At the beginning of this year, in taking account of the change in the economic conjuncture that occurred in 1972, leading to an upswing in all the imperialist countries except Italy, we wrote on January 7 that in spite of the "energy crisis," the expansion of East-West trade, and the reappearance of shortages in the Western food industry, the current "boom" would not last very long. (See Intercontinental Press, January 29, p. 88.)
Today, a mounting chorus is predicting a recession by 1975, if not 1974. One after another, the Organization of Economic Cooperation and Development (which includes the governments of all the imperialist countries), the British weekly The Economist, and the West German weeklies Die Zeit and Der Spiegel have alluded to this prospect. And all these Cassandra voices add an especially somber note to their disturbing (for the capitalist economy) prognostications: Since the current boom phase for the first time involves all the imperialist countries (again, with the exception of Italy), they fear that the coming recession likewise will hit simultaneously throughout the imperialist world.
It is the well-known generalized recession, whose inevitability we predieted in 1969, that is now haunting the imperialist world.
Generalized Inflation
It is true enough that the bourgeois experts emphasize inflation as the root cause of the disease, as the origin of the threats weighing on the international capitalist economy. But this diagnosis contains a healthy dose of hypocrisy, and a healthy dose of ignorance as well.
First of all a healthy dose of hypocrisy: What economist can be ignorant of the fact that the current "boom," far from being threatened by inflation, is rather the most immediate and direct product of inflation? Take a look, for example, at what 1000
happened in the United States and in Great Britain (to take only two examples) during the recession of 1969-71 and at how these two contries were able to get out of the recession. There was a rapid expansion of the money supply, which in the United States reached nearly 10% in six months and in Britain reached 20% in a year, without any significant increase in material production. Inflation as a means of "overcoming" recession was the officially declared policy of the bourgeois governments, the central and private banks, and the monopolies of these countries. Without this inflation, the current "boom" would never have taken place.
And also a healthy dose of ignorance: A permanent inflation that goes on for more than a quarter of a century cannot fail after a certain point, to exhibit the classical acceleration phenomena that economic theory has analyzed so many times.
To condemn this or that "technical error" or this or that minister, to blame "trade-union egoism" or "inflation mentality," is to replace explanation with exorcism.
When there is a wealth of means of payment, a search for "real values" is inevitable. So long as this involves only objets d'art, it remains marginal to economic life. But when gold (whose free-market price doubled in one year and now stands at two or three times what it was two years ago) is caught up in the vortex then the economic effects are rather more serious. When there is "revalued" gold and "devalued" paper money, Gresham's law comes into play: Bad money drives good money out of circulation. "Bad money" is above all the dollar, which is less and less hoarded, is therefore circulated more and more, and is in turn subjected to the implacable law of supply and demand, thus progressively depreciating.
Cumulative Effects of Inflation
But the hunt for real values is much more serious when it touches two key sectors of economic life: real estate and raw materials. In a climate of permanent inflation, buying of land and raw materials becomes increasingly speculative, independent of the immediate needs of the market.
On the New York raw materials exchange the number of speculators has grown ceaselessly during recent years. Getting a "seat" on the exchange now costs several hundred thousand dollars. Price rises on the exchange are becoming dizzying: In the past year, under the double lash of speculation and the economic upswing, prices have risen 93 percent.
But a rise in prices of real estateand therefore in rent-and of raw materials inevitably has repercussions on the retail prices of all commodities and on the cost of living. Inflation, which had already persisted throughout the 1969-71 recession, and which was accelerated in order to provide an escape from the recession, is now being amplified by its own cumulative effects. Annual increases in consumer prices are reaching from 3 or 4 percent to 6 or 8 or even 10 percent.
The cumulative movement of inflation has structural effects on interest rates. Now that governments are trying to moderate the inflation of credit somewhat, interest rates are climbing to exceptional levels: a discount rate of 11.5% in Great Britain; a 12% rate for Eurodollars; a rate of 30% for overnight interbank loans in West Germany. The experts are sighing: Credit restrictions are strangling the "boom." And the "pundits" reply: Inflation inevitably produces deflation.