Michael Roberts and Inflation - Part 9 of 16

If we take, first, the situation in regard to primary production then a period during which economic growth has been below the long-term average will result in a similar reduction in the amount of development of new sources of primary production. There is no incentive for farmers to cultivate large areas of additional land, if they do not see the potential for a rapid growth in markets for the additional output. They will look to simply utilise their existing land, and increase output, marginally, each year, in line with their anticipation of growth in demand, based upon recent previous years. The same with mineral producers, who will seek to just maximise their use of existing fixed capital, and only abandon existing mines and quarries when they are exhausted. When they are faced with a surge in demand, therefore, these primary producers cannot readily respond. They have to use their existing facilities. They employ additional labour to increase output, first by having workers work overtime and so on. But, its this which leads to diminishing returns, and rising costs.  In effect, we have rising short-run marginal costs, even though we continue to have falling long-run marginal costs. 

Now, if we put that into context of Roberts' argument in response to the Monetarists, its precisely these rising costs, and expansion of economic activity that he argued was the basis of additional money supply being injected.

“Monetarist theory has been proven wrong because it starts from the wrong hypothesis: that money supply drives prices of goods and services. But the opposite is the case: it is changes in prices and output that drives money supply.”

In other words, here, in arguing against the Monetarists, he adopts the Keynesian cost-push theory of inflation that it is changes in prices – because prices of inputs are also, simultaneously, costs of outputs, and vice versa – that drives money supply! As I have set out earlier, in fact, in terms of money, as a money commodity, there is no reason why this increase in costs/values need to result in inflation, because, if the value of the money commodity increases proportionate to other commodities, then the exchange value of all commodities relative to money is unchanged. Its only by understanding that money is replaced, as currency, by money tokens, each of which continues to bear the same nominal value, but each of which represents a continually falling amount of social labour-time, as more and more of these tokens are put into circulation, that this rise in costs/values can be seen to result in rising prices.

If we take the specific instance of the price of labour, i.e. wages then rising costs of wage goods acts to increase the value of labour-power, and, thereby, wages. But, as Marx says, wages may rise for the reason that Smith described, i.e. a period of rapid economic growth and accumulation uses up available labour supply – or at least of that labour usable by capital – and so pushes up wages. Marx describes in Value, Price and Profit, the case of the rise in agricultural wages in the period between 1849 and 1859, when agricultural workers left the countryside for a variety of reasons, and he makes a similar argument in relation to the high wages of workers in the US, where labour supply was tight, as workers quickly turned themselves back into free holding peasants. And, in Capital III, Chapter 15, he sets this out as the basis of the crisis of overproduction of capital.

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

In effect, this is Marx's version of the Phillips' Curve. All that is required in addition to it, is the experience of the twentieth century that, when such conditions arise, capital not only responds by engaging in a period of technological innovation to replace labour with capital, but also developed central banks for the purpose of printing money tokens so as to try to prevent deflation, and enable the squeeze on profits to be mitigated, by enabling firms to raise prices to recoup increased costs.

Recent reports indicate that, in the UK, labour shortages in specific sectors and jobs have already caused wages to rise.  For example, there is a reported shortage of around 180,000 workers in the hospitality sector, where incomes have risen by 18%.  There is similarly reported to have been a 10% rise in incomes for workers in retail.

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