Value, price, and inflation: Immediate and structural causes

Feb 1, 2023


Every working person is keenly aware that prices are up. Nasty surprises and disbelief keep turning up at the register. People are being forced to forgo even the most minor and seemingly harmless comfort purchases, adding to the accumulation of the indignities necessary for survival under capitalism.

Even worse, the alleged culprits can seem abstract and hard to pin down, like “the supply chain.” Some try to blame good things like higher wages, and others point to enraging levels of straight-up corporate greed. There is a debate raging about which factors cause inflation, with one other “cause” thrown in: government spending.

The various explanations serve more as ideological markers than as actual explanations. They all have the virtue of having some “solution” that Congress or the White House can or should pursue immediately.

Our indignation at the daily web of injustices we are forced to navigate reflects the contradiction between capitalism and humanity. Inflation reflects the dynamics of a system based on exploitation. Ultimately, there is no long-term solution to inflation or other ills of capitalism without replacing the system. Without such systematic change, all “immediate” solutions produce new cul-de-sacs for the working class.

Putting that aside just for the moment, however, there are clear causes that can and should be affected by immediate action. Our goal here is to place that immediacy in the context of the broader dynamics of capitalism, to provide workers with the tools not simply to defend themselves against inflationary pressures in our current political moment; but to also be able to take the offensive and shift the balance of forces in our favor against the ultra-rich.

Why is inflation spiking now?

Our current inflationary spike results from the ripple effects of the COVID-19 pandemic, the war in Ukraine, and the efforts by capitalists to take advantage of this unique confluence of events.

The COVID-19 pandemic introduced a major distortion into the broader economic picture: a major change in spending patterns as people shifted their consumption from services to goods, like switching from gym memberships to Peloton products. In the fourth quarter of 2020, for instance, while GDP was down 3% from Q4 of 2019, spending on durable goods was 10% higher than where it had been in Q4 2019. On the other hand, spending on recreational services was down 32% [1]. This extended into, at least, June 2021 where GDP data by sector clearly shows “durable goods” spending outpacing both GDP and most in-person services.

This increase led to price increases in both particular goods sectors, especially those who had inventory to work down, but also created an unusual surge in some things and shortages in others. This all came amidst a production and transportation industry that struggled to adapt due to weak supply-chains and disruptions caused by workers getting sick and pandemic safety measures.

The war in Ukraine clearly caused prices to spike in the oil & gas sectors as well as related sectors like chemical fertilizers. It also caused serious spikes in commodity-trading markets for many food products. In both cases, this was due to the uncertainties introduced by the invasion and also the sanctions on Russia, a major producer of both energy and foodstuffs.

Ultimately this is where profit and price-gouging comes in. Capitalist corporations know full well that most people are not terribly aware of how much it costs to make anything, or how much increased costs there are due to “supply-chain” issues. So, they understood that there was a significant scope to raise prices far beyond their increase in costs. They took advantage of real problems to drive prices up and hit record high profits in 2021.

In sum, our current inflationary crisis is driven by unique challenges from COVID-19, the war in Ukraine and the profiteering by capitalist millionaires and billionaires taking advantage of a crisis to line their pockets.

These things, however, are not created equal. As the data shows us, profits, or price-gouging, contributed the most to each dollar of inflation. Raising prices was also made significantly easier due to the high-level of monopoly across the economy, making it easier for companies to raise prices without a penalty. The search for every extra bit of profit by monopoly corporations is also what is behind the hollowed-out supply-chains that sagged under the pressure of the pandemic.

Inflation, in short, is being caused by the intersection of world events with the dynamics of capitalism, and thus, any real solution has to be aimed at resolving these root cause issues, which we will now examine in a bit more detail.

Ruthless profit search drives inflation

In a recent study of inflation in the United States, the Economic Policy Institute analyzed GDP data finding that corporate profits are by far the largest contributor to the current upsurge in inflation. Specifically, a later analysis reports that:

“Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC [non-financial-ed.] sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase” [2].

Put simply, the EPI study states that out of every dollar prices go up, about 54 cents goes to pad the corporations profits, about 38 cents goes to deal with supply-chain issues and about 8 cents goes to increasing wages.

They note that, essentially, the reason why is the enormous “pricing power” that corporations had in the wake of the pandemic. “Pricing power” is more or less a stand-in for corporate power, which is a synonym for a few monopoly corporations controlling entire markets.

The pandemic created a unique environment for profiteering. One where enough real world events (pandemic and war) took place to make it plausible prices would go-up and where large corporations had enough power to raise these prices without fear of being undercut. Since most people have no idea how much it costs to produce anything, it was a perfect storm to raise prices to fatten profit margins.

The Bank of International Settlements, noted, about that point:

“Firms’ pricing power, as measured by the markup of prices over costs, has increased to historical highs…in a high inflation environment, higher markups could fuel inflation as businesses pay more attention to aggregate price growth and incorporate it into their pricing decisions. Indeed, this could be one reason why inflationary pressures have broadened recently in sectors that were not directly hit by bottlenecks” [3].

This is certainly reflected in what corporations themselves are saying, as evidenced by a wide-ranging analysis published in The Guardian.

Steel Dynamics, which saw profits surge 809% year-on-year, explicitly noted that higher prices “exceeded” any supply-chain issues they had. Nike, which had a 53% profit surge, stated in an earnings call that their profit margins had only been “partially offset” by any sort of supply-chain issues. Nutrien, one of the largest fertilizer companies, said “higher selling prices more than offset higher raw material costs and lower sales volume” [4].

Hershey’s CEO, coming off a 62% profit increase from Q4 2019 to Q4 2021, said that in 20213, “Pricing will be an important lever for us this year and is expected to drive most of our growth.” The CEO of Chipotle, with an 86% profit surge, said in a similar vein that. “We’re pretty fortunate with the pricing power we have … so we have more room to take the price as we need to” [5].

The CEO of Hostess said in March that rising prices “helps” in the company’s search for profitability. A Kroger executive told investors “a little bit of inflation is always good for our business” [6].

In their Q1 FY 2022 earnings report extensively detailed their increased costs, only to reveal that, in part due to higher prices, their quarterly profits increased 106% from the year before [7].

High prices = big monopolies

There is no doubt that concentration in major industries is increasing, or that this increased concentration fuels rising prices. For example, a 2018 Organisation for Economic Co-operation and Development study prepared by the OECD’s Secretariat found “there are a broad range of indicators suggesting that, on average, market power is increasing” [8]. A 2017 analysis focusing specifically on U.S. industries found that in the past 20 years concentration

“…has systematically increased in more than 75% of US industries, and the average increase in concentration levels has reached 90%. Similarly, the market share of the four largest public and private firms has grown significantly for most industries, and both the average and median sizes of public firms, that is, the largest players in the economy, have tripled in real terms. This finding of increased concentration is robust to alternative measures of concentration, to the inclusion of private firms, to proxies for foreign competition, and to a variety of industry definitions” [9].

In 2016, the U.S. Council of Economic Advisors, who advise the President on the economy, cited noted from the U.S. Census Bureau, “shows that the majority of industries have seen increases in the revenue share enjoyed by the 50 largest firms between 1997 and 2012” [10].

That monopolization increases the ability to raise prices substantially is well documented. As one research survey stated bluntly, “the empirical evidence that mergers can cause economically significant increases in price is overwhelming. Of the 49 studies surveyed, 37 find evidence of merger-induced price increases” [11].

Increased food and fuel costs have been front and center in the minds of many people. In 2021, “just four large conglomerates control approximately 55-85% of the market for pork, beef, and poultry” [12]. The four largest firms control 95 percent of cane sugar refining, 61% in farm machinery, 46% in fluid milk processing, 79% in soybean processing, 85% in corn seed, 86% in wet corn milling, and 88% in phosphate fertilizers [13]. Just 10 companies control 56.8% of all gas stations in the country [14].

As anyone who pays a gas or electric bill knows, these industries basically operate like local and regional monopolies as consumers lack any real competitive choices. Automobile production is a significant driver of inflation, and just five companies control 49 percent of the entire global auto industry [15].

It’s impossible to look at the factual record and conclude anything but the fact that the key driver of inflation is the ability of monopoly corporations to raise prices significantly by using both the real, exaggerated and plainly falsified supply-chain disruptions introduced by the COVID-19 pandemic.

Starving supply chains

There are, of course, some “supply chain” issues at play. However, they are not separate issues. The issue of monopoly as well as the drive for profits is linked to the supply chain issues within the economy. Some issues are unique to our moment, but overall, the “fragile” supply-chain is a product of deliberate corporate practices designed to increase profitability at the expense of resilience and capacity.

David Dayen, the executive editor of The American Prospect, and Rakeen Mabud, the chief economist and managing director of research and policy at Groundwork Collaborative, note about the historical roots of the “supply-chain crisis:”

“The roots of the supply shock lie in a basic bargain made between government and big business… In 1970, Milton Friedman argued in The New York Times that “the social responsibility of business is to increase its profits.” Manufacturers used that to rationalize a financial imperative to benefit shareholders by seeking the lowest-cost labor possible. As legendary General Electric CEO Jack Welch put it, “Ideally, you’d have every plant you own on a barge,” able to escape any nation’s wage, safety, or environmental laws.

In place of the barge, multinationals found China, and centralized production there. This added new costs for shipping, but deregulating all the industries in the supply chain could more than compensate…Trucking and rail deregulation in the Carter administration eliminated federal standards and squeezed workers, who to this day continue to endure low pay, erratic schedules, wage theft, and rampant misclassification…a new religion called “just-in-time” logistics was founded, on the theory that companies could produce exactly what customers demanded and create a supply chain so efficient it would virtually eliminate the need to keep reserve inventory at the warehouse…Feeding on these trends was a wave of consolidation, also based on theories of efficiency.

Manufacturers and retailers increased market share and empowered offshore production giants…. Ocean shippers slotted into three global alliances that carry 80 percent of the cargo; 40 rail companies narrowed to just seven…Behind all of these choices was Wall Street, insisting on more profit maximization through deregulation, mergers, offshoring, and hyperefficiency.

They demanded that companies skimp on long-term resilience, build moats around their businesses by undermining or buying up rivals, adopt practices that kept inventories lean, break down the social contract between employers and workers that offered economic security, and return outsized profits to shareholders. Financiers built our supply chain to enrich investors over workers, big business over small business, private pockets over the public interest” [16].

The malice and greed of corporate CEOs and Wall Street raiders weren’t character flaws of individuals but structural conditions of the capitalist system. They were responding to very real changes in the nature of the capitalist economy – mainly, the long-term secular decline in profit rates that increased the desperate search for lower costs associated with production [17].

This is a long and complicated issue, but the essentials consist of the fact that the “rate of return on investment” which can be roughly described by the Marxist phrase “rate of profit,” declines over time. Capitalism also works to counteract this decline in various ways, most notably, by increasing “productivity” or how much a single worker can produce in a given period of time. As the quote above alludes to, changes in the supply-chain came about during the 1970s, when declines in profit rates were particularly notable, and the starving of supply-chains was one of the many measures undertaken to restore these rates to previous peaks.

Importantly, however, the struggle to increase “productivity” is also the same process that leads to the increasing monopoly that helps facilitate inflation today.

Monopoly: All natural additive to capitalism

That competition is intrinsic to capitalism is unequivocal. It is certainly something we all are told about the greatness of the “free market” and its “unparalleled” powers of supply and demand. Among other things, however, capitalism’s cut-throat reality is also, a bit paradoxically, what leads to the growth of monopoly.

How do capitalist firms gain on their competitors? In general, increases in productivity. This means introducing new machines that can increase the amount of things produced (or things served) by the same amount of workers in the same amount of time. This does two things. One, over time, it reduces the overall price of goods. Secondly, the same process drives those who can’t keep up with the pace and methods of change out of the market, either through failure or mergers to prevent failure. Either way, the logic of competition also leads to consolidation and concentration.

For example, the 2017 analysis of U.S. industry concentration cited above found that “among Furniture and Home Furnishings retailers…the share of the four largest firms went up from 6.5% in 1997 to 19.4% in 2012, which is equivalent to an almost 200% increase” [19]. Of course, this is all very well reflected in the things we see day-to-day. Two firms, Deane Foods and the Dairy Farmers of America, control 80-90% of all milk production in the US and four beef-packing companies control 80% of the market. Two companies also control 60% of all mattress sales. The top three hospital systems account for 77% of all hospital admissions. Of all electronic and print books sold online, 74% and 74% are, respectively, sold by one company: Amazon [19].

On a similar note, the number of people employed by firms with more than 10,000 workers “began rising in the mid-90s and has recently exceeded previous historical peaks, and at present “the average U.S. firm is almost three times larger in real terms than it was 20 years ago” [20]. This comports with Theo Francis’ findings that, while “in the late 1970s, an American employee was more likely to work at a company with fewer than a hundred workers than one that employed 2,500 or more. Today, Americans are more likely to work for the larger firms” [21].

Specifically, Francis reported that in 2014, roughly 39.2% of workers were employed in firms with more than 2,500 workers and 27.8% worked in firms with more than 10,000 employees. In 1980, those numbers were 36.2% and 26.3% respectively. In the same time period, the percentage of workers employed at firms with less than 100 workers dropped 5 percentage points [22]. Reports from the Bureau of Labor Statistics corroborated Francis’ findings, reporting that between 2007-2017, “large firms” were responsible for 48% of all job growth [23].

So, in both theory and practice, it’s clear that capitalism’s own dynamics drive the growth of monopolies whose policies are responsible for the supply-chain crisis and whose market position allows for the easy abuse of our current conjuncture to raise prices to pad profits.

Permanent inflation crisis

As the above reflects, our current inflation crisis, while having proximate causes rooted in the pandemic and war, is really related to deeper trends inherent in capitalism, specifically the tendency toward monopolization. We can add into the mix as well the fact that the government is also acting in a way that pushes the burden of the crisis onto workers; a permanent feature of the state in capitalist society.

This means that addressing the issue of inflation is not really an issue of any particular one method. Although any particular one method can, in context, slow inflation, the issue of inflationary crises will remain and reoccur.

The principal issue in terms of how inflation is addressed at the moment is how any individual solution affects the course of the class struggle. Why, for instance, do shortages mean prices go up? Just as easily the government could institute rationing to ensure fair distribution, but instead capitalism makes your paycheck your ration card. Why should we raise interest rates at the risk of a recession when higher taxes on the wealthy would work just as well to cool inflationary pressures?

There is no reason, of course, other than the relationship of forces in society more broadly. It’s not that interest rate increases are the best way to cool inflation, just that they are most amenable to the big money men behind the scenes, pulling the strings of the politicians and Federal Reserve officials making the direct decisions.

As with all other issues in the class struggle, since the relationship of forces changes with time, the ability for the working class to press for reforms in its favor changes as well. So the principle lesson about our current inflationary crisis has to be that not only was it created from the actual dynamics of capitalism and how it responds to real world events, but that any resolution is only temporary until a system built on an entirely different basis, people’s needs rather than the profit motive, can offer permanent relief.


[1] Josh Bivens, “The Build Back Better Act’s Macroeconomic Boost Looks More Valuable by the Day,” Economic Policy Institute, 03 November 2021. Available here.
[2] Josh Bivens, “Corporate Profits Have Contributed Disproportionately to Inflation. How Should Policymakers respond?” Economic Policy Institute, 21 April 2022. Available here.
[3] Frederic Boissay, Fiorella De Fiore, Deniz Igan, Albert Pierres-Tejada and Daniel Rees, “Are Major Advanced Economies on the Verge of a Wage-Price Spiral?,” Bank for International Settlements 50 (2022): 3. Available here.
[4] Tom Perkins, “Revealed: Top US Corporations Raising Prices on Americans Even as Profits Surge,” The Guardian, 27 April 2022. Available here.
[5] Ibid.
[6] Ibid.
[7] Tyson Foods, Inc., “Tyson Foods Reports First Quarter 2022 Results Delivers Strong Operating Results Driven by Strong Consumer Demand,” Globe News Wire, 07 February 2022. Available here.
[8] Organisation for Economic Co-operation and Development, “Directorate for Financial and Enterprise Affairs Competition Committee,” 2018. Available here.
[0] Gustavo Grullon, Yelena Larkin and Roni Michaely, “Are U.S. Industries Becoming More Concentrated?” Review of Finance 23, no. 4 (2019): 698. Available here.
[10] Cited in Council of Economic Advisers Issue Brief, “Benefits of Competition and Indicators of Market Power,” April 2016. Available here.
[11] Orley Ashenfelter, Daniel Hosken, and Matthew Weinberg, “Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from Consummated Mergers,” The Journal of Law & Economics 57, no. S3 (2014): S78.
[12] Brian Deese, Sameera Fazili, and Bharat Ramamurti, “Recent Data Show Dominant Meat Processing Companies Are Taking Advantage of Market Power to Raise Prices and Grow Profit Margins,” The White House Briefing Room, 10 December 2021. Available here.
[13] James M. MacDonald, “Consolidation, Concentration, and Competition in the Food System,” Economic Review (Kansas City) 102 (2017): 94. Available here.
[14] Douglas A. McIntyre, “10 Retailers That Control America’s Gasoline Sales,” 24/7 Wall St., 21 April 2017. Available here.
[15] Henry Kallstrom, “What Makes the Auto Industry Highly Concentrated?” Market Realist, 19 November 2019. Available here.
[16] David Dayen and Rakeen Mabud, “How We Broke the Supply Chain: Rampant Outsourcing, Financialization, Monopolization, Deregulation, and Just-in-Time Logistics are the Culprits, The American Prospect, 31 January 2022. Available here.
[17] Michael Roberts, “A World Rate of Profit: Important New Evidence,” The Next Recession, 22 January 2022. Available here.
[18] Grullon, Larkin, and Michaely, “Are U.S. Industries Becoming More Concentrated?”, 706.
[19] “Monopoly by the Numbers,” Open Market Institute, no date. Available here.
[20] Grullon, Larkin, and Michaely, “Are U.S. Industries Becoming More Concentrated?”, 703.
[21] Theo Francis, “Why You Probably Work for a Giant Company, in 20 Charts,” The Wall Street Journal, 06 April 2017. Available here.
[22] Ibid.
[23] Bureau of Labor Statistics, U.S. Department of Labor, “Over the Last Decade, Large Firms Responsible for 48 Percent of Net Job Growth, The Economics Daily, 01 May 2018. Available here.

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The colonial roots of Zionism

The following two-part series of The Socialist Program with Brian Becker delves into the real history of the Israeli state. Both episodes feature Richard Becker, author of Palestine, Israel and the U.S. Empire—a book for which Liberation School has a study and...

The colonial roots of Zionism

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The following two-part series of The Socialist Program with Brian Becker delves into the real history of the Israeli state. Both episodes feature Richard Becker, author of Palestine, Israel and the U.S. Empire—a book for which Liberation School has a study and...