by Rodney Green
September 27, 2022
Inflation is the latest way the capitalist system’s crises are deepening the oppression of workers around the world. Capitalism is driven by competition and profit accumulation and generates global economic and political instability. While inflation is depriving U.S. workers of some of life’s necessities, the U.S.’s export of inflation to other countries is even more devastating. Such an absurd and abusive system cries out for a more sensible alternative.
What is Inflation?
Inflation is a rise in average prices of goods and services. In the U.S., the annual core inflation rate rose to 6.3% in August. Adding in food and energy costs lifts the inflation rate to 8.3% annually. Food prices alone in the U.S. are rising over 11% annually, increasing hunger and poverty, while rising at an even faster pace in less developed countries. Wages are not rising similarly so workers’ purchasing power is falling.
After 40 years of relative stability, why inflation in the U.S. now? Causes include the monopoly power of corporations, government aiding corporations, and COVID shutdowns and shortages caused by supply chain disruptions and war. Wage increases are not a cause of inflation but an effort to keep up.
Two Crises, Different Responses, Same Goal of Maximizing Profit
Capitalists and the government responded differently to the financial crisis of 2007-2009 and today’s ongoing COVID crisis.
The Financial Crisis of 2007-2009
Threats to profits during the 2007-2009 crisis led capitalists to lay off workers and cut wages and benefits (labor costs account for 60-70% of production costs). To suppress resistance, the capitalists divide and weaken workers through racism and sexism, oppose new union creation (e.g., Amazon), and outlast or break strikes. Unemployment (which reached 10% in 2009) served to further weaken workers, as competition for jobs led to lower wages. Labor’s share of national income fell while productivity (output per worker) rose sharply while profits remained strong during this earlier period.
The COVID Pandemic
COVID created another profitability crisis for capitalists with consumer spending plummeting and supply chain disruptions forcing up the bosses’ costs. As the pandemic began to recede, the bosses faced a relative labor shortage. The official unemployment rate reached 3.7% of the labor force, the lowest point in decades, because many workers quit working or retired during the “great resignation.” However, if workers who have only part time work are counted, it rises to 7%. To recruit workers back, many firms raised money wages (albeit less than the rate of inflation) and improved benefits slightly, which cut into their profits. The resurgence in the labor movement, with union organizing and strikes, compounded this threat.
Unlike the financial crisis, the COVID crisis caused shortages of key inputs for capitalist production at a time when they have been less able to force down wages. The capitalists have instead taken advantage of inflationary pressures to bolster profits through price increases. From 2021-2022, 59.3% of change in prices has gone to swell profit margins; 38.3% of price increases were for the increased cost of non-labor inputs that capitalists had to buy; and only 7.9% of the increased prices went to labor costs (J. Bivens, EPI, 4/21). The higher prices cut the purchasing power of workers across the board, obliterating any improvements in money wages.
Corporate Monopolies Raise Prices
How can the bosses inflate prices across the board so readily? Isn’t capitalism’s “market competition” system supposed to keep prices in line with costs of production? In a competitive market, capitalists would have to sell their goods at the same price as their competitors. But the 20th century saw the rise of huge corporate monopolists which have cornered the market. Today’s monopolists are price makers and set prices as they wish. They are able to escape the “discipline of the market”. Monopolists still cannot raise prices so high that the number of people willing to buy their products falls so low as to actually reduce their revenues. However, in industries like food, housing, and energy where people have few alternatives, capitalists have “gone big” on price increases, generating profits over and above their usual profitable exploitation of workers.
The Capitalists Control the State
Government (the state), far from representing the interests of all the people, carries out policies that reinforce the capitalist system of exploitation. These policies are usually geared to help the extremely wealthy monopolists. When there is an economic crisis, the state can create lots of money and encourage lower interest rates to help such businesses. The executive branch, usually with Congress’s agreement, bails out major banks, insurance companies, and corporations, including the hundreds of billions of dollars it provided during the 2007-2009 financial crisis.
During COVID many workers/consumers could not buy products or pay rents, so to protect vendors and landlords the government issued checks to families, which incidentally temporarily lessened hunger and evictions. Congress gave large appropriations to big pharma, both enhancing their billions in profits while providing vaccines to workers. More workers survived — and kept generating profits for the bosses.
With today’s inflation, capitalists and their state enhance their profits, while depriving workers of needed products and services. The system is stacked against the working class.
U.S. Imperialists Export Inflation
As bad as inflation is in the U.S., it is far worse in other countries. Why? After World War II, the U.S. was able to establish the dollar as the world’s reserve currency. Oil and many other globally traded goods are therefore priced in dollars, helping keep the demand for dollars high. Increases in the U.S. interest rates over the past year have made the dollar even more attractive to investors, raising the dollar’s value further. A rising dollar means that the currencies of other countries lose value, making their imported goods that are priced in dollars even more expensive in those countries. This has led to higher inflation rates in other countries and even greater distress.
War, Rivalry, Shortages, and Recession
Imperialist war and rivalry disrupt the world economy with inflationary pressures as well. The war in Ukraine, for example, led to European boycotts of Russian energy resources. The resulting shortages have driven up prices of key products. Russia has prevented food exports from Ukraine, creating massive shortages globally and crushing countries like Sri Lanka, Somalia, and Pakistan.
Capitalist classes prefer stable prices, keeping inflation rates at around 2%. When inflation exceeds such rates, the capitalist state fights inflation by creating recessions (“cooling off the economy”) by raising interest rates and shrinking the money supply. U.S. workers are forced to forgo credit-dependent big-ticket items like automobiles and houses while the costs of debt skyrocket and businesses are forced to lessen their borrowing for expansion. As a result, millions of workers get laid off and wages fall. Many small businesses go bankrupt and many large businesses close or are taken over by larger companies. Capitalism swings between crises, creating one (inflation) and trying to solve it with another (recession)!
Why can’t economic distress be solved without increased prices? Why can’t abundance, or scarcity, be shared among all workers equitably? Capitalism, run by the dominant class for their own profit, simply can’t allow it because such a system undermines profits.
With today’s inflation, despite multiple causes, U.S. capitalists are grabbing the opportunity to maximize their profits at our expense, by reducing our real wages and saddling the world with even more severe inflation. The instability and uncertainty promote deeper global economic, political, and military conflicts. Why should workers tolerate such chaos? We need to put an end to capitalism, and together we can.
Rodney Green is a Marxist economics professor at Howard University and a long-time activist in the fight against racism and for communism.