The return of inflation and the weakness of the side of production

Abstract

The acceleration of inflation in the early 2020s following the pandemic shock poses significant risks for financialised capitalism. This article argues that the root causes of inflation do not lie with excessive money creation, as is claimed by Monetarists. By drawing on Keynes’s discussion of war finance, it shows that the causes are to be found primarily in the boost to aggregate demand delivered by core countries of the world economy, while aggregate supply has been persistently weak. Analyzing the weakness of the production side requires recourse to Marxist political economy, especially the role of poor profitability. In this light, a fundamental reason for supply side weakness is the attenuation of the “internal” mechanism of capitalist accumulation in core countries as productivity growth and investment have been feeble since at least the crisis of 2007–2009. The policy options to confront rising inflation are correspondingly difficult.