An article by Jon Schwartz in the Intercept of 10 November 2021 claimed that while inflation is bad for the rich it is invariably good for the working class: “The inflation freak-out is all about class conflict. In fact, it may be the fundamental class conflict: that between creditors and debtors.”
Why is it bad for the rich? Schwartz answers:
“First, inflation lessens the real value of debt. In 2020, American households had around $14.5tn in debt from their mortgages, credit cards, student loans, and other sources. Inflation of 6.2 percent means that the real value of that $14.5tn is now just $13.65tn in last year’s dollars.”
All this is of course true. However, it should be remembered that the fundamental class conflict is not between creditors and debtors, but between the bourgeoisie and the working class. Even Schwartz admits not all borrowers are working class and not all lenders are bourgeois.
Specifically, much of the money lent by banks for the above purposes comes from savings deposited by ordinary people, be it for their old age and funerals, or to provide university fees for their children or grandchildren – or, in America, as a hedge against possible medical expenses that might be incurred in the future.
Inflation reduces workers’ purchasing power
The purchasing power of all these savings will be reduced by inflation, and for people of modest means to lose purchasing power of their savings has a far more deleterious effect on them than various multibillionaires losing a few million here or there, especially when one considers that inflation arises principally from money-printing unsupported by economic activity, the only purpose of which is to save multibillionaires from bankruptcy in conditions of economic crisis caused by overproduction.
In actual fact, the money-printing that takes place purely to artificially create demand in an economy that would otherwise be paralysed by crisis is an exercise in transferring wealth at taxpayers’ expense to the rich, since the government incurs massive debts in order to fund the money-printing – debts that the taxpayer is expected to pay, with interest.
Of course, the rich also have to pay more tax in theory, but quite apart from their various tax avoidance schemes, which generally result in their paying a far lower rate of tax than ordinary workers, they can and often do also threaten to withdraw their investments from a country if its government suggests it would be fair for them to pay more tax – as we have seen, for instance, in the case of Amazon being asked to pay more tax, or tax at all, in various European countries.
Another argument Schwartz puts forward:
“Second, inflation generally accompanies economic booms, when the unemployment rate is low and workers have the market power to demand higher pay. That’s what’s happening now: as prices increased 6.2 percent over the past year, wages for regular people went up 5.8 percent. In other words, inflation barely touched their purchasing power.”
All this amounts to an indirect way of repeating the old misleading trope that it is rises in workers’ wages that are responsible for inflation, not irresponsible money printing. Nobody has noticed any economic boom in recent years anyway – quite the contrary – so economic boom could not have been the cause of the present inflation.
It’s the overproduction crisis, stupid
What is true is that following the closure of much economic production as a result of economic crisis (though primarily attributed to the pandemic whose advent was rather convenient for the bourgeoisie to be able to blame an act of God rather than the systemic malfunction of its own, capitalist, economic system), production is picking up again, as it always does following a crisis in this insane capitalist system.
Friedrich Engels described this process beautifully in Socialism, Utopian and Scientific: “As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilised peoples and their more or less barbaric hangers-on, are thrown out of joint about once every ten years.
“Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution.
“The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again.
“Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after breakneck leaps, ends where it began – in the ditch of a crisis. And so over and over again.”
In these circumstances of course there is a sudden leap in the demand for labourers, which can lead to some workers being able to demand and get wage increases, but even then not all of them will be able to do so.
Public employees such as teachers and medical staff are most unlikely to be able to secure wage increases at the level of inflation, and even workers who can will only receive do so with quite a time lag after inflation has eroded their purchasing power.
Schwartz claims that inflation in the US is running at 6.2 percent while wage increases are averaging 5.8 percent, a difference he dismisses as insignificant. Well it might be, but real workers are aware that the prices of the things they need, especially energy and fares are rising at a far higher rate. It is claimed in some quarters that the real rate of inflation is closer to 15 percent.
Moreover, a large minority of the working-class population – those who are through no fault of their own reliant on pensions, welfare benefits, etc – are most unlikely to get extra money sufficient to compensate them for what they lose as a result of inflation. Should they be written off as people who don’t really matter?
Finally, during the period when inflation has been officially running at 6.2 percent, the Dow Jones stock market has risen by 16.98 percent. Not too many working-class people are in a position to play the stock exchange, so it’s safe to assume that the greater part of that bonanza has enriched the bourgeoisie rather than the working class.
Capitalist crisis hits capital and workers alike, but it hits the workers hardest
The moral of the story is that one can never assume that what is (or in this case may be) bad for the bourgeoisie must be good for the working class and vice versa.
Those who live in a capitalist society, whatever their class, cannot avoid – on average – being adversely affected by crisis and benefiting from boom, although it should go without saying that the ruling class will certainly use its power to ensure that as far as possible all losses are piled onto the working class, while in the good times its members take the lion’s share.
If we wish to avoid being regularly plunged into economic chaos, to say nothing of the constant danger of wars and the ongoing planetary degradation that takes place in the interest of maximising profit, it is absolutely necessary to get rid of capitalism and of the bourgeois class that maintains the capitalist system.
It is imperative to establish a centrally-planned socialist economy under the rule of the working class. Until we succeed in doing so, millions of people all over the world, including ourselves, will continue to be subjected to the irrationalities of the market with all their horrendous consequences.