Industrial Workers of the World

Price rises are not always the result of inflation.  Supply and demand for a product of labour or a natural resource can drive prices up and down around their value.  The inflation of prices has to do with the supply of the commodity we all know as money.  Money is what we use to exchange commodities in our society.  Money is used to circulate these commodities, including the one commodity workers must sell in order to make a living—their labour power.  Inflation happens when more money is pumped into the markets of the nation by the Reserve Bank than is necessary to circulate and reflect the value of the goods and services produced by the working class.  The Reserve Bank allows the commercial banks to borrow the money which the government has had printed for a certain interest rate.  The commercial banks, in turn, lend this money out to borrowers who promise to pay them back at a higher rate of interest on the speculation that their assets will grow in price.  Sometimes though, the growth in the price of an asset reflects only decreased supply of that asset and, an increased demand rather than its growth in real, newly created value by workers.  This increased price is thus empty of value and in turn is reflected in an increase in the money supply over that which is necessary to reflect the values being created by workers and the need to grease the wheels of circulating these values.    

Value is created by workers using natural resources and the means of production to produce actual goods and services.  The increasing productivity of workers through their use of technologically improved means of production, actually contributes to the lowering of the prices of all goods and services because of the fact that it takes workers less time to create them.  The capitalists are able to capture greater market share by selling their commodities at lower prices.  On the other hand, the wages workers get for selling their time and skills to employers is based on market economics of what the particular skills a worker has learned e.g. engineer, brick layer, teacher.  These qualitative skills constitute the value of labour.  The price of labour fluctuates around this basic value, depending on supply and demand for those skills in the labour market and the degree of organisation of the workers.   Wages can never exceed the value of the goods and services which workers create, otherwise there would be no profit for the employer and profit from selling the goods and services workers produce and capitalists own, at their market price is what the wages system is all about.  Thus, while an increase in wages will lower the rate of profit of the employer; it will not result in more money being created by the Treasury via the Reserve bank.  In other words, the employing class uses the money it gets from selling the goods and services the workers have already produced, to hire workers for wages in order to have more goods and services produced.  So, why is there more money in the financial system than that needed to reflect and allow  the circulation of values being created through the productivity of the working class? 

One big source of the excessive supply of money in the financial system is in the speculative nature of the current housing market.  To be sure, other speculative non value increasing, debt oriented borrowing is also at work. However, just this one historical fact should serve as an example: the average house price has more than doubled since 1996.  Has the value of the average house doubled?  In most cases, the answer is no.  For the most part, qualitative improvements to average houses—things added by labour--have not been the reason for the doubling of housing prices.   Rather, the increase in housing prices has been due to the increased demand for housing, due to population increases in Australia, combined with a relative slow growth and even stagnation in supply of housing. Meanwhile, borrowed money has been pouring into real estate speculators’ hands and has largely been used to purchase *old* properties rather than building new ones, new values. 

And where does such speculative money come from?  

It’s created by the Reserve Bank and lent to the commercial banks and ends up in the hands of real estate speculators.  To be sure, other speculative non value increasing, debt oriented borrowing is also at work.  The basic fact is that wages don’t drive inflation.  At best, workers try to keep up with inflation by attempting to get wage rises after the prices of other commodities like food, housing, health and transport rise due to excessive money printing by the Treasury.  At worst, inflation is a way to cut wages for the working class. The historical proof is in the *real* capitalist pudding.  While nominal wages have increased, *real wages* adjusted for inflation have stayed relatively stable.  For example, in Australia from 1982-1996 real average weekly ordinary time earnings in 1996 dollars rose from $667 in 1982 to $698 in 1985 and fell to $656 in 1990 while rising again to $706 in 1996.  In the USA, the same pattern occurs.  As measured in 1982 U.S. dollars workers were making $302 a week in 1962 and $277 in 2004.    On the other hand, output per worker or productivity in both countries increased exponentially over the same time period.  The *average* increase in productivity of workers in Australia has been 1.7% per year.  This figure is not subject to inflation, thus every decade workers real productivity of goods and services increases by at least 17%.  However, real wages have been kept relatively stable in Australia and in the U.S.A. they have actually decreased from $302.52 to $277.57 per week. Thus, increasing productivity, which means using less labour-time to produce the same value/commodity, without even increasing the real wages of workers has actually led to a generalised lowering of the value and price commodities and an increase the rate of profit for the employing class. 

At the same time, inflation of the money supply has taken place.    Inflation has led many in the public to think that workers are making too much money as wages which haven’t been adjusted for inflation have increased over the years in Australia e.g. 40% from 1982-1996.  The reality of real wages tells quite a different story.  Even if real wages increase, the fact of ever increasing productivity show will show up in the economy as a lowering of value and if supply and demand remain equal, a generalized decrease in the price of commodities. 

To sum up: real wages amount to a fraction of the total wealth which the working class is creating and increasing productivity of the working class actually contributes tolowering the price of the commodities it produces.  The cause of inflation is the government’s printing of more paper money and debt than the workers can cover in producing new values.   

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"It is sometimes said it would illogical for labour to resist a reduction of money-wages but not to resist a reduction of real wages [...] experience shows that this is how labour in fact behaves" 

-- John Maynard Keynes, The General Theory of Employment, Interest, and Money