By Nicolas Cachanosky, American Institute For Economic Research
In recent years, the resurgence of inflation in the United States and other advanced economies has brought a revival of conflict theories of inflation (CTIs). These theories, which are gaining momentum in academic and policy-making circles as well as the popular press, posit that inflation is fundamentally the result of distributional conflicts among various social groups. The historical roots of CTI reveal their policy implications. For instance, Elizabeth Warren has spearheaded initiatives rooted on CTI ideas such as Shrinkflation Prevention-Act and the Price Gauging Act of 2024. The “greedflation” narrative, so popular in recent years by Isabella Weber, is another example of CTI-inspired rationale surrounding higher-than-normal inflation.
The rising popularity of CTIs can be seen in the public discourse on “greedflation,” where inflation is attributed to corporate greed. In academia, influential figures such as Olivier Blanchard have echoed similar sentiments. Blanchard recently stated that inflation is “fundamentally the outcome of the distributional conflict between firms, workers, and taxpayers.” This sentiment is echoed in recent working papers by prominent economists like Lorenzoni and Werning (2004), and institutions such as the Bank of England and the IMF, which discuss the “battle of markups” and attribute a significant portion of recent European inflation to corporate profits. While these working papers do not represent official positions, they demonstrate that CTIs are no longer considered fringe theories.
The origins of CTIs can be traced back to Marxist economic thought, as explicitly recognized by one of its early proponents, R. E. Rowthorne (1977). CTIs are rooted in the assumption that class struggles, particularly between capitalists and workers, are the primary drivers of inflation. This perspective emphasizes that social conflicts, rather than purely economic factors, are the central cause of inflationary pressures. The Marxist undertones of CTIs suggest that inflation results from social injustice, thereby implying a moral imperative for government intervention to right the supposed wrongs. In simple terms, inflation is caused by inflation increasing prices at the expense (exploit) of consumers and, to the extent possible, not passing those extra profits to their workforce. Alternatively...(READ THIS FULL REPORT HERE).
