(Note: This title is borrowed from Karl Marx, who wrote a brilliant piece of this same title. Likewise for much of the content. I don’t think old Karl would mind. As the postal worker told the poet in the film “Il Postino”: “Poems don’t belong to those who write them; they belong to those who need them.”  The same is true for ideas in general.)

Many mainstream economists are predicting that if the economy picks up, there will be increased inflation. In fact, the signs are already present. For instance, the World Food Price index from March-December, 2009 shows prices up by 23%. Corn prices from September – January were up 24% and Oil per barrel from September – January was up 20%. Overall, in the US, the Consumer Price Index (CPI) is now at 2% (i.e. a 2% inflation rate) vs. -2% in the middle of last year. (It should be noted that these figures underestimate inflation by about 3%. In the 1990s, under Bill Clinton, they changed the way the CPI is figured, resulting in reducing it by about this amount. The figures for this can be seen at www.shadowstats.com.)

Inevitably, if inflation develops, a hue and cry will develop about pay raises causing inflation. When an employer has to pay increased wages, the argument goes, he or she compensates for this by raising prices. What could be more logical?

“Pricing Power”

In past years, however, even when the economy was expanding, prices increased only relatively slowly. In fact, the Wall St. Journal used to have regular articles explaining that one or another sector of industry was unable to raise prices because of “consumer resistance” and a lack of “pricing power” on the part of the sellers. What is the reality, then?

It is true that the capitalist – especially the smaller ones – at times may think that they simply add up all their costs, including labor costs, and then tack on a percentage for their profit. However, the process is more complex. Take construction (the industry in which I worked until I retired):

Wage Increases in One Sector

Suppose carpenters get a general wage increase. The contractors try to compensate by raising their bids. The homeowners who hire small contractors for remodels start to find that the bids are above what they expected. Some of them go ahead anyway. Others decide to do the remodel themselves, while others decide that given the cost, a nice vacation in Hawaii or the Bahamas makes better sense. A similar process occurs amongst the consumers for the larger contractors. Some public agencies decide to postpone or reduce the scale of planned construction, for instance. Throughout the industry, competition increases and the contractors are forced to reduce their prices. Ultimately, the wage increase comes out of their profits.

A General Wage Increase

Suppose that there is a general wage increase across all sectors of the economy. What would happen then? The capitalist class in general might try to increase prices to compensate. However, there has been no increase in demand for the products that the capitalists tend to purchase more than workers – for instance luxury yachts, expensive wine, opera tickets, luxury autos, etc. Therefore, they will tend to be forced to reduce these prices back down to the previous level due to the laws of supply and demand. Meanwhile, prices for chuck steak, Toyotas and Fords may also tend to increase. This will result in greater profits in the sectors that produce the goods that workers tend to buy. As a result, capital will tend to flow into those sectors, production of those goods will increase as will competition in those sectors, and prices will tend to fall again.

Once again, the increased wages will come from the profits of the capitalist.

International Competition

Another argument raised by the capitalists – the employers, that is – is that if workers in the US (or any other country) increase their pay, then the employers will flee in increased numbers to low wage areas or countries. Of course, this is true. But if we stop there, then we are accepting that wages must continue on a never-ending downward spiral – exactly what we have seen in the last decade or so.

The news has been full of reports from Haiti, for instance. Wages there have been as low as some 38 cents per hour. When workers for Disney, which manufactured some apparel in Haiti, organized for higher pay, Disney simply shipped production to China. In China, now, where some pay has increased, some capitalists are shifting to Vietnam, where pay is lower still.

The same process is underway within the United States. The auto industry has seen a growth of non-union auto production in recent decades. These plants tend to pay about $5 per hour below the union scale and lower benefits. The auto workers’ union leadership has responded by trying to help the unionized producers compete by cutting pay and benefits. The result has been that the non-union producers are now cutting back on their pay.

If workers accept this process indefinitely, they will be left with a pay that covers their absolute physical necessities and nothing else.

Historical Perspective

A little bit of a historical perspective is necessary here:

Workers first organized to fight to win higher pay in the US on a factory-by-factory basis. As the economy developed, they found that this was impossible and they increased the area of organizing to entire industries, first on a regional basis and then on a national basis.

Starting in the later 1970s, however, employers increased the rate at which they shipped production to other, lower-wage countries. The response of the labor movement to this has been extremely slow in coming. In part, this is because it is far harder for workers to spread their organization from country to country than it is to spread from one region to another of the same country. There are all the language, cultural as well as legal barriers. However, barriers are there to be overcome, and overcome this one we must.

The first step in reversing this process is for workers to organize internationally, just as capital has. If workers in Brazil strike General Motors, then they must throughout the world. If the auto industry in Canada is shut down due to a strike, then this must become international. Out of this, a wage capable of buying a basic basket of goods should be agreed upon internationally. Then it is the task of workers to enforce it by industrial (strike) action.

Of course, there will always be regions of the world where workers are in a weaker position – for instance regions where dictatorships tend to hold sway. Haiti, for instance, has been such an example (which is exactly why the US encouraged the coup there – to help hold down wages). While the general, never-ending downward spiral of wages can be slowed down and in some cases actually reversed by joint international action, this is a continual and defensive struggle. In the end, it must lead to one clear solution:

Put Capital Under Public Ownership

Take the capital (which is nothing but the dead labor of workers past) into public hands and use it for the needs of society in general rather than for the profits of a tiny, elite minority. This minority, their apologists and mouth-pieces as well as those who nourish illusions of entering into this minority, will alternate between roaring and gnashing their and moaning and complaining against these ideas. Let them shout and moan. They have had their day. They have killed, destroyed, waged war, plundered the planet enough. Their time has come and it is now passed. It is time for a new social order – one controlled by the working class majority at last.