It isn’t until I read this whole state debate thingy that I even realized the critical role inflation plays in the process. If Yaffe and Bullock are correct, profit is not possible unless there is inflation. Which is why there is such fear of deflation. I kind of knew this in theory already, but it only now makes sense to me that the inflation/deflation debate is not a side-show, but goes to the heart of capitalist relations of production. Without inflation, commodities cannot sell above their prices of production and without selling above their prices of production surplus value cannot be realized.

The Eurozone is particularly prone to deflation because it has no central authority that can step in and deficit spend. It was designed to prevent just that sort of Keynesian deficit spending on the assumption monetary policy could work by itself. Moreover, when it was set in place, most “policy-makers” assumed inflation was the main problem with the world market. So both the Eurozone structure and the European Central Bank have a built-in bias toward deflation. Making an argument for why this happened without relying on political causes is somewhat difficult, however.

In the Wall Street Journal, the problem is posed this way:

“The world’s top finance officials stepped up warnings about low inflation during weekend meetings of the International Monetary Fund , calling for action to combat downward price pressures that threaten consumption and stymie debt reduction.”

The argument in the article suggests that falling prices damage consumption and prevent debt reduction. But if prices are falling, how does this make it more difficult for people to buy necessities? And if prices are falling why would people become more dependent on debt? The consumption being referred to here cannot be consumption of everyday necessities.

If I have to spend less on necessities, do I have more or less money to service outstanding debt? And if I have to spend less on necessities, am I more or less likely to accumulate more debt? If the prices of necessities are falling, it seems to me I would have more ability to service my debt and less need to take on new debt. So the problem posed by deflation cannot apply to the worker as buyer of commodities.

The argument made to the worker must be that if the prices of necessities are falling it will hurt her as a seller, not a buyer. While she makes out as buyer when she goes to the store to buy necessities, she suffers when it comes time to sell her commodity labor power. And this is because the sale of her labor power is conditioned on the premise the buyer of her labor power can make a profit employing her.

The same condition that works in her favor when she buys necessities — falling prices — works against her when her employer sells necessities. Since prices are falling, her employer finds it more difficult to realize a profit on the product of her labor. This implies that the consumption that suffers in a deflation is not the consumption of necessities, but consumption of labor power. And since the debts of capitalist firms are paid out of profits, it would seem the debt at risk is the debts of capitalist firms, not workers. Which is to say, there is a rising risk that these firms will go bankrupt.

If we now add these caveats to the original statement, it can be restated this way:

“The world’s top finance officials stepped up warnings about low inflation during weekend meetings of the International Monetary Fund, calling for action to combat downward price pressures that threaten employment of labor power and will result in bankruptcies of firms“

The “threat” that is being sold to the working class is that if there is deflation they will lose their jobs. And this is a true, not imaginary, threat — jobs will indeed be slashed and firms will indeed go bankrupt. Insofar as workers consider the impact of deflation as workers, they have little choice but to accept inflation of prices of necessities.

If communists were to try to appeal to people, as Marxists suggest, on the basis of their “class interest” in this case, we would be appealing to them as wage workers who must accept inflation. It may be that inflation operates against their interest as consumers, but it is necessary because they need the work.

When Right libertarians (Austrians) make the argument that Washington is depreciating money, this argument falls on deaf ears because this depreciation is ‘necessary’ to boost employment. Although it is true inflation makes it more difficult for them to buy necessities, unemployment makes this impossible. Given a choice between inflation and unemployment, which one will most people choose?

The choice is, of course, a false one between seeing ten workers laid off outright or one hundred workers losing ten percent of their wages. It is made more obscure by the fact the nominal wages don’t fall, but the purchasing power of these nominal wages do. On the surface it seems as if wages have not changed at all, although the purchasing power of these wages fall — yet, on the other hand, employment does not suffer. I think this explains why, although inflation clearly favors the wealthiest members of society, so little discussion of it occurs among communists.

I think it says a lot about a little discussed problem of the mode of production: How the crisis of capitalism is seen by the workers. For instance, when a worker walks into the voting booth, she is pulling the lever in large part based on how she perceives economic events. If she perceives the events in terms of a choice between inflation and outright unemployment her choice in the matter is settled by this.

So is the worker predisposed to view things in the form of a false choice between unemployment and inflation; or is this just the result of her own ignorance and bourgeois propaganda on the subject? I think the answer to this question is to be found in the fact that the capitalists also think of the choices in this way.

This implies the false choice between inflation and unemployment is not just a defect of the working class, but results from the fact that this is how capitalist relations of production actually appear to us empirically.

Politically, both classes see economic relations through the lens of the capital relation.