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Inflation and instability contradictions mount for capitalism

Marxist Analysis · 2026-05-13

Core Argument

The article argues that the apparent economic recovery from the pandemic-induced crash is a temporary and deceptive phenomenon. The unprecedented scale of state intervention — $16 trillion in fiscal support and $10 trillion in central bank money-printing — has merely postponed a deeper crisis while building up explosive contradictions. The central claim is that capitalism faces a "Goldilocks dilemma": if governments continue injecting money, they risk runaway inflation; if they tighten policy, they trigger a collapse of debt-laden economies. Either path leads to renewed crisis. More fundamentally, the article contends that the current period belongs to a descending "curve of capitalist development" — an epoch of decline, not a temporary downturn within a generally ascending system. The post-war boom conditions cannot be recreated, and the underlying reality is one of chronic overproduction, not the temporary shortages that dominate headlines.

Theoretical Grounding

The analysis is rooted in Trotsky's concept of the "curve of capitalist development," drawn from his 1921 speech to the Third Congress of the Communist International. This framework distinguishes between short-term cyclical fluctuations (booms and slumps) and the secular trend — whether capitalism is in general ascent or decline. The article applies this to distinguish the present from the post-war long boom, which was based on specific historical conditions (wartime destruction of productive capacity, US hegemony, expansion of world trade) that no longer exist.

The piece also draws on the Marxist theory of overaccumulation and the tendency of the rate of profit to fall, though these concepts operate in the background rather than being explicitly named. The discussion of excess capacity, saturated markets, and the inability to find profitable outlets for investment points directly to this tradition. The critique of Keynesianism is grounded in the Marxist understanding that capitalism cannot be managed — state intervention merely displaces contradictions rather than resolving them.

The article situates itself within the tradition of Ted Grant's analysis of the post-war boom and its limits, particularly his pamphlet Will There Be a Slump?, which explained why the conditions for a sustained upswing no longer existed.

Conjunctural Relevance

The article was written in June 2021, at a moment when the global economy appeared to be rebounding strongly from the COVID-19 crash. The IMF was forecasting 6 percent global growth for 2021 and 4.4 percent for 2022. The article identifies several specific conjunctural features:

  • Inflation signals: US inflation hit 4.2 percent in April 2021, the highest since 2008, with price rises across steel, shipping, and semiconductors.
  • Asset bubbles: Cheap money had inflated bubbles in stocks, property, and cryptocurrencies.
  • Debt mountain: Global debt stood at $281 trillion (355 percent of GDP), with government debt at 100 percent of GDP.
  • Zombie firms: One in five publicly-traded US companies were unprofitable but kept alive by cheap credit, accounting for $2 trillion in corporate debt.
  • Pent-up demand: Accumulated personal savings in countries like the UK amounted to as much as 10 percent of GDP.
  • Supply bottlenecks: Global supply chains were disrupted, with production unable to catch up with surging demand.

The article identifies a split within the US ruling class between those (like the Fed) arguing inflation is transitory and those (like Larry Summers) warning of "dangerous complacency." It notes that both sides are correct within their own logic — but that this very dilemma reveals the impossibility of managing the system.

Where the Argument Continues

The article explicitly references Ted Grant's Will There Be a Slump? as the key text for understanding why the post-war boom cannot return. This is the natural next reading within the IDOM corpus. The article also points to the concept of "Japanification" — prolonged stagnation despite ultra-loose monetary policy — and stagflation à la 1970s as possible trajectories, both of which have been explored in subsequent IDOM analysis.

The argument about the political consequences — that even a temporary recovery will provoke strikes as workers seek to regain losses — connects to the broader IDOM analysis of the wave of class struggle that emerged from the pandemic. The reference to Colombia's explosive events in 2021 points to the international dimension of this radicalisation.

For a fuller theoretical grounding, the reader should consult Trotsky's 1921 speech to the Third Congress and his subsequent letter elaborating the "curve of capitalist development." The article's critique of Keynesianism connects to the broader Marxist debate on state intervention and crisis management, developed in IDOM articles on the limits of reformism.

Connections

  • Trotsky, "Report on the World Economic Crisis" (1921) — the direct theoretical source for the "curve of capitalist development" concept
  • Ted Grant, Will There Be a Slump? — the key text explaining the specific conditions of the post-war boom and why they cannot be reproduced
  • Marx, Capital Volume 3 — the tendency of the rate of profit to fall and the theory of overaccumulation
  • IDOM articles on Japanification and stagflation — exploring the possible trajectories the article identifies
  • Against the Stream episodes on the post-pandemic economy — for ongoing analysis of how the contradictions identified here have developed
  • The broader Marxist debate on Keynesianism — including the limits of state intervention under capitalism

Key Quotes

  1. "The fact that capitalism continues to oscillate cyclically after the war merely signifies that capitalism is not yet dead, that we are not dealing with a corpse. So long as capitalism is not overthrown by the proletarian revolution, it will continue to live in cycles, swinging up and down."

  2. "At issue here is not whether an improvement in the conjuncture is possible, but whether the fluctuations of the conjuncture are proceeding along an ascending or descending curve. This is the most important aspect of the whole question."

  3. "The bourgeoisie's representatives are damned if they do, and damned if they don't. Hence the split amongst the US ruling class over the question of stimulus and inflation. The point is that both sides are right, and yet both are wrong."

  4. "Prior to the pandemic, the symptoms of this could be seen everywhere: saturated markets, glutted with commodities; excess capacity in industries across the board — from soya, to steel, to smartphones; depressed prices; rampant speculation; and hoards of idle cash in the hands of big business."

  5. "Every step, no matter how tiny, toward the restoration of equilibrium in economic life is a blow to the unstable social equilibrium upon which the Messrs. Capitalists still continue to maintain themselves."

  6. "There will be no return of the postwar boom. The conditions for such a development do not exist."