Keynesians and Cost-Push
The argument for cost-push inflation is no better. It argues that inflation is the consequence of rising costs for all or a large number of commodities, again leading to an imbalance of aggregate demand and supply. The simple response to this is that, as a consequence of continually rising social productivity, rather than production costs rising, they are persistently falling. That is the consequence of The Law of Value, as a natural law, driving all human social development, to always raise the level of social productivity, to continually produce more use-values with less labour. In other words to produce more use-values/real wealth with lower unit values. They fall faster at times of rapid technological innovation, and, in some spheres, for short periods, they might rise, but overall, they consistently fall.
Consequently, these persistently falling costs of production should result in the general price level continually falling rather than rising. But periods of actual falling prices are very rare, indicating that, in fact, there is a persistent fall in the value of money or money tokens, greater than the fall in the value of commodities, which leads to annual rises in commodity prices. Indeed, that was why the US Federal Reserve was created in 1913, and why other central banks were established, whose role is now openly stated as ensuring such annual rises in the general price level, of around 2%.
Marx deals with these kinds of scenarios in Capital II, Capital III, Chapter 6, and in Theories of Surplus Value, Part III.
Higher production costs consist of either, higher wages, higher profits, rents or interest charges, higher costs of fixed capital (wear and tear), or higher costs of materials/energy. The argument in relation to higher wage costs and higher profits, rent and interest, has been dealt with, in examining demand-pull inflation. In short, higher wages simply mean lower profits, not higher prices, and vice versa, and rents and interest, as with taxes, are simply a deduction from profits, so that, again, if rents, interest or taxes rise, the residual profit – profit of enterprise – falls by the same amount. Higher prices only occur if the central bank enables firms to raise prices to preserve profits, by increasing liquidity.
Higher values, as a cause of higher costs, overall, require lower social productivity overall. But, then, if there is lower social productivity overall, that should affect the money commodity too, and price is only exchange-value against the money commodity or money tokens. If the exchange-value of two commodities is 1 litre of wine exchanges for 1 metre of linen, the basis of this relation is that they both have the same value, say, 10 hours of labour. If social productivity falls by 20% so that both now require 12 hours of labour for production, their values rise by 20%, but their exchange-value remains constant, i.e. 1 litre of wine continues to exchange for 1 metre of linen. If linen is the money commodity, we can then say that, despite this fall in social productivity, the price of wine remains constant. Its price remains 1 metre of linen, and this applies if the money commodity is gold, rather than linen.
In other words, if a quarter ounce of gold has the name 1 sovereign, so that the price of a litre of wine is 1 sovereign, then a fall of social productivity of 20%, as above, would leave the price of wine as 1 sovereign. And, to the extent that sovereigns are replaced by money tokens, so long as the quantity of these tokens put into circulation is not greater than the actual sovereigns they represent, this same relation would continue to apply. So, a rise in price, other than a temporary rise in market price, due to an imbalance of demand and supply, of any given commodity, requires that its value has risen relative to the money commodity/money tokens, and any rise in the general price level requires that the majority of commodities have seen a rise in their values relative to the money commodity/money tokens.
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