Socialist Studies Socialist Studies

Reconstituted Socialist Party of Great Britain (1991) Socialist Education Series - Reading Capital.

Marx or Modern Economists.

The Socialist Party of Great Britain attaches a great deal of importance for workers to study economics, that is, to have an understanding of wages, prices and profit and the cause of unemployment.

A great majority of workers believe, wrongly, that an understanding of economics is not necessary. Their attitude is that they do not need to study economics and they can leave it to common sense. However, what is ordinarily called “common-sense” can be misleading.

Socialists would say that this is a short-sighted thing for workers to do. Such a view has led workers to follow a whole host of irrelevant economic policies like support for lower prices, lower interest rates and lower rent.

They have also supported Free Trade, profit sharing schemes, nationalisation and popular share issues in the stock market. They have also been convinced that they have an interest in pension funds as well as accepting the erroneous charge that the working class are responsible for inflation. If workers had understood about capitalism they would not have wasted time on this sort of thing.

Above all this narrow-minded attitude towards “common sense” and a rejection of understanding economics has led workers to believe, again wrongly, that you do not need to abolish capitalism and replace the wages-system with Socialism. They accept and vote for the anti-working class politics of reforming capitalism to make it a better and better system.

Nevertheless there is a legitimate question. If workers have to understand economics why does it have to be the writings of Karl Marx rather than more modern economists; professors in the universities or pundits in the City of London; bankers, financiers and so on? Surely economics has moved on since Marx’s day and there is a better understanding of capitalism?

This question can be answered in the following way. Marx undertook a detailed and scientific study of capitalism and no body has done anything in economics to equal his range and scope.

Even so, Socialists may be asked, economists surely must have advanced economic knowledge? We can give a somewhat provocative reply. The great many of the economists now living know less about capitalism than their grandparents did. Whereas most scientific disciplines have advanced over the last one hundred years the understanding of economics within universities has actually gone backwards. Quite apart from the degeneracy in economic knowledge most economists since Marx are really propagandists. They write policy statements for Think Tanks, the media or government departments pursuing the sectional or general interests of the capitalist class. They are not in the line of older economists like Adam Smith or David Ricardo, whom Marx referred to as the Classical economists, who at least tried to understand capitalism and come to some form of scientific conclusion however inadequate.

Modern day economists believe that capitalism is a natural form of society which can be made better. They believe that the insoluble problems thrown up by capitalism, like economic crises and unemployment and so on can be resolved. These economists, in fact, do not get anywhere. When there are problems, as there frequently are, they cannot agree what can be done amongst themselves. And they certainly do not solve the problems facing the working class. Students in universities are not taught that capitalism is a problem but is instead the best of all possible social systems. They are certainly not taught about other social systems where capitalism does not exist.

Coming back to the question of Marx’s critique of political economy or, in a simplified form, Marxian Economics we can say that there is, for the working class, an advantage studying Marx over modern economists. Marxian economics can be tested in the light of the workers’ own experience under capitalism.

Workers enter the labour market, they are employed, they come into contact with employers and they experience problems of capitalism peculiar to their class. Unemployment is one. And the day-to-day pressures exercised over them by their employers another. And Socialists say to workers that Marx’s study of capitalism passes the text and explains capitalism as workers live it.

What of the economists? What have they to say about inflation, economic crises and unemployment? Economists are totally in the dark about the problems thrown up by capitalism and how they affect the working class. With the question of inflation they say one of four things:

• Do nothing about inflation

• Have a restrictive monetary policy

• Have an expansive monetary policy

• Have a price and incomes policy

In each case, rather than say capitalism will get better and better for the working class, these economists say that each policy will entail pain and discomfort. For 150 years or more economists have been saying that capitalism is good for the working class but the policies these economists advocate lead only to social discomfort and misery. Each generation of workers have faced similar problems; exploitation, unemployment, social distress and hardship. Each generation of workers still have to struggle for better wages and working conditions. Nothing changes. Workers are blamed by economists and politicians for inflation and for not working hard enough. “Jam tomorrow” is what the politicians and economists promise the working class but tomorrow never comes. Capitalism can never be “improved” or made to run smoothly.

Reading Capital

To really understand Capitalism requires a detailed study provided by Marx’s CAPITAL. Marx dealt with capitalism in a comprehensive and close way although he used terms which workers are generally not familiar with.

CAPITAL is difficult to read. Sometimes it is useful to ask someone who has read Marx to elaborate on some of the more difficult passages. Another way is to read a pamphlet called VALUE, PRICE AND PROFIT, based on lectures given by Marx. It dates from June 1865, and was written for the General Council of the International Working-Men’s Association. Once this pamphlet has been read it is surprising that many of the initially difficult passages in the first four chapters of CAPITAL VOLUME I become clearer.

Although the first four chapters of Marx’s Capital are being discussed this is not how they are often presented. They are treated by the various editions differently. The Allen and Unwin edition of CAPITAL with a translation by E and C Paul covers the ground in four chapters. But the Glacier and Kerr editions cover the same ground in six chapters. The latest, in the Penguin edition, offers a completely new translation.

The edition from which a reading of the first four chapters of CAPITAL are taken is the Lawrence and Wishart edition published in 1970 translated from the third edition by Samuel Moore and Edward Aveling and edited by Frederick Engels.

Of what do the first four chapters consist? Chapter I deals with commodities; Chapter II deals with Exchange, Chapter III deals with Money, or the Circulation of Commodities and Chapter IV deals with the General Formula of Capital.

Marx opens the first volume of CAPITAL with an important announcement:

The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities” its unit being a single commodity. Our investigation must therefore begin with the analysis of the commodity
(Part I Chapter I p. 43).

In this opening paragraph, Marx is not laying down universal laws of past, present and future social systems. Marx states his intention is to begin and end with capitalism as a social system and to start with its primary characteristic; the commodity.

Marx analyses capitalism as it is. He is not interested in arguing what it ought to be like. This has been a mistake made by many commentators of CAPITAL, including Laski and Berlin. Marx’s method is a scientific inquiry into the commodity not a moral one. Marx does not express his own views about Capitalism only to show what it is and how it operates. This is made clear in the Preface to the First German edition where Marx states that “the ultimate aim of this work (is) to lay bare the economic law of motion of modern society” (p. 20).

So what is a commodity? A commodity is something for sale. Commodities can be seen all around us; in shops, warehouses, factories and departmental stores. The working class also have a special commodity to sell; the commodity labour power of which more will be said later. In capitalism, as Marx notes, there is “an immense accumulation of commodities”.

Commodities are the product of different industries and of different workers. Commodities are produced to be sold by companies employing workers. They are not produced to be given away. How many commodities will be produced will depend primarily on how much they can be sold for. Commodities are in fact produced by members of the working class although they are not owned by the workers. Commodities, the finished products made by workers are actually owned by the capitalists. They produce these commodities to sell them on the market for profit.

Every commodity has two characteristics; use value and exchange value.

All commodities are useful to someone. Consider three commodities; a chair, the bible or a bullet. They all have their use. A chair is bought to sit on, the bible to read and the bullet to fire from a gun. Marx called this usefulness “use-value”; the first of the terms used by Marx in CAPITAL which ordinarily workers might not be familiar with.

The use-value of something does not mean it is something you approve or disapprove of. No moral comment about their use is being made by Marx it is just that the commodity has to be useful to someone.

Now the price of one commodity has a more or less permanent relationship with another commodity. 1 oz of gold can be equated with 2000 tonnes of coal. This may be strange because there will be more people who are interested in the use of coal than a diamond but it was this more or less permanent relationship which Marx set out to explain by his Labour Theory of Value. Marx set out to show how value governs price although individual prices of commodities can and often vary from their value

Before the use of money, commodities were bartered. A table might be expressed by two chairs or so much coal, or whatever the table could be exchanged for. Exchange value refers to what a commodity can be sold for. In modern capitalism exchange values are expressed in terms on money. A table might sell for £150, a chair for £50 and a bag of coal for £25. Or to put it another way a table equals three chairs or six bags of coal.

Whether or not a commodity has an exchange value depends on the social relation in which it is produced. Tomatoes grown from seed in a greenhouse for personal consumption has a use value but no exchange value. But tomatoes commercially grown to sell in a supermarket have both a use value and an exchange value.

Let us return to money. Marx referred to money as the “universal equivalent” because it had the ability to be exchanged for all things. This process was historical and took place over time and will be treated in detail later. Initially gold was the universal equivalent and a certain weight of gold related to commodities so that a one gram of gold would equal one table, four chairs and ten bags of grain. Eventually gold, silver and bronze coins entered into the exchange of commodities. Money, for Marx, is a unit of account, a medium of exchange, and a store of value.

This leads on to Marx’s Labour Theory of Value Marx was not the first to hold a labour theory of value. Adam Smith and David Ricardo, before him, had primitive theories of value which Marx developed and extended.

The Labour theory of Value recognises that the exchange of commodities express an underlying exchange of labour. Now, it is important to recognise a very important distinction made by Marx. Exchange value is not the same as value. Marx looked behind the appearances of exchange-value to look at value and how value was formed.

Marx showed that what constituted value was the abstract socially necessary labour that went into its production. Marx was aware of the implications for the creation of value by lazy workers or inefficient capitalists. That is why he was at pains to stress that value was the socially necessary labour under a given level of average efficiency it takes to produce a commodity.

As he stressed this point in the following way:

The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time
(CAPITAL VOLUME I, Ch. I, p.39).

And

The value of a commodity, therefore, varies directly as the quantity, and inversely as the productiveness of the labour incorporated in it
(CAPITAL VOLUME I, Ch. I, p. 40).

Marx went on to draw another distinction between concrete labour and abstract labour. Just as a commodity has two characteristics; use value and exchange value, so the labour which produces the commodity has two characteristics; abstract labour and concrete labour.

The labour which creates the value that money represents has a unique quality; abstract labour. Abstract labour, not to be confused with social labour, is the process labour goes through in creating value; the expenditure of human labour time to produce a commodity for sale.

“…the value of a commodity represents human labour in the abstract, the expenditure of human labour in general” (p. 51).

Concrete labour refers to the specific character of a worker’s skill whether it is a bricklayer, plumber or engineer. It is the particular labour on the production of a particular commodity. Concrete labour produces use-values.

The question of value leads to a very difficult concept found in section 4 of the first chapter; THE FETISHISM OF COMMODITIES AND THE SECRET THEREOF (p. 76-87).

Fetish is the habit of taking a certain object and giving it mystical powers like giving a charm or an amulet an independent existence, treating it as an object with social power independent of human beings. In the religious world “the products of the human head acquire life of their own…It is the same in the world of commodities with the production of the human hand”. The social action of the producers “takes the form of the action of objects, which rule the producers instead of being ruled by them”.

Capitalists and workers, who have no understanding of capitalism and the Labour Theory of Value look at commodities in the same way. Rather than understanding them as social relationships appearing as things they are given mystical qualities.

Marx put it this way:

There is a physical relation between physical things. But it is different with commodities. There, the existence of the things qua commodities, and the value-relation between the products of labour which stamp them as commodities, have absolutely no connexion with their physical properties and with the material relations arising there from. There it is a definite social relation between men, that assumes, in their eyes, the fantastic form of a relation between things…this I call the Fetishism which attaches itself to the products of labour, so soon as they are produced as commodities, and which is therefore inseparable from the production of commodities” (page 77).

To recap; the basic foundation of price is value. However, this does not mean that the price of individual commodities cannot vary from its value. There is the case of monopoly where a new commodity or the way in which a commodity is produced by new machinery can raise the price for a time above the commodities value. The other situation is the case of government subsidies which have the effect of lowering the price of a commodity below its value. But, and this must not be forgotten, Marx main object was to apply his labour theory of value to commodities in the aggregate where the sum of values equals the sum of prices. This takes into account variations of supply and demand, cheating and the prowess of some capitalists over others in the process of trade.

Production

There is a lot of confusion about productivity. Economists believe, following Adam Smith in his wealth of nations, that productivity relates to what is going on in a factory. This is not the case. Productivity takes into account the entire production process from mining the ore, the production of component parts, its transportation to the factory, its transformation into a commodity, say a computer, to its transportation to a distribution point. This is an important aspect of Marx’s Labour Theory of Value totally overlooked by today’s economists.

Productivity and the labour process leads on to another important insight given by Marx’s Labour theory of Value; the creation of wealth.

Under capitalism the means of production; the raw resources, factories, transport and so on are owned by the capitalist class. This means that the working class have to enter the labour market to get a wage and salary in order to feed, house, clothe and feed themselves and their family.

Unlike the classical economists, Smith and Ricardo, Marx applied his Labour Theory of Value to the working class. He demonstrated that the working class sell a commodity to the capitalists which he called labour-power –the ability or capacity to work.

This insight is criticised by those wedded to “common sense”. They say that the worker sells his labour; and that the wage or the salary is the price of labour. This is wrong and it leads to a conservative view of the employer-employee relationship; “a fair day’s pay for a fair day’s work”. The phrase is still being used particularly in trade union circles. It is wholly wrong.

If machines cannot produce value, only human beings and a worker has sold his labour for a whole week the capitalist cannot make a profit.

So what is the answer? The worker does not sell his labour but his labour power. Labour-power is a commodity and like other commodities it has a use-value and an exchange value. The capitalist buys labour-power because he has a use for it in exchange for a wage or salary.

And the value of labour power is the socially necessary labour that goes into its production. In this case the wage covers housing, food, clothing and so on.

On the value of labour power, Marx remarked:

The value of labour power is determined as in the case of every other commodity by the labour time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labour of society incorporated in it” (CAPITAL VOLUME I page 81).

However, labour power differs from other commodities in as much as the owner of labour-power is a human being. And the wage or salary is not a bare subsistence minimum; it has what Marx called a historical and moral element. The term “moral” in German is not the same as in English. When German trade unions struggle for higher wages they set out material and moral demands where moral grounds are things above the bare necessity of life. It is not used by Marx in its English usage; an ethical demand for justice.

We now need to look at the use-value of the commodity, labour power. The use made by the capitalist of labour-power is to use it with raw resources and machinery to produce commodities for sale and to realise a profit.

Say that it takes a worker to produce the value of his labour power in two-and-a-half days out of a five day week; what Marx called necessary labour time, then the worker has to continue working for the remaining week of unpaid labour which Marx called surplus labour time. The exploitation of labour power by making the worker work for unpaid labour is the source of the capitalist’s profit; what Marx called surplus value. Surplus value is the key to exploitation and the daily class struggle which takes place in capitalist production.

Surplus value is the difference between the exchange value of labour power and the use-value of labour-power. Surplus value is the value added by the worker as the use-value of the labour power employed with the means of production.

Marx defined surplus value under capitalism in the following way:

The exact form of this process is therefore M-C-M’ where M’ = M+ AM = the original sum advanced plus an increment. This increment or excess over the original value I call surplus value. The value originally advanced therefore, not only remains intact while in circulation, but adds to itself a surplus value or expands itself. It is this movement that converts into capital (CAPITAL VOL. I page 71)

Something should be said about production and circulation. Marx divided the capitalist production and exchange into a sphere of production and a sphere of circulation. In production surplus value is created but is realised in circulation. Within both spheres there is a division of labour which is necessary to the capitalist class. Consequently the working class are exploited in both spheres in as much as they all give unpaid labour to the capitalist class. Wherever the working class are employed in capitalism they are exploited.

What are the consequences of the labour Theory of Value for the working class? Socialists do not want workers to study economics as an academic exercise. We want workers to study economics with a view to a practical application to their lives under capitalism. We want workers to understand that they and they alone produce the wealth in capitalism and that the capitalist class are superfluous.

Socialists also want workers to understand the consequences of not abolishing capitalism and replacing it with Socialism.

There are two consequences:
First; the continual pressure by capitalists on workers to intensify and extend exploitation. Capitalists are in continual competition with other capitalists and the way to win markets is to become more efficient with lower prices than your competitors. Capitalists are therefore forced to extract more surplus value or unpaid labour out of workers and make fewer workers do the work previously undertaken by more workers though increasing productivity and efficiency.

Second; the way in which capitalism’s anarchy of commodity production and exchange for profit creates periodic economic crises and depressions with subsequent high levels of unemployment. And there is another issue about unemployment. Unemployment is useful to the capitalists because it has the tendency to restrict pay claims made by workers. Marx said that a feature of capitalism was “The industrial reserve army” of the unemployed which fluctuates in size over the trade cycle. The existence of the unemployed dampens down pay claims.

Part 2: Value, Price and Inflation.

Part 2 deals with the question of price and inflation. This is a difficult subject. It is hard to summarise 150 pages of the first four chapters of CAPITAL into an easy format. It is impossible to go into every detail but the aim is to relate Marxian theory to the facts as they present themselves to workers.

We have seen that the basis of capitalism is the production and exchange of commodities for profit. Under capitalism the worker’s ability to work or his labour power is also a commodity. The important factor for the capitalist is that the exploitation of labour power creates unpaid labour time, surplus labour or surplus value which is the source of the capitalist’s profit.

Workers should understand the relationship of value to price. Commodities are related to each other by the value that is contained within them; that is by the socially necessary labour that goes into their production. This insight would allow workers to recognise the part played by money in inflation.

Marx showed through the application of his Labour Theory of Value how the different types of commodities are related to each other. All commodities are the product of labour applied to nature-given materials. The value of commodities is formed by the social necessary labour that went into their production. So if it took 5 hours to produce a chair and ten hours to produce a table then one table equals 2 chairs.

All commodities can be related to each other which include gold. In the development of the market precious metals like gold and silver became to be exchanged for other commodities. And for historical reasons gold became to act as the universal equivalent. Although, remember this, it is not gold that gives value to other commodities but that the value of gold derives from a certain amount of socially necessary labour which went into its production.

So a certain amount of gold = one table = four pairs of shoes and so on. The value of gold can be expressed in terms of all other commodities.

Gold used to be weighed against other commodities but historically gold coins of specific weight and fineness came to be used because it was convenient for bankers, traders and governments. Coins were guaranteed by law and so there was no need to weigh them. 1 gold sovereign equalled a certain amount of gold. Gold coins could then become an embodiment of value.

There were national variations in the weight of gold coins. £1 gold sovereign equalled a ¼ ounce weight of gold which represented about 123 grains of pure gold. The US dollar differed in weight to the British sovereign so 4.86 US dollars equalled £1.

Gold, then, had value. Its value given by the socially necessary labour that went into its production. “money…serves as a universal measure of value. And only by virtue of this function does gold, the equivalent commodity par excellence, become money” (p. 97).

Although imperial measurements are no longer used being replaced by metric measurements they are used by Marx in the various editions of CAPITAL. In this respect imperial measurements are going to be used in the following examples.

Suppose 1/2oz of gold equals 10 hours of socially necessary labour and two chairs took 10 hours of socially necessary labour to produce then 1/2oz of gold equals 2 chairs. Value given by the socially necessary labour time is therefore is expressed in all commodities. If commodities are thought of as embodied socially necessary labour then a permanent relationship can be formed between commodities and their respective values.

In terms of price, if £4 sovereigns equals 1oz of gold = 20 hours of socially necessary labour time then prices of other commodities can also be given. If £4 = 1 oz of gold and it has the same ratio of 20 hours of socially necessary labour as 2 tables then £4 = 2 tables or £2 = 1 table. Value then can be expressed as a price.

But note this; the value of a commodity can change. The value of a commodity can rise and fall.

In some industries, like mining, changes in the techniques of production can make mining ore easier. If the use of new machinery can lessen the amount of socially necessary labour time to produce a commodity the value of the commodity would fall.

However, as rich veins of ore are exhausted near the surface it becomes necessary to dig deeper and deeper. If it takes more socially necessary labour time to mine deeper veins of raw resources then the value of the commodity will rise. Within the productive process these two factors operate against each other, particularly in mining. As a coal mine, for example, becomes deeper to obtain coal more social necessary labour power is required while greater efficiency and application of technology has the opposite effect. Such tensions are known to the producers of raw materials. The old National Coal Board once reported that they had to run faster and faster in order to stand still because the need for deeper coal mines soon negated increased use of efficiency in the mining of coal.

If the value of a commodity can rise or fall then so can its price. However, except for certain exceptional times over the last century it is very rare to see the general price level fall. It is always the other way, and for a very good reason.

To understand why the general price level has risen over the last fifty years it is important to understand gold as the universal equivalent. The value of gold can rise or fall depending on the circumstances where more or less socially necessary labour has gone in its production. Both circumstances have occurred.

Suppose it took 10 hours of socially necessary labour to mine ½ oz of gold which equalled 2 chairs taking the same socially necessary labour time. Then, with efficient mining practices it then took five hours of socially necessary labour to mine ½ oz of gold. This would have an effect on the value of the chair. It would mean that a 1 oz of gold equalled two chairs or ½ oz of gold equalled one chair.

This underscores an important point Marx made about the difference between the appearance of capitalism and its reality. The reality of the value of gold going down has the appearance of a rise in all other commodities and vice versa.

Marx was well aware of the properties of gold. He said that there was an upside down relationship between the value of money and prices. He said: “Money reads prices backwards” (CAPITAL VOLUME 1 Ch. 3 page112). What did he mean by this?

When the general price level starts to rise there is an increase in prices. However, turn the thing around. Then a rise in prices corresponds with a fall in the value of money or, to put it another way, a rise in prices is a fall in value of gold. This can be seen if we supposed a 100% increase in prices, then there would be a corresponding fall of 50% in the value of money.

In 1967 the Labour Government devalued the pound. Wilson, then prime Minister, said that it would not affect the pound in the pocket. He claimed that the devaluation of the currency was not taken place but it was not true. There was devaluation and prices increased because there was a fall in the value of the pound.

This brings us on to the question of inflation.

The term “inflation” is now totally misunderstood. Inflation now covers every price rise. This is not so. Here are the following four examples of a rise in prices which are not inflationary:

• The case where there is a boom and prices rise

• The case of a slump or depression where prices fall

• The case of a monopoly where there is an increase in price over the value of the commodity.

• The case of subsidies by the government which reduces prices under the value of the commodity.

This leads on to the question of how much currency is required for the process of buying selling.

Given a certain volume of transactions a certain amount of currency is needed but clearly not as much as the transactions themselves. This is because the same note can be used by a worker to buy commodities from the supermarket which can be used by the shop to pay the wholesaler and then circulates around again.

Suppose in the 19th century in Britain that the amount of currency required for circulation was £100 million of pound sovereigns and this represented £25 million oz of gold to carry out the process of buying and selling. We are still dealing in the value of gold given by the socially necessary labour time that went into its production.

Unlike modern currencies the paper currency used in the 19th century, usually in denominations of £5, £10 and £50 was “as good as gold”. By law the Bank of England had to pay on demand ¼ oz of gold for each £1. In short the paper currency was convertible and this was the case between 1820 and 1914.

Let us make a thought experiment. Suppose all the £25 million oz of gold disappeared and were replaced purely by Bank of England notes. This would make no difference to the level of prices. The price level would be safeguarded because the paper currency in circulation will still be tied to the value of gold even though that gold would have been removed.

Today the pound coin or £5 note is not convertible. The currency is now inconvertible.

Returning to our thought experiment, suppose there was still needed £100 million of sovereigns needed for circulation and the government or Bank of England pushed a further £300 million of notes into circulation. This is what has happened over the last eighty years or so. Price levels have correspondingly increased by about 7 times they used to be in 1938.

Given a certain volume of transactions the amount of gold required is £25 million whose value is formed by the socially necessary labour that goes into its production. If 3 times the amount of inconvertible paper currency were to enter into circulation all other things being equal then the total volume of transactions has not changed. What does occur is that the 3 times increase of inconvertible paper currency changes the amount of gold required. Each paper note is now worth a 1/3rd of its value. One table is now worth £6 and the purchasing power of the paper note has fallen by 1/3rd. Say, since 1938 the amount of currency entering into circulation has increased by seven times. However, more currency would have been needed because there are more consumers and more trade. If we allow for 2 times the increase of currency into circulation since 1938 to cover a greater volume of trade it is clear that there is too much currency in circulation.

In fact prices have generally risen by four times the 1938 level but statistics can rarely be given absolute accuracy. Other factors can intervene like fluctuations in supply and demand and so on. As has been noted; in good trade prices tend to rise and fall in depressions.

However it is important to recognise that the sum of values equals the sum of prices even allowing for deviations. You cannot take out of the economy more than you put in.

A practical consideration now needs to be given in relation to wages and prices. In the media there is often a debate on what causes inflation; higher wages or prices. Economists and politicians assume one or another of these factors but in fact both are wrong, or to be more precise they are both irrelevant as an explanation.

Consider the following analogy. Is it a good harvest which causes a large number of people to visit the country or is it a large number of people who visit the country which causes the corn to grow. Obviously it is neither. What causes the corn to grow and for people to visit the countryside is the sunshine.

So what does cause wages and salaries to rise? When trade is good workers are able to gain more wages out of their employers who do not want to see production stopped and are willing to give more in the expectation of making more profits. In a depression the reverse is often true and with levels of high unemployment workers struggle to maintain their current wage levels from falling. A two way struggle is always taking place; sometimes favouring workers sometimes the capitalists. When workers gain higher wages in the class struggle it has nothing to do with inflation.

What of inflation? Economists fail to recognise that the reason why wages rise and commodities rise is because of a general rise in prices. With a massive depreciation of the currency it is a sellers market where sellers are able to put up their prices including the worker’s wages and salaries.

Most economists of the 19th century, including Karl Marx, were in general agreement that prices were controlled by regulating the amount of notes and coin in circulation. Marx defined “excess” as an amount of notes and coin in circulation in excess of the amount of gold that would be in circulation if all currency was gold. Marx noted:

If the paper money exceed its proper limit, which is the amount in gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name of not ¼ of an ounce, but of 1.8 of an ounce. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed as £2”.
(CAPITAL VOL. 1, ch. III, section 2c p. 128).

If you have a general and continual inflation with more paper money around employers will cede say a 10% rise in wages to workers because he knows that when his commodities come to be sold he will be able to sell them for 10% more. If the capitalist was not able to pass on the increase in costs this way he would have to struggle and resist the worker’s pay demand because in this case the increased pay to workers would come out of existing profits. But in an inflationary situation he does not have to face it in this form.

Inflation, though, does concern the capitalist class. It was Keynes who said that there was a general trend for industrialists to favour inflation particular if they were heavy borrowers from the banks and the banks to favour a more or less stable currency. During inflation heavy borrowers often gain and lenders lose out. Inflation is perpetrated by those who control the money supply. Inflation just does not happen. During the great German inflation of the 1920’s the government’s printing presses were working overtime to push notes out into circulation. The 1 million mark made its first appearance only printed on one side to save money. The inflation rate was engineered by the German State in collusion with the large industrials like Krupp in order to shed the burden of debt. If loans are taken out at one level say £1 but paid back at a devalued lower level of 10p due to inflation it favours the borrowers not the lenders.

There is of course a moral display of indignation against inflation. And that is the stupid belief that inflation is caused by greedy people. People like philosophers and theologians say that “the love of money is the root of all evil”. Yet when it is pointed out that the capitalist class; that is about 10% of the population, own 84% of the wealth there is a silence. It is easier to blame workers for inflation than to understand why it takes place.

A few years ago a rich millionaire commented that she had a detached attitude to money. The very rich are often saying things like this. But they are never so detached as to cut themselves free from their wealth. The capitalist class will never voluntary give up their ownership of the means of production.

All the reasons given by the economists and politicians for inflation are wrong. But the erroneous reasons for inflation cause utter confusion. Housewives or house husbands blame the greedy middle men for rising prices; the motorist blames the oil companies; commercial banks blame the corporations and the media and politicians blame the working class and want to impose on them an incomes policy.

There was a period last century when prices did fall. They fell from 1921 for about 10 years. If you look at the accounts of this deflationary period you will find economists and politicians saying exactly the same as they are doing today; but then it was why are prices falling and what are we going to do about it?

Yet in 1921 economists and politicians did not praise the working class for bringing down prices. Instead they blamed workers for not working hard enough, for going on strike and for not entering into productivity deals. A few years earlier the workers were heroes and were going to have homes built for them as a thank you by the capitalists for fighting their war in their interests. The status of working class hero did not last the first strike. Economists and politicians are not students of economics but write for the moment; principally to defend the interest of the capitalist class and to attack workers.

Even though Capitalism is full of contradictions it is weighted in favour of the capitalist class. They have their economists blaming the working class and have their politicians ready to produce policy on which the pain and discomfiture will fall onto the working class.

What Economists and politicians never say is that you could have production and distribution taking place without the need for the price mechanism. The Socialism advocated by the Socialist Party of Great Britain is totally ignored. This is what you would expect from defenders of capitalism.

But the Socialist case against capitalism is not directed at the capitalist class and its political agents. We aim our propaganda towards the working class. We want workers to understand capitalism, to recognise why it cannot be reformed in their interests and to organise consciously and politically for the establishment of common ownership and control of the means of production by all of society.

Back to top

Socialist Studies

email: enquiries@socialiststudies.org.uk | www.socialiststudies.org.uk