On Postone’s concept of the hollowing out of working society – XIX

August 1997: Speaker Newt Gingrich smiles as President Bill Clinton signs the balanced-budget agreement that ultimately sent the US national capital into its third depression in 90 years.


In my last post, I left you with this this chart:

The chart is a snapshot of the United States national capital up to the year 2000, the eve of the event that is today known as the bursting of the dotcom bubble.

It is also the eve of the third Great Depression in the last ninety years, although few observers realize this.

Most of the political events of that period don’t concern us except a very interesting conflict that began during the period from 1982 or so to 2000 as Washington struggled to constrain an uninterrupted series of federal budget deficits that began under the Reagan administration. This rather bizarre conflict may explain a lot of what happens over the next twenty years after 2000, until today.

I say a bizarre conflict over federal deficit spending, because there is at least one Marxist out there who, like me, thinks federal deficit spending has been at least a significant contributing factor to maintaining the rate of profit since 1971 and the collapse of the Bretton Woods agreement.

That Marxist, Peter Jones, has produced an interesting thought experiment that goes something like this:

Suppose, instead of taxing the rich, the federal government just borrowed what it needed to finance its operation from them. Essentially, the rich would keep their billions of dollars of assets, while the government would finance its spending largely by borrowing from them. For example, If the government wanted to finance tax cuts for the rich, it could just borrow the necessary cash from the rich to finance the tax cuts. With their new tax cuts, the rich and corporations could go on a spending spree, handing out bonuses to executives, dividends to shareholders, running buybacks to inflate share prices, bribing colleges to accept their snotty privileged rugrats, etc. Profits would swell, although no new surplus value was being created anywhere.

[NOTE: Modern money theory argues that the state would not even have to borrow the cash from the rich to do this. As the sovereign issuer of currency, it could just create the currency on a computer terminal and mail out tax cuts to the rich to force the currency into circulation that way. But I will stick to Jones’ example. — Jehu]

Jones argues that this method of financing government expenditures has big implications for labor theory:

The important point here is that this could be a real effect of a shift towards deficit financing. But it is not one that Marx’s law is designed to explain. In the example above, there is no change in either the socially necessary labour time performed by productive workers, productive workers’ consumption (or their wages), or the expenditure of surplus value by any sector. So there is no change in the production or distribution of value. Nor is there any change in the rate of growth. But this measure of the rate of profit nevertheless increases, along with dividends.

To paraphrase, Jones warns that this sort of deficit spending by the state makes it appear the state can basically “create money out of nothing”, i.e., to spend surplus value as revenue without producing it or deducting it from the profits of capital or indirectly squeezing it from the wages of the working class. This creates the illusion that government borrowing itself can create or add to the mass of surplus value or profits.

While I completely disagree with the part about Marx’s law being able to explain this and intend to show the opposite, I think Peter Jones is on to something very important here. What Jones is pointing to fits neatly in with Postone’s argument on the hollowing out of working society.

I love that picture of Gingrich and Clinton at the top of this post, because it confirms Jones argument beyond the fondest wishes of any Marxist economist. If deficits are being used to prop up the rate of profit, a Marxist economist might ask, what would happen if the deficits went away?

Jones might argue that the rate of profit would fall. And the orthodox response to that suggestion would be that if the rate of profit fell, this would produce a huge crisis — an economic contraction, a depression.

So is Jones right about deficits and the rate of profit?

The Clinton-Gingrich deal in 1997 answered that question pretty conclusively.

Even before the deal was finally signed, the dollar began to strengthen and the Asia crisis exploded.

The contagion swept Thailand, Indonesia, South Korea, Philippines, Mainland China, Hong Kong, Malaysia, Mongolia, Singapore and Japan, because many of these countries had pegged their currencies to the dollar.

The next round of currency crises hit Russia, Brazil and Argentina.

And when a currency crisis hit Russia, it helped bring down Long-Term Capital Management, a hedge fund run by a couple of Nobel laureate simpletons, who decided to put their vast knowledge of economics to work feathering their nests and in the process almost caused the collapse of the entire U.S. financial system.

Then the chickens came home to roost, when the dotcom bubble burst.

By 2002, the Federal Reserve and just about everyone else was talking about imminent deflation and the zero lower bound on monetary policy.

The Clinton-Gingrich deal and its aftermath confirmed that not only are the fascists using deficit spending to prop up the rate of profit, as the charts below shows, when the fascists finally got second thoughts about the implications of this behavior and tried to balance the budget, as during the Clinton administration …

… the United States national capital almost immediately rolled over like a sinking garbage scow into the third depression in the last 90 years — a depression that has, so far, lasted 20 years:

Oh, you didn’t know we have been in a depression since 2000?

It’s not just you. A lot of dumb Marxists, like Andrew Kliman, have been arguing on behalf of the role of the falling rate of profit in crises and don’t realize we have been in a depression for precisely this reason for two decades. You are a member of a very big club.

Who knew it was as easy to fool poor dumb Marxists with valueless currency as it was to fool poor, historically doomed dirt farmers — even in the middle of a depression that has lasted two decades now?

On Postone’s concept of the hollowing out of working society – XVIII

So let’s get some tedious chart stuff out of the way. Once we do this I can return to the subject at hand; namely, Postone’s concept of the hollowing out of working society.

In my last post, I left you with this chart, so let’s begin there:

The chart shows the run up to one of the least understood events of the 20th century, the depression of the 1970s. What makes the depression difficult to understand is that it doesn’t take the form most people expect it to take. The depression wasn’t characterized by mass unemployment like the Great Depression of the 1930s. As the above chart demonstrates, instead there was an immense swelling of the expenditure of superfluous labor time in the United States economy.

This is important to understand, because it was the malignant expansion of superfluous labor time in the 1970s that gave the depression its peculiar inflationary character.

Stripping away the layer of superfluous labor time on the chart, allows us to see some of the critical landmarks in the development of the mode of production; landmarks which are not evident if we confine our analysis to the level of state issued currency data.

Having established that I can at least make an argument for the validity of the empirical data I am using, I now want to extend this data further to include the period from 1980 to 2000 as in the chart below:

Here now, I include the period of the so-called Great Stagflation, i.e., the second Great Depression of the 20th century, which, as far as I know, is acknowledged by no authority, either officially or unofficially, but which plainly appears in commodity money measures of United States gross domestic product in the historical record. Also appearing in this chart is the subsequent expansion from 1981 to 2000, that is far from stable, but which eventually exceeds the previous peak reached in 1970.

Let me point out a few things you won’t find, if you stick to the government data that is based on state issued dollar currency:

Chart 1
Chart 1: The foot print of the recession of 1973-1975 in the historical record

In chart 1, that odd protuberance in the middle of the 1970s depression is actually formed by the so-called “oil shock recession of 1973-1975”. Now you might ask yourself why a recession results in an increase in the production of socially necessary labor time? I don’t have an answer at this point in this discussion. All I can say is that this recession followed the second largest stock crash since the Great Depression. The largest crash was in 2008.

Not surprising, when stated in valueless state issued dollar currency, United States gross domestic product, year over year, shows no evidence that this event ever occurred.

Chart 2
Chart 2: The Volcker shock (double-dip) recession and the end of the Second Great Depression of the 20th Century.

In chart 2, the second great depression of the 20th century ends with a double-dip recession when then Chairman of the Federal Reserve Bank, Paul Volcker, raised the monetary policy interest rate, ultimately to 20%, in an effort to extinguish inflation that was then running at nearly 15%. Again, why did this recession, one of the worst in post-war history, result in an increase in the production of value? Again, I don’t have an answer at this point in the discussion.

Not surprising, in this case as well, when stated in valueless state issued dollar currency, United States gross domestic product, year over year, shows no evidence that this event ever occurred either.

Chart 3
Chart 3: That day the Earth stood still, but traders shit their pants, aka, “Black Monday”

In chart 3, we have October 19, 1987. It was a day that began like any other Monday. Before it ended, it had acquired the infamous tag, “Black Monday”. As the trading day crossed the international dateline and opened in Australia and New Zealand, this tag morphed into “Black Tuesday”.

So it goes.

The chart above suggest that Black Monday began long before that Monday in October. There is clear evidence that GDP measured in gold plateaued between 1984 and 1985 and then fell in 1986 and again in 1987. The culprit in this case may have been two measures designed to contain the growing Reagan-era budget deficits: Gramm–Rudman–Hollings Balanced Budget and Emergency Deficit Control Act of 1985 and the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987. Together these measures are known as Gramm-Rudman. Which is to say, the market crash on Black Monday likely began as an attempt to control the federal deficit — a side-effect we will see again later on a much larger scale.

For the third time, it is not surprising that when stated in valueless state issued dollar currency, United States gross domestic product, year over year, shows no evidence that this event ever occurred either.

Chart 4
Chart 4: There was a brief recession from July 1990 to March 1991, but this was accompanied by a real falling off in the production of value for the period 1990-1992.

In chart 4, we have the fourth and final event: a real drop in the expenditure of socially necessary labor time from 1990 through 1992. The culprit again appears to be an attempt to contain the budget deficit through a measure known as the Budget Enforcement Act of 1990. According to Wikipedia, roughly $500 billion in savings was achieved over five years through a combination of spending cuts and tax increases. As can be seen, the effect on the production of value was almost immediate, with socially necessary labor time contracting.

Needless to say, as with all the other events above, when stated in valueless state issued dollar currency, United States gross domestic product, year over year, shows no evidence that this event ever occurred either.


But all of the charts above at trivial. I mean, they are important to me, because I actually care about labor theory of value. Most people don’t care about it and I can understand that.

In any case, the most amazing thing about the above charts is that when I set all of those developments against the change in the valueless state issued dollar currency measure of United States gross domestic product, you can see how those changes are almost imperceptible against the truly monstrous explosion of superfluous labor time since 1971:

Chart 5
Chart 5: Depression? What depression?

The historical data based on commodity money is literally buried in an ever growing mountain of expenditures of empty labor time, of labor time that creates no value. By 2000, the labor time that is socially necessary for the production of material wealth, as measured in a commodity money, has increased perhaps 33% — again, it forms that thin sliver of gold at the very bottom of the chart — while the actual labor time expended, as measured in state issued currency, has increased 955%, and was going parabolic by 2000.

The tedious part is over.

Let’s get back to Postone’s argument.

On Postone’s concept of the hollowing out of working society – Second Interlude

If the Great Depression of the 1930s signaled the collapse of production based on exchange value, as I have argued here, it also signaled the short-lived era of the state as manager of the national capital. This era, like the collapse of production based on exchange value that preceded it, had been predicted by Marx and Engels fifty years before it occurred, in 1880.

Here I quote the most significant of their insights on this subject from Socialism, Utopian and Scientific:

In these crises, the contradiction between socialized production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange. (My emphasis.)

This rebellion leads to the further socialization of the management of the accumulation process:

This rebellion of the productive forces, as they grow more and more powerful, against their quality as capital, this stronger and stronger command that their social character shall be recognized, forces the capital class itself to treat them more and more as social productive forces, so far as this is possible under capitalist conditions. The period of industrial high pressure, with its unbounded inflation of credit, not less than the crash itself, by the collapse of great capitalist establishments, tends to bring about that form of the socialization of great masses of the means of production which we meet with in the different kinds of joint-stock companies. Many of these means of production and of distribution are, from the outset, so colossal that, like the railways, they exclude all other forms of capitalistic expansion. At a further stage of evolution, this form also becomes insufficient. The producers on a large scale in a particular branch of an industry in a particular country unite in a “Trust”, a union for the purpose of regulating production. They determine the total amount to be produced, parcel it out among themselves, and thus enforce the selling price fixed beforehand. But trusts of this kind, as soon as business becomes bad, are generally liable to break up, and on this very account compel a yet greater concentration of association. The whole of a particular industry is turned into one gigantic joint-stock company; internal competition gives place to the internal monopoly of this one company.

And, ultimately, to the state itself being forced to take control of this process:

In any case, with trusts or without, the official representative of capitalist society — the state — will ultimately have to undertake the direction of production. This necessity for conversion into State property is felt first in the great institutions for intercourse and communication — the post office, the telegraphs, the railways.

In a footnote to this passage, Marx and Engels make clear that they were only talking about a situation where the state was forced by economic circumstances to assume this new role; thrust upon it, because capitalist accumulation would have outgrown every form of private management. This step would be economically inevitable, even if accomplished by the bourgeois state, and would mark an economic advance toward communism.

In other words (and putting this in terms that might be understood by our bonehead Marxists), at some point in the development of the forces of social production, there would be no alternative to some form of social management of the economy. If the proletarians were unable to take power, for whatever reason, the existing state would still find it necessary to assume this role. This assumption of economic management of the national capital by the existing state would not be “socialism’; just the opposite: the state would actually become the national capitalist:

“The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over.”

This brings us to 1980, 100 years after the publication of Socialism, Utopian and Scientific. If, in that short pamphlet, Marx and Engels predicted that there would be no alternative to the state assuming the role of the national capitalist, 1980 seems to point to the watershed period when “There is no alternative.” comes to symbolize the beginning of what many, dumb Marxists among them, mistook to be a historical regression:

The toppling over of the state-manage national capital.

So, let’s continue.

On Postone’s concept of the hollowing out of working society – XVII

As I wrote in the previous post, in volume 3 Marx seems to suggest that, by combining the growing mass of excess capital with the growing surplus population of workers, after production based on exchange value had finally collapsed, Keynesian programs like FDR’s New Deal and Johnson’s war of aggression could, at least in theory, increase the mass of surplus value produced by the total national capital of a country.

But Marx also warned this effort to extend the shelf-life of capital would only succeed at the cost of further intensifying the contradiction between the conditions under which the additional surplus value was produced and the conditions under which it was realized. The result of such a strategy, which necessarily involves extra-economic intervention by the state, would be to increase the real productive power of social labor, even as the real consumption power of society was further narrowed.

Accumulation would accelerate, as would the expansion of the national capital, to produce additional surplus value on an extended scale. The policies we now refer to as Keynesian deficit spending stimulus would not solve the problem of absolute overaccumulation of capital, but actually exacerbate it. It is probably not hyperbole to state that crisis would become a permanent feature of the mode of production.

But, and this is what seems to get lost in a lot of the analysis that takes place particularly after 1971, this is a crisis of a peculiar sort: it is a crisis where the so-called economy paradoxically is stuck in a permanent state of overdrive, or hyper-accumulation of excess capital.

To illustrate what I mean, let’s start with the chart we used in the previous post:

What follows here is not going to be pretty; in fact, you may find it hard to accept.

Don’t be concerned, lots of Americans don’t accept the idea of evolution, yet they eat bananas and climb trees just like their evolutionary ancestors.


Now, let’s strip off the layer of superfluous labor time, to leave only the underlying socially necessary labor time:

This gives us an idea of the trajectory of capital during what is fondly remembered as the golden age of the social welfare state — the period from the end of World War II to about 1971.

Is this a credible picture of what is taking place in the so-called economy at the time?

Well, let’s check.

One way to double check that we are actually seeing real useful information and not just useless noise might be if we can detect events that previously were not readily evident to us using traditional historical empirical datasets. For this reason, I want to bring your attention to the two weird notches in the chart above that I have highlighted in the chart below:

Interestingly, those notches coincide with dates NBER researchers have identified as the effective beginning and end of full convertibility of currencies under the Bretton Woods fixed exchange system that was initially established in 1944. Most writing on the Bretton Woods system point to the 1944 date, but NBER researchers focus on 1959-1968 because this was the period of full convertibility. The dataset I am using, based on actual commodity money, indicates that a monetary disturbance of some sort actually took place during those time periods. After 1968, according to the NBER researchers, the Bretton Woods system effectively collapsed into a chronic dollar currency crisis, and the United States gave up trying to manage the crisis altogether in 1971. In this chart, those dates stand out like twin beacons, as does the date Nixon effectively ended US participation.

We capture all three dates on this one chart:

Once Nixon ends effective US participation in Bretton Woods, the value of United States gross domestic product, as measured in gold, falls off the cliff, producing the crisis of the 1970s that most radical Leftists and Marxists agree happened, but which cause they have mostly never been able to explain.


Radical and Marxist economists are unable to explain the crisis, because, according to official data, it never happened. Yes, there were some pretty bad recessions. And an oil shock or two. And a lot of inflation. But these folks mean more than just that.

They want to say there was a crisis, like the Great Depression was a crisis. Only, between 1971 and 1980, with the end of the dollar peg to gold, when the so-called U.S. economy slumped into a deep depression, there was no replay of the Great Depression in terms of massive unemployment of the working class. Paradoxically, superfluous labor time, rather than being shed, and converted into mass unemployment of the Great Depression type, simply expanded to monstrous proportions.

Another way to say this is that the existing US national capital was temporarily devalued to a fraction of the value it had prior to the crisis — roughly 17.4% of its former value, or about 3.4% of the total labor day. At the same time, the portion of the labor day that was superfluous to the production of value expanded to 96.6% of the working day by 1980.

And no one can explain how or why this happened; and they couldn’t even explain what had happened, because, in currency terms, nothing of what was happening appeared in official government data!


The collapse of Bretton Woods is a critical watershed moment because, unlike with FDR’s devaluation in 1933, once it is gone there is no practical limit on the portion of the total working day that can be superfluous to the production of exchange value. By 1980, the working day in the United States was almost entirely hollowed out, emptied of exchange value producing labor.