Inflation

boddhisatva foucault at eden.rutgers.edu
Tue Feb 7 05:12:46 MST 1995




			In response to Mr. Burford's letter (as follows),	






> To Mr Boddhisatva
>
>
> Inflation
>
> I find I am increasingly able to focus on your contributions. I am
> not sure how much that is a change in you and how much that is in me.
> I like playful non-antagonistic argument but I also like when you clarify
> your position, and are clear to what extent your ideas relate to marxist
> ones.
>
> You raised the politically important question of inflation which I am sure
> is covered in the Marxist canon. If you are satisfied with an exchange value
> theory of money then it does not matter theoretically whether the notional
> units in which it is measured, change.
>
> An implication of the Marxist theory that capitalist crises are overcome
> by the destruction of a portion of old capital, is to support a mild
> continuous inflation as a reformist policy to manage capitalism in a
> somewhat more democratic way, rather than to hope for the contradictions
> to intensify to the point when a revolution really does happen. The
> reasoning being that mild inflation ensures a steady depreciation of the
> stock of old capital, reduces the tyranny of "dead labour over living
> labour", reduces the violence of the dislocations associated with periodic
> crises, and allows some redistribution of exchange to appropriate depart-
> ments as decided by political policy.
>
> In the last 10 years though a mild inflation has been seen as problematic
> within individual countries. There is no reason why the same concern
> should apply on a global scale. There should be an international policy to
> inflate the global currency by printing a proportion of IMF special
> drawing rights, say by 5% and use this as a fund administered by a more
> democratic, less neo-classical World Bank to equilibrate technology
> between north and south. For example it could be used to rehabilitate the
> economy of southern Africa following the wars of apartheid.
>
>
>
>
> Contradiction, but non-antagonistic contradiction.
>
>
> >From Mr Chris
>
>
>
>




		


		Mr. Burford,

	I thank you for your increased focus on my "contributions"
although, frankly, I think it is perhaps ill-advised to the
point of being dangerous.  But your mental health is your own affair,
mine is the province of my attorneys.


	My concerns about inflation are two and both Marxist.
First, Mr. Keen pointed out that in the USSR, the investment
into the producer goods economy was immediately translated
into wages.  This created an immediate "demand shock" to
the system, which caused consumer goods firms to simply
run as fast as they could to produce quantity, to satisfy
the spiraling demand.  The fact that socialist economies can
translate their productivity into "artificially" high
demand, which pressures firms into shortchanging re-investment,
has also been made by classical and neo-classical economists.



	Although I believe that socialist firms could avoid this
simply by good business decisions, it brought to mind the idea
that socialist economies, which emphasize wages, could be
subject to wage/price spirals, which can badly distort economic
decision-making.


	I was also looking at the present American economy, where
the central bank seems to be reacting to inflation that is, in
many ways, chimerical.  Here productivity is at record levels,
but real wages are falling.  That fact seems to point out that
the classical analysis of inflation is lacking.


	I believe you pointed towards the missing element in your
note.  Inflation buoys the value of existing capital, by raising
the value of the present product of old machines.  It softens
the blow of economic crisis, and slow-down.  But where, one asks,
does the upwards pressure on prices come from, if, as in the
present American case, wages (and therefore aggregate demand)
are stalled or falling.  There must be a systemic mechanism
other than consumer demand to inflate prices.


	I posit that there exists a separate economy in profit
instrunments.  This economy could drive up the present
valuation of existing capital, as capital expansion decreases.
Businesses which are not expanding cannot issue new stock,
cannot borrow at higher rates, and cannot promise greater,
future profits.  Thus they would decrease the supply of
profit instrunments, and therefore the demand of speculators
would require greater profitability from the existing capital.
If this market is separate enough, and efficient enough,
this could create a systemic condition where all firms would
 seek to raise prices, and lower wages, without attention to
the stagnant, or falling consumer demand level.  (Unless
central banks raised the rate of return on debt instrunments,
or, of course, until crisis came)


	This analysis is completely Marxian, as it adds the effects
of capitalists to the market picture.


	Since I believe that a market socialism is the only viable
one, I ask the group what the removal of this separate market
in profit, or possible socialist modifications of it, would
have on inflation generally.  I ask this because, if profit
profit markets are inflationary in a recession, they are
deflationary (to a lesser exent, probably) in an expansion.
The removal of them, might, therefore lead us into the situation
I took from Mr. Keen's analysis - wage/price spirals.  Mr.
Keen was not talking about inflation, but of course he was
dealing with a planned economy.  He himself pointed out that
the long lines of Soviet socialism were homologous to price
rises in market capitalism.


	It therefore strikes me that socialists must create a
mechanism whereby capital markets (or analogs) could maintain
the necessary antagonism to consumer markets.



	Now, as you imply, one could argue that the labor theory
of value negates inflation.  One could posit that socialist
economies would value goods nearer their theoretical labor
value, and therefore be more stable.  I cannot accept this
argument, nor the labor theory of value, as such.  I believe
that people can, do, and will, work hard to create relatively
useless things (or valuable things in socially destructive
ways).  I believe that people will always value goods by
arbitrary assignment of importance in their lives and comparison
to like goods in the marketplace.  The consumer is a heartless
profit-maximizer, and, of course, economies are only relevant
insofar as they please their constituent consumers.  That is a
Marxian ideal.


	What plagues me is a lack of Marxian economic tools
necessary to decide how socialist economies and markets will
be able to sustain growth and investment, in a free and
therefore flexible environment, without the newfound wealth
of the proletariat's becoming an inflationary plague.  I'm
close, but not there yet.


	I guess I'll just light another cigarette of tobacco
wrapped in lira, and throw a few more pesos on the fire.
Either that, or I'll finish wallpapering my bathroom with
sheckels.  I'm doing the foyer in 1970's Brazillian banknotes.







	peace






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