Full text: Expansion, Stagnation und Demokratie - 1982 Heft 2 (2)

Inflation - An Endemie Problem of
Modern Capitalism
Nicholas Kaldor
The growth of modern capitalism in the 19th Century meant a Century
of falling, rather than rising prices1. The engine which drove the
industrial revolution forward was making things cheaper, in all
branches of the economy (with the possible exception of the building
industry). The textile revolution meant that cheap factory-made goods
displaced relatively expensive hand-made produets. Even when the
displacement was complete, when power-driven machinery and the
factory system became general in the cotton industry in the first half of
the 19* Century, prices continued to fall with improvements in produc-
tivity. We know from recent research that the very large increase of
British exports in the first part of the 19th Century was associated with an
adverse change in our terms of trade, because owing to the intense
competition between individual manufacturers, every improvement in
produetivity was passed on to the buyer in lower prices. (The market
was dominated by wholesalers as intermediary traders; the manufac-
turer was dependent on wholesalers for orders and this meant keen
price competition between manufacturers. The competition between
wholesalers meant in turn that lower prices were rapidly passed on to
the final buyers, home or foreign2.
Of course the movement of prices was much under the influence of
the trade-cycle - both the short cycle which had a periodicity of
8-10 years, and the long waves (Kondratieff) of 50 years. Food and raw
material prices rose or feil according as the growth of demand exceeded
or feil behind the increase in supplies; these in turn reacted on
industrial prices, both on account of the effect of food prices on wages
and of changes in material costs. However, as we now know, wages were
not as closely tied to food prices (the price of com) as the classical
economists suggested. They rose and feil with the state of the labour
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