BY JACK BARNES  
We’ve already discussed the fact that we’ve entered the third year of an upturn in the capitalist business cycle in the United States that is only now beginning to result in substantial job creation. This kind of shallow and sluggish recovery is and will be normal for depression conditions. The generations that have grown into adulthood and political life since the end of World War II, however, are living through something new, something outside the previous direct experience of any of us.

The capitalists in the United States and in other imperialist powers are not putting capital into a major expansion of productive capacity, as they did from the 1950s into the 1970s. For nearly two decades the capitalists have faced an accelerating crisis of declining profit rates, as explained in the Socialist Workers Party’s 1988 resolution, “What the 1987 Stock Market Crash Foretold.” Capitalists are driving to cut costs—“downsizing,” “resizing,” or “reengineering” in current business jargon—instead of expanding productive capacity, because they can’t secure a competitive rate of return on investment in capacity-expanding plant and equipment.

Both within the United States and throughout the world capitalist system, price competition is intensifying among capitalists, as they contend over limited markets. As a result, there will be a tendency toward deflation, with prices of many products falling. The capitalists continue to fear a deflationary collapse like the one that marked the opening years of the Great Depression of the 1930s. The massive rents—the above average profits—commanded by the manufacturers of major name-brand products have become much more difficult to extort, in many cases evaporating, as these goods are forced to compete for market share as just one more commodity alongside others.

This is the opposite of what has happened in the imperialist world during the conscious lifetime of most adults today. During these years, mammoth imperialist trusts competed for world markets by expanding, by taking on new capacity, by building new factories and adding new machinery. Those sectors of capital that prepared the best for growth reaped the biggest rewards. That’s the way it worked for the first two and a half decades following World War II, until the engines began gradually running down in the late 1960s and mid-1970s. It no longer worked that way in the 1980s, but the emerging new reality was largely hidden by a massive balloon of debt, which set the stage for what’s happening today—the “great de-leveraging,” as they say….  
 
Deflation and inflation not opposite
This is a deepening crisis for the working class worldwide. As we explain in An Action Program to Confront the Coming Economic Crisis, the deepest economic division in our class is between those who have a job and those who don’t. Growing joblessness saps the strength, the morale, and the fighting capacity of the working- class and labor movement. If the workers movement doesn’t lead the fight for a shorter workweek with no cut in pay, then the bosses will exploit the growing pressures and demoralization of joblessness—as they have done in Germany, in France, in Canada, and I imagine elsewhere—to start writing into occasional contracts a shorter workweek with a proportional pay cut. And behind that formula, temporary and part-time work—at lower pay and with fewer benefits—will increase.

We must continue to link the fight for the sliding scale of hours to a sliding scale of wages to protect the working class against the effects of inflation. Workers must not let the deflationary pressures we’ve been discussing be used by the employers as a rationalization to deny cost-of-living protection to workers’ wages and social entitlements. Even if we are correct and inflation continues to moderate for the immediate future, we should keep several considerations in mind.

First, even with today’s deflationary pressures real wages fell once again by 1 percent over the past year in the United States. Buying power declined both because the employers succeeded in pushing down actual wage rates—of union and nonunion workers alike—and because there continues to be inflation even if at a low level of around 3 percent officially. The cost-of-living adjustments—COLA clauses—that a lot of unions fought to include in contracts in the sixties and seventies fell short of keeping up with rising prices. But the number of workers covered by even this partial protection has fallen to its lowest level in a quarter century, as the officialdom in one union after the next has succumbed to the bosses’ concession demands.

Second, there have been explosions of currency inflation in the midst of depression conditions in this century and there will be again. This is the situation in many semicolonial countries right now, as well as in the USSR and Eastern Europe. We should never have the illusion that the kind of hyperinflation that ravaged workers, farmers, and the middle classes in Weimar Germany in the aftermath of World War I is no longer possible in the imperialist countries. Working people had to carry money in wheelbarrows and suitcases just to buy a loaf of bread; what your money would buy slid hour by hour. That can and will happen again. And long before prices reach runaway levels, inflation has a devastating impact on workers’ wages and living conditions.

The threat of sudden inflationary explosions is built right into deflationary depression conditions. Because in the face of plummeting profit rates, increasing unemployment, and a rise in working-class resistance, the bourgeoisie will divide over how to attempt to weather the crisis. Sooner or later, some capitalist governments will panic and simply begin pumping out money in hopes of buffering the shocks. When that happens, workers and working farmers get slammed with the worst of both worlds—high levels of unemployment and explosive inflation. Employed workers will see real wages plunge; working people living on pensions will be devastated; and farmers will be hit with a new wave of foreclosures. This is what the working-class movement must prepare for.

This has happened before in the history of capitalism. It happened during the long depression in the closing decades of the last century. And it happened during the so-called Great Depression of the 1930s. After more than half a decade of deflation, monetary inflation reappeared in the United States in 1936-37, accelerated at the end of the decade, and then shot up even more sharply during the wartime expansion after 1941.

Despite their names, inflation and deflation are not opposite, mutually exclusive phenomena under capitalism. Inflation is a monetary phenomenon that arises when the purchasing power of a national currency declines. Governments and banks crank out money in various paper forms, eventually far outstripping the output of commodities that could be purchased with that money. Under such conditions, competing capitalist commercial interests bid prices up and up and up and up, in an ultimately self-defeating effort to reap surplus profits. Deflation is something quite different. It is not primarily a currency phenomenon. It is the product of the long-term tendency of capitalist profit rates to fall, heightening price competition among rival capitals and putting enormous downward pressures on capacity-increasing investment and expanded production—the conditions we’ve been discussing.

So the question for the workers movement in a depression is not an “either . . . or”: either to prepare for deflation or to prepare for inflation. There will be unanticipated currency inflation superimposed on the deflation endemic to depression conditions. A sudden disastrous collapse of productive employment can soon be accompanied by a terrible price explosion.

That is why the labor movement must be ready to unite working people nationally and internationally around the fight for a program to advance workers’ common interests, including measures to protect our class and its toiling allies against the ravages of both capitalist-caused joblessness and inflation.  
 
 
Front page (for this issue) | Home | Text-version home