Chapter 5: Why Is There Inflation? Why Has It Been Almost Constant in Every Capitalist Society

If prices were truly the result of random factors such as weather, changes in demographics, etc, then one would expect prices of most or all things to vary up and down more or less randomly. A flood in potato producing areas, prices up; an abundant harvest above expectations, prices down. Shortage of raw materials, prices up; discovery of new mineral deposits, prices down. From year to year one would expect variation but overall one would expect it to vary across a more or less constant range. It takes the same amount of water flowing through a turbine to produce the same amount of energy now as it did 20 or 40 years ago. It takes the same amount of work to manufacture an automobile now as 20 years ago. A piece of land is the same piece of land now or 50 years ago, yet a house that cost $20,000 when it was built 50 years ago, now costs $4,000,000, even though by now it needs a new roof, plumbing, wiring etc. Clearly there are other factors at work here.

In 1973 the multi-national petroleum companies publicized scare stories saying the world was running out of petroleum while cutting back on production to create a shortage. Geopolitical tensions between the U.S. and OPEC countries provided additional justification and a cover.

There was rationing of gasoline, lines at the pumps and widespread near-panic. This incident was staged in a way that made people willing to accept the oil companies more than doubling prices from $0.35/gallon to $0.75/gallon. They also tried briefly to gouge even more by switching to Metric and charging by the liter, which backfired because Americans were resistant to the Metric system. Then again, in 1978, the oil companies staged another "shortage" and were able to double the price again.

This is but one very blatant historical example that many of us alive today lived through; but it illustrates the mechanism. Since Capitalism creates the absolute necessity to have and make money to be profitable or just to survive, people and businesses tend to do whatever they can get away with in order to get as much money as possible. This is no less the case among those who have already accumulated more than they or their foreseeable descendents could ever need.

Inflation is often disguised in subtle and insidious ways. A bagged salad may have come on the market at 16 ounces for $1.99. A bag of potato chips may have first appeared on shelves at 8 ounces for $1.50. A couple of years later, the prices haven’t changed but the bagged salad now has only 14 ounces and the bag of chips only 6 ounces. As time goes on, the salad shrinks incrementally, ounce by ounce, year by year until we are paying $1.99 for 5 ounces of salad and $1.50 for 3.5 ounces of chips. The packaging remains identical. The bag of salad slowly shrinks; the bag of chips stays the same size but contains ever more air and fewer chips. This happens so gradually that we don’t notice unless we make a point of looking at the number of ounces and keep track. Thus inflation continues unnoticed by most. This is by design. People won’t get upset about something that they don’t notice happening.

A pair of shoes made in 1965 probably lasted a few years with normal use. A similar-looking pair of shoes built in 2019 will most likely barely last a season. This is another way that inflation is disguised and deliberately perpetuated.

Restaurants also routinely disguise inflation by shrinking portions over time, using cheaper (and often inferior) ingredients, and switching to a-la-carte menu strategies that force patrons to pay extra for everything, while slowly but steadily raising prices.

Airlines routinely raise their prices and charge for literally everything, over and above the cost of the flight. Most airlines charge extra, non-trivial fees for every item of luggage and for any item over specified size and weight limits. They charge for meals, which not that long ago used to be included in the price of the flight. They crowd more seats closer together while raising their fares, which is also a form of inflation because passengers are increasingly crowded and cramped.

The insidious disguising of inflation is epidemic and widely proliferated in every field, industry and sector.

Capitalism overwhelmingly favors those at the top of the food chain. If you or I raise prices for our freelance services or Mom & Pop business, people will just go down the street to a different store or hire a different service provider. But if the company that supplies 40% of the gas in the neighborhood jacks up their prices and the other competing providers follow suit, then the people are over a barrel even when no laws have been broken and there is technically no monopoly.

The psychological and sociological reinforcements in Capitalist society strongly promote and reinforce gouging and the raising of prices.

Apologists for Capitalism often blame labor costs for inflation, claiming that when labor unions and strong labor protection laws bring about increased wages and protections, employers must raise prices to compensate. In the short term, this is not entirely untrue, but it is only one of many factors involved. It is only one small piece of a much bigger picture.

To begin with, one has to ask why workers feel the need to demand higher wages and protections such as heath coverage. The answer is that they need higher wages to be able to survive the constantly rising costs of living. The larger picture looks like this: Businesses raise prices as high as "the market will bear" (which is Corporate Speak for "we will raise prices as high as we can get away with"). Employees then fight for higher wages to keep up, then the employers raise prices more than enough to compensate for whatever increase the workers got but blame the workers for the rise, thus creating a vicious cycle, a feedback loop that guarantees that inflation will continue without practical limits.

Historically we see that before there were labor unions and laws protecting employees, conditions were downright feudal for the majority of workers. Child labor was common. Twelve-hour days, 6 and 7 days a week were the norm. Hazardous, unhealthy, not to mention inhumane, working conditions were widespread.

"Company towns" where employees were forced to live in towns attached to and owned by the factories or refineries where they worked, were common practice. The same company that paid the workers was also their landlord, service provider for utilities, and owned the grocery and other stores in the town. Such companies routinely made sure that the cost of living in the company town was more than they paid the workers, who were thus perpetually in debt to the company, effectively making them indentured servants, or more correctly, slaves in everything but name. Living in the Company Town was mandatory.

At the time of this writing, “Company Towns” have long been outlawed in even most Capitalist industrialized countries due to prolonged large-scale labor movements that yielded changes to the laws. Instead, countries operating under Capitalist paradigms covertly and indirectly function as “Company Towns” on a much larger scale. For the most part, the same tiny portion of the population who determine what prevailing pay rates are, is the same exact tiny portion of the population who determine what the prevailing cost of living is.

Before massive popular labor and civil rights movements undertook a long and costly struggle to improve conditions, discrimination on the basis of race, nationality, gender, etc. was more common than not. Sexual harassment was endemic and the victims had no rights or protections.

Labor movements began because the majority of employees found themselves living like medieval serfs or sharecroppers in an industrial setting. Inhumanity and callous abuse were epidemic and became intolerable. So let us ask ourselves which is the chicken and which is the egg as the initial cause of inflation: employees getting higher salaries, or businesses raising prices while paying the lowest possible wages. The factual answer is that it was the companies, the employers, the Corporations and the ultra-wealthy who control them, who created conditions in which employees had to literally fight for the right to a living wage and reasonable working conditions and expectations. Many union/labor rights organizers and their families were mercilessly threatened, beaten, murdered, terrorized, slandered, harassed and jailed on phony charges by employers to try to prevent them from gaining protections and rights. Even at the height of the significant Civil Rights advances in the 1970's in the U.S., we saw the same phenomenon when the United Farm Workers began to organize, and growers hired the Teamsters union to terrorize and intimidate them. Thus, blaming labor costs for rising prices is rubbing salt in a very deep wound. In principle it is akin to Southern plantation owners blaming higher prices on the abolition of slavery. The argument is specious, untenable, and insulting to the intelligence.

Yet it would also be a tragic oversimplification to simply blame employers and purge them. That would not only destroy what we seek to build, but would fail to address the root causes of the current dysfunctional situation as surely as painkillers given before a work-up can mask symptoms, causing a patient to be sent home undiagnosed with a serious condition. We will not attain a truly thriving community of empowered individuals if we divide humanity up into Good Guys and Bad Guys and then attack or punish all of the Bad Guys. We need to ask ourselves how this whole pattern came about and established itself so widely like a deadly metastatic cancer. The cause is not just that bad people have acted badly. The cause is a dysfunctional socio-economic paradigm that strongly reinforces destructive, predatory behaviors and divides people into subgroups in such a way that the good of one comes at the detriment of the other. This is a win-lose-lose-lose-lose paradigm. As long as we continue to live and act according to its parameters, we are all unwittingly perpetuating it.

One good example of the kind of shift in perception that is needed, can be understood by examining the causes of World War II. It is not instructive to just say that the Germans and Japanese were monsters and leave it at that. There is much more to it than that.

At the end of World War I, the Allies forced the Axis to sign a treaty that was humiliating and debilitating to them. In the economically, socially and psychologically depressed state of Germany after World War I, its population became highly susceptible to the message of German superiority propagated by Hitler. If the end of World War I had been handled by the Allies in the same way they handled the end of World War II, then Germany would have been a much less fertile ground for fanaticism and Hitler would have been just another nut case on a soap box in the park. That is why after World War II, with the Allies immediately setting about helping the defeated Axis to recover, neither Germany nor Japan have ever repeated the destructive cycle of two world wars.

The root of the destructive Capitalist paradigms is that we currently have an economic system that has many strong psychological reinforcements for amassing wealth and power but virtually no reinforcements for sharing, cooperation, collaboration, for synergy. Those who have become abusers and oppressors of others have been molded by, and responded to, the reinforcements present in their environment. They are better adapted to this paradigm than the vast majority who are not at the top of the pyramid

The hard-won laws protecting the rights of employees and consumers are to be lauded and appreciated; but they are stop-gap band-aid solutions equivalent to sticking chewing gum into holes in the hull of a ship that is not seaworthy to begin with. In any case, behavioral science has demonstrated that reinforcement/non-reinforcement is a much stronger motivator than punishment/reward. What is reinforced, predominates. What is not reinforced tends to extinguish.

Even though concerted and focused popular movements can bring about some degree of improvement, historical experience shows that under Capitalist paradigms, in the long run, the pressures of the ultra-wealthy and their Corporations will overwhelm the pressures of working people/constituents in influencing government, as surely as the “house” always wins in the long run in any casino.

Behavioral science research has shown that threat of punishment actually reinforces the seeking of creative ways to pursue the punishable behavior while avoiding punishment, as much as it reinforces compliance, if not more so. Witness Prohibition and anti-marijuana laws in the United States, religious laws in Iran, and prohibitions on religion and private commerce in the Soviet Union. Outlawing predatory and/or other harmful business practices results in the appearance and some degree of compliance for a time, morphing eventually into creative ways of exploiting legal loopholes to avoid compliance and steady lobbying of lawmakers that eventually results in the undoing of limits on the power of Corporations and the ultra-wealthy neo-Feudal lords.

The most powerful way to achieve prevalence of constructive behaviors and near-extinction of destructive/harmful behaviors is to reinforce the former and avoid reinforcing the latter. Where laws are needed to create limits on harmful behaviors, their implementation is best performed in a matter-of-fact way and not in a punitive way. The bully must be prevented from bullying. The first-line response is to not engage the bully, to ignore them steadfastly and unwaveringly, neither complying with, nor being intimidated, nor engaging them in any way. If this fails to de-escalate the behavior, then the bully must be restrained and placed in a situation where they cannot bully. The spirit of this must be practical, not punitive.

The dynamics of Capitalist paradigms are dysfunctional and quite clear:

1) The society reinforces, even enforces the absolute necessity of money for survival. No other media or mechanisms exist or are permitted or acknowledged.

2) Economically, two subgroups are formed in Capitalist society: employers and employees; landlords/banks and tenants/people buying homes via mortgages, empowered and disempowered, privileged and disenfranchised, Royals/Lords and Serfs.

Remember that home prices are always kept orders of magnitude beyond what almost all employees and small business owners can afford to buy outright, which forces prospective homeowners to take bank loans. The banks are the true owners of the home for decades, profiting immensely off of the interest. The homebuyer is given the illusion that they own the home. Just try missing a few mortgage payments and see what happens. Even if you have paid off most of the cost of the home plus interest, if you suddenly become unable to continue paying due to unforeseen and unavoidable changes in circumstance, the bank WILL repossess your home.

It is many years before a significant portion of mortgage payments actually applies to the purchase price of the house [principal]. In other words, most people who consider themselves homeowners are actually part of the tenant sector of the culture, not the owner sector. (See the data analysis section at the end of this book for more in depth on this subject.)

These two subgroups – employers and employees, owners and renters, etc. - are set up by the economics of the paradigm to be at odds with each other. Whenever one subgroup makes gains, raises prices, gains legal protections in the forms of limits on the other subgroup, the other group loses ground and experiences the need to do likewise. Yet there is no balance in this back-and-forth dyanamic. These are not two parties meeting as equals to work out a compromise that is fair to both. Owners/employers have no major obstacles to raising their prices or limiting wages. In Capitalist paradigms, the business or landlord controls access to livelihood and living space. Employees/tenants are easily replaced while livelihood and living space are hard to come by, which is inevitable because of the fundamental structure of Capitalist systems. Employees are forced to accept the pay that employers offer, and to pay the prices that companies and landlords charge, or else engage in major struggles at great risk, face hardships and harassment in order to gain any progress in their end of the in-equation. Such progress is almost always eroded away over time through the preponderance of influence over government by large corporations and the ultra-wealthy over that of individuals.

Keep in mind that strikes usually entail going without wages for extended periods for striking employees, who are inherently less able to survive that deprivation than are their corporate employers who often bring in scab labor to keep operating. Demonstrations are often suppressed and are ineffective if under-reported, played down and portrayed as the work of terrorists and criminals. Putting pressure on lawmakers is a losing proposition in the long run when huge corporations are much better equipped to pressure those same lawmakers.

There are also small business-people in such environments, but their situation is closer to that of employees than to that of large businesses. Typically their lives are consumed in the process of making their business profitable while mammoth businesses have extensive resources and can survive down-turns much more readily than small businesses. It is not truly "free enterprise" at this point in history, as witnessed by the typical pattern of large corporate chains moving into a neighborhood and under-pricing the competing small businesses out of business before raising their prices once the small competitors have been eliminated.

Small-business owners are truly in a situation more similar to that of employees than of the neo-Feudal lords at the top of the pyramid in even more ways. Many or most small businesses really cannot afford to pay a living wage, to provide health and dental coverage, retirement or pension plans for employees or other “benefits” that directly impact employees’ quality of life and ability to survive or thrive. The small-business owner frequently makes not much more than their employees, ends up working extremely long hours, and is held responsible for all business expenses, loans, and even absorbing the cost of theft. Conversely, mega-corporations can easily afford to pay a good living wage with benefits but increasingly often choose not to, resorting to outsourcing, engaging contractors and temps rather than hiring employees, keeping employees at part-time status, reducing benefits, and performing stock buy-backs instead of investing in employees. Stock buy-backs, of course, further concentrate wealth in the hands of the ultra-wealthy at the expense of the rest of the population. While employees typically see raises measured in pennies, CEO’s and other company officers typically see raises measured in millions or tens of millions of dollars. In capitalist paradigms, this behavior is strongly reinforced and respected as “good business”. The perpetrators of these crimes against the people are not even aware that they are committing a crime. They are unaware that they are doing anything wrong. This is because they have been enabled and even lavishly reinforced and lionized in indulging their wealth-and-power addictions.

These dynamics are the root of the problem. The root of these dynamics is the inherent bias of the Capitalist paradigm. Group is inevitably pitted against group, person against person (everybody needs to make more money, but opportunities for promotion are scarce). In this scenario, the most ruthless, aggressive, and economically powerful are always advantaged. This creates an ongoing redistribution of wealth and resources in the direction of the biggest and wealthiest and away from employees.

Marx appears to have been mistaken in that he underestimated the dissipating impact of disempowerment, alienation, and distraction on the population and the resultant metamorphosis of the society into a Feudalistic model thinly disguised by the illusion of freedom and opportunity. Most likely, the ultra-wealthy themselves do not see their own striking resemblance to the Feudal Lords of a thousand years ago. Marx anticipated that the dynamics of Capitalism would inevitably give rise to revolution and the rise of a classless society. We have seen movements arise in that direction, but such revolutions have been rare. The Soviet Union actually emerged directly out of a pre-Capitalist traditional Feudal environment.

Marx made a great contribution to the ongoing quest of paradigms that better empower, synergize, and serve the happiness, well-being and dignity of human beings and communities, as did the founders of the United States of America. Unfortunately, there have arisen historical, social, and economic processes that none of them foresaw or could have been expected to foresee.

When homes are utterly out of reach of the majority but there are affordable but trivial amenities, symbols of prosperity, and entertainment including drugs, alcohol, video games, sports, shows and more, people tend to immerse themselves in those things to maintain the sense of freedom and prosperity and to cope with stress. These distractions disperse and diffuse the emotional, mental, physical and social energy that would otherwise coalesce into recognition of the true situation and galvanize into action to remedy it. It is but a very cleverly crafted illusion that keeps people from confronting the bleakness of their real situation and the daunting, seemingly overwhelming prospect of trying to effect change in an environment saturated with cues, messages and propaganda that reinforce the sense of disempowerment, that the idea of bringing change is futile at best. “You can’t fight City Hall; but, hey, there’s free beer during Happy Hour and I can buy a big-screen on credit.”

Marx said that religion is the opiate of the people. Indeed at times it is abused in that way; but in the world of the late 20th and early 21st Centuries, gadgets, affordable status symbols, entertainment, video games and other pleasant diversions have largely taken on that role. These things, like religion, are not necessarily harmful in and of themselves; but they are skillfully used to give oppressed people a way to deal with their stresses and frustrations which channels their energies away from united, focused, concerted action to force a change of paradigm.

Those who occupy the upper echelons of the socio-political-economic pyramid are also not truly free, as they respond unconsciously to the psychological reinforcers of the capitalist paradigm, becoming driven by an insatiable obsessively compulsive appetite for wealth and power over others. The neo-Feudalistic Capitalist lords are undiagnosed and untreated addicts whose addictions have been enabled and allowed to run rampant, dominating their lives and wreaking untold harm upon billions around the world. The Capitalist Feudal lords are as addicted to their place in this paradigm as any drug addict to their drug of choice. Though their cages are gilded and luxurious, the ruling Capitalist elite are also victims of a dysfunctional and vastly destructive paradigm.

That is one more demonstration of why the Capitalist paradigm is fundamentally flawed and cannot ever be expected to give rise to a free and thriving society of free and thriving individuals. This paradigm must be scrapped as an unsuccessful experiment that has failed to vindicate itself for the benefit of humankind.