the power of the AIPAC lobby — though these gentlemen play a role that I may explore in a future post, I don’t have room here for that — or the personal Zionist convictions of Biden or any other individual politician — plays a decisive role.
To do this, we must explore the real economic laws that govern foreign policy — not make-believe economic laws such as the law of comparative advantage taught in university economic courses.
Because of these laws, the only way we can even limit the genocide in Gaza is through staying in the streets as long as necessary. This is the lesson of the struggle against the Vietnam War. Ultimately, this will not be enough: only a political and social revolution that brings the working class to political power will transform global capitalist production into communist production and eliminate the economic contradictions driving the criminal and genocidal foreign policy of the U.S. empire. There is no other way.
Current economic situation
Turning to the current economic situation, on August 5, a panic swept the world stock markets. It appears it was triggered by Japan’s central bank’s decision to push up interest rates. The Dow Jones Industrial Average dropped by more than a thousand points. A series of employment and industrial production statistics indicated the economy is slowing down.
The Purchasing Managers Index (measuring manufacturing activity) fell to 46.8% in July. Anything below a reading of 50 indicates declining manufacturing activity. Also, in July, official employment increased by only 114,000 jobs, while economists expected 175,000 to be added.
The reported 114,000 figure is likely an overestimate, particularly if a recession is beginning. This is due to the life and death of business estimates the Labor Department makes when it estimates monthly changes in unemployment. The official unemployment rate rose to 4.3%. This is higher than the “record low unemployment” pro-Democratic Party commentators are boasting about.
Another hint of a July recession is an unexpected weakness in exports of the leading industrial country, the People’s Republic of China. If the global capitalist economy is entering a recession, China’s exports would be expected to weaken. None of these figures is enough to prove a full-scale recession is underway — we will need more statistics over the next few months before we can be sure — but it is a possibility.
The recent strength in the dollar price of gold, which traded above $2500 in August, is another sign that a recession will occur in the not-distant future. Should a recession set in, the dollar price of gold will be expected to fall. But if the Federal Reserve System, in a last-ditch attempt to pull off a “soft landing,” lowers its target for Federal Funds too soon or too fast, gold would rise a lot further and a lot faster, unleashing a new wave of currency depreciation inflation. The Federal Reserve System will then have to tolerate a Federal Funds Rate well above its current level if it desires to save the dollar and avoid hyperinflation. Such a rise in the Federal Funds Rate could only end in a deep recession.
In the fourth quarter
Recessions tend to become obvious in the fourth quarter after conflicting figures during the third quarter. This is because business scrambles in the autumn to build up inventories for the Christmas season, putting extra pressure on the credit system. If a crisis is brewing, it tends to break out into the open during the fourth quarter. It’s too soon to know if this will be the pattern this year. Some on Wall Street fear it might be.
There are still hopes for a soft landing, therefore stock market bulls have not yet thrown in the towel, and by the end of the week of August 5, stocks largely recovered. Because of the extra pressure on the credit system during the fourth quarter, stock market crashes tend to occur in October. Is the storm on Wall Street over, or is it a sign of an approaching October stock market crash? The truth is that nobody knows for certain.
This year, there is another factor at play. The Party of Order forced Genocide Joe to drop out of the presidential race, having abandoned all hope for a second term. It is now going all out to get Kamala Harris and her running mate, Tim Walz, elected in November. Trump and his running mate, J.D. Vance, are being ridiculed in the media. The air of inevitability of a second Trump presidency that prevailed just weeks ago has completely dissipated. Polls are showing the Democratic Harris-Waltz ticket in the lead.
If a recession with mass layoffs hits and the stock market crashes just before the election (as happened in 2008), the tide could shift back to Trump and Vance. Such a scenario played a crucial role in the victory of Democrat Barack Obama over Republican John McCain in 2008.
Trump has indicated he is inclined to put the Federal Reserve System under the control of the White House, a step that could radically undermine confidence in the dollar. In contrast, Harris is true to her role as the Party of Order candidate and supports the Fed’s “independence.” This puts extra pressure on the Federal Reserve to take action, such as lowering its target for the Federal Funds rate at the next scheduled meeting of the Open Market Committee in September or earlier. This would be especially true if there is more panic selling on the stock market or any indication that the economy is spiraling into recession.
From the Fed’s viewpoint, the threat to dollar stability and the long-term economic stability of prematurely — before a recession is underway — lowering the target for Fed funds has to be balanced against problems that could arise for imperialism and its Party of Order, the dollar, and the Federal Reserve itself from a second Trump presidency.
This is particularly true in light of the war crises in West Asia currently centered on the Gaza genocide and around the Chinese but U.S.-controlled island of Taiwan. The threatening war crisis around Taiwan is driven by imperialism’s need to halt the further rise of China and the emerging commercial struggle for domination in the world’s semiconductor industry.
Over the next four years, the Party of Order wants a president it can trust with the authority to make tough decisions — such as going to war. Considering his previous performance in the White House, Trump does not meet the need. At the age of 78, if Trump is defeated in November, the Party of Order and the Federal Reserve won’t have to worry about him in the future. This puts pressure on the Federal Reserve to prematurely lower its target for Federal Funds in the coming weeks in a last-ditch attempt to stave off recession until after November 5, hoping that it will enable Harris and Walz to prevail in the election.
What is the stock market?
What is the significance of the stock market, and what role does it play in the current situation of threatening economic, political, and war crises? Why is there so much obsession with the stock market in the media and society as a whole? To understand it, we first must understand profit, which is the sole motive for capitalist production.
Profit is defined as the total surplus value realized in terms of the use value of the money commodity minus ground rent. (1) It is divided into two fractions: interest and the profit of enterprise. An active capitalist who works only with their own capital pockets both the interest and the profit of enterprise. If the capitalist class was made up only of active capitalists working with their own capital, there would be no division between the interest and the profit of enterprise, only between profit and ground rent.
In reality, under modern monopoly capitalism, most of the capitalist class is made up of the owners of securities consisting of stocks or bonds. Individuals own few large enterprises, but rather, they are owned by joint stock corporations. To simplify, most corporations issue two types of securities to raise additional capital: stocks and bonds. (2)
A bond owner has lent a sum of money to a corporation. The bond owner is entitled to a portion of the interest but is not entitled to the profit of enterprise. According to the law, bond owners must be fully paid off before any dividends can be paid to the stock owners. The bond owners must be paid first if a corporation fails and its assets are liquidated. As a rule, when a corporation fails, and its assets are liquidated, the bond owners receive some of their money back but the stockholders are wiped out. Stockholders take a greater risk than bondholders.
Assuming a corporation avoids bankruptcy, a bondholder is assured a steady income stream until the bond is paid off. Corporate bondholders are entitled to a portion of the surplus value in the form of regular interest payments. Compared to shareholders, they get rich relatively slowly. Bond prices rise when interest rates fall and fall when interest rates rise.
Assuming that periods of rising interest rates are offset by those of falling interest rates, the prices of corporate bonds don’t change much over time, as a rule. Unlike stockholders, bondholders do not expect dramatic increases in their bonds’ price. Bond purchasers are after a safe and predictable flow of income — surplus value — over time. The bond market does not generate the same excitement in the media as the stock market, though its movements are more indicative of the stage of the industrial cycle.
Stocks represent a share in the ownership of a business. Stockholders vote for the board of directors who supervise the management that runs the corporation on a day-to-day basis. Since the average stock owner has no idea of what the business is doing, they have little actual voice or interest in how the corporation is run or what type of commodities are produced as long as the dividends they receive rise progressively.
If a business performs poorly — few profits earned or dividends paid — the stockholder can sell the stock and buy another. Unlike bonds, where interest income is fixed throughout the life of the bond, dividends on stocks are expected to increase as the corporation’s capital expands. As long as dividends increase, stock prices on the stock exchanges should rise.
The increase in wealth represented by rising stock market prices can be realized in money form at any time by selling the stock through the mechanism of the stock exchange. As capital exploits ever greater numbers of workers and the rising mass of surplus value produced and realized in the form of profit is reinvested into the business, its stock price rises. An owner of corporate stock not only receives a dividend income — interest — but gains by the rise in the stock price — called capital gains.
Stockholders get richer quicker than bondholders, though they run a greater risk of losing their money. For those who want to get rich quickly — or for those who are already rich and want to get even richer quickly without working — the stock market is the way to go. For those who prefer a relatively secure flow of income without working, the bond market is the way to go. (3)
The obsession with the stock market in capitalist society reflects the desire to accumulate wealth without having to work for it even in the sense that an active capitalist who actually runs a business works. Therefore, upper-middle-class people who hope to rise into the capitalist class proper, like to invest in stocks. The stock market reflects both the greed for wealth bred by the capitalist mode of production and the ever-more parasitic nature of the aging capitalist system.
From the viewpoint of the stock owners — and these are the type of people that dominate the media — the stock market movements are the real show, while the real economy of production and work is merely a sideshow — a kind of necessary evil. As capitalism develops and then decays, the capitalist ruling class is increasingly made up of the owners of stocks who perform no other function in capitalist society besides the most basic one the capitalist mode of production requires. That is the private appropriation of an ever-increasing mass of surplus value produced by the unpaid labor the working class is forced to perform free of charge for the capitalist class.
When a corporation wants to build new factories, farms, mines, etc., or upgrade existing facilities but lacks sufficient money capital to do this out of its own resources, it borrows money from the banks or issues new corporate bonds. If it desires to purchase other corporations, it issues new corporate stock. This shows the purely parasitic nature of the stock market: it’s a vast system, not of circulating commodities, but rather mere legal titles of ownership.
In the long run, betting on a rising stock market is betting on an ever-rising flow of dividends. Dividends represent interest. Interest on a bond is on a fixed quantity of capital. Interest — dividends — on a stock is on a potentially expanding block of capital. As the price of a stock rises, its yield on the capital it represents falls unless the dividends are increased.
Unlike a bond, even a falling yield can be compensated by the rising quantity of capital the stock represents, which can be realized in money form simply by selling it through the mechanism provided by the stock exchange. Rising stock prices enable idle money capitalists who perform no entrepreneurial (or any other type) labor to appropriate a share of the profit of enterprise. This shows that the profit of enterprise is simply a privilege of the ownership of capital.
Though stocks are not actual commodities but mere legal titles of ownership, they circulate on the stock exchanges like commodities. And like commodities, stocks must be circulated using money. A rampaging bull market in stocks can draw money away from the circulation of real commodities. If stock prices suddenly decline — crash — it lowers interest rates because money is released from the stock market to circulate commodities. This expands the quantity of money available for the real economy.
After a crash, trading in stocks slows, as less money is necessary to circulate stocks because their prices are now lower. As long as a crash does not spread to the banking system — for example, if failing brokerage houses do not drag down banks — its effect temporarily reduces merger and acquisition activity but has little effect on the real economy. A crashing stock market might even stimulate business activity as it increases the money available to circulate commodities, lowering the interest rate. A crash does not necessarily mean an economic recession is imminent or even approaching. We have to distinguish between crashes internal to the stock market and crashes associated with crises of overproduction — recessions.
Stock market crashes strengthen currencies
Brokerages extend credit to their clients as prices rise and demand payment from them as prices fall. A stock market crisis, much like a crisis in the real economy, increases the demand for money as a means of payment. This strengthens the currency since indebted stock speculators betting on higher prices must suddenly raise cash to meet margin calls.
Since stock market speculators often also speculate in gold, they must sell gold to meet margin calls when there’s a crash. Crashes usually lower the currency (dollar) price of gold, relieving inflationary pressure. The result is that the Federal Reserve System can lower its target for the Federal Funds Rate after a stock market crash without leading to an inflationary surge in the dollar price of gold. More money is available to circulate commodities and interest rates fall reducing the chances of recession. A stock market crash tends to postpone a recession.
An example is the stock market crash of October 1987, which may have postponed a recession for about three years. There was also a huge stock market crash in 1962 that was not followed by a recession. Crashes can occur independently of recessions when speculation drives up the price of stocks so much that the dividend yield falls well below the yield on bonds. By sharply lowering the prices of stocks, the yield rises and is again in line with the yield on bonds.
However, the arrival of a recession usually comes with a stock market crash. When stocks crashed in August 2024 there was speculation that the Federal Reserve System would lower its target federal funds rate. Falling dollar gold prices accompanied this mini-crash, though stock market prices recovered a week later, and dollar gold prices rose to new records. While the chances of such a lowering of the Federal Funds Rate declined as both prices recovered, if the crash resumes in the coming weeks or months, the Federal Reserve System will move to lower the Federal Funds Rate. If a recession has not already begun by then, lowering federal funds would postpone the recession.
A crash is not bad for workers who own no corporate stocks and are not dependent on pensions heavily invested in the stock market. By postponing a recession and reducing the dangers of near-term inflation, a crash can provide more time to rebuild existing unions, create new ones, and defend the standard of living. Again we see the interests of the working class and the capitalist class diverge.
What determines stock market prices?
Over time, the price of a stock is determined by the stream of dividends paid out, divided by the interest rate on long-term bonds, a process called capitalization. At a given dividend, stock market prices rise when long-term interest falls and fall when long-term interest rates rise. Speculators are interested in rising or falling interest rates.
Rising rates are called “bearish” and falling rates are “bullish.” In addition to interest rates, stock market prices are determined by the size of dividends. Assuming the long-term interest rates remain stable, prices are driven by changes in dividends. As capital expands — as it must if the corporation is to survive — the dividends it pays out on a given quantity of stock increase. This causes its stock price to rise.
This introduces a speculative element into stock market prices. The bulls bet on interest rates falling and on profits and dividends rising. If corporate profits rise (it does outside of recessions), stock market prices will also rise. This reflects the corporations employing more workers, extracting more surplus value, and realizing it by selling the commodities they produce at prices near or well above the price of production.
In the long run, the prices of a successful corporation’s stocks move upward. It is easy for speculators eager to get rich quickly without working to convince themselves that corporate profits and dividends will increase faster than they can in reality, causing a mania and a bubble that crashes sooner or later.
One example was the so-called dot.com bubble of the 1990s. That was when the World Wide Web debuted, with a user-friendly graphical interface that works on top of the internet. This made the internet available for the first time to home computer users and soon after to owners of smartphones and other devices.
This revolutionary new technology in communications created expectations of profits far beyond what the laws governing the capitalist economy made possible. When this happens, stock market gurus arise who predict even higher prices. As long as the bubble continues, they are proven right.
Goldman Sachs’s Amy Joseph Cohen was one such guru. In addition to studying (bourgeois) economics she was also a student of computer technology. She was one of the first on Wall Street to grasp the potential of the new technology and she predicted fantastic rises in stock market prices for companies. Many companies with “dot.com” in their name that were not making any profits or paying a penny in dividends saw their stocks rise as speculators moved in. It became a cliché that there was a new economy where the old laws no longer applied.
More cautious experts expressed the opinion that stock market prices were getting out of hand. They warned that the Nasdaq’s stocks would soon fall. However, Cohen predicted that prices would be headed higher as the internet revolution was only beginning. She was proven right against the more cautious experts as prices rose. More people, including many in the middle class, invested in the stock market. The media hailed Cohen as a visionary and a genius.
As the stock market continued to climb, internet stocks lost all contact with the dividends (assuming any) being paid. Even if a company didn’t pay dividends now, Cohen and other bulls predicted they would pay fantastic dividends in the future as the new technology took hold.
In 2000 the bubble burst when the newborn internet industry fell into a deep recession. Dot.com companies failed right and left, and Cohen was thoroughly discredited. It turned out that the same economic laws that govern capitalism and the stock market applied to the new economy. Countless middle-class investors lost tons of money, even their life savings, after reaping huge paper profits that remained on paper. But the losses were all too real.
Bubbles tend to develop around new industries that generate expectations of growth rates that the laws that govern the capitalist system make impossible. This does not prevent experts like Cohen from making predictions of ever-higher prices until the market finally crashes.
In the 1920s, the new technologies were automobiles and radio, further back in the 19th century it was railroads and iron and steel companies. Today bullish experts are pointing to AI — artificial intelligence — referring to machine learning technologies. With every new technology — whether railroads and iron and steel in the 19th century, automobiles and radio in the 1920s, the internet in the 1990s, or AI today, it is explained the new technological revolutions means that we are in a new era or a new economy where the old rules no longer apply.
The new technologies may revolutionize society in many ways and help build the foundation of the future communist society that will follow capitalism. But the stock market bubbles that accompany them always end in crashes.
The stock market and the industrial cycle
Stock market crashes do not cause or trigger recessions. It is often said that the crisis of 1929-33 began with the stock market crash of October 1929. Economic statistics show a recession began in May-June 1929, months before the stock market finally crashed.
Workers were losing jobs to layoffs even as stock market prices rose, and the Amy Joseph Cohens of that time predicted that the prices would rise even higher. By September-October 1929, it could not be denied that the economy was rapidly sinking into deep recession.
The turnover of capital was slowing, and commodity prices were falling. The profits that fueled the long-term rise in stock prices were drying up. The sudden realization that expectations of higher dividends would not be realized, combined with the usual seasonal credit strains, finally caused the crash in October of that year. The crash didn’t cause the recession that developed into the Great Depression. That recession had already been unfolding for months.
The recession was caused not by the crash but by the overproduction of commodities relative to the money commodity — gold, or, put another way, relative to the ability of the market to absorb commodities at profitable prices. The crash merely reflected the deepening recession.
As an overproduction crisis approaches, stock market bulls claim that the Federal Reserve System is about to cut interest rates and that lower rates will mean that dividends will be capitalized at lower rates. The bulls insist there is little chance of recession because this time the Federal Reserve has learned the lessons of the past that will bring about a soft landing. Since recession will be avoided, dividends will continue to climb. If overproduction has not yet developed to the point that recession is inevitable in the immediate future — and we can only know for sure in retrospect — such bullish predictions will be proven true in the short term.
If overproduction has developed to the point that recession is inevitable, any attempt by the Federal Reserve System to reduce interest to head off recession at the last minute will whip the demand for gold into a frenzy. The dollar will drop sharply against gold, inflation will accelerate despite claims to the contrary. This will cause interest rates to rise to new heights.
Recession will be staved off for a short time at the price of a period of high inflation, and higher interest rates. The stock market will then crash — only a little later.
When a recession does arrive, sharply declining profits reflect the failure to realize — not produce — surplus value, leading to lower dividends. The stock market crashes despite the lower interest rates. The failure of the dividend stream to grow as expected means that even though the dividends are capitalized at lower interest rates, the reduction in the flow of dividends more than compensates for the dividends being capitalized at lower interest rates, especially if a large bubble in stock market prices preceded the recession.
As the recession liquidates overproduction, lower interest rates combined with prospects of higher profits and dividends — and a higher rate of surplus value caused by lower wages made possible by mass unemployment — cause stock market prices to rise.
The really rich and successful stock market operators don’t fall for the claims of the Amy Joseph Cohens. They know that once a recession has been underway for a while, it is the time to buy stocks. They are in a position to buy cheap from ruined middle-class speculators who were fooled by the false prophets during the preceding bull market. Then these already rich capitalists grow richer as prices recover and rise above previous highs. This happens because more workers throughout the world than ever are forced to produce surplus value for the capitalists. The expanding production of surplus value is what the stock market is all about.
Now, let’s return to what happened in the economy at the end of the 1970s and what lessons it has for us today.
Paul Volcker takes command of the Federal Reserve System
On August 6, 1979, Paul Volcker (1927-2019) assumed the office of chairman of the Federal Reserve Board of Governors, more commonly known as the Federal Reserve Board. The Federal Reserve Board is the government agency that controls the twelve regional Federal Reserve Banks. The most important of the twelve Federal Reserve Banks by far is the Federal Reserve Bank of New York. Before Volcker became chairman of the Federal Reserve Board he served as chairman of the Federal Reserve Bank of New York. He had been, in effect, number two in the central banking system, but then he became number one.
The Federal Reserve Banks, unlike central banks in most other capitalist countries, are not owned by the state but are owned by the commercial banks. But they are subject to the control of the Federal Reserve Board of Governors, a branch of the federal government. Few people understand this complicated and confusing system. The cumbersome setup is deeply rooted in U.S. history, which I don’t have the space to examine here, which convolutes and further mystifies what money and the dollar really are. This encourages all kinds of conspiracy theories.
Paul Volcker was a Democrat, which may come as a surprise to many people today who blame Volcker’s anti-inflation policies for throwing millions of workers out of work, and reducing the industrial belt of the United States into the “rust belt.” Volcker’s policies are more commonly associated with the Republican Party, not the Democratic Party. Historically, the Republican Party has been associated with “hard money” and the gold standard, while the Democratic Party has historically been associated with schemes to devalue the dollar. Notwithstanding this, Volcker was a Democrat. He was nominated for the chairmanship of the Federal Reserve System by Democratic President Jimmy Carter. Volcker served two terms as chairman of the Federal Reserve Board that ended in 1987.
When he headed the Federal Reserve System, Volcker was hated by labor unionists, small farmers, and business people. Wikipedia writes: “Volcker’s Federal Reserve board elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of high interest rates on the construction, farming, and industrial sectors, culminating in indebted farmers driving their tractors onto C Street NW in Washington, DC. and blockading the Eccles Building. Aggrieved home builders mailed the Fed pieces of 2×4 lumber in protest.” Yet among the large capitalists, he is hailed as the man who saved U.S. capitalism during one of the worst crises in its history.
Inflation, Volcker, and the dollar price of gold
As Volcker assumed office, the dollar price of gold was hovering around $300 an ounce. This seems cheap today, but it was only $35 nine years earlier. In the long run, the dollar price of gold will help set the nominal level of prices and wages but nothing else.
The term “price of gold” is actually incorrect. In the Marxist scientific sense, price is the exchange rate between a commodity and the money commodity. Assuming gold is the money commodity, a commodity price is the quantity of gold, measured in some unit of weight, necessary to purchase that commodity.
We don’t need physical gold to purchase the commodity, we need something representing it. Currency represents the money commodity, gold in circulation. The price of gold tells us how much gold the currency we carry around in our pockets or have in our bank accounts, represents at any given moment.
This is not a legal relationship — though in the past it was that, too — but an economic relationship. This economic relationship is one among people represented by a thing, a quantity of gold, represented by another, currency in circulation. How much gold a currency represents is measured by the exchange rate between the currency and gold, or the “price” of gold.
Under the dollar-dominated international monetary system, the dollar is the chief global currency. The price of gold is given in dollars: for example, $2,000 for an ounce of gold. This means the dollar in circulation represents 1/2000 of an ounce of gold. That is not very much; a single dollar buys little these days.
In the 1970s the government attempted to detach the dollar from gold and have it represent commodities as a whole without the mediation of gold or any particular commodity. However, for reasons exhaustively examined by Marx (in the first three chapters of “Capital”), these attempts are doomed to failure.
For example, if the dollar price of gold is $35 (as in 1970) while the price of a hamburger is 10 cents. We assume hamburgers sell at their value or direct price. This means 10 cents represents a weight of gold that takes the same quantity of labor to produce as it takes to produce a hamburger.
Let’s keep everything the same except the dollar price of gold. Suppose the dollar price of gold goes up over time from $35 to $350. The price of a hamburger will rise to $1. If gold rises from $350 to $3,500 over more time, the price of a hamburger would rise to $10, and if gold went up to $35,000, a hamburger would cost $100. (Then old people will tell young people, “When I was a kid you could buy a hamburger with only a ten dollar bill but now it takes a hundred dollars!”)
While long-term changes in prices reflect changes in the relative values of gold and commodities as well as how much gold a unit of currency represents, shorter-term changes reflect changes in supply and demand. If due to fashion changes, the demand for a commodity increases faster than production, the price will rise independently of changes in its value. That rise is temporary as, eventually, production will catch up with demand, and the price will drop again. Or a fashion change may cause a drop in demand, causing prices to fall. But that will also be temporary as production drops, prices return to their values, and supply and demand are brought back into balance.
In the real economy, the values of gold, commodities, and the quantity of gold a given unit of currency represents are not fixed, they constantly change. Even in the days of the gold standard when the currency price of gold remained constant, the prices of commodities in terms of gold fluctuated. The only fixed thing was the amount of gold represented by a currency. The relative values of gold and commodities were in constant flux, as they are today.
Long-term price changes reflected the relative value of commodities, gold, and the amount of gold that currencies represent. In the days of the gold and gold exchange standards, if certain commodities rose or fell over time, it was because their value was increasing or decreasing relative to gold. Gold itself is anything but fixed in terms of value.
The quantity of labor necessary to produce an ounce of gold — like all commodities — was and is constantly changing. The value of gold falls with the advances in science and technology. Since the quantity of gold, an element on the periodic table (Au), exists in limited amounts in the earth’s crust, and in the solar system, the value of gold rises with the depletion of existing mines and falls with the discovery of richer new mines.
It is possible to produce gold by bombarding heavy elements such as mercury with neutrons, though only tiny amounts can be produced this way. It takes far more human labor to produce gold from mercury than it takes to mine it from depleted mines or seawater, which contain minute quantities.
As a thought experiment, if we imagine the production of all the gold mines of the solar system were to fall to zero, we could still produce gold. Gold’s value — the quantity of labor necessary to produce a given quantity — would be far higher than it is at present. All other things remaining unchanged, the value of commodities would express themselves in prices measured in gold terms that are far lower than they are today. In reality, we can be confident that both the capitalist system and commodity production in general will be long gone before the gold mines of the solar system are exhausted.
Overall, we see that a rising dollar price of gold is inflationary. However, we don’t know how much so unless we account for the magnitude and the speed of changes in the value of gold relative to the change in the value of other commodities. As far as inflation is concerned it doesn’t matter what the dollar price of gold is at a particular time. What matters is its rate of change.
The dollar price of gold rising from $2000 to $4,000 over 25 years implies a modest inflation rate. If it rises from $2,000 to $4,000 over a month, this would mean runaway inflation. It is the rate of change that determines the inflationary impact of a rising dollar gold price, a rise of $5 was far more inflationary when the price was $35 than when the price was around $2000.
Central Bank monetary policy
Traditionally the Federal Reserve System and other central banks target interest rates. Over time, the target has varied.
Before World War I, the Bank of England — then the biggest in the world — intervened in the money market by setting the rate at which it (re)discounted commercial paper. If the Bank wanted to tighten the money market — or felt forced to tighten due to an outflow of gold — it would increase the rate. It would reduce its (re)discount rate if it wanted to ease it.
The discount rate was the rate of interest charged by the Bank of England. In its early years, the Federal Reserve in the process of taking the place of the Bank of England also used its (re)discount rate as the chief tool to to manipulate the money market. Today the Federal Reserve still has a rediscount rate that, as of August 2, 2024, was 5.5%.
Today the rediscount rate plays a secondary role in the Fed’s intervention. Because of the increase in the central government’s debt today, the Federal Reserve System trades Treasury bills as its chief method to intervene in the money market, called open market operations. The Open Market Committee sets targets for certain interest rates indirectly. Over the years, the interest rates it targets have varied.
The important thing is not the particular interest rate it targets. If it wants to lower interest rates, it increases purchases of government securities, if it wants to tighten the money market, it sells them. Since the 1980s, the Federal Reserve has targeted the rate of interest commercial banks charge on overnight loans they make to each other, called the Federal Funds Rate.
Despite the name, the Federal Funds Rate is not an interest rate the Fed charges. It’s the rate that commercial banks charge each other for overnight loans. The Fed eases the money market by increasing purchases of Treasury notes, lowering the Federal Funds Rate. If it wants to tighten the money market, it increases its sales of government debt, and this raises the Federal Funds Rate.
Normally the Federal Reserve has leeway on its targeted interest rate, but as the critical point of the industrial cycle nears, room to maneuver shrinks. At the critical stage under the present system of so-called fiat currency, if the Federal Reserve System tries to prevent the rate(s) from rising to achieve a soft landing (in accord with Keynes’ advice), the gold demand rises. This upward pressure is rooted in the production of commodities measured in their price tags, which increased faster than the amount of gold that exists.
In other words, there’s a general overproduction of commodities relative to the money commodity; gold is in short supply relative to other commodities. If the Federal Reserve restricts the creation of new dollars sufficiently, the gold demand will be diverted into demand for scarce dollars.
This prevents a rise in gold’s dollar price and prevents inflation. Still, it’s recessionary and a good thing from capitalism’s perspective — not the workers’ — as recessions correct the imbalance between gold production and that of other commodities. The production of the money commodity increases — and the production of non-money commodities declines. If the central banks try to avoid recession — a soft landing — but fail to restrict the quantity of dollars sufficiently to liquidate the overproduction, gold’s dollar price will rise quickly (or more accurately the quantity of gold represented by the dollar falls).
The world capitalist economy is now on the brink of a nasty recession. Gold will likely rise dramatically if the Federal Reserve moves to lower the target for Fed Funds before the world recession in underway. In the end, the Federal Reserve System will have to restrict the creation of new dollars to whatever extent is necessary to allow global overproduction to be liquidated. The result will be declining global industrial production, shrinking world trade, and soaring unemployment.
If the dollar falls sharply against gold and the dollar price of commodities rises, the quantity of dollars socially necessary to circulate commodities will rise. Assuming the quantity of dollars remains unchanged, this will lead to a growing shortage of dollars and interest rates will rise to new highs. This means that if the Federal Reserve System attempts to start a “cutting cycle” in interest rates before a recession that liquidates the overproduction is underway, the result will be that the cutting cycle will quickly be aborted,–assuming we have reached the critical stage of the industrial cycle. Interest rates will rise to new highs.
The hope for a “soft landing” is that we have not yet reached the critical stage of the industrial cycle and that by slowing the growth of production and employment now, the inevitable arrival of the critical stage of the industrial cycle can still be postponed for several years.
If overproduction has developed to a critical point, and the Federal Reserve fights rising interest by increasing new dollar creation, already high gold demand will be whipped into a frenzy. In terms of the use value of the money commodity, profits will turn negative (even though in terms of depreciating dollars, they will still be positive).
For practical capitalists, buying and holding gold calculated in dollars becomes more profitable than any other investment. Gold’s dollar price will keep on rising at an accelerated rate (measured by calculating the time it takes for the dollar price to change). The time it takes for the price to double (we can think of this as the half-life of the dollar) will shrink from years to months, then to weeks, days, and eventually hours. If the Federal Reserve falls into this inflation trap to prevent or slow the rise in interest rates, it will also have to accelerate the dollar creation rate to slow the rise in interest — this is the road to hyperinflation.
Since the dollar has been the center of the international monetary system since the end of World War I, its hyperinflation — unlike the hyperinflation of the German mark in 1923 — would bring down the entire global international monetary and credit system. In contrast, the total collapse of the German mark in 1923 did not cause a global economic crisis. (4)
It would be a different story for the dollar as it would spell the end of today’s financial foundation of the U.S. world empire.
Since the end of the Bretton Woods gold exchange standard in 1971, the Federal Reserve can allow the dollar to drop against gold to a certain point, but then it must reverse course and allow interest rates to rise to the level necessary to break the demand for gold and stabilize the dollar no matter how much unemployment it creates. The empire can allow secondary currencies to hyperinflate, not its primary currency.
Monetarism to the Rescue
Returning to 1979, to avoid a deadly inflation trap that would have brought down the entire financial foundation of the empire, the Federal Reserve had no choice but to allow interest rates to soar as the only way to break the unprecedented demand for gold. The result of utopian attempts to demonetize gold had the opposite effect of increasing demand for gold and undermined the Fed’s credibility.
A growing number of money capitalists worldwide feared this might lead to the hyperinflation of the dollar. To protect the value of their capital, they converted it into gold as fast as possible. Gold demand was feeding on itself and profits measured in terms of the use value of gold collapsed. This was the situation that Paul Volcker faced when he took command of the Federal Reserve System.
At this point, Milton Friedman’s monetarism came in handy. If the Fed abandoned targeting interest rates and instead focused on money quantity, interest rates could rise to whatever level needed to break gold demand and the danger of an empire ending hyperinflation. As the 1970s were ending, Keynes was dead and Milton Friedman was on top.
The root of the problem was that with the number of commodities and their golden prices in circulation, there was an insufficient quantity of gold in the world to circulate them. This resulted from years of the overproduction of commodities relative to the production of one special commodity, gold, the money material.
Was there a way out that did not involve a fall in production and increased unemployment? Yes: transition to a mode of production that acknowledged the socialized nature of production, to a planned socialist economy. This would abolish the commodity nature of the product and the need for the money material.
To achieve it would have required a political revolution, the transfer of political power from the capitalist minority to the working class majority, and a social revolution to end the private appropriation of the product of socialized production (that imposes the commodity form on the product).
Progressives who reject socialist revolution, or at least see it as unrealistic under the current circumstances, sought a compromise. They wanted to abolish money material — gold as money — while retaining all other features of capitalism. Abolish gold’s role in all national and international monetary systems. In its place would be a non-commodity entity created by national monetary authorities, the most important being the Federal Reserve System’s dollar, or some transnational institution such as the IMF’s SDRs.
Money would no longer be backed by one money commodity but by commodities as a whole. All commodities would equally be money. Without a particular money commodity, commodities as a whole cannot be overproduced, though some commodities can be overproduced relative to others. As long as there are adequate amounts of non-commodity money, there would be no crisis of general overproduction of commodities. The only problem? This is impossible under the system of capitalist generalized commodity production. Marx wrote an enormous amount of material explaining why this was a utopian attempt to dodge the need for a socialist revolution.
The theory was about to be tested in practice as Volker took over the Federal Reserve System. When he moved into his new office, gold was around $300. By year-end, only five months later, the price had risen to around $560. And it continued to climb: at one point in January it hit $875.
The half-life of the dollar had shrunk to less than 6 months. Not yet hyperinflation, but Volcker no longer had the luxury of pretending the dollar as non-commodity money idea was succeeding. As a representative of the capitalist class and world empire, he had no choice but to let interest rates rise to whatever level needed to break gold demand, no matter the effects on the production of real wealth, world trade, and employment.
When Volcker took office, the Federal Funds Rate was around 11.9%. As gold hit $875 in January 1980, the Fed Fund’s Rate rose to 14.10%. The interest rise was modest compared to the rise in gold’s dollar price. As the increase of dollar prices rose into the double digits, the real money supply measured in purchasing power was shrinking. This caused money to become tighter and drove up interest rates.
Unless the Federal Reserve increased the creation of new dollars — something Volcker refused to do — the rise in interest caused by rising inflation would at some point reduce gold demand and halt the rising inflation rate. Although high interest rates would reduce production and cause unemployment to rise, Volcker felt he had no choice.
While there have been many hyperinflations in capitalist history, none have ever hit the chief world reserve currency. One way or another the Volcker Fed had no alternative to halt the potentially disastrous situation where the half-life of the dollar had shrunk to a few months. However, the rise in interest rates necessary to break gold demand meant a deep economic recession.
On February 11, a few weeks after gold hit $875 — the all-time record until the 2007-2009 crisis— the Federal Funds Rate hit an unheard of 14.67%. With dollar prices rising in double digits, the quantity of dollars needed to circulate commodities also rose. Volcker refused to feed inflation by providing the needed dollars, causing a money famine, an interest rate spike, and a recession.
The interest rate spike showed that businesses were short of cash (dollars), causing the demand for dollars, which had previously been plunging, to increase suddenly. Capitalists who’d been buying gold to protect their money capital from burning away in the inflationary storm now sold gold for dollars to pay the debts coming due. By March the dollar gold price fell below $500.
The dollar was saved and the threat of hyperinflation was staved off — at the price of recession. Lagging behind events, the Carter administration authorized the Federal Reserve to impose controls on consumer credit. Banks were required to hold increased cash reserves behind the loans they granted consumers — and the sales of consumer items sold on credit tanked further, further accelerating the recession.
At the same time, the total “money supply” — which includes cash and checkable deposits created by banks — began to shrink quickly because loans were being repaid much faster than new ones were being issued. Official unemployment climbed to over 7%. Suddenly, the Volcker-led Federal Reserve System shifted from battling rising inflation just weeks before to confronting a deep recession and widespread unemployment.
To try to halt the recession, the Federal Reserve again changed direction. It accelerated new dollar creation. Credit controls were also abandoned. By June 30, the Federal Funds Rate had fallen to 9.61%. With the flow of credit restored, the economy began to revive, but the crisis was far from over.
Overproduction was not yet liquidated. Interest rates had fallen too far too fast. The dollar price of gold rose, and by early October it was again at $760. It seemed it might break through the record of $875 set in January 1980. The only way to stop it — and the renewed inflation increase that came with it — was to allow interest rates to rise to new heights. If they rose enough gold demand would drop, but the economic recovery beginning in mid-1980 would be doomed. This is what happened.
By May 1981, the Federal Fund’s rate reached 18.33%. The economic recovery that began in 1980 collapsed, and the recession resumed, lasting through the rest of 1981 and all of 1982. The aborted recovery of 1980-81 froze the official unemployment level at about 7.5%. When the recession resumed, the official rate of unemployment — as well as the actual one — resumed climbing, peaking in 1982 at 10.8%, the highest since the Great Depression, higher than the peak of unemployment of 2009. It was only exceeded by the unemployment created by the COVID shutdowns of 2020.
Lessons
In examining the economic crises of 1973-75 and 1979-82, we see the laws that limit Keynesian “stimulative measures” to only certain phases of the industrial cycle. Since gold remains money material and cannot be abolished as long as capitalist commodity production continues, the periods of overproduction of commodities relative to gold, the money material, are inevitable. Virtually all periods of capitalist prosperity turn out to be those of overproduction. Over time, the accumulation of real capital (means of production, raw and auxiliary materials, and number of workers exploited by capital or variable capital) must be accompanied by an accumulation of money capital in the form of money material. This is true as long as capitalism exists, whether with a gold standard or not. Any attempt to demonetize gold and replace it with any national currency, SDR, or any form of non-commodity money is doomed to failure. (5)
The value of commodities — as well as profit — must be measured in terms of the use value of the money commodity.
Production of the money material will be insufficient whenever market prices of commodities in general rise above their prices of production. Anwar Shaikh points out that prices of production are merely modified by direct prices ruled by the law of labor value.
Production prices are generally within about 10% of prices that directly reflect commodities’ labor value. When market prices rise above the production prices, they rise above the value of commodities. If prices are below the prices of production of commodities, below their value — gold will be overproduced relative to current demand.
The overproduction of gold makes capital accumulate in hoards within the banking system and causes low interest rates. Many Marxists and other economists in the years following the Great Depression saw this as a permanent feature of declining capitalism. But it’s actually a cyclical phenomenon that is reproduced on a greater and greater scale as capitalism grows and decays.
Unless some other factor such as lack of labor power or raw or auxiliary material (and if one type of raw material is in short supply substitutes can’t be found) through multiplier and accelerator effects, the accumulation of idle money capital causes a boom to develop. The boom raises market prices above production prices — and values — of commodities that at some point reproduce a shortage of the money material — and a new crisis.
As long as there is plenty of gold available the central banks can maintain low interest rates, and the government can run deficits with little effect on interest rates. Under these conditions, “Keynesian” economics works well.
Once a shortage of money capital in gold form develops the possibility of keeping interest rates low disappears. If they try to avoid this by creating a currency not backed by gold, demand for gold skyrockets. Then commodity prices in terms of the use value of gold decline, causing profits calculated in gold to disappear.
To everyday capitalists, hoarding gold appears more profitable than other types of investment. When this happens the demand for gold soars, rising faster than the mining and refining work. Inflation increases, and the central banks only stop it by raising interest rates. This happened during the crisis of 1973-1975 and more so during that of 1979-82.
Interest rate spikes are a necessity to reduce gold demand and end inflation. Once overproduction has reached a critical point, the capitalist economy requires recession to stabilize itself and restore the proper proportions between the accumulation of real and money capital.
The significance of the 1970s and early 1980s crises in the history of capitalism
Before the 1970s and 1980s, crises were blamed on the gold and gold exchange standards. Keynes did this in “General Theory of Employment, Interest and Money.” Crises were blamed on the need of the central banks to defend their gold reserves and maintain the convertibility of their currencies into gold at a fixed rate.
Since the restrictions on the central banks’ ability to create additional currency to fight crises involved legislation, it was argued that removing the legal restrictions would fix the problem. Wrong-headed bank legislation such as the British Bank Recharter Act of 1844 made crises worse than they had to be.
In the 1970s, all the legal restrictions mandating some relationship between gold reserves and currency creation were broken. For the first time, the economic laws that govern crises could be observed for a time unaffected by artificial legal restrictions on currency creation.
Once capitalism has reached a certain development stage, crises are necessary as only they can resolve sufficiently the contradictions built into the commodity foundations of the capitalist system to enable capitalism to continue. Above all, capitalism is a system of ever-increasing production of surplus value.
Not only must surplus value be produced in ever-increasing quantities measured in labor hours, but it must be realized on an ever-rising scale in terms of the use value of the money commodity — and the market for commodities must continue to expand. Without both the production of and the realization of surplus value there can be no profit and no capitalism.
Capitalism cannot settle for a certain level; it must produce more surplus today than it did in the past and will have to produce even more in the future. This can be accomplished to some extent by increasing the rate of exploitation, the proportion of the working day where work for the capitalists rises at the expense of the portion where the workers work for themselves. The ratio of unpaid labor must rise relative to the portion of paid labor.
There are limits on how high the rate of exploitation can rise. The laws of biology and physiology mean the working day cannot be extended much beyond sixteen hours (and there are only twenty-four hours in a day). This is not to mention the workers’ resistance to increasing exploitation.
The workers’ movement fought for and to a certain extent won shortening of the working day. The only way that capitalists can increase surplus value is by employing an ever greater number of workers. No matter how far mechanization proceeds, (including today’s wonders like machine learning and artificial intelligence), only living workers produce surplus value.
Here is an important, uniquely capitalist barrier to production. A future communist society will use mechanization combined with artificial intelligence to radically reduce the quantity of labor that the associated producers will have to perform to reproduce the communist society. Only in this way will the associated producers be able to free themselves of the need for mind-numbing toil, and true human liberation will be achieved.
Capitalism cannot achieve this as it’s a system of production for profit, where a class of surplus-value-appropriating capitalists exploits an ever greater number of workers. During times when capitalism is developing at full force — the boom phase of the industrial cycle — the demand for labor power exceeds the rate of growth of the population.
It takes many years before a newborn baby matures to the point it can produce surplus value. When it’s developing with full force, the expansion rate exceeds the rate at which humans can biologically reproduce.
If the accumulation of new capital reaches a point where the capitalists run out of new workers to exploit we have a situation that Marx called the absolute overproduction of capital. It becomes impossible for the capitalists to produce additional surplus value. Competition for additional workers reaches a point, that the rate of exploitation declines. Not only would they not be able to increase the rate of surplus value, they would not even be able to maintain the production of the existing quantity of surplus value.
Anwar Shaikh said that the economy suffered from such an absolute overproduction of capital in the 1970s, though the unemployment numbers do not support this view.
Among the lowest unemployment rates that have occurred since 1929 are 3.2% for the year 1929 itself; 1.2% in 1944, a year of war economy; 2.7% in 1952 a year of quasi-war economy during the Korean War; 3.5% in 1969, the lowest rate during the Vietnam War boom years. Just before the deep recession of 1973-75, which I examined last month, unemployment was 4.9%, above the 3.2% unemployment that prevailed at the beginning of the crisis of 1929-33. At the beginning of the crisis of 1979-82, unemployment was 6%. This hardly looks like a crisis of the absolute overproduction of capital.
These unemployment figures do not tell the whole story. They at best count only those actively looking for work. Many have reason to believe they will have little chance of finding work at any given time, so they are not actively looking and are not counted as unemployed. Also, these figures do not consider the hundreds of millions who cannot find work outside the United States. If capitalists were really running out of workers, they would open up national borders. A true absolute overproduction of capital is a worldwide phenomenon and has never been observed in the modern history of capitalism.
What prevents an absolute overproduction of capital from developing? It is the periodic relative general overproduction of commodities. To achieve absolute overproduction — barring a catastrophic decline in the working population caused by nuclear war, pandemic, or global famine, the quantity of money material had to grow relative to real capital to the extent that the law of the value of a commodity will not allow.
When prices as measured in terms of the use value of the money commodity fall below their production prices or values, the production of the money material accelerates. We saw that during the Great Depression, after the crises of the 1970s, and again after the crisis of 2007-09. The surge of the production of the money material relative to the accumulation of real capital causes interest rates to fall to very low levels, leading to a sudden expansion of the market and acceleration of the accumulation of real capital.
First the accumulation of the money material surges. Then after a lag, the market expands allowing the accumulation of real capital to accelerate. This has been a recurrent pattern throughout the history of modern capitalism.
As the accumulation of real capital accelerates, market prices measured in the use value of the money commodity start to rise and inevitably rise above the prices of production — values. Inevitably, the production of the money material lags behind the accumulation of real capital and overproduction develops. Eventually, after some time, the realization of surplus value in terms of the use value of the money commodity breaks down and a crisis of the relative overproduction of commodities breaks out.
This occurs long before a crisis of the absolute overproduction of capital can develop. Most of the real crises that mark the history of the capitalist mode of production involve the problem of realizing, not producing, surplus value. Crises of the realization of surplus value save the capitalists from the far more profound crisis of the production of surplus value. This is a fundamental law of motion of the capitalist mode of production. (6)
Next month we will examine how capitalism recovered from the 1970s crises and went back on the offensive.
(1) Under the capitalist system, surplus value gives rise to two primary forms of income: ground rent and profit. In addition to these two, surplus value gives rise to many forms of derivative incomes, such as the wages of the production of surplus-value workers. Taxes that form the basis of the salaries of employees and other dependents of the state — for example, those who live off the income of interest on government bonds — do not produce value and surplus value. Capitalists and landowners hire personal servants who perform personal services for them and are exploited but do not produce surplus value. These are the unproductive workers (of surplus value) of classical political economy that consume rather than produce surplus value. Their wages derive from the rents of the landlords and the profits of the capitalists who hire them. The most important group of unproductive of surplus value workers are soldiers who are state employees. They fight and die in the wars waged by the capitalist state. (back)
(2) Stocks are themselves divided into common and preferred stocks. Owners of preferred stocks must receive dividends before owners of common stocks. Preferred stocks carry lower risk than common stock and more risk than bonds. Only common stock owners can vote for the Board of Directors. In terms of risk, preferred stock is intermediate between bonds and common stocks. (back)
(3) Most large money capitalists balance risks and gains in their portfolios by owning both bonds and stocks. They invest part of their capital in stocks in hopes of a rapid expansion of their capital and invest another part in bonds as a hedge against a stock market crash. (back)
(4) At the end of 1923, after the hyperinflation of the mark was halted, interest rates were very high in Germany. Huge quantities of money loan capital in search of higher interest rates flowed from the U.S. into Germany. When the economic boom of 1928-29 developed, this flow of loan money capital began to slow as the surplus in the U.S. disappeared. After Herbert Hoover signed the Smoot-Hawley tariff into law in 1930, the flow collapsed, deepening the recession in both countries. The result was the rise of Adolf Hitler to power in 1933. (back)
(5) In theory, another commodity could replace gold as money. This would happen if a way was discovered to produce gold with little labor. The economic laws governing commodities, money, prices, and profit would remain the same. Only the commodity serving as money would change. (back)
(6) The COVID-19 pandemic that started in 2019 threatened to lead to mass deaths on a scale that could have brought on the crisis of an absolute overproduction of capital. This is why the capitalist state moved to shut down much of capitalist production — something never done before — to stamp out the deadly virus. (back)
A Critique of Crisis Theory