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.

Obituary: Jean Higdon (2008)

Obituary from the April 2008 issue of the Socialist Standard

Jean Higdon 1934-2007

Jean’s secular send-off was attended by fifty of her family, friends and party members.

Of those who were invited to speak on Jean’s life were her son, Jon, who spoke of Jean’s dedication as a mother; Mike Lee, Chairman of the Auckland Regional Local Bodies’ Council, who briefly outlined Jean’s socialist thinking (production of use, not for sale); and Jean’s neighbour whose fractious child was always comforted by Jean’s pleasant manner, and a party member whose galloping rhetoric brought smiles to what might have been a sombre occasion. Said he, “none of those parasitic bastards in Buckingham Palace, the White House or the Kremlin would be tall enough to polish the shoes of Jean Higdon!”

Jean was for many years secretary of the Auckland Branch of the WSPNZ, taking lengthy notes of the discussions we had, and typed out the minutes almost verbatim.

Jean was responsible for the layout of the party journal, The Socialist Review, from 1971 till 1982 when it folded because we couldn’t find any writers. Jean was also a sometime parliamentary candidate for Auckland Central on the socialist ticket, and with her late husband made a vital contribution to spreading the socialist case in new Zealand.

They are both remembered for their humanity and generosity of spirit.

Our condolences go to Jean’s family.

Executive Committee, WSPNZ, 8 February 2008

Eastern Europe (1991)

Pamphlet Review from the November 1991 issue of the Socialist Standard

We asked a reader in New Zealand to review our new pamphlet on the collapse of the state-capitalist regimes in Eastern Europe.

“Hegel remarks somewhere that all facts and personages of great importance in world history occur, as it were, twice. He forgot to add: the first time as tragedy, the second as farce”. The opening words of Marx's The Eighteenth Brumaire of Louis Bonaparte could appropriately be applied to the abortive Soviet coup and its aftermath in relationship to the first coup d’etat by Lenin and the Bolsheviks.

History seems to repeat itself as Hegel and Marx observed but both knew that there’s no going back. The momentous events in the Soviet Union are the final death knell for the myth of "communism" or “socialism" in the eastern bloc—the twentieth century’s greatest lie— and for those who promoted and perpetuated that lie.

The facts are that socialism has never existed in the eastern bloc—what does or did exist is a system of bureaucratic state capitalism. It is this system which is undergoing an economic and social convulsion as it inevitably intermeshes itself with the world market.

There is a school of thought prevalent in the West which maintains that the bureaucratic class which has run the Soviet Union, China and the others has been “authoritarian”, “repressive” even “corrupt" and "dishonest” and yet has believed unreservedly in these bureaucratic claims to have created socialism. Needless to say, such an ideology has been actively encouraged because it has uniquely suited the political interests of the ruling élites in both the private capitalist west and the state capitalist east.

The state ideology of the state capitalist world, so-called “Marxism-Leninism”, is principally based on Lenin's distortion of Marx, springing from the historically backward conditions Lenin and the Bolsheviks found themselves in at the collapse of Tsarist Russia. Ideologically Lenin's break with Marx centres on Lenin's contention that the socialist revolution could take place in a backward country and be led by a conspiratorial vanguard. It is clear from hindsight that this elitism was derived more from the French bourgeois revolution and the indigenous Russian Narodnik tradition than from the ideas of Marx or Engels.

Another less obvious but more insidious Leninist distortion of Marx was Lenin's invention of a distinction between "socialism" and “communism” whereas Marx, Engels and the other 19th century Social Democrats used the terms synonymously along with “social democracy” to describe the classless, moneyless, post-capitalist world society. Lenin used “socialism" to describe the state economic monopoly of the Soviet regime (and the political monopoly of the Bolshevik Party), while “communism" as the ultimate classless moneyless society was relegated to an ever-receding future—as Soviet theoreticians continued to do almost up to the present day.

Inside the Soviet Union until his death in 1923 the doctrine of Leninism was courageously opposed by the Bolsheviks' former Russian Social Democrat comrade Julius Martov from a rigorous classical Marxian position. In continental Europe this classical Marxian tradition was eventually overwhelmed by the new orthodoxy of “Marxism-Leninism” and by the great repression of fascism. But it has never been entirely extinguished and has persisted as an underground stream in Western thought, periodically surfacing in the writings of Martov, Rühle, Luxemburg, Pannekoek, Bordiga, Reich and Rubel.

In the vast English-speaking world this classical Marxian tradition has been kept alive by the Socialist Party of Great Britain and its like-thinking companion parties. In Australia and New Zealand classical Marxism was nurtured, not in the ivory towers and studies of the professional philosophers and intellectuals but rather in the ship’s forecastles and in the donkey-rooms of waterside workers.

The Socialist Party's state capitalist critique of the Soviet Union and China has been at times extremely unpopular (even physically dangerous) but it has been consistently held virtually from 1918. Time has proven it to be correct.

The publication of a booklet analysing events in the Soviet Union and the collapse of the Eastern bloc is therefore appropriate and timely. Anyone wanting to work out what is going on in the former USSR, what is behind glasnost and perestroika, and to see the problems of the collapsing Soviet economy analysed from a Marxian standpoint should study this booklet.

The work’s academic value would be increased in my view with a reference section of source material and a list of authors at the back of the book. It would also have been useful to see a chapter devoted to the political differences and forces represented by Gorbachev and Yeltsin. And I would have liked to have seen a chapter on Julius Martov whose insistence that Russia would eventually have to go through a bourgeois-democratic revolution is finally being vindicated.

The last word then to Martov: “More than ever convinced that the genuine state power of the toilers must be founded on the principle of democracy, Martov moved a resolution which called for the reactivation of the Soviet constitution and its further democratisation, which he spelled out in some detail. When Sosnovsky interjected, ‘This, comrades. was last year’s declaration’. as if to suggest that Martov’s demands were already out of date, Martov replied, amidst general uproar: ‘Last year’s and for all time!’ (quoted in Martov by Israel Getzler, Melbourne. 1976)

Michael Lee