One reason that Keynesian and Neo-Keynesian economists linked rising wages to rising inflation, is precisely because, in practice, as labour shortages led to such rising wages, central banks did increase liquidity – in addition such conditions are produced by rising economic activity that also leads to increased commercial credit, increasing liquidity – so that firms could pass on higher wage costs in higher prices. But, it is not the higher wages that cause the higher inflation, but this central bank accommodation.
Martin describes the position of Alain Lipietz.
“Lipietz built on this thought to argue that bosses would seek to maintain profits by increasing mark-up. Governments and banking systems guided by capitalist interests would adapt credit and state-led determinants of demand to suit.
Since the labour-time value of labour power (the "living wage") could not be fundamentally driven down just by financial manipulation, but only by class struggle, wages would catch up; profits and investment would remain low; inflation would continue while unemployment remained high”.
What this fails to take into account, however, is that what is involved, here, is not “class struggle”, but merely distributional struggle, and so long as capitalism exists, capital always holds all the cards. As Engels put it,
“The history of these Unions is a long series of defeats of the working-men, interrupted by a few isolated victories. All these efforts naturally cannot alter the economic law according to which wages are determined by the relation between supply and demand in the labour market. Hence the Unions remain powerless against all great forces which influence this relation. In a commercial crisis the Union itself must reduce wages or dissolve wholly; and in a time of considerable increase in the demand for labour, it cannot fix the rate of wages higher than would be reached spontaneously by the competition of the capitalists among themselves.”
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