Prices, Speculation, Economic War: Ten Keys

Venezuelan analyst Luis Salas argues that Venezuela’s problems with inflation and high prices dates back to the start of the petroleum economy, and that the state price regulations on certain goods can’t be attributed as a cause of such inflation, as many have suggested.


1. Inflation isn’t a distortion by the market. It’s a transfer operation of the earnings and the wealth from some sectors of the people towards others through an increase in prices. Fundamentally, this transfer is produced from salaried workers to businesspeople, but also from a portion of businesses towards another portion of them. Or, to say it more clearly: in inflation, the struggle between business portions or sectors (especially the most concentrated ones) to increase their earnings at the expense of the workers’ salary (that is, the majority of the population) is expressed; but it’s also a struggle in the earnings of other business sectors, especially the small, medium, and less concentrated ones.

Additionally, and just as is occurring in Argentina, or as occurred during the government of Salvador Allende, inflation is used as a tool of political struggle. In order to put pressure on governments, impose interests, or to simply and openly conspire in exasperating the population, demoralising it and stoking hate in it by causing confrontation within it. It’s for this reason that in the cases where it is used openly as a tool of political struggle, the correlation is scarcity. It is the necessary condition to impose the logic of the survival of the fittest, which in this case is expressed through who has more money at the time of buying, or who arrives quicker [to the supermarket] and takes everything with him; existence as a type of organised looting. Inflation is the economic correlation of political fascism.

2. One of the first conclusions that can be reached from this is that it doesn’t make a lot of sense to keep talking about “inflation and scarcity” when what we’re really talking about is speculation, usury, and hoarding. But the difference between the terms isn’t of face value, it’s of meaning. With the first words, it would seem that such things occur in an accidental and non desired way, beyond the will of the business people who, according to the dominant theories, are reduced to just being “price takers” or at the very least, to reacting rationally in the face of threats of irresponsible state intervention. But with the second set of words, it’s clear that the conflict could involve the dynamic of price formation. It’s not about accidents or instability, but rather about deliberate practices for deliberate purposes. Of course when these practices are produced, they tend to be reproduced beyond those immediately responsible, and they are generalised. In that way, the small or medium shop owner, affected by the prices imposed by the oligopolic supplier, has to raise their prices, because if they don’t, they could make a loss. But it also happens that small business owners speculate, often above and beyond the large companies, taking advantage of their neighbours and friends, just as we have witnessed in rural and urban areas. This last thing is one of the most perverse effects of speculative and hoarding practices, as a strategy to make extraordinary amounts of money, and at the same time, it’s one of the reasons that it’s so difficult to combat such things.

3. The problem of price increases in our country, just like speculation and hoarding, can’t be satisfactory solved, in just and definitive terms, while the unilateral and interest based way of seeing such things isn’t changed. That is, economic theory given a everyday meaning and expressed with different grades of intensity, as much by certain people on the left as on the right, according to which such price increases consist in an inflationary problem derived particularly from state intervention in the free game of supply and demand in markets that, by their own nature, would tend to balance things out if such an intervention were eliminated. In other words, what I sustain for the economy is the same as what every doctor (and also every patient) knows applies to medicine: if the diagnosis fails, the treatment fails, in such a way that there is the risk not just of not curing the real illness, but also of aggravating it when causing side effects as a result of the incorrect treatment. In our case, the misdiagnosis starts when inflation is spoken of to refer to the problem of the high costs of goods and services. And it continues when it’s affirmed that such a problem is caused by the intervention of the state – controlling prices, unilaterally increasing wages, subsidising products or printing money to factiously increase demand (the classic issue of the populist state “giving” away money to the poor through scholarships etc). The place of the patient, more than the Venezuelan economy in abstract terms, is occupied here by consumers (who at the same time are also waged workers in their vast majority, or small producers and shop owners who are urged on by the businesspeople) who must become more aware that knowledge of the bad things that affect them is an essential condition to begin recovery and to get rid of ailments, but also that their role must be an active one so that such recovery is effective.

4. To state that inflation is because of a lack of balance between production and consumption, and the latter overtakes the capacity of the former, is to repeat something false and dangerous. If this were the case, then in Venezuela there would have been hyperinflation since the fifties, because since around the middle of that decade such a discrepancy has existed to large or small extents. But more than that, even though it’s true that such a gap is sponsored by the rise in prices, it doesn’t explain why they rise. At the most, what it explains is that in situations such as this retailers take advantage and increase their profit margins at the expense of customers. That this seems normal is precisely the best indicator of the problem, in the way that the capitalist practice becomes natural. What I mean to say is that when there is scarcity – real or fictitious, accidental or provoked – or where demand is more than the capacity to satisfy it with internal production or by importing, don’t assume that prices will go up. The prices don’t go up because of scarcity itself but rather because of the relationships, because of the exploitation of others, because of selfishness.

5. Inflation doesn’t exist. In real life, that is, when a person goes to a corner store and finds that the prices have increased, they aren’t in the presence of “inflation”. In reality, what they are facing is just that: an increase in prices, a problem to which inflation, in terms of theory and common understanding, is presented as the only possible explanation, when in reality it’s just one, and not the main one. It’s presented as the only explanation because it’s the one of the dominant sector of the economy, so it is imposed on the rest. In that sense, we should look out how this idea is formed and how it works, but above all, what thing it doesn’t show us, which key questions it doesn’t allow us to see.

6. Price control in the markets is a false problem because prices are always controlled in markets. In reality, when economists talk about price control as a problem, they are referring to state price control. For the majority of them, the free game of supply and demand should be left alone and self regulated by the markets. However, the only economy where this self regulation works is the one in the manuals that such economists study. In a market prices are usually imposed by the producers and the bidders. And in the Venezuelan case, this is still more than true given the oligopoly and monopoly conditions of production and commercialisation. So in this sense, the option that the state controls prices is that the prices are controlled by the businesspeople, who, given the corresponding asymmetries, will tend to – as has been occurring in practice, despite regulation – impose conditions on consumers that go against their interests.

For the rest, to argue that it’s necessary to eliminate price controls because they are bad, they don’t do what they are meant to, they mean that they increase the prices, that there is a black market, a contraband or flight in foreign currency, is as absurd as saying that the penal code or prisons need to be eliminated because the authorities can’t fit all the prisoners in there or because there’s impunity. Nobody in their right mind would think that. If price control doesn’t work, or it has problems, it needs to be improved but not removed, as removing it doesn’t solve the problem. If the state doesn’t control prices, they’ll continue to be controlled and there’ll never be markets that are perfectly balanced by the “invisible hand” of the market. Even Adam Smith already knew this. Prices are imposed by producers and businesspeople systematically in detriment to the consumers. The metaphor of the invisible hand invented by Adam Smith and abused by vulgar economists only serves to make invisible the hands of those who really control and regulate production and commercialisation of goods, and therefore the prices.

7. In our country the problem of prices didn’t start fourteen years ago. And in honour of the truth it also didn’t start with the Adecos or Puntofijismo, but rather it forms part of an intrinsic characteristic of the type of capitalism that had developed with the arrival of petroleum. What that means in general terms is that the Venezuelan capitalist economy has been characterised during its history by high prices, which has translated in historically high rates of accumulation and unequal distribution of income.

8. The problem of prices, given the previous point, derives from a problem: the creation, distribution, and accumulation of wealth. High prices aren’t an indicator of distorted markets, they are the expression of the class struggle within capitalist Venezuelan society.

9. Price control though doesn’t eliminate the problem. It’s necessary but not sufficient, and actually, it can aggravate it if complementary measures aren’t implemented at the production stage (increase the sale of goods and services). But also, change the relationships of production in order to prevent accumulation and profit from continuing to determine relationships between people. Substitute individual accumulation and exploitation as the main organisers of social and economic things for a productive model based on the logic of what is common, which by the way also includes the creation of a new bank system and brokerage that is different to how it is done privately but also publicly, which should be set up based on the experiences of communal banking, with two aims. On the one hand, to finance and reproduce “productive socialism”, but also to reduce, and in the long term, prevent petroleum earnings, the public budget in general, and the resources “made in socialism” [ie under the current government] from continuing to be siphoned off by financial and commercial capital, increasing inequality, atrophy, and the concentration that characterises our economy and therefore our society.

10. The economic war isn’t against the government; it’s against the whole population. To conspire using the economy, against the government, is a necessary prerequisite for the national and transnational bourgeoisie given the deepening of their structural and much more prolonged war against the worker population. That is, the war against the government is a war derived from the original one, the one that involves the capitalists against waged workers, to the extent that the economic policy of Chavismo has been based on a more equal distribution of income while excluding the bourgeoisie from control of the state – key aspect for their historical practice of accumulating capital in as much as Venezuelan capitalism historically developed as a capitalism from and of the state. In virtue of this, it’s not just the government who is responsible for facing it and winning it [the economic war] but the whole population, including those who don’t agree with the current government but who are affected anyway. To win this war would mean to advance a little more towards creating a more democratic economy, one that is less subject to (old and new) criminal activity of the pranes [prison leaders, a metaphor] who for decades have taken advantage of national and global wealth.

Translation by Tamara Pearson for Venezuelanalysis.com. The original article has been slightly abridged.