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This authenticated 2003 photo of then Pope John Paul II (pope from 1978 till 2005 when he died) blessing Epstein and Maxwell at the Vatican isn't particularly damning in itself since Epstein was not formally charged with raping minor girls until 2006. The pope couldn't have known he was dealing with two pedophiles. But the two pedophiles knew exactly who they were dealing with: a religious leader who was not only massively compromised on pedophilia among the Catholic clergy but one who used the Vatican to render legitimacy to Zionist colonization of Palestine.
In October 1992, Irish singer Sinead O'Connor stood on the TV show Saturday Night Live (SNL) and tore up a photo of Pope John Paul II to protest rampant child sexual abuse within the Catholic church. She was ruthlessly pilloried by media, celebrities of the disreputable kind like Sinatra and Madonna, and Zionist organizations like the Anti-Defamation League.
Just two weeks after the SNL event, she was booed by the audience at a Madison Square Garden event to honor the music of Bob Dylan. Her career as a pop singer which had only begun in the late 1980s was over as a result of the backlash. Being the extraordinary young woman that she was--outspoken against misogyny, white supremacy, the abuse of children, injustice--she saw the backlash to destroy her as a way to get back to her musical and creative roots. The conduct of Pope John Paul II before and after her iconoclastic act on SNL prove O'Connor to be something of a prophet if not a goddess.
In the early 1990s, child sexual abuse by Catholic clergy was just beginning to be exposed by survivors all over the world who were suing the church for Vatican complicity in the crimes against them. Until then, it was covered up by Catholic authorities, including Pope John Paul II during his previous tenure as archbishop of Kraków, Poland beginning in 1958. In 2023, Dutch journalist Ekke Overbeek (who lives in Poland and has written extensively on child abuse in the Polish church) wrote 'Maxima culpa. John Paul II knew' where he draws his allegations from documents of the Polish secret service during communist rule. Since John Paul II was an aggressive anti-communist, it could be claimed that the secret service was slandering him. But in his tenure as pontiff, John Paul II continued to run interference between survivors of sexual abuse and the rapist clergy.
As pope, John Paul II put all jurisdiction over sexual abuse cases under secret Vatican control. He ignored most allegations, defended many of the accused, and refused to turn pedophiles over to civil authorities for prosecution. Perhaps the most egregious case is that of Cardinal Bernard Law, the archbishop of Boston from 1984 until he was forced to resign in 2002 for 20 years of covering up for pedophile priests by shifting them around from parish to parish rather than report them to the police. Rather than defrock Law, John Paul II brought him to the Vatican and made him prelate of a basilica in Rome.
All that sexual criminality would have made John Paul II sympatico enough with Epstein and Maxwell. But then there were his political overtures to Israel when in 1993 he signed an agreement establishing formal diplomatic ties between the Vatican and Israel. To cement the deal, he made a state visit to Israel in 2000 where he did that thing all Zionist politicians do at the Western Wall--put a piece of paper in the wall asking God for forgiveness for crimes committed against Jews by Christians. Then he visited the holocaust museum to honor the six million victims of the Nazi genocide. Since the crimes against Jews, especially those crimes incited by the Vatican, are egregious throughout history, it's appropriate for John Paul II to accept responsibility and it is certainly right to honor the victims of the Nazi holocaust. But what about the Palestinians?
John Paul II met with Yasser Arafat during his visit since Arafat had signed the Oslo Accords in 1994 legitimizing Israel's occupation and expropriation of the West Bank. He said mass in the West Bank town of Bethlehem, stopped in at a refugee camp near Bethlehem to say hello, and shed a few tears about Palestinian suffering before heading back to Jerusalem.
If you want to know what Epstein and Maxwell liked about Pope John Paul II, it is his monstrous compromises with sexual crimes against children and his support for Zionist colonialism. So this 2003 encounter at the Vatican does not damn the pope. But the cesspool of Vatican politics when it comes to protecting children, including Palestinian children, and when it comes to supporting Zionist violence against Palestinians does damn him. It also highlights the connection of Epstein and Maxwell to the world's civil, religious, and political elite and explains why there has as of now not been a single prosecution of the pedophiles identified in the Epstein papers.
(Photo from 2003 has been authenticated by several sources. It is not AI-generated. It became public in the 2020 prosecution of Maxwell)
I remember when his show, The Apprentice, was all the rage. I never watched it. Apart from always seeing him as a repulsive individual, I certainly wasn’t drawn to a television show where a multi-millionaire (at the time) introduced the show with the phrase “You’re Fired”. Other than that phrase, I had no real idea what the show was about.
I have spent my conscious political life defending members of my own class from that fate, losing one’s means of subsistence. No small thing in a country where money is everything and when it comes to hardships and bad times, your own your own boy.
It didn’t surprise me one bit when he boasted of entering the dressing rooms where youn women on the show were changing. He could see them naked. He’s clearly a r*pist, a serial sexual abuser.
While he is the most degenerate and disgusting example of the decaying US ruling class he is not the main problem here. He is the symptom of a social system in decay. US capitalism is engulfed in an economic, political and social crisis. It is under siege on the global stage and losing ground despite still being the most powerful economy and certainly the most powerful military. It is a wounded animal armed to the teeth.
The assault on the working class at home has been intensifying under both Republican and Democratic Administrations alike as the era during which the two parties of capitalism that have dominated US political and economic life for over one hundred and fifty years comes to an end.
Yes Trump is despicable, but there are far nastier and more astute characters behind him. As I have stated before, those that seem to think the Democratic party is capable of defending the working class against fascism are terribly mistaken. It is not hard to see that this is the case both historically and in the present.
The US working class is not as infected with right wing racist ideas as the capitalist mass media would have us think. There are many reasons a cohesive, organized counter to the capitalist offensive has not yet arisen, both on the ground and in the political arena. What is certain in my mind is that it will. It must if we are to ensure that our children and grandchildren have a future, free from want and war, the two of the main pillars of capitalism
Over the weekend, it was reported that former Cambridge professor, Jason Arday, had been found dead in his home after a barrage of attacks from the press and institutions over plagiarism allegations.
The wholesale character assassination of Arday often had little to do with what he was being accused of doing. It was clearly a hit job on a Black man who had threatened the status quo of academia, and an attack, similar to those in the USA, on any institution that hires people from minority ethnic backgrounds.
It is one of those personal stories that has deeply affected me over the past couple of weeks. Having been in academia myself, and knowing the gruelling process of obtaining a PhD, I know Arday had far higher steps to climb because he was Black, and because the world of academia is still dominated by white men.
But with his rise, academics on the right attempting to discredit him at every chance they could get. Prior to the Telegraph article that smeared him and which fuelled the press fury against him, he had already been attacked over allegations of plagiarism a year earlier. There is an excellent interview on Owen Jones’s YouTube channel, with Kehinde Andrews, another Black professor and friend of Arday, who discusses the smear campaign in detail.
Wrongful accusations
According to Andrews, the plagiarism allegations began when a far-right academic, Nathan Cofnas, attempted attacked Arday, saying that his PhD thesis contained plagiarised passages from another PhD thesis submitted a few months before Arday’s.
When Arday was attacked by Cofnas, Arday’s university, Liverpool John Moores, reviewed his PhD and found that while his work contained “poorscholarship” — meaning there were some incorrect references and passages that he had clearly been reading and emulating in his own writing — there had been no attempt by Arday to pass someone else’s work off as his own, which is what would constitute plagiarism.
It should be noted that Cofnas himself is not a reliable academic, having producedresearch that is heavily biased and light on facts, as he seeks to pursue an agenda of “race realism”, where he argues that intelligence is based on different racial groups. It is a far-right trope that has been disprovenby many academics and highly qualified scientists many times over.
A media onslaught: eleven articles a day, over 22 days
But, perhaps as the media seemed to be having a slow news period over the past few weeks, the Telegraph dredged this case back up, reporting on the accusation against Arday by Cofnas, and launching a renewed attack on him, despite the charge of plagiarism having already been proven wrong.
From that initial article came a barrage of attacks from all corners of the press, attempting to discredit him for the stupidest reasons: from whether he actually ran a marathon for charity, to whether his claims that he was non-verbal as a child were true.
In a reportfrom the Good Law Project, with data collected from NewsCord, it found that the media published 249 articles over 22 days, discussing Arday and alleged plagiarism. That works out at roughly eleven articles a day from the press. The biggest offenders were right-wing newspapers like The Times and The Telegraph, but even supposedly “liberal” papers such as The Guardian joined in on the smear campaign in an attempt to discredit Arday.
One article from The Guardian, which I happened to read before Arday’s death, questioned his claim that he was non-verbal as a child. One claim came from a “YouTuber” called Jonathan Stewart, who suggested that Arday was chatty and loved making jokes.
I checked the YouTube channel that posted it, and it is a channel that had never spoken about Jason Arday or his academic work, only relationship advice. Stewart did release one video about Arday, claiming that he was not non-verbal, but that video has since been deleted.
The Guardian never thought to verify this YouTuber’s claims; it only had claims from another person that Arday was not non-verbal, and apparently thought that was enough to publish. Yet there were also verified accounts from other schoolmates of Arday’s confirming that he was non-verbal and struggled to communicate with his peers and teachers.
Two points arise from this abysmal reporting. First, we do not know if these people actually went to school with Arday and, in the case of Stewart, it seemed as though he made the video to attract attention to his channel. Secondly, why did The Guardianever feel the need to report this in the first place, rather than sticking to the false allegations of plagiarism and doing some actual decent journalism on the right-wing mob attempting to discredit Arday?
But it seemed that The Guardian wanted to stick the knife in with Arday, with countless opinion pieces attacking him, and the response of the left, because we knew that a racist campaign had been mounted by the right. It is this type of reactionary centrism, seen in recent reporting on Gaza and the Corbyn antisemitism smears, that shows papers like The Guardian are not friends of the left, but defenders of the establishment. The only difference is that they do it with a smile.
Media scrutiny
Since Arday’s death, there has been an outpouring of support for him, alongside serious questions about the media’s role in his death. The media have responded to those accusations with cowardly defences, claiming that people should instead blame how institutions such as Cambridge handled his mental health support.
An editorial piece in The Guardian about his death calls for “reflection” and argues that it was right to scrutinise his position, but even The Guardian itself did very little “investigative reporting”, although that was its apparent justification for publication. Only in this piece does it address the fact that the plagiarism accusations were not upheld by the university, and that the man who made those accusations was a racist attempting to discredit Arday based on his own racial prejudices.
What The Guardian did was not investigative reporting; it was tabloid reporting, the very thing institutions like The Guardian claim to be above.
And, according to Andrews, in his interview with Owen Jones, that is what hurt Arday the most, in the days leading up to his death. He expected the right wing to go after him. Earlier this year, he gave a speech to the British Sociological Association conference, showing how the press and right-wing academics attempt to smear Black academics by accusing them of plagiarism. In that speech, Arday referenced Claudine Gay, the first Black woman to become president of Harvard, who had been hounded out of her position due to allegations of plagiarism.
But he did not expect attacks from supposed liberal newspapers. Even supposedly left-wing media outlets, like Novara Media, did some reporting on this, apparently taking the line from the establishment press. Since Arday’s passing, they have only reflected on it, while still sticking to their guns that what they reported was justified.
The speech Arday gave at that conference unfortunately turned out to be prophetic. He would be attacked with the same smears, and those attacks would ultimately contribute to his death. The media should be ashamed of how they treated him. And as the Good Law Project has demanded a public inquiry into the role of the media in his death, we should also seek to change how the media operates, making sure it serves the public by reporting what actually matters.
This can only be done through democratically-owned public media spaces. It is time to regulate the right-wing press, most of which is currently owned by billionaire tax-dodgers. We should bolster outlets like the BBC, while making sure that the public has a say in what is reported — not appointed and board members, heavily skewed to Oxbridge graduated white men. That is how we can stop a tragic event like the case of Jason Arday from ever happening again.
In an article entitled How economics is changing, FT columnist Harvey Nripia paints a generally positive picture of economics as an academic discipline in the 21st century. He argues that economics has become more inventive and empirical and now provides, on the whole, increasingly useful advances in our knowledge about economies and how human societies can flourish.
No longer is economics ‘a dismal science’ that Thomas Carlyle was claimed to have called it in the mid-19th century. Then ‘political economy’, as it was generally called, was mostly pessimistic about human progress. It is 250 years since Adam Smith suggested a break with monopolies and the development of free markets and the division of labour would lead to a huge leap forward in productivity and prosperity for mankind. David Ricardo and Thomas Malthus in the early 19th century were less sanguine about such economic progress; the former expecting diminishing profits being squeezed by landlordism and the latter expecting unending poverty from excessive population growth.
But things are much rosier now, according to Nripia. Economics as a discipline is mushrooming and expanding into new fields of discovery. Economics is now the fifth most popular A level in England. It was hardly heard of back in the 1960s when it was suggested to me that I might like to try out this ‘new fangled subject’ that fell midway between the sciences and the arts. However, I suspect that the hugely increased popularity of economics at schools and universities in the last 40 years is more to do with its potential to deliver a better paid career in financial institutions and governments than if you study English or even sciences. As Benoît Cœuré of the ECB told economics students at a job forum of Paris School of Economics in 2019. “For many, a master’s degree is a natural step towards a PhD. And a PhD is essentially a promise of employment. In the United States, for example, the unemployment rate for PhD economists is about 0.8%, the lowest among all sciences. Not a bad place to start from.”
Nripia highlights a survey of economic journals that shows that economics has morphed into all sorts of areas of human behaviour and social norms. Papers on development, crime and gender “are on the up”. Another survey finds that “causal claims in economics have jumped. In 1990, 7.7 per cent of claims made in the literature were causal. In 2023, that hit 32.6 per cent. Additionally, papers with more causal claims are more likely to receive citations and wind up in top five journals, the research suggests. By this measure, economics is increasingly resembling a hard science.”
That sounds like good news. But there are contradictions. Modern economics loves mathematical models which have replaced theory. Marxist economist Ben Fine criticised the ‘model’ approach: “The goal “of modelling the economy is fundamentally misconceived… a model of the economy is not the economy itself”. As such, macroeconomics remains divorced from what is going on in the real economy.
Perhaps the most used in macroeconomics are the Dynamic Stochastic General Equilibrium (DSGE) models. They start from the unfounded premiss of equilbrium, namely that supply can be assumed to equal demand; they are dynamic because the models incorporate changing behaviour by individuals or firms (agents); and they are stochastic, because they include random ‘shocks’ to the equilibrium. This is now what most macro economists spend their time doing. Forget empirical evidence, forget macro data, find a ‘micro’ foundation (model) that might help to at least offer a guide to what possibly might happen.
DSGE models have proved to be worthless in explaining anything. These models failed to predict before or explain after the Great Recession and are unable to explain the subsequent weak recovery, or Long Depression. And it is not hard to see why. There is a total absence of investment or profit as ‘shocks’ in these models. Everything starts with consumer preferences; the consumer is king as in the neoclassical world and Keynesian aggregate demand is reduced to just consumption.
But Nripia claims progress in economics is now happening. He says that the widening spread of economic ideas is the result of economists “eschewing theoretical models in favour of empirical approaches.” But the empirical approaches that Nripia praises are ‘difference-in-differences’ methods and ‘randomised controlled trials (RCT)’ – a form of ‘laboratory’ work on individual behaviour at the small scale level. RCT is justified by those who practice it because “good economics is much less strident, and quite different. It is less like the hard sciences and more like engineering or plumbing: it breaks big problems into manageable chunks and tries to solve them with a pragmatic approach – a combination of intuition and theory, trial and acknowledged errors.” Unfortunately, as Sanjay Reddy and others have pointed out, there are just as many faultlines in RCT as in the DSGE models. Meanwhile, empirical work to support the macro theories of modern mainstream economics is either sadly lacking or inadequate. For me, economics is a science, testing theory against evidence. But it is a ‘social’ science looking at the changes in the aggregate, not a science of individual behaviour.
Take inflation. Mainstream economic theory on the causes of inflation has been found wanting and the empirical evidence to back monetarism, or cost-push inflation or consumer expectations is weak. The same failure applies even more to explaining regular and recurring crises of production, investment and employment in modern economies. Neoclassical economics denies such crises as structural to capitalism and looks only for random ‘shocks’ to the harmonious equilibrium growth of modern economies. Keynesianism finds crises as just a ‘technical malfunction’ of investment and consumption that can be corrected by policy.
In his address to economics students, Cœuré dismissed the criticism that modern economics had failed to predict the outbreak of the global financial crisis of 2008-9. “This criticism is nonsense. Do we expect physicians to predict illnesses? We don’t, of course. But we expect them to help us cure illnesses. Economists should do the same. They should be judged by the quality of the advice they give.”
Cœuré thinks economists are like dentists, doctors or plumbers who clear up messes once they have happened. But are doctors all that matter in human health? Actually, improved doctoral skills in treating patients once they have become ill comes from scientific discovery about diseases, biology and the environment. Successful drugs and medical practices are the result of learning what the cause of the illness is. In medieval times, doctors applied all sorts of useless and dangerous treatments (leeches etc) because they did not know that about ‘germs’ (bacteria or viruses). Cholera was eventually abated by a geographical (empirical) study in London showing it was prevalent near bad drinking wells. Malaria and smallpox were resolved by discovering the carriers of the bacteria in various animals. Treatments by doctors then followed.
Nripia has to admit that many “results derived from real-world data and experiments are hard to replicate under the same conditions and methodology, with research suggesting that up to 70 per cent of recently examined economics papers contain some results that cannot be reproduced, sometimes due to “questionable research practices or fabricated data sets”. Indeed, AI poses a risk to Nripia’s optimistic future for economics. Nripia: “While some practitioners are embracing machine learning to process non-text data, such as images and sounds, or to capture non-linearity, AI is also creating low-quality content” and plagiarism.
Nripia ends on a positive note.“As long as the academy keeps a close eye on rigour, especially as economists embrace frontier technologies and methods, the future of economics looks dynamic. Not bad for a subject once thought so dismal.” For me, economics remains a ‘dismal science’ because the most important economic theories that expose the dismal state of the world are mostly ignored in the ‘profession’. So poverty for billions, rising inequality, continual financial crises and environmental destruction are worsening. Nripia ignores these fundamental trends for modern economics to analyse and solve in his fast moving stream of progress.
Talks between Israel and Lebanon are going nowhere, largely because Israel is trying to torpedo them. Their conduct in negotiations is clearly set to stall talks and allow Israel to continue to destroy south Lebanon and renew full scale fighting at will:
1) Israel insists that any withdrawal be conditional on Hezbollah disarming, something that will never happen and which Lebanon is incapable of doing to begin with.
2) It refuses to take a phased approach which Beirut wants to help it rebuild capacity. Lebanon's plan is to get US buy-in for gradual disarmament paired with Israeli withdrawal from areas where confrontation would be minimal. Israel's all-or-nothing sequencing blocks it.
3) Israel is refusing to provide an actionable timetable for talks. That is weakening the government and strengthening Hezbollah since it is showing the government cannot get concessions form Israel.
4) Making public statements that show that Israel has no intention of withdrawing at all. Katz said, "The IDF is here to stay in the security zones in Lebanon, Syria and Gaza… under no circumstances will we withdraw from the security zones: not in Lebanon, not in Syria and not in Gaza."
5) Systematically violating the ceasefire. Conduct on the ground. Continuous strikes and assassinations of Hezbollah commanders, described as continuing "as if there were no ceasefire," and read in Lebanon as intent to resume full-scale war.
6) Israel is constantly expanding the "yellow line" in Lebanon and the territory it occupies. It is also demolishing villages relentlessly. It is also building a road network and permanent bases,taken as proof of intent to stay long-term.
Israel is doing in Lebanon what it did in Palestine. Refusing to make deals with moderates, thus strengthening the organizations they supposedly fight. Making an occupation permanent and destroying entire villages and turning talks into a joke.
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.
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.
[1] The results of the Granger causation test are available on request.
