The Crisis: Wilson's lame explanation (1975)

From the October 1975 issue of the Socialist Standard

On August 20th Harold Wilson made his long-awaited broadcast to the nation informing us of what his government proposed to do about the economic difficulties in which “our country” finds itself. It was an emotional appeal for us all to accept sacrifices, accompanied by the threat of what would happen if we did not. To be more specific, wage workers were told that they could no longer “get for themselves such a pay increase as to enable them to escape the rigours of inflation” and that “the limit on pay settlements is £6 a week”.

The whole harangue was preceded by what purported to be an explanation of the causes of our economic difficulties — an explanation which appeared to exonerate the government from all blame. No doubt, at the speed of the spoken word, the reasons given sounded plausible enough to most of those who listened.

Let us however examine more closely these “causes” which Wilson claimed to be known to us all. He gave three. First:

The whole industrial world faces the most virulent trade and employment depression since the thirties.

This is like saying that you are going to be out of work because there are not enough jobs to go round — and explains exactly nothing. It has, however, the built-in suggestion that trade depressions and unemployment are like cosmic disturbances, for which politicians cannot be held responsible. In fact later in his speech Wilson likened the situation to “the fact that the world has been knocked off its axis by a universal recession”. The second reason given was:

Industry’s failure over the past 20 years to invest in industry, new plant, machinery, factory buildings, industrial modernisation . . .

Presumably Wilson was referring to British industry : yet in West Germany where, due to war-time destruction of factories and plant, large investment and modernization were essential, there is more unemployment than in Britain. As a reason for our present difficulties this second cause seems suspect, to say the least — apart from the fact that every worker knows that more efficient production is aimed at reducing the labour force. And so we come to the third reason:

. . . the effect of inflation on industry’s ability to provide jobs for those established in industry, jobs for school-leavers . . . this year it has been almost entirely internal prices and costs, including pay, which have aggravated inflation . . .

Here the workers are intended to feel partly to blame for having “aggravated” inflation. But you cannot aggravate something which is not already there. So what causes inflation? We are not told.

So much for explanations which explain nothing. It is distressing that, as far as we can tell, such arguments can be accepted by the majority of the electorate. It is, however, understandable. Politicians have never informed the public of the true nature of the economic system which they try to administer. We do not learn about it at school or from the “mass media”. But at least we can take a hard look at what politicians such as Wilson tell us and see the worthlessness of their so-called explanations. It is then up to the workers to find their own explanations from an understanding of the nature of the capitalist economic system of production.

Let us then go back to Wilson’s three "causes”. Why in fact is there a trade depression in the “whole industrial world”? What is immediately apparent is that these countries have produced more commodities than they can sell at a profit. This is what “trade depression” means. But why should this be so? Capitalists, whether they control private companies or nationalized industries, employ the physical and mental abilities of wage-workers to produce commodities (or processed materials). The primary aim is to sell such commodities at a profit. This profit represents the difference between the value of the work provided by wage-workers and the wages they are paid. Employers know this only too well. The effort to restrain wage increases, the introduction of better machinery, the stream-lining of production methods, are all intended to reduce the “wage bill” and increase the margin of profit.

It follows therefore that the working class as a whole are not paid enough to buy back the goods they have produced. The “export drives” typical of all industrialized countries are evidence of this need to sell abroad the surplus which workers in the country of origin cannot afford to purchase. Likewise, in spite of what Wilson says, the bulk of profits are reinvested in industry — to produce more and more commodities in the hope that by price undercutting such goods can be sold abroad. But, like taking in each other’s washing, it is a futile endeavour when all countries are trying to do the same thing. The surplus car production at the present time is perhaps the most evident example of this. America, Europe and Japan are all fighting to sell their cars to each other — to the extent of “dumping” cars abroad at less than their internal prices.

It is true that, in part, export of commodities is required to provide the money to purchase food and raw materials not sufficiently available in the exporting country. But, globally, there is an excess of commodities, including food, over and above the purchasing power of the working class. This is what shows a world-wide trade depression to have other causes than interference from outer space. It is due to, in Marx’s phrase, “disproportion of production” which is inherent in capitalism.

That is not the end of the story. The “crisis of over-production” leads to a slowing down, or even halting, of production. Capitalists will not for long continue production of what they cannot sell, even at a reduced margin of profit. Reduction of production means unemployment. The ability of workers to buy back what they have produced is further curtailed. Production is reduced still further and unemployment increases.

This is the explanation of the nature of “the virulent trade and employment depression” which Wilson might have given. But then, having promised to administer capitalism better than Heath, he can hardly be expected to tell the electorate that trade depressions are endemic in the capitalist system. The electorate might want to change the system for one which produces commodities for distribution rather than sale at a profit.

What is really behind Mr. Wilson’s second “reason” for our economic difficulties: British industrial inefficiency? The explanation is to be found in what has been written above. British capitalism can only survive if it can export wealth. To do this, foreign competitors must be under-cut, or better value for money offered. By the more efficient processes outlined by Wilson in his speech industrial wage bills can be reduced, goods can be exported at lower prices while still maintaining the previous margin of profit. Some countries can, however, compete more successfully because labour is cheaper, and this is why “wage restraint” is so important to the employer. This leads on to the third of Wilson’s “reasons” in his reference to pay aggravating inflation. Industry’s concern about pay increases is not that they aggravate inflation but because they make it more difficult to sell products at a competitive price while still maintaining the customary margin of profit.

But this still does not explain the inflation which is “aggravated” and which largely caused, in the first place, the demands for higher wages. This kind of inflation — the devaluation of the pound — has been caused by the excessive printing of paper money by the Bank of England on the authority of successive governments since the war. No mention of this was made in Mr. Wilson’s speech. But he is not the only one to keep quiet about the effects of government monetary policy, both here and abroad, on the rate of inflation. In November 1974 Enoch Powell was complaining that:

. . . little attention had been given (in the press) to the epoch-making conclusions of the European Economic Community Countries’ finance ministers on measures to tackle inflation. To restore the general stability in the value of money they agreed that they should follow the principle ‘that increases in the supply of money should be cut back to the same level as the real growth in gross national product’, plus whatever might be accepted for the time being as the permissible rate of inflation, namely 4 per cent next year.

(The Times, 4th November 1974)

Our economic difficulties are not, as Wilson implies, a “bolt from the blue” but a direct result of the operation of a capitalist economy. When the electorate understands this it may seriously examine the case for establishing an alternative economic system based on production for use rather than production for sale, that is, Socialism as we mean it and not as Labour politicians use the word to conceal state capitalism.

John Moore

Both-ways Tories (1975)

From the October 1975 issue of the Socialist Standard

“The Conservatives will stand by the Government if its policy to beat inflation is challenged, Sir Geoffrey Howe, QC, Opposition spokesman on Treasury and economic affairs, said on Saturday.” 

(The Times, 1st September 1975) 

“Mrs. Thatcher gave a clear warning last night that the Labour Government cannot rely on unquestioning Conservative support for its anti-inflation policy.” 

(The Guardian, 9th September 1975)

The Liberals are believed to endorse their views.

Inflation and prices - Part 4 (1965)

From the October 1965 issue of the Socialist Standard

Link to Part 3.

In this last instalment it may be useful to make a few brief comments on the subject which we have been discussing.

A great many people think that higher prices are caused by higher wages; they look at what has been happening in the last 20 or 25 years and they think this proves their point. One fact is enough to dispel this belief. Between 1945 and 1951 the retail price index was more or less continually rising faster than wage rates, it was not a question of wages going up and prices following, but the reverse. Secondly, it has to be remembered that in a period of continuing inflation, when manufacturers can more or less confidently expect that there will be a steady rise of prices of, say, five per cent a year because of inflation, they would often prefer to give a wage increase when it is demanded than to risk a strike. And, of course, they never fail to represent the price rise which would take place anyway as having been due to the wage increase. They will often time their price increases to follow a wage increase to give this impression, although if market conditions are against them, they cannot put up their prices whether they want to or not and whether wages have gone up or not.

At the present time the Government in Great Britain talks in terms of having no more inflation, even if this might mean fighting the trade unions over wage claims and risking big strikes. It remains to be seen whether they will. While relatively full employment lasts, the trade unions are in a fairly strong position, rather different from the situation between the wars when there was always at least a million unemployed.

Governments do not always prefer inflation. In certain countries they carry out the reverse—a deflationary movement—as the British Government did after the First World War. On that occasion prices went down by about one-third, and wages came down with them. Russia since the Second World War has twice up-valued the rouble, replacing the old currency by a new and much reduced quantity of notes. France did the same in 1960. One of the reasons why in Great Britain the Government is unlikely to try to reduce prices to anything like their former level is that its obligation to pay hundreds of millions of pounds on the National Debt would become an enormously increased real burden, if they had to pay it in currency, the purchasing power of which was being increased by the deflationary fall of prices.

During the last 25 years the holders of Government securities have found that the real value of their holdings and the purchasing power of the interest they received on them are steadily being reduced by the falling value of the pound. This has suited the interests of the general body of capitalists in Great Britain.

When Russia in 1947 up-valued their rouble they got over that particular difficulty by simultaneously reducing the amount of bond holdings. A Russian, for example, who had Government bonds to the value of 1,000 roubles, found when the up-valuing of the rouble took place, that his holding of Government bonds was cut by one-third or one-half.

No city editor or orthodox economist accepts the Marxian view that the increase of a non-convertible note issue is a cause of inflation. Some of them, including some of the followers of the late Maynard Keynes, deny that the note issue has been excessive, and say that it has merely kept pace with the currency needs required by expanding trade. It is, however, for them to explain why it was necessary to multiply the note issue in Great Britain by nearly five times in face of the fact that the actual physical volume of production in Great Britain is now not more than about five per cent above the pre-war level. Obviously, these two facts do not square with the interpretation put on the note issue. It is a reasonable assumption that the excess issue has only been made necessary by the multiplied price level, which has itself been largely caused by the note issue. Another group of economists deny that the note issue matters any more, one way or the other. It is for them to explain why the Government troubled to multiply the note issue if it is not of sufficient importance to have any effect.

Edgar Hardcastle

(Concluded)

Inflation and prices - Part 3 (1965)

From the September 1965 issue of the Socialist Standard

Link to Part 2.

Last month we discussed some aspects of the price of production, and what causes the changes in a commodity’s value. We then went on to the influence which the price and the value of gold has upon prices in general. So far we have assumed that the Government fixed the gold sovereign or pound at about one-quarter an ounce of gold and kept it at that amount. But suppose the Government decided to make an alteration in the law and to increase or decrease the weight of gold in the sovereign? If the Government made the sovereign half an ounce weight of gold instead of one-quarter ounce, the effect would be to cut prices of other commodities to one-half. Alternatively, if they decided to reduce the weight of gold in the pound to one-twelfth of an ounce instead of one-quarter ounce, the effect would be to multiply all prices by three. The £4 bicycle (we mentioned in Part One) would then cost £12. This would be a change in the currency unit showing itself as a rise or fall of prices. It would not affect the value relationship between gold and the other commodities—bicycles, suits or clothes and so on. The owner of one ounce of gold which formerly would buy a bicycle would still be able to buy one bicycle, but his ounce of gold would now give £12 instead of £4 and the seller of the bicycle, who formerly could get one ounce of gold for it, would still get one ounce of gold for it, but would now call one ounce £12 or 12 sovereigns instead of four.

Now this brings us to the inflationary movement that has been going on in Great Britain and in some other countries since about 1940. It may seem to have gone on in a mysterious way, but it is in fact an echo of something which has happened on previous occasions. Inflation took place during the Napoleonic Wars and again during the First World War. But before we can explain the technique of this inflation we have to ask ourselves what determines the amount of currency needed at any time.

This depends partly on the amount of trade that is going on, the amount of buying and selling transactions that are going on at a given moment, but it also depends on the rapidity with which currency itself circulates. The amount of currency needed can change because of expansion and contraction of production and trading, or because the velocity of currency circulation changes, or because the amount needed is reduced by the use of cheques, or certain other reasons. But we can still say that at a given time a given amount of currency is needed. Now when there was currency convertibility, that is to say when you could change gold into Bank of England notes and import and export it freely, the amount of currency regulated itself. Commodities were bought and sold through the medium of gold coins and notes convertible into gold which represented real values, that is to say the value of gold itself. This was a situation in which, if trade declined and less currency was needed, gold coins and notes flowed back into the Bank of England. On the other hand, if trade expanded and more currency was needed, additional amounts of it were forthcoming, but it was always directly linked with the value of gold. At that time, for every additional bank note that went into circulation from the Bank of England, the Bank had to place in its vaults an equivalent amount of gold.

We now come to the question of what happens if this convertibility is destroyed. Suppose the Government suspends convertibility and bank notes can no longer be converted into gold. This does not of itself cause inflation and rising prices. It only causes inflation and rising prices if, as well as suspending convertibility, the Government starts increasing the issue of the unconvertible notes to an excess amount, so that they exceed the amount of gold or silver which would actually circulate if they were not replaced by symbols. We mention silver here as well as gold because some countries used a silver coinage with convertibility instead of a gold coinage with convertibility, and when we refer to symbols we mean paper money—notes.

If the Government destroys convertibility and then issues an excess amount of notes, this causes prices to rise because more money is now circulating in relation to an unchanged amount of goods and trading transactions. This is just the same in effect as the earlier example of what would happen if the Government decided to cut the amount of gold in the pound from one-quarter weight of gold to one-eighth or one-twelfth of an ounce of gold. Prices in those circumstances would double or treble. Marx wrote about this:

“If the quantity of paper money issued is double what it ought to be, then £1 would be the money name not of one-quarter ounce, but of one-eighth ounce of gold.” 

The effect would be the same as if an alteration had taken place in the function of gold as the standard of prices; those values which were previously expressed by the price of £1 would now be expressed by the price of £2.

We may be asked how can one tell if inflation has taken place, because it is not always easy to know whether the amount of paper currency being issued is in conformity with the amount needed. There is in fact always the simple measure of inflation, and that is the price of gold itself in the market. As soon as convertibility ceases and excess notes are issued the price of gold starts to rise. We saw earlier that this had happened during the Napoleonic Wars. The economist Ricardo wrote about this, and what he wrote led to the setting up of what is known as the Bullion Committee, which issued its report in 1819. Ricardo set out to explain, as did the Bullion Committee, why the price of gold in the market had gone up from 77/10½d, an ounce to 92/- an ounce. Ricardo and the Bullion Committee gave their answer; that it was due to the suspension of convertibility and to the issue of excess notes. The remedy was simply to restore convertibility, in which case the excess notes would go out of circulation. The same thing happened again in World War One, and just after that the Cunliffe Committee, which reported in 1919, gave a similar verdict. They told the Government to stop issuing excess notes and the fall of prices which took place in 1921 and 1922 was partly due to the ceiling that the Government placed on the issue of bank notes, and partly due to the fact that a world slump was in being at the time.

We now come to the inflation that has gone on in the last 25 years. Again, we can see the proof of this inflation and the measure of it in the fact that instead of gold selling at about £4 an ounce, it is now selling at 250/- an ounce. The reason is the same as on the other occasions; convertibility has disappeared and an excess note issue has been engineered by the Government. The note issue in Great Britain has increased from about £530 million in 1939 to nearly £2,400 million. The steps by which this 25-year inflation has taken place included the following.

At the original gold weight the pound was equal to 4.86 American dollars. In the 1930’s it was the American Government which cut the gold content of the dollar to about half what it was before. A further step in the process was that in 1940 the British Government pegged the British pound to the American dollar, not on the old relationship, but on a new relationship of four dollars to the pound, and in 1949 they reduced it again to 2.8 dollars. The effect of these various changes has been that the amount of gold represented by the English pound is only about one-third of what it was in 1914 and in the 1930’s.

This is the main reason why the general price level in this country has more than trebled including, incidentally, the price of that particular commodity labour power—wages. It is true that the process in Great Britain has not been so crude or so drastic as the inflation which took place, for example, in Germany between the wars. On that occasion the German Government was paying its way by printing tens of millions of mark notes every day; in Great Britain now the effect is the same, though in less degree. The British Government prints additional notes and the Bank of England uses them to buy in Government securities. Incidentally, this has the effect of enabling the Government to get what may be called interest-free loans running into an amount of over £2,000 million, but, of course, the effect on the price level is just the same as it would be if the British Government had used the same direct method as was used by the German Government.

One thing it is interesting to notice here is that, being traditionalists, the British Government and the Bank of England continue to issue their accounts just as they used to issue them before 1914, as if the present note issue in this country had some backing. Before 1914 the Bank of England, apart from a certain small amount of notes which was uncovered by gold, had to have a gold reserve fully covering every additional issue of bank notes. At the present time in Great Britain there is in fact no backing at all for the note issue, but in the Bank of England accounts you can see the thing entered in the form that the £2,400 million of notes in circulation are shown on one side of the account in the balance sheet, and on the other side there is shown a similar figure for Government securities, which, of course, in practice means nothing at all.

Edgar Hardcastle

 

(To be concluded)

Economic Theory (1971)

Book Review from the September 1971 issue of the Socialist Standard

Economic Theory in Retrospect. M. Blaug, Heinmann Education. Second Edition £2.75.

This work by Blaug, who formerly taught economics at Yale University and is now Professor of the Economics of Education at the University of London Institute of Education, will be both useful and harmful, depending on how it is used. Students who treat it as a source for “potted” versions of economic theories and accept uncritically the author’s comments on those theories will often be misled. Those who take very careful note of the author’s warnings in his Preface to the Revised edition and use the book as he intended may find it useful. Blaug writes:

“In order to encourage students to doubt all commentators, including the author of this book, this edition like the first one contains detailed Reader’s Guides to cover major works in the history of economic thought. But as some reviewers of the first edition felt that these were more welcomed as heaven-sent cribs than as stimuli to consult the original writers, I should warn readers again that the Guides are neither summaries nor precis; they are running commentaries and more concerned with what the great economists might have meant than what they actually said. In short, they are especially designed to be provocative . . .”

When it comes to Marxian economics the reader should certainly challenge some of Blaug’s comments and interpretations. A few examples will illustrate this.

Discussing Marx’s description of the poverty and inequality of the early nineteenth century, Blaug writes that “it would be absurd to believe that the conditions described . . . reflect exploitation of labour rather than the low output per head of the working population”.

Blaug’s own explanation is that “the deplorable material standards of most working people . . . had more to do with the birth pangs of industrialization than with capitalist methods of organising production”, and that “living standards of the British working class could not have been raised significantly even by a perfectly egalitarian distribution of income”.

This was and still is the line of propaganda used by the defenders of capitalism. It would be interesting if Blaug “the commentator” (as distinct from Blaug the defender of capitalism) would explain what it was other than exploitation which enabled the rich, and in many cases idle, members of the capitalist class, to avoid sharing the poverty—after all the output of most of them wasn’t even low !

Blaug’s observations may also indicate that he thinks Marx aimed at egalitarian capitalism — which really is absurd. What Blaug has to meet is Marx’s proposition that in a Socialist system of society the output of useful articles will be greatly increased.

On page 279 Blaug has a fifteen line comment on Chapter 19 of Marx’s Capital Vol. I. (Chapter 17 in the Allen and Unwin translation).

Blaug writes:

“Chapter 19 plays hard and fast with the distinction between labour and labour-power. ‘Labour is the substance and the immanent measure of value, but has itself no value’.”

Blaug’s comment on this is that Marx meant “that the worker has no value, it is only his services that are valuable”.

Marx didn’t say or mean what Blaug says he meant. He was dealing with the question whether what the worker sells is his labour or his labour-power, not, as Blaug seems to think, whether the worker sells himself. In that chapter Marx argued that it is labour-power that the worker sells and that is an embodiment of value (the quantity of labour necessary for its production). It is not his labour, or work, that the worker sells.

Blaug’s quotation is immediately preceded by the following which ought to have made Marx’s view clear.

“That which comes directly face to face with the possession of money on the market is in fact not labour, but the labourer. What the latter sells is his labour-power. As soon as his labour actually begins, it has already ceased to belong to him; it can no longer be sold by him.”

Some of Blaug’s book deals with Volume II and Volume III of Marx’s Capital. Unlike Volume I, which was completed for publication in his lifetime, the later volumes (and other material published after his death) were left incomplete, some of it in the form of mere notes. Engels who edited Volumes II and III drew particular attention to this in his Prefaces. In the Preface to Vol. Ill Engels wrote, for example, “nothing was available but a first draft, and it was very incomplete”. Some of the chapters were so incomplete that Engels left them as they were being unable to take on the task of getting them in proper shape. It is therefore often difficult to decide how far Marx’s first notes were really considered judgments. Blaug is not unaware of this but seems not always to have made due allowance for it.

In his ten line comment on ten chapters of Volume III (Page 290) Blaug makes statements which, to the reader not familiar with the originals may seem to indicate that Marx in Volume III was repudiating what he wrote in Volume I about the effect of an overissue of inconvertible paper currency on the general price level.

Fortunately, in this case, Engels spotted the possibility of misunderstanding and inserted a note in Vol. III pointing out that the material in Chapter XXXIII dealt only with the position in Britain at a time when the currency was primarily gold coin and convertible Bank of England notes, and not with the different situation of an inconvertible paper currency, the latter being as stated in Volume I. The note reads a follows:

“Inconvertible bank notes are not taken into consideration at all here; inconvertible bank notes can become universal means of circulation only under conditions in which they are actually backed up by National credit, as is the case of Russia at present. In that case they fall under the laws of the inconvertible National paper money, which have been developed already in Vol. I, Chapter III 2‘ Coins and Symbols of Value‘.

The chapter of Volume I referred to set out Marx’s view that, in accordance with the labour theory of value, the doubling of an issue of inconvertible paper currency merely serves to double the price level.

Blaug deals with Keynes and the neo-Keynesians in Chapter 15 and here his method shows its weakness. In thirty pages he gives a running commentary on Keynes and his critics and commentators, indicating here and there his own reservations. It might have been more useful if he had separately provided his own considered views on Keynesian theory and its practical application in the past thirty years.

Edgar Hardcastle

Cooking the Books: Economic leverage (2026)

The Cooking The Books column from the July 2026 issue of the Socialist Standard

‘Workers face worst squeeze on real pay since 2022’ was the headline of an article in the Times (20 May) by its Economics Editor Mehreen Khan. In the first three months of this year, average weekly earnings increased by 3.4 percent, which was more or less the same as the rise in the Consumer Prices Index. ‘However’, Khan writes,

‘while real incomes are on course to flatline this year, the jump in global oil prices is expected to push annual inflation close to 4 per cent in the coming months’.

If average earnings go up by 3.4 percent and consumer prices go up by 4 percent, that’s a reduction in real pay for workers. So why don’t they simply go on strike and push up wages to keep up?

The answer is that workers don’t have the power to put up the price of what they have for sale — their labour power — just because they want to, even to cover a rise in the cost of what they need to produce what they are selling. They, like all other sellers, can only charge ‘what the market will bear’. And, as Khan and the economists she quotes note, the current state of the labour market will not allow an increase:

‘Rising prices, combined with a weakening job market — where unemployment has risen to 5 per cent — means workers are losing their bargaining power to demand pay rises, economists said.’

One of the economists, Josie Anderson of the financial services group Namura, used the term ‘soft labour market’. This doesn’t mean what you might expect — surely, the current labour market is a ‘hard’ one as far as workers are concerned? — until you realise she was writing from the employers’ point of view as buyers of labour power. An AI definition of the term (cobbled together from other definitions) makes this clear:

‘A soft labor market (also called a “cooling” or “loose” labour market) is an economic environment where the supply of available workers outpaces the demand for labour. In this climate, hiring slows down, job seekers face stiffer competition, and employers regain negotiating leverage.’

Whether or by how much real pay goes up or down is a question of the respective bargaining strength of employers and workers, which in turn depends on the state of the labour market, but that is not something we are usually told by the media. Normally the story is of greedy workers causing inflation by forcing employers to agree to excessive wage demands.

Sometimes workers are in a favourable bargaining position and can maintain or push up real pay: when business is booming, finding a job is easy, and employers are making good profits; this ‘hard’ labour market for employers gives workers some ‘negotiating leverage’. That is the time to strike or threaten to strike. But the reverse of this is a ‘soft’ labour market for employers; it is they who are then in a stronger bargaining position, as at present and, according to one of the economists, for the fourth time ‘in less than two decades’.

We are talking here just about changes in bargaining leverage over the shortish-time price of labour power. Ultimately, over wages, the capitalist class have the upper hand as they monopolise productive resources. This gives them leverage to force workers to sell their labour-power for a wage in the first place. There is no bargaining about this; it’s just a fact of capitalist life that is imposed on workers. The way out for them is political not economic: to take political action to make the means of life commonly owned and democratically controlled by the whole community. Then there will be no labour market and no wages system.

He's telling us (1977)

From the December 1977 issue of the Socialist Standard

Since the quantity of money capable of being absorbed by the circulation is given for a given mean velocity of currency, all that is necessary in order to abstract a given number of sovereigns from the circulation is to throw the same number of pound notes into it, a trick well known to all bankers. 

(Karl Marx, Capital Vol. 1, p. 136, Kerr edition)

Notes by the Way: Do You Trust Colonel Nasser? (1956)

The Notes by the Way Column from the October 1956 issue of the Socialist Standard

Do You Trust Colonel Nasser?

Much of the propaganda about the Suez dispute has been concerned with whether Colonel Nasser is to be be trusted. Sir Anthony Eden says no; and the Colonel says he doesn’t trust the Western Powers. Many of the Labourites who oppose the Government’s policy affect to believe that British Capitalism can rest content with the Colonel’s promise not to interfere with the unfettered passage of the Canal.

Which of them is right? The answer is that they are all wrong. History is littered with binding treaties which turned out to be scraps of paper; with treacheries and forsworn promises even when the signatories, at the time they pledged their word; had every intention of keeping it.

The truth is that where vital economic and military interests are concerned it is so easy for the party to the agreement, who finds it becoming an obstacle, to convince himself that altered circumstances justify him in repudiating his obligations. (There is a lot to be said for the attitude of those Quakers who, on moral grounds, refuse to pledge their future conduct lest this should happen).

It was British governments which occupied Egypt "temporarily" and stayed there for over half a century and British governments which have not paid off the hundreds of millions of pounds they pledged themselves after her World War I to repay to America.

All governments, when they find it highly convenient to do so, and provided they can get away with it, break their promises. They do it, too, in home politics with election pledges and it is the height of simplicity or hypocrisy for Labour opponents of Eden to pretend that we all ought to trust one another. They are indeed “all honourable men.” but does the Labour Party trust Eden when he makes election pledges? or does he trust them?

About that High Dam and American Cotton

It happens that Egyptian plans for a new dam on the Nile provide an example of how promises come to be broken. What sparked off the Suez dispute was the action of Mr. Dulles in suddenly withdrawing the promise he had made to supply millions of American dollars to help Egypt meet the estimated £120 million cost of the new high dam at Aswan. The excuse given by Dulles was that the American Government believed Egypt's own financial resources to be insufficient to meet the rest of the cost, particularly since Egypt had been mortgaging its resources to buy costly arms from Russia. The British Government followed Dulles’ lead in withdrawing an offer of aid.

But an American reader of the Manchester Guardian, writing from San Francisco, gives a different reason. Mr. Dulles’ Republican Party, needs every vote it can in the forthcoming Presidential election, including the votes of American cotton growers, already worried about large unsold stocks of cotton, they do not like the idea of an Egyptian dam which will greatly extend the irrigated area on which Egyptian cotton can be grown and put on the world market in competition with American cotton. The San Francisco reader writes:—

"The reason given by Mr. Dulles for the last-minute refusal was that Egypt was not able to fulfil its part of the contract. Whether Egypt was able or not, I do not know, but the more likely reason is that the State Department heard protests from the cotton growers of Louisiana and Mississippi. This is the year of a Presidential election, and in election years American foreign policy is always uncertain." !

(Manchester Guardian, 29/8/56.) 

The same writer also dismissed any notion that Mr. Dulles has developed scruples about using force in international disputes, and 'that this explains his caution over Suez:—

"When American canal interests were endangered by a recent revolution in Guatemala, America acted not with caution but with decision, and the revolt was quickly put down."

And what about Colonel Nasser’s pretence that it is only the Western Powers whom he cannot trust and that the African Powers are full of mutual love and confidence? Does the Colonel trust his fellow religionists in the Sudan or his fellow Africans in Ethiopia? Not on your life! The Government of the Sudan does not like the Egyptian plan and can advance seemingly weighty technical reasons. They would prefer dams and irrigation schemes higher up the Nile and its tributaries, under a joint operation in which Ethiopia, Uganda, the Belgian Congo, would join with the Sudan and Egypt. But the Colonel does not trust them any more than British Capitalism trusts the Colonel. He fears quite reasonably, that if Egypt puts up a lot of money to build dams not inside Egyptian frontiers, his Sudanese brothers may be tempted to take advantage of it. Mr. C. L. Hartnoll, wrote on the subject in The Arab World, which is the organ of the Anglo-Arab Association and sympathetic to the Egyptian point of view, with the Egyptian Ambassador as one of its patrons. The article, written before the Suez dispute blew up. contains the following:—

“The most probable explanation of Egypt’s insistence on the superior merits of the High Dam is, therefore, most probably a political one. No doubt she feels that if she has to put up the money anyway, she might as well have full control of the whole undertakings on Egyptian territory rather than disperse control by foreign engineers at various points in the Sudan, Ethiopia Uganda and the Belgian Congo. Strategically she has always felt at the mercy of any power controlling the upper waters of the Nile but at least at Aswan she would have the control in her own hands. Also, of course, the prestige value of the High Dam to the Revolution and its leaders is not without its attraction." (The Arab World, July, 1956.)

For while Egyptian Capitalism masks its financial interests under a high falutin imperialist principle called “the natural unity of the Nile Valley,” which includes the ambition of Egyptian control of territories all the way up the River, some of the equally ambitious Sudanese have dreams of achieving this “natural unity” at Egypt’s expense.

The Sudanese do not like the idea of Nile control, vital to themselves, being in Egyptian hands at Aswan. And the Colonel for his part may reasonably fear that if Egypt puts up money for dams higher up the Nile the Sudan or Ethiopia might “do a Nasser on him.” This is what Capitalism does to human relations.

Unearthly Socialism

In Labour Party journals and on their platforms, lots of pens and voices are calling for means to recapture the “lost spirit of the movement.” One lifelong supporter knows an unexpected direction in which to look. Writing in The People (April 8, 19.56), Mr. Hannen Swaffer had this:—

“I am, in religion, a Spiritualist and a Socialist. To me both these words mean the same thing. By this I mean that I have learned from the Spirit world to understand something of the creative force which is behind all creation, and that, knowing it to be my duty to try to carry out. during my earth life, the furthering of that creative principle in this world, I can see only in the adoption of Socialist principles the means."

He went on to affirm his belief that “Spiritualism and Socialism, when joined in the practice of the lives of all of us, will abolish all creedal differences, and all class and caste hatreds, join us all in one great human family. . . ”

We can accept that Mr. Swaffer assiduously plugs Spiritualism and mixes it in with his already muddled notions of Socialism because it is the thing he really relieves it, but the same excuse cannot be made for the Daily Herald's recent addition of horoscopes to its columns. The worried workers, seeking respite from the daily harassments of the Welfare State, can now consult “Your Lucky Stars” as interpreted by Diana. Another recent addition to the horoscope Press is the News Chronicle (“Seeing Stars,” with the help of Leon Petulengro)..

If they change to the Express, the Mail, or the two morning picture papers, their needs are likewise cared for and almost all of the cheaper Sunday papers are in the heavenly swim. But why no horoscopes in the evening papers?

Before the war the Beaverbrook Press, high mindedly and with a loud banging of trumpets, announced that it would ,no longer pander to this “ignorant superstition but after a lapse of time the horoscopes crept back again.

The purpose, of course, is to whip up circulation and the publicity experts are clearly convinced that you can’t get into the big circulation without horoscopes.

The Reverend Donald Soper on Nasser

Among his admirers the Reverend Donald Soper is credited with understanding Socialism and being a Socialist. A speech delivered by him at Caxton Hall on August 14th, 1956, shows how little there is in the claim (speech published in the Arab News Letter Arab Students Union, September, 1956)).

On the superficial things such as the hypocrisy of the British Government; the failure of the Labour Party (of which he is a supporter) to see the real issues; the non-existence of the “international law” to which the Government appeals; and the failure of the Church to seek “peace on earth and goodwill among men,” on these he was plausible enough, but when it came to putting a Socialist point of view he was silent. He had absolutely nothing to say about world-wide Capitalism and the forces that drive all the nations into conflict. The nearest he got to reality—and this was seeing symptoms instead of causes—was to see evil in the existence of “nation states.” But his remedy for this is “world government” and United Nations; much as if to say that as banditry is bad let us hope that the bandits can unite into one central bandit and in the meantime let us make rules of conduct for the bandits. So he demanded that while these “nation states” endure “there must not be privileges for some and rejections of these privileges for others.” . In other words “Fair play for ail the bandits.”

He dwelt on the slums and poverty alongside great wealth in Cairo and, quite fairly, marked this up against the former British rulers of Egypt; but is he really so naive as to suppose that the ruling class behind dictator Nasser are taking the Canal for the sake of the Egyptian workers they exploit? Apparently he is that naive or had his tongue in his cheek, for he called on the Church to support Nasser.

“I want to say in the name of Christianity that this Nasser ought to be encouraged and not be repressed, because I believe the root of the matter in him is good, and because it is good, it is our business to evoke it by corresponding good, and not to repress it by threats of violence.”

What evidence can Mr. Soper bring forward for his implication that when a home grown ruling class runs Capitalism itself after ousting foreigners that their aim is any less the perpetuation of exploitation and the resulting poverty of the masses? British Capitalism has been run by home-grown rulers (including years of the Labour Party that Soper supports) and it hasn’t touched the class ownership of accumulated wealth. And Mr. Soper shouldn’t have far to look in his own neighbourhood to find some of the million slum dwellings.

He ended his speech with a call to throw out the Tory Government. His solitary piece of lip service to what he supposes is Socialism, being a plea for the introduction of “a truly Socialist Government.”

Embarrassed by his difficulty in fully endorsing the Labour Party he declared that “by the grace of God, even the Labour Party can become a Socialist Government which surely is hardly flattering to his God. Why must God (whose “will,” incidentally Mr. Soper claimed that he knows!) have to act in this roundabout fashion? Why can’t the “grace of God” turn the Tory Party into a “Socialist Government?” It shouldn’t be any more difficult.

Of course Mr. Soper knows that “divine grace” isn’t going to solve the problem. He also knows that delivering Socialist truths would help. What, then, is his excuse, as a self-styled Socialist, for not delivering them at that meeting?

Automation, 1830

The rich have always been able cheerfully and patiently to bear the hardship of the poor and urge them to be equally patient. We now have the politicians and economists telling the workers who may lose their jobs through “automation” to reflect that in the long run it will all be for the best, and anyway it is inevitable. In 1830 the Society for the Diffusion of Useful Knowledge published an Address to the Labourers on the subject of Destroying Machinery. Here is a typical passage: —

“It is undoubtedly true that all machinery which spares human labour, unavoidably, on its first invention and on beginning of its work, throws some persons out of the employment in which they had been engaged, and they must seek their means of support in some other way; this is the necessary consequence of the introduction into use of the most simple instrument, and of all improvements in art. But, on the whole, the public, and every individual in it, are in the end infinitely the gainers.”

A caustic cartoon, also published in 1830, and believed to have been the work of the brother of the better-known Cruikshank, dealt with the unemployment caused by the incoming machinery as one of a series called “Living Made Easy,” The “machines” it portrayed were “Charity tubes to convey the smell from the tables of the rich, for the benefit of poor operatives.”

It showed humble bare-headed workers permitted by a livened flunkey to stand over the open ends of iron tubes which conveyed the smell of food into the courtyard of some palatial mansion. It was “particularly recommended to the philanthropy of those who have made large fortunes by machinery.”

Mr. MacMillan on Paper Pounds

In a speech on inflation in which he warned that if wage increases went on the Government might devalue the pound again as did the Labour Government in 1949. He asked the trade unions

"Do you want more paper money to handle or more goods and services to enjoy? ”

(Daily Mail, August 30, 1956.)

This is indeed a classic example of the devil rebuking sin. It is not the trade unions but Mr. Macmillan and other Chancellors of the Exchequer who determine the amount of the note issue. And what is their record at setting the printing press at work making more and more paper money? In 1938 the amount in issue was £529 million and in 1945 £1,311 million. The Labour Government stepped it up to £1,383 million and the Tories since they came in in 1951 have added another £300 million, making the present total £1,662 million.

Not, of course, that it makes any material difference to the workers position under Capitalism. They were just as poor and just as much exploited in 1938 with pounds fewer and wages lower, as they are now with wages trebled and each pound buying about one third of what it then bought.

They Cant Afford a Holiday

The British Travel and Holidays Association in a survey of the holidays of Britain’s population tell us that “about half the population of Britain took no holiday away from home in 1955. Of those who did travel, only 8 per cent. went abroad: 77 per cent. of the population has never been outside Britain” (Manchester Guardian, August 31, 1956).

“Expense was given as the main reason why people stayed at home during their holidays.”

What Nina did not say

Nina, the Russian athlete, who was alleged to have taken hats worth 32s. 11d., missed a fine opportunity by not appearing in court. Why did she not get up and tell the British workers that under Socialism in Russia you just go along and take what hats you need without this Capitalist nonsense of paying for them?

The answer, in case anyone is in doubt, is of course that there isn’t any Socialism in Russia, the claim that there is being one of the lies of the Communists.

Mr. Nehru Again

In his attitude on the use of military force to crush the Naga independence movement in India Mr. Nehru gets more and more like Sir John Harding in Cyprus.

A Naga M.P. in the India Parliament made a long statement on the suppression of the Nagas.

“As a result of military operations, Mr. Keishang said, 2,000 people were forced to stay in the jungles. Most of the villages of the Mokukchang area had been burnt by the army, between 30 and 50 villages had been burnt in the Megkukchange area, and four-fifths of the villages in other areas had been burnt. He said that 397 Nagas had been killed, and troops had also killed Dr. N. Haralu, a respected doctor of Kohima, who had been “ hunted in the streets of Kohima and shot down.

“More than five hundred Nagas are in prison, including students and children aged between 1 and 13. The Army tries to terrorise the Nagas by carrying a naked corpse, bound hand and foot, through the streets of Kohima, and bodies are burnt in spite of the fact that the Nagas never burn bodies. Is this behaviour of the Government better than that shown by the Nagas ? . .. The spirit of revenge will persist for generations, even if the Nagas are defeated.” (Manchester Guardian, August 24, 1956.)

Mr. Keishang chided Mr. Nehru with failing to show at home the “spirit of peaceful negotiation” he is always recommending to other governments. But Mr. Nehru was not to be moved. He won’t even discuss the matter.

“Mr. Nehru, winding up the debate, admitted that some mistakes had been made, but said that the attitude towards the Nagas had been human and not completely a military one. He repeated that the Government could not talk with the Nagas until they gave up their demand for an independent state.

“There is no question of prestige. India is far too big for her prestige to suffer in such dealings. We are not prepared to talk independence, and we demand that the Nagas must give up violence."

Mr. Nehru is another of the reformists to demonstrate that there aren’t any different ways of running Capitalism.

Edgar Hardcastle

Blogger's Note:

I believe that the 1830 cartoon that Hardcastle is referring to in his column is the one posted below. The only sticking point is that he mentions it was by Isaac Robert Cruikshank but the internet is telling me that it was by Thomas Mclean .

Letter: Forging ahead (1976)

Letter to the Editors from the September 1976 issue of the Socialist Standard

Forging ahead

Could you answer the following question: If there was a huge circulation of counterfeit money about, which could not be detected, what effect would it have on the economy?

J. W. Eastwood

London W.2.

Reply:

For the earlier part of your letter (not reproduced here) see the reply to D. J. Underwood, whose letter it closely resembles.

An excess of currency in circulation, made by private enterprise, has the same effect as an officially produced excess: it causes inflation. What you suggest as a hypothesis has happened several times. The outstanding example was “the great Portuguese note trick” of some years ago, when swindlers posing as representatives of the Portuguese government persuaded a British banknote-printing firm to produce an issue of notes for use in a Portuguese colony. In the subsequent action by the government of Portugal it was pointed out that the circulation of the notes had caused economic damage by pushing up prices in the colony.

During wartime, governments have introduced counterfeit notes into opponent countries with the object of causing disruption. The difficulty, as for the private forger, is finding means for the currency to get in circulation in sufficient quantities; the Portuguese swindlers had an accomplice in a bank. However, once notes are printed and accepted there are not separate sets of results for legal and illegal origins. An excess issue of an inconvertible paper currency causes prices to rise, regardless of who did the printing.

Editors.

Major Douglas in Alberta (1935)

From the August 1935 issue of the Socialist Standard

An interesting situation has arisen in Alberta with the acceptance by Major Douglas of post as adviser to the Government. The Government in the province is in the hands of the Party known as the United Farmers of Alberta, whose hold on the electorate has been seriously undermined by the rapid growth of a local Social Credit League run by a Mr. Aberhart. Fearful of being defeated at the next elections the Government, in the words of the Canadian correspondent of the Economist, “hit upon the idea of importing Major Douglas himself, the parent of Social Credit, to confound Mr. Aberhart” (Economist, June 29th).

Major Douglas and Mr. Aberhart have said some harsh things about each other, and each claims that his particular scheme is the genuine article, so that it seems highly probable that the move of the Alberta Government will succeed in splitting the Social Credit vote. Major Douglas is not giving his aid for nothing. He is to have a “generous fee.” According to the Vanguard (Toronto, June 1st, 1935) he gets a retaining fee of 5,000 dollars and a further payment of 2,000 dollars for every visit to Alberta.

He has recommended the formation of a coalition Government which shall seek a mandate for the following four “fundamental objectives” (Economist, June 29th).

A drastic reduction of taxation, particularly upon property.

A maintenance dividend as of right, probably small at first, and graded so as to be at the maximum after middle age.

Measures designed to produce a low price level within the Province with adequate remuneration to the producer and trader.

Development of internal resources based upon “physical capacity rather than upon financial considerations.”

It will be noticed that these objectives might be accepted easily by any Liberal-Labour Party anywhere. Where they are definite they are in line with capitalism. Where they are vague they are good vote-catching devices.

What is important about the Alberta episode is that it exposes the real nature of the Douglasite gospel. Major Douglas and his followers are most emphatic that their scheme is not inflation of the currency, but that, in fact, is precisely what it is. The whole Douglas theory is based on an ancient myth about a supposed deficiency of purchasing power. There is no such deficiency, and consequently the issue of Social Credit in the form of the payment of an allowance to all citizens, since it is not to be provided by increased taxation, could only be done by inflating the currency and thus causing the price level to rise. Major Douglas is most anxious to deny this because experiences of inflation in France, Germany and elsewhere have shown how useless that is except for the problems of certain sections of the capitalist class. Now we find him acting as adviser to the United Farmers of Alberta, one of the planks of whose programme, adopted at a conference two or three years ago (see Canadian Annual Review, 1933), is inflation of the currency to bring the dollar down to the level of the wheat-producing foreign competitors of the Alberta farmers! Like certain English economists who have been prepared to give conditional support to the Douglas scheme, the Alberta farmers will be willing to do so simply because it involves currency inflation which they believe will help to reduce the burden of their indebtedness to the Canadian banks, mortgage companies and insurance companies.

Douglas – Defender of Capitalism

Before leaving Major Douglas it may be worthwhile to remind those misguided workers who support him how essentially capitalistic is his movement. He is himself an unrepentant anti-Socialist. In his Monopoly of Credit (Chapman & Hall, 1931) he describes the relationship between capitalism and workers as “a perfectly equitable arrangement” (p. 34) and in his Draft Social Credit Scheme for Scotland he emphasised that there was to be no ” interference with existing ownerships, so called,” and there would continue to be profits, wages and capitalist ownership (see appendix to Social Credit, revised edition, 1933, Eyre & Spottiswoode). He constantly puts forward the absurd theory – but a very useful one to the industrial and commercial capitalists in hoodwinking the workers – that capitalists and workers are both exploited and impoverished by their common enemy, the banker. One of the journals which espouses his cause, the New English Weekly, tells us (May 26th, 1932) that Douglasism could be introduced only under two forms of government

“A dictatorship … or a Patriotic largely and predominantly composed ‘Tory aristocrats’…”

On January 26th, 1933, the same paper had the following frank admission about the aims of the Douglas movement:

“… if by capitalism is understood the system of competitive production for profit, it can be said that the required change would not involve its destruction but only its regulation.”

Edgar Hardcastle

Letter From Europe: Mitterrand clamps down (1982)

The Letter From Europe Column from the August 1982 issue of the Socialist Standard

It had to happen sooner or later. The attempt by Mitterrand's PS/PC government to revive the economy and reduce unemployment in France by giving people more money to spend—increasing “popular consumption" as it was called—just couldn't last. Since capitalism is a system which cannot be controlled or manipulated by governments and since most of the money to finance the social reforms in question came straight off the printing press, what happened was inevitable: the general price level in France rose, and at a rate faster than in other countries, leading to a fall-off in exports and a record balance of payments deficit which in turn made a devaluation of the franc inevitable. The effect on employment, on the other hand, was minimal: sales of consumer goods picked up for a while but the number of unemployed continued to grow, by nearly 16 per cent since Mitterrand came to power, passing the 2 million mark in October.

Exactly a year ago the Socialist Standard, analysing the economic policy of the then brand new PS/PC government, wrote:

It will fail completely and within a year or so they will be faced with growing working class discontent over persisting unemployment and rising prices which they will not be able to satisfy, since the continuing crisis will force them to recognise that under capitalism priority must be given to profits and profit-making rather than to social reforms and popular consumption. The crunch will then come and they will be forced, like all governments of capitalism sooner or later, to take openly anti-working class measures. 

As a matter of fact the crunch has come sooner rather than later, less than a year after the PS/PC government took office at the end of June 1981. On 12 June this year the French franc was devalued within the European Monetary System, for the second time in less than 9 months in fact, since Mitterrand had already been forced to devalue last October too. The October devaluation had been accompanied by rather timid price controls and mere appeals for some wage moderation. This time it was different. The government has adopted the following measures:

• a legally-imposed wage freeze lasting till the end of October, the only exception being the rise in the minimum wage due on 1 July; a legally-imposed price freeze also until the end of October but with some important exceptions such as oil, gas, electricity and imported goods;
• an increase in contributions to the health service accompanied by a cut in some benefits;
• a similar operation of increased contributions for less benefits regarding the unemployment insurance scheme.

The Minister of Finance, Jacques Delors, has already announced that austerity will not finish at the end of October but will continue. in the form of a restrictive “incomes policy", at least until the end of 1983; in other words, for at least 18 months in all.

Delors has also made no attempt to disguise the fact that the living standards of workers will have fallen by the end of October. He has publicly admitted that, while wages will be completely frozen, prices will rise by at least 2.8 per cent during this period. This will happen not only because prices are much harder to control than wages, but also because a number of exceptions to the so-called "prices freeze” are being allowed, particularly oil products (petrol, heating oil. paraffin) and imported goods. Since one effect of the devaluation will precisely be to increase the prices of imported goods, it is evident how large a loophole this latter will be.

So the government has now done a complete U-turn. The aim is now not to increase popular consumption but to reduce it! The Prime Minister, Pierre Mauroy, had already forewarned, even before the devaluation. that wages were soon going to come under direct attack from the government when he told a PS meeting on 21 May: 

Excessive nominal increases in incomes and wages maintain inflation and deprive our economy of the means to create jobs. The government has decided to act and we will shortly have occasion to talk about this again (Republicain Lorrain, 22 May).

It is clear from this that the government accepts the old. mistaken theory that it is wage increases that cause inflation. In fact, wages only increase in a period of inflation because inflation—an overissue of an inconvertible currency—inevitably leads to a rise in the general price level; wages, the price of labour power, merely rise in line with all other prices. Wage and salary earners are the victims not the cause of inflation.

The government's hope is that its austerity package will bring price rises—currently running at an annual rate of 14 per cent— down to an average of 10 per cent over the 12 months of 1982. This means of course that for the remaining months of the year the rate will have to fall well below 10 per cent. But unless they limit the amount of inconvertible paper money in circulation to what the level of economic activity requires—and there is no evidence whatsoever that this is their intention—then the pressure for prices to go on rising will continue.

If the currency is being overissued, then freezing wages and prices can’t stop prices rising. Certainly this can work for a limited period, just as a dam can stop a river flowing . . . for a limited period. Thus it is possible that the government could achieve a short term success but in the long run they will fail. Eventually, and sooner rather than later, the dam will burst and prices—including wages—will resume their upward trend. Delors is in fact very worried about what is going to happen after the legal wage and price freeze is over and this is why he is hoping to persuade the unions to moderate their wage demands over a longer period.

The union leaders, or some of them, may be prepared to go along with this. French union leaders are also politically involved and may well be prepared to betray their members’ interests to help a government they support just as British union leaders have done when Labour has been in power.

Indeed, just like Labour governments in Britain, the PS/PC government in France hopes to exploit its links with the unions to keep wages down and is publicly boasting that it will be better able to get the unions to co-operate in this than the opposition parties. And it is true that when the previous "right wing’’ government decided in September 1976 to block prices for 3 months it didn't dare block wages as well, as the present "left wing" government has done, limiting itself simply to asking employers not to offer excessive wage increases. But even this brought trade unionists out on to the streets proclaiming "No to Austerity". History shows that allegedly "socialist” governments in all countries are better able to impose austerity on workers than openly capitalist ones. (A case could even be made out for saying that this is their role within capitalism.) What is happening in France today is a further confirmation of this rule.

Two further points must however be made. First, in a period of high unemployment real wages (what wages can buy) will tend to be under pressure anyway for purely economic reasons, irrespective of government policy or of whether the union leaders betray their members or not. Second, if inflation of the currency continues, then nominal money wages will go on rising, once again irrespective of what governments and union leaders may or may not do. But government action to try, in the one case, to reinforce downward pressures on real wages and, in the other, to try to counter the upward pressures on nominal wages clearly reveals that all governments are forced to run capitalism in the only way it can be — against the interests of the wage and salary earning majority. A sustained policy of increasing “popular consumption” under capitalism must sooner or later restrict popular consumption to protect profits.

Actually, as we pointed out in the article last August, Delors did not have such a simplistic solution to the economic crisis as the PCF, the CGT trade union and some of his PC colleagues — that economic activity could he revived by giving people more money to spend. He realised that the French economy was part of the world economy and that a revival in France could not be sustained without a revival in the world capitalist economy. But he too was naive in believing, without any reasonable grounds for doing so, that this world revival would occur within a year and that therefore the French government could safely "reflate” its economy (print more money to finance government spending) in anticipation. In June last year he declared that "the reflation measures already taken by the government . . . are a limited anticipation of the recovery of the world economy which the experts foresee for the end of this year or the beginning of next (The Times, 24 June 1981).

The end of 1981 came, but there was no world recovery. The months of 1982 passed, still no world recovery. The "experts” began to creep back into their holes. Meanwhile, as a direct result of the government's spending financed by the printing press, the rate of inflation remained higher in France than in other countries. . . leading eventually to the devaluation of 12 June and the current austerity measures.

When Prime Minister Pierre Mauroy announced the devaluation he could only remark pathetically that his government had done what it could "but the international recovery was not at the rendez-vous”. It takes two to make a rendez-vous and the PS/ PC government has found out the hard way that governments are in no position to impose a rendez vous on the capitalist economy. Capitalism is a world system which operates according to its own economic laws, going through its regular boom-slump. boom-slump cycles, irrespective of what governments may or may not do. It is true however that, while governments can do nothing to bring about a recovery before it would normally occur, they can. as Marx pointed out. make things worse by mistaken monetary policies, as the present French government just seems to have done. Mauroy would have been better to have employed some other metaphor: "we took a risk and we lost" or "we took a leap in the dark and fell flat on our faces". Or even Harold Wilson's "we were blown off course”!

This utter failure of the PS/PC government in France is yet another confirmation of our contention that capitalism can never be made to work in the interests of the wage and salary earning majority. It is a profit-making system based on the exploitation of wage-labour and can only function as such, whatever the political colour the government may happen to have. Any party which takes on the responsibility for governing under capitalism is sooner or later forced, whether it originally intended to or not, to respect the economic logic of capitalism which decrees that profits must come before wages, that the consumption of the wage and salary earning class must be limited so as to allow profits to be made.

Mitterrand's failure is proof that reformism is a futile waste of time. Since the Labour Party’s economic policy resembles very closely that pursued by Mitterrand until 12 June, there's a lesson here for workers in Britain too.

Adam Buick (Luxemburg)

Inflation and prices - Part 2 (1965)

From the August 1965 issue of the Socialist Standard

Link to Part 1

II. The influence of gold

In our first instalment, we examined the commodity’s value and we discussed two of the reasons for price fluctuations—the forces of supply and demand and the influence of monopoly conditions in supply. The examples were of fluctuations above and below what may be called the normal price and, as we have said, it would simplify matters if we could assume that the normal price is the value and that fluctuations due to supply and demand are variations above and below value.

In actual practice, the normal price is not always the same as value, and probably the great majority of commodities do not normally sell at their value, but at some point above or below it. Marx developed this question of what he called all the same thing as what the manufacturer calls his cost of production. It is arrived at from the labour theory of modifications to his theory and showed that the normal price of commodities in the market is not their value but what he called the price of production. The first thing to notice about this is that the Marxian price of production is not at value, but it takes into account the fact that there is a continuing tendency for the return on invested capital to be equalled in different industries so that if the average rate of profit for example is taken at 10 per cent, the capital invested in the oil industry or in agriculture or in shipping, will all tend to receive something approximating to the same 10 per cent average rate of profit.

The next point is that changes in the value of a commodity can cause changes in its price. The value of a commodity falls, for example, if through inventions and discoveries the amount of socially necessary labour needed for producing it is reduced. In that instance, the value would fall and the price would tend to fall with it. On the other hand, it is possible for the value of a commodity to rise because the amount of socially necessary labour required to produce it increases. This could happen to coal and other minerals. As the richer and more readily accessible seams of coal are exhausted and mines have to go deeper, more labour is required to produce a ton of coal than before, and the value rises, and as the value rises, the price will tend to rise with it. So, to take our example of 24 hours being the amount of socially necessary labour required to produce a bicycle, if it fell to 20 hours or rose to 40 hours, this would cause a fall or a rise in the price of bicycles.

So much for changes in the prices of individual commodities, but what about general changes of all prices? Why was it that in 1921 and 1922 the price level in Great Britain dropped by about a third and why is it that the present price levels are three or four times what they were in 1939? Why were prices rising at the end of the 19th century and in the early 20th century? To explain these movements, we have to come back to our example about the bicycle and the suit of clothes and one ounce of gold, which was by law cut up into four gold sovereigns each weighing about one-quarter ounce.

We have seen that gold has a value like all other commodities. So has silver or lead or brass or aluminium. The value of these and all other commodities are related to the amount of labour needed in their production. Because of this factor common to all commodities, the value of each commodity can be expressed in terms of any other commodity. In fact, historically, because of certain conveniences attaching to gold, the capitalist trading world came to accept gold as the universal equivalent, the money commodity and all commodities came to have their values expressed in terms of gold. We might imagine that the trading world could have made use of weights of gold and expressed the prices of all commodities in terms of a weight of gold—one-quarter, one-eighth or one-sixteenth of an ounce, etc., but this was obviously not so practical for purposes of internal trade as to have the gold turned into coins of legally fixed weights, although of course the particular weight differed in different countries.

In Great Britain, as already mentioned, gold coins were by law fixed at about one-quarter an ounce of gold. Actually the legal relationship was that one ounce of gold was priced at 77/10½d, but it is simpler to call it about one-quarter ounce per gold sovereign. Under the currency system as it was operated in Great Britain in the 19th century, and similarly in the U.S. with regard to the dollar, the value relationship between commodities in general and gold was preserved by what is called convertibility. Gold coins were in normal circulation alongside Bank of England notes, but there was a legal right at any time for a holder of notes to convert them into gold or to take gold bullion to the Bank of England for conversion into notes or coins. The gold bullion or coins were freely imported or exported.

Under these conditions there could never be any but minor variations between the purchasing power of Bank of England notes and the purchasing power of gold. Now we may ask how in such circumstances was it ever possible for the prices of commodities to undergo a general rise or a general fall. The answer is that, just as the value of commodities of any kind can rise and fall in certain circumstances, because more or less value is required to produce them, the same thing can happen to gold. The value of gold itself can undergo a change. If, for example, methods are devised which produce or refine gold more efficiently, then it is possible for the value of gold to fall, or, conversely, if it becomes more difficult to produce gold, then the value of gold would rise. The only thing to remember about this is that it operates in a sort of inverse direction, that is to say that a fall in the value of gold expresses itself as a rise in the price of all other commodities and vice versa.

Now let us come back to our examples of the bicycle and the ounce of gold. They had equal value because both of them take 24 hours of socially necessary labour for their production, but suppose that the labour required, to produce one ounce of gold was reduced from 24 hours to 12 hours. Twenty-four hours of labour would still be required for one bicycle, but 24 hours would now produce two ounces of gold instead of one ounce, so that one bicycle now has the same value as two ounces of gold. Under the requirements of the law in Great Britain, two ounces of gold were still divided into quarter ounces; so the bicycle now would equate with £8 instead of £4. Because the value of gold had fallen to one-half, the gold price of the bicycle would be doubled from £4 to £8, and of course the opposite could happen if the value of gold rose, that is to say, if more labour came to be required to produce one ounce of it than before.

A fall in the value of gold caused by new and more efficient production processes was in fact going on at the end of the 19th century and the beginning of the 20th century and, in accordance with the explanation already given, it showed itself as a general rise in the prices of other commodities. There is another circumstance in which, even with a convertible currency, you could have a general rise or general fall in prices. This is when booms and slumps occur. In a boom, every manufacturer is trying to buy raw materials, machinery and so on, with the result that the price of these things would rise and there would be a general rise in prices. In a slump on the other hand, the reverse takes place. Manufacturers and traders in a slump are all trying to sell goods at cut prices in order to get hold of money, and in these circumstances, you could have a more or less general fall in the price level.

Edgar Hardcastle

(To be continued.)

Letter: Why inflation? (1990)

Letter to the Editors from the August 1990 issue of the Socialist Standard

Why inflation?

Dear Editors.

In the article "Inflation: the Endless Farce" (April Socialist Standard) you seem to have moved away from previous suggestions that inflation is a deliberate revenue-raising exercise by those elements in the government who control the currency issue. You point out that "in the current year the £800 million from additional notes in circulation is less than one-half of one percent of government expenditure of £181,000 million". However, surely, there are very powerful political and economic reasons for governments (particularly those of the monetarist type) to reduce deficits or even (as I believe the Thatcher government is doing) to run a budget surplus? When this £800 million is viewed as a component of a budget deficit or surplus then it becomes a very significant figure indeed, particularly when the government is using this surplus to repay debt.

Another argument tending to support the idea that inflation is deliberate is that post-war governments have never accidentally under-issued currency thereby sparking across-the-board price falls.

Here in New Zealand the hard-line monetarist Labour government is boasting that its high interest policies are "squeezing inflation out of the system" and indeed price rises are increasing at a lower rate than in recent years (currently around 7 per cent). However would the Socialist Party not agree that a high interest regime merely tends to suppress demand and does not affect currency inflation in any way? I believe that when demand returns the inflation will quickly manifest itself as rapid price rises. As far as I can work out what "monetarism" really is all about, to put it fairly crudely, is the domination of financial capital (lenders) over industrial capital (borrowers).

In New Zealand the government delivers currency into the economy from the Reserve bank through the trading banks. In Britain I believe the job is done via the Bank of England through the joint-stock banks. Could you explain the mechanism of how this extra currency is pumped into the banking system?

Finally the question of the reason for inflation would seem to come down to the proposition that either the ignorance and confusion that pervades the economics profession goes all the way to the top or else there is a deliberate policy of high financial fraud which governments have carried out and consciously masked with lies and confusion.

Michael Lee

Waiheke Island, 

New Zealand

Reply:
Inflation cannot be described as "a deliberate revenue-raising exercise by those elements in the government who control the currency issue". In the first place it is inflation which sends prices up and therefore increases government expenditure. It can give little pleasure to the government, having through inflation increased its own expenditure by a large amount, to know that it will receive a small amount of additional revenue by printing the notes. Between 1987 and 1988 British government expenditure went up by £6,900 million because of inflation All it got back by printing more notes was £1.740 million. If they halted inflation they would not receive the £1,740 million but they would be saved having to spend the additional £6,900 million.

Budget surpluses and deficits have nothing to do with inflation, and reducing the national debt is not nowadays a serious issue in British politics. Under the previous Labour government the national debt was largely increased. Since 1979 the Tones have increased it by another £100,000 million. Two years ago the revenue was unexpectedly buoyant and the government decided to aim at a balanced budget and even some repayment of the National Debt. They have repaid some £15.000 million. but surpluses are now running down There is not the slightest chance that the government will repay the rest of the £100,000 million they have added to the debt.

The British Tory government, like the New Zealand Labour government, believes that high interest rates reduce demand and therefore limit price rises. In March 1984 the bank minimum lending rate was 8 percent Since then it has risen to the present 15 percent. So prices ought to have stopped rising. Actually they have gone up by 43 percent since March 1984 and are now rising faster than they were then. Since higher interest rates increase the income of the lenders by exactly the same amount as they reduce the spending power of borrowers, why should demand be affected?

There is no way in Britain that the currency could "accidentally" be under-issued because, since 1938. there has been no limit at all on the amount of notes and coin in circulation, either by law or by Treasury instruction. The Bank of England's declared policy is to issue currency “as required by its customers". Nominally Parliament has control because every two years a paper about currency is "laid before Parliament" but no action is ever taken to restrict the permitted amount and usually it is not even debated.

The way additional currency gets into circulation is Britain is described by Professor Parish:

  In some countries it [the government] might simply print more notes and use them to pay for its expenditure. Nowadays, in a country such as Great Britain, the government would borrow from the banks, printing more notes to enable the banks to maintain their cash reserves. (See Benham's Economics, p. 465).

The proceeds of the additional notes are of course credited to the government's account.

Editors.