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p ‘Galloping inflation’ on the home markets of capitalist countries, which gave a powerful impulse to the spontaneous price explosion in the international trade in separate commodity groups in the 70s and early 80s, itself began to 302 become more and more dependent on these prices. A kind of feedback arose. The unprecedented rise in world prices began to break up and distort the already inadequate system of state price control on the national markets. A kind of vicious circle of interacting external and internal inflationary factors was created within world capitalist economy. The objective inevitability of a strengthening of this reciprocally stimulating influence was predetermined by the rapid internationalisation of capitalist production.

p In this connection the profound alarm with which capitalist politicians and economists have begun to draw attention to the problems of ‘exportable’ and ‘importable’ inflation is understandable. While the dependence of the movement of domestic prices on world ones used to make itself mainly felt in the much weaker economies of developing countries, it is now, at this stage of the internationalisation of social production, affecting the formation of the whole pricing system in the industrial centres.

p There are also qualitatively new phenomena in the movement of world and domestic prices. One of the most important patterns in the preceding economic history of capitalism, as we know, was that a tendency toward a lowering of prices, especially those of primary commodities, used to begin to gain in importance on the world and domestic markets on the eve of cyclic overproduction crises, and usually ceased to operate during the next upswing. The figures and estimates given above indicate that the growth rate of prices for most of the main commodities remained very high during the cyclic movement of the capitalist economy of the early 70s, even in the periods of low business activity. Capitalism has thus come up against the problem of the combination of a slump and inflation. President Ford of the United States, recognising this in his message to Congress in 1975, said:

p In 1974, most of the world’s economies were beset by problems flowing from the unprecedented combination of recession and inflation. Additional pressures, including precipitous increases in energy costs and disappointing harvests, further strained the world economy, particularly in the areas of trade and monetary flows and adjustments.  [302•1 

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p The combination of a decline in production growth rates and precipitous inflationary growth of prices is a phenomenon that has arisen comparatively recently. In it the deep contradictions and growing instability of capitalism’s world economy are clearly manifested.

p Inflation has grown to unheard-of dimensions. Since 1970 prices in the developed capitalist countries have risen on average by 130 per cent, and since 1975 by 50 per cent. The inflation curve is getting steeper.  [303•1 

Table 39 gives a concrete idea of the scale and rates of inflation.

Table 39 Dynamics of the Growth of Domestic and Export Prices in Capitalist and Developing Countries (yearly averages, in percentages) Group of countries Consumer Prices Export Prices 1961-1970 1971-1980 1961-1970 1971-1980 Developed 3.5 8.5 1.5 12 USA 2.5 7.5 2 9 Japan 5.5 9 0.5 4 West Germany 2.5 5 1 6 France 4 9.5 2.5 11 Great Britain 2.5 13 3 16 Italy 4 14 0.5 16 Canada 2.5 8 2.5 11 Developing 3 18 15 21 oil exporters 2.5 12.5 0.2 33 others 3 19.5 2 12 Source: calculated from ,UN Statistical Yearbook, World Economic Survey, Monthly Bulletin of Statistics, and IMF International Financial statistics lor the appropriate years.

p The general trend and syiichronousness of inflation does not, however, exclude sizeable differences in the way it is manifested in separate regions and countries. Over the last of the periods covered by the table the growth rates of consumer prices roughly doubled in the USA, rose by a factor of 3.5 in Great Britain, by 60 per cent in West Germany, 270 per cent in Italy, 150 per cent in France, and 304 140 per cent in Japan. There were also substantial changes in the dynamics of inflation in developing countries. Between 1971 and 1980 the annual rise of consumer prices in the latter was 18 per cent, whereas it had been only around 3 per cent in the preceding decade. The same sum of money could buy only about 20 per cent as many consumer goods in these countries at the beginning of the 80s as at the beginning of the 70s.

p Average statistics, of course, smooth out the considerable and rapidly extending differences between the inflationary price rise by countries and groups of countries, but on the whole the rates of ’galloping inflation’ were roughly twice as high in developing countries in the 70s as in capitalist ones. The ratio of the dynamics of price rises between the two groups of countries used to take another direction; in the developing countries they rose more slowly in the 60s as a rule. The new wave of inflation struck the developing countries at the turn of the decade to the 80s. In 1979-80 alone consumer prices rose in them by more than two-thirds (one-fifth in the oil-exporting countries and four-fifths in the oil-importing ones).  [304•1 

p A comprehensive estimate of inflation requires the ratio of national and world prices to be taken into account; without that it is practically impossible to bring out many of its features clearly enough. It will be clear from Table 39 that export prices (which in the main determine the level of world prices) have risen faster on the national markets as a rule in the past decade. Inflationary tendencies have thus been spread along trade channels from some countries to others. They have undermined the importers’ efforts to stabilise national prices, have led to a greater rise of prices in importing countries, which in turn has fostered a rise in the price level of their exports, and so on. In general a kind of vicious circle of the interaction of internal and external inflationary factors has arisen, in the forming of which the precipitous growth of prices for the exports of industrial and oil-producing countries has acquired special importance. The national economies of the economically less developed countries have proved specially sensitive to the effect of inflation imported from outside.

p For all the immensely specific character of the ways that 305 ’galloping inflation’ is being manifested in separate national markets, and the lack of comparability of its statistical indicators in the overwhelming majority of countries, there are several common features characterising the connection between internal inflation and the dynamics of the movement, of world prices, among which we can distinguish the following. (1) The biggest price rises in these countries have been when the inflationary spiral of the world market reached an unprecedented height. (2) There has been a change in the ratio of domestic prices in both home and international trade in favour of a number of primary commodities. (3) The wholesale price indexes for imported goods have in many cases exceeded the aggregate domestic wholesale price indexes.

p A seeming paradox arose in international trade then, viz., a quite stable increase in the average growth rates of the world price index, especially for primary commodities, compared with the wholesale prices for the same goods in most countries of the capitalist economy. For manufactured goods, however, this gap was not generally as wide as for primary commodities, especially oil and oil products.

p It would hardly be right to reduce study of the reasons for the rise of this phenomenon to a description of the current features of a given stage of the world market’s development. It evidently calls for a comprehensive study of longer-term trends in pricing in both the domestic and the international trade of the main groups of countries. And that in turn calls for clarification of the postwar movement of prices for each of the main commodity markets separately, which is far beyond the purpose and possibilities of the present work.

Still, the figures and curves adduced earlier allow us to conclude that the shifts in the dynamics of world prices do not stem just from the intensification of inflation in the national economies of the overwhelming majority of countries. The rates and character of this inflation do not make it possible to say in any full way why the price level of the main types of primary commodity in world trade rose several times in the period considered. It is not enough to explain the substantial fluctuations in the ratio of world prices of primary commodities and manufactured goods in those years simply by inflationary processes. It is very definitely necessary to clarify the specific way the 306 monopoly price mechanism operates on the world market. Was there any real disturbance of the system of price fixing in international trade itself in the years considered? It is becoming of paramount importance for study of the probable trends in the movement of world prices in a more or less long outlook to pose this question. In that connection it is necessary to turn to the problem of the operation of the monopoly price mechanism for primary commodities in world trade. Quite important changes have taken place in its functioning in recent years.