Socialist Action /July 1999
Inflation? Deflation? What's it all about?
By NAT WEINSTEIN
The phenomena of inflation and deflation have been mystified in the capitalist
owned and controlled mass media. The media has been celebrating "disappearing
inflation" as if it were an indisputable fact.
But the claim that "the rate of inflation has fallen to its lowest
level in more than half a century," is bogus. On the contrary, the
rise in the rate of inflation has not significantly changed-although it
has been masked by a complex variety of factors, some visible and
some not.
The London-based weekly The Economist, for instance, makes a muddle
of these economic phenomena in an article in its June 12 issue titled, "How
to Live With Falling Prices." The article is advice to capitalists
who have "taken inflation for granted [and now] that prices are falling
in many industries, [the author poses the question] how should they respond?"
The form of the question implies, falsely, that the prolonged period
of uninterrupted inflation is the historical norm. The facts are, however,
that prior to the last 60 years of Keynesian economics, the long-term trend
had been for the value of commodities, and thus their prices, to steadily
fall.
Thus, when a given capitalist in today's auto industry, for instance,
introduces more sophisticated machines capable of increasing the production
of cars with the same number or even fewer workers than his competitors,
each car produced has less labor time incorporated in it and is thus cheaper
to make.
But instead of prices going down, they have continued to rise! And that
is the not the result of the rising cost of production but of the steady
decline in the value of money.
First of all, money today is not what money had been throughout the history
of capitalism; that is, up until 55 years ago. Before then money was primarily
gold and silver coins, or paper currency issued by governments but redeemable
on demand in specified weights of gold and silver. That kind of money was
a very reliable measure of value and standard of price, key functions of
a medium of exchange.
But to make a very long story short, the trouble with money which is
solidly backed by gold and silver is that it does its job too well-it too
rigidly measures the values of commodities and makes it extremely difficult
for governments to institutionalize deficit financing as a mechanism for
softening the boom-bust cycles of capitalist production.
It has worked quite well for half a century, but it has also resulted
in a generalized and ongoing decline in the values of currencies. Thus despite
the increased productivity of labor reducing the value incorporated in commodities,
the falling value of currencies is registered as a generalized rise in prices.
Quality and value not the same things
However, this fundamental law of capitalist production and commodity
exchange, described above, is rudely ignored when capitalist propagandists
want to make the case that inflation has virtually disappeared.
The aforementioned edition of The Economist helps make it disappear
with this little bit of verbal trickery: "Official figures overstate
inflation because they do not allow fully for improvements in the quality
of goods and services."
That statement, which implies that quality and value are
the same thing, is a deliberate misrepresentation, and is a mystification
of the laws of commodity production and exchange. The improvement in quality
is intended to suggest that the goods are worth more, and therefore buyers
are getting more exchange value than they may realize. It's a play
on the ambiguity of words in the hands of deceitful prostitutes of the pen.
In ordinary usage, the quality of a product, like an automobile,
implies that its value is also higher-as would be the actual case when a
Ford sedan, fully loaded with automatic transmission and other extras, is
of higher quality and therefore more valuable than a Ford compact-without
extras.
 However, it's quite another thing if this year's model
of a Ford sedan is of higher quality than last year's model-but only
because faulty or poorly designed parts in the older model were replaced
by better performing and better designed parts in the newer model. In other
words, there is an increase in quality in this given case, but all other
things being equal, there is no increase in value, so long as it
tends to cost no more to produce the better quality parts.
Thus the assertion that "official figures overstate inflation because
they do not allow fully for improvements in the quality of goods and services,"
is a typical case of twisted logic intended to mislead readers and to downplay
the real rate of inflation.
Why the inflation rate is understated
But why are official statisticians so intent on playing down the real
rate of inflation? There are two main reasons:
First, by systematically understating the rate of inflation, capitalism's
tendentious statisticians seek to undercut workers' just demands for wage
increases to meet rising prices. And if statistics convince a portion of
the workers and their allies and friends in the general population that
inflation is lower, the simple justice of their demands are undercut and
diminished in the eyes of those deceived.
Meanwhile, it's a well-known fact that real wages have fallen by around
half over the last several decades.
One important piece of evidence substantiating that real wages have fallen
to the level indicated lies in the well-documented fact that up until the
end of the 1960s, the norm was that a single wage-earner could support
an average working-class family of four. But now that it takes at least
two breadwinners to support a similar average family of today, this new
norm serves to substantiate the fall of real wages by roughly half.
It should be no surprise, however, that capitalism's propagandists, unable
to deny this undeniable fact, dispute it just the same. The Economist
and most other mass publications discount the reduction in real wages by
arguing that the average worker's living standard has become richer in terms
of the addition of life's little luxuries, like TV sets, computers, and
cordless telephones to their life-style that they never enjoyed before.
Bourgeois publications argue that in the 1960s, for instance, the average
working-class household may have had one small black-and-white television
set, one telephone, and no computers and no cordless phones. Today a similar
family might have two color TVs, a regular and a cordless phone, and
a computer.
But that argument is as phony as the others. The fact is that an ongoing
increase in productivity has reduced the value of all the things that go
into what today constitutes an acceptable standard of living. Everything
is cheaper to make and this is reflected in a smaller industrial workforce
producing more of everything, including new kinds of useful products.
Furthermore, what a worker considers is an acceptable standard of living,
like everything in the world, is constantly changing. Consequently, what
workers thought was an acceptable living standard 30 or 100 years ago tends
to be considered unacceptable today.
And if we compare what we consider to be basic living standards today
with what was acceptable in the past, such things as hot and cold running
water, indoor flush toilets and central heating, for instance, would have
been considered by most American workers in 1899 luxuries fit for a king.
Denying such things to workers today, would have, to put it mildly, severe
consequences.
In other words, as the productivity of society grows, so do peoples'
wants and needs. And workers' expectations grow in direct proportion with
the increasing capability of the forces of social labor to produce the things
they need and want in such abundance that to deny them appears to the average
person to be an unnecessary, and more importantly, an unacceptable injustice.
Mountains of debt
The second reason why the real rate of inflation is understated by the
ruling class is because capitalists know that the intrinsic forces feeding
inflation-the mountains of public and private debt in all nations-continue
to rise to ever-less sustainable heights and are now threatening to reach
explosive proportions.
The collapse of the overvalued currencies of Southeast Asia, which rippled
around the world, were tragic for the ordinary peoples of those poor countries
but stand as appalling harbingers of things to come in the advanced industrial
countries of the world.
That's why those charged with maintaining the equilibrium of the global
capitalist economy, such as Federal Reserve Bank Chairman Alan Greenspan
in this country, fear the slipping of inflation out of control not any less
than they fear the outbreak of another Great Depression.
But at the same time, the baseless claim that inflation has subsided
is primarily intended to blame the victims of a surge in the rate of inflation
when they are thrown into a frenzied race for wage increases to keep up
with rapidly rising prices. The Alan Greenspans of the world know that when
that happens, no force on earth can prevent workers from fighting with all
their force to keep their living standards from falling through the floor.
Such an inflationary period will set off a strike wave for wage increases
to match rising prices. However, it's safe to predict that in such periods
of runaway inflation prices will continue to rise whether or not wage increases
are won.
Why? Simply because the rise in prices in the capitalist world fashioned
by John Maynard Keynes is only the reflection of the falling value of money.
And when such a crisis hits, the ruling class will pound away on the theme
in all their printed and electronic media of communication: Wage increases
cause price increases!
That course of events is the point of this article. And that means, as
the saying goes, that to be forewarned is to be forearmed.
1 "Value," refers to exchange value, that is
the worth of a commodity. In common usage, however, value could refer to
a commodity's usefulness, or use value. Those intending to confuse and mislead
take advantage of such ambiguities in the meaning of words.
Socialist Action /July 1999 |