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Will prices rocket up?
In this feature Socialist Party general secretary PETER TAAFFE answers important questions raised by Joe Foster on prices and wages. Joe writes:
"The centre page article (Britain on the brink, The Socialist 640) was great. I wanted to ask is there the possibility of increasing inflation? Currently with pay freezes we can see living standards are being cut already but obviously workers are preoccupied with job losses and cuts in services.
"Surely the quantitative easing is worse than what was pumped into the world economy after the war, which later resulted in inflation of over 20% in some years of the 1970s in Britain. This gave an impetus to workers struggling to keep pace with inflation and oppose the pay freeze and other anti-working class pay policy of the Labour government from 1974 to 1979."
We were very pleased that you liked the article on Britain. The capitalists, at this stage, are mostly preoccupied with the issue of deflation - stagnation in the economy, lack of demand - rather than inflation and rises in prices.
There is currently insufficient 'demand' - reflected in the economic crisis - which will be enormously compounded in Britain and elsewhere by the savage cuts proposed, particularly here by the Con-Dem government.
Ireland and the state of its economy is a living refutation of the deflationary policies pursued by Cameron and Co. Brutal cuts were supposed to have put the economy 'back on its feet', cut the deficit and led to an economic rebirth. Instead, the economy has plunged further into deep recession, if not a 'depression', with unemployment officially almost 14% and, in real terms, probably over 18%.
The budget deficit, rather than contracting, has increased. Ireland, in fact, is currently going through a 'double dip' crash and the same thing could happen here. So, in today's situation, the more farsighted capitalist economists would 'prefer' a little 'inflation', especially in incomes, to deflation because this would increase spending power, to put it at its simplest, and provide a market for goods and services which at present cannot be sold profitably because there is no 'profitable' market.
This is why some economists are urging the central banks - the Bank of England and in America the Federal Reserve - for a new 'stimulus package', this time to actually boost incomes. This could take the form of tax reductions or even handouts to the unemployed, rather than the indirect and failed method of buying up the assets of the banks, particularly their government bonds. Economists believe that the necessary stimulus will then be provided to the market and thereby lead to growth. This would, at best, merely ameliorate the crisis, not solve it.
There is no likelihood of an immediate 1970s-style inflationary spiral at the present. Undoubtedly, over time, if governments continue to pump in huge resources - resorting to the printing press, without this being backed up by the extra production of goods and services, then inflation will become a problem. But we are not at that stage yet.
That does not mean to say that the rise in prices, which is particularly pronounced in Britain at the present time, in certain basic items such as food, is not a problem for working class people, particularly against the background of wage freezes. Indeed, the very policy of wage freezes, of cutting wages, of throwing more and more workers onto the dole until it reaches four million, will cut the living standards of the working class.
This will be enormously aggravated by rising prices in some necessities. Already in the neocolonial world a massive increase in food prices - occasioned by drought, floods and forest fires in Russia, for instance - has provoked mass opposition. In some cases, this has compelled governments to step back and cancel the price increases.
In Britain, the prices of basic necessities have increased and will probably continue to do so. Therefore we should press for workers and the labour movement to fight price increases by demanding the opening of the books of companies, the government and local councils in order to examine whether such increases are "justified".
It is also important, where price increases take place, that we, the socialists, and active workers everywhere fight the false notion that increased prices arise primarily from wage increases. Karl Marx explained that if wage increases resulted in rises in prices the capitalists would automatically do this on all occasions.
Why then would they resist strikes and demands for increases in wages if they could just raise prices to compensate for this? Competition from other capitalists also prevents them from doing this. We will perhaps develop this important point further in The Socialist.
Comradely, Peter Taaffe
In The Socialist 14 October 2010:
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