Plan
Introduction
Spiral by wage cost alone
The “return” of the Phillips Curve
Marginalist historical verifications out of space and time, as one would expect.
The Modes of production and the Epochs of redistribution must be taken into account.
Conclusion
Introduction
Recently a group of IMF authors published an essay entitled: “Wage-Price Spirals: What is the Historical Evidence?” ( https://www.imf.org/en/Publications/WP/Issues/2022/11/11/Wage-Price-Spirals-What-is-the-Historical-Evidence-525073 ). They analyze several instances of inflation in various countries since the 1960s. They note that these episodes were brief; they add: ” We conclude that an acceleration of nominal wages should not necessarily be seen as a sign that a wage-price spiral is taking hold.” In other words, inflation would quickly peak and then recede. ” Wage-price spiraling dynamics appear to have short lives. (…) Acceleration of nominal wages should therefore not be seen as a sign that a sustained wage-price spiral is necessarily taking hold. Indeed, history indicates that nominal wages can accelerate while inflation recedes from its high levels. In fact, on average this has happened after similar macroeconomic episodes in the past.” (p 6-7) Unfortunately, marginalism does not know how to differentiate between nominal and real wages, the latter being substituted by the Fischerian constant price construct. In my opinion, this study is marred by a series of fundamental methodological errors, which are actually quite elementary. We shall retain three of them: 1) the spiral by wages alone; 2) the bizarre « return » of the Phillips curve; and 3) the strange comparative method. We shall conclude by giving some rudiments of a scientific analysis of inflations, in the plural.
1 ) The authors consider only wage costs in their analysis of “cost-push inflation”.
We note at the outset that inflation is conceived in the singular according to Marginalist and bourgeois monetary theories in general. It is CPI inflation. Nevertheless, capitalist central banks have learned to take into account the distinction between CPI inflation and Core inflation, which excludes volatile goods such as energy and food, which are often largely imported. This distinction is entirely pragmatic, referring only to a subset of the main index, and has no theoretical basis whatsoever, since inflation – in the singular – is always and everywhere conceived of as a monetary phenomenon. This is a totally far-fetched concept that presupposes a demand that is bigger than supply, which the market price excludes a priori. (See the Clarification at the end of this text.) Inflations (1) refer, on the contrary, to a hiatus between the market price and the exchange value that underlies it, which the falsified ontology of marginal utility excludes from the outset. (2)
Today we are in the presence of an organic inflation created from scratch by the Paris Agreement and its administered prices, all of which is aggravated by the final double absurdity materialized by the carbon tax and by the single European electricity market that relies on the “last plant called” to production for a given auction. This is a sneaky mechanism of administered prices invented to subsidize otherwise inefficient renewable sources of energy. This is very different from the “last unit produced” or marginal utility. (3) Organic inflation, when it persists, becomes systemic and therefore it modifies the essential relations of the production function (v/C and pv/v), thus all the relative prices of the Social Formation – SF – but the price to be paid is found in the macroeconomic competitiveness rate that informs the exchange rate and influences the external balances. In addition to this, there are the sanctions against Russia imposed by NATO, an organization conceived as the military arm of the putative exclusivist Empire that imposes its diktats on the EU and its member countries in violation of all the institutional and democratic mandates of the European Community. Whether Marginalist or Marxist, the function of production always implies the conjugation of capital and labor. It is good to keep in mind the Marxist production function which is written: c + v + pv = p where “c” is the capital; “v” is the labor power; “pv” is the surplus value and “p” is the product.
Thanks to the law of Marxist productivity established by me following Marx, this function can be declined in a fully coherent way both in quantity, exchange value or price, as well as in labor time and thus in physical workers, both at the micro- and macro-economic levels. No other approach is capable of doing this, least of all Marginalism. (See the Synopsis of Marxist Political Economy .) The rise in the cost of the means of production (c + v), including energy and food, necessarily leads to a wage spiral of rising prices, if only to preserve a real wage not degraded by inflation. This is all the more true when imported inflation plays a greater role. In fact, mutatis mutandis, the spiral will have two mutually reinforcing helices. First, imported inflation will be reflected in the unit price, even if the wage is not initially indexed in whole or in part; the rate of competitiveness will be affected, especially when imported inflation concerns inputs that affect virtually all production processes such as energy and food; consequently, as long as the costs of imported goods remain the same, the real cost of imports will be increased by the deterioration of the exchange rate. The second propeller concerns the forward catching up of wages. The usual oscillations in a speculative global system of flexible exchange rates, the so-called free-float, do not change these basic dynamics.
2 ) The authors use the Phillips curve, which claimed to establish a strong correlation between low unemployment and inflation. Moreover, they do so over short periods of time, which is a bit too much.
The Phillips Curve is based on an illusion that confuses rising prices with inflation, whereas the latter only occurs when prices are disconnected from exchange values. The bourgeois economic conceptions that underlie the Curve assume that full employment strengthens the hand of workers in the sharing of the new value added by production between wages and profits. They simply confuse this division for a price rise. In reality, the price rise only occurs because of the transfer of wage increases to the selling prices of goods and commodities. A classic maneuver of the capitalist ruling classes. In fact, a general wage increase transferred to prices is only the reverse of fully indexing wages to compensate for a price increase. It will not so much be the CPI in real terms that will be affected but rather the rate of competitiveness of the SF, hence the external balances.
Employers’ fears aside, the Phillips Curve was soon abandoned because its correlation was proving increasingly false. The last traces of credibility were shattered with the permanent installation of “stagflation”, which combined high CPI inflation and high unemployment. Unfortunately, since Phillips proposed the Curve in 1958, no one has ever understood why it was initially plausible, only to be increasingly disproved by the statistics. The reason lies in the fraudulent and tautological quantitative theory of money proposed by the Marginalist Irving Fisher and in the fraudulent productivity theory of bourgeois economists of all stripes.
This Fisherian theory is taken up wholeheartedly by all mainstream economists without anyone daring to recognize it, given the low credibility of its author, who was always wrong, even on the eve of the Great Depression of 1929 and before the Recession in the Depression of 1937; Fisher had started as a rich heir turned into an economist only to end up ruined and finally pose as a advocate of the 100 % Money theory. (4) According to this theory, the quantity of money corresponds to the sum of the prices of all the goods and services exchanged, taking into account the “velocity” of money, which is nothing more than the time it takes for a monetary instrument issued by the central bank to return to its creator. In fact, this amounts to establishing the quantity of money needed by the supply and demand of money on the market. This confuses the quantity of money needed with the sum of prices, which eliminates the role of money rotations, the quantity of which, in the form of cash and bills, is much smaller. Fisher wrote several pages to try to demonstrate that this vulgar tautology was not a tautology. The fact remains that all mainstream economists use it and that it is the basis for the dominant concept that inflation is always and everywhere a monetary phenomenon. Fisher was an American disciple chosen by Böhm-Bawerk the falsifier of Book II of Capital with his fabrication of the so-called transformation problem; as such, Fisher became the conscious falsifier of Karl Marx’s Book III of Capital in that he claimed to eliminate the class struggle by amalgamating rent, wages and profit in his shapeless “income stream”, responding to the mechanisms of the acquisitive mind given to be universal and perennial according to the original a-historical falsification of the Austrian School. All, independently of their position in society, would be driven by the same desire to make their “income” bear fruit according to the degree of risk they are ready to take and the temporality of the investments chosen.
Such a Marginalist conception of money cannot account for « inflation » other that pretending a strange mismatch between supply and demand which the market excludes a priori. This escapes all economists today, faithful servants of textbooks and other nobelized nonsense, but it did not escape Fisher himself. Without saying anything, in order to escape the contradiction and to maintain a link with reality, he soon invented statistical indicators, in particular the CPI. Indexes became his obsession and we understand exactly why. In this way, he tried to keep an empirical grip on the inevitable evolution of prices: giving a starting year as the Base =100, he tried to identify empirically the evolution of the “purchasing power” of money by plotting constant prices. This is the basis for the bourgeois National and enterprise accounting. (5) What a way to go around in circles.
The problem is that bourgeois economists do not know what productivity is. I refer here to my Synopsis in which I restore the scientific demonstration of productivity, which solves the false problem of the transformation of production prices into exchange values, a problem invented against Marx by none other than Böhm-Bawerk. The Marxist law of productivity demonstrates the coherent evolution of exchange value, and thus of the market prices it underlies, in the micro-economic production function as well as in the macro-economic sphere defined by the Equations of Simple and Enlarged Reproduction – or, in Marginalist terms, the stationary equilibrium and the dynamic equilibrium. It is the only one that allows us to give in a perfectly coherent way both the quantities used and produced and the exchange values, including the exchange value of labor power – and by extension, the working time and the number of physical workers employed.
This is essential since higher productivity implies better technical and/or organizational performance of production, using less labor time to produce the same quantity of the same product – or a very elastic product – at a proportionally lower unit cost. Less work time inevitably means fewer workers. Productivity is the main law of motion of the capitalist mode of production in that it leads to the centralization and concentration of capital while “liberating” labor power. This feeds unemployment, the reserve army of the proletariat which puts downward pressure on wages, at least until it is reabsorbed by economic activity. None of this is conceivable with mainstream bourgeois economics: one remains a prisoner of economies of scale, and thus of the contradictions between increasing and decreasing returns already criticized by Piero Sraffa – 1920s – these are lethal contradictions that are very poorly disguised by the pseudo-theory of “marginal productivity”. Not only do supply and demand always lead a priori to ex post equilibrium, but this is true for the labor market: so that, as R. Solow pontificated in his 1956 Nobel Prize-winning article, by removing all constraints on the labor market – human labor power is then treated in its monetary fluidity as any factor of production – full employment is always established “at the physiological threshold”! This, because of its elastic ontology, should lead, I believe, to the “Dalitization” of workers masked by full employment according to the ILO. It is this precarious full employment that seems to give back some plausibility to the old Phillips Curve, which says a lot about Marginalist seriousness.
Thus the Phillips Curve has never meant anything because it is based on the fallacious theory of Marginalist productivity, which even overlooks the problem of the “liberation” of labor power induced by true productivity, which must be reabsorbed afterwards. Alfred Sauvy spoke of “spillover” (« déversement ») from one branch to another. This process is proving increasingly difficult nowadays in the absence of truly new economic sectors capable of adding to the complexity of GDP and of the consumption basket; the same is true of intermediate sectors that are now capital intensive. These barriers to “déversement” therefore put the Reduction of Labor Time back in the spotlight in order to re-establish an authentic equilibrium, that is to say, both economic and social; otherwise the capitalist system falls into the temptation of sharing the misery among the people with the forms of fascist corporatism that accompany this process, which is more “liberist” than “liberal” in the classical sense, say of John Stuart Mill. This is why, as Western society became more “mature” – F. Perroux – the correlation of the Curve dissipated and became totally false from the end of the 1960s and even more so in the 1970s, which corresponded to the policies implemented by the FED led by Arthur Burns before the arrival of Paul Volcker in 1979 and the election of the neocon R. Reagan in 1981.
The “stagflation” of the 1970s took care of it. But no one understood it because there was no really scientific theory of productivity.
Since then, the notion of “full employment” has been revised in all the capitalist organs in order to deceive the citizens. The OECD, the two Bretton Woods twins in Washington opposite the FED, the Central Banks and the statistical institutes all unashamedly refer to precarious full employment as genuine full employment, i.e. full time full employment. Without the slightest deontological and methodological qualms. A sarcastic Roman song points out that “la carta che era bianca, dalla vergogna diventò rossa”. All of them operate with the official unemployment rate according to the ILO: one hour of work during the last statistical survey removes you from the ranks of the unemployed, which is very convenient for the Power that be. Until the end of the 1970s, increases in the unemployment rate worried the leaders, since it was agreed by the “economic science” – Keynesianism, neoclassicism, theories of regulation – which had accompanied the Trente Glorieuses, according to the expression of J. Fourastié, that democratically acceptable unemployment could only be seasonal and frictional, and therefore temporary. Then the Trilateral Commission came along with its desire to put an end to the “rising expectations” of workers and citizens. This cannot be denounced in any other way than by the term regression, because it is indeed a socio-economic regression, but above all an ethical-political one.
In fact, the US experienced a situation of full time employment and a strong economic expansion until August 15, 1971. On that date, the imbalance in external balances forced Treasury Secretary Connally and President Nixon to unilaterally impose a surtax on imports while de facto eliminating the convertibility of the dollar to gold, a parity that formed the basis of their domination of the Bretton Woods system.
American collective bargaining worked as follows: a powerful American union, with large strike funds, would call a strike in a large multinational company and extract gains, wages, benefits, holidays, sick leave, etc., sometimes exceeding productivity gains. This was the model of union counterweights opposed to the power of the Big Corporations inherited from F. D. Roosevelt’s New Deal.(6) But these union victories were easily absorbed by the company, which simply transferred the wage concessions to the selling price, including the employer’s share of social contributions, as recognized by Friedman himself. (7) All this happened without inflation, even when the transfer went beyond the gains in productivity, since the United States dominated world trade. They were able to impose their terms of exchange. Without inflation because it only changed the materialization of its productivity: its essential ratios v/C and pv/v but also, by way of consequence, the internal structure of relative prices of the SF.
Moreover, as long as redistribution occurred through the sharing of “social surplus value”, through social contributions, income and other taxes (8) which refer to an organic distribution in the socially created surplus value, structural inflation – i.e. the ratio of the social wage bill to the real wage bill – was contained.
The problem came from the generalization of these agreements to the whole of the American society. The latter was able to absorb the effect as long as the MNCs, supported by a USD established as the world’s main exchange and reserve currency, grew and as long as the external deficits remained manageable. August 15, 1971, marked the end of this regime. The exorbitant costs of the Vietnam War and of US military bases abroad – the new “burden of the empire” in Yankee terms – were well analyzed by the great American Marxist Harry Magdoff in Monthly Review. The popularity of the goals, if not of FDR’s New Deal, at least of the Great Society promised by President L. B. Johnson to American workers was tenacious. The latter had come to conceive of themselves as a « middle class » or even as “white collar” workers – C. Wright Mills etc. The promise of the Great Society, offered in exchange for support for the Vietnam War, eventually came into conflict with budgetary imperatives, a process accelerated by the reduction of tax progressivity and by the soaring tax evasion refined by the MNCs. At the end of his analysis in his book Sovereignty at Bay (1971), Harvard theorist Raymond Vernon concluded that a good MNC could be recognized by the value of its accountants. CPI inflation was therefore more or less contained … until Arthur F. Burns left the FED. In his anguish as a central banker theoretically caught off guard but anxious to save the system, this time by flattering his “animal spirits” instead of regulating them, Burns anticipated the drastic actions of the Volcker-Reagan couple. (9)
In Europe, before the privatization of the central bank, which occurred in France with the Pompidou-Giscard-Rothschild law of 1973, negotiations were carried out within the framework of the Economic and Social Council, which was itself part of indicative and incentive planning – known as French planning -, supported by public credit and solid public social security schemes that played a decisive counter-cyclical role. This gave rise to national agreements broken down by sector, by branch and by company. The differential between price and exchange value was doubly cushioned by planning, by the Social Security system and by these agreements, which were carefully extended at the national level as a whole – but with State intervention to support the worst-off sectors, this then led to measures such as the RMI and minimum wage, the latter going hand in hand with a de facto full-time labor norm rather than precariousness- favoring hourly standard as is the case today.
This Social State – or the Anglo-Saxon Welfare State – could have been deepened by adding, quite naturally, national day-care and geriatric regimes – plus home care for the elderly -, these regimes being creators of professionally and socially qualified and essential jobs. This deepening of the sharing of “social surplus-value” could have been achieved painlessly if an adequate definition of anti-dumping had been adopted to protect at least the necessary national social contributions and thus national competitiveness. This would have provoked a qualitative mobility of international productive capital without harming employment or the industrial-economic coherence of the Social Formation, as long as the strategic sectors were safeguarded. However, to the great displeasure of many authors, including the great classical Walrasian Maurice Allais – see the 1974 Fracture (10) – the choice was made to subordinate European integration to global free trade and to “private global governance” rather than to adopt his Community Preferences…
To resurrect the Phillips Curve today is therefore nonsensical and amounts to confirming the chronic misunderstanding of productivity, which is the revolutionary characteristic of the Capitalist Mode of Production – CMP – as a mode of production, while treating today’s precarious full employment as the equivalent of the full full-time employment of the post WWII Thirty Glorious Years! I leave it to you to judge.
And what about the use of the Phillips curve over short periods? The falsity of these short periods had already been criticized by many economists, including Samuelson, Solow and later M. Friedman. (11) But basically, apart from the increasingly obvious empirical incompatibility, they had no idea why this was the case, since they had no scientific theory of productivity. (12) In the post-World War II “Welfare State” framework in the United States, the Phillips Curve linking full employment and inflation imagined a race between nominal and real wages, all regulated by State intervention. Subsequently, mainstream economists, in particular monetarist neo-liberals such as Milton Friedman, found it appropriate to denounce the inflationary spiral triggered by union negotiations that naturally sought to recover the losses due to inflation. Eventually, automatic wage indexation was imposed – the Cola Clause. After 1979-1982, with the Volcker-Reagan tandem, it became the scarecrow of all neocons.
To focus the analysis of the Phillips Curve on brief historical episodes is therefore not pertinent.
3) This brings us to the data and historical verifications. They are crucial in this “dismal science” which sees scientificity only in empirical verification – “Baconian empiricism” according to Koyré’s apt expression… – and moreover subject only to the examination of peers publishing in the same authorized journals. The loop of the groupthink is thus closed.
However, to claim to analyze inflation reduced to a wage phenomenon and according to data collected in several countries, at different times, and according to the same methodology, would have amused a first-year sociology student in the 1960s and 1970s. How, indeed, can we ignore contextual aspects – especially if there are several types of inflation – and cultural aspects, how can one ignore diachronicity and synchronicity?
This is crucial, since one must compare what is comparable. The American bourgeois social sciences had relearned to make these distinctions; their European counterparts, kept on their toes by powerful Marxist currents, had never really stopped doing so. A good summary of the North American arguments and questionings in this area can be found in Ronald H. Chilcote’s Theories of comparative politics, 1981. Compare only the notion of full-time full employment of the Trente Glorieuses with the precarious full employment since the monetarist neo-liberal counter-reform … By rehashing the half-Smithian, half-Marshallian concept of the “natural” or “structural” rate of unemployment proposed by Wicksell, the OECD adapted: full employment, which until then meant only seasonal and frictional unemployment at less than 3%, was redefined in the 1980s at 6-8%; since the 2000s, it refers for degraded contexts such as Italy to official full employment going hand in hand with 11% unemployment and more – in the ILO sense, of course !!! This is not serious; above all it is not scientific.
These methodological blunders are, however, part of the genesis of Marginalism, which is at the heart of all versions of bourgeois economics. The predominant influence was that of the Austrian School, with Böhm-Bawerk, Menger, Mises and Schumpeter. In order to falsify the scientific political economy established by Karl Marx, which was based on the extraction of surplus value and thus on class struggle, they invented utility to replace exchange value and began to formalize the “calculation of joys and pains ” in the hope of conferring a quantitative dignity on this eminently elastic and subjective meter. Plausibility was at this price. There were many protests, including from bourgeois economists who wanted to keep their feet on the ground, such as the German Historical School with Gustav von Schmoller.
This criticism was potentially lethal, but the need to falsify economic science in order to legitimize capitalism was much more powerful. The social genesis of profit had to be liquidated by concealing it. The bourgeoisie therefore set out to organize academic and intellectual selection in order to make the subjective logic of marginal utility a universal and perennial human characteristic, the capitalist acquisitive mentality being supposed to be found everywhere in identical form, with Caius Licinius Verres in Sicily, to the great displeasure of Cicero, with Adam Smith in Scotland, with H. Madoff with his Nasdaq software and his position at the SEC, or even in the potlatch societies… In short, by falsifying all the social sciences thanks to academic, ideological and political control, one could hope to establish a character of universality, without which there is no science, to this eminently elastic notion. Our authors obviously went to a good school.
4 ) Modes of production and times of redistribution must be taken into account.
The scientific comparative method in political economy was initiated by Karl Marx with his key concept of Mode of Production. I have shown that civilizational Eras should be added – indeed, the ethico-political conditions, for example in relation to the symbolization of sacrifices, play a parametric role on what Braudel called “the long duration” especially with regard to the long march towards general human emancipation and thus the brutality of exploitation; Ages must be added and they are characterized by a specific technological coherence through-out time – eg. Stone Age, Bronze Age etc. The Modes of production are distinguished by their form of extraction of the dominant surplus-value that characterizes them, either absolute surplus-value – duration of working time -, or relative surplus-value – cyclical intensity -, or productivity – structural intensity -, or finally “social surplus-value” – i.e., the planned rational reallocation or redistribution of surplus-value and public credit by planning and by the socialist democracy that is linked to it.
Within each Mode of production we have Epochs of redistribution which determine the re-allocation of surplus-value in the Enlarged Reproduction or dynamic equilibrium, according to the priorities set by the class struggle. (See the Synopsis. ) Thus, classical and Censitarian liberalism – a necessary neologism constructed on « cens » the French word for the property taxes paid by wealthy which conferred them an exclusive electoral franchise – rests on the individual wage alone, regardless of the size of the household; the European Social State or the Anglo-Saxon Welfare State rests on the affirmation of the “net global income” of households, adding to the individual net wage the deferred wage financing the branches of social security and the share of taxes returning to households in the form of guaranteed universal access to infrastructure and social services, which is the exact opposite of the Marginalist “disposable income”… The monetarist neoliberal State is characterized by generalized precariousness, tax expenditures, the unconstitutional regressive philosophy of the flat tax, deregulation and privatization at all costs; it is a properly regressive Epoch from the social redistribution point of view since it is moving towards a barbaric system based essentially on the net wage alone, which comes further under pressure by the current WTO definition of anti-dumping, which induces a global wage deflation downwards.
In the socialist Mode of production surplus value becomes “social surplus value” which is managed in common via planning and socialist democracy. This Mode also knows its Epochs of redistribution, for example the NEP, the rigorous Stalinist planning, the Castro-Guevarist presupuesto, the Chinese forms of redistribution experienced during and since Mao’s presidency, etc.
We can see that claiming to rely on the Phillips Curve is not very relevant, since it is already shaky in its scientific-empirical performance and is further aggravated by verifications that ignore the historical Epochs of redistribution in which the episodes selected are inscribed, and that, moreover, it only considers the wage spiral. It is at best an academic game, nothing more.
For example, how much credence would you give to this a-temporal and spaced-out graph:
Figure 4.1: Average Decomposition of Wage Growth across Episodes with Accelerating Prices and Wages Sources: IMF staff calculations. Notes: Contributions using pooled wage Phillips Curve coefficients from column (5) of Table 4.1 Bars illustrate average contributions, across episodes, of each component relative to contributions observed at the start of the episode window (t=-3). ‘Other’ includes the contributions from short-term changes in unemployment gap, productivity growth, time effects and the residual. Horizontal access defined as in section 3, where zero is the first quarter where the selection criteria holds
Conclusion.
We have said that this game is not trivial. It is not without socio-economic consequences. But central bankers are, by profession, pragmatic empiricists who serve their main shareholders, the private banks, as best they can. This is all the more true in the current context with central banks that are entirely privatized and established in their autonomy from political power. What lessons could they draw from these brief, self-rebalancing episodes?
One thing seems certain: both the Fed and the ECB are now acutely aware of the inanity of economics textbooks, particularly with regard to “inflation”. And we know that price stability is the primary mandate of capitalist central banks. They are therefore navigating blind, abandoning “forward guidance” for a day-to-day management, “meeting to meeting”. However, class interests remain. Although they now make a minimum distinction between Core inflation and CPI inflation, central bankers have become aware of the definitive debacle of Monetarist claims according to which, within a Minimum of State parameters, monetarist policy alone could replace both monetary, budgetary and fiscal policies. Jerome Powell already noted during the FOMC meeting of May 4, 2022 that the FED could influence the monetary supply but that the rest was not within its mandate. However, the Ministries of Finance and Economy remain entangled in their neoliberal monetarist austerity. Worse, it seems that governments are ready to use CPI inflation, as they did before with the Covid-19 crisis, to stupefy (13) the masses and impose the most regressive reforms that remain to carry-out.
This ignores the fact that the current CPI inflation is mainly due – for the time being – to the consequences of the price increases resulting from many factors; the standards defined by the Paris Agreement; the single market for electricity characterised by administered prices within the EU; the global speculation; and the unilateral sanctions imposed on Russia, all of which are driving up the prices of energy and food. Yet, energy and food are among the most important inputs in the production costs of any economic activity. The war on fossil fuels is reducing investments, thus pushing down the volumes offered, which causes an upward trend in prices. Gas is necessary for the production of fertilizers and grey or blue hydrogen – we know that some 70% of European fertilizer plants have already suspended their production several months ago … Some do pretend to ignore that we must stop demonizing CO2 with the intent of turning it into an improbable new original sin since life on Earth is carbon-based and CO2 is necessary for vegetation and crops; yet this would allow us to better take care of the environment and human health.
The EU is forced to buy American gas at four times the price without having all the necessary re-gasification plants, as well as Russian energy indirectly sold at higher prices by various dealers. This is a policy of unilateral domination, a barbaric policy from another age that does not hesitate to sacrifice Ukraine while claiming to be ready to “fight to the last Ukrainian”. At least 100,000 young Ukrainian soldiers have already died and more than 20,000 civilians according to a quickly self-censored statement by the European Commissioner. Didn’t President Biden say, at the beginning of this conflict wanted by the exclusivist Empire in spite of the two Minsk Agreements, that the 60 million deaths caused by the Second World War did not imply any “chaos” but led instead to the American unipolar hegemony on the World? Encouraged by his advisors, he draws the conclusion that when such opportunities arise, they cannot be lost. (15)
The consequences of the Paris Agreement are far more pernicious. The ecological transition carried out according to this ideological and normative exclusivist-Malthusian nonsense leads to an organic inflation that will continue to grow as long as the West does not abandon these self-destructive parameters. The EU has recently expressed concern about the skyrocketing price of lithium and rare earths, but only to add to the issue of electric cars and restrictions on the mobility of citizens. Organic inflation ultimately affects the macro-economic competitiveness of social organizations and, consequently, their exchange rate.
As for imported inflation, it will lead mutatis mutandis to an upward spiral via the driving effect of wages and via the exchange rate impacted by the inflation rate. Of course, the floating exchange rate system and the spot market – for example, for gas delivered by LNG tankers – may lead to oscillations; but they will not, however, affect the underlying trends in the absence of a change in policy. Recently, in the US, the release of part of the strategic reserves had a temporary downward effect on prices; similarly, the accumulation of LNG tankers on the Spanish coast waiting to be unloaded created a temporary surplus reflected by the spot market.
In such a situation, to claim that a peak in CPI inflation will be reached, which will then lead to an inflationary easing, is to cut oneself off from reality. Pretending to abandon the dictates of the economics textbooks – and nobelized contributions – according to which it is appropriate to raise interest rates above the rate of inflation in order to combat it, and in fact well above it if the reaction time was too slow, in order to settle for Core inflation alone, seems ingenuous at best. This choice also implies the non-indexation of incomes, which would be necessary to at least keep wages and real incomes constant. It goes hand in hand with the encouragement to employers to compensate employees with bonuses instead of increasing their wages, which amounts to paying their “net wage” with their “deferred wage”, including the employer’s share paid by employees as consumers, since it is transferred to selling prices. It is equally ingenuous to believe that inflation is due to too much demand – of course, originating from wages – so that the induction of recession and unemployment is necessary to restore the balance. By what meta-magic? No one knows.
Everyone can instinctively understand the futility of trying to combat the bulk of current CPI inflation through recession, since it depends on the Paris Agreement, the European single market for electricity, the global speculation and the sanctions unilaterally imposed on Russia. Of course, by impacting production costs, organic inflation and imported inflation will in turn induce higher wages and therefore, all things being equal, an upward spiral. Refusing 100% indexation of incomes slows down the mechanism a little, but not much. Furthermore, this pressure on wages is occurring today after decades of wage deflation and credit crunches for companies operating in the real economy, while financial speculation is reaching new heights and governments, subject to the financial markets, are accumulating public debt and record budget deficits.
Add to this the deterioration of social security systems, including unemployment insurance, which weakens their counter-cyclical and anti-inflationary role, which is crucial in times of crisis. The neo-liberal monetarist Minimum State is then obliged to make up for this with aid and stimulus plans, which were initially intended to be temporary but which are now tending to become permanent. However, because of budget deficits – and the austerity imposed by the EU – these aids are financed by new issues of public debt, which is the classic case of structural monetary inflation, since the part of the social wage bill concerned exceeding the real wage bill no longer comes organically from the socially produced surplus value.
It also appears that the negative interest rates practiced by the Central Banks, by inducing socio-economic recession, transform many companies and part of the real estate owned by investment funds into zombies that are then kept in the balance sheet of the banks to avoid near bankruptcy. The restriction of capitalist credit stifles investment, which is the desired goal. But the fear of social revolt as well as the imperatives of the climate transition are pushing governments to compensate for this “credit crunch” with ecological stimulus plans, such as the American Inflation Reduction Act (16) and its European poor counterparts, including the Next Generation EU funds, 30% of which must go to the ecological transition and 20% to digital technology, which implies a lot of importing at increasing prices… In both cases, we are dealing with a net public debt that will have to be repaid; as far as the NGEU fund is concerned, 528 conditions are attached to it that call into question national sovereignty in areas of exclusive national competence.
In the real economy, credit is an anticipation of growth that complements the reinvestment possibilities of private or public enterprises. It is eventually transformed into real exchange value, whether in terms of the wage bill, fixed capital or infrastructure. When the credit is public and destined for public enterprises, its cost is low and therefore its impact is greater, since no private shareholder can claim dividends. In this case, the private credit is financed by a net new debt that does not go entirely to the real economy. This will produce an inevitable inflationary effect. To add insult to injury, as we have already noted, through the ruinous climate transition, these ruinous public investments will feed organic inflation through the rising cost of energy – which cannot be 100% renewable – and other inputs into production costs. The effects on external balances are already visible to the naked eye. Many people are proposing, in all seriousness, to accelerate the process by creating a Bad Bank, at the expense of the State and therefore of the taxpayer, which would mop up the assets of the banks invested in fossil fuels in exchange for Green Bonds to be invested in renewable sources of energy… We have reached this point, haven’t we?
However, the return of « inflation » is good because it demonstrates the total bankruptcy of the bourgeois paradigm (17). For if an economist does not know what “inflation” is, and therefore what an exchange value and a market price are, what else does s/he know that could justify his-her academic status and his-her salary?
Paul De Marco, former professor of International Relations – International Political Economy.
Notes:
1 ) On the three major types of inflation, structural inflation, imported inflation and organic inflation, see the Synopsis of Marxist Political Economy in the section Livres-Books of the old expérimental site : www.la-commune-paraclet.com as well as :« The inflation narrative and the irreversible ruin of our country July 4 2022 includes French, Spanish and Italian versions », in http://rivincitasociale.altervista.org/the-inflation-narrative-and-the-irreversible-ruin-of-our-country-july-4-2022-includes-french-spanish-and-italian-versions/ and « Credit without collateral in the epoch of negative interest rates », 29 oct. 7 nov. 2022, in http://rivincitasociale.altervista.org/credit-without-collateral-in-the-epoch-of-negative-real-interest-rates-oct-29-nov-7-2022/
2 ) « CPI-inflation has nothing to do with QE : see these graphs » November 19 2022, in http://rivincitasociale.altervista.org/cpi-inflation-has-nothing-to-do-with-qe-see-these-graphs-november-19-2022/
3 ) « Inflation: a new absurd ecologist bourgeois cycle is announced with a hike in prices going hand-in-hand with wage deflation but this is given as inflation », 12 may 2021, in http://rivincitasociale.altervista.org/inflation-a-new-absurd-ecologist-bourgeois-cycle-is-announced-with-a-hike-in-prices-going-hand-in-hand-with-wage-deflation-but-this-is-given-as-inflation-12-may-2021/ Lately the EU has been concerned about the explosive demand and therefore the possible price for lithium and rare earths, driven by the fraudulent ecological transition based on the nonsense of the IPCC, which has brought us the Critical Raw Material Act while accelerating the generalization of the inefficient, ruinous and polluting electric car. It would have been asking too much that such trend might have been foreseen. And so, characteristically, nothing is now said about the energy demand, chemical pollution and water use required… (https://single-market-economy.ec.europa.eu/news/commission-seeks-views-future-european-critical-raw-materials-act-2022-09-30_en#:~:text=The%20Critical%20Raw%20Materials%20Act%20will%20notably%20aim,chains%20while%20maintaining%20a%20sustainable%20level%20playing%20field. » In the meantime, the EU does not seem to have fully realized the role played by gas for the production of fertilizers and hydrogen … Shortly after the imposition of sanctions on Russia, it was announced that some 70% of European companies producing fertilizers had suspended their production …
4 ) See my Methodological introduction in the section Livres-Books of my old experimental site : www.la-commune-paraclet.com
5 ) See : « Purchasing power, standard of life, socially necessary working time and « global net income » of the households », 2-31-dec-2018, in http://rivincitasociale.altervista.org/purchasing-power-standard-of-life-socially-necessary-working-time-and-global-net-income-of-the-households-2-31-dec-2018/
6 ) See the Note 15 on John Galbraith in my Keynesianism, Marxism, Economic Stability and Growth – 2005. To the best of my knowledge, this book was the only one to predict the genesis of the subprime crisis caused by the explosive growth of the financial montages linked to the so-called universal bank, a process that led to the « credit without collateral ». See also on the subject: http://rivincitasociale.altervista.org/credit-without-collateral-in-the-epoch-of-negative-real-interest-rates-oct-29-nov-7-2022/
7 ) See Note 1 in Tous ensemble – 1996 – in the section Livres-Books of the old experimental site : www.la-commune-paraclet.com
8 ) We refer here to the concepts of “social surplus value” and “net global income” of households. The three components of the latter are the net wage, the deferred wage that finances social security and what returns to households in the form of guaranteed universal access to infrastructure and public services, which is very different from the Marginalist “disposable income” that excludes everything that counts, namely public social services which the notion of Marginalist GDP only counts as costs on the pretext that they have no “value added” by the market, even though they are much more efficient and contribute powerfully to raising the “standard of living”. Thus, at its peak in the early 1970s, universally accessible public health care in France cost 9% of GDP, while private health care in the United States cost 16%, with highly unequal coverage according to income, leaving some 50 million Americans without coverage. The current tendency is to pay the net wage with the deferred wage, under the pretext of pressure from global competitiveness understood according to the suicidal WTO definition of anti-dumping; this definition excludes ILO minimum labor rights and minimal environmental criteria; similarly, under the same pretext, taxes on the paycheck are reduced and social services and public infrastructure are privatized. This trend leads us back to social assistance paid for by dwindling general taxation. It is increasingly taking on a private charitable and faith-based aspect. As soon as fiscal policy is based on chronic budget deficits and on the issuance of public debt to cover the expenses – even small ones – of the monetarist neoliberal Minimum State, structural inflation is inevitable. Trying to hide it with the misery of Reaganite workfare is a ruinous social mediation both for the workers and in the long run for the whole Social Formation.
9 ) Here is how Arthur Burns anticipated Volcker, the Gramm-Rudman Act, the Reaganite workfare, and the whole neocon deregulation/privatization agenda that went along the lines of the Trilateral Commission and the economic anomie preached by Mr. Friedman and Hayek. “Given the strong and widespread inflation expectations that currently prevail, I have therefore reluctantly come to believe that a fairly radical therapy will be required to reverse the inflationary psychology.
The precise therapy that can best serve a nation is not easy to identify, and what will work well in one country may work poorly in another. In the case of U.S. inflation, which has become a major threat to the welfare of much of the world as well as the American people, it would seem to me wise at this point in history for the government to adopt a basic program consisting of four parts. The first of these parts would be a legislative revision of the federal budget process that would make it more difficult to run budget deficits and serve as an initial step toward a constitutional amendment along the same lines. The second part would be to engage in a comprehensive plan to dismantle regulations that have impeded the competitive process and to change regulations that have unnecessarily increased costs and prices. The third part would be to adopt restrictive monetary policies until the rate of inflation is significantly reduced. And the fourth part would be legislation to provide for corporate tax cuts in each of the next five years – the cut to be fairly small in the first two years but to become substantial in the following years. This type of tax legislation would unleash powerful forces to improve the nation’s productivity and thereby exert downward pressure on prices; and it would also help in the more immediate future to ease the difficult adjustments imposed on many businesses and their employees by the passage of the first three parts of the suggested program.”
(translated, p 697, in « The Anguish of Central Bankers 1979 », https://fraser.stlouisfed.org/files/docs/publications/FRB/pages/1985-1989/32252_1985-1989.pdf
10 ) However, Maurice Allais remained a prisoner of the Walrasian schema, even though he was always closer to Auguste Walras than to his son Léon, and therefore more concerned with giving priority to socio-economic choices to inform the equations. This is why, when the last tariff protections of the Gatt were being shattered to make way for the Uruguay Round and the onslaught of global free trade, he defended what he called Community Preferences; they were to stabilize the parameters within which the equations – and hence the policies – could be deployed. Noting that the Community Preferences had been discarded, I tried to come back to the charge in a way adapted to the international economic evolution by proposing a new definition of anti-dumping based at least on the level of the deferred wage necessary to finance the five branches of Social Security. Since the unanimity of all member States is required at the WTO, we can anticipate by adopting a small import surcharge to supplement the necessary social contributions without harming macroeconomic competitiveness. It is known that Social Affairs are an exclusive national competence recognized by the TFEU. (See : Foreword and the Appeal in http://rivincitasociale.altervista.org/test/ and http://rivincitasociale.altervista.org/appeal/
However, because of his belief in the scientific aspect of the Walrasian theory, Maurice Allais was unable to understand productivity and consequently the unsurpassable logic of recurrent cycles of the Reduction of Labor Time that Marx had announced as early as 1847. My critique is laid out in the Note ** of my Keynesianism, Marxism, Economic Stability and Growth – 2005 – which also exposes the real statistics of unemployment, a crucial theme that had already been treated in my Tous ensemble as a “march to precariousness” and to “self-employment”.
11 ) See for instance the brief summary here : https://en.wikipedia.org/wiki/Phillips_curve
12 ) Take, for example, Robert Solow’s 1956 Nobel Prize-winning article. Apart from the anti-Keynesian petition of his function of production, inspired without saying so by Harrod, who was inspired by the Soviet planning of his time in order to make of Keynes’s stationary system and dynamic one, he adopted without saying so the attitude of Stalin: that is, to introduce, whenever possible, the highest possible productivity, to ensure rapid growth. Solow’s problem lay in the fact that this introduction of technology remained exogenous; however, it had a market price, and Solow thus fell into contradiction. We know that his production function is written: Y = f (K,L) where K is capital and L is labor, but at a level to be determined by the market, rather than at the level of Keynesian full employment. The Solowian equilibrium will therefore be established at the physiological threshold, which, in the Darwinian race to the bottom generated by the current definition of anti-dumping at the WTO, means permanent wage deflation in the West… until the “Dalitization” of the masses is achieved. For Keynes, the socio-economic system being composed of interdependent variables, it can be resolved to an acceptable social and economic equilibrium by positing full time employment as the determining variable. Keynes was even prepared to draw inspiration from Paul Lafargue, without saying so, by foreseeing the transition to a 15-hour week because of increasing productivity and the need to share its gains to guarantee a balanced level of aggregate demand and supply. ( See: « Economic possibilities for our grandchildren », https://www.marxists.org/reference/subject/economics/keynes/1930/our-grandchildren.htm )
As for Stalin, he could not rely on a fully elucidated Marxist or scientific theory of productivity – I was the first to propose it, following Marx – so that the understanding and operationalization of the Enlarged Reproduction – involving different v/C and pv/v ratios – remained trapped in the false problem of the transformation of production prices into exchange values. Since a complete theory of productivity was lacking, it was decided to correct empirically for the effects of the introduction of the best techniques by relying on the Simple Reproduction model, since the latter stationary system was still perfectly consistent and could therefore play a decisive heuristic and normative role. National accounting according to the Net Material Product was developed, which gave an empirical control by quantities. For more details see : « The transition to socialism and central planning: the definitive clearing of the malicious falsifications, especially those of Ch. Bettelheim » June 21 2021/ in http://rivincitasociale.altervista.org/the-transition-to-socialism-and-central-planning-definitive-clearing-of-the-malicious-falsifications-especially-those-of-ch-bettelheim-june-21-2021/ See also : « Note on socialist planning-2 » in http://rivincitasociale.altervista.org/note-socialist-planning-2/?doing_wp_cron=1670236533.0304880142211914062500
13 ) The term has a specific neural valence. The clinical psychologist Marie-Estelle Dupont showed how the crisis management caused by Sars-CoV-2 stunned many people, often causing more or less serious damages, especially among children and adolescents.
14 ) Please see the articles available in English in the Categoria Ecomarxismo of this same site. For an excellent presentation of the Climatic Medieval Optimum and on wind turbines, see also: A ) « L’Optimum Climatique Médiéval : ce grand oublié », 17 août 2020 / Association des climato-réalistes, https://www.climato-realistes.fr/loptimum-climatique-medieval-prof-alain-preat-novembre-2019/
B ) « Éoliennes – “J’ai reçu plusieurs témoignages d’agriculteurs qui perdaient leur bétail” », Sioux Berger, Sud Radio , https://www.youtube.com/watch?v=bhwcDRXzJDY
15 ) See the « Flash News » of March 22, 2022 – if necessary use online translation – in : http://rivincitasociale.altervista.org/sars-cov-2-brevesflash-newsbreve/
16 ) “This gigantic plan of 369 billion dollars (356 billion Euros) is very good news for the fight against global warming, but very bad news for European industry. Two-thirds of it is a huge package of subsidies and tax credits to attract investment in wind turbines, electric batteries, green hydrogen or solar energy.
Marginalization of European industry
That the second largest emitter of CO2 is finally giving itself the means to fight climate change is commendable. The way in which this is to be achieved is much less so. The US government will allocate these public subsidies according to locally manufactured content. Meanwhile, the European market remains wide open to American exports.” in “America first” was not just a Trumpist slogan, but an assumed strategy of the United States, regardless of the administration in power. » (translated ) Chronique ,Stéphane Lauer , https://www.lemonde.fr/idees/article/2022/11/28/america-first-n-etait-pas-qu-un-slogan-trumpiste-mais-une-strategie-assumee-des-etats-unis-quelle-que-soit-l-administration-au-pouvoir_6152022_3232.html
17 ) See the Methodological Introduction and the Synopsis of Marxist Political Economy in the section Livres-Books of www.la-commune-paraclet.com For a brief summary see the following text : « The pseudo-economic science of the bourgeoisie: here is why we should quickly change economic paradigm », in http://rivincitasociale.altervista.org/the-pseudo-economic-science-of-the-bourgeoisie-here-is-why-we-should-quickly-change-economic-paradigm/
XXX
Here is the Clarification added on November 24, 2022 to : « CPI-inflation has nothing to do with QE: see these graphs » November 19, 2022, in http://rivincitasociale.altervista.org/cpi-inflation-has-nothing-to-do-with-qe-see-these-graphs-november-19-2022/
« “Inflation in the generic sense of the term refers to a gap between the exchange value of a commodity and its market price, which oscillates around it. As Karl Marx already said in his Paris Manuscripts of 1844, in the long run – more precisely in a cycle of reproduction – these oscillations cancel each other out. Consequently, the market cannot provide a scientific explanation of the exchange value that is the phenomenon, the market price being only its epiphenomenon brought about by capitalist competition. Marginalism is based on the falsification of the theory of exchange value, in particular of the exchange value of labor power, which refers to the extraction of surplus value in the production process and consequently to exploitation. To support this falsification, utility replaced the concept of exchange value. The marginal utility of a commodity is a subjective ideological construct, an elastic one and contrary to logical coherence, as shown by the ex-ante/ex-post problem that emerges from the intersection of the Supply and Demand curves that is supposed to give the market price. This subjectivism makes no sense except to claim its plausibility by claiming that capitalist logic – the capitalist acquisitive mind – always prevails diachronically and synchronously. Even so, a psychological phenomenon is not quantifiable. On this basis, one cannot grasp the central problem of economics, namely the commensurability of goods. This led to the obligatory subjectivist falsification of all social disciples, who were gradually brought under the close academic, social and political dependence of the Austrian School. Behavior would therefore be identical in a slave society, a feudal society, a capitalist society, a potlatch society, a liberal capitalist society of the origins, or the present hegemonic speculative capitalism. This is absurd, and this is why no bourgeois economist knows and cannot know what inflations are: they are outside his narrative and pseudo-conceptual field. CPI-inflation is an empirical construct of the falsifier Irving Fisher, who approaches the salary mass through the construction of the average consumption basket without distinguishing between exchange value and price. This construction is therefore a priori incapable of saying anything scientific about inflation. This is why, in order to preserve a trace of plausibility – without which he would not be followed – the falsifier Irving Fisher was obliged to introduce his construction of constant prices, which simply consists of using a year as a base = 100 to make comparisons, which, of course, does not resolve anything from a conceptual point of view. All this is laid out in my works among which my Methodological Introduction. For the three great types of inflation which are greatly impacted by the Paris Agreement, see : « Inflation: a new absurd ecologist bourgeois cycle is announced with a hike in prices going hand-in-hand with wage deflation but this is given as inflation », May 12, 2021, in http://rivincitasociale.altervista.org/inflation-a-new-absurd-ecologist-bourgeois-cycle-is-announced-with-a-hike-in-prices-going-hand-in-hand-with-wage-deflation-but-this-is-given-as-inflation-12-may-2021/