Inflation? Deflation? What’s It All About?


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.

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