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Inflation: the truth

Falling inflation doesn’t mean that prices are coming down. Photo Creative Stock Studio/shutterstock.com.

The state has tried to meet its needs by printing more and more money. No wonder we have inflation…

Media headlines declare inflation has recently fallen to its lowest level in almost three years. Even though inflation is falling, it doesn’t mean that prices are coming down, just that they are rising at a slower pace.

The common narrative is that British inflation is largely attributable to the Ukrainian war starting from February 2022 onwards. That’s a distortion of the truth.

Inflationary money printing has been a feature in Britain for over sixteen years, spurred by the political panic since the 2007-2008 financial crisis. But government debt, on which the people of Britain pay interest to financial markets, keeps growing. The latest figures show that the total reached £2.7 trillion by the end of last year, equivalent to over 100 per cent of the country’s gross domestic product (GDP). And the net borrowing for the quarter ended December 2023 was £40.8 billion, around 6 per cent of GDP.

It’s no consolation that other G7 countries are in a worse position. This shows that the economic problems are endemic and rooted in the way capitalism works.

For a prospective Labour government to glibly say that it will “kickstart” growth is no answer. When you look at the detail, it amounts to more of the same – work with the markets, hope workers will put up with “tough spending rules” and so on. The jargon “We will embrace a new approach to economic management – securonomics” – will fool few for very long.

Smoke and mirrors

All this smoke and mirrors has a long history. Inflation is an old weapon used against workers. This was succinctly outlined by John Maynard Keynes, a prominent early twentieth-century economist. He said, “Whilst workers will usually resist a reduction in money-wages, it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods.”

As to the manipulation of interest rates, Keynes said, “there is no means of securing uniform wage reductions for every class of labour…A change in the quantity of money, on the other hand, is already within the power of most governments.

Keynes ended saying, “Having regard to human nature and our institutions, it can only be a foolish [government] person who would prefer a flexible wages policy to a flexible money policy”, including interest rate manipulation against working people.

And that’s just how it is playing out in modern Britain. Interest rates, set by the Bank of England remain high, adding to costs for individuals and businesses.

In 1997 Gordon Brown, as Chancellor of the Exchequer in the new Labour government, gave the Bank of England “operational independence” over monetary policy. And Brown decided to sell off gold reserves to invest in foreign currency.

The fiction was that this would somehow mean the economy was run better – more prudently and subject to “fiscal rules”. Events in the years since have exposed this as ineffectual nonsense, revealing the reality that Britain’s economy runs to serve financial markets and not the other way round.

War on workers

The honey-coated words used by Keynes show that for British workers, our political and economic war is here in Britain. Facing that challenge means rejecting the ruling class narrative on inflation.

It also means ignoring distractions cultivated by those who want our money and are using it to fund a war that has nothing to do with us – at the same time as goading British workers to get killed. Workers must reject this ruinous thinking.