Money, Inflation & My Food Basket

Money, Inflation & What’s In My Food Basket?

George Hewison              Political Economy Newsletter             Number 13, May, 2014 

Returning to Canada after a five month absence, my partner and I stopped in at a local grocery store to purchase just enough food to get us through the first couple of days until we could take stock of our home freezer and pantry. Imagine our horror when the tally for our limited purchases of fruit, vegetables, dairy, eggs, meat and a few other essentials exceeded one hundred and twenty-one dollars…for two days consumption? C.P. Index…Be Damned!!!!

 

It’s true that we had been noticing the steady decline of the Canadian dollar relative, not only to the US Greenback, but also to the Mexican peso and passively pondering the effect of the changes on our modest retirement income. It’s also true that we had noticed a slow rise in food, gas, electrical, and other prices before last fall. We also understood that most of our food is imported, but no amount of theoretical musings could prepare us for the cold shower that the Weston food empire hit us with at the checkout counter. Even the cashier offered words of apology on behalf of her employer.

 

So after giving my rehearsed statement to the clerk (that I had memorized for just such occasions that “it wasn’t her fault”) I entered my debit card into the slot that instantly transfers Canadian dollars electronically from our bank account to Galen’s.

 

Exiting the store, I resolved to investigate either this one-time blip in the marketing of commodities, or the false sense of security that the Consumer Price Index gives us about inflation. I also resolved to investigate the bigger question of what has happened over the past five months to our money.

 

The first part of the investigation was relatively easy, or so I thought. The Consumer Price Index, as most economists acknowledge is an imperfect measurement. It tracks the prices of nearly one million commodities out of a typical “basket”, properly weighted for frequency of purchase, effect on the total purchases by average consumers, etc. It is used for many purposes, including the indexing of pensions and cost of living adjustments in union contracts. I was therefore surprised by the lack of literature criticizing the system considering how important it is to policy making, and especially since the CPI “basket” and my “basket” at Loblaw’s seemed totally at variance. I concluded that investigating a million commodities would probably take the rest of my life and a couple of future ones as well, sifting through the data and drawing any meaningful conclusions. So my tale must remain anecdotal, and I’ll leave the critique of the CPI for someone much younger.

 

So I shift to something simpler, or again so I thought: the relationship of money and inflation to our everyday purchases. Here I believe that full disclosure on my part is necessary. I believe this colours what follows:

 

There is a dominant culture, ideology and jurisprudence built up to obscure the reality that capitalism as a socio-economic system robs working people of the products of their collective labour. That domination infects all of us from cradle to the grave. How much loot is collected in the robbery has a lot to do with how we, as working people, respond. When we are clear-headed, organized and united, we can mitigate the thievery. When we are confused, disorganized and fight among ourselves, we lose. The fact that our victimization is too often separated in time, space and by degree means our responses differ, making unity and progress more difficult.

 

In the many decades of early industrial capitalism, the mailed fist of employers and their state was the main strategy pursued by capital, although the “carrot” was sometimes alternately used with the stick” to throw the working class off balance in its struggle. Inflation was rarely the issue except in times of war and natural calamities. Behind the culture and ideology, capital could always rely on the naked power of the state, i.e. police, militias, and prisons.  The brutal anti-socialist laws of Chancellor Bismarck in 19th Century Germany intended to suppress labour organization eventually failed. A powerful, underground social democratic party emerged based on ending the exploitation of labour.

 

Similarly in Canada, many bitter struggles were fought and lessons learned as employers fiercely resisted the ideas of unionism and socialism. This one-sided strategy of employers and their governments also threatened the stability of their system and it largely failed as workers organized under difficult circumstances.

 

There has always been a second softer, gentler and more indirect strategy for robbing working people and turning down the heat on struggle. This second strategy has become part of the historical record and at times merged with the original brutish approach. We ended up calling it a “social contract” or the “welfare state”. Implicit in this new contract between labour and capital was outlining the parameters of the struggle while recognizing the sanctity of profit-taking (at the expense of labour) within the capitalist system. Yes, the profit motive was still central to the system under the kinder/gentler approach, but labour relations were taken out of the common law that favoured employers and placed in “neutral” labour relations boards and what is popularly known as the Rand Formula.

 

Today, that framework lies in tatters as debates around fundamental indictments of capitalism confront the world: environmental catastrophe, massive wealth imbalance and an economy limping from crisis to crisis. All the while, the 99 per cent who make up the modern-day working class are treated to “austerity”, and an assault on its democracy and human decency.

 

So the levers of corporate power in all capitalist jurisdictions vacillate between the mailed fist and the gentler approach with the pendulum at the moment tilting towards the hard Right and “softer, gentler” receding to the background. The hard Right favours the blunt instruments such as we experience in Wisconsin, ironically the birthplace of the “softer” North American approach, and, even more troubling, the rise of fascism. More liberal approaches, fearing a return to brass knuckle labour relations, offer confused admixtures of “kinder, gentler” mixed with “austerity”, depending on what working people allow either the hard Right or the confused liberals to get away with.

 

A favourite theme of liberal economists is to allow inflation to take care of a sleeping labour giant.

 

The latest Ontario Liberal election campaign and budget is instructive in this regard. The proposed Liberal campaign budget is a mix of nodding to labour on the one hand and nodding to capital on the other.

 

In an ideal world, the New Democratic Party which held the balance of power in a minority government would have held the Liberal Government’s “feet to the fire” to implement all of the positive aspects (those that favoured the 99 per cent) of the budget, and avoid the possibility of a hard Right (Right-To-Work) majority government, while continuing to campaign against the corporate giveaways.

 

We don’t exist in an ideal world. The corporate media has framed the discussion into such a jingoistic mush that even the NDP, hoping to score electoral gains is trapped by a framework laid down by corporate-dictated realpolitik. Combine the NDP’s refusal to identify with the Minimum Wage Campaign with failure to support a Liberal budget that proposes increases to the minimum wage, and the problem is obvious. The characterization of the NDP as the far Left alternative in the Ontario election is simply absurd as it moves to the Right on policy to gain electoral success. What will emerge? There is a real possibility that the New Democratic Party will get squeezed, and a majority Big Business government will emerge in Ontario, or the minority status quo, or less likely, the NDP will be elected on a platform not totally dissimilar to the Liberals.

 

No one has illusions that a majority Liberal Government, ultimately a Big Business government, will have the same priorities or emphasis that a minority Liberal Government had.

 

For example, the Liberal Budget proposes another zero percent increase in funding for hospitals. In this case, just as in our grocery baskets, inflation robs hospitals. This will be the familiar pattern across Canada as the neoconservative Harper Government, with the greatest power of taxation and ability to increase state indebtedness, refuses to offer provinces a new Health Accord and inflation will do the dirty work, as the provinces refuse to, or are unable to, to use their powers to stand up to global corporate blackmail.

 

So it begs the question: what is this inflation? Is it a tool? Is it intrinsic to capitalism? Why won’t our money stretch the way it used to? And to begin to answer this we need to ponder: what is money?

Briefly, as the division of labour and proliferation of commodities grew from a handful in our distant hunting/gathering past, exchange became more widespread and barter became impractical. As the technology of metallurgy improved, one commodity eventually outstripped all other commodities as a universal facilitator for exchange, and that commodity was gold. It had other use values (mainly ornamental), but its main utility was as universal money. It was workable and divisible, not easily combined with other natural elements, and easily transportable (as opposed to other universal commodities such as cattle, salt, rice, cacao beans or timber). As a commodity, gold’s value was determined by the average socially necessary labour time required for its production. Gold became the main universal money readily exchangeable for all other commodities. 

 

At a certain stage of capitalism, gold was stored in special depots or banks, where the owners of such depots issued notes guaranteeing redemption. Eventually, it became common for these paper (bank) notes to be used as a substitute in the exchange of commodities.

 

With the separation of the gold commodity and its substitute, i.e. promissory paper, new economic phenomena appeared. While a commodity might be purchased, was consumed, and went out of circulation in the marketplace, the paper note received in payment could be used again…and again, over several exchange cycles. Unless the demand for redemption for gold was immediate, the bank could issue more notes than gold it actually had on hand. In other words it could advance money it didn’t actually have, hoping that its notes wouldn’t all be called at once. Over years and numerous bank failures and massive frauds, capitalist states intervened to more or less regulate banking and the issuance of notes. Central paper currencies and metal denominations were minted. Initially these currencies were based on gold. In fact, in earlier days, these paper currencies explicitly stated that they were redeemable for precise amounts of gold. 

 

The circulation of such paper currency operated according to certain fixed laws.  The amount of money equalled the sum of all commodity prices divided by the velocity of money circulation. In other words, less money was required if there was more and faster circulation of commodities. In other words less money would be required for 50 exchanges using a dollar than 5 exchanges for the same dollar. (Here we can begin to see the relationship of a market slowdown or recovery on the money supply. We can also see how capitalist economics is fixated on fiscal policy).

 

Money in circulation is also affected by the development of credit (or postponement of payment for commodities being exchanged). Less money is required in the system. To be factored into the above formula is the number of commodities sold on credit less the clearing of credit accounts for past sales. In today’s world, the biggest distortions in the value of money has been in the global wheeling and dealing of money and credit instruments that now threaten sovereign nations and central banks.  (The world’s bankers and statesmen in the aftermath of the 2008 meltdown are now wrestling with whether or not they could or should slow down global electronic monetary transactions taking place in nanoseconds.)

 

With the state issuing paper currency (and now electronic currency), we can see the inherent possibilities for widespread inflation. But at base, governments, in need of funds for balancing their current accounts, issue more money in the form of paper, or electronically, thus devaluing their currency and causing a corresponding increase in the price of commodities to keep the relationship of money to commodities in balance. Or, they borrow against future income to the same effect.

 

The funds for balancing state budgets ultimately come from only one source: the wealth created by the labour of working people; and tax policy can either be aimed at the shrinking resources of the 99% or at the profit ledgers of the 150 corporate types that control 2/3 of the $7 trillion Canadian economy.

 

 

So the commodities I need in my “basket” are higher priced, but their inherent value hasn’t changed. Roughly the same value (amount of labour power to produce from November to April) for my food basket, but in five months my money seems to be seriously debased. There are so many other aspects to the problem. And here I’m not talking about the effects of quantitative easing or other economic gyrations designed to keep the system afloat. These are also part of the puzzle and worthy of attention.

 

No, one aspect involves my local farmer friend, the great grandson of an escaped slave and passenger on the “underground railway”, who brought me two cords of firewood a couple of days ago. He and his partner, two sons and a daughter no longer can make a secure living on their 1700 acre Ontario farm. Weather and price uncertainties are the bane of their existence. But he now tells me that he and the three remaining farmers in his neighbourhood (originally 12) have a new problem: seeds! He has refused to use seeds covered with a chemical treatment that is known to be destroying the bee population. So the pressure from the seed companies on him to switch seeds has been immense. Next year, the companies he deals with may not offer his current seeds that are “bee friendly”. To add insult to injury, in order to get his seed, he must sign a contract with the multinational seed company agreeing to not to keep any of the seeds from his current crop for next year’s planting. The squeeze on his income and money matches or exceeds mine. My food basket and his farm are now intimately connected as he needs to cut wood and charge me more to subsidize his farming fetish.

 

Thus far, the main debate within society has been framed as to how much incentive (or how much austerity) will it take to get capital to invest to create jobs, while we cut social programs and limit the debt we pass on to our grandchildren. That debate occurs around the globe as we all race to the bottom, but is not the proper debate that we need to have. In Ontario, Conservatives want an additional 30% cut in corporate taxes, in addition to the massive corporate tax cuts already enacted by the Liberals over their tenure in office. The NDP has pledged no new taxes on anybody!

 

The debate we need is about the failure of capital and its political hacks to use the unprecedented wealth being created by today’s working class to satisfy our collective needs. What alternatives can satisfy those needs?

 

In the first place, we need to protect our life-giving habitat from destruction, including our precious air, water, land, including bees and seeds. In the second place, it is to massively redistribute the wealth being created by using the power of taxation, including wealth taxes, and taxes on speculative wheeling and dealing. In the third place, it means enhancing the ability of working people to organize themselves into unions to help with the redistribution of wealth. In the fourth place, it means using the existing levers of the state to accomplish all of the above; and where needed to create new levers and institutions to advance our democracy and social justice.

 

We are not without considerable potential power, and when the debate is properly refocused, I won’t complain about exchanging with my farmer friend $121.00 in my real money for $121.00 of his real commodities. It will be about the equitable exchange of the labour power commodity, including that bound up in my retirement savings.

 

George Hewison is a lifelong union organizer and former officer of his union, the United Fishermen and Allied Workers Union on Canada’s west coast. He embraces political and social activism in the interests of social justice and fundamental social change.

 

Hewison believes in the power of working people, who, if given the proper tools, can change the world. One of those tools is a deepening understanding of how our society is put together. He has been the recipient of many important lessons, both positive and negative, from veterans of Labour’s struggles stretching back decades. He has spent most of his adult life sharing those lessons with others.

 

For a number of years, he has also embraced a study of the political economy of capitalism, including its current iteration, and conducts discussion groups with interested folks who share his desire to understand and explain the complexities of the social, economic and political world around us.

He continues a tradition of combining working class activism with the power of song and continues to tour and perform extensively.

 

He can be reached at georgehewison@gmail.com