Re: Inflation & Unemployment; lecture NYC 2-22

[Adam Rose <adam@xxxxxxxx>]

>
> >Inflation is caused by monopolies protecting their profits by putting
> >prices up.
> >
> >
> >Adam Rose
> >SWP
> >Manchester
> >UK
> --------------------------------------------------------------
>
> Dear Adam:
>
> This is an absurd claim.

As stated, as Gerry + you have correctly pointed out, it is so simplistic as to
have no use as an explanation.

Nevertheless, I think it is essentially true.

I don't think anyone is particularly troubled by why prices rise during a 
cyclical
boom - it's obvious that, as the boom gathers pace, but the new investment 
triggered
by the recovery in the rate of profit has not come on stream, that there will be
relative shortages and therefore "sellers" in general will be able to push 
prices
up.

What is harder to explain is why prices continue to rise during a cyclical 
slump.
This is a new phenomenon - "stagflation" - it didn't even occur in the 30's. The
1929 stock market crash triggered a wave of bankruptcies and falling prices. The
stock market crash of 1987 didn't trigger either, at least not to the same 
extent.

Because the prices which have risen in the boom don't fall again in the slump,
overall we have inflation.


I think this difference can be explained by the increased size of units of 
capital
in relation to the states in which they are based. From the point of view of the
world economy, there are too many car companies. Each state, particularly in 
Europe,
has its "national champion". What would make sense in terms of capital as a 
whole
would be for one company to be allowed to go bankrupt, but in terms of the 
economy
of a particular nation state, the actual ecomomic effects would be devestating.
Keith Joseph, the arch monetarist, who was a monetarist before Thatcher was, is
said to have cried when he was told point blank by his civil servants that they
simply could not allow what was then called British Leyland ( now Rover ) to
go bust. Perhaps from the point of view of US capital, it would make sense to
merge GM and Ford, but similar arguments apply.

This is why after the 1987 stock market crash, central banks "loosened" their
policy. Companies + governments borrowed in order to put off or prevent the
evil day when restructuring became neccessary. This created conditions in which
companies which found their rate of return falling could protect themselves by
putting up prices without fear of bankruptcy, in contrast to the 30's.

However, capitalism, as we all know, had not solved its problems. All this
borrowing merely made the problems in the medium term even more soluble.
First of all, by preventing bankrupticies it had actually short circuited
the means by which capitalism moves from bust back to boom. Secondly, it
just shifted the problem onto those industries which were more sensitive to
interest rates ( which rose because borrowing was rising as the "supply"
of capital ie the rate of profit, was falling ). And finally, when a
cyclical boom did start, it was hamstrung by the need to pay off the debt.

There remains the question of why I said "Inflation is caused by monopolies
protecting their profits by putting prices up".  The reason I did this is
because the argument about inflation is what stands between workers making
a connection between their individual feeling that they should be paid
more and the generalised feeling that workers in general should be paid
more. "I should be paid more because my employer doesn't realise my real
value, but they can't have a pay rise because it leads to inflation". I
argue against this with two main arguments :

i)      So what if inflation rises, provided our wages rise faster ?

        When bosses and both main parties talk about inflation, what they
        actually mean is wages in relation to inflation. "keeping inflation
        down" is politician speak for "getting wages to rise at less than
        the current rate of inflation".

ii)     Wage rises don't cause inflation, they only effect profits. What
        does cause inflation is companies putting their prices up to protect
        their profits.

Adam.

Adam Rose
SWP
Manchester
UK


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