Economy Opinion Richard Wolff

There Are Better Ways for Societies to Address Inflation Than By Hiking Interest Rates

Photograph Source: Jernej Furman – CC BY 2.0

By Richard D. Wolff / Economy for All

A deafening silence defines “debates” among U.S. leaders about stopping or slowing today’s inflation. Alternatives to the Federal Reserve’s raising of interest rates and curtailing money supply growth are ignored. It’s as if there were no other ways to rein in price increases except to add more interest costs to the already excess debts of workers and small and medium businesses. Were the last two and a half years of the deadly COVID-19 pandemic plus the economic crash of 2020 not sufficient enough burdens on Americans without piling on the additional burden of inflation that has been imposed by U.S. capitalism?

As usual, the profit-driven concerns of big business and their result—a remarkably selective historical amnesia—fuel the silence about alternative anti-inflation policies. So too do the right-wing ideological blinders that now constrict U.S. politics. Yet, policy alternatives always exist, no matter how desperately partisans promoting one policy seek to obliterate debate and discussion of others. The narrow dogmatism of U.S. politics these days is on full display around the issue of an anti-inflation policy focused on raising interest rates.

I will present three other anti-inflation policies that do not entail interest rate increases—there are many more—that could and should be part of today’s policy discussions. All have precedents in U.S. history. For the first, we return briefly to World War II. U.S. President Franklin Delano Roosevelt’s administration grasped the risk of inflation during this period as the supply of many consumer goods shrank relative to the demand for them. The war effort was diverting many productive resources away from consumer goods and toward munitions and other defense products. Had the government allowed the market to handle the prospective shortage of consumer goods, an inflation of their prices would have resulted. Rich Americans would have bid up the prices of scarce consumer goods, rendering them unaffordable for middle- and lower-income people. That is how markets work. They favor the rich (who return the favor by funding economists and others to promote markets as marvels of “efficiency”).

For Roosevelt’s government, the war effort required a national unity that the market threatened to replace with bitterness, envy, and division, pitting the poor and the middle class against the rich. The U.S. government thus substituted rationing for the market mechanism. It printed ration books containing ration stamps and distributed them across the U.S. population. Rationed goods could only be sold to those with ration stamps. No small irony (at least for those familiar with Marxism and socialism) attaches to the following: 1) the U.S. government distributed ration books according to people’s needs, and 2) the U.S. government’s explicit goal was to render the distribution of rationed goods (and especially food) “more fairly” than what the market would have done. Rationing forestalled the looming inflation. It could work equally well now to slow or stop inflation.

Another anti-inflation policy, other than raising interest rates, came in August 1971, from Republican President Richard M. Nixon. Responding to serious inflation, Nixon declared a 90-day “wage-price freeze.” He and his advisers knew that U.S. wage and price controls had also been deployed during World War II. Some had even read John Kenneth Galbraith’s 1952 book, A Theory of Price Control, which showed how well such controls had worked during the war.

As a result of Nixon’s action, employers on one side and employees on the other were formally denied the right to raise prices or wages, respectively. Any move to the contrary was seen as a criminal act, rendering the perpetrator subject to police arrest. In response to these measures, the inflation shrank, the stock market rose, and Nixon was reelected in 1972. For him, the policy worked. Other countries have also imposed wage-price freezes to similar effects.

Each alternative policy to control inflation (raising interest rates included) has its particular strengths and weaknesses, virtues and flaws. Honest discussions of how to respond to inflation would involve comparing the strengths and weaknesses of all—or at least many different—policy options. Honest national leaders would not pretend only one policy exists. That approach—dominant in the United States today—yields both policy mistakes and leads to crucial opportunities being lost. It does, however, serve the interests of those who advocate for that one policy.

There is a third alternative policy to controlling inflation as an inherent risk recurringly faced by a private enterprise capitalist system. If profit is the “bottom line,” if the system’s mantra is “charge whatever the market will bear,” and if rewards and punishments follow the rise and fall of profits that depend on prices, we can hardly be surprised when capitalists raise prices. Nor can we be surprised that when they do it, it both provokes and excuses others following suit. Inflation results from private capitalists’ pricing decisions. They are driven chiefly by their private profit calculations; they need not and do not generally take into account those decisions’ larger consequences (social as well as economic) such as inflation.

The socialization of private capitalist enterprises is thus another anti-inflation policy. A government, for example, will generally consider the inflationary consequences of any set of price increases. On that basis, it can either limit or reject them. To the extent that the government is held accountable politically for inflation and its effects, it has an incentive to control them. The Fed is, at best, held accountable only indirectly. That helps explain why the Fed has repeatedly failed to prevent or control recessions and inflations across the last century. Of course, such socialization of private capitalist enterprises raises the question of how genuinely democratic the government is. Yet, the degree of genuine democracy the government upholds will influence all alternative anti-inflation policies.

Across the United States, insurance, utility, and other public commissions limit private capitalist enterprises’ freedom to raise their prices in the markets they regulate. Private capitalists in such markets cannot raise prices without the permission of those commissions to do so. A government could establish all sorts of commissions in all sorts of markets with criteria for granting or refusing such permissions. Suppose, for example, that some or all food items were socially (democratically) deemed to be basic goods, such that no producer or seller could raise its prices without approval by a federal food commission. Fighting inflation could be among the approval criteria in this case (just as that is a criterion now for the Fed’s monetary policies).

In most capitalist economies, the tiny class of employers (perhaps 1 percent of the total population) has enormous powers. That class 1) shapes wage and salary levels of their hired workers, 2) determines the quantities of all purchased inputs and all outputs, and 3) sets outputs’ prices. That tiny class includes many employers who justify their price increases by blaming them on input prices raised by other employers throughout the supply chain. More shrewdly, the employer class’s wiser members refocus blame instead on workers and wages, blaming them for the price increases even when, as now, wage inflation is far lower than price inflation.

Of course, commissions to govern prices can be and have been “captured” by the industries they were established to control. Private capitalists have thus been able to weaken, render toothless, or even eliminate controls over them. While that is indeed true of the many state-level utility and insurance commissions, for example, it is no less true of the Fed vis-à-vis the nation’s major banks. Rationing systems and wage-price freezes can likewise be captured. Historically, the price gouging by and corruption of private capitalist industries have led to public demands that their businesses be transferred to government responsibilities. Capitalism’s undiminished profit drive then incentivized the affected industries to “capture” the government bodies charged with controlling them.

The solution to that inherent contradiction of capitalism is surely not an endless series of oscillations between private and public control. That is what has failed in the capitalist system. Rather, the alternative solution that beckons is system change, putting all the workers in democratic control of the enterprises (instead of a tiny separate class of employers). A system based on a democratized workplace community interdependent with a democratized residential community offers a much better way to prevent and not merely “manage” inflations and recessions.

This article was produced by Economy for All, a project of the Independent Media Institute.

Richard D. Wolff

Richard Wolff is the author of Capitalism Hits the Fan and Capitalism’s Crisis Deepens. He is founder of Democracy at Work.


  1. Yes to the headline question. Real economic growth is the answer where real growth can now be supplemented and fortified by debt-free consumer driven transactions that are supported by one’s own personal sovereign gold or silver.

    Real economic growth is the end-in-mind and the focal point. Interest rates can then rise and rise safely to have inflationary debt purged and retired from circulation.

    The economy wins.
    The value of the precious metals wins.
    The value of legal tender also wins.

    Three amigos

    1. To Michael,
      Yours is the answer we have been hearing for decades – focus on growing GDP, forever! But how can one have infinite growth on a finite planet? The only thing that grows “infinitely” on its host is cancer, until it destroys its host …

      As has been said, there is enough for everyone’s need, but not for everyone’s greed – so how about a “de-growth” economy – heaven forbid! whoever heard of a successful economy based on “sharing” …. It seems that the only type of shares we worship are the ones in the stick market

      1. –>>> Yours is the answer we have been hearing for decades – focus on growing GDP, forever!

        That’s not possible because the answer has to involve real-time price measurement.
        When have gold and silver acted as market based money that utilize real-time market prices in order to determine their trading value ???

        Real GDP growth is impossible on the back of debt and debt alone. It can’t be done. Over tie, the accumulation of debt will begin to cannibalize the real econoy We’re seeing it now !

        Sustainable growth turns toward the application of many untapped services and technology that address environment, conservation, ecology, energy, health, agriculture and social safely measures, things that cannot be afforded in he current debt paradigm, which we can express as a “Yin” that has no “Yang”…… incomplete.

        Gold with a fixed price peg, if we jump back to yesteryear, was an abomination of free market principles, market balancing and the law of supply and demand.

        We’ve now moved the goalpost’s on how to measure value (price) now that we have the CAPABILITY to price things in real-time. Congruence with economic reality in indispensable to efficiency , given that the economy is a real-time event….. and always has been.

  2. Interesting to consider but does anyone think Americans would go for wage and price controls or rationing?

    Who has the political muscle to advance such programs?

    Can you imagine the bureaucracy that would be required to administer a rationing program in a country of 330 million people. Imagine the corruption.

    Roosevelt could do this because he had a country behind him united in an effort to defeat Japan and Germany.

    And maybe these programs suggested by the author don’t work all that well after all.

    The author suggests that Nixon’s policies were able to tame inflation. When Nixon came into office inflation was 6.5%. By 1972 it had declined to 3.3%. So far so good.

    However when Nixon left office in August 1974 inflation was at 12% and Gerry Ford would soon be printing WIN buttons. Whip Inflation Now.

    So what happened to Nixon’s programs. An unpredictable Arab oil embargo after the Yom Kippur war in October 1973.

    And what happened to Biden? An un predictable pandemic and a war in Ukraine.

    Of course, the truth is that a president has very little to do with inflation and an enormous interdependent world economy, no matter how loud or how many times someone yells “Keystone Pipeline.”

    1. You’re thinking top-down. Real bad habit. Think bottom-up. The free market can add debt-free liquidity into circulation in support of real economic growth and the safe and sane purging of over-leveraged inflationary debt.

      1. I’m sorry but I don’t understand your top down bottom up thinking comment and didn’t realize I had that bad habit, as you observed.

        I was responding to the authors suggestions which called for wage and price controls and commodity rationing.

        I can see how such proposals could work but doubtful that they could be politically or administratively implemented in the United States where we cannot get a large portion of our society vaccinated although vaccinations have the highest return on investment of any medical intervention.

        Price controls and rationing might work in Sweden, Denmark, Finland, for example, where people are much more unified and trust their governments.

    2. —>>> However when Nixon left office in August 1974 inflation was at 12% and Gerry Ford would soon be printing WIN buttons. Whip Inflation Now.

      I think you overlooked Executive Order 11825, which was written by Ford on Dec 31, 1974.
      You can legally and lawfully use your own gold as market based money to make debt-free transactions.

      Americans , by and large, simply fell asleep. The few who have ears did not.

  3. The best way to control inflation is not to increase the supply of fiat money. Let the market control interest rates which are the costs of money.

    1. Better yet , let the market add to the overall money supply where the Yin needs the Yang in support of monetary symbiosis. The free market can monetize debt-free gold and silver and this market driven process has begun.

      Man cannot live by debt alone.

      Ask and it is given !

  4. Hooray! I have long advocated permanent rationing and price controls on various things. I have spent years trying to get through to advocates of a UBI that it will not work without wage and rent controls. If Wolff haas writen anything about UBI, I have not found it. Would be interesting.

    1. Price controls add another layer of dysfunction. They will only breed shortages.

      The underlying problem is the over-leveraging of debt creation that keeps adding to the debt-to-GDP ratio. Price controls won’t reverse that rising tide. It will only get worse.

      Don’t try to cheat market law. You can’t. It will bite you.

  5. ” …. the alternative solution that beckons is system change, putting all the workers in democratic control of the enterprises (instead of a tiny separate class of employers). A system based on a democratized workplace community interdependent with a democratized residential community …”

    OK, Prof Wolff – how do we get there?
    Reminds me of the story of the student who wrote an equation on a blackboard describing a problem – then writing an equation on the other side describing the solution and then in the middle wrote “and then a miracle happens”. Whereby the Prof. said – “you’re going to have to do better than this”

    1. That evolves naturally if the those who want greater democratic control work toward it by using their own sovereign money. The door is wide open here.

      You can’t expect a democratic free market evolution of the kind you’re describing while circulating nothing but government IOU’s (legal tender). People need to get off their knees in this regard.
      We can’t oblige inflation by circulating IOU’s and then bitch about inflationary prices. That’s not just stupid, it’s madness.

      We need some “monetary Yang” with our monetary Yin” as a process to a balanced and symbiotic completion. The economy will organically follow suit.

      1. To Michael,
        “…You can’t expect a democratic free market evolution of the kind you’re describing ….”

        Sorry Michael – where did you get the impression I was describing ‘a democratic free market evolution’?

        That’s your bag, not mine –

  6. The Fed knows exactly what it is doing. It is serving the Billionaire Class, its owners. The 1% has created inflation purposefully to further impoverish the 99%. As is evident the 1% can create almost infinite amounts of money digitally. Land, labor and resources, true wealth, cannot be created digitally. No matter the amount of money, true wealth is only available if the 99% and their nations are desperate or dispossessed. Inflation and depressions have been manufactured by international banksters, The Fed, The Bank of England, EU Central Bank, Wall Street, many times since before the American Revolution.
    The Russian Revolution dampened that cycle because enlightened banksters like FDR knew that if capitalism’s voraciousness was not harnessed there would be a Revolution in the US. FDR said his greatest accomplishment was saving capitalism. An International Workers’ revolution is not imminent so a new FDR is not likely to emerge. The 99% have been purposefully miseducated for a hundred years. Few understand even a modicum of the dynamics so most fall victim to the smoke screens created to hide the real causes of inflation: supply chain, war, energy shortage etc. Money created at interest is one that is seldom addressed. A debt at 5% interest will double every 14 years. Money created at interest to pay that debt must double every 14 years ad Infiniti. The way out has been shown many times. In colonial & Civil War America and more recently in China money created without interest fueled growth of the economy without inflation. China has had enormous growth for decades without inflation, because it creates its money through a publicly held bank.
    Mr. Global as Catherine Austin Fitts calls the billionaire class is flailing about to try and solve the problem. Their solutions what ever they are will not likely benefit the 99%.

    1. That’s because we’re all a bunch of debt dealers, sealing our own fate when the reality of circulating debt is that we don’t have to do it. We’re free to circulate market gold and silver in support of debt-free trades and the safe and sane purging of inflationary debt levels.

      Your opinion just got trumped by monetary facts. The market is free to choose, so where is the real problem on the basis of the above ? Look in your wallet. What are you circulating ??? Don’t blam anyone but yourself for it when it’s a market choice.

  7. Inflation will destroy us all and there isn’t a damn thing we can do or will do to stop it.

    It’s part of the plan.

    You will own nothing, and be very very unhappy.

    Have a great day.

    1. This particular inflation is not excessive economic growth inflation but purely monetary inflation.

      The FED crazy credit expansion is related to no commodity circulation but to massive bailout of Wall Street gambling cronies.

      The PetroDollar is printed to purchase crude oil, circulates oil and hence is backed by oil, any other purchases circulate commodity or real estate. But printing money to pay off debt called monetizing the debt does not circulate anything in mainstream economy.

      It Produces money without producing equivalent in goods and services.

      Such catastrophic credit expansion, continuously refinancing mostly odious debt including junk debt barely able to pay coupon (interest) only because FED reduced lending window/FED deposit rate to near 0% in ZIRP. That hostile to population move stole several$trillions of income from small investors and from deposit savers. It pushed pensions funds into huge losses and bankruptcies as they were forced to invest in Wall Street gambling parlor seeking better yield.

      That resulted in US economy which is, for 70% of US population, in income and net wealth depression for last two decades.

      The 99.9% of all benefits of mediocre, artificially pumped, economy, grown not by economic cycle (which is dead upon collapse of CapEx and mass job and production koutsourcing) but by credit cycle, during that time was stolen by 0.1% oligarchic mafia.

      Since 1980 total integrated payroll in US, (despite 50%+ growth in population), a measure of people’s income from job steadily declined every year except in 2017 for three months only to again decline ever since.

      Now job income constitutes lowest percentage of total family income and lowest percentage of GDP ever in history.

      And we are not only talking about nominal but about real figures of inflation or payrolls which indicate collapse of workers purchasing power 90% or more in last three decades.

      The huge gap in household income of 70% of population was in large part covered by massive indebtedness, mass liquidation of common household assets which pushed deflationary trends and early transfer of family inheritance capital to descendants not to invest but to consume, cover debt payments, big ticket purchases as their wages lost purchasing power to pay for it.

      In last three decades 90% of all existing or new house down payments of individuals came in part or on whole from inheritance as almost nobody earned enough to save for it. Family formation collapsed to historic lows mostly because of that

      This monetary inflation can disappear as soon as dollar disappears from local community transaction. Simple usage of local scripts to purchase or sale local goods and services.

      If needed services or goods from outside community can be purchased simply by exchanging scripts so other community may purchase what they need in our community as well.

      Such a script enabled barter worked perfect in British colonies in America and post in Revolutionary free American states and shielded them from global British Pound Sterling monetary mafia and BOE robbery. British commercial monopoly threatened script system.

      Many quite disingenuously and that includes author, are asking: what can be done to defeat inflation.

      And then peddle things that won’t work as they refuse to acknowledge that it is systemic and that capitalist system must be dumped or rather overthrown as a whole.

      Instead, organized and locally controlled equal, equitable, egalitarian, self sustained economically and environmentally, self governed, self ruled by consensus democratic society must be built.

      In such society people must always be able to afford goods and services as they are produced in quantity and quality specifically for them because they posses certain use value for members of the community as community are of both consumers and producers of those goods.

      The entire neo classical economy is a sham especially all the supply side economics. But don’t take my word for it.

      Ask Alfred Nobel who specifically refused to establish Nobel Price in Economic as he considered neoclassical economy not science but propaganda mambo jumbo that fails every step of the way.

      Even FED economists admitted that in last decade, from Philips curve to Taylor rule nothing works anymore.

      All that while they stubbornly peddle nonsense that debt does not impact economy under kindergarten level intellectual premise that some people’s debt is other people’s assets and hence debt is economics model neutral.

      I guess they never heard about monopoly of concentrated capital within banking mafia and about astronomical over-leveraging or extreme fractional investment and shadow banking Marx already knew and warned about.

      Already Marx knew of catastrophic impact of debt on mainstream economy and financialization of markets.

      The Bloomberg crowd of retards however react like devil to holy water when facing empirical verification of Marx’s Political Economy that explains perfectly entire 150+ years of socioeconomic development, including 2008-09 crash, since it was published 1870s-80s.

      After about seven decades Wall Street effectively took over Nobel foundation after Nixon removed gold as dollar backing, and bought itself a pseudo Nobel Prize given to peddlers of economic lies.

      As long as we accept dollars or any money controlled by someone else than ourselves were are nothing but slaves and can do nothing at all..but rebel and take our destiny into our hands.

  8. Mutual field’s that make up the base closure for the media is one thing, but indeed the “Inflation is spiking” in the midst of times, but how as to over expanding of NEW technology compares with the ideology of the future of Economy itself. So, ongoing by the books and sticking to a 9-5 hour shift is ideal for most workers yet the antiquate prolonging of education is moderately chaining the interest rates as if we could almost grasp of the weekly news, or the Warren Buffets, Mr. Bloomberg, Jack Wiltz, Mcscheen Hamburgh, orderly speaking Common Commodities is going to working towards a sustainable cross referencing that could give a ledge to the whole ordeal, but thus vis a vis.

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