The Conservatives successfully exploited the unpopularity of rising prices to win the election. They put up big posters showing how the purchasing power of the pound had fallen from 20s in October 1964 when Labour first came to power to 15/7d today. They raised the prospect of a “ten bob pound” in a few years time if Labour were re-elected. They recalled the empty promises of Wilson and his Ministers about rising prices. “The continual rise in the cost of living”, said George Brown in September 1964 in another of his foolish statements, “can, must and will be halted”.
This was all a clever trick. The Tories do not want to stop prices rising; they only wanted people to think they did. Their manifesto only commits them to “steadier prices”. Which means that they will merely try to slow down, not halt, inflation. And they want to slow down inflation not to protect the living standards of wage and salary earners but to keep export prices down. Before seeing why let us first look a little closer at money and prices.
An article’s price is the expression of its value in terms of money. Money developed out of barter as one article came to be exchangeable with all others. This article, generally a precious metal, become money and prices were expressed for instance in weights of gold. Then came coins as governments stamped the money-metal and guaranteed its weight. But some were tempted in order to raise money to put less metal into the coins than their face value. This was called debasing the currency and its effect was to raise prices generally because a coin was now, in reality as opposed to its face value, worth less and so more of them were needed to exchange for or buy an article previously of equal value. That article’s monetary expression, or price, thus rose and so did those of all other articles.
Many centuries later paper money developed out of the receipts goldsmiths used to issue to those who had deposited gold with them for safe-keeping. These pieces of paper were, as the saying goes, as good as gold — but only as long as there were not more of them circulating than the amount of gold that would need to circulate in their absence. Once again paper money tempted governments as an easy way of raising money but, as with debased coins, the effect was to raise prices.
In England up until the first world war a certain amount of restraint was imposed on the government by the fact that Bank of England notes were by law convertible into a fixed and unchanging weight of gold and beyond a small amount all notes had to be covered by gold in the Bank’s vaults. In 1914 this convertibility was suspended and apart for a few years after 1925 has never been restored. The economic link between gold and its paper token was broken and became political in the sense that the maintenance of a proper proportion came to depend on the government. The era of monetary policy had arrived. Between the wars a man called Keynes (later lauded as the saviour of capitalism, but now largely discredited) proclaimed that as long as the government controlled savings and investment they need not worry about the amount of money in circulation. He proposed a policy of gradual inflation, or slowly rising prices, on the grounds that this would encourage investment for profit. He also remarked that it was easier to reduce wages by allowing prices to rise than by cutting money-wages. When the war broke out the government soon adopted Keynes’ policies. They caused inflation by issuing more and more paper money over the amount of gold that would be needed in its place. The resulting inevitable depreciation of the currency has been the main, but not the only, cause of the general trend of rising prices in Britain since 1940. It has been encouraged and endorsed by all governments since, Tory as well as Labour.
One of the undesirable side effects, from a capitalist point of view, of a policy of currency depreciation or inflation is that the prices of goods produced for export also rise and exporting capitalists find their prices “uncompetitive” in overseas markets; balance of payments problems develop as gold and foreign currency reserves are used to cover the trade gap. An attempted solution to this capitalist problem is devaluation, or a reduction in the amount of the currency exchanged for a given amount of other currencies and gold. Exports thus cost less to overseas buyers but imports brought from abroad cost more. Devaluation is a formal recognition of the fact that, due to inflationary policies at home, the value of a currency has depreciated compared with those of other currencies.
Any government in Britain, whichever party is in office, is faced with two main tasks: to ensure that wage and salary workers do not increase their share of the wealth they produce at the expense of profits and to ensure that goods produced in Britain sell profitably on the world market. The method chosen to deal with the first (inflation) has to a certain extent conflicted with the second aim. For governments, Tory and Labour, have taken Keynes’ advice; they have tried to hold wages and salaries in check by allowing prices to rise. Enough workers in Britain are organised in trade unions to prevent direct attacks on their wages or long-term wage freezes, as the recent Labour and previous Tory governments have found. From time to time politicians have threatened — as the Tories are again threatening to do — and tried to “stand up to the unions” but, faced with the prospect of having to adopt police-state methods or of provoking widespread strikes, they have always backed down. Politically, then, a direct confrontation with wage and salary earners is not on — though of course some future government might feel strong enough to try this. This leaves only a policy of inflation as the means of preserving the share of profit in the wealth the workers produce.
But inflation, as we saw, creates difficulties for export industries. This is the British capitalists’ dilemma: in order to keep real wages in check they must pursue a policy of inflation, but inflation tends to price their exports out of overseas markets leading to balance of payments crises. This is their problem. How to deal with it is. unfortunately, still the central issue in British politics. We say unfortunately because it means that the great majority of wage and salary earners in Britain are still concerned with the capitalists’ problems and are voting on capitalist issues for capitalist parties, whether Labour or Tory.
Those who voted Tory in the belief that they will keep prices down will be as disappointed as those who previously voted Labour. They have yet to understand that governments are not concerned with the interests of wage and salary earners; they are there to protect the interests of the employers and the privileged few who own Britain. A policy of inflation is the only practical way British governments can keep wages in check and the Tories will be forced to maintain it.
Adam Buick
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