Latest data blows out of the water the idea that inflation is transitory, or simply caused by rising costs, supply bottlenecks and so on. Global inflation is surging, even before the world economy is again fully opened after being locked down, and workers locked out. The cause of the inflation, as Marx describes in A Contribution To The Critique of Political Economy, is an excess of currency thrown into circulation by central banks. Unlike with currency comprised of gold or other precious metal, any such excess cannot be automatically withdrawn, as a result of hoarding, or melting down the coins.
Paper notes have no commodity value, so they cannot be melted down, and although, a fall in the velocity of circulation can have a similar effect to hoarding, it is really, as Marx sets out, itself is a function of economic activity, and the frequency of transactions.
“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given...The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.”
(A Contribution To The Critique of Political Economy)
The lockdowns and lockouts of 2020 and 2021, have changed all that, as, now, the liquidity has been channelled directly into the real economy, to finance consumption, as government became the payer of wages via furlough schemes, and so on. The genie is well and truly out of the bottle, and only if governments are prepared to face widespread social unrest, by trying to viciously curtail economic expansion – as they did in the 1980's – which would mean showing that all of their talk over the last 14 years about trying to promote economic expansion was a lie, could they try to put it back. Even then, its unlikely they would succeed, because, with economies having been fundamentally driven to expand by the underlying long wave expansion, and only prevented from doing so by deliberate action to stop it, as that combined with the powerful economic expansion that is now being seen, as economies come out of lockdowns, that process itself, looks unstoppable. Governments would have to try to shut down economies not only by an even greater level of fiscal austerity than they imposed after 2008, but they would also have to combine it with the kind of monetary tightening that Volcker et al imposed in the 1980's. That in itself would crater asset prices to a much greater degree than was seen in 2008.
But, also, as I pointed out to Paul Mason, more than a year ago, when he likened current conditions to the 1930's, this is neither the 1930's, nor the 1980's. They were both periods of long wave stagnation. We are currently in a period of long wave expansion, and employment is rising, the material conditions currently favour labour not capital, in the period ahead, and it is only a matter of how and when that translates into the confidence and consciousness of the working-class itself.
As Trotsky put it,
“If periodic replacements of “normal” booms by “normal” crises find their reflection in all spheres of social life, then a transition from an entire boom epoch to one of decline, or vice versa, engenders the greatest historical disturbances; and it is not hard to show that in many cases revolutions and wars straddle the borderline between two different epochs of economic development, i.e., the junction of two different segments of the capitalist curve. To analyse all of modern history from this standpoint is truly one of the most gratifying tasks of dialectical materialism.”
Even with the penchant for Bonapartism being displayed across the bourgeois democracies, helped along by the lack of any real differences of political principle between the main bourgeois parties be it Labour and Tory, Democrat and Republican, and so on, it is hard to see, how any such course would be possible without provoking widespread, and serious opposition. So, for now, governments and central banks are likely to have to simply ride the tiger of rising inflation, and rapidly expanding economies, which, in turn, will give added socio-economic weight to workers, as employment expands further and faster, and they feel solid ground beneath their feet. As Trotsky again put it.
“But a boom is a boom. It means a growing demand for goods, expanded production, shrinking unemployment, rising prices and the possibility of higher wages. And, in the given historical circumstances, the boom will not dampen but sharpen the revolutionary struggle of the working class...
We are already observing the beginnings of this process. The working masses feel firmer ground under their feet. They are seeking to fuse their ranks. They keenly sense the split to be an obstacle to action. They are striving not only toward a more unanimous resistance to the offensive of capital resulting from the crisis but also toward preparing a counter-offensive, based on the conditions of industrial revival. The crisis was a period of frustrated hopes and of embitterment, not infrequently impotent embitterment. The boom as it unfolds will provide an outlet in action for these feelings.”
Inflation in the US, came in at the last reading at 7%, in the Eurozone, it has come in today at 5.1%, in Italy it is at a 26 year high of 4.8%, and in the UK it is standing at 5.4%, whilst, today, it was announced that UK shop price inflation nearly doubled in the last month alone. It rose to 1.5%, compared to just 0.8% in December. At this rate, a year from now, that would mean prices rising by around 18%! In fact, we already know that the real inflation figure is in double digits, both in the UK and the US, if a basket of the goods and services bought by workers currently is taken as the basis. The UK data shows, food prices having risen by 2.7% in January alone, whilst furniture prices rose by a whopping 12.5%. And, the data indicates that the pace of inflation is rising not falling. Taking non-food items as a whole, in January they rose by 0.9% compared to a rise of just 0.2% in the previous month. Brexit is having a major effect on causing many of these prices to rise, as it imposes a whole range of additional costs and burdens on British producers and consumers alike, compared to EU citizens. But, this is just the start, because, coming down the road is a 50% rise in the energy price cap.
The pundits and most of the politicians are not even trying now to claim that that is all down to Putin, as oil, which in 2020 actually fell in price so much that, for a time, its futures price became negative, is now touching $90, even as oil producers try to increase output, and even as the US and others have released stocks from their strategic reserves. In Britain, in particular, which faces all of the added burdens caused by Brexit, workers are facing a Spring and Summer of much higher costs of living. Over previous years, the artificially reduced mortgage rates meant that it looked as though housing costs were falling, as the data reflected lower monthly mortgage payments, but not the astronomical inflation of house prices. Now, as interest rates rise sharply, that will be reversed, as monthly mortgage payments rise sharply, whilst house prices fall precipitously.
So, far, the consequence of that in wage rises is not being seen, because although wages for some workers have risen massively simply as a result of the operation of demand and supply in the labour market (hospitality wages up 18%, HGV wages up 30%, and so on) this only represents a fraction of the total workforce. But, we haven't come to the annual wage bargaining rounds yet, which get underway in the Spring. When that gets underway, we can expect that workers and unions will be demanding wage rises well into double figures to compensate for the surge in the cost of living, and with employers across the economy desperate to get workers, so as to ensure they grab their share of the rising market, they are likely to pay up without much fuss, to avoid disruption. That resembles what happened in 2008, when all of the media said that lorry drivers had no chance of getting their 14% pay rise, but, in fact, employers coughed up in full after just a two-day strike!
Even bourgeois-liberal pundits seem to know this is inevitable. In an article in Moneyweek, Merryn Somerset-Webb wrote,
“In today’s Times the first headline in the business section is headlined “Factory pay deals soar as inflation accelerates.” Turns out that manufacturers in the UK have agreed pay settlements of “up to 14%” in an attempt to mitigate the intense pressure caused by acute staff shortages.
That makes the highest settlements more than double those of last year. It also reflects the fact that there has been very little salary freezing this time around: a year ago one third of firms were freezing salaries, now 2% are.”
She goes on to list some of the unlikely groups of workers, who are already planning industrial action in pursuance of a pay rise from barristers to economic forecasters. As she points out, workers are currently in the driving seat, because there are 93,000 unfilled jobs in manufacturing, with 1.22 million vacancies in the economy as a whole. If, inflation was low, and you didn't see much chance of a union getting you a pay rise, there is little reason to join, but with inflation at 5,6,10% the idea of joining a union, and getting a pay rise starts to become appealing. Of course, in the area where unions continue to be fairly well organised, the public sector, in the last 30 years, those unions have also been pretty ineffective, and, even now, the government has continued to impose derisory pay rises on its employees. But, things have changed.
Back in the early 2000's, as a County Councillor, I remember being told that the Council could not get cooks for its residential homes. The reason was that the wages of a TESCO checkout operator were higher. So, pay higher wages, some of us obviously suggested, only to be told that if they did that, it would set off a rash of other claims from other workers whose differentials had been reduced. That simply indicated the extent to which all of the Council workers' pay in those kinds of jobs was simply way too low. But, in times when jobs are not so plentiful, at least permanent, full-time jobs, and when austerity meant that Councils were shutting down facilities, and so getting labour was not such a crucial issue, continuing to pay those low wages continues to be possible. But, that is increasingly not the case. Whole fleets of council bin lorry drivers, for example, have been recruited by haulage firms paying much higher wages, to fill the huge vacancies they now have. Even if the government tries to face down public sector unions over pay, they will simply face an exodus of workers to the private sector, as its thirst for labour needs to be quenched.
Interesting times lie ahead.
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