Keynesians, Wages and the Phillips Curve, and Demand-pull
What the Keynesian argument actually comes down to is an argument in which demand-pull is a consequence of rising wages, in conditions of a shortage of labour, as the economy expands and uses up the relative surplus population – The Phillips Curve – and, in which, firms attempt to counter the squeeze on profits, by increasing prices, which they can only do if central banks increase liquidity to facilitate it, which then sets in place a wage-price spiral. But, it is this increase in liquidity, created by central banks, though also by an expansion of commercial credit, in periods of expansion, that is the cause of the inflation, not the higher wages nor their effect on aggregate demand.
There, is, of course, the converse of this argument, which is that the increased demand comes not from rising wages, relative to profits, but from rising profits relative to wages. Again to analyse this, its necessary to consider the matter in terms of different phases of the long wave cycle. Wage share rises, and squeezes profits in the second half (Summer or Boom) of the uptrend phase of the cycle, and the first half (Autumn or Crisis) of the downtrend phase of the cycle. The resulting crises of overproduction lead to capital engaging in a new period of technological innovation, that introduces new labour-saving technologies that creates a relative surplus population, and falling wages/rising profits. However, its not just a falling wage share that enables capital to increase its rate of profit. The technological revolution also massively depreciates fixed capital as a consequence of moral depreciation, and both cheapens and utilises more efficiently materials, thus bringing about a significant fall in the value composition of capital.
I have described this on numerous occasions, in considering both the long wave, and the Law of the Tendency for the Rate of Profit to Fall. In the Autumn/Crisis phase of the cycle, as these new technologies are introduced, gross output starts to stagnate, because crises of overproduction result in sudden sharp stops in production, as the circuit of industrial capital is broken. Even as the profit share begins to rise, therefore, it does not go to increased capital accumulation (demand for additional constant and variable-capital). The portion of value in output that represents wear and tear of fixed capital, now gets used, when fixed capital is replaced, to buy new forms of technology that are more productive than the fixed capital they replace. That is one means by which the existing fixed capital stock is significantly morally depreciated. This is a period and process of intensive rather than extensive accumulation.
As with the other side of rising wages leading to demand-pull inflation, being rising wage costs leading to cost-push inflation, I will deal with the other side of demand-pull from rising profits, and increased demand for constant capital leading to higher materials and machinery costs, when I examine cost-push inflation. But, its clear that this technological revolution cheapens fixed capital, whilst the slower pace of increase in gross output, does not lead to a significant increase in the demand for it.
The same technological development means that the value of materials is also reduced, and, although, increased productivity means that the share of raw materials as a proportion of output value rises, relative to labour and wear and tear of fixed capital, the same slower pace of growth in gross output means that, the demand for materials also does not rise substantially. On the contrary, technological developments also means that greater efficiency in production enables a relative reduction in the quantity of materials/energy consumed. Waste is reduced, and utilised as bi-products, machines become more energy efficient, new more durable and cheaper synthetic materials are introduced.
That is why, in all periods of long wave Winter/stagnation, such as during the later 1980's, and 1990's, the prices of primary products tend to fall, and investment in exploration and development of new lands, mines and so on declines. Copper is a proxy for all these primary products and the chart of its price movement over that period illustrates the point.
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