The Cost of Living Crisis (and how to get out of it) by Costas Lapavitsas, James Meadway and Doug Nicholls, Verso 2023, £7.99 pbk, 80pp.
This small booklet provides a set of muddled and misleading ‘explanations’ for the current stagflationary crisis. It restates longstanding reformist views such as that produced by the Cambridge Political Economy Group in 19741 during the last stagflationary period of 1972-82. Both efforts represent the labour aristocracy’s promotion of economic nationalism and collective bargaining within state-imposed procedures while dampening any political campaign against private ownership of the means of production.
Lapavitsas et al repeat the Cambridge Group’s dream of Britain’s industrial reconstruction2 and demand ‘a coherent industrial policy’ with ‘a wave of public investment to renew the country’s infrastructure as well as public ownership of key resources’ (p63), with the same British-based, national solution to the crisis. They lament the shrinking manufacturing sector, and groan about the expanded financial sector. In neither of the two efforts do these Labour Party supporters use the method of analysis provided over 160 years ago by Marx and which, half a century ago, was developed to explain the long-term inflationary pressures in capitalism’s imperialist stage.3 In fact, the argument of the current booklet imitates the speculation of the reactionary tabloids.4
Now Lapavitsas et al correctly claim that for ‘the big businesses that dominate production and distribution… the source of record profits is the fall in real wages as inflation rises’. They conclude that ‘prices, especially of essentials must be brought down, and wages, salaries, benefits, and pensions must be increased’ (p1). Rising prices must be reversed by price controls, regulation of profits, and taxation while also raising the money income of the working class – since ‘persuasion, incentives, or cajoling the property owners’ is not possible.
Here we are back in the world of post-war Labour and Tory government’s ‘Prices and Incomes Policies’, abandoned after 1979, but now reappearing with ‘taxation and price controls’ (p61). The authors want to reverse history: ‘the route ahead for the UK [sic] ought to be the reverse of that taken over the past forty years, initiated by Margaret Thatcher’ (p3). They consider that ‘the deeper roots of the cost-of-living crisis… lie in the profound weakness of the productive side of the British economy’ (p1) adding: ‘The productive sector in Britain has withered and performs badly, ultimately driving the cost-of living crisis’ (p2).
Their narrow national perspective regards the cause of the current crisis as low domestic investment and poor productivity growth. Lapavitsas et al present the problem as one of poor moral choice, where ‘production is focused on the most predatory forms of profit making’ (p2), that ‘profits are too high’ (p46) because of ‘Britain’s extreme unleashing of market forces’ (p3). They want to reduce these inflated profits to some unstated but morally acceptable mass without acknowledging that they remain the result of the private exploitation of labour.
The writers flee from identifying Britain as an imperialist state and scarcely acknowledge it is capitalist. Thus the term ‘capitalists’ appears only on pages 43 and 59, and ‘capital’ just once (p51), but ‘imperialism’ never. Instead, we live in an ‘advanced economy’ (p20), which provokes their moral outrage because its ‘means for extracting profits [are] shameful for an advanced country’ (p4). These ‘means’ are variously the inflationary reduction of real wages (p1), speculative profit (p13), the power of big business ‘to help themselves’ (p4) or ‘the profiteering of several enterprises’(p30); you can take your pick. Neither the global exploitation of labour nor the plunder of resources appear at all, although they are crucial to sustaining British living standards. Instead Lapavitsas et al consider devouring net imports is a dangerous exposure ‘to global environmental conditions’ (p17), seemingly to indicate a fear of revolutions in oppressed states. In their booklet, the national road to autarchy becomes apparent in references to the UK’s [sic] ‘dependence on imports for essentials’ (p17), and their alarm that ‘we cannot even meet our own needs’ (p25). Capital investment is not, or should not be, a global process. Brexit-like, they insist that ‘Britain must become more self-reliant in the years ahead’ (p3), for alas ‘the UK has come to rely on regular net inflows of capital from abroad’ (p24), so making ‘broader controls’ necessary (p65).
‘Constrained Supply’ and inflation
So what is their explanation for inflation? Deferred spending by both workers and company during Covid lockdowns, plus government credits, were rapidly exhausted as restrictions were lifted. Subsequently, ‘Inflation rose sharply in the UK in 2021 primarily because aggregate supply was unable to respond to the boost in aggregate demand’ (p12, p16, p26 and p30). The authors argue that ‘as prices began to rise rapidly in Britain in 2021, large enterprises were able to make enormous profits at the expense of workers and the rest of society.’ (p26). This, they say, means they can ‘easily identify a crucial part of the inflationary surge’ (p14) and that ‘The weakness of aggregate supply…is the key to understanding inflation’ (p11). So, at this point in their argument, price rises enable profits to rise due to poor supply, due to poor productivity, due to poor domestic investment.
No one doubts that surges in demand in any market will, with limited supply, change market prices around their price of production (the cost price of production plus the average rate of profit), but this is different to our authors’ ‘adding up’ approach which lists contingent factors to explain price changes: ‘constrained supply’, disruption to agricultural supplies (p17) and the Ukraine war (p27). These are mediating variables, ones that cause fluctuations in the final market prices which are in reality centred on prices of production, but Lapavitsas et al characterise them as independent impulses or ‘components’ (p30): a war, a pandemic, poor investment decisions and so on, mysteriously summoned to explain market prices.
‘Wage push’
Since wage increases have been lower than price increases for the last two years, the authors dismiss wages as a factor that is ‘causing’ price increases in this period. Diminished real wages, along with the super profits of the large energy companies, seem to indicate to the authors that it is not falling real wages but rising real profits that are the ‘cause’ of inflation. The rise in profits itself is due to ‘big suppliers who are driving up prices in order to make extra profits’ (p49). However, the rise in prices is at the same time apparently caused by the rise in big company profits: ‘It is these profit increases… that account for rising prices’ (p47). So, we are enmeshed in an endless circularity of superficial reasoning – a rise in prices causes a rise in profits, but the rise in profits causes a rise in prices (p30).
Logic apart, here we must face facts. The national distribution of wealth and income has moved against the working class continuously since the early 1980s, yet for much of this period inflation was reduced and western imperialism passed through a period of ‘long stability’ of prices. Secondly, within this long period there are many years when wages rise at a higher rate than prices (e.g. 2001-2008, or October 2014-December 2016, July 2018-March 2020), whilst profits fluctuated up and down. Using only recent data the authors block discussion of the systemic cause of the currency’s long-term depreciation.
Finance and inflation
The standard ‘Monetarist’ explanation of inflation, that the money supply is greater than needed to circulate output and should be reduced, is criticised because ‘there is no obvious link between Quantitative Easing (QE)… and general inflation’ (p36 and p37). They sidestep any explanation of the connection between increases in loans and the general price rises.
In fact, the accumulation of capital results in a falling proportion of variable capital (the wage bill) to constant capital (all other fixed and circulating capital), thus a relatively smaller labour base from which to extort profit.5 Consequently, the rate of profit against all employed capital tends to fall despite expanded production. The capitalists see this as being caused by too low prices for their commodities, but raising prices requires buyers with money. Now, as capitalists, all sellers are buyers, so shortage of money is their common problem. Borrowing is the only way out. Banks concede loans out of avarice, and loans are provided to pay the higher prices demanded by the capitalists. Credit-worthy capitalists pay each other’s prices until the banks and government eventually stifle lending as the financiers’ loans, and other sector’s fixed incomes, lose real value. Squeezed profitability rates result in desperate demand for credit so that inflationary surges may be provoked at any point. Prices were stable or low from 1992 to 2008 because of brutal efforts by imperialism to extort profit globally, and from 2012 to 2022 by a slowdown in the global economy.
The booklet ends with a ‘Real Plan to Tackle Inflation’. Specifically, they demand that final wages and profits, proportions of the new value produced, should and can simply be readjusted (‘income-transfer’). The authors believe this to be possible because of the negotiating powers of the two great social classes, the ‘relations of property and power’ (p2 and p6). They intone: ‘a profound shift in the balance of power at the workplace in favour of labour’ (p65) is necessary. They do not explain precisely how this abstract demand is to be achieved, observing only that ‘it would be politically wise for the worker’s movement to look for allies among small businesses that are also feeling the squeeze of the inflation surge’ (p61). Instead, they decide that somehow ‘the key to winning these increases lies with union organisation and collective bargaining’ (p60) as if that is all it required. Politics is a foreign field.
However, in the world they conjure up, income transfers from workers to capitalists will have to stop (p59) – but evidently not the exploitation itself by private ownership but by restraining big business profits (p61), although not for smaller employers (p61). Wages will be magically raised above inflation; sustained state intervention, with new labour laws will appear; public infrastructural investment of course will be key (p65). The Bank of England will have ‘to support the restructuring of the British economy in a productive direction instead of mobilising it largely to protect private banks’. (p65). Further apologetics for the status quo are found where ‘a policy to bring oil and gas production under public ownership in the UK [sic] would need to be considered very carefully’ (p61) because depreciated assets dumped into public ownership could mean public losses. On this basis most current Public Private Partnerships would escape nationalisation.
Socialism is certainly not an aim of this litany, the means of production will remain in the same hands while the authors promote dangerous dreams about ending the deepening antagonism between the working and ruling classes. They appeal to a mystical flexibility in the system, not facing up to the fact that capital’s systemic compulsion to accumulate is a coercive force that traps the actors – the company owner-directors, and the workers – in its unforgiving grip.
Paul Bullock
1. Cambridge Political Economy Group, Britain’s Economic Crisis, M Ellman, B Rowthorn, R Smith, F Wilkinson, Spokesman pamphlet no 44, June 1974.
2. Ibid p8,9 et seq.
3. See P Bullock and D Yaffe, ‘Inflation, the crisis and the postwar boom’, Revolutionary Communist 3-4, 1975 (second edition 1979).
4. Eg A Jones and A Armstrong in The Sun, ‘Greedflation: How greedy brands are stinging families by hiking the price of crisps, biscuits and snacks to boost their profits’ (22 April 2023), or S Graham in The Mirror, ‘Workers can and should demand pay rise – profits drive up inflation, not wages’ (17 June 2022).
5. P Bullock and D Yaffe op cit, most recently in R Clough, ‘The crisis of working class leadership’, FRFI 295 August/September 2023.
FIGHT RACISM! FIGHT IMPERIALISM! 296 October/November 2023
