Paul Krugman's latest op-ed seeks to quell fears about inflation. Krugman claims that media coverage has overstated the dangers of inflation and that, in the near term, deflation is much more troublesome. Moreover, he says, Japan faced a similar situation less than a decade ago and was able to recover without suffering the predicted post-depression inflationary period. Krugman, no doubt, has very good reasons to think that inflation poses no danger. Lacking any background in traditional (viz. bourgeois) economics, I won't argue with him. But I was reminded of a piece by Robert Kurz that appeared in January of this year. Kurz sees inflation and deflation as two sides of the same coin, and reminds us that, in the face of a general disaccumulation of capital, strange things can happen. So if a currency is devalued faster than, say, durables or food commodities, you have price inflation.
My hastily completed (and never revised) translation follows:
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Deflation and Inflation
Robert Kurz
If just a while ago inflation seemed out of control, now this phantom is again in the distance, now that the interest rate of 2.6% is the highest yet of the last 14 years [Trans. note: Kurz is referring to the German/EU context here]. But, inversely, now the threat is that of deflation, the price freeze due to a crash in sales. The fears of inflation and deflation alternate in ever shorter periods. The ascent and descent of prices is just an external signal. A movement of prices in both directions is also caused by the habitual oscillation of the relationship between supply and demand. The terms of inflation and deflation are distinguished in two aspects. On one hand, it's not a price variation out of step with time, now in one sector, now in another, but rather a simultaneous, global social development. One the other hand, the dimension of the oscillations, upward and downward, also surpasses a mere change in the market situation.
In fact, inflation and deflation are just different manifestations of a devaluation of total capital, or of its different phases. Thus, since the beginning of the 3rd industrial revolution, labor power, as an integral part of capital, has been devalued throughout the world, bringing a gradual deflation in real salaries. Such a situation can only result as an advantage for the valorization of capital from a stingy, entrepreneurial point of view. For the system as a whole, though, the decline in salaries is fatal, because purchasing power is eliminated. The simulation of buying power by financial bubbles, in parallel with the deflation of real salaries, brought about an inflation in assets and credit bonds, with no real backing. The consequence could only be the deflationary shock of the devaluation of this fictional monetary capital, in which billions of dollars and euros have already evaporated. With the ever-increasing growth in productivity, the deflation of salaries and property earnings makes visible an enormous excess of worldwide production of goods, of which there have been indicators for a long time. The result is the rapid extension of the devaluation of real capital, whether productive capital (stoppage of machines, closing of factories), or commodity capital (depreciation and destruction of unsaleable products). Drastic reduction, risky discounts, free consumer credit, as well as commodity price deflation (for example, in the automotive industry) are just temporary attempts to slow this kind of devaluation.
Now that States advance directly to the printing of notes to absorb the disaster of deflation, they are preparing a big new surge of inflation, that will radically devalue money in general as the universal capitalist medium of life. The deep cause is that the 3rd industrial revolution devalued, in an unprecedented way, the "labor substance" of all phases of "value". Because of that, global capital moves toward a situation in which inflation and deflation no longer alternate, but in which all forms of value are equally and simultaneously devalued: labor power, industrial capital, commodity capital, credit capital and money as all-embracing medium. Humanity confronts the question of knowing whether to voluntarily cease living due to lack of possibilities of valorization, or whether to put an end to the "mode of production based on value" (Marx).
