Friday, June 10, 2022
HomeMacroeconomicsThe class war is over, viva the class war – inflation and...

The class war is over, viva the class war – inflation and all that – Bill Mitchell – Modern Monetary Theory

Political leaders have been keen to promote individualism over the last several decades because it suits the class interests they serve. Margaret Thatcher denied the existence of society. John Major, who shafted her to take over the Tories in 1990 and pressured the UK to join the EU, claimed there was a society but that he would render it “classless” so that everyone has the opportunity to shine according to their talents. Within the Tory tradition, David Cameron, who effectively through bungling paved the way for the UK to leave the EU (finally) told the people “There is such a thing as society; it’s just not the same thing as the state” and promised to create a “Big Society” where we all worked together to volunteer and provide public services as charitable endeavours. On the Labour side, in 1999, Tony Blair clarified all these claims to classlessness by declaring that “the class war is over”. Class struggle is dead. We are all on the same side now. All sharing in a commonwealth that we create together. I recall a BBC program I saw around the turn of this century that declared the ‘class system’ was dead and that we had all become elevated, together, in the middle class.

‘Scuse me while I kiss the sky (Jimi Hendrix – Purple Haze – 1967).

That must be it.

I must have been so far out of it all these years that I missed something.

On September 28, 1999, the British Prime Minister Tony Blair addressed the Annual Labour Party Conference at Bournemouth and presented a rather extraordinary vision for the C21 Britain (and the world for that matter).

In his – Speech – he declared that his government was laying “the foundatinos of a New Britain” where we abandon “power to the people”, and, instead, extol the virtues of “power to each person”.

He then announced that:

The class war is over.

He considered the battle between capitalism and socialism was also over. Capitalism had won.

He claimed business (as a group) was now seeing the advantages of sharing the bounty rather than pursuing the old conservative approach of keeping workers down.

Things certainly didn’t pan out as he was dreaming.

The Financial Times ran an article on Tuesday (June 7, 2022) – Class war > rate hikes – that brought back memories of all that bunk about the class system disappearing.

The article discussed a US Federal Reserve research paper that I had previously written about in this blog post – US Federal Reserve Bank economists going Marxist on us (May 30, 2022).

It was quite an extraordinary article because it essentially abandoned the ‘Monetarist’ perspective on central banks and inflation and situated inflationary pressures in the battle between labour and capital over the real income shares in nominal income produced in the economy at any point in time.

At the basis of the conjecture was a Marxist construction of labour and capital struggling to gain the upper hand in the production and distributional process.

Mainstream gone wild in other words.

The Financial Times article accentuates this for its readers saying that:

… the impact of the “Volcker shock” has been vastly overplayed, and that the inflation of the 1970s was solved through de facto class war and the degradation of the union movement rather than monetary policy.

In other words, all the stories that it was Paul Volcker as the boss of the US Federal Reserve using interest rate hikes that killed the 1970s inflation
is not substantiated by the evidence.

The ideas of Milton Friedman and Robert Lucas Jr rejected in one paper – not from a heterodox paper (there have been many over the years expounding the same rejection which were ignored by the mainstream) – but from researchers deep inside the US central bank.

As I noted in the blog post I cite above, none of these ideas are new.

Marxists have been writing about the role that class struggle plays in determining the economic trajectory including any inflationary pressures for decades and it is at the core of progressive inflation theory – including Modern Monetary Theory (MMT).

Inflation went away in the 1980s and 1990s because of the “collapse in worker bargaining power since the 1980s”.

The Financial Times article adds to the scrutiny on monetary authorities, who think their one trick pony – increasing interest rates – will tame any inflationary episode.

The article also adds weight to my contention (which is increasingly being rejected by mainstream economists – which I take as a good sign), that the inflationary episode we are in at present is transitory.

I saw someone claim that Larry Summers was right because he predicted there would be inflationary pressures building up.

Well he was right about the latter but for the wrong reasons, which means he was wrong.

He claimed the inflation was the result of what he considered to be excessive fiscal stimulus.

In fact, the inflation has little to do with the conduct of fiscal policy over the course of the pandemic.

The Financial Times is accurate in concluding that:

If sustained inflation derives from class war, then the chances of the current bout becoming entrenched again are extremely low.

The working class as a cohesive social force no longer exists. Businesses can safely protect their margins and the burden of inflation will fall on labour as real wages fall. Sustained price rises will eventually subside as supply shocks from the pandemic and war fade and real spending power is eroded.

The class war is dead. Viva the class war.

Which is exactly where we are at now.

The supply shocks have created a cost impulse into the economy.

One might then claim that with the supply disruption, demand would have to adjust downwards.

Except that would require the creation of mass unemployment, increased poverty.

That is exactly what central banks are engineering at present with their interest rate rises.

They are not admitting that – claiming things that the labour market is in good shape and people have saving buffers that will protect their consumption spending from price rises (in other words, allowing the inflation to eat into their wealth portfolio rather than their spending flow).

But that is exactly what they are up to – creating a demand shock to solve a supply shock.

Which is exactly the worst thing for them to be doing.

And as the Financial Times article notes – there is no danger of a wage-price spiral breaking out and perpetuating the supply shock beyond its initial impact because workers are unable to force wage increases onto businesses.

Trade unions are weak and have limited coverage.

Several decades of neoliberal governments around the world have legislated to make it difficult for trade unions to function and achieve better wage outcomes for their diminishing stock of members.

So business can just pass on the rising costs and “protect their margins”, which means all the burden falls onto workers.

Which means that a supply shock can introduce inflationary impulses into an economy but cannot really gain traction beyond the impulse because one or both price setting groups (labour and capital) in the society are powerless to defend their real wage or profit margin.

In the context of workers’ bargaining power being weakened, the inflationary impulse is just passed on through prices broadly and real wages fall.

Exactly what is happening now.

Once the supply factors ease, the inflation will ease.

When will that be?

Who knows when Covid will become a non-issue.

Who knows when Putin will end his attack on the Ukraine.

I did a radio interview yesterday where I was asked, in the context of public service workers going on strike in NSW, whether these workers should have more responsibility and not force higher costs onto firms who are struggling with the supply shock.

I said that it was not sensible to force one set of workers to endure burdens if they could escape them through industrial action just because other segments of the work force were unable to achieve that aim.

Setting one segment of the working class against another misses the point.

Class struggle is about the workers as a collective up against capital.

And it is clear that capital is winning hands down.

Last week’s National Accounts data (reviewed in this blog post – Australia National Accounts – growth moderates but wage share falls below 50 per cent (June 1, 2022)) – showed that the wage share in Australia fell again the March-quarter and was now below 50 per cent.

It used to be around 60 per cent.

The winners – profits.

And the data showed that productivity growth was relatively strong.

What does that mean?

Productivity growth means workers are working harder, longer, and/or more intensely – to achieve higher unit output per unit of labour input.

It means unit costs are falling and thus provides the non-inflationary space for real wages to grow (based on mark-up pricing models).

The fact that productivity growth is rising but workers cannot defend their real wages tells us that the capacity of the working class to defend itself is severely weakened.

That is what the Financial Times article concludes also.

It means that the inflationary pressures will “eventually subside” – aka transitory.

The last thing policy makers should do now is worsen the cost of living pressures by creating unemployment.

The Australian Bureau of Statistics published the latest data on – Industrial Disputes, Australia – for the March-quarter 2022, today (June 9, 2022).

They produced this rather stark graphic which helps to reinforce the narrative presented here.

This decline in industrial disputation is the result of deliberate public policy to weaken unions and make it easier for bosses to prosecute unions who engage in industrial action.

As a parting aside, even progressives fall short in their understanding of class.

Some so-called ‘leftists’ have used the pandemic to pour scorn on the workers in professional occupations who were able, as a result of their particular workplace circumstances, to escape the worst of the Covid burst by working from home.

Apparently these lucky workers – are the ‘woke’ who allowed lockdowns and vaccination rules to be imposed on the true workers who lost out as a result.

This segmentation of workers into woke and true workers reflects a misunderstanding of class.

Class is not about occupational structure.

Sure some workers have more discretion and independence from bosses.

Some have higher incomes.

Some, fortunately, can work from home and thereby gain more ‘freedom’ in their daily hours management.

And the fact that there is no real sense of community among workers across the occupation divide doesn’t negate the concept of class.

It is clear that capital is operating as a class and reaping massive profits now while taking advantage of the weakened position of the workers as a collective.


The idea that the class war is over was just a furphy introduced by those who wanted to further the interests of capital and pretend that the working class had vanished and we were all moving towards some classless nirvana where your background didn’t matter, who your parents were didn’t matter and all the rest of that bunk.

With profits booming and real wages falling across the board, it is easy to see that class persists as a powerful force.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.



Please enter your comment!
Please enter your name here

- Advertisment -
Google search engine

Most Popular

Recent Comments