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Inflation: a capitalist weapon in the class war

Marchers on the TUC’s national demonstration in London, 22 June 2022. Photo Workers.

Rising prices affect everyone – but they are endemic to capitalism and not acts of God. The current surge in prices is an act of class war directed at workers, and it requires a working class response…

Prices are going up, sharply – and are forecast to rise further. It’s not just fuel and energy, which rack up the price of all goods. Other costs are rising too. 

Politicians, bankers and economists explain inflation in many ways, but in the end their answers are nonsensical because they don’t want to admit that it’s an integral phenomenon of capitalism itself and not an anomaly created by the pandemic or the war in Ukraine. But their actions can make things worse, which is the threat now.

Workers resist inflation in the only way they can – through struggles for higher wages. In the past few months workers in many areas have organised and often succeeded in keeping up with rising costs, or at least limiting the damage to their standard of living.

But that’s not likely to be enough. Real wages across the economy have fallen sharply, and further cost increases are on the way – not least in energy, food and interest rates. No one goes on strike without good reason and the prospect of continual pay disputes just to stand still is daunting. Tactics will have to be clever.


Employers, aided by government, are likely to regroup to resist pressure for wage rises. The plan to use agency workers as strike breakers may come to nothing, and the transport secretary may be blustering about using emergency powers against rail unions. But don’t count on that.

There is no doubt that the ruling class expects workers to bear the burden of this orchestrated financial crisis as it did before To resist that, we need to understand how inflation comes about and how capitalism works. 

This year some cost increases are commercial consequences of Russia’s invasion of Ukraine but the reappearance of inflation at markedly higher levels than recently was already under way before that event happened. The policy of using quantitative easing in Britain and most major capitalist countries has generated higher inflation. How did that come about?

Explanations of the cause of inflation are often circular and uninformative, “prices are going up because they are going up elsewhere” or “too much money chasing too few goods”. That’s as useful as saying it rains because there are clouds. 

Blaming rising pay claims fools few people these days; similarly the notion that the mere expectation of inflation causes prices to increase.

The blame game

Now there is a concerted push from government and their cheerleaders to blame the inflation spike on high public spending. It isn’t new – Thatcher peddled that lie in the 1980s, as did the Cameron coalition government in justifying austerity economics.

But in some ways that comes closer to the truth – monetary policy is a major factor underlying inflation. And that’s carried out by central banks – the Bank of England in Britain – nominally independent but directed by government. And both are devoted to maintaining capitalism. 

Bankers dressed up quantitative easing (QE) to seem like a respectable “monetary policy tool” that aimed to inject “liquidity” into the economy, and reduce interest rates, increase lending and boost investment. 

It was introduced after the financial crisis of global capitalism in 2007-2008. But it’s not a free ride. Eventually it leads to higher inflation. And the bankers knew it.

The QE mechanism works like this: a central bank (the Bank of England, US Federal Reserve, European Central Bank etc) purchases predetermined amounts of government bonds or other financial assets to inject money into the economy and to expand economic activity.

This is not new in principle, even if the name tag is novel. Central banks eventually did something similar in response to the 1930s depression. But crucially QE marks a departure from the past – the scale is enormous and the long-term risks are much greater.

‘Fundamentally, inflation is a tax on workers by other means…’

The purchase of assets by the state – either the government directly or the central bank – from the non-bank private sector aimed to increase the quantity of money in the economy. But instead of buying small amounts of short term government debt, as happened with previous monetary policy, QE is about buying huge amounts of different financial assets.

QE not only inserts more money into the economy but also props up sectors on the verge of collapse by buying them out. In this way it stores up problems, eventually provoking a dramatic leap in inflation. And when central banks buy government debt they make it easier for governments to run deficits.

The central banks of the leading capitalist economies became addicted to QE. Once seen as experimental, it became the major economic tool. Ruling establishments don’t want to let it go.

In the latest phase since March 2020, the Bank of England has doubled the size of its QE programme. The monetary base in Britain rose five-fold between 2009 and 2013.

Between March and November 2020, the Bank of England said it would buy £450 billion of government bonds and £10 billion in non-financial investment-grade corporate bonds. By the end of 2021, the Bank owned £875 billion of government bonds and £20 billion in corporate bonds, equivalent to around 40 per cent of Britain’s gross domestic product.

Those at the top of the capitalist establishment know the risks of QE and how it has spiked inflation. It’s no accident. When they blame excessive public spending, they are stoking a crisis as an opportunity to wage war on working people.

You can bet that public funds assigned to help finance capital and monopolists will still be approved. Under assault will be the public spending that benefits the people – education, health, transport infrastructure and so on. If we allow the lie to take hold and have political sway, then we will have Austerity Mark 2 stalking the land.

Interest rates

The signs are there already, as the central banks raise interest rates “to curb inflation” – dubbed “quantitative tightening”. The aim is to reduce the money supply, but that’s not a benign reversal of QE, it’s just another policy to keep capitalism afloat – and no prizes for guessing who pays.

With inflation rising above 10 per cent in July 2020, the capitalist government and the establishment political parties have the gall to criticise trade unions and their members. Unions are doing their job when they campaign for higher pay to offset rising living costs that will worsen their standard of living and quality of life.

Increasing numbers of trade unionists are taking action, seeing through this attempt to level down our expectations. They are not causing inflation when fighting for pay, just trying to keep up.

Fundamentally, inflation is a tax on workers by other means. Wage increases reduce the value grabbed by employers but are not in themselves inflationary. 

It’s time to end QE, feather-bedding of finance capital and propping up indebted government.

And we need to look closely at the recent sharp increase in interest rates. On 5 August BBC News told us, “Making it more expensive for us to borrow will make us less likely to spend.” So, according to our national broadcaster, inflation is all our fault, because we dare to spend our money on buying the goods and services we need!

Economic policy should be about improving people’s prospects. Instead of quantitative easing, let us have qualitative production. Let us have economic and political policies that build and extend production in Britain. 

We’ll not get any of that under capitalism, of course. If the capitalist establishment knows what it is doing, and why, then workers too need to develop the same class clarity in response.