Aotearoa: Stagflation & End Stage Capitalism

Stagflation is the necessary consequence of the failure of capitalism to invest in the production of value. This leaves surplus money capital in circulation which engages in speculation for existing assets driving up prices. But the bosses refuse to take the blame for inflation and blame rising wages. Marxism proves that chronic stagflation is a symptom of terminal capitalist decline. We argue here that the way to defeat stagflation is to socialise the means of production, distribution and exchange. Once we realise it is the failure of capitalism to extract value from workers and no fault of the workers, we can concentrate on what must be done to build a socialist society.

The political challenge to Reserve Bank Governor, Adrian Orr, for straying too far from orthodox monetary policy and printing too much free money at the Reserve Bank and causing stagflation, doesn’t blame property owners who were the beneficiaries of $1 Trillion of state handouts over the last 3 years.

However, this apparent hypocrisy is rooted in a deeper structural contradiction. That is the failure of capital to invest in production to supply enough to meet demand. In other words, the charge that too much money is chasing too few goods fails to mention that capitalists diverted their free money into speculation because production of goods and services was not profitable.

This is why bosses took their free money and ran to the bank or stock exchange, buying their own shares and even more property for ‘capital gain’ instead of investing it in production for profit. They had no confidence that they could extract surplus value in an over-regulated labour market.

So, the problem is not the amount of money in circulation stimulating too much demand which leads to wages pushing up prices. It is the decision not to invest money capital to produce a supply of goods and services to match the increased money supply, that pushes up prices.

The question that has to be asked is why capitalists could not make a profit by investing in production. The response of the employers is to blame rising wages, not falling supply, and to call for higher interest rates to slow the increase in the money supply, and at the same time flood the labour market with migrant workers to drive down wages.

Neo-libs, liberals and radicals

The neo-lib National Party response is to raise interest rates to wind back the money supply and dampen cost/price inflation.  Opening the labour market to immigrant workers will drive down wage costs. Slashing spending on climate change targets and total state spending will allow tax cuts. Cost cutting will then stimulate investment in production and confidence in restoring the rate of profit.

The Liberal Labour/Green response tweeks a few policy settings to protect wages and to push for rising labour productivity to cut labour costs. It also adds some criteria to the Reserve Bank inflation targets such as ‘full employment’ and ‘wellbeing’. However, the Labour Party remains hostage to its neo-liberal past and will not tax the rich nor use the state to directly invest in delivering labour productivity, climate reform and social wellbeing.

The radical response is to go beyond the liberals to the logical extreme of Fabian state socialism. Martyn Bradbury and Mike Treen for example, on The Daily Blog, raise demands that include full employment, free housing, transport and education as well as a ‘green new deal’. To realise such a program, a Labour/Green/Māori party government would have to nationalise production, distribution and exchange, and pay for it by printing money backed by production of goods and services to meet a fleshed-out socialist wellbeing standard.

Covid lessons in dying capitalism

Let’s see why Covid shows us why all the above Lib/Lab/Rad bourgeois-type solutions are unable to deal with stagflation. Briefly they have no program to eliminate the Law of the Tendency of the Rate of Profit to Fall (TRPF), the fundamental contradiction of capital that dictates state economic policy.

During Covid, the government demonstrated that it is the ‘organising committee’ of the ruling class. It acted as guarantor of the system and put the capitalist class on corporate welfare. It replaced lost profits and wages to keep plant and machinery and the labour force in a state of readiness for the return to business-extracting surplus value for profit. The result, as we have seen, was a massive state transfer of value from worker to employers and landlords.

Second, it exposed the fact that, rather than investing these handouts in more advanced plant and machinery to increase labour productivity, they went into speculation in existing assets such as land and shares.  Wage subsidies, when passed on, kept workers on basic rations, and when not passed on, made windfall profits. The lesson is that the neo-colonial state cannot direct the ruling class to use its corporate handouts to increase labour productivity, leaving NZ is stuck as a low wage, underclass-Pacific-reserve pool-of-labour-semi-colonial regime.  

Third, capitalists using state handouts for speculative gains demonstrate that ‘financialization’ is not a mere deviation from productive investment that can be corrected by the right policy. Rather, it is the fusion of banking and industrial capital – the essence of 20th century capitalism – experiencing the breakdown of the productive system as stagflation. At the most basic level it shows that capitalism now faces the ultimate contradiction; it cannot produce profits to save itself without destroying itself.

The final lesson is, that capitalism failing to invest in labour productivity when provided with handouts, demonstrates that even with slave wages, pandemics interrupt labour flows and cannot cut production costs sufficiently to counter the LTRPF. At this point chronic stagflation becomes terminal as permanent recession and slump. The means of production and labour-power necessary for production face destruction as global warming leading to nature’s blowbacks, which then destroy the conditions for future human survival.

As we have constantly warned for years, Global capitalism is facing a crisis of long-term falling profits because of the terminal collapse of the conditions that allow it to make a profit. It is disrupted by worsening crises, pandemics, climate change and inter-imperialist wars over which capitalists have little control. In reality capitalism is failing as a system because it is destroying the material base in nature it needs for profitable growth.

End-Stage Capitalism: Solutions

Neoliberal solutions, fossil fuels and slave labour, are exhausted, bourgeois regimes become increasingly authoritarian and reactionary. Calling for political reforms do no more than keep alive illusions in bourgeois democracy when end-stage capitalism has to be ended and replaced by a workers’ government and workers’ state.

So when Mike Treen speaks of the breakdown of capitalism and yet calls for a Green New Deal, he is saying to workers that capitalism has not reached its end stage and can be reformed to stop climate collapse.

 A left-wing policy that protects working people is theoretically possible without unleashing inflation. But we need a different type of government that prioritises working people and the planet over private profit.” 

Similarly, Michael Roberts still seems to think that capitalism plagued by stagflation can come back from yet another slump only three years since the last slump.

That means the major economies could enter a period of stagflation, not seen since the late 1970s, where inflation rates stay high, but output stagnates.  Indeed, it could be worse than that.  The risk of an outright global slump is rising.  If central banks continue to hike their policy rates, all that will do is increase of cost of borrowing for consumers and companies, driving weaker companies into bankruptcies and suppressing demand across the board.  Sure, that may finally reduce inflation but only through a slump.”

We say that chronic stagflation is symptomatic of terminal crisis.  Profits can be made only if certain conditions are met. These conditions cannot survive when capitalism is destroying its own conditions of existence, land, labour and capital. That is why the crisis of capital is terminal and we are living through end stage capitalism.

We need an international revolutionary workers’ party and a workers’ program that takes the necessary steps to take power and install a workers’ government. Such a government would socialise the means of production, distribution, communications and exchange, to plan the economy to produce for the need of the working majority, and to build the future commune where classes and the state would cease to exist.