From the February 1974 issue of the Socialist Standard
The great majority of workers think how happy they would be if only someone would bring inflation to an end. Sooner or later their wish will be granted, but it will not make them happy.
Ending inflation means ending the continuing rise of prices caused by currency depreciation, by far the largest single element in the thirty-six-year rise which has brought the price level now to more than five times what it was in 1938.
Of course the people who wrongly attribute the rise of prices to workers’ wage claims, or to taxation, or to the greed of manufacturers and shopkeepers, or (like Peregrine Worsthorne) to the “spirit of evil”, will not believe it possible to end inflation. But depreciation of the currency is due to none of those causes. It is the result of excess issue of the currency, something for which the Government alone is responsible. Inflation has gone on since 1938 by the action of successive governments, the wartime Tory-Labour-Liberal coalition, and the various Labour and Tory governments since 1945. What governments do can be undone by governments. It has happened twice before in this country: on a small scale after the Napoleonic Wars, and on a bigger scale after World War I.
The increase of prices since 1938 has been faster at some times than at others but latterly it has speeded up: in the past twelve months about 10 per cent., with expectation of a faster rate in 1974 (added-to by other factors such as harvest failures and the price squeeze by the oil producers). One guess for 1974 is 14 per cent. If that rate continued the price level would double every five years.
During and after World War I prices rose much faster than since 1938. In the four-and-a-quarter years of the war the price level more than doubled, but the really fast increase came afterwards. Between June 1919 and November 1920 the rise was 35 per cent., equivalent to 25 per cent, a year. Capitalism was having a short-lived boom, unemployment was very low and wages were rising faster than prices. Trade union membership, 8,337,000 in 1920, was at a record level never reached again until after World War II.
Then the government decided that the time had come to end the wartime currency depreciation and get back to “normal”. On the recommendation of a Committee of Inquiry, the Cunliffe Committee, the Bank of England was instructed to limit the note issue. This was in December 1919. For a time prices went on rising but five months later wholesale prices began to drop, and retail prices followed nine months after the new restriction was applied.
Wages began to fall, by a total of 33 per cent, in 1920-24: prices fell rather less. The trade unions lost nearly three million members. Unemployment jumped from 400,000 in 1920 to 2½ million in 1921 and then stayed at well over a million until the next crisis in the nineteen-thirties when it reached nearly 3 million.
The trade unions did their best to resist the reduction of wages but could not prevent it. In 1921 the number of days lost through industrial disputes was nearly 86 million, far more than in any subsequent year except the year of the General Strike. (In 1972 it was under 24 million days.)
It is interesting to consider why currency depreciation was halted after World War I and not after World War II. One very important factor has been the change of attitude among most politicians and economists, brought about by the popularity of Keynesian economics. Under the guise of “government management of the economy” to promote expansion and “full employment” it had become respectable, and other means such as wage and price controls were sought to keep price rises within limits. Samuel Brittan in the Financial Times (3rd Jan. 1974) calls it the policy “to print enough money to preserve employment”. Writing about the past two years he says:
The Government, Confederation of British Industry and TUC were all agreed that we should make another “dash for growth” — by which, of course, they meant large Budget deficits financed by printing money. The only instrument for containing the strains to which such a policy always gives rise was the fig-leaf of “incomes policy”.
While all the time protesting about rising prices, the trade unions and TUC have been solidly behind the policy for the past thirty years.
It was only when unemployment, after pushing upwards for a decade, went over the million mark in 1972 that Enoch Powell’s policy of repeating what was done in 1920 began to gather backing among employers and Tory MPs.
So where do the workers stand? They can have unemployment with inflation or unemployment without inflation. (In the period 1920-23 when prices were coming down fast in Britain they were shooting up fast in Germany, with unemployment reaching peaks in both countries!)
Of course the workers, when they so decide, have the alternative of getting rid of capitalism.