That wage increases cause price increases is an old lie. This assumes that capitalist firms can raise the price of their products at will. But they can’t. They can only charge what the market will bear. Workers are in a basically similar position. But the market for products and the market for labour power are two different markets. Assuming that firms are charging what the market will bear – and they’d be foolish not to – then, if the labour market allows the workers a chance to push up wages, firms just have to live with increased costs and lower profits for the time being.
It is because wage increases eat into profits – not because they supposedly cause “inflation” – that employers fight them and, as far as they and the media are concerned, any old argument, even one that’s not true, will do to oppose and discredit groups of workers demanding a wage increase.
In any event, even if a wage increase in a firm did lead to an increased price of that firm’s products, that would not be inflation, which is an increase in the general price level. Such an increase can come about for various reasons – increased demand for products in a boom, a fall in the value of gold when it’s the money-commodity, and an overissue of a inconvertible paper currency. Even though the double-digit inflation of the 1970s is over, inflation still exists today and is mainly caused by inflating the currency. The Bank of England has a remit to inflate the currency by 2 percent a year. Which is why both prices and wages tend to increase annually by more or less this amount, depending on conditions in particular markets.
The view that wage increases cause price increases has long been argued over. In 1865 the General Council of the International Workingmen’s Association in London devoted four meetings to discussing it. At the last of these Marx decisively refuted the argument in a lecture that was published after his death as a pamphlet Value, Price and Profit. This has now been republished, under what was its original title of Wages, Price and Profits, by the Communist Party of Britain, which publishes the Morning Star and which is the real political successor to the old Communist Party of Great Britain (and not to be confused with another group which has usurped this name and which publishes a paper called the Weekly Worker).
After explaining why workers should always press for the highest wages they can get, Marx famously urged the unions:
“Instead of the conservative motto, ‘A fair day's wage for a fair day's work!’ they ought to inscribe on their banner therevolutionary watchword, ‘Abolition of the wages system!’”
In his introduction, Robert Griffiths of the CPB’s Economic Committee can’t ignore this and has to pay lip service to Marx by writing that he held that “workers would forever be commodities to be exploited until capitalism and its wages system were abolished”. But he then ignores this completely, going on to advocate that unions should aim at, as well as higher wages, “statutory price controls”, “better state benefits and pensions”, “more public services”, “controls on the export of capital”. All of which assume the continuation of capitalism.
If Marx returned today we know what he would say: Instead of the conservative motto ‘statutory price controls/better state benefits, etc, etc’ the unions ought to inscribe on their banners the revolutionary watchword ‘Abolition of the Wages System’.
