More on Inflation

This is Richard Wolff from Democracy at Work, responding to another ask Prof Wolff question from our Patreon community. This question comes from Michael Dorr, and Michael asks me about inflation. Basically, his question is how do you understand it, what do people mean when they talk about it, and so on. And he asks quite rightly whether there isn’t a heavy load of ideological objective in how that word is used, and you’re right Michael, there definitely is. So, let’s begin quickly.

Technically, an inflation simply means a general increase in the prices of goods and services. When that happens, when it isn’t episodic, that is one item goes up and another one goes down but there’s a kind of a general lifting all boats like they say, about the tide, and inflation is lifting all the prices. We are in an inflation here in the United States now, we hadn’t been in one for a good decade or longer, but we are in one now. And that’s no doubt, part of why it’s in the air and people are talking about the government in particular. Some being worried about it and some telling us: it’ll only be temporary, you can stop wasting time listening to people telling you it’ll only be temporary, because those people are telling you what’s going to happen in the future, and they haven’t the faintest idea better than you or I. It’s all guesswork. The future is not knowable, and it’d be healthier for all of us to understand that. So, we don’t know how long it’ll last, we don’t know how far it’ll go we don’t know. We do know that the capitalist economic system has periodically had big troubles with inflation so that it is certainly something worthy of thought and worthy of examination, so let’s do a little of that.

Let’s begin with who sets prices. And the answer is unambiguous employers, the people who own and operate the factories, the farms, the offices, the stores. They set prices. The employees don’t do that. They don’t have the power, so if prices are rising, it’s because employers are raising them and right there you begin to see a problem, because when the employer raises the price of something that means more value is coming for the employer. And it means, those of us who basically pay the prices for everything, have to pay more for what we’re getting than we used to. Or to put it really bluntly, price increases are good for the employer and not for the employee. The only way the employee can save himself or herself in this situation if they can force up their wages and salaries to keep pace with the rising prices. And it is no exaggeration to tell you, that it is almost always much more difficult for workers to raise their wages than it is for employers to raise their prices. Not the least being, that the employer has every interest in keeping the wages from rising and is therefore the enemy of the efforts of workers to keep up with inflation.

When employers raise their prices, now, we can take the logic the next step. Employers understand that by raising prices they’re making life more difficult for their customers. All of us who have to pay more, and they worry about that because that could hurt their reputation. We might not be friendly towards a brand that we used to buy when it jacks up the prices. Especially if it’s at a time when our wages are not rising equivalently, and therefore it is an unhappy unwelcome experience for us. So, it has been important for employers to try to disperse the critical hostility that jacking up their prices have risks for them. And how do they do that? Number one: they claim that they don’t want to raise the prices, but they must. They are forced to and then you’ll hear this sad story of how some cost they have has gone up or how some government taxes went up and they had, in other words, it’s not me, I’m just passing on the bad thing that happened to me. Well, let’s set aside how much comfort we get from hearing such a story, but the word inflation makes this story even more suspicious.

Why? Because inflation is handled in our culture as if it were some mysterious thing that happens in the economy. By talking about inflation, we deflect the public’s awareness from the fact that we the employers raise those prices. We make it sound like it’s something that happens. We didn’t know it. It happens to all of us. We employers and new employees we’re all in the same sad inflationary boat. None of that is true. The basic reason why employers raise prices is to make more profits. It’s a simple proposition if you jack up the price, you may sell fewer because people can’t afford, it but you’ll sell fewer at that higher price and that’ll compensate you for the fewer, that you sell and remember if you sell fewer, you can lay off some of your workers, you can cut back on inputs to production, because you’re producing less. So often companies are holding back, in order to jack up the price, and their profits. These days oil companies are doing that. These days shipping companies are doing that. In fact, lots of companies all over the capitalist system are raising prices to boost their profits and you know why?

No mystery! They didn’t make profits the way they had hoped during 2020 and 2021. The years of the economic crash and the viral pandemic. And they want to make up for the profits they didn’t earn then by jacking their profits up by means of rising prices now. But they don’t want you to know that, because they’ll get bad reputations if they were honestly to tell us we’re raising our prices because we want more profits, because, of course, the majority of us employees we need to make up for the suffering and the losses we went through last year and this year too. But we can’t control prices employers can, and that’s why employers are doing it. Inflation is no mystery. It’s part of the age-old struggle between the class of employers and the class of employees and it’s an attempt to squeeze the latter on the part of the former.