In a recent interview, RBC CEO Dave McKay stoked fears of a “wage-driven” inflation spiral. Soaring inflation rates are a problem that’s on everyone’s minds, from central banks to families shopping at the grocery store. But the idea that inflation is caused by increases in wages is blatant bourgeois propaganda contradicted by facts. Rather than fall for these lies, workers must fight for wage increases that exceed the rate of inflation.
As reported by The Globe and Mail, McKay worries that “the buildup of inflation since last spring has let the wage-growth genie out of its bottle,” triggering a spiral where prices go up to cover higher wages, and workers then demand higher wages to cover the increased prices of consumer goods. McKay lamented that this process will be irreversible, complaining that, “We’ve never really gone back as a society and reduced wages because inflation was temporary.”
These claims are nonsense. It’s sufficient to point out that wages have not, in fact, been rising above inflation, and yet inflation continues to mount. Canada’s wage growth in December was 2.7 per cent, high enough to warrant hand-wringing from the likes of Mr. McKay, but well below November’s 4.7 per cent inflation rate. On the other hand, the profits of banks have been rapidly increasing, with 2021 being their most profitable year ever, and RBC specifically seeing its profits grow by 40 per cent, up to $16.1 billion. One might also ask why corporate profits and executive bonuses—like the record $18.8 billion awarded this year to bankers like McKay—never raise the spectre of inflation, but wage increases for the lowest paid workers always does.
In fact, the real driving force behind the current spike in inflation is not wages, but the billions of dollars in printed money that governments are handing out to bosses and CEOs.
How are prices determined?
The idea that wages can drive inflation is based on the mistaken notion that the value of a product depends on how much it costs to produce. This is not the case. If this were true, then each new product would simply cannibalize the value of the products that went into producing it, no new value would ever be created, and economic growth would be impossible.
The value of a commodity depends on something else, some quality which is common to all products on the market. That quality is human labour. Everything that can be exchanged contains human labour: in the creation of the product itself, in the manufacture of the tools used to produce it, in its transportation around the world, and its distribution to consumers. It is the amount of labour, the number of hours that it takes to produce, that gives a thing its worth. This is the labour theory of value.
The worker, and their ability to perform labour, is also a commodity, traded on the labour market. The value of the worker is determined like any other commodity, by how much time goes into producing it, that is, how much time goes into producing their ability to work: to train them, keep them alive, and fit for employment. This is paid out in wages.
As Marx explained, the secret to capitalism is that the value that the worker creates in a work day is greater than the value of their ability to do that work. The difference between the length of the working day and the number of hours it takes to sustain the worker results in surplus value. This surplus value is pocketed by the bosses as profits.
However, as anyone can observe, the price of commodities is not absolutely determined by its value. We can see that prices fluctuate depending on supply and demand—for example, when prices go up due to supply chain disruptions. However, supply and demand always operate around a certain point. A loaf of bread may be far more in demand than a fancy car, but its price will always be lower, because its value is lower, because it takes less time and effort to produce. Over time, on average, the price of a product will approximate its value.
Prices cannot be arbitrarily jacked up according to the whims of the bosses. This is because capitalists compete with one another. If a capitalist arbitrarily increases his prices above the socially necessary labour contained in them he’ll be outcompeted by another that does not. Also, nobody will want to exchange commodities worth 10 hours labour with them, if they only offer up 8 hours worth of commodities in return. If there is no change in the number of hours it takes to produce a commodity, the capitalist cannot just decide to tack on a few extra dollars to make up for what they’re losing in increased wages. Wages do not add to the price of a commodity, rather, they are a share of the total labour added by the worker. If wages go up, surplus value goes down. If wages go down, surplus value goes up.
Unsurprisingly, the bosses are very concerned about wages but are totally silent about profits. Logically both are derived from the price of the commodity. If rising wages caused higher prices then so would rising profits. And in the recent period profits have been skyrocketing while wages have been stagnant.
The claim that increased wages cause higher prices is a lie, and a very useful one. It allows the capitalist to pretend that when they fight against workers trying to improve their lives, they’re only doing so because they care about their customers so much, and not to protect their bank accounts. It pits one group of workers against another, as if our enemy is the phenomenon of rising prices, and not the bosses who profit off of our labour.
So where does inflation come from?
If the “wage-growth genie” is as fanciful as it sounds, then what is driving inflation? Mr. McKay and his CEO friends will likely not appreciate the answer.
Since the start of the pandemic, the Canadian government has been pumping billions of dollars into the economy—the vast majority of it going not to supports for workers, but into the coffers of the capitalists. By mid-2020 the federal government had given out a staggering $700 billion to an undisclosed list of banks and corporations. Out of this, “a set of unnamed banks” was given “$10.7 billion in loans, and $260-billion to support ‘interbank funding,’ and ‘functioning of key finding markets.’” Since the government cares so deeply about the privacy of its beneficiaries, we don’t know if RBC was among them. This was a year and a half ago; there’s no telling how much the government has handed out since then.
Contrary to the wishes of modern monetary theorists, money is real. It represents real values moving around in a real economy. Funneling $350 billion into the economy through quantitative easing—essentially printing money—does not create value (only labour can do that); it just means that the same amount of value in the economy is represented by more dollars. As a result, those dollars are worth less.
While bourgeois economists have not been silent on the dangers of printing money, it is clearly convenient for them to shift at least some of the blame onto wage increases. But suppressing wages will do nothing to curb inflation. In fact, the most effective way to fight inflation would be to expropriate the banks under workers’ control, so that instead of being used as a magic money printing machine for handouts to the banks and corporations, they can be run in the interests of the working class.
Fight for wages that keep up with inflation!
As standards of living are threatened by skyrocketing inflation, we cannot fall for the lies of the capitalists. They will attempt to make workers shoulder the burden of the current economic crisis in one way or another. Inflation without wage increases is just austerity through the back door, as workers pay more for everything while the bosses protect their profits. Instead, we must defend our standards of living by fighting for wage increases that not only keep up with inflation, but exceed it. It is the capitalists who created this crisis, and they’re the ones who must be made to pay.