Why Marx was right when he said that wage rises do NOT cause inflation

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The Reserve Bank is increasing the cash rate they charge banks by .75% to 4.25%. They say they must charge banks this rate for overnight loans because inflation is too high, employment is too high and we need a recession to bring both down.

In my view there is not scientific validity to the oft-repeated argument that we are threatened with a wage-price spiral. The recent rise in prices is way above the rise in wages and wages are obviously just catching up.

If the problem is as they claim that too much money is chasing too few good then they could easily fix that by an emergency wealth tax on everyone with over $5 million in assets. This could bring in billions of dollars from those who have too much money rather than taking it off those who have too little by making workers unemployed. They could impose excess profit taxes on banks and energy companies to bring in a few billion more if needed. Doesn’t that seem fairer than making workers unemployed, hungry and possibly homeless to reduce their spending?

The problem with supporters of capitalism is that they have no scientific way of understanding what is happening in society. The “monetarist” theory of value which most pro-capitalist economists adhere to is subjective  because it is based on marginal utility, not objective like the classical economists  who based their understanding on labour values. They monetarists also disagree among themselves on what money is therefore they have no understanding of how their subjective values get transformed into prices.

Their theories become simply a tool to wage an ideological class war against working people to allow them to exploit workers more effectively.

So the real aim of interest-rate hikes is not to stop a wage-price spiral but to raise unemployment and weaken the bargaining power of labour. British Prime Minister Margaret Thatcher was one of those who used the monetarist dogmas to wage a class struggle against the labour movement in the UK. Alan Budd, her chief economic advisor from 1979-1981virtually admitted the deception in 2010:

There may have been people making the actual policy decisions… who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that [monetarism] would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes.”

Karl Marx actually explained why wages don’t cause general price increases in 1865 in a speech to a meeting hosted by the First International Working Men’s Association that was subsequently published as a pamphlet called Value, Price and Profit. His opponent in the debate was actually a trade union leader John Weston who thought fighting for wage rises would be a waste of time because prices would automatically follow.

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Marx said: “a struggle for a rise of wages follows only in the track of previous changes (in prices), and is the necessary offspring of previous changes in the amount of production, the productive powers of labour, the value of labour, the value of money, the extent or the intensity of labour extracted, the fluctuations of market prices, dependent upon the fluctuations of demand and supply, and consistent with the different phases of the industrial cycle; in one word, as reactions of labour against the previous action of capital.” (emphasis added)

By treating the struggle for a rise of wages independently of all these circumstances, by looking only upon the change of wages, and overlooking all other changes from which they emanate, you proceed from a false premise in order to arrive at false conclusions.” Broadly speaking, argued Marx, “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.”

To paraphrase Marx via Michael Roberts a little: First, “wage rises generally happen in the track of previous price rises” – it’s a catch-up response, not due to ‘excessive’ and unrealistic demands for higher wages by workers. Second, it is not wage rises that cause rising inflation. Many other things affect price changes, Marx argued: namely “the amount of production (growth rates), the productive powers of labour (productivity growth), the value of money (money supply growth), fluctuations of market prices which happens constantly anyway, and “different phases of the industrial cycle” (boom or slump).

The claim that there is a wage-price spiral and that wage rises cause price rises is an ideological smokescreen to protect profitability.

45 COMMENTS

  1. It could be that the too much money chasing too few goods is not luxury goods, but everyday items and groceries – due to a global supply chain crisis. Hence removing money from the low end of the economy to reduce demand on basic goods – treating a supply problem as a demand problem. The only other way to reduce damand being price rises, which causes the wage-price spiral – because apparently profitability is more important than fixing supply chains.

    Of course, if businesses don’t want to fix their supply chains we should take their money and do it for them. The right accuses the left of aiming for “you will own nothing and be happy”, well, how is “you will buy nothing and be happy” any better?

    • but do they mods…any actual evidence just because a beliver in neo-liberal economics says it’s so don’t make it so.

      windfall profits are not a supply chain issue they are a gouging issue….after all profit is after you’ve paid costs.

  2. I am sure there is a reason but rather than a windfall tax on excessive bank profits ( which I am sure will happen in the next year as well) why not have some real action on deposit rates and make interest income below a certain amount tax free. If you want to take money out of circulation why not use a bit more carrot than stick!

  3. Wage rises are not the sole cause of inflation, they contribute with the other points you mention and one could argue to the contributing ratio’s.

    Problem quoting Marx is that he wrote his thesis and lived in a time much different then today’s global market place.

    A market place where capital is mobile, where labour is mobile, where technology has shrunk the global market, where global transport can distribute goods faster.

    For example in Marx time a local brick works faced no outside competition, its market was fixed and labour cost could equate to labour input. The value of the brick was measurable in the cost of labour.

    Now that brick works faces international competition from around the globe due to massive increase in global transport availability.

    The brick works faces capital mobility in that the owners can relocate to a more “favourable” location. It is not tied to a location solely due to transport constrictions. Some countries offer incentives such as tax breaks, easier new brick work factory construction, cheaper raw materials, cheaper labour, easy access to port facilities, etc.

    The Marx local brick works faces international competition for their labour. No longer is labour tied to a locale due to travel constriction as Marx would have faced. They are free to travel and resettle to another brick works keen on their labour and knowledge. They can be recruited via the internet, no need to travel first in the hope of a better position.

    Technology transfer in Marx time was pen and paper plus a slow delivery service. In today’s global market place this technology transfer is instant. Freeing labour and capital to be located anywhere.

    For example one can send a solid model drawing file to a machine shop in Vietnam and have DHL deliver the finished part within two weeks. Manufacturers are no longer tied to local machine shops or a need to have their own machine shops. In Marx time the only place to get machining done was local.

    Same with creating a web site. No need for local web developer, Ukrainian (yes they are still working) web developers are just as accessible as a local web developer.

    Same with software development. Get pieces of code written (Russia used to be good but not with sanctions) anywhere by someone who has an internet connection and a computer.

    Problem for New Zealand labour is that they compete globally and with the way below par education system, are often unable to compete.

    Try getting a competent local 5 axis machine operator. Easily earn $60 per hour after just a few years training. But we don’t educate or train them in New Zealand. Downwards spiral, Machining being done less and less locally thus no local operators are educated and trained.

    Education and training is the key to higher wages in the global market place. Capital will flow to where the best conditions and skilled labour are.

    But New Zealand is wedded to the Marx inspired (and no longer relevant) labour costing model.

    Time for a new labour value and payment model based on the global market place.

    • dunno the theory of surplus value is the basis of capitalism gerrit.

      and yes the cutting expendature/maintainance/training at all costs is coming to bite us on the bum…the public will be expected to bail out privatised services…in essence a govt subsidy to failed (well asset stripped) sectors.

  4. You’re missing the point I think.

    The government doesn’t need more revenue, it’s already overflowing with money thanks to additional taxes and bracket creep. (In fact, it should have less revenue because it’s wasting so much of it.) Also, more revenue won’t reduce inflation because the government is part of the inflation problem.

    Instead, the RB is trying to stifle the M3 money supply after it created the problem by printing money to paper over the cracks created by the lockdowns. It is trying to reduce the amount of debt in the system. Next year the average mortgagee will be paying tens of thousands of dollars in additional interest. In order to keep their houses, they must either extend their mortgages or cut inessential spending. It will be a mixture of the two but expect the high street to suffer. Retail will be a dead zone. Welcome to the 2023 recession!

  5. Our government economists are ‘one trick ponies’ – they are obsessed with outdated economic theory that does not work but religiously follow it in NZ.

    OZ and Singapore workers are paid more, their bank interest rates are lower and their rents are higher than NZ.

    NZ is dysfunctional because everything is about ripping off the middle class and then our paid media pretends it is something else like landlords (when our rents are actually lower than other countries).

    For example increasing OCR rates (when NZ already has incredibly high bank interest rates and our banks have the highest profits in the world – nothing done – government in fact makes it worse by constantly giving banks money and more avenues to rip off consumers).

    Our supermarkets and energy companies make obscene profits but our government do nothing – compared to say landlords where they froze rents during Covid/removed interest from tax deductibility/created healthy homes. Problem was, that they failed to look at how NZ cost of living was compared to other countries, if they had done that they would have seen that NZ rents are actually lower, the issue is the high bank interest rates and low wages that stop Kiwis getting ahead and on the property ladder.

    If you are a richer overseas person you can come to NZ, buy up property and pay overseas interest rates or buy in cash, that avoid NZ bank interest rates that Kiwi workers on low wages can’t do. Rogernoms encourage this so they can pretend that things are going great in NZ and their flawed rogernomic economic theory works.

    Government policy over the past 30 years has stopped wage rises by lazy immigration – having foreign money come into NZ and buy up assets so that money is still flowing, while insuring that there is endless supply of low cost labour with NZ visas bringing in migrant family members off one salary of $42k – 1/3 of what is needed to live comfortably here. Importing in poverty to compete with NZ poverty and not worrying about the skill level or character of anybody arriving. Then they wonder why charities and social housing and our justice system is oversubscribed and getting worse and worse!

    It’s open slather in NZ from engineers faking their qualifications, builders forging their own building consents and medical researchers faking medical degrees. Then the ram raids, drug abuse and money laundering crime which the government has turned a blind eye to and actually make worse by enabling the criminal class with easy assess to foreign criminal expertise and an inability to deport anybody. Other countries remove people faking it and lying – NZ enables it. https://www.helsinkitimes.fi/finland/finland-news/domestic/17335-finland-deported-unusually-many-foreigners-last-year-writes-yle.html

    Daily we now have stories of the latest killings – many of them now random, such as the man that killed someones mother for no reason and had a history of knife crime https://www.nzherald.co.nz/nz/christchurch-sockburn-fatal-stabbing-murderer-of-christchurch-mum-of-four-had-committed-knife-rampage-a-decade-earlier/TL736RMECCXUJJ6GR6BIIRVIZM/, the dairy murderer (suspect does not look like a youth) https://www.nzherald.co.nz/nz/politics/sandringham-dairy-attack-government-has-blood-on-its-hands-after-killing/77CIR662KVEHXNS2X2GGINLZ7I/ government is on that one because they see the Indian community as a ‘vote’ bracket, mall and mosque terrorists.

    Don’t forget NZ now voted 2nd worst place by migrants to work in – 1 million new people bought into NZ many of which were scams that we are now paying for in crime out of control worse than before, and still they can’t get people on their crap wages and conditions and bray for more plumbers, vets, doctors, engineers. We are attracting bad migrant workers that fail overseas, who can easily come into NZ, often doing terrible jobs here while being billed out at outrageous NZ prices!

    The better workers whether migrant of Kiwi go off to OZ to beat NZ’s low wages and unprofessional approaches. There is more interest in NZ wokeplace of pronouns and ripping people off with outrageous charging, than being an expert worker working for a fair wage.

    Have not even mentioned that many tradies in AK are now expecting cash payment and have illegal workers.

    • You’re right SNZ. Economist are overvalued. They make alsorts of predictions and they are mostly always wrong! Why is that. They depend on modelling. And we all know that modelling is only as good as the data and information loaded into it.
      They create a lot of variables and that’s their out when it all turns to shit.

      Let’s not rely on economists who rely on modelling. Let’s look at economists with proven track records and who also have some skin in the game. Dr Doom isn’t a bad one to start with.
      Rainmaker Ray Dalio has some good historical research that stems and overlays 500 years of history. There are a few other that have a proven track record other than paid mouth pieces who got a degree in kissing ass and bs.

      • And I’m Right giving us his free rightwing fuckwifery whilst bagging someone trying to help others. Fuck off troll!

  6. Ahhhh Karl Marx, was never in full time employment and some other dude kept him and his family fed and a roof over their head.
    Norm Chomsky talks like he is ‘one of the people’ the working class but he never knew any!
    Noam Chomsky has never stood in a check out line at Pak n Save/Wamart like working class people do. Marxist theorists and their defenders never have any connection to working people. They are all arrogant dreamers who claim to know the motivations and tribulations of classes of people, not a single member of which they’ve ever really known.
    Mike Treen paid by the union to get workers out on strike where they get no pay during the strike, but Mike Treen gets his pay whilst telling ‘the workers’ not to go back to work.
    Pffftttt!

  7. I wonder who higher interest rates and lower wages are going to hurt the most? HMMMMM – the middle class,

    – not the rich without mortgages and not the profiteering business owners in the supermarkets/retail/utlilities/insurance/banking who are doing pretty well in NZ, thank you very much and another excuse for lowering/freezing the wages of those who work for supermarkets/retail/utlilities/insurance/banking during a cost of living crisis.

    It makes little difference to the poor who are already in social housing and receiving food parcels. They have no mortgage and now have the free supermarkets to choose their koha food from. The government will whip out another energy payment.

    it’s the workers and middle class that the ORC and low wages hit.

    Honestly, it sucks, and the media in NZ sucks too for being ignorant, enabler idiots and the left sucks for allowing the stupidity of Labeen for years when they could have done something incredible – instead of helping them cling to neoliberal wokism and driving relentless poverty, crime, dysfunction and helplessness in NZ in the name of woke.

        • yes that’s more like it actually but did they give a flying one about the poor NO THEY DID NOT I’m not going to cry for people who lost on the property pokies.

      • Yeah, why bother to be middle class, it is clear that the goal in NZ seems to be to get as many people as possible to live in NZ and dwell in poverty and be under/un employed, but feel good about what a better person you are than someone working their butts off to get out of poverty!

        • There seems to be some sort of weird hatred/spite against the middle class who are our teachers, nurses, police officers, plumbers, doctors, IT people, builders etc who are now the people the government and woke try to attack and get more money from while glorifying the dairy/supermarket owner or billionaire class, or criminal class or drug lord or gangs or beneficiaries.

          The above all generally need the middle class to attend to their health, security, kids and business or else the country grinds to a halt. Hang on, seems to already be in that position with endless committees and restructures while nothing ever gets done anymore and the middle class going overseas as the high needs and moneyed recreational class come to NZ to dwell in their place.

          • I have to agree with you SaveNZ, the middle class is getting a right rogering. I’m not exactly sure what defines a middle class person, but I expect it is at least an undergraduate degree or trade followed up by a decent wage/salary, a home-owner with a mortgage – something like that. If my definition is fairly correct then I was almost middle class, having clawed my way out of real poverty, but got shafted at the house buying phase due in part to the shifting goal posts, 20% deposit and Key’s Rockstar housing ponzi launch party on meth. As a qualified accountant (on a stingey salary but better than many, we’re not paid as well as one might think) I just won’t pay today’s house prices because it is simply unecomical and dangerous in a falling market with inflation rampant and interest rates about to skyrocket. I’ll manage renting and paying exorbitant rent until I die or get so ill I can’t work anymore. Currently waiting on my GP to get back to me with a diagnosis after having some tests (it’s been 10 days now and I’m out of sick leave but need a diagnosis and medication to return to work fighting fit – currently using annual leave to have a day off here and there when I’m really unable to work), yet I appreciate that there are others with much more pressing situations and with children to feed etc, the disabled and the young people with terminal illnesses etc. We do need the middle classes a lot and they have had a shifting, so I acknowledge that. Our doctors and nurses are nothing short of bloody heros who are so over worked right now and must be near on worn out. I know my GP was quicker (but just as thorough) than pre-covid days (and he usually has a tankful of empathy, but no time to spare much last visit), the nurses are fantastic as well. Someone’s not doing their job though and it’s unlikely to be the middle classes (excluding the professional managerial sub-class however). My money is on the upper class not doing their jobs to the best of their abilities, and the managerial sub-class (largely in Wellington and Auckland). I expect this will take at least six months to turn it around. So please everyone, hold power to account. Keep up the pressure and demand answers. Write to your councils, MPs, journalists, he’ll write to King Charles III too (it can’t hurt). When the middle class gets rooted there is no hope for the lower class or prisoners. Our time for action is right bloody now. Democracy is people power in action, so dust off your pens / locate those email address and get writing. I’ll post some links to addresses in the Free post section when I can. We all just need to write one, then copy paste to other recipients with a few tweaks. Not hard 🙂

    • Where are the ”free supermarkets” that the poor can ”choose their koha food” from?

      I’d really appreciate an explanation of this whole idea.
      thanks

  8. All this flap and bullshit by orr and others is really a simple thing to explain.
    Orr’s job is to launder exports-derived income. Our exports, much to the chagrin of hand wringers and thin white accountants is a bountiful thing. We’re returning billions and billions of dollars back into AO/NZ, and we always have done, but it’s never found it’s way back into the pockets of those who make that which is exported or their support industries either.
    Because…? You ask? And if you don’t, you should, so perhaps you’re not paying attention.
    It’s the money baby ! It’s all about the money. Billions and billions and billions of dollars of it spanning 140 years. Does no one else wonder where we get our first world economy from? Can someone please explain Auckland? How do now nine flaky crooks become multi billionaires? Who’s money does the four foreign owned bankers syphon off to the tune of multiples of billions in NET profits a year? If our farmers went on strike..? What do you think might happen? The edible tourism export industry would boom and save us all? I bet you, there’s some moron out there reading this going “Hmmm? Edible export grade tourists you write.? How can I get a piece of that action?
    I have to ask. Are we really that fucking stupid?

  9. Huey & Duey, Eee Orr and Bazooka Robo have committed to the global Austerity Plan. They agreed to this at Jacksons Hole G7 summit earlier this year.

    Their investors and holders of the $226t of global debt mostly generated from $25t+ of money printing since the GFC.

    Austerity is here for at least the rest of the decade and some. And lil ole NZ hasnt got a say or any leaders that know anything other than the status quo, neoliberalism. We’re fuck’d.

    So we might as well be governed by ourselves by referendum because the current crop and future crop of pollies are fuck’n useless dummies.

  10. This is interesting but perhaps off-topic… Or is it? Who would fucking know?
    RNZ
    ‘Foodstuffs trialling an expansion of facial recognition tech to further stores’
    https://www.rnz.co.nz/news/business/479439/foodstuffs-trialling-an-expansion-of-facial-recognition-tech-to-further-stores
    Now check this out.
    Russell Brand.
    https://youtu.be/uehjfTZI6qw
    “One of the “recommendations” quietly to come out of the B20 and G20 summits was the promotion of vaccine passports for future pandemic response. Whether it’s to aid partial free movement for us or two curb free movement for migrants – Digital Passports are the solution to all our problems. Thanks G20. “

  11. Good article, thanks. I thought this one was good too: https://i.stuff.co.nz/business/300748334/interest-rate-crunch-did-the-reserve-bank-drop-the-ball
    And the one linked in that article was very revealing too: https://i.stuff.co.nz/business/opinion-analysis/300520400/whats-gone-wrong-at-the-reserve-bank
    We are simply being lied too, by RBNZ who both don’t know what they are doing and don’t care how it affects us. The 5 out of 7 senior members or however many it was, who resigned without taking up other jobs, screams to me that not only are they paid far too much, but that they are irresponsible leaders. The fact that Grant Robertson extended Andrian Orrs contract by another 5 years tells me their is no one of any economic / moneary policy substance at the helm and likely no New Zealanders competent to take the role on and do a good job of it. I wonder if popcorn is still relatively cheap? It’s a WTF clusterf*ck block buster playing out right in front of us and no one is even bothering to cover it up. 5 stars.

  12. Well, the employment rate is too high but should be allowed to come down under current circumstances and not by hiking interest rates.

    It’s disturbing news bring that it is a month out from Christmas.

  13. “Nothing is easier, or more emotionally satisfying, than blaming high prices on those who charge them, rather than on those who cause them.”

    Thomas Sowell

      • Bobbely Bob Bob Bob, got your head on ok? (Top of spine, connected to brain… that’s it… oh, no no, that will hurt.. ouch! Bobble! Are you ok?). TDB village idiot. Maybe aim within your reach? I’m hoping you’ll be OK and find your mana all the same. Bobble away if you need any help 😉

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