Michael Roberts: Part three – a value theory of inflation

Part three – a value theory of inflation

 

In this post, I return to my review of the theories of the causes of inflation in modern economies.  In the first part, I discussed the mainstream theories; in the second part, I discussed heterodox and other Marxist theories. In this third part, I present a value theory of inflation developed by Guglielmo Carchedi and myself.

Part One is here, Part two here

by Michael Roberts

In our view, any explanation of inflation in modern capitalist economies must start with Marx’s value theory. In all the conventional, heterodox and even most Marxist-claimed theories, the role of value creation is missing. This creates a black hole in any analysis of inflation. For Marx, value is the expenditure of human labour power in the abstract, and is measured in labour time, i.e. the time worked by labour for capital. This is the time actually worked for the production of commodities. Not all abstract labour is productive of value: some labour is unproductive (basically commercial, financial and labour in armaments and real estate). Unproductive labour merely redistributes value. Productive labour is that which creates new value and surplus value. So, in our value theory of inflation, value is measured by the hours worked in the productive sectors.

The realisation of value requires the exchange of the different commodities and thus money acts as a medium of exchange. Money makes exchange possible and so represents value. If money represents value, then changes in money are determined by changes in value. This is a key difference between the monetarist and the value theory of inflation, as I explained in part one. The monetary authorities only react to value changes either by increasing or decreasing the supply of money or raising or reducing interest rates on holding cash or borrowing; but this does not change value.

In mainstream economics, inflation is defined as the change in the prices of commodities on the market.  Instead, in our value theory of inflation, inflation is the difference between changes in money in circulation and changes in value production. This difference will become important in considering the impact on workers’ wages. 

We define and measure value as the hours of productive labour worked in any period. We define and measure money supply as money in circulation. Not all money supply in a capitalist economy circulates for the purposes of purchases of goods and services. Some portion will be hoarded i.e held in reserve by capitalists. Another portion will be used to purchase financial assets (bonds, stocks etc) and real estate (land, buildings). This money will not circulate to purchase goods and services and so will not affect any change in the prices of goods and services consumed by workers.

So in our measure of money supply we adjust money supply (deposits in banks) by the size of bank money reserves held at the central bank and by the velocity of money in any period. The velocity of money is a measure of the turnover in the money supply. If the velocity is greater than one, it means that the money supply has been used more than once in any period and so adds to total money in circulation. If the velocity of money is below one, it signals that the holders of money are hoarding more of the supply rather than putting it into market for goods and services. Accounting for these adjustments, we obtain a measure of ‘money in circulation’ for any period.

We can measure the size of hoarding and financial speculation by the difference in the rate of change in money supply and the rate of change when adjusted for hoarding and speculation in financial assets. In the second half of the 20th century, there was little difference in the rate of change in money supply (bank deposits etc, or M2 in US financial statistics) and the adjusted money in circulation in the US. Indeed, M2 adjusted for hoarding and speculation generally rose faster than M2.  That’s because the velocity of money was usually greater than one and hoarding and financial speculation was minimal. However, after 2000 and especially after 2008 and through the 2010s, the gap between money supply growth and the growth of money in circulation rose sharply. This was the period of so-called ‘quantitative easing’ adopted by the US Federal Reserve. Much of the Fed’s monetary injections mostly ended up being hoarded or used for speculation in financial assets rather than for the purchases of goods and services. US CPI inflation fell to virtually zero during this period, while financial asset prices soared.

Source: FRED, author’s calculations

To obtain the value rate of inflation, we measure the difference in the change in adjusted money supply against the change in hours worked in the productive sectors of an economy. If there is no difference, there will be no inflation. Inflation emerges when the percentage change in money in circulation is greater than the change in value created. Deflation emerges when the rate of change in money circulation falls below the rate of value growth. Inflation rises when the difference widens between the rate of change of money in circulation and the rate of change in hours worked, and when the difference narrows, inflation falls (disinflation).

What determines these two factors and which of the two is the determining and determined factor? Let us begin with productive hours worked, our measure of value created. Over the whole period analysed (1949-2022), hours worked increased in the productive sectors of the US economy. That’s because the increase in the number of workers employed rose more than sufficently to compensate for any fall in hours worked per employee, except when workers were laid off in recessions (1957-8, 1974-5, 1980-2, 1991, 2001, 2008-9 and 2020). Then overall hours worked fell.

Source: FRED, authors’ calculations.

In Marxist theory, investment growth leads to an increase in the ratio of constant capital (means of production) relative to labour employed ie a rise in the ‘organic composition of capital’. The reciprocal of a rising organic composition is a decrease in value created per unit of capital invested, in other words, a fall in the rate of profit on capital invested. Over the whole period 1949-2022, there is a positive correlation between the fall in the rate of profit on capital and slowing growth in hours worked relative to capital invested.

Source: FRED, author’s calculations

The annual ‘value rate of inflation’ is the difference between the annual change in the adjusted money supply and the annual change in productive hours worked. Over the whole period 1949-2022, adjusted money supply growth averaged 6.6% a year and growth in hours worked in the productive sectors averaged 1.4% a year. So the value rate of inflation averaged 5.2% a year (6.6%-1.4%).

Source: FRED, author’s calculations

Over the whole period, the rate of money supply growth falls, while the change in hours worked rises (slowly). So the value rate of inflation falls over the whole period – in effect, there was disinflation (a falling inflation rate). Disinflation has been the long-term trend since the end of WWII until the end of the 2010s.

Source: FRED, authors’ calculations

But we can discern two sub-periods within 1949-2022. The first is from 1949-81 and the second is from 1982-2019. In the first period, the annual value rate of inflation rises, constituting an inflationary period. In the second period, the annual value rate of inflation falls, constituting a disinflationary period. The value rate accelerates in the first period because the adjusted money supply grows faster than hours worked (see Figure above). This was particularly the case in the 1970s, when hours worked stagnated or fell (see the hours Figure above). The value rate of inflation rose sharply in the 1970s while the hours worked grew very slowly and indeed fell sharply in the 1974-5 and 1980-2 recessions.  Thus the economy suffered what has been called ‘stagflation’.

The reaction of the monetary authorities to slowing value growth was to increase the money supply in order to boost economic activity, leading to an acceleration in the growth of the money in circulation. But this did not lead to faster growth in hours worked. As a result, the value rate of inflation was rising by more than 10% a year at the end of the 1970s (see Figure above). So the US monetary authorities, now under then Fed chair Paul Volcker, sharply changed tack and tightened monetary policy. The growth rate of money in circulation was more than halved by the end of the 1980s. Inflation (accelerating price rises) was replaced by disinflation (slowing price rises). Indeed, after the end of the Great Recession through the 2010s, inflation virtually disappeared (see Figure above).

Changes in value depend on the objective factors of a rising employed workforce (more hours) and a falling rate of profit (less growth in hours). But changes in money in circulation depend on the subjective reaction of the monetary authorities and the financial sector to these objective changes in the economy. The US Federal Reserve will ease its monetary policy if it considers the economy is weakening and will tighten its monetary policy if it considers inflation is accelerating. 

In our view, it is the change in value creation, which is the objective factor in prices, that determines the subjective reaction of the monetary authorities. The monetary authorities believe that they can hold back the deterioration of the economy by increasing money supply in the wrong belief that more money can end any decline in investment and GDP growth. So the authorities increase the quantity of money faster than the quantity of value created. Thus with active monetary policy, inflation becomes a permanent feature of modern economies, although the rate of price inflation will vary, first because of changes in the growth of new value (hours worked) and second, because of the relative size of the reaction of the monetary authorities in varying the growth in the money in circulation.

Is there empirical support for the view that changes in value (hours worked) is the main driver of the value rate of inflation? First, there is a relatively high correlation between the rate of profit on capital and the change in hours worked (0.66). Second, there is a relatively high correlation between the change in hours worked and changes in money in circulation (0.60). Correlation does not prove causation. But these high correlations do indicate the ‘possibility’ of a causal relation. And there are strong theoretical reasons to assume that changes in value cause changes in money circulation rather than vice versa.

And we can add a statistical test of causation. A Granger causation test of the direction of causation between changes in value (hours worked) and changes in money in circulation finds that the ‘null hypothesis’ does not hold for changes in value leading to changes in money circulating, implying a causal connection, while it does hold for changes in money in cirdulation causing changes in value, implying no causal connection. This tends to confirm empirically the proposition that value growth is the objective driver of inflation and monetary injections are the subjective reaction of the authorities.[1]

To summarise, only our model of inflation is based on Marx’s value theory. We construct a value rate of inflation, as measured by the difference between the percentage change in money in circulation in the whole economy and the percentage change in value, namely the hours which have been expended for the production of commodities. Changes in value are the outcome of the interplay between two opposing forces: a rise in hours due to the expanded reproduction of capital (more workers, longer working day or year) and a fall in the growth of hours worked due to the increase in the organic composition of capital and the fall in the rate of profit.  

So the value theory of inflation incorporates both the role of profitability and growth in investment as emphasised in part two of this series of posts by Mavroudeas et al, but also the role of money as raised by Shaikh in part two. Combined, we arrive at our theory. In modern economies, money is managed by the monetary system (central banks, commercial banks), with a measure of relative autonomy. The monetary authorities manipulate the money supply according to their assessment of the economic situation. This is the subjective element, which together with the objective element (the growth in value) determines inflation.

And here is the interesting implication. Both the official consumer price and GDP deflator indexes of inflation are highly correlated with our value rate of inflation. But the average annual value rate of inflation from 1949-2019 is much higher at 5.2% a year compared to 3.4% (CPI) and 3.1% (GDP def). 

This suggests that workers’ real wages when measured in value terms (ie in hours worked to obtain commodities) have risen much less than when measured against official price inflation. We shall consider this issue in more detail in part four, which will also deal with why inflation spiked after the end of the pandemic slump in 2020 and whether inflation is now here to stay after the period of disinflation from 1982-2019.

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[1] The results of the Granger causation test are available on request.

Ken Klippenstein. Leak: Democratic Org “Anti-Extremism” Project Targets Left

Leak: Democratic Org “Anti-Extremism” Project Targets Left

Ken Klippenstein August 14th 2026

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Third Way, a prominent Democratic lobby group in Washington, has a new multi-million dollar effort to “combat extremism” on the “far-left,” an internal staff email leaked to me reveals.

“[E]xtreme far-left voices gaining purchase over the past year … represent a sharp break from a traditional left wing in American politics,” the July 23 email says. This break, the email continues, has led to the rise of a faction that is both “radical” and “illiberal” — figures like Zohran Mamdani — pursuing a government like authoritarian Cuba.

“When some folks hear ‘socialism’ they think of Scandinavia, but what the activists behind the DSA are advocating for is closer to Cuba,” the email says, referring to the Democratic Socialists of America.

Cuba!

	Leaked email 4.45KB ∙ PDF file
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The irony is that Third Way, sharply critical of the Trump administration, is echoing it perfectly. In fact, the email was sent just days before the release of a State Department report alleging Cuban influence on the American left, mentioning such frightening subversives as Ben Cohen (founder of Ben & Jerry’s Ice Cream) and Los Angeles Mayor Karen Bass, as I reported at the time.

Also, earlier that month, Secretary of State Marco Rubio led an international summit on “political terrorism” also targeting the left, even introducing a new term: “Far-Left Terrorism.”

It’s not a war against Trump or MAGA or the Republicans in 2028. It’s not against disinformation or foreign influence; that was yesterday’s panic. It’s not against anti-semitism, or the impact of social media, or guns. It’s not even against violence in general.

It’s a war against other Democrats (socialists specifically), and what Third Way labels far-left “extremism.” That sure sounds more like the FBI and homeland security than a “center left … organization that champions moderate policy and political ideas,” as it describes itself

This isn’t just someone running their mouth in an email, either. The author, senior vice president of Third Way, Lanae Erickson, is announcing an organized and sustained effort to defeat the supposed new extremist threat.

As the email says, “we are launching a strategy to drive awareness of these threats to the party, including adding to our team by hiring a Director of Anti-Extremism to help us make the case against these noxious ideas and recruit many others to do the same.” 

The goal, the email continues, is to “create a counterweight to the forces pushing more Democrats to embrace extreme and illiberal ideas.”

Third Way’s president, Jonathan Cowan, alluded to the plan last week.

“We are preparing for the next war that is coming,” Cowan told the New York Times, describing a $15 million effort to discredit democratic socialism between now and 2028. This week, Third Way posted a job announcement for a director to head its “Anti-Extremism” project, corroborating the email.

Screenshot of new Third Way job announcement

Beyond the Washington rhetoric, Third Way is saying that if your political views aren’t vanilla, you’re an “extremist.” That’s national security’s polite word for terrorist, once a reference to Muslim Americans and would-be revolutionaries but now applied to any American citizen who dares to venture away from Party talking points.

What is worse, it used to be the case that when the government or the administration, whether Obama or Bush, used the word “extremist” they were always careful to include a qualifier: “violent extremism.” That meant that physical violence (actual or intended) was necessary to get one labeled a terrorist.

Back during the Obama years, there was “countering violent extremism.” Then from Trump’s first term to Biden, there was “domestic violent extremism.” The FBI’s threat categories carried it too — “racially or ethnically motivated violent extremism,” “anti-government or anti-authority violent extremism.” They are all imperfect and ugly labels, but the “violent” qualifier at least maintained a pretense that there was a threat of physical harm. And pretended that the threat label wasn’t questioning free speech or association.

Now it’s just “extremism” — one word. Third Way is joining the Trump administration in dropping the violence qualifier. It’s enough to just have the wrong beliefs; wrong, that is, in the eyes of the Party apparatus in Washington.

When I asked Third Way this week how it defines this “extremism,” spokesperson Kate DeGruyter said that the effort “is aimed at the DSA itself, not at liberal Democrats” — though it wasn’t clear how they define “liberal Democrats.” Asked who gave Third Way the $15 million for this project, DeGruyter’s only response was: “This a new effort and we are in the process of fundraising.”

Before Dr. Abdul El-Sayed won the Michigan primary to run for Senate as a Democrat, Cowan, the Third Way president, issued an open letter and op-ed directly targeting him as a member of DSA despite his never having been a member of the organization and explicitly describing himself as a “capitalist.” (Third Way tells me it now supports El-Sayed, presumably because he’s since won.)

Three members of Congress are DSA members or describe themselves as democratic socialists — Senator Bernie Sanders and Reps. Alexandria Ocasio-Cortez and Rashida Tlaib — along with the mayor of the country's largest city, Zohran Mamdani. You may have heard of them.

The Times reported that Third Way’s new campaign would go after both self-described democratic socialists and candidates like El-Sayed, whom Cowan at the time accused of running a DSA-style campaign without the membership card. So because DSA is too narrow, Third Way has done exactly as the FBI would do: it has expanded the definition of the threat category. The war is against members of DSA and people who espouse DSA positions or use DSA tactics, or just socialists, or just “far-left extreme voices and forces,” as Third Way says, or even more broadly people with “politically toxic ideas and offensive rhetoric.”

Politically toxic ideas and offensive rhetoric? That sounds like me and half the people I know. 
I call top bunk at the Third Way reeducation camp!

Third Way is all but an arm of the Democratic Party. It’s run by former administration officials — Cowan was chief of staff at the Department of Housing and Urban Development under Bill Clinton — and exists to supply the party’s leadership with the language that leads to the talking points that become the way elected Democrats describe the country and their own voters.

As for what this all looks like in practice, Third Way provided a preview this week in its remarks on Francesca Hong’s campaign for Democratic candidate to be Governor of Wisconsin.

“She’s not a real person,” Yemisii Egbewole, a Senior Fellow at Third Way and former Biden White House official, told Mark Halperin. She added an implication of mental illness, saying Hong is “deeply unsettled, and she should really work through in therapy some of her own beliefs.”

The goal, with the “extremist” label, is thus to make anyone who doesn’t conform with the vanilla politics of Washington seem not just idiotic but insane. It’s a real-life One Flew Over the Cuckoo’s Nest, and if your beliefs aren’t something you’d see on cable news, the nurse would like to see you.

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Trump Model Management: Where Is Alexia Palmer?

Where Is Alexia Palmer

Bruce Fanger

Trump Model Management, a seventeen-year-old foreign model, and questions that were never answered

White Rose,

August 14, 2026

I have written about Alexia Palmer many times. The first time was in 2016, when she had the pluck to do something few seventeen-year-old immigrant models would have dared to do. She went up against Donald Trump’s modeling company and demanded the money she said she had been promised.

Ten years later, I am still asking questions about her.

Not Jeffrey Epstein. Not photographs of Trump at parties. Not guilt by association. Trump Model Management. Donald Trump’s company. Alexia Palmer’s experience. The immigration documents. The money.

Palmer was recruited in Jamaica when she was seventeen years old. Trump Model Management brought her to the United States through the H-1B visa program. According to court documents reviewed by Reuters, the agency represented in connection with her visa that she would receive at least $75,000 per year for three years.

Palmer said that was not remotely what happened.

She alleged that after three years with Trump Model Management, she received only a few thousand dollars after commissions, expenses and other deductions. ABC reported that the agency took roughly 80 percent of her earnings in expenses and fees and obtained only 21 shoots for her during those three years. Her visa also meant she could not simply walk across town and work for another employer while remaining legally employed in the United States. Palmer described the experience herself in brutal language: she said she felt “like a slave.”

Think about the power relationship here.

A seventeen-year-old girl is recruited in Jamaica by an American modeling company owned by one of the wealthiest and most famous men in the United States. The company participates in bringing her across an international border under an employer-sponsored visa. Immigration paperwork represents employment worth $75,000 a year. She arrives in New York dependent upon that employment arrangement and later says that virtually none of the money she expected ever reached her.

Somebody should have investigated this as possible labor trafficking and exploitation of a foreign minor.

That is the part I am no longer interested in saying politely.

Trafficking does not require somebody chained in the back of a truck. Federal labor-trafficking law concerns obtaining labor through force, fraud or coercion. Whether Palmer’s circumstances satisfied every element of a trafficking offense is precisely the kind of question an actual investigation could have examined.

Where was that investigation?

Instead, Palmer attempted to fight Trump Model Management through civil litigation. Her complaint alleged violations involving wage law, immigration law, fraud, breach of contract, unjust enrichment, conversion and RICO.

People sometimes dispose of this story with four words:

“She sued and lost.”

That is an extraordinarily misleading description of what happened.

There was no trial. There was no jury. Palmer never received an evidentiary hearing in which she took the stand, Trump Model Management’s representatives took the stand, witnesses were cross-examined, the competing accounts were tested and a finder of fact determined what actually happened to her.

Judge Analisa Torres dismissed the federal lawsuit at the pleading stage. On Palmer’s labor claim connected to the H-1B program, the court ruled that she had failed to exhaust the administrative process through the Department of Labor and therefore could not pursue that claim in federal court. Other claims were dismissed because the court concluded that Palmer had not sufficiently alleged or supported the legal elements necessary for those particular causes of action.

The underlying facts were never adjudicated at trial.

That distinction matters.

Nobody heard Palmer testify and then found her testimony false. No jury examined all the evidence and declared Trump Model Management innocent of exploiting her. No evidentiary hearing tested the entire story and produced a factual finding that everything described by Palmer had been legitimate.

The lawsuit was dismissed.

The questions were not.

Palmer did what the judge said the H-1B process required. She went to the Department of Labor. Bloomberg Law reported in April 2016 that her attorney confirmed she was continuing the fight there. Later reporting indicated that the Labor Department complaint was also dismissed and that Palmer was appealing that decision.

Then something else happens to the Alexia Palmer story.

It goes quiet.

Very quiet.

I have been looking for this woman for years. I have followed leads. I have searched the internet and social media. I have written about her repeatedly. I have contacted people who have resources and political reach far beyond mine, including Alexandria Ocasio-Cortez and others, hoping someone would take an interest in finding her and determining what happened after those proceedings.

My writings on this subject have reached substantial audiences.

Still, I cannot find Alexia Palmer.

That does not mean Donald Trump made her disappear. I have no evidence of that, and I am not going to invent some Hollywood ending because the actual story is disturbing enough.

It does mean I want to know where she is.

Palmer was hardly invisible in 2016. She spoke publicly. She appeared on national television. She challenged Trump Model Management in federal court. She spoke directly to reporters about her treatment. Then the public trail becomes exceedingly difficult to follow.

So where is she?

What became of the Department of Labor appeal?

Did she return permanently to Jamaica?

Did she receive money through some later arrangement?

Was there ever a settlement?

Was there a confidentiality agreement?

Did she simply decide she had endured enough and wanted nothing further to do with Donald Trump, modeling, lawyers, reporters or the United States?

Was she pressured by anybody?

Is she alive, healthy and happily living a private life somewhere?

I hope that last answer is the answer.

Then let us find her and hear it from Alexia Palmer.

There is another reason these questions deserve attention. Palmer’s allegations were not the only allegations concerning Trump Model Management. Other former foreign models later described questionable immigration practices, crowded agency housing, large deductions from their earnings and working arrangements that left them with remarkably little money. In September 2016, Senator Barbara Boxer called for federal immigration authorities to investigate allegations concerning Trump Model Management.

Trump Model Management eventually shut down in 2017.

Alexia Palmer’s questions survived it.

This is why I get irritated when every discussion of Trump and young women immediately gets dragged back to Jeffrey Epstein.

There are serious questions about Epstein, certainly.

I do not need Epstein for this one.

Donald Trump owned Trump Model Management. Palmer was recruited into Trump Model Management at seventeen. Trump Model Management participated in securing the visa that brought her from Jamaica to the United States. The immigration paperwork represented substantial annual earnings. Palmer said the promised money never materialized. She said deductions consumed most of what she earned. Her ability to work legally in America was tied to the employer who had brought her here. She fought the company in court and then through the Department of Labor.

That record stands on its own.

If you stripped Donald Trump’s name from the story and told Americans that a wealthy American businessman operated an international modeling company that recruited a seventeen-year-old girl in Jamaica, brought her across an international border under employment paperwork representing $75,000 a year, placed her into an arrangement where she claimed she ultimately received only a few thousand dollars, and controlled the employment upon which her legal work status depended, I suspect people would have a very different reaction.

They might even use the words possible international labor trafficking.

They certainly ought to use the words possible exploitation of a foreign minor.

Somebody should have investigated exactly that.

Not a civil judge deciding whether a complaint satisfied the technical elements of several causes of action.

Investigators.

People empowered to subpoena records. Follow the money. Examine immigration submissions. Interview every model housed by the agency. Determine who made the representations contained in visa applications. Compare those representations with actual bookings and payments. Determine how housing and other charges were calculated. Interview the people who recruited teenage models overseas. Determine what management knew and when they knew it.

That is what I mean by investigation.

Perhaps such an investigation would have found no trafficking crime at all.

Fine.

Then we would have an answer.

Instead, we have a seventeen-year-old girl, an international recruitment operation, employer-controlled immigration status, enormous discrepancies between projected earnings and money allegedly received, allegations of exploitative conditions, a lawsuit dismissed without the underlying factual dispute ever being tested at an evidentiary trial, an administrative fight that disappeared from public attention, and a woman who seems to have largely vanished from the public record.

Those are not answers.

Those are reasons to ask harder questions.

I have been asking them since 2016.

I will ask the simplest one again.

Where is Alexia Palmer?