As early as 1987, even as the conditions of rising rates and masses of profit were in place, asset prices crashed, starting in the US, as Reagan, under the guidance of the likes of Laffer and Kudlow, slashed taxes for the rich, turning the US from being the world's largest creditor to its largest debtor, with a consequent impact on global interest rates. The delusion was sustained, and the confusion of the nature of money with money tokens/currency, and of both with money-capital, was manifest in the response of central banks, led by Alan Greenspan and the Fed.
In the late 70's, and early 80's, as workers saw their relative wages rise, as a consequence of a growing shortage of labour, in order to protect profits, central banks increased liquidity to enable firms to raise prices, creating an inflationary spiral. That was a manifestation of the crisis of overproduction of capital. By the mid 1970's, it was obvious that Keynesian orthodoxy could not, now, deal with this situation, when, as a consequence of the squeeze on profits, the least efficient firms began to go bust. Even then, the accumulated strength of the labour movement in its large battalions, was able to resist the assaults upon it, as witnessed by the victorious miners' strikes in Britain in 1972 and 1974, the latter removing the Conservative government of Heath from office. The incoming Labour government of Wilson sought to utilise the old tools and appeals of social-democracy, of shared interest between capital and labour, and its intermediary in the trades union bureaucracy, to manage the crisis, by bureaucratic means, imposing the Social Contract, to limit pay and price rises. It inevitably collapsed in 1978/9. Similar clashes occurred across Europe, and in North America.
The working-class was, in the end, defeated, as it has been in the past, during such cycles, by the operation of capital itself, and which, as Marx described, shows the fundamental fallacy of social-democracy. Marx noted the point made by Ricardo that, its only when relative wages rise to a point at which they impinge on profits (The Profits Squeeze, described by Glyn and Sutcliffe) that capital has any incentive to replace labour with technology/machines. The classic example referred to by Marx is that, when labour was so cheap and abundant, in the 19th century, women were used to haul canal barges, rather than even use horses!
It is not technology and the resulting increased productivity that is the starting point for higher wages, but higher wages that, eventually leads to capital investing in technological innovation. As Marx and Engels set out in Capital III, Chapter 15, it is only when a new piece of technology costs less than the wages of the labour it replaces that capital is incentivised to introduce it. And, before technology can even be introduced, it must be developed, there must be some incentive to engage in the costly business of invention. The maxim of historians is “necessity is the mother of invention”, but, under capitalism, the necessity is always one driven by profit.
That is why, also, as Marx sets out, although there is continual technological development, often in one sphere and then another, it is only at specific points that a generalised technological revolution takes place that substantially raises productivity and replaces labour, and the basis of that is a crisis of overproduction of capital relative to labour, and the squeeze on profits that results. That process began in the 1970's, and reached a peak in 1985. It was this wide range of new base technologies based on the microchip that revolutionised production in all spheres, and, although battles continued for a while, the fact that capital was no longer faced with a shortage of labour, as technology created a relative surplus population, it meant that capital now, again, had the whip hand. The period of stagnation of the 1980's, was not a crisis of overproduction of capital, but the manifestation that such a crisis, which characterised the 1970's, had been overcome by capital, at the cost of labour.
Having done so, capital no longer needed its state to increase liquidity so that firms could raise prices to defend profits against rising wages. This process, in which wages rose, as a normal consequence of the operation of the capitalist system, as the demand for labour rose faster than its supply, which, then, results in firms raising prices, creating a wage-price spiral, is presented as the cause of inflation. But, as described earlier, this is not just back to front, it is also a fallacy. Wages are also a price, a price for the commodity labour-power. Like any other such price they can rise because the value of labour-power itself rises, or because of the effects of demand and supply for labour-power. As a price, they are also a function, as with all prices, of the value of the standard of prices. If the value of the standard of prices/currency falls, then, all prices will correspondingly rise.
As Marx set out, in Value, Price and Profit, the value of commodities is not determined by wages, but by the labour required for their reproduction. It is the difference between the new value created by labour (which resolves into v + s), and the amount paid to workers as wages (v) that forms the surplus value (s) appropriated by capital. If wages rise, as a proportion of (v + s), a rise in relative wages, this only reduces the amount by which workers are exploited, the amount they hand over gratis to capital. It does not change the value of the commodity they produce, it simply reduces the amount that capital appropriates as profit, and consequently by others as interest, rent and taxes.
As Marx sets out in Capital III, even if the mass and rate of profit remains the same, however, that does not mean that the mass and rate of rent, interest or taxes remains constant. Rent, interest and taxes are deductions from profit, after, that profit has been realised by industrial capital, after the industrial rate of profit has been determined. Just as relative wages can rise, relative to profit, so to, after profit has been realised, rent, interest and taxes can rise as a proportion of it, leaving a smaller proportion for profit of enterprise/retained profit available for capital accumulation. Prices can only rise, in these conditions, if the state, via its central banks facilitates a rise in liquidity, reducing the value of the currency, and that is what happened in the 1970's, and early 80's.
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