When the temporary boom that followed the Armistice began to decline, the capitalist class instructed its agents in Press and on platform to give forth “reasons” for prices remaining high in this country, despite the wage reductions that were being enforced in all directions. One of the favourite "reasons” put forward to explain this apparent puzzle was "the inflation of the currency.” Tory and Liberal politicians, as well as economists from Cassel to J. A. Hobson, repeated this parrot cry without offering the slightest evidence in support of it.
The Labour Party conducted a so-called investigation into the matter of high prices and borrowed, without examination, the assertion of “inflation,” and gave it as one of the chief causes of those high prices.
An article appeared in the July, 1920, Socialist Standard, which, among other things, made a brief reference to this point of ‘‘inflation.” This called forth some correspondence that was dealt with in the September and November, 1920, and April, 1921, issues. The question was raised once again by a correspondent in the June, 1922, Socialist Standard, and answered in the same issue.
This answer has evidently upset some of the self-styled experts, as two issues of the "Plebs” Magazine (July and September, 1922) have been forwarded to us, that contain the complaints of certain correspondents about the "Plebs” repeating, parrot-like, the stupid assertion on "inflation.”
We have never accused the statesmen of the Labour Party of being guilty of any economic knowledge—Marxian or other— but the "Plebs” claims to be a journal for the spread of Marxian education, and it is the "organ of the National Council of Labour Colleges.” If their treatment of this question of "inflation” is a sample of their knowledge, it certainly shows the value of Labour College "education.”
In attempting to discuss any question, the first thing to be done is to settle the facts of that question and then use those facts to build up one’s case. In the question under discussion obviously the first point to be settled was “Has there been an inflation of the currency in the United Kingdom? ” The inquirer will be astonished to find that neither the Labour Party nor the "Plebs” have made the slightest attempt to examine—let alone settle—this fundamental point. Such is the slovenliness of the "Plebs” in dealing with statements devised to deceive the working class. In these circumstances a brief re-statement of the case will be useful.
The currency of a country consists of the article, or articles, that are chosen by general consent and experience to act as measure of value and medium of exchange. At first this is usually an ordinary commodity that is in general use. When the number and complexity of the exchanges grow to .a certain point the need for some guarantee of the invariable quality and weight of the medium of exchange is felt. This duty, sooner or later, devolves upon the Government of each country, and is usually done by stamping the articles concerned with some special device. The stamped article now takes up a new position in the commercial world and is removed from the place of an ordinary commodity to function exclusively as the measure of value, medium of exchange, etc. It thus becomes the currency of that country. Once the main use of a currency is understood the “problems” connected with it will be easily understood.
As the currency is used as a medium of exchange, it is evident that the amount of currency required at any given time will be determined, first by the total of the prices of the commodities exchanged at that time. This quantity of currency will be modified in practice by the amount of credit given by the sellers, which defers payment to some future date; by the number of payments falling due for articles previously sold; and by the speed at which the currency circulates. Thus, if £1 makes 52 moves in a given period—a year—it will circulate £52 worth of commodities in that time. Cheques, bills of exchange, etc., all add to the factors modifying the quantity of currency required, but these do not alter the main argument. Each country finds by experience the quantity of its own currency required to cover the total of the exchanges and transactions during a given period. This quantity will vary from time to time, particularly in the relative sense, but under normal circumstances these variations are easily met.
Previous to the declaration of war by England upon Germany in 1914, the quantity of currency used in the United Kingdom was £214,000,000. One immediate effect of the declaration of war was a sudden increase in prices of numerous commodities. Before any alteration of the currency was considered, let alone carried into effect, this increase of prices made an increase of the currency necessary to carry on business. Every increase in prices since has called either for an increase of currency or for some financial readjustment. In no case has the currency of this country been issued in excess of the business requirements. Yet this simple, glaring fact has been ignored both by the Labour Party and the "Plebs,” although it is fundamental to the question under discussion.
The new currency issued took the form, mainly, of Treasury notes. But mark here an extremely significant point. The Act authorising the issue of these notes says :—
(3) The holder of a currency note shall be entitled to obtain to demand, during office hours at the Bank of England, payment for the note at its face value in gold coin which is for the time being legal tender in the United Kingdom.
And this portion of the Act has remained unaltered up to date.
Any student of economics knows that a convertible paper currency cannot be inflated by reason of its convertibility, and this fact alone shows that the statements of the "inflation” mongers are entirely false. But even those who are not students of economics can find proof of the fallacy of "inflation” in another way. That is to compare the increase of prices with the increase in the quantity of the currency. As shown above, an increase of prices, apart from the modifications mentioned, will require an increase of currency. What has happened in this country? According to the Government Report on "Currency Expansion, Price Movements, etc.” (Cmd. 734), the following changes in prices and currency have taken place in the United Kingdom. Both prices and currency in 1914 are taken as 100, and the increases on that figure on March, 1920, are given thus:
The retail prices of food were under Government control, and thereby prevented from rising as high as market conditions would otherwise have allowed.
These figures show that so far from any "inflation” having taken place there has actually been a relative decrease in the quantity of the currency. Perhaps the quidnuncs of the "Plebs” will try their skill in explaining that little fact? But how do they answer the questions already put to them by their correspondents?
In the first case they say:—
If our comrade would like a summer holiday as the guest of His Majesty she has only to change her £1 currency notes into gold sovereigns, smelt them or sell them by weight for export. If she did succeed in doing this secretly she would find that a gold £1 outside of England bought more than a paper £1. Even inside England she would find people who would give her more than 20s. for it.—(Plebs., July.)
This "answer” is such a sheer evasion of the question that it is difficult to believe it can be other than deliberate. It is on a par with suggesting that an inquirer should commit a burglary in France for the purpose of finding the cause of the fall of the mark in Germany! For, as even the editor of the "Plebs" might know, it has been illegal to melt down currency coins all through the centuries that Coinage Acts have been in existence. Moreover, it is illegal at present to export gold from the United Kingdom without a Government licence. This is also the case in America. But the second statement clinches the position, as it shows that the "Plebs” editor realises he is unable to show any "inflation” in this country and so has to advise his correspondents to go abroad to test the matter. And where in England, may one ask, can more than 20s. be obtained for the Gold Sovereign? Only among illegal thieves and receivers of stolen property. In all the enormous mass of normal trade and commerce of this country the £1 Treasury note will purchase just as much as the gold sovereign. Which is another fact completely disposing of the tale of "inflation” here.
But now a more serious query, of the absurd position of the "Plebs,” is sent in, this time from a Social Science class apparently connected with the Labour College.
The tone adopted in the second answer is distinctly different from that used in first one. A whole class is, seemingly, a more serious proposition from a business point of view than a single reader, though the same display of ignorance occurs when we are told :—
If enough currency notes were issued then they would exchange precisely on the basis of the socially necessary labour needed to reproduce them. —(Plebs., September, 1922.)
But why are they not exchangeable on that basis now? Immediately because of their convertibility. And once more the correspondent is referred abroad to find out if “inflation ” has occurred here !
The answer in the June, 1922, Socialist Standard is mentioned, and we are told :—
The Standard writer, instead of simply answering a question, recites his little piece about how the S.S. has always denied inflation; and it is his remarks apparently which have worried the Bentley class.—(Ibid.)
The above is not quite correct, for we have not merely denied “inflation” here, we have proved it had no existence. Then follows a paragraph in the “Plebs” admitting almost all our arguments as being correct, though they had denied them by implication previously, but trying to save the wreck of-their case by saying:—
But increase in credit and increase in currency react upon each other and it is certainly wrong to deny that inflation of currency was not a factor behind high prices in our own country. The fact that the “Fisher” is convertible does not prevent inflation for it is only convertible in theory.—(Ibid.)
How does the “Plebs” editor know that the Fisher is “only convertible in theory? ” He does not say, and for the simplest of reasons; because he has not a tittle of evidence to back his baseless assertions. The reader can be left to judge the value of the “Plebs’ ” unsupported word when pitted against an Act of Parliament.
Note how the bombastic assurance of the first reply, with its jeering suggestion to the single correspondent to commit a couple of illegal acts to prove an empty assertion, has given way to an admittance that the bulk of our case is correct, and only the weak—nay, childish —remark “it is certainly wrong ” to deny “inflation,” in the second answer. “Wrong to deny” a statement proved to be false ! What logic?
As a matter of fact, it was for those who postulated “inflation” to have given proof of their contention. Not one of them attempted to do so. Instead they merely repeated like parrots the unsupported assertions of the agents of the capitalist class. And as a specimen first of bombastic ignorance and then of a shuffling crawl, the “Plebs' " answers on currency take front rank.