Re(3): RE: Wages and Panic Buttons

Max Sawicky sawicky at
Fri Aug 6 08:39:42 PDT 1999

Fabian B.:
Everybody on this thread seems to agree that inflation is the result of the fight between capital and labor so I have a couple of questions:

Can't speak for others, but I wouldn't put it that way.

Properly conceived, inflation would be the excess rate of growth of the price level, relative to productivity growth. Wages can grow right along with productivity with no necessary inflationary implication. Whether or not wages grow clearly depends on struggle, but the feasibility of wage concessions, from the standpoint of profitability, ought to depend on productivity growth. So the relevant causal factors are labor's political strength and the congeniality of economic conditions, which need not coincide. We might hypothesize that labor takes more initiative in better economic times. But that is consistent with non-inflationary wage growth.

If labor grew exceptionally powerful, we could imagine some inflation resulting from the effective exercise of this power. I'd say this has not been a common occurrence.

Monetary authorities can try to stifle wage increases by restricting output and loosening labor markets, and this clearly has political motivations, but there need be no inflation at the outset to prompt such policies. A good example is right now, with the Fed itching to clamp down but failing to do so, thus far.

As you point out, the monetary authorities can screw things up all by themselves, without any prompting or help from workers. So inflation often has little visible connection to tight labor markets or labor struggles.

The imperfect competition/monopoly explanations are not plausible since to get inflation, you don't simply need a wedge between cost and price, you need a continually growing wedge -- ever-growing profitability. Profit rates stay with a relatively narrow band, on average, compared to the perennial march of the price level.

1) if inflation is the result of unions vs capitalists intitutions fighting for a larger piece of the pie this implies that unions can be as strong and stronger that these capitalist institutions on the aggregate so then why they don't just overthrow the whole system altogether!!!!???? (and don't tell me that "well this is not as easy as it sounds, my son"

Not as easy, nor necessarily desirable, my son.

P.S. Loved your hit single, "Turn Me Loose." And say hi to Rob for me.

JH said: . . . In the seventies there was a quite conscious strategy to devalue the wage bill by allowing inflation to take its course, a mistake that allowed industry to raise prices without corresponding productivity increases taking advantage of the loose money supply. Consequently inflation became a cover for stagnation.

This is news to me, but I don't get out much. I'd be curious to see some elaboration and documentation.


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