Coronavirus

Coronavirus bailout, inflation and Karl Marx

Karl Marx gave the answer to why workers must fight against low pay. He wrote:
(Should ) the working class… abandon their attempts at making the best of the occasional chances for their temporary improvement? If they did, they would be degraded to one level mass of broken wretches past salvation.… By cowardly giving way in their everyday conflict with capital, they would certainly disqualify themselves for the initiating of any larger movement.”

I’ve been trying to think through the issue of inflation in light of the $2 trillion Coronavirus bailout and its affects on inflation.

A large chunk of the bailout will be going to workers, in effect raising their buying power or at least limiting the fall in their buying power. Will that lead to inflation and does it contradict the views of Karl Marx?

Karl Marx
In the 1860s Karl Marx debated a man named John Weston over the issue of whether increased wages leads to increased prices. From that debate, Marx produced a little pamphlet called Value, Price and Profit. It’s an important issue because if increased wages cause increased prices, then there’s no point in fighting for higher wages – which is exactly what some capitalists argue.

According to Marx, an increase in workers’ wages won’t ultimately lead to an increase in prices. He reasoned that if workers wages go up, then they will buy more of the products that workers typically buy. On the other hand, the capitalists’ profits will shrink so they will ultimately buy less of what they buy. The laws of supply and demand would dictate that prices for the workers’ products may rise for a time, while those for the capitalists’ products may drop for a time. This would mean that it becomes more profitable to produce the products that workers buy, meaning increased capital flowing in that direction, increased production of those goods and the prices dropping back down.

So, is Marx wrong in this instance?
I don’t think so.

Experience in recent years
Think about what’s happened in recent years: There has been a massive increase in profits. As a result, the prices of the main products that capitalists buy have increased – stock prices and land value (real estate speculation). Some prices for workers have increased, especially housing prices. That reflects the increase in land prices, but overall prices have been pretty stable.

But what is liable to happen in this case?

Effect of bailout
Workers’ buying power may stay more or less the same. It might decrease, but the key is that it won’t decrease as much as production is likely to decrease. Therefore, there will be an increase in the demand for products that workers buy, or at least not as much of a decrease as there is in production. Production won’t increase as much, or will decrease more because so many millions of workers will be staying off of work. This is based on the assumptions that workers won’t be hoarding their cash while at the same time they won’t be returning to work to a great degree.

Maybe this is all wrong, but it seems to me to make sense.

Note: Oaklandsocialist has had two articles on the economic affects of this crisis. First was Will the dollar collapse?  And we recently put up Coronavirus and the $2 trillion plus bailout.

3 replies »

  1. We are experiencing inflation in the prices of consumer good already be it because of consumer hoarding, manufacturing/distribution issues, or good old fashioned price gouging. Separately, we’ve seen an uptick in unemployment as well as a fall in real wages for many workers due to operational limitations and self-isolation. It seems that prices, wages, and unemployment are completely disconnected from each other during this pandemic.

    Also, the bailout was a tax day loan for workers. Either individuals will pay more at tax time in 2021 or get less of a refund.

    Investment in new tech, equipment, plant, existing personal is still down. My questions are even if overall profitability is up can the rate of profit still be falling? And if the rate of profit is still falling even with record profits what does that mean for late-stage capitalism? The only sure fix to improve the rate of profit would an inter-capitalist war to re-fill and re-slice the pie.

    • Yes indeed. But what is price gouging but simply observing the capitalist laws of supply and demand in the most brutal way? Incidentally, there is a temporary uptick in wages as quite a few workers are now getting hazard pay bonuses. This includes grocery workers and electrical workers, at least in N. California and elsewhere on the W. Coast.

      As far as gross profits and the rate of profit: I think we have to look at the rate of profit for production, not for capital over all. The second includes profit from speculating on stocks, land, art, and anything that the capitalists can buy and sell. It’s the falling rate of profit for actual production that dictates their unwillingness to invest in actual production and to speculate instead.

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