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As we move closer to the midterm elections, two candidates stand out for their independence from the institutional Democratic Party.
The first is straight-talking chef Francesca Hong, whom I’ve interviewed and is the clear frontrunner to be governor of my home state of Wisconsin. The second is doctor Abdul El-Sayed, who enters Tuesday’s Senate primary in Michigan with a double-digit lead in polls.
Yet the Democratic Party and a compliant mainstream media is not accepting the clear will of voters. Instead, they’re busy manufacturing the sense that if the two candidates are nominated, losses in the general election would be inevitable because they are too “extreme” for ordinary voters.
The evidence for this is largely just vibes. In fact, a leaked memo shows Hong is privately seen by Republicans as the most formidable candidate, as I’ll detail in a moment. But first, take a look at the orgy of fear-mongering by the Party about these candidates.
“The Dem race for governor in WI feels like a slow-rolling car headed for a cliff,” said David Axelrod, Obama’s chief strategist in his 2008 campaign.
Democratic Party elder James Carville went further, declaring “the two-party system is just under tremendous stress” due to the rise of figures like left-wing commentator Hasan Piker, whom Hong has campaigned with. (When asked if she’d condemn Piker, Hong’s characteristically blunt response was simply “No,” as shown in the video below.)
Party leaders have thumbed the scales in both primary races — Wisconsin Governor Tony Evers in his state, Chuck Schumer in Michigan — each backing the party establishment favorite. The Democratic establishment keeps advancing candidates who aren’t gaining any traction; but instead of asking why they are so out of touch with what the people want, they are resorting to tearing down the popular choices. The Party doesn’t like anyone who it hasn’t anointed and who hasn’t risen through its ranks.
The Democratic Party sits at its lowest level of popularity in at least 30 years. It has been fighting the people’s choices since Zohran Mamdani emerged as mayoral frontrunner in New York last year. When he beat the Party’s candidate last year, the smug reaction from election knowers was that his victory was only possible in a deep blue state like New York.
Turns out that was bullshit. Neither Michigan nor Wisconsin is New York. Nor are they lefty outliers. Trump carried both in 2024!
Now the Party hacks and their elite media buddies are trying to put the fear of god in voters that if they choose the candidate most of them want, it is playing into the hands of the Republican Party, Donald Trump, and so on. Though disguised as a warning, it is actually a threat.
It bears mentioning that this is not the view of congressman Tom Tiffany, the Republican who will actually have to run against Hong.
“We Need To Take Francesca Hong Seriously,” reads the subject line of a memo prepared for U.S. Tiffany’s gubernatorial campaign by Republican consultants. Leaked and reported on by Jessie Opoien of the Milwaukee Journal Sentinel, the April memo correctly anticipated Hong’s dominance in the primary. It also described her as “uniquely dangerous in the general election” and that “general election strengths are formidable.”
Per the memo, as reported by Opoien:
Hong’s “combination of grassroots momentum, unapologetically progressive ideology, and a platform centered on high turnout makes her uniquely dangerous in the general election.”
Hong’s platform is “broadly popular and difficult to counter.”
Her agenda “is built around kitchen-table issues that poll strongly with independents, working families, and even some rural voters.”
“more moderate and establishment Democratic alternatives would likely produce lower base motivation and depressed turnout.”
Now compare that with the doomsaying national media coverage. It’s almost surreal how different it is.
The “electability” argument is always a claim about what your neighbors will tolerate, made by someone who has never met them, delivered with the confidence of arithmetic. As a campaign staffer once told me, the horse race’s main function is propaganda to induce voters to feel like voting a certain way is prudent or responsible.
This is all about telling people who they can or cannot vote for. Sometimes it’s barely even concealed. Third Way, the centrist think tank, said in a strategy memo this year that Democrats “cannot run candidates who are far outside the mainstream of their district.”
It’s the very definition of mainstream that is at stake here.
If there’s one thing that ties together Mamdani, Hong and El-Sayed, it is that they have distinct personalities and they talk without the prevarications and doublespeak of what we’ve come to know as “moderates.” Things like democratic socialism are, in my view, a small element of their popularity. That they are willing to directly buck the establishment is their appeal. And when they talk about affordability, it comes from experience and living among normal people rather than the lanyard class that dominates Washington.
As the Republican consultant memo about Hong warns, her “working-class biography and populist economics [could] blunt ‘radical socialist’ framing.”
I have no idea what will happen in the election. Neither does anyone else. But I do know what’s happening in America. People are tired of the establishment, tired of the blow-dried, overproduced version of everything that seeks to manage rather than move.
“I think they’re underestimating voters,” Hong said back in May of the commentariat and their negative predictions. “That has always been a problem for the Democratic Party — that we are not listening to how they are feeling.”
She seems to hear it loud and clear.
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Theories of inflation part two – heterodox and Marxist
This is the second part of my discussion of the causes of inflation in modern capitalist economies, based on an unpublished paper by Guglielmo Carchedi and me. Part 1 is here.
There are various heterodox views on the causes of inflation. Generally, they argue against the mainstream focus on monetarism, excess demand and inflation expectations as discussed in part one. The heterodox views can be divided into two. First, there are those who suggest the focus should be on the sectoral structure of the economy, namely how supply constraints lead to price surges in certain sectors of the economy and then, through input-output linkages and changes in firms’ pricing behavior, spread to the whole economy. And second, there are theories based on the view that inflation is caused by class conflict ie workers’ demands for higher wages and the response of capitalists.
In the sectoral view, some turn to corporate price ‘mark-ups’ as an explanation of inflation i.e. inflation is caused by monopolies and their power to impose market prices above ‘free competition’ prices. Monopolies can raise their profit mark-ups and sale prices if costs rise, including labour costs. Stephanie Kelton, the well known ‘modern monetary theorist’, explains that “companies with enough market power can also unilaterally raise prices in a quest for greater and greater profits.”
Marx would disagree. Yes, the market price of commodities sold can and will deviate from the production price, the price at which all capitals produce commodiities at the same average rate of profit (a rate that is always moving). If the price of production that is based on the average rate of profit in the economy falls, then all individual prices revolving around that should fall as well. But there is a degree of freedom within which some firms might lower their price less than the average or even increase it. However, this ‘monopoly’ ability to do this always has limits. Competition will tend to rule, even with oligopolies. So the market ‘monopoly’ price cannot deviate for long from the price of production.
In the recent inflationary spike after the pandemic slump, the sectoral theory has taken a different form. In this view, inflation is due to supply constraints in key economic sectors, which is then amplified by firms raising markups due to their market power. Supply bottlenecks which spread through sectors in the economy initiate the inflationary process, but then markups by companies can go above the average, so putting additional pressure on prices. Isabella Weber and Even Wasner argue that rising prices in certain “systemically significant upstream sectors” provide an impulse for further price hikes. To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures.
The evidence for profit-led sectoral driven inflation has some basis in the recent post-pandemic inflation spiral, but can it be considered as a general explanation of inflation in capitalist economies? Inflation has existed long term in the major economies even when there have been no increased mark-ups by companies or when there are no spikes in raw material prices. Sure, prices in oligopolistic markets are likely to be higher than in more competitive markets, but higher inflation can occur both with fairly competitive or oligopolistic market structures. In the late 19th century, the so-called Gilded Age Era was characterized by the rise of cartels, but with deflation in prices; and the 1990s, often seen as a second Gilded Age with increasing market concentration, experienced a so-called Great Moderation in price inflation ie disinflation (as shown in part one). Indeed, in the last big inflationary spiral of the 1970s, profits actually fell. According to Sylos-Labini, writing then:“the decline of the share of profits in several capitalist countries can be attributed primarily to the persistent increase of direct costs in labor, raw materials, and energy.” I shall return to the discussion about so-called ‘sellers inflation’, profit mark-ups and sector-driven inflation in part four when I analyse the post-pandemic inflationary spike to date.
The second heterodox explanation for inflation is that it is due to class conflict. This heterodox theory rejects Keynesian theory that attributes inflation to wage-cost pushes resulting from excess demand and worker bargaining power. Instead, this theory reckons that wages rise in response to price rises, as Marx argued. But what about the cause of the original spurt in inflation? This will be due to supply disruptions or mark-up power by monopolies – so back to the first heterodox theory. But inflation will continue, depending on whether workers have sufficient labour power to respond, leading to further attempts by companies to compensate by hiking prices further.Thus inflation depends on the balance of class power between workers and capitalists. But this theory provides no explanation of the initial inflation of overall prices, except the contingent factor of a supply disruption or ‘shock’. And it falls back on the initial trigger for any price surge being due to increased markups or supply constraints as in the sectoral argument above.
There are some overtly Marxist theories of inflation. One ‘Marxist’ explanation of inflation is merely the monopoly mark-up price theory as described above. Baran and Sweezy (1966) explained the cause of inflation as follows: “Keynesian theory assumed free competition; under oligopoly, increased demand leads to rises in prices … and ultimately (as a result of the rising cost of living) to higher wages rather than an expansion of output. The result is general inflation.” Similarly, Kotz (1982) argued that monopolies can set market prices that exceed prices of production. But monopolies since the end of WWII have existed both during the inflationary period (1949-1979) and even increased market power in the disinflationary period (1980-2021). So generalised inflation must be explained aside from monopolies. Indeed, if monopolies have the power to increase uncontrollably their market prices, why do they choose to do so only in very certain circumstances? Specifically, they have chosen to raise their prices significantly only twice in recent economic history (in the late 1970s and in 2021), namely when profitability was low.
Paul Mattick Snr argued that “inflation is an expression of inadequate profits that must be offset by price and money policies … If prices rise faster than wages, then what could not be extracted from the workers in production is taken from them in the circulation process.” (1977, Chapter 3). This is evident. If prices rise faster than wages, there is a pro-capital redistribution at the cost of wages. And if prices grow less than wages, there is a pro-labour redistribution at the cost of profits. But neither explains any cause of the initialrise in the general price level.
Ernest Mandel (1987) attempted a Marxist explanation that involves money: if “paper money circulation has doubled without a significant increase in the total labour time spent in the economy, then the price level will tend to double too.” But why does money in circulation not just match the change in the value of commodities as measured in total labour time? Mandel is close to identifying the relevant factors in inflation, but without an analysis of how they combine.
Harman (1979) correctly identified that the profitability of capital was a key cause of inflation. But Harman adopted a subjective analysis: “in a boom, capitalists feel confident that their goods would sell, even if they increased their prices. … Once the recession sets in, capitalists have to respond … \[by\] contracting markets \[and\] have to slash prices.” This presents the capitalist reaction to a boom and price inflation, but does not explain the cause of inflationary or alternatively disinflationary periods. For example, it cannot explain the persistence of disinflation from the 1980s to 2019. There is no explanation of how movements in profitability are relevant and no recognition of the impact of the monetary authorities.
Choonara (2021) also underscores the role of profitability as the core cause of rising prices: “inflation depends on the interrelation between value creation through the expenditure of labour power, the creation of money (primarily through the credit system), and the relationship between capital accumulation and profit rates.” This is closest to our ‘value theory of inflation’ that I shall deal with in a later post.
The two most thorough Marxist explanations of the causes of inflation are by Anwar Shaikh and more recently, by Greek Marxist economists Stavros Mavroudeas and Athanasios Chatzirafailidis.
Shaikh does not like to call his theory Marxist, preferring ‘classical’. He argues that “modern inflation is the balance between a demand-pull generated by new purchasing power and a supply-response depending on profitability and the degree of growth utilization.” The combination of these two provides “a general theory in which inflation responds positively to new purchasing power because the portion of the latter which is not absorbed by current supply spills over into price increases; and negatively to net profitability, since this raises real output growth; and positively to the growth-utilization rate insofar as the latter inhibits real output growth.”
Where does this ‘new purchasing power’ that represents demand come from? It comes from new domestic credit from private and central banks, ie in effect an increase of money in circulation. The supply capacity to meet this increase in demand depends on the profitability of capital, which is the ‘motivation’ for investment. If the stock of capital rises, it will provide an increase in capacity to produce and allow more ‘growth utilisation’, ie more real output. If the stock of capital falls, the capacity to produce is lowered. In other words, Shaikh is saying that inflation is caused by aggregate demand exceeding supply capacity. If the profitability of capital rises, then capitalists will increase supply and inflation will be avoided. If the profitability of capital falls, then supply capacity will fall and inflation will emerge.
So inflation is driven up by increased demand (new purchasing power) and by low supply capacity, the latter being caused by falling profitability. Inflation slows or disappears if new purchasing power is satisfied by rising supply and that will tend to happen when profitability rises. Thus in the period when US profitability fell (1964-82), the increase in supply capacity slowed and inflation accelerated. In the period 1982-2007, when profitability rose, supply capacity rose and inflation decelerated. Shaikh provides empirical evidence to support this theory, while at the same time, refuting the Keynesian Phillips curve. I have reproduced his graph 15.10 from his magnum opus, Capitalism, p711 and recalculated it.
The graph shows a high correlation (0.63) between rising inflation and the using up of capacity (in other words, a slowing increase in supply) and vice versa. The correlation is very high in the inflationary (accelerating inflation) sub-period 1948-1981 (0.83) and still relatively strong in the disinflationary (slowing inflation) period from 1982-2010 (0.59).
Stavros Mavroudeas and Athanasios Chatzirafailidis define inflation as the phenomenon “in which the total sum of market prices significantly exceeds the total sum of prices of production for an appreciable period in the economy.” A strong and persistent inflationary phenomenon (namely the rise in total market prices above the total prices of production) arises when the capitalists’ demand for more means of production significantly exceeds investment for a considerable period.
Why would demand exceed investment for periods? Mavroudeas and Chatzirafailidis fall back on Marx’s reproduction schema as in Volume 2 of Capital. For them, inflation is due to the systematic over-accumulation of capital and specifically due to an incessant demand for more means of production. Investing in more means of production relative to labour drives up the organic composition of capital, which in turn eventually leads to a fall in profitability which slows investment and delivers weaker output growth. So demand outstrips supply and market prices rise above prices of production and inflation ensues.
Both theories have the merit of placing the role of profitability of capital at the centre of the causes of inflation. Unlike Shaikh, Mavroudeas and Chatzirafailidis emphasise that the supply side in Marxist terms depends on the growth in the value of commodities: “inflation should not simply be perceived as a process in which the market prices of commodities are vaguely rising above an arbitrary “normal” price level. On the contrary, they should have the values of commodities as their “anchors.”
But in my view, both theories do not provide a complete Marxist theory of inflation. While Shaikh says that aggregate demand is driven by credit growth or money in circulation, which in my view is correct, he offers no explanation why that demand should accelerate or decelerate. What he does not explain is why demand does not also sink along with a fall in supply capacity and thus avoid inflation. After all, that is what happens in a slump. Also his emphasis on capacity utilisation rather than on the rate of growth in value for the supply side of the inflation equation suggests a Keynesian excess demand theory rather than Marxist value theory..
In contrast, Mavroudeas and Chatzirafailidis put the value of commodities firmly as the anchor for prices of production around which market prices fluctuate. But they have no role for money. For them, inflation of prices in a capitalist economy is purely a real, not a monetary phenomenon. They start with the assumption that money is a commodity (gold), which rules out the role of money in inflation. This is unrealistic in modern economies where money can be created by central banks and governments (fiat money) that is not tied to the value of the gold commodity. In modern economies, money growth can diverge from growth in the value of commodities and so affect market prices. Without money in the story, we cannot explain why demand should outstrip supply and cause inflation.
In part three, I shall present what Carchedi and I call a ‘value theory of inflation’, which incorporates the role of the profitability of capital, changes in the value of commodities and the role of money. Bringing all these together offers a more comprehensive theory.
I know next to nothing about Boy George except he sang a song titled, Do you Really Want to Hurt Me, or that was a chorus lyric in one of his hits, that’s why, under normal circumstances, I would not bother to comment on him.
But as he’s penned a song sharing his views about Apartheid Israel’s barbaric assault on the Palestinians in Gaza that has been accepted by numerous human rights organizations as well as G*nocide historians, Jewish and non Jewish alike, as a “G*nocide, I feel compelled to say something.
In the song that is titled, “We Will Dance Again” we have lyrics like:
“You say genocide, I say war/ When you’re attacked, that’s what the army’s for/ Does it get ugly? You bet it does/ When I know you wanna kill every last one of us.”. In addition to justifying Israel’s G*encode by describing it as a war, he also attacks the pro-Palestinian movement describing those opposing a crime against humanity as, like “sheep”.
Celebrities whose world is a parallel universe detached from the experiences of the vast majority of human beings, would do better to keep their mouths shut. And unfortunately many of them who oppose Israel's G*nocide have, for fear of retribution, this is particularly the case with actors.
It’s hard to imagine that almost three years after the hundreds, perhaps thousands of Palestinians broke out of the confines of what has been described as the largest outdoor concentration camp in the world, under siege since 2007, that anyone can refer to the conflict as a “war”.
Israel has one of the most powerful militaries in the world, backed and funded by the United States and other western allies. The Palestinian people, constantly under guard, have no navy, no air force, no army.
In response, to the October 7th attack, the Israel has destroyed Gaza completely and it is impossible to know how many thousands of innocent people lie beneath the rubble. Some estimates put the death toll as high as 500,000 including more than 60,000 children, though it is impossible to tell and the Israeli’s are still killing off the witnesses and refuse to allow independent journalists it to Gaza. The Zionists have now moved in to neighboring Lebanon and are razing villages there displacing over one million people.
The non-Jewish population of Israel, in the occupied territories, Israel proper or Gaza, have been attacked for seven decades. Much of the population of Gaza are refugees or children of refugees from villages the Zionist regime destroyed not miles from the camp’s fence and the resident driven in to the strip.
Boy George, whose real name is George Alan O’Dowd, is quite offended at the backlash that his song has generated among the wider public and has responded in a statement given to Britain’s Sun newspaper and published in the Independent.
“The suggestion that I feel no compassion for Palestinians is both untrue and absurd. I am devastated for the loss of the innocent lives on both sides of this war and I call for peace.”, he writes.
He was very disturbed by the attack on the music festival causing him to feel “deep emotions”, “I could have been there and we know that there were people from more than 40 countries who were,”
Has Boy George wondered for one minute who on earth would attend a rock concert a couple of miles from a concentration camp, and what sort of people and country would allow it.
George vomits out the Zionist line again and again arguing that the motive behind the resistance that broke out of Gaza and attacked their captors that day were motivated by a hatred of Jews. This has been the narrative from the beginning but Israel’s brutality has undermined it significantly. Even Piers Morgan, who spouted this line in the early days can’t avoid the obvious, Israel is committing a genocide.
The conflict in Palestine is not a religious war any more than the conflict in Northern Ireland, is. The Palestinians are an occupied people in their own land and have every right to resist occupation. Boy George is of Irish ancestry he should understand that better than most. The colonial people that fought the British in Kenya, Malaya, India, Ireland or any of the colonial possessions were not driven by a hatred of the English or British people; they were fighting their oppressors, the colonizers.
“I understand that is uncomfortable to defend your friends when a war like this is raging but the woman who sells me bagels is not to blame, neither is my doctor or publicist, manager, ex-boyfriend or my thousands of Jewish friends. This song is for them.”
It’s staggering that three years on and witnessing the prominent role young Jews in particular are playing in the movement against the G*nocide and for Palestinians’ right to self-determination, he can have the opinions he does.
The lyrics in his song, he writes, “…doesn’t mean that I don’t have compassion for Palestinians, it doesn’t mean that I agree with what's going on in Israel, but I am always going to defend the people that I love,”
As I re-read his statement I almost feel sorry for him. You love Zionists?
“I am a Jew loving, trans hugging queer hippy and my mother would be proud of me.”. he writes.
If he cared for Jews he would oppose Zionism and its g*nocidal policies that are a danger to Jews throughout the world and fodder for anti-Semites.
I really wish the general public would pay attention to this.
We do not live in a democracy. Within the capitalist system democracy is always limited, but because global capitalism is teetering on the brink of collapse, those who own and control it will go to even greater lengths to try and save it at the expense of democracy and international law.
Part of this battle is the attempt to take over the Middle East and remove all threats to Western hegemony. Israel is a key part of this project, and contrary to the idea that Israel controls western governments, the reality is actually the other way around.
The USA, the UK and the EU need Israel as the attack dog against the perceived enemy - any country which doesn't lie down and accept western control, or any country which would threaten the primacy of the petrodollar in global trade. The West's attack dog is a settler colony which suffers from a serious case of siege mentality, the longer the colony continues to exist the more deeply imbedded this mentality becomes.
The g*nocidal tendencies of this have reached a point where even the supporting western governments have become embarrassed by it, nevertheless they still continue to arm the g*nocide and cover for it.
Over the last few years we have seen George Orwell's predictions becoming a reality, nowhere more so than in the Middle East, where truth has been turned on its head.
Israel is in breach of several international laws and countries who support it, like the UK, are also in breach of international laws for continuing to support its actions rather than carry out their duty which is to hold it to account.
In the UK too, truth has been completely turned on its head. The Government is a collective criminal, it's lapdog media and its leading judiciary are guilty too, yet they compound this by criminalising any protest against their delinquency.
This isn't just about Palestine Action, it is an assault on democracy and the real rule of law.
Our Governments and their institutions are arch criminals who hold no value for human life.
We are now entering the period of barbarism which we were warned about by Rosa Luxembourg.
Gail Asper, a noted ‘philanthropist,’ is ‘pausing funding’ to the Canadian human rights museum in an effort to undermine its Palestinian Nakba exhibit. This needs to be denounced and I've already done so but I’ve seen horrible responses from leftists on social media that go over to KKK like notions of ‘Jew money.’ This leads me to once again, address the issue of antisemitism.
I want to focus on the role that antisemitism plays on both the political right and the left and to argue that ignoring it is entirely wrong. I define antisemitism as animosity towards Jewish people because they are Jewish and not as hostility to the political ideology of Zionism.
The racism that developed out of European colonialism held that the colonized were on the low rungs of a hierarchy in the value of human life. When it came to Jews, however, the focus was on malevolence rather than supposedly stunted development. Notions of biologically determined treacherous qualities drew on religiously based myths about the Jewish ‘Christ killer.’
Fascist movements used antisemitism because it offered them a conspiring, unduly influential and dangerously powerful ‘enemy within.’ The Great Replacement theory that alleges that Jews are working to flood ‘white nations’ with Black and Brown immigrants is a striking manifestation of this.
Virulent antisemitism is by no means incompatible with support for Zionism. This was true of Arthur Balfour and Donald Trump still personifies it. That’s why vicious white supremacists disingenuously accuse the left of Jew hated, while Zionist organizations ignore displays of antisemitism that come from politicians who arm Israel to the teeth.
The MAGA movement is experiencing a rift on this issue, with racist isolationists and antisemites like Tucker Carlson arguing that US support for Israel should be curtailed. On the other side, the defenders of an imperialist role for the US value Israel as a garrison state that upholds Western interests, while getting rid of as many Jews as possible. This disagreement is playing out inside a racist movement within which antisemitism occupies an important place.
Leftists are hostile to exploitative and powerful elites and the depiction of Jews as such a formation is at the heart of right-wing racist constructions. Sadly, particularly at a time when the left is significantly weaker and less clear-minded than it has been, such illusions can resonate within it.
A powerful Zionist lobby, presented as the spokesperson for a supposedly monolithic ‘Jewish community,’ enables Israel’s crimes and exerts very serious influence in the West. Those who don’t properly understand the connection between imperialist interests and the support that is given to Israel can very easily fall prey to conspiratorial disorientation.
This leads to distorted ideas, particularly with regard to the question of Palestine. The most obvious of these is the conclusion that the tail wags the dog. Left social media spaces are full of assertions that Western governments are the dupes of a mysteriously influential Israel.
The Zionist project has always been at the heart of an agenda of US led regional domination. Certainly, a settler colonial project is underway that is based on a supremacist ideology and some level of divergence between Western interests and Zionist aspirations occurs but Israel is utterly reliant on its sponsors and the tail doesn’t wag the dog.
Once the manipulative power of Israel’s leaders and supporters is seen as the driving force behind Western support, the next step is to focus on collective Jewish guilt. A section of the left has become almost obsessive on this question. Opinion polls are scoured for evidence of Jewish complicity. The fact that leading Jewish institutions, just like all the major institutions of the Canadian establishment, back Israel to the hilt is presented as the most damning evidence.
Those who adopt such views are certain to reject any suggestion that we should challenge antisemitism. Yet there it is an historically rooted prejudice and there are virulently antisemitic and fascistic currents at work in this society. Threats and violence against Jewish people do happen. The notion that responding to them undermines Palestine solidarity is utterly incorrect in my view.
I fully understand that, unlike the period before WW2, Jews in Canada today don’t face the kind of discrimination or disadvantage that Black or Indigenous people experience. The threat of violence that hangs over Muslims is much greater than that which confronts Jews. I also realize that a realistic assessment of the scale of antisemitism is hampered by the use of the false conflation of anti-Zionism with anti-Jewish prejudice.
Despite these considerations, I reject the notion that challenging real manifestations of antisemitism ‘gives comfort to the enemy.’ Actually, one of the great vulnerabilities of the Zionists is their dogged refusal to deal with real antisemitism. They pretended that Elon Musk’s infamous Nazi salute was an ‘awkward gesture’ and the Centre for Israel and Jewish Affairs (CIJA) peddled incredibly softly as the fascist led ‘Freedom Convoy’ displayed swastikas.
This disgusting selectivity can be more effectively challenged by opposing real antisemitism than by maintaining that it doesn’t exist or that, if it does, ‘The Jews’ have brought it on themselves. Let’s shake off notions of the malevolent Jewish soul and take up a serious, principled and far more effective opposition to all forms of bigotry and hatred, including antisemitism.
Guglielmo Carchedi and I have been working on a theory of inflation for several years. We completed a detailed paper some time ago which was accepted for publication by a Marxist journal. However, publication takes forever, so I thought I would provide a shortened version of our work on my blog.
For the blog, I have divided the paper into various parts: 1) mainstream theories of inflation; 2) heterodox and other Marxist theories; 3) our theory, called a ‘value theory of inflation’; and finally 4) a discussion of the application of our theory to the recent spike in inflation since the paper was completed.
Let me start with part one: mainstream theories.
What causes inflation has been a puzzle for mainstream economics. As Walter Munchau in the Financial Times put it in 2020: “central bankers do not really understand how inflation works. There are lots of theories and approaches, theoretical and statistical, but none that has been able to explain persistently what is going on in the real world.” Charles Goodhart of the London School of Economics was harsher in 2021: “The world at the moment is in a really a rather extraordinary state because we have no general theory of inflation.” Why is this? It’s because conventional or mainstream theories of inflation have failed to provide any robust explanation of why there are changes in the prices of goods and services in modern economies.
The mainstream view of inflation can be divided into three groups: 1) the monetarist theory; 2) the Keynesian ‘excess demand’/cost-push theories; and 3) central bank expectations theory.
The monetarist theory of inflation holds that inflation is purely a monetary phenomenon, i.e. that inflation is determined by changing money quantities relative to the changes in the quantity of output. Leading monetarist Milton Friedman argued that “inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.“
The monetarist perspective is based on a mathematical identity 𝑀𝑉 = 𝑃𝑌, where 𝑀 represents the money supply, 𝑉 is the velocity of money (which measures how frequently money is transacted within the economy), 𝑃 is the general price level, and 𝑌 is the real output of the economy. MV adds up to money in circulation and PY adds up to the nominal amount of income in an economy. Monetarism argues that the left hand side of the equation drives the right-hand side. So, assuming that the velocity of money (V) remains constant, then if M rises faster than Y, there will be an inflation of prices. Thus, changes in M drive changes in P.
But this equation is an identity; the causal direction cannot be assumed. Marx’s position was the opposite of the monetarist direction. For Marx, money is not value, but the representation of value. So it is changes in the value/price of commodities that determines the volume of money in circulation. “If the velocity of circulation is given, then the quantity of the means of circulation is simply determined by the prices of commodities. Prices are thus high or low, not because more or less money is in circulation, but there is more or less money in circulation because prices are high or low.”
Changes in P (prices of production) determine changes in MV (money in circulation).And prices change as a result of value changes (Y), as measured in the amount of labour time used to produce all the commodities. If the value of commodities rises/falls (ie more or less labour is necessary for their production), more/less money is needed for their circulation. This is because money is the representation of value, not value itself, which comes from the expenditure of human labour, not from money.
Who is right, Friedman or Marx? Do changes in MV lead to changes in PY, or vice versa? Is there a close correlation between changes in money supply (M) and changes in prices (P)? Figure 1 shows annual percentage changes in US money supply (M2) and inflation as measured by the ‘implicit’ GDP price deflator). The correlation between the two seems relatively close up to the 1990s. But from then on, US money supply growth accelerated as a trend while the price deflator decelerated. There was even a negative correlation. Over the whole period from 1960, the correlation between money supply and prices was low (0.21).
Figure 1. Source: FRED, authors’ calculations
A key factor in the weak correlation between changes in money supply and changes in prices is that money supply and money in circulation are not the same. Money hoarding and use of money to make purchases of financial assets can make a considerable difference to the relationship between money supply and prices. Indeed, as Figure 1 shows, the rising gap between money supply growth and GDP deflator from the mid-1990s onwards suggests a diversion of money out of productive assets into financial assets.
Thus Friedman’s monetarist theory does not hold to explain US inflation in the post-war period. In a later post, I shall show how it is changes in prices of production (or the value of commodities) that drives ‘money in circulation’ – the opposite of monetarism.
The second mainstream theory is Keynesian. This is dominant among mainstream explanations. A classic example of the ‘cost-push version of this theory was recently offered by Jason Fulman, former US White House economic advisor: “When wages go up that leads prices to go up. If airline fuel or food ingredients go up in price, then airlines or restaurants raise their prices. Similarly, if wages for flight attendants or servers go up then they also raise prices. This follows from basic micro and common sense.” (Fulman, 2022). The causes of inflation, apparently, are rising raw material costs and attempts by workers to get higher wages. This forces companies to raise prices to maintain profits. This is the cost-push inflation theory.
Marx answered this theory way back in 1865. When debating with the trade unionist Weston who argued that wage rises would cause inflation, Marx argued that rising wages are the “reaction of labour against the previous action of capital” and that “wage rises generally happen in the track of previous price rises.” (Marx, 1865). Moreover, it escapes Fulman that the effects on prices of wage increases or of materials could be countered by less profits. Given a certain quantity of value, if wages rise/fall, profits fall/rise, prices can remain unchanged. Fulman’s argument assumes that profitability must be maintained ‘at all costs’.
An IMF study in 2022 addressed this question by applying a cross-economy database of past episodes among advanced economies going back to the 1960s. It found that “wage-price spirals, at least defined as a sustained acceleration of prices and wages, are hard to find in the recent historical record. Of the 79 episodes identified with accelerating prices and wages going back to the 1960s, only a minority of them saw further acceleration after eight quarters. Moreover, sustained wage-price acceleration is even harder to find when looking at episodes similar to today, where real wages have significantly fallen. In those cases, nominal wages tended to catch-up to inflation to partially recover real wage losses, and growth rates tended to stabilize at a higher level than before the initial acceleration happened. Wage growth rates were eventually consistent with inflation and labor market tightness observed. This mechanism did not appear to lead to persistent acceleration dynamics that can be characterized as a wage-price spiral.” In inflationary episodes, wages just try to catch up with prices. But even then, wage increases do not cause ‘wage-price spirals’ – this echoes Marx’s view in 1865.
A variation of the Keynesian view is the ‘demand-pull’ theory of inflation, namely that inflationary pressure results from a positive ‘output gap’ – where actual GDP exceeds ‘potential GDP’, defined as output at the limits of productive capacity including full employment. So inflation results from ‘excessive demand’ in an economy (ie above the supply capacity limit). This ‘excessive demand’ could be due to an expansionary government fiscal policy or due to fast rising wages given full employment, compounded by a fall in ‘potential GDP’, possibly from supply chain constraints and energy shocks.
What is the evidence for this ‘excessive demand’ theory? Keynesians refer to the ‘trade-off’ between changes in wages and prices and/or changes in unemployment and prices.The former would have a positive correlation and the latter an inverse correlation. In graphic form, this trade-off would take the form of curve, as was first argued by AW Phillips with his so-called Phillips curve in 1958. The evidence for the post-war US economy is that, far from being a curve (ie a trade-off), the Phillips relation is broadly flat. Here is our own calculation for the US.
Figure 2. Source: FRED, author’s calculations
Other empirical studies also show the Phillips curve to be broadly flat – in other words, there is no inverse correlation between wages or prices and unemployment. President Daly of the Federal Reserve Board of San Francisco, concluded that “the relationship between unemployment and inflation has become very difficult to spot.”. BIS economist Borio agrees: “the response of inflation to a measure of labour market slack has tended to decline and become statistically indistinguishable from zero.” And more recently, he concluded that “inflation has proved unexpectedly unresponsive to economic slack – the Phillips curve is very flat.” (Borio 2021). The former Fed Chairman Jay Powell also acknowledged the problem: “There was a time where there was a tight connection between unemployment and inflation. That time is long gone.” (Powell 2021). This uncomfortable conclusion was also reached earlier by two prominent mainstream economists. Solow (2018) remarked that “the slope of the Phillips curve itself has been getting flatter, ever since the 1980s, and is now quite small.” And Gordon (2018) echoed this: “The slope of the short-run inflation—unemployment relationship has flattened.”
So why do economists and central bankers continue to peddle a theory that has little empirical support? Gavyn Davies, a Keynesian and former chief economist at Goldman Sachs, explained: “without the Phillips Curve, the whole complicated paraphernalia that underpins central bank policy suddenly looks very shaky. For this reason, the Phillips Curve will not be abandoned lightly by policy makers” (Davies 2017). ). But the theory is not made less shaky by denying the empirical evidence against the theory.
The third mainstream theory of inflation is even weaker. It is promoted by central banks and international agencies. It is the expectations theory of inflation. Here inflation is caused by the psychology of the economic agents. If prices rise, then consumers expectations for price rises also increase, leading to accelerating inflation. As the IMF puts it: “It is possible that changes in current and expected inflation are both driven by changes in expectations about the future state of the economy. For example, if firms and households expect that the economy will be in a recession in the near future and inflation will be lower than today, they will start cutting their consumption and investment expenditures now, putting downward pressure on inflation today.”
But the consumer or household expectations of a rise in inflation does not provide a theory for why prices are rising in the first place. Federal Reserve economist Rudd points out that “unsurprisingly, what little evidence we have suggests that firms pay little attention to forecasts of aggregate economic conditions, including inflation.” Yes, if inflation over the long term falls, then ‘unsurprisingly’, households and firms will expect inflation to fall. So “there is a suggestive low-frequency correlation between an estimate of inflation’s long-run stochastic trend and survey measures of long-run expected inflation.” In the graph below, as inflation slows, so expectations or forecasts of slowing inflation also follow. But expectations follow inflation rates, not vice versa.
Rudd concludes: “economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case can be made that adhering to it uncritically could easily lead to serious policy errors.” Central banks should note.
So we have three mainstream theories of inflation: monetarism; Keynesian cost-push and ‘excess demand’; and expectations, none of which is convincing or borne out by the empirical evidence. No wonder the mainstream has ‘no general theory of inflation’.
In the next part, I shall discuss heterodox and other Marxist theories of the cause of inflation.
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