Workers’ wage increases are not the cause of inflation – capitalism is

Wayne Scott, Unite member

In recent months we have seen inflation in the UK hit 5.4% by one measure and 7.1% by another, the highest level in 30 years.

Much like in the 1970s we can expect the economic strategists of capitalism to ultimately place the blame for inflation onto the working class as governments prepare for the next round of Covid austerity.

They used to argue – incorrectly –  that inflation was caused by high wages pushing up prices, or that it was high state expenditure. The logic of such a position was clear, the working class must accept cuts in wages and public services.

For Marxists, inflation does not stem from “bloated” wages of the working class, or from excessive public spending. If this were the case, how is it possible that we see inflation hit a 30-year high whilst average wages fail to keep up with average living costs? Or indeed after a decade of savage public spending cuts?

The pandemic has exposed all the rotten shortcomings of the capitalist system. Rising general prices stem from the anarchy of capitalist production itself.

The disruption caused to global supply chains alongside rising global energy costs are having an effect on commodity prices more generally.

Rising prices have been exacerbated by low interest rates and speculative investment in raw materials.

The measures taken by the Tories during the pandemic – such as the introduction of furlough – allowed the state to prop up the capitalist system for a period, preventing mass unemployment and a slump.

This also meant that for many of those stuck at home, unable to buy as they normally would, savings were accrued, leading to increasing demand in recent months, pushing prices up further.

Marx

During his lifetime, Karl Marx had to challenge the idea that increasing wages are to be blame for rising prices. This idea was gaining popularity amongst a layer of trade union leaders who did not want to lead a struggle for higher wages, as the bosses would simply increase prices of necessities as a result.

Marx demolished this argument pointing out that if capitalists could raise prices whenever they like, they would not wait until they had increased wages.

Competition means that different bosses are always trying to undercut their rivals with lower prices in order to corner the market and increase profits.

In order to do so capitalists invest a portion of their profit back into new machinery to make their workers more productive than the competition.

This means that there are deflationary tendencies which act to lower general prices in the long run, irrespective of wage rates rising or falling.

Despite this tendency we still see sporadic episodes of inflation in which it is the working class who suffer most from the anarchy of capitalism as our meagre wages become even more meagre.

Fighting back and winning a rise in wages does not affect the price of a commodity, it only affects how the value contained in that commodity is divided upon sale, with a smaller surplus going to the boss.

As Marx pointed out: “A general rise in the rate of wages would result in a fall of the general rate of profit, but not affect the prices of commodities.”

With rocketing costs of living, workers cannot allow ourselves to be blackmailed by fat cat bosses who will argue that we are responsible for inflation by demanding increased pay and better conditions, or accept the arguments of the Tory government that we must accept further cuts to our NHS and public services.

The trade unions cannot make the same mistake as those that Marx debated with more than 150 years ago in accepting austerity.

fight for pay rises

We must go on the offensive with strike action against poverty pay, and demands for pay rises that not only meet the cost of living, but real pay rises that go beyond the rate of inflation.

This would be an important step in building a struggle for a minimum wage of £15 an hour for all.

Inflation is ultimately caused by the swindling and profiteering carried on daily by the capitalist class to increase profits at our expense.

Socialism, a system based on social need and not profit, is the only lasting solution to rocketing prices.