The deepening crisis of capitalism, part 1

Labor theory of value, gold, credit money, inflation

The value of Marxism depends on its scientific character. And when we use the term “Marxism,” we refer to the theoretical legacy available to us in the writings of Marx, Engels, Lenin, Trotsky, and others who continued and expanded their work as they pursued the same historic task. We leave out of consideration the writings of those so-called “Marxists,” who distinguished themselves by their use of Marx’s writings (with varying degrees of scientific integrity) to earn a living.

At Marx’s funeral, Engels spoke, saying,

“For Marx was before all else a revolutionist. His real mission in life was to contribute, in one way or another, to the overthrow of capitalist society and of the state institutions which it had brought into being, to contribute to the liberation of the modern proletariat, which he was the first to make conscious of its own position and its needs, conscious of the conditions of its emancipation.”

Those who try to follow Marx’s example as revolutionists devote time and attention to promoting the cause of working people, as these laboring masses increase and improve their resistance to capitalist exploitation. As workers fight to defend their rights and standard of living amid the deteriorating working and living conditions resulting from the deepening capitalist crisis of the early 21^st century, their interest in what can be done to improve their circumstances continues to grow. They seek to learn more about why capitalism at this time in history seems to be weakening or failing, and what can be done about it.

But of course, workers are not the only ones interested in the declining conditions of production and commerce. The families of the billionaire ruling class, as well as their lobbyists, lawyers, bookkeepers, and other helpers in the privileged middle class, are also quite fascinated by what’s happening with the economy and how to deal with it. Needless to say, as their preoccupations regarding the sagging economy, and the financial superstructure that precariously depends upon it, the more these privileged layers become convinced that the economy is on a downward trajectory, and the more they believe drastic measures are needed to deal with it. In addition, they are hearing rumblings among the lower-income orders that seem to pose threats to their property and privileges. The capitalist families, keenly aware of their existence as a tiny minority class in a country populated by gigantic masses of proletarian families, fear that these masses still have the right to vote and that this poses a grave danger for them.

The major item that now seems to them the most urgent on their list of worries is the phenomenal rise of the U.S. national debt. Given the prominent attention paid to this ever-rising debt, and the failure of the political system to slow its growth, perhaps we should begin with a look at what this might mean. Here we start with the analysis of Marx on the question of the “national debt,” relying on the supposition that Marx had a good understanding of the issue. Marx claimed:

“The accumulation of the capital of the national debt has been revealed to mean merely an increase in a class of state creditors, who have the privilege of a firm claim upon a certain portion of the tax revenue. With these facts, whereby even an accumulation of debts may appear as an accumulation of capital, the height of distortion taking place in the credit system becomes apparent. These promissory notes, which are issued for the originally loaned capital long since spent, these paper duplicates of consumed capital, serve for their owners as capital to the degree that they are saleable commodities and may, therefore, be reconverted into capital.”
— MECW, Vol. 37, p. 475

The “state creditors” in the United States and internationally are those investors to whom we usually refer as “bond holders,” i.e., those persons who count among their assets treasury bonds, bills, and notes, denominated in U.S. dollars. If we say that the U.S. federal debt amounts to $36 trillion, what we mean is that the U.S. government has borrowed this quantity of dollars from investors, whether they be individuals, corporations, or other institutions. And each of the dollars borrowed represents a “promise” to pay that dollar back to the lender.

Here, the word “promise” appears in quotes because, due to changing circumstances, these “dollars” have long since become unrepayable. And the word “dollars” also appears in quotes because the U.S. currency over time has been transformed from a representative of value to a token which no longer serves as value, but remains as a useful means of payment. While the U.S. government guarantees the dollar to be “legal tender for all debts public and private,” it is perfectly valid for purchasing anything that has a price tag in U.S. dollars. You can even buy silver and gold coins or bullion with your dollars, even though the U.S. dollar itself is not backed by any precious metal. The U.S. dollar — like all the major currencies of the world — is a “fiat currency.” The government is the issuer of the currency, but it no longer promises to give gold or silver for the paper dollars it has printed and distributed. However, within any country or region where the dollar is legal tender, it can be exchanged for commodities, or travelers’ checks, or deposited in banks. And, of course, any national currency can be exchanged for the currencies issued by other sovereign nations by utilizing various banks which provide these services. And the rate of exchange between any two national currencies is determined by the laws of supply and demand.

But paper money has not always existed in Western societies. Metallic coins, stamped with a sovereign symbol (to attest to their validity as containing a specified weight of the requisite metal), were developed in ancient societies in order to represent value in exchange, as well as providing a form for the long-term storage of wealth. Earlier, Marx had discussed the origin of paper money:

“With the development of commerce and of the capitalist mode of production, which produces solely with an eye to circulation, this natural basis of the credit system is extended, generalised, and worked out. Money serves here, by and large, merely as a means of payment, i.e., commodities are not sold for money, but for a written promise to pay for them at a certain date. For brevity’s sake, we may put all these promissory notes under the general head of bills of exchange. Such bills of exchange, in their turn, circulate as means of payment until the day on which they fall due; and they form the actual commercial money. Inasmuch as they ultimately neutralise one another through the balancing of claims and debts, they act absolutely as money, although there is no eventual transformation into actual money. Just as these mutual advances of producers and merchants make up the real foundation of credit, so does the instrument of their circulation, the bill of exchange, form the basis of credit money proper, of banknotes, etc. These do not rest upon the circulation of money, be it metallic or government-issued paper money, but rather upon the circulation of bills of exchange.”
—Capital, Vol. III, Chapter XX

Once we see how a paper token or certificate can guarantee payment for a given quantity of commodities, we see how useful credit money is. Instead of carrying weighty gold or silver through the streets, exposing oneself to thieves, the paper token will suffice. Thieves had no use for paper certificates in those early days. But then, the question that is posed for those involved in purchase and sale is the question of relative quantities: “how much of this is worth how much of that?” It comes down to value as quantity, and this can be expressed in gold, silver, or paper tokens, which are recognized as representing specific quantities of precious metal. As bills of exchange developed in early modern commerce, they were always a paper substitute for a given amount of exchangeable value, i.e., an amount of gold or silver as measured by its weight.

The measure of value in exchange is, of course, labor time. William Petty (1623–1687), whom Marx referred to as “the father of political economy” (Capital, Vol. I, Chap. 10), in his Treatise of Taxes and Contributions, developed a means of measuring the value of one commodity by comparing it to another commodity, while noting the fact that both commodities were the product of human labor. Petty argued,

“If a man can bring to London an ounce of Silver out of the Earth in Peru, in the same time that he can produce a bushel of Corn, then one is the natural price of the other; now if by reason of new and more easie Mines a man can get two ounces of Silver as easily as formerly he did one, then Corn will be as cheap at ten shillings the bushel, as it was before at five shillings cæteris paribus.”
— https://www.amazon.com/Treatise-Taxes-Contributions/dp/3337441807

Then, in Contribution to the Critique of Political Economy, after Marx comments on Petty’s theory, he quotes Benjamín Franklin’s formulation of the same analysis of value:

“By labour may the value of silver be measured as well as other things. As, suppose one man is employed to raise corn, while another is digging and refining silver; at the year’s end, or at any other period of time, the complete produce of corn, and that of silver, are the natural price of each other; and if one be twenty bushels, and the other twenty ounces, then an ounce of that silver is worth the labour of raising a bushel of that corn. Now if by the discovery of some nearer, more easy or plentiful mines, a man may get forty ounces of silver as easily as formerly he did twenty, and the same labour is still required to raise twenty bushels of corn, then two ounces of silver will be worth no more than the same labour of raising one bushel of corn, and that bushel of corn will be as cheap at two ounces, as it was before at one, caeteris paribus. Thus, the riches of a country are to be valued by the quantity of labour its inhabitants are able to purchase.”

Marx then expresses his appreciation for Benjamin Franklin’s judgment, saying:

“It is a man of the New World — where bourgeois relations of production imported together with their representatives sprouted rapidly in a soil in which the superabundance of humus made up for the lack of historical tradition — who for the first time deliberately and clearly (so clearly as to be almost trite) reduces exchange-value to labour-time. This man was Benjamin Franklin, who formulated the basic law of modern political economy in an early work, which was written in 1729 and published in 1731. He declares it necessary to seek another measure of value than the precious metals, and that this measure is labour.”
— MECW, Vol. 29, p. 295

Marx recognized the labor theory of value as the central principle underlying the emergence of a new stage of social relations, the capitalist mode of production. The profitability generated by the capitalist mode of production, he understood, was not based on the robbery of one by another, or on clever swindles, or on power relations which favored one party against another. Capitalism, he explained, was based on the accumulation of wealth by the owners of capital, in which every round of production generated more product value than had existed at the start. But capitalism—unlike cheating, swindling or robbery—was based on the equal exchange between the laborer and the capitalist.

This relationship worked itself out in such a way that the sum the capitalist paid to the worker as wages was equal to the value of the labor power provided to the capitalist. This labor power was utilized in production for so many hours a day, doing whatever tasks were necessary to add value to the product of labor. The wage paid, on average, met the workers’ basic needs, as defined by the given historical situation in any country. But as a result of this capital/labor relationship, the total value that emerged from the process of production represented more value than the expenses of production, so that there was an excess of value left in the hands of the capitalist once the products had been sold. Marx called this extra value “surplus value.”

This surplus value, in turn, could end up in the bank account of the capitalist as profit, or paid to the landlord as rent, or to the bankers as interest. That is how a process rooted in equal exchange turns out to be a process of the enrichment of the class of the owner of the means of production, the banker, and the landlord. This surplus value, originating in the relationship between the exploited class and the propertied class, became the foundation of this particular mode of production. Accumulation came to be the basis of every capitalist’s social role, daily behavior, and moral standards. As Marx explained in Capital, Vol. I:

“Accumulate, accumulate! That is Moses and the prophets! ‘Industry furnishes the material which saving accumulates.’ Therefore, save, save, i.e., reconvert the greatest possible portion of surplus value, or surplus product into capital! Accumulation for accumulation’s sake, production for production’s sake: by this formula classical economy expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth.”
— MECW, Vol. 35, p. 591

But of course, if we look back to the pre-civilized social behavior of our remote ancestors, we should not imagine that in the social customs elaborated long before the dawn of buying, selling, and money, people involved in exchange activities had to know how long it might take to accomplish any given task. They were not watching each other to see how long it might take to produce objects of value, such as baskets, canoes, spears, cattle, yams, or anything else. In ancient times, primitive communities began bartering in order to obtain items they did not produce within their own communities; they learned how to obtain them from other communities with which they had friendly relations. Anthropological studies have had much to say on this topic. For example, archaeologist V. Gordon Childe, in his excellent work What Happened in History, explained:

“Societies of savages continued and continue to exist side by side with food-producers. The latter now barter farm produce with hunters and gatherers in exchange for game and jungle products. The same complementary relationship may have existed in the past. The Neolithic herdsmen and miners of the English South Downs used vast quantities of stags’ antlers as picks, though bones of deer are not conspicuous among the refuse from their repasts. The antlers may have been supplied by descendants of Mesolithic huntsmen who continued to live on the greens and country north of the Downs.”
—https://www.scribd.com/document/626656348/Childe-Gordon-1948-What-Happened-in-History

Engels addressed the question of barter in his essay “Law of Value and Rate of Profit,” published as an appendix to Capital, Vol. III:

“But how, in this barter on the basis of quantity of labour, was the latter to be calculated, even if only indirectly and relatively, for products requiring longer labour, interrupted at irregular intervals, and uncertain in yield — e.g., grain or cattle? And among people, to boot, who could not calculate? Obviously only by means of a lengthy process of zigzag approximation, often feeling the way here and there in the dark, and, as is usual, learning only through mistakes. But each one’s necessity for covering his outlay on the whole always helped to return to the right direction; and the small number of kinds of articles in circulation, as well as the often century-long stable nature of their production, facilitated the attaining of this goal. And that it by no means took so long for the relative amount of value of these products to be fixed fairly closely is already proved by the fact that cattle, the commodity for which this appears to be most difficult because of the long time of production of the individual head, became the first rather accepted money commodity. To accomplish this, the value of cattle, its exchange ratio to a large number of other commodities, must already have attained a relatively unusual stabilisation, acknowledged without contradiction in the territories of many tribes.”
— MECW, Vol. 37, p. 886

We have seen (above) how Marx described credit money, or national currency, as having its origins in bills of exchange issued by merchants who borrowed a sum of real money (gold or silver coins) from a bank to fund a trading expedition, and this bill of exchange was held in the bank, or traded to some other market operator, until the goods received in trade were sold, enabling the merchant to liquidate the existing obligation to the bank plus paying the interest. Naturally, the merchant’s motive was profit on sales, and the motive of the banker was to receive the interest. Over time, credit operations expanded in volume and spread outwards in taking on new functions, including forms that manifest the national debt, and forms that circulate as national currencies. This greatly expanded the role of capital as credit money (paper tokens) in relation to capital as real money (gold and silver). But gold and silver remained the basis for national currencies in international trade until the withdrawal of the U.S. currency from gold backing in 1971.

But we must keep in mind that capitalism is an unstable, evolving, ever-changing system. It grows, it expands, it adjusts its own modes of functioning as it changes the social conditions of all modern nations. But the more we examine this system, the more clearly we recognize that, like any system that takes root and grows, it cannot last forever. In can only exist, like all real phenomena, in and through time. Its demise is just as real as its birth. We cannot make sense of it if we continue to organize our conscious beliefs around “static” or “formal” ways of viewing such a dynamic system. We cannot accept our current dominant economic system as something that has neither beginning nor end. Yet that is how we are taught—the market does this or that, the government permits this or denies that, interest rates are adjusted up or down, the Treasury department gives this, it takes that, etc.

We are supposed to learn from lectures and textbooks that “capitalism” is not a living system of economy, but a “normal” condition of life; it is determined by human nature itself, which “never changes.” The great economist Adam Smith had a tendency to see it this way, as he proclaimed in Chapter 2 of his book, Wealth of Nations:

“It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.”
—https://www.britannica.com/topic/the-Wealth-of-Nations

But of course, Smith, like many others, learned about the living conditions of underdeveloped populations in Africa and the Americas, and was willing to imagine that humankind had passed through stages of development. Thus, Smith provided many useful insights into economic behavior, which Marx found to be starting points for the further development of scientific political economy.

But if we look to Marx’s prediction for the ultimate product of the development of the capitalist mode of production, we find the “dictatorship of the proletariat.” And we immediately recognize that this falls outside the scope of capitalist “normality,” as taught to us by modern economists and sociologists. And it is this that makes genuine Marxism completely verboten in modern educated discussions, where economic debates center on how to save or improve “our” “modern” market system and way of life.

The end of the gold standard

To understand the deep crisis that has developed in the 21^st century, it is important to recognize the abandonment of gold-backed currency by the world’s major powers, beginning in the U.S. under President Nixon in 1971. As Nils Herger of the Study Center Gerzensee, and author of Understanding Central Banks, explains it:

“The demonetisation of gold occurred in several steps. The Bretton Woods System, which is named after the location in the United States where the post-World War II monetary order was negotiated, represents an intermediate stage between ancient metal-based and modern fiat-money systems. The Bretton Woods Conference, which took place in 1944, attempted to increase flexibility and international coordination in monetary affairs to avoid the disastrous deflation and financial instability during the interwar period, but retain the disciplining elements of gold-backed currencies. The result was a hybrid setup that can best be described as a ‘gold-exchange standard.’ In particular, the United States maintained the tradition of fixing the gold price (at $35 per ounce), whereas the remaining currencies were pegged at officially declared, but, in principle, adjustable par values against the dollar. Notably, the gold-exchange concept was not entirely new. As mentioned above, even during the period of the classical gold standard, only the most advanced nations held their international reserves primarily in gold, and large parts of the world had inconvertible paper or silver-backed money.”

“. . . However, to stimulate economic activity, money growth was kept too high and nominal interest rates too low to maintain a stable price level in the long-term. Towards the end of the 1960s, the combination of expansionary fiscal and monetary policies began to result in a marked upsurge in inflation.”

“. . . In particular, investors eventually began to doubt that the dollar was ‘as good as gold.’ Increasing gold purchases by private speculators trying to pre-empt a looming dollar devaluation provided the unmistakable sign of a crisis within the Bretton Woods System. Indeed, in 1968, central banks could no longer contain this type of speculation and restricted the convertibility of gold to transactions among themselves.”

“Conversely, private transactions henceforth occurred at flexible prices on the free gold market. The segmentation of the gold market into private and public parts pushed the monetary system a step further away from its metal-based origins and, inconspicuously, removed the most important safeguard against excessive money supply within the Bretton Woods System.”
https://www.researchgate.net/publication/331203489_Understanding_Central_Banks

From Herger’s explanation of this series of events, we can recognize that the conditions of international trade had developed beyond the treaty-specified conditions that had been thought to be optimal by the participants in the Bretton Woods Conference in 1944. The inflation of the U.S. economy raised the question of increasing the gold price, but this would then lower the exchange value of the U.S. dollar against the European currencies, and this would give a competitive edge to U.S. exports in European markets. So rather than fight this battle, the Nixon administration in 1971 decided to abandon the exchangeability of the U.S. dollar for gold (the “gold standard”) and allow this national currency to be issued and guaranteed solely based on the “full faith and credit” of the U.S. government. This meant the U.S. dollar became a “fiat currency,” or credit money, as Marx explained (above).

Under this regime, any hoard of dollars, whether in stacks of paper dollars, or as bank deposits in U.S. banks, could be used to buy products in markets where dollar purchases were legal, or else these dollars could be exchanged for currencies of other nations under the current exchange rates. So, one can obtain funds that can be exchanged for products. The U.S. capitalists did not see why a fiat currency should be a problem for their own prosperity. Having the world’s most productive economy, and having won the Second World War, U.S. exports dominated world trade, and all nations were more-or-less obliged to maintain U.S. dollar accounts in their banking systems to enable them to purchase goods with prices denominated in dollars. This is how the U.S. dollar became the world’s “reserve currency,” which meant that other nations found it convenient, and perhaps profitable, or even necessary, to keep dollars in their possession for their foreign trade obligations.

But Stephanie Kelton, the major proponent of “modern monetary theory” (MMT) had a strikingly different approach. She believed the federal government—the Treasury and the Fed — created real money, valid money, and this money was not a substitute or token or anything of the sort; it was certainly not debt. In her 2020 book, The Deficit Myth, she argued that because the federal government issues the money, it controls the money supply, which is utilized by all those who need it, and thus it guarantees that sufficient quantities are issued for meeting all expenses. She maintained:

“First, as we learned in the previous chapter, the currency monopolist [the money issuer] doesn’t face the same constraints as currency users (households, businesses, or state and local governments). August 15, 1971, marked a major turning point in monetary history. President Nixon’s decision to suspend dollar convertibility increased monetary sovereignty to the United States, forever changing the nature of the relevant constraint on federal spending. Under the Bretton Woods system, the federal budget had to be fairly tightly controlled to protect the nation’s gold reserves. Today, we have a purely fiat currency. That means the government no longer promises to convert dollars into gold, which means it can issue more dollars without worrying that it could run out of the gold that once backed up the dollar. With a fiat currency, it’s impossible for Uncle Sam to run out of money. Yet these senators were talking as if overspending could lead to bankruptcy. They needed to update their monetary lens.”

Many people thought that her arguments might be reasonable, but there were very few who were willing to praise her work openly as credible. Most respected financial analysts rarely, if ever, mentioned MMT. However much politicians and investors might have looked askance at MMT, many began to behave as if they agreed with Kelton. But it was not her arguments that moved them in that direction; rather, it was the crying need to print more money, to build the mountain of debt higher and higher. It was the pressure of the need to demonstrate profitability—whether within the world of commodity production, or in the world of financial markets—that forced the “masters of the universe” to keep developing effective alternative investments with higher rates of return, even when those newer forms of speculation nearly always involved creating more debt. They had to keep “putting it off,” (a phrase more people began to utter as it dawned on them that the underlying low profit rate kept coming back again and again). Growing indebtedness was the price one had to pay to resolve the problems that were dragging down the profits accruing to those who invested in industrial, commercial, and real estate corporations.

But as mentioned above, the capitalist mode of production does not remain stable or predictable for very long—it grows, it expands, it changes its own modes of functioning as it changes the social conditions of all modern nations. We are all familiar with the technological changes that took place during the industrial revolution of the late 18^th century. But these changes, no matter how much they increased the productivity of labor, were not capable of guaranteeing a new stable foundation for economic life. One innovation led to another, each gain provoking further changes. Workers’ lives oscillated from bountiful to precarious, and people could not know what was in store for them. Workers learned to recognize that the world was in a dizzying state of disruption and turmoil, and many learned that the way to provide a steady income was to form organizations to protect themselves. Marx and Engels proclaimed in the Communist Manifesto:

“The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguishes the bourgeois epoch from all earlier ones.”
—https://www.pathfinderpress.com/products/communist-manifesto_by-karl-marx-frederick-engels

Although the bourgeois critics of Marxism are nearly unanimous in their condemnation of the “proletarian revolution,” few of them would dispute this passage from the Manifesto. Many of them wax lyrical as they extol the many virtues of capitalism’s dynamic creativity. Furthermore, the history of the United States provides an object lesson of how capitalism’s growing technological prowess improved life not only for the wealthy, but for the entire national population. This progress is illustrated in Robert Gordon’s book “The Rise and Fall of American Growth.” Gordon begins the book by describing the special century—1870–1970:

“The century of revolution in the United States after the Civil War was economic, not political, freeing households from an unremitting daily grind of painful manual labor, household drudgery, darkness, isolation, and early death. Only one hundred years later, daily life had changed beyond recognition. Work replaced manual outdoor jobs in air-conditioned environments, electric appliances increasingly performed housework, darkness was replaced by light, and travel replaced isolation not just, but also by color television images bringing the world into the living room. Most important, a newborn infant could expect to live not to age forty-five, but to age seventy-two. The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.”
—https://www.amazon.com/Rise-Fall-American-Growth-Princeton/dp/0691147728

The multiple interdependent technical and industrial advances are well understood by millions, and it would not occur to anyone to deny the changes that Gordon describes. Of course, Gordon leaves out the darker side of social life during this period, and he shows no interest in talking about the battles that the laboring masses had to wage in order to have sufficient income, and sufficient time off from work to enjoy the benefits that capitalist production developed, nor did he mention the discrimination faced by Black people, women and other disadvantaged layers, that again was alleviated by new waves of political struggles. But we should give him credit for explaining the material progress in great detail. This progress dramatically improved the lives of millions of workers and farmers. Lifetimes were extended, health improved, cities were built with safer and more weatherproof houses, which increasingly featured indoor plumbing, heating, electric lighting and comfortable furniture. Transportation—planes, trains and automobiles—made traveling quicker and safer; education for the great masses of lower-income youth expanded to embrace nearly the entire population. And it was the masses of working people who experienced these elements of improvement in their daily lives.

But while we give Gordon credit for explaining these advances, which resulted from the progress achieved during the “special century,” we must also recognize the honesty that he displays upon describing the exhaustion of the momentum of the period from 1870 to 1970. Gordon writes:

“This leads directly to the second big idea: that economic growth since 1970 has been simultaneously dazzling and disappointing. This paradox is resolved when we recognize that advances since 1970 have tended to be channeled into a narrow sphere of human activity having to do with entertainment, communications, and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health, and working conditions both inside and outside the home—progress slowed down after 1970, both qualitatively and quantitatively. Our best measure of the pace of innovation and technical progress is total factor productivity (hereafter TFP), a measure of how quickly output is growing relative to the growth of labor and capital inputs. TFP grew after 1970 at barely a third the rate achieved between 1920 and 1970. The third big idea follows directly from the second. Our chronicle of the rise in the American standard of living over the past 150 years rests heavily on the history of innovations, great and small alike. However, any consideration of U.S. economic progress in the future must look beyond innovation to contemplate the headwinds that are blowing like a gale to slow down the vessel of progress. Chief among these headwinds is the rise of inequality that since 1970 has steadily directed an ever-larger share of the fruits of the American growth machine to the top of the income distribution.”
—ibid.

Gordon’s appreciation of the change in the quantity and quality of the productive capacity of U.S. industry corresponds very well with the evaluations of many other writers. It appears that the economic changes occurring in the 1970s, particularly the deep international recession in 1974–75, followed by the wave of inflation, registered a major slowdown in growth, and productive capital shifted into other sectors—away from manufacturing and towards financial assets which could provide a higher rate of return. It is the contention of this essay that the turning point for U.S. capitalism from the growth phase to the declining phase took place. And to establish this more definitively, it will help to point out the analysis made by Jack Barnes, in a resolution of the Socialist Workers Party, in New International No. 10, published in 1994:

“The capitalists in the United States and in other imperialist powers are not putting capital into a major expansion of productive capacity, as they did from the 1950s into the 1970s. For nearly two decades, the capitalists have faced an accelerating crisis of declining profit rates, as explained in the Socialist Workers Party’s 1988 resolution, What the 1987 Stock Market Crash Foretold. Capitalists are driving to cut costs—‘downsizing,’ ‘resizing, or ‘reengineering’ in current business jargon—instead of expanding productive capacity, because they can’t secure a competitive rate of return on investment in capacity-expanding plant and equipment.”
—https://www.pathfinderpress.com/products/new-international_number-10_imperialisms-march-toward-fascism-and-war_by-jack-barnes

The question posed in this citation from Barnes is: why wouldn’t the capitalists be able to “secure a competitive rate of return on investment” in these sectors? Had they not been able to obtain sufficient profitability in the past? Barnes came closer to the basic problem faced by the capitalists later in the same resolution:

“The falling average rate of industrial profit accruing to the ruling capitalist families in the imperialist countries lies behind the evolution of the economic factors that make the initiation of a worldwide depression inevitable in the coming years. Because of this fall, starting as early as the mid-l960s in Britain and as late as the mid-1970s in Japan, a crisis of decelerating capital accumulation has been deepening throughout the major world capitalist economies.”
—ibid.