[The following article appeared in the July 4 issue of Le Monde Diplomatique. Translation is by Garret Ormiston.]
Prior to the second world war, inflation usually took the form of an excess issuing of paper money. It corresponded to large budgetary deficits, which the state covered by running the printing presses. It therefore usually went together with political disturbances: wars, foreign occupations, civil wars, accelerated rearming, payment of war reparations, etc.
In the epoch of the decline of capitalism (called by some the epoch of neocapitalism and by others the epoch of state monopoly capitalism), the phenomenon no longer takes chiefly the form of an excess issuing of paper money, but rather of a mushrooming of bank credit, that is, an inflation of checkbook money. Its origins no longer lie only in budgetary deficits or the unproductive spending of the central government. They are rooted in the very functioning of the economy - the efforts of the monopolies to assure themselves sufficient liquidity to be able both to carry through their investment projects and to make possible a rapid turnover of their goods, to "realize surplus value."
It would be useless to attempt to place the main responsibility for inflation on either the monopolies, their state, or the banks. * These are merely three different aspects of the same complex whole and are inseparably linked to each other. The essential point to understand is that inflation has become institutionalized during the epoch of the decline of capitalismwithout permanent inflation, the system could no longer avoid a rapid succession of catastrophic crises of the 1929-1932 type; in short, it could no longer survive, even on a short-term basis.
As a result, the basic cause of inflation is not to be found in expanding military budgets. To be sure, budgetary deficits and the weight of arms expenditures constitute an important source of inflation; but these are neither the only source nor even the main source.
To understand this it is necessary only to look at the inflationary trend in countries like Japan, where military spending represents a much smaller part of the gross national product than in the Unitec States or France. Note must also be taken of the differences in the evolution of the ratio between the public debt and the gross national product on the one hand, and private debt and the gross national product on the other. While the first ratio has diminished by more than half in the United States since the end of the second world war, the second ratio has more than doubled.
It would not be an exaggeration to say that twenty five years of "neocapitalist prosperity" in the United States (interrupted by six recessions) can be explained in large measure by the extraordinary increase in private debt. In 1946, payments on the private debts of the average American household amounted to six percent of its monthly income; by 1970, these payments reached nearly twenty-five percent of its monthly income. One need not be a great genius to understand that this skyrocketing rate cannot continue forever.
As long as paper currencies were only a monetary symbol based on precious metals, the automatic mechanism of the foreign exchange market and of gold shipments imposed a strict limit on credit. Once currencies are "managed," the limits on credit expansion no longer depend on anything but the policy of the monopolies and their governments. Essentially, the "Keynesian revolution" boils down to this: Put off economic crises that would be too explosive and transform them into more "moderate" recessions by opening wide the floodgates of credit and inflation.
Is this to say that thanks to inflation capitalism has discovered the secret of avoiding serious economic crises for good? No. First of all because inflation fails in its aims when payments on debts end up by reducing, rather than increasing, current spending. Second,
"managed currencies"
come into conflict with the requirements of international competition, that is, with the logic of private property.
Since each capitalist government applies a credit policy that best corresponds to the interests of its bourgeois class, and since this policy also serves as an instrument of international competition, rates of inflation vary from one imperialist power to another. Under these circumstances, "managed" national currencies are less and less suited to play the role of world currency, of a universally recognized means of exchange and payment.
Each time a country has a rate of inflation greater than that of its principal competitors, the laws of the market take their revenge upon the "management" through a balance of payments deficit, and the expansion of credit then has to be checked. Thus, during the epoch of the decline of capitalism, the classical industrial cycle overlaps into a "credit cycle," of which the dismal "stop-go" policy of the Tory governments in Great Britain has been a typical example.
French Riviera Going, Too
The French Riviera, famed for its beaches and crystalline water, is no longer what it was. The international jet set find the pollution so obnoxious that they must hold their bronzed noses. Despite the complaints by local officials no one seems able to do anything about it. The entire Mediterranean is becoming one vast cesspool.
Notes
* It clearly proceeds from this analysis that wage increases are a secondary phenomenon that can in no way be said to be a cause of inflation. Assuming that the amount of money in circulation remains stable, an increase in wages would result in a decrease in profits and not at all in inflation.