Inflation – a symptom of capitalist crisis
Despite getting nearly a $1 trillion boost to its wealth since 2020, NZ business is benefitting from the release of suppressed Covid consumption by raising prices. Lack of competition in most sectors leads to cartels and fixed pricing. Supply chain failures also drives up prices.
The National Party is campaigning on a price “inflation crisis’’ (it’s not compared to the 1980s) and Labour is claiming that inflation is not their fault but part of a global trend. Nevertheless, the Government is responding to the political/media hype and making mild threats to regulate monopoly prices and encourage competitive pricing.
So far, the debate is largely confined to disputes between different sectors of the business class and the political class all of whom are captured by neo-classical economic orthodoxy.
The monetarists claim that the money supply is the main regulator of the market. The state’s intervention in the market is limited to regulation of the money supply. Keynesians, advocate state intervention to create “sufficient demand” and balance supply and demand stopping the business cycle from entering into a boom bust cycle. State socialist Modern Monetary Theory (MMT) claims that finance capital can be expropriated by peoples’ banks creating and writing off debt with the production of more value.
What is not recognised by the monetarists, is that inflation is more than a mere symptom of the normal business cycle that only becomes stagflation with too much state intervention. Keynesian intervention can’t prevent inflation from becoming stagflation (or bust) because falling profits stop investment in the production of value. And MMT cannot credibly take over the state to plan the capitalist economy without first removing capitalist control of the state.
None of these theories that remain trapped in the assumptions of neo-classical economics can grasp that inflation is a necessary symptom of the boom-bust cycle caused by law of the tendency of the rate of profit to fall (LTRPF). The capitalist boom-bust cycle is inevitable.
Booms are caused by rising labour productivity made possible by new technology. However, this raises the costs of fixed (i.e., constant) capital, relative to wages (i.e., variable capital) until no more profits can be squeezed from labour. The result is falling profits and excess capital that is no longer invested in production until the conditions for restored profitability are met.
Restoring these conditions requires the radical devaluation of both fixed capital and wages until the costs of production are low enough to allow the return to profitable production. Busts (recessions becoming depressions) devalue fixed capital as the weaker firms go bankrupt and are bought cheaply by fewer and larger corporations. Similarly, excess capital cannot maintain its value while speculating in inflated assets and becomes fictitious capital.
The devaluation of wages is achieved by inflation driving down wages reducing real wage until such time as labour is cheap enough to be exploited profitably.
Thus, the LTRPF explains the inevitability of these booms becoming more volatile and the busts more extreme, until the weakening booms succumb to a final and terminal bust – the existential crisis humans face today.
Inflation today then, is the face of the terminal crisis on all fronts – of war, plague and famine. We are heading for a crash because of the law of falling profits and the inevitability of capitalism to destroy the biosphere. There is no return to the normality of the boom-bust cycle this time because global warming makes its own laws, which contradict nature’s laws. And nature’s laws trump capitalism’s laws in the end!
Fortunately, Marxism opens the escape route for humanity. But it is necessary to understand that capitalism is destroying itself, nature and humanity, so that the only solution open to us is to consciously end capitalism and to build a new classless society in harmony with nature.
For a Workers’ Government!
Socialism or Extinction!