Skip navigation.

The dog that didn’t bark: inflation and power in the contemporary capitalist state

Maximilian Krahé

 < 1 2 >

Why was there so little inflation after 2008?

Yet, more than a decade after the crisis, inflation remains as subdued as ever. Why?

If inflation is a safety valve, if the other safety valves are clogged, and if this valve nevertheless emits no steam, we must conclude that there is little pressure in the underlying boiler. If the political economy account of inflation is true, what the absence of inflation indicates is that no excess claims on the resources of society have been recognised or created over the last decade.

This is astonishing. Since 2008, great energy and courage has been shown by many movements with clear distributional goals. However, the political economy of inflation outlined here suggests that energy and courage are not the same as power and organisation. To square these two observations – wide-spread, broad-based, citizen-led mobilisation, and quiescent inflation – we must distinguish more clearly between protesting and political campaigning on the one hand, and the levying of distributive claims on the other. The former can be, and often are, tools for the latter; but they are separate nonetheless.

In contemporary capitalism, there are only two agencies that can issue universally recognised distributive claims: banks and states. More specifically: banks and central banks. As the only agencies capable of money creation, these two can issue additional claims on society’s resources, i.e. without first obtaining them through taxation, services rendered, or as a gift.20 Any action that does not alter the behaviour of these two agencies is therefore unlikely to result in durable increases in inflation.

These actors, however, are (currently) well insulated against popular pressure: beginning with central banks, these are protected by walls both constitutional and physical. In the case of the European Central Bank, for example, Article 123 of the Treaty of the Functioning of the European Union prohibits central bank financing of public expenditure. Article 130 states that ‘neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body’.21 Further, a special agreement between the ECB and the German state grants the ECB headquarters immunity from German law enforcement: ‘No official of the Government or person exercising any public authority, whether administrative, judicial, military or police shall enter the premises of the ECB except with the consent and under the condi- tions approved by its President’.22

The physical protective features, i.e. the actual walls, of most central banks are equally impressive. While in most cases this is a historical legacy, partly explained by central banks’ role as stores of national gold reserves, the European Central Bank’s Frankfurt headquarters, too, are physically very well protected. Even though the ECB stores its gold reserves in London, Paris, Lisbon, New York and Rome, its new headquarters, completed in 2014, feature a wide ditch, a double security fence and wall, buildings significantly removed from the road, and an airport-style security entrance.23 Occupying Zuccotti Park was a feasible option, at least until the city of New York decided to send in armed police. Occupying the headquarters of the ECB, in contrast, is next to impossible for peaceful protesters. This is not incidental.

Turning to commercial banks, many of those, too, have significant physical safety provisions. More importantly, however, they are protected by their individual subservience to the market, and by their collective (and sometimes individual) indispensability for the continued functioning of contemporary, financialised capitalism. While individual banks can be targeted by protestors, this is predicta- bly ineffective even for small and midsized banks, i.e. those more amenable to pressure from below. Local banks that went ahead and recognised claims founded in a moral, not a market, economy, would lose market share and eventu- ally go bankrupt or face acquisition. Targeting systemically important banks, or commercial banks as a group, is a more viable strategy, insofar as, due to their systemic importance, their bankruptcy would not be permitted. If protestors could compel the creation of additional purchasing power here, this would in turn compel the central bank to back up those claims. This, however, is a challenging goal to achieve through collective action from below, and has not yet been attempted successfully.

If both banks and central banks are protected against direct protests and pressure, as outlined above, could not governments and parliaments be pressured to compel banks and central banks in turn? The answer is: yes in principle, but not, so far, in practice. With the very partial exemption of the Trump White House, none of the G7 governments has come under sustained popular pressure to challenge the independence or the current mandate of their respective central banks, or to compel banks systematically to extend (likely loss-making) credit to marginalised populations. Mobilisation has been too weak to move governments in this direction. Governments or parliaments have not had to say, as they did in the wake of World War II, ‘the only way to meet these other demands is to abolish central bank independence’.

Instead, strategies of dispersion, such as union busting or the banning or breaking up of protests, have suppressed collective action. Scapegoating, for example via fostering or tolerating xenophobia, has diverted anger from plutocrats to the wretched of the earth. And a decades-long campaign of divide-et-impera, via constructing markets that are systematically larger than existing structures of collective action, has succeeded in pitting the workers of the world against each other and in giving bosses and owners faux-objective reasons to reject wage claims from below. Through these and other means, governments have succeeded in preventing distributive conflict from rising to a point where inflation is the least-cost answer, where a repoliticisation of central banking is a live concern, or where commercial banks would be re-subjected to political control.

Taken together, this amounts to the successful and continued depoliticisation of much of distributive politics. In the current institutional settlement, neither central banks nor commercial banks have any systematic incentive to give weight to the second of Streeck’s two principles, nor can they be easily compelled to do so. Neither social needs nor moral economy rights are reflected in profit calculations. Neither matter, today, in the mandates or practice of the Federal Reserve, the Bank of England or the ECB.

In sum, the surprising absence of inflation since 2008 is due to the fact that none of the political initiatives undertaken since then have succeeded in levying effective, additional distributive claims. This was not for want of trying, but rather because, on the one hand, the agencies in whose power it is to recognise or deny these claims, i.e. banks and central banks, have turned out to be supremely well insulated against the kinds of politics and protests that have been attempted over the last decade; and, on the other hand, because tactics of division and scapegoating have reduced the organisational power of the downtrodden to fight for their share.

Learning from quiescent inflation

Since the early 2010s, both public and private debt have been at levels where, at least according to common sense, further increases cannot easily be used to defuse distributional conflict. Inflation, on the other hand, is and has been available since 2008: it is currently low and stable, and even if doubled it would be well short of the levels seen in the 1970s. As the tool that is most available to ‘manage’ distributional conflict (i.e. defuse it without deciding it), it indicates the extent to which govern- ments feel that they are caught between a rock and a hard place. Were governments to believe that they could not easily deny the claims of either capital or labour, they would take actions that would result in inflation rising.

The absence of inflation therefore indicates that hard distributional conflict itself is absent. Governments in the capitalist core no longer feel the need to stave off the fundamental conflict of democratic capitalism, between the moral and the market economy, by resorting to inflation. The underlying stresses, far from becoming more exposed or being delayed once again (through a renewed surge of inflation or debt), have been, this indicates, ‘resolved’: the principle of ‘market allocation ... governed by the interests of those owning scarce productive resources and thus in a strong market position’ has won out.24 Despite a decade of organising, of protesting, of publishing, and of changing the zeitgeist, the principle of ‘political allocation ... preferred by those with little economic weight but potentially extensive political power’ has not (yet) been reasserted successfully.25 For anyone committed to the pri- ority of democracy over capitalism, this is deeply worrying indeed.

This essay started from the observation that inflation has remained low and stable since the mid-1990s. I argued that inflation, though an economic phenomenon, is caused by an excessive amount of politically recognised and hence effective claims on the resources of society. The key implication of this theory – the safety valve theory of inflation – is that, just as ‘the generally rising rate of inflation [of the 1970s] reflect[ed] a situation in which conflict between social groups and strata ha[d] become more intense and also to some extent more equally matched’,26 the absence of inflation today indicates less intense and less equally matched social conflict.

The upshot is clear: the democratic promise of social market democracy – that the market is ultimately subservient to democratic politics – has been broken. Given the presence of high and growing inequality, in material conditions, in opportunities, and in political representation, combined with the extraordinary growth in eco- nomic insecurity they entail, any impartial observer would expect a powerful political challenge on the terrain of distribution. And indeed, Occupy and cognate movements have repeatedly issued such a challenge over the last decade. Had these challenges had sufficient force, they would have been reflected in growing inflation. The absence of inflation shows that they did not. A retrenchment of capital’s claims– driving down the capital share, driving down income and wealth inequality – is always hard, and has only ever been achieved in truly exceptional circumstances. What is disappointing, however, is that not even the intermediary step was achieved: scaring the authorities into conceding labour’s claims though without curtailing capital’s claims – at the price of inflation.

No doubt, this was in part because tactics of division and scapegoating proved effective at disorganising the masses. No doubt, however, this was also due to tactics and strategies of the left that, even if reasonable at the time, have turned out to be incomplete at best, misguided at worst. Symbolic, rhetorical challenges, such as those successfully brought forward by Occupy Wall Street, Los indignados, la nuit debout, or UK Uncut have not, it turns out, created genuine counter-power. Political movements focused on winning elections, defending public services and ending austerity may have succeeded in preventing an even worse evisceration of the public realm and the moral economy; but they have failed, hitherto, to turn the tide and to take the fight to the enemy. Perhaps the left of the 2010s was too electoral, too small-c conservative, too ready to accept the rules of politics and the public sphere as they stand. Perhaps there is simply no alternative to the hard graft of building counter-power via durable, resilient organisation: in the work place and in the street; in religious, cultural, ethnic, and in sexual communities; in the village and in the metropolis.

Why precisely the left of the 2010s failed, and what precisely should be done instead, are the questions that must now be answered in greater detail. How genuine counter-power can be built today, at every level of society, is what we must find out. We need, in other words, a renewed analysis of how power operates in twenty-first century capitalism. We need a Gramsci, a Luxemburg, or perhaps a Lenin, for our time.

Maximilian Krahé holds the SFPI chair at the Académie royale de Belgique. He is a co-founder of the German economic policy think-tank Dezernat Zukunft.


1. Jonathan Kirshner, ‘The political economy of low inflation’, Journal of Economic Surveys, Vol 15 No 1, 2001, p42.

2. ‘Those pesky inflation expectations’, Wall Street Journal, 31 January 2008.

3. ‘The next inflation: when, why, and so what?’, New York Times, 24 June 2009.

4. ‘Some bonds predict inflation as Fed prepares for quantitative easing’, FoxBusiness, 2010.

5. ‘Open Letter to Ben Bernanke’, Wall Street Journal, 15 November 2010.

6. Bundesbank,">‘Price of gold in Frankfurt Am Main’, 1 October 2019.

7. University of Michigan, ‘University of Michigan: Inflation Expectation [MICH]’, 1 October 2019.

8. E.g. Peter Bernholz, Monetary Regimes and Inflation, Edward Elgar 2003, p10; Don Paarlberg, An Analysis and History of Inflation, Praeger 1993, p154.

9. Fred Hirsch, ‘The ideological underlay of inflation’, in The Political Economy of Inflation, Fred Hirsch and John Goldthorpe (eds), Harvard University Press 1978, p263.

10. Felix Martin, Money: The Unauthorised Biography, Knopf 2014, p87.

11. Charles Maier, ‘The politics of inflation in the twentieth century,’ in The Political Economy of Inflation.

12. Wolfgang Streeck, ‘The crises of democratic capitalism’, New Left Review, Vol 71, 2011, pp5-29.

13. Ibid,p7.

14. Maier, ‘Politics of inflation’, p41.

15. Colin Crouch, ‘Privatised Keynesianism: an unacknowledged policy regime’, British Journal of Politics and International Relations, Vol 11 No 3, 2009; Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance, Harvard University Press, 2011.

16. Streeck, ‘Crises’, pp17-18.

17. Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton University Press 2010; Atif Mian and Amir Sufi, House of Debt, University of Chicago Press, 2014.

18. Òscar Jordà, Moritz Schularick and Alan M. Taylor, ‘The great mortgaging: housing finance, crises and business cycles’, Economic Policy, Vol 31 No 85, 2016, pp107-52.

19. Streeck, ‘Crises’, p22.

20. Michael McLeay, Amar Radia, and Thomas Ryland, ‘Money creation in the modern economy’, Bank of England Quarterly Bulletin, Q1 2014.

21. https://eur-lex.">Treaty on the Functioning of the European Union, Article 130, accessed 1 October 2019.

22. Headquarters Agreement between the Government of the Federal Republic of Germany and the European Central Bank concerning the seat of the European Central Bank, Article 2, §1, accessed 1 October 2019.

23. Ronan Manly, ‘European Central Bank gold reserves held across 5 locations. ECB will not disclose gold bar list’, BullionStar, 15 November 2016.

24. Streeck, ‘Crises’, p9.

25. Ibid.

26. John Goldthorpe, ‘The current inflation: towards a sociological account’, in The Political Economy of Inflation, p196.

 < 1 2 >
Privacy policy