Capitalists turn to tricks and illusions as inflation starts to rise

Marxist Analysis · 2026-05-13

Core Argument¶

The article argues that the post-pandemic turn to massive state spending and money-printing by the major imperialist powers — particularly Biden's $6 trillion package — does not represent a new era of reformist prosperity akin to the post-war boom, but rather a desperate and irrational attempt to manage the deepest crisis of overproduction since 2008. Far from resolving capitalism's contradictions, these policies will aggravate them by inflating fictitious capital, exploding debt levels, and unleashing an inflationary spiral that the ruling class is actively preparing to use as a weapon against working-class living standards. The central thesis is that the bourgeoisie has exhausted all rational economic management and is now resorting to "tricks and illusions" — from Modern Monetary Theory to helicopter money — which will ultimately intensify class struggle rather than contain it.

Theoretical Grounding¶

The analysis is firmly rooted in the Marxist theory of crisis, particularly the tendency of the rate of profit to fall and the related phenomenon of overaccumulation. It draws on Lenin's Imperialism: The Highest Stage of Capitalism to explain the return of the nation-state and inter-imperialist rivalry as capitalism enters its epoch of decay. The article deploys Marx's theory of money — that money is the monetary representation of socially necessary labour time and cannot be created out of thin air — to critique Modern Monetary Theory as a form of "tricks of circulation" that cannot resolve a crisis rooted in production. It also engages with the Marxist distinction between productive and unproductive labour, and the concept of fictitious capital, to explain why quantitative easing after 2008 produced stock market bubbles but not consumer price inflation, while the current conjuncture is qualitatively different. The analysis situates itself within the tradition of Trotsky's understanding of the relationship between economic crisis and revolutionary possibility, and the classical Marxist rejection of the possibility of a stable, reformist capitalism in the epoch of imperialism's decay.

Conjunctural Relevance¶

The article was written in June 2021, at a specific conjuncture: US inflation had risen from 2.6% in March to 5% in May 2021; global debt stood at 350% of world GDP; US federal debt had reached $21.6 trillion (over 100% of GDP); and Biden had announced $6 trillion in spending plans. The article identifies several conjunctural features:

The exhaustion of countervailing factors that had previously suppressed inflation — cheap labour in the Global South, new technologies, and globalised supply chains — as wages in China and Brazil converge with southern European levels and reshoring accelerates.
The specific mechanism of pent-up demand: Americans accumulated $1.8 trillion in savings during lockdowns, and with restrictions lifting, up to $8 trillion in stimulus enters the economy.
The Bloomberg Commodity Index rising from 60.24 to 90.36 in one year, alongside semiconductor shortages and hoarding of minerals by China.
The shift in central bank doctrine: the Fed abandoning its 2% inflation target and tolerating higher inflation, while continuing to buy $120 billion in junk bonds monthly.
The geopolitical dimension: US-China conflict intensifying, the EU squeezed between them, and protectionism accelerating despite Trump's departure.
The specific danger of a banking crisis worse than 2008, with Deutsche Bank, Société Generale, and Italian banks dangerously indebted.

Where the Argument Continues¶

This article opens several lines of analysis that are developed elsewhere in the IDOM corpus and broader Marxist tradition:

The critique of Modern Monetary Theory is developed more fully in other IDOM articles on the nature of money and the state's inability to create value through fiat.
The analysis of inflation as a weapon against wages connects to the broader Marxist literature on the 1970s inflation crisis and the Volcker shock.
The prediction of intensified class struggle and a "global May 68" is tested against subsequent strike waves in the US, UK, France, and elsewhere — IDOM's ongoing coverage of labour militancy continues this thread.
The analysis of inter-imperialist rivalry and the return of the nation-state is developed in IDOM articles on the Ukraine war, the Taiwan question, and the fragmentation of global supply chains.
The specific question of whether the EU can survive the tension between German capital's need for austerity and the need for state intervention is taken up in subsequent analyses of the ECB's policy trajectory.

Connections¶

Lenin, Imperialism: The Highest Stage of Capitalism — The theoretical foundation for understanding the return of the nation-state and the decay of capitalism.
Marx, Capital Volume 3 — The theory of fictitious capital and the credit system, and the distinction between money as a medium of circulation and money as a representation of value.
Trotsky, The Transitional Program — The strategic orientation toward workers' control and nationalisation as transitional demands that flow from the crisis.
Ernest Mandel, Late Capitalism — The analysis of the long wave of capitalist development and the exhaustion of the post-war boom.
IDOM articles on MMT and the nature of money — For the fuller theoretical critique of Modern Monetary Theory.
IDOM coverage of the 2008 crisis and quantitative easing — For the contrast between the post-2008 period and the current conjuncture.

Key Quotes¶

"The depth of the crisis has meant that all the restraints that once gave the ruling class a semblance of rationality have now been blown away. We are in a new phase of tricks and illusions. The 'solutions' they are proposing today are increasingly absurd. They belong to the realm of fantasy rather than to that of reality."
"It was one thing to carry out Keynesian policies after the Second World War, in conditions of unprecedented boom. It is quite another to open up the taps of easy money now, at a time when US federal debt has literally exploded."
"The reality is that there were several 'countervailing' factors that operated in the opposite direction... Having played a powerful role for almost 30 years, however, the effectiveness of these factors has been exhausted in the most recent period."
"As Marx explained, money cannot be conceived without having a material basis in the exchange of goods and production. Governments and central banks cannot circumvent a crisis of overproduction by increasing the money supply."
"The fact that a completely irrational theory like MMT enjoys the privileged position of being able to condition – and even determine – the economic choices of the main imperialist power in the world represents a really qualitative leap in the crisis of the capitalist system!"
"Inflation was the means by which the bourgeoisie effectively rolled back wage gains won by workers in the 1970s and 1980s for example. It is a tool that they have used in the past, and, in all likelihood, they are preparing to use it again."