Cooking the Books 1 – Greedflation?

‘Lone voice on inflation grows louder’ was the headline in the Times (8 May), ‘A star economist says the key is not to raise interest rates but to target corporate greed’. The star in question is Isabella Weber who, according to the article, has made an ‘important contribution to the study of how companies’ pricing power is forcing up inflation, a phenomenon that has been dubbed “greedflation”’.

The article continues :

‘Weber prefers to use the term “sellers’ inflation” to describe how the shock of a global energy crisis and supply shortages during the pandemic led companies to pass on costs to consumers and make inflation a “generalised” feature of the economy. This in turn led to workers asking for more pay, she says’.

In other words, she is neatly turning the tables on those who blame workers for setting off a ‘wages-prices spiral’ and saying that, on the contrary, it is companies that set off a ‘prices-wages’ spiral by putting up prices to make more profit.

But this is not a new theory. It’s been the standard left-wing theory of inflation since the 1950s, including by some Marxist economists – Paul Mattick Jnr, for instance. This is how he explained the rise in the general price level in the late 1970s:

‘Businesses defended their bottom lines by raising prices; workers fought for higher wages to defend their standard of living, usually more slowly than the price increases to which they were reacting. Prices increased throughout the economy as different business sectors struggled to make others pay the costs of the debt: the dread stimulus-induced inflation’ (tinyurl.com/2a927sd5).

Tempting as it is to blame capitalist businesses for causing a ‘generalised’ rise in prices, businesses are no more able to do this than workers are. Inflation, properly understood as a rise in the general price level, can only be caused by a depreciation of the currency due to too much money being issued. Individual prices can rise for other reasons (as recently due to the global energy price shock and supply chain shortages) but this is not the same as a rise in prices generally. Once monetary inflation has started, the price of what both businesses and workers sell will go up, creating the illusion that one (take your pick) caused the other whereas they are both caused by a third factor.

It is not clear from the article whether Weber is arguing that ‘greedflation’ was the cause of past rising prices or just of what’s happening currently, but the Socialist Standard dealt in October 1972 with the theory that inflation is due to greed. Referring to the abnormal rise in prices since 1939 we said:

‘Most of the so-called explanations take the form of blaming some group or other for being “greedy”; bankers, or manufacturers, or retailers or trade unionists. It is an explanation that a glance at certain facts will show to be nonsense. Did the copper companies reduce their prices by 40 per cent in 1971 because they had suddenly become less greedy? Between 1948 and 1968 prices rose by 100 per cent in Britain, but only by half that amount in America and Switzerland: are the British twice as greedy?’ (tinyurl.com/2a927sd5).

Business can’t increase prices at will to increase profits. Sellers fix their price according to what they judge the market will bear. That’s the limit of their ‘pricing power’. Sometimes they are able to increase their price but they can’t control the conditions that enable them to. Causing ‘inflation’ is a charge to which capitalist corporations can justifiably plead not guilty.

Next article: Bird’s Eye View – minimum wage, philanthropists, Helen Keller ⮞