Rich people are affected by inflation. If your return on investment is 4%, but inflation rose 8%, you lost money.
The detachment of productivity gains from average wages is a much stronger argument. They more or less matched up through the 70s, but then a stark difference settled in as the extra money made from things went to the investor class rather than the working class.
Really rich people are not affected as much by inflation as they take out loans to pay for their day-to-day life which is then paid back in the currency that is inflating, while it's paid with the interest they earn with company shares. Those shares are not directly hit by inflation like the loan is.
This lifestyle/procedure makes it easier to maintain your wealth compared to a regular person.
See in your example you say company value rose by 4% and inflation by 8% so they loose money, but that also means the company performed worse than before. Think of it like gold, when I have 1 ounce of gold and the dollar value sinks due to inflation, the value of my gold did not change, it's still one ounce of gold and if the gold price is not sinking for some reason, the cost/buying price of gold will most likely rise 8%, because the currency is worth 8% less but the value of gold staid the same.
If I take out a $10,000 loan, which for simplicity's sake let's say is worth 10,000 loaves of bread, and next year, when payment is due, $10,000 is "worth half as much" ie I can only buy 5,000 loaves of bread with it, I only have to pay back "half the loan". I still pay the same $10k, but at the time I paid it back, I only had to trade half as much bread (my storage asset of choice) for it.
If inflation doubled in a single year like that, and the bank didn't set their interest rate to at least double, then the bank lost money. Banks aren't in the habit of losing money.
yes, this is true. no, this isn't why wages haven't kept up with productivity growth or why you must work 40 hours to sustain yourself. you have to work because profit earned must increase and paying you even one iota more than you need to be able to show up to work again tomorrow is a loss of profit. if they could make you work 80 hours a week or 160, they would in heartbeat.
thankfully, this is outlawed because labor movements of the past fought to enshrine in law a limit on how much you can be forced to work and set a minimum bar for how much they can pay you. these laws are under fire - I explore why in the rest of this reply - and will be repealed eventually if labor does not resist collectively.
however, the rate of profit always decreases on a long enough timescale because of dead labor (technology, machines, etc), inter-capitalist competition - capitalists will steal profit from each other if there's more to be had - and because infinite growth is impossible so eventually externalities will always overcome the creation of new capital.
consequently, capital accumulates in the hands of the capital-owning class - an ever-shrinking group of them, at that - and this continues until you, the worker, make so little that you cannot actually show up to work the next day - the loss of social reproduction. reproduction here doesn't only refer to progeny but also feeding, clothing, housing, etc. yourself and your family, the meeting of the basic necessities that allow you to continue working, including your health - physical and mental. capital eternally strives to reduce what it must subsidize on your behalf as ensuring you can take better care of yourself reduces profits. a capitalist that makes more profit outcompetes and drives out of business all others who choose to make less profit, eventually.
this is also why capitalism has cyclical recessions, a fact predicted in the 1870s and termed crises of capitalism, when capital has accumulated in too few hands, profit can no longer be made, and workers struggle to feed themselves. you're just noticing Marx's second law - the law of capital accumulation.
No, you can take out huge loans over a year with putting stocks as collateral so its a low risk deal for the bank and have fixed interest rates if you pay back in the same year. If you are really rich you have access to "tools" which make participating in the financial market systematically easier.
A bank isn't giving away loans for less than inflation. Especially not in a year's time. They're looking at the fed rate (itself set according to inflation), adding one or two percent, and taking that. Yes, even for low risk loans with full collateral. Higher risk loans set it at fed rate plus 5 and go up from there.
The loudest anti-inflation voices over the past 40 years haven't come from the left. They're right-libertarians railing about "Audit the Fed". You should ask yourself why those temporarily embarrassed billionaires don't like inflation. It's definitely not because they have a sudden care about the working class on this issue.
The loudest anti-inflation voices over the past 40 years haven't come from the left. They're right-libertarians railing about "Audit the Fed". You should ask yourself why those temporarily embarrassed billionaires don't like inflation. It's definitely not because they have a sudden care about the working class on this issue.
Are these the same people who say that backing the US dollar with gold will somehow fix the issue?
As far as the USA goes, a chunk of what is considered "The Left" is pretty right wing.
and
We don't have any formal education in actual Leftist theory. So a lefty person has to wade through years of libertarian and conservative/fashy economic theory stated as "the rules of the universe" and not everybody makes it through that jungle.
I'm pretty sure a bank has no way of anticipating (guessing) correctly what inflation is going to be 5, 10, 30 years down the road.
And I'm positive that banks are still lending on terms that far out into the future. So it seems like banks don't care about losing a little bit of money as not lending means they lose out on a lot of money.
Sure they can for, for a good reason: the Fed is not run by idiots who ignore how this all works. Banks don't need to worry about the year to year variation, but rather the average over the term of the loan. They can count on the Fed raising rates when inflation goes up, and letting off with inflation goes down. Even the dreaded pit of stagflation has solutions (painful ones, but solutions).
OP is a great example of what happens when you are trying to reinvent Marxism. Like my guy people have already explained this shit over a hundred years ago.
If I bought one unit of Apple stock, if the USD loses value, it doesn't effect the value of my apple stock. It now takes more dollars to buy an Apple share, but my Apple share is still 1/100 of Apple. Currency devaluing makes it look like I'm making money because the share price rose, but I'm not. To be fair, I'm making money but the total value has not changed. I can trade that Apple share for more dollars now, but I probably can't trade it for more bread or other "assets".
If the currency loses 8% of its value, one would expect the share of Apple stock to cost 8% more currency. So if my "return on investment" is 4% but the currency is worth 8% less, that means Apple's value has changed in addition to inflation happening. My stock lost value there. Not due to inflation, but due to Apple being valued less by the market for some unknown reason.
The impact is still disproportionate. While I lost 4% in your example, a pleb holding cash lost 8%. And plebs have a greater share of their net wealth in cash.
If the currency loses 8% of its value, one would expect the share of Apple stock to cost 8% more currency. So if my “return on investment” is 4% but the currency is worth 8% less, that means Apple’s value has changed in addition to inflation happening.
If APPL goes up 8% and inflation increased 8%, then your real rate of return is zero.
a pleb holding cash lost 8%.
This is not how it works. The working class does not "hold cash". They spend their cash, and their wage (hopefully) tracks inflation over time. It mostly does over the long run; we're in a period of high inflation, which is why it's on everyone's mind, but we're also coming off a period of remarkably low inflation since the 2008 financial crash.
Or like I said above, it hopefully tracks with productivity gains rather than inflation, which would far outpace inflation over the last 50 years.
I'll also copy a bit from another comment I made in the thread:
The loudest anti-inflation voices over the past 40 years haven’t come from the left. They’re right-libertarians railing about “Audit the Fed”. You should ask yourself why those temporarily embarrassed billionaires don’t like inflation. It’s definitely not because they have a sudden care about the working class on this issue.
That's wrong. If your ROI is 4% with 8% inflation, it would have been -4% if there had been no inflation. Also on average, it's pretty much always above (don't forget dividends)