The Reconstituted Socialist Party of Great Britain (1991). A series of five lectures by Camden and North West London Branches.
Marchmont Street Community Centre, Marchmont Street, London
Date: 26 July1986
Speaker: Comrade E. Hardy
Chairman: Comrade Cyril May
Lecture Number One: Prices, Wages and Unemployment.
Introduction: Similarity of Capitalist Countries
Comrades and friends.
You know the subject we will be discussing today; Prices, Wages and Unemployment.
I want to draw your attention to something you know quite well.
If you listen to politicians and people in the media talking about foreign countries you will notice that they are very fond of emphasising differences between one country and another. So much so, that when they describe the way we live here in Britain to the way people live in some other countries, we might suppose that both populations lived in entirely different worlds.
I’m going to take the opposite line. I’m going to draw attention to similarities between the some hundred and sixty odd countries in the world.
Firstly, if you go to any one of these countries you will find there is one thing they all have in common and that is that everything there for people to exist and reproduce their lives has a price.
Secondly, whatever people need to exist has to be paid for. That of course means, that for every country in the world there is a monetary system, because the price people pay for anything they need to live on is in terms of money.
Thirdly you will notice that while there are various alternative ways of getting a living that is, getting hold of money, the great bulk of the population in this country forms a working class. Workers do not own the means of production; factories, offices, transport systems and so on. And to obtain money to buy what they and their families need requires these workers to get a wage or salary. And to get a wage or salary requires being employed and to be employed requires an employer. You will find the same thing in all the other countries of the world. You will also notice that the more money a person has, the more he can buy. In other words in every country in the world you will find rich and poor; some people will have a lot of money, and some people will have very little.
And fourthly you will notice this; if a person is a member of the working class, that is to say, if he or she depends for getting their living on having a wage or salary, that is, as an employee, they may run into the opposite side of the situation; they may lose their job, they may become unemployed.
In every country in the world what the workers produce, the food, clothing, shelter, motor cars and all the rest of it, does not belong to them, but belongs to their employer, whether that employer is an individual or a company, or a government department in a so-called State Industry. The social wealth workers produce belongs to their employer.
So we have got four very important aspects about people’s lives, which are, more or less identical in every part of the world that you may choose to go to.
Now this system with its prices, money, wages and employment has a name. It is called Capitalism. And it is called Capitalism because the employers, the capitalists, invest their money, their capital, in setting up factories and mines, offices, plant, transport and communication systems for the purpose of making a profit. And this feature of production exists all over the world.
Now, before I go on to deal with what determines prices, the price of each commodity, I want to get rid of an idea which is very popular among a lot of people today.
For most of the lives of people now living in this country today, prices have been going up for fifty years or more. A lot of people believe, as do a lot of economists, that it is natural and inevitable for prices to go up. It isn’t natural or inevitable and it isn’t true.
If you look at the last two hundred years in this country, you’ll find that the total period when prices were either stable that is, neither, going up nor down, or when they were falling; greatly out-number the years in which prices were rising.
The figures work out something like this; that, prices have been rising in the last two hundred years for about eighty years, and for the remaining one hundred and twenty years in the last two hundred, they have either been stable or they have been falling. So I repeat it is not natural and inevitable for prices to rise.
I shall come back to this later, but, I shall just remind you here, that whether the general price level is rising or falling or stable, depends on the Government and nobody else. Rising prices are not due to wages, or profit or anything like this. Price rises is an act of the Government. I will explain why this happens later on, but I’ll just repeat this, if the Government wants a stable price level, they can have it, if they want a rise in price levels they can have it, if they want a falling price level they can have it. Inflation, deflation or a stable currency is a matter for governments to which workers have no interest. The interest of workers economically within capitalism is the wages and salaries they receive. Politically, for the working class, the issue resolves around the abolition of the wages system.
Labour Theory of Value and Prices
I now come to the question of the determination of price. What is it that determines the price of the commodities, the price that you have to pay in all the hundred and sixty countries in the world, if you want to get hold of something?
I suppose everybody must have wondered at some time or other, why for example, a pound of diamonds or gold, costs ever so much more, hundreds of times more than a pound of bread, or coal, and why a pint of whiskey costs so much more than a pint of water.
Now some economists have tried to explain it on the grounds of usefulness, Now, I defy anyone to prove to me that diamonds and gold and whiskey are more useful than bread, or even coal, I just don’t believe it and I don’t think anybody who gives it a moments thought believes it to be true either.
Karl Marx provided the explanation as to why different articles, commodities as he would call them, have high prices and some low prices, and so on. His explanation was in what he called his LABOUR THEORY OF VALUE.
The Labour Theory of Value is quite a simple thing. It is based on common-sense. And that is this; if one article takes say twenty hours of labour to produce, and another one takes forty hours, then the one taking forty hours will have twice as much value, will be twice as valuable, in Marx’s terms, as the one which was produced in only half the number of hours.
And in the early days of capitalism, before there was any development of machinery it was roughly true, that all commodities did sell at their value, that’s to say their price and their value were roughly the same. So that, if one article cost twenty hours socially necessary labour to produce, and another one only cost ten hours, then first one would have a price twice as much as the price of the second one.
In the modern world things have become different, but it is very important that you should get this basic idea in your mind, that price is related to the number of socially necessary hours required to produce the different commodities.
The number of socially necessary hours required to produce, for example, diamonds is very high, whilst the number of hours to produce a pound of bread is very much less, which would explain roughly the difference in their price. But in the modern world with the development of machinery, the thing has become more complicated, as Marx explained.
While time won’t permit me to go into all the details of the explanation, it is sufficient to say, that in the modern world some commodities always sell above their value, and some commodities always sell below their value. If you want a little bit of background to this matter, the industries in which there are a large number of workers employed, and very little machinery, sell below their value, and the industries in which there is a lot of machinery, and relatively few workers, go above their value.
And, as I say, it would take too long to go into the details. However, you can look it up in Marx’s CAPITAL (see volume III ch. IX Formation of a General Rate of Profit(Average Rate of Profit) and transformation of the values of commodities into Prices of Production pp154 – 172 Lawrence & Wishart 1971)) and you can find the explanation of this. Having said this, value and therefore price is related to the number of hours of socially necessary labour required to produce a commodity.
However, you have got to think carefully about what Marx meant, when he related value to the socially necessary number of hours which went into the production of a commodity.
If we say, at a given stage of the development of industry and machinery and efficiency, the general average throughout any particular industry, say, bicycles, showed that a bicycle could be produced in say, five hundred hours on average, and its price related to the five hundred hours, you might get a very inefficient firm which took a thousand hours, well it would not do them any good.
The extra five hundred hours they put in are wasted because obviously if some people are selling bicycles related to five hundred hours labour and the very inefficient firm comes along and says look it takes a thousand hours and we want to sell them at double the price then they won’t be able to sell their bicycles and will be out of business the next week. So it’s the socially necessary number of hours that count.
Also, and this is very important, if you try to follow what the journalists write, and people among the media tell you about increased productivity you will find that most of them know nothing at all about it and have got the picture all wrong. What is relevant here is this; Marx insisted that the amount of socially necessary labour required to produce anything, is all the labour required to produce it, right from the beginning of the process to the end.
Some people have erroneously written that the number of socially necessary hours labour required to produce a loaf of bread is the number of hours spent by the men in the bake-house. Well it just is not true. Most of the labour required to produce a loaf of bread starts with sowing the grain and getting in the crop, milling it and transporting it and putting up the buildings and the labour spent on the machinery in the bake-house long before the bake-house workers get to baking it. In short, most of the labour required to produce a loaf of bread has taken place before the bakers, the men in the bake- house get hold of it.
This is something you have to bear in mind in looking at Marx’s Labour Theory of Value.
Another point that is particularly important, is that, taking factory industry as typical, the general tendency is as the years go by, the number of hours of socially necessary labour required to produce a given commodity declines. In other words the industry with more machinery becomes more efficient. If say ten years ago it took a hundred hours labour to produce something, it might in the last ten years have fallen, perhaps from a hundred to ninety.
That is true of the factory industries, but it is not true of what are called the extractive industries, of which coal is a typical example.
A hundred years ago, people who wanted to start coal mining in this country, just needed a few picks and shovels, and some pit props, a few things like that, and the coal was right near the surface, and they could keep mining the coal relatively easily. Now of course you have got mines going down a mile to three miles under ground and requiring an enormous amount of labour, that was not necessary a hundred years ago. I have no doubt whatever that it takes at least as much labour to produce a ton of coal now as it did a hundred years ago.
As a production manager of the Coal Board once said, in the coal industry you have got to run faster and faster to keep where you are. The coal industry is not getting ahead and is fighting against adverse conditions. And that is true of extractive industry generally.
There are a few other things to remember. While Marx’s Labour Theory of Value is a good guide to prices generally there are some things that don’t come into the picture at all.
The price that some millionaire collector will pay for a Rembrandt picture has nothing to do with capitalist factory production. Capitalist production is concerned with the things that can be produced and reproduced, not what some collector will be willing to pay, because it happens to be the only unique painting in the world and he wants to get hold of it.
Also, monopoly comes into the picture. If some interested producers within an industry can grab all the supplies of some article they can put up the price almost without limit. However, they don’t stay up.
You will have noticed from the example of that, the OPEC oil producing countries got together a few years ago and said look we can squeeze the rest of the world, we can withhold oil and they did it, and they trebled and multiplied oil prices by four. Well the effect of the monopoly is of course, is that all sorts of other people will immediately move into the field and now you have got the reverse, you have now got the price of oil falling to ridiculous low limits. So remember that these and a number of other things fall outside the field of the Labour Theory of Value in relation to prices.
The Labour Theory of Value and Wages
The next stage is that Marx applied his Labour Theory of Value to wages. Anti-Marxist economists say, and most workers believe, that if you work a forty hour, five day week, and get a, say two hundred pound wage for it, that what the employer is paying you for, is, for your forty hours work.
Marx showed that this just simply is not true.
Here is an example which explains the point I am making about the application of the Labour Theory of Value to wages. By moving out of the field of wages, and into the field of slavery, imagine the slave owner who owns some slaves and sets them to work, producing food Suppose the slave owner found that at the end of the harvest that the amount of food the slaves produced was only just sufficient to feed them, and there was nothing left over, for the slave owner. He would say that this is no good.
The slave owner would either try to increase their output, or he’d try to get them to eat less. But there are limits to the amount he can get them to eat less, because, if he wants slaves to work they have still got to be healthy, and more or less well fed. You can bring this parallel example into the field of wages.
If as the economists say an employer pays you a fair wage for your forty hours work and most workers believe it, most workers say, well if our union negotiated it, then that’s a fair wage, that’s ok. Well, if that were true where does the employer get his profit from? If he’s paying a fair wage for the forty hours work, there isn’t any surplus, and, as Marx showed, this doesn’t make sense. What Marx showed, was that, what the worker sells, was not his forty hours of work, but what Marx called his Labour Power, his mental and physical energy to work.
What the workers do when they’re negotiating over wages with their employer is to sell to the employer their mental and physical energy, their Labour Power, for the whole of the week, the whole five days of the week.
The workers then gets to work, and like the slaves, who have to be able to produce more than they can consume themselves, the working class produce more in a week than they consume as wages. You can put it roughly like this; you can say that perhaps four days out of the five, the workers are producing the equivalent of their own wages. But they’ve sold their Labour Power to the employer for five days, not four, so the employer has the use of their energies for the fifth day as well.
This is what Marx called Unpaid Labour. The employer gets this labour for nothing. It is the source of the employer’s unearned income of rent, interest and profit, and there is no other way, of accounting for the profit that the capitalist gets, by going into business, and which, is the purpose of it.
A writer in the FINANCIAL TIMES a month or so ago, wrote an article attacking profit sharing, and in it he made a statement that what he called “the labour commodity” is just like any other commodity because there’s no difference between labour or say a bale of cotton, or a bus or something like that. So I wrote to him and I said, if this is true where do the employers get their profit from and why don’t they stop employing workers and simply go on buying cotton?
And I got a rather astonishing reply from the man. He wrote back and said: “yes, I’m writing with my tongue in my cheek.” In other words, he knew more of what he was writing, than he was going to tell his readers of the FINANCIAL TIMES.
Determination of Wages
We now come to the question as to what is it that actually determines the amount of money wages that workers get.
Why do some workers get £200 a week, others £150 or £140 a week? Even the same workers at different times may get different money wages?
It is important to bear in mind the background of this. Whatever wage the employer pays, he wants the unpaid labour of the worker to be as large as possible, and the money wage to be as low as possible. The workers on the same reason are pressing in the opposite direction; the workers are trying to push wages up the employer trying to put them down.
From now on the discussion will be in terms of real wages. Suppose prices went up by 10% and wages went up by 10%; the real wage, what the wages would buy, are exactly the same as it was before. So to make sense of this, in times of changing price levels, the only thing to do, is to talk in terms of real wages.
What determines the amount of real wages, that is, what the workers can buy with their wages?
There are a lot of really impossible theories about this. There is one impossible theory, that money wages simply follow prices, so if prices go up, wages go up, prices go down, and wages go down. Well if this were true, you would be faced with the situation that what the workers can buy now never changes; its exactly the same as it was ten, twenty or fifty or a hundred years ago, which if one looks up the facts one would find this is just absurd.
There is even a sillier theory that real wages go on falling. In other words as time goes by the workers get worse and worse off. You have only got to put this in reverse, read what was the condition of the workers in this country say during the “hungry forties” of the Nineteenth century and suppose they started to get less and less real wages so the position of the working class would become worse and worse for each subsequent generation. Well the working class would now be dead but they are not. It is just wishful thinking by people who do not look into things correctly but it has nothing to do with Marx.
That real wages continually fall is simply not true. I know a good answer to this fallacious argument. Information has been collected about the movement of real wages between 1850 and 1914. Now you see according to the first theory the real wages in 1914 would be exactly the same as in 1850, and according to the even more impossible theory, real wages in 1914 would be much lower than in 1850. Actually real wages, the average real wages of all the workers in this country, rose in those fifty four years by 90%. These figures are based on known information that’s easily verifiable. Various people have gone into this question and all have come to much the same conclusion.
There is another superficial theory that looks as if it must be true. There is a theory that falling prices must be good for the workers. If prices fall, what the workers wages will buy must go up.
There has been only one considerable period in this century that is between 1920 to 1933, when prices were falling. If this theory were true, the workers must have gained quite a lot when prices fell by nearly a half, between 1920 and 1933. Actually, when you look at this, it is one of the worst periods in this century for workers’ real wages. The theory stated here like the others is quite untrue.
A particular form of that theory, that falling prices must be good for the workers, is the idea that rent control must be good for the workers. The workers say, well if the government passes a law to prevent the landlord putting up my rent, then that must be good for me.
Again there is plenty of information on this subject.
During and after the First World War most of the countries in Europe introduced rent control. The International Labour Office set up a committee to enquire what the effect of it would be. They found, that in Germany and Austria and other countries rents were exceedingly low and, in fact, a lot of workers weren’t paying any rent at all. They said well how much are the workers getting out of this, and they published the facts and they said the working class gained nothing whatever.
The people who gained were the employers because, under the conditions of that time, they were able to keep wages down. The workers gained nothing, and the people who lost out were the landlords, as was of course, the intention of this policy.
Much the same thing can be shown in this country but remember you have to look at what actually does determine the level of real wages, to get the thing in proper perspective.
Now Marx gave the answer to this. He summarized it briefly in the pamphlet, VALUE PRICE AND PROFIT, where he said, that you have got the workers all the time pressing for wages to go up and employers pressing for wages to go down,
Marx said the matter resolves itself into a question of the respective powers of the combatants. And he recognised that the situation changed; that at one time the workers may have a bit of an advantage and at another time the employers may have but it depends on the he called the respective powers of the combatants.
Now here is a very interesting theme, Marx got the theories perfectly right and that is still true, so, when Marx looked into what he thought might be the prospects for wages he got it all wrong.
It doesn’t mean that he had forgotten his own summery of the situation. But he looked at the condition of the workers in 1848 and even as late as 1855 and he noticed in particular that there were practically no effective trade unions. Where there were trade unions and a trade depression came on the normal thing was for the union just to pack up and disappear. In a depression they had no effect at all. Looking at this situation, Marx came to the conclusion that on the whole, he thought that real wages were going to fall, the tendency was downward. Well he was quite wrong.
But, you see it was a very reasonable thing to say in the circumstances. He could not for-see the way unions developed, and became more effective. Trade Unions grew in size and became more effective, and the growth of the trade unions was to make a difference by the end of the century. Interestingly, his colleague Frederick Engels, shared Marx view at that time; it was Engel’s, as well as Marx, thought that the tendency was for wages to fall.
Looking back over the half-century, Engels writing in 1892 noted what was happening to trade unions. He watched the unions grow, and he watched wages rising. Engels referred, to what he called the remarkable improvement, in the condition of workers in the big trade unions. He could see it happening and it was true. And you remember I gave you that figure that the average real wages of workers between 1850 and 1914 rose by 90%.
Engels was in fact saying, well, our judgment in the middle of the century was wrong, we thought that wages were going down and they have in fact gone up, largely due to the growth and increased effectiveness of the trade unions. Of course there are some other factors entering in too.
But now let us look at what determines wages in the modern world. The two main factors are first, whether capitalism is in a stage of expansion, and boom, or whether it is a stage of falling trade and depression and secondly the effectiveness of trade union organisation and their intelligent use of it.
These are the two factors that determine the rise or fall of real wages. If those two factors are both relatively favourable to the workers, then wages will go up, if they are unfavourable, then they won’t go up, they will go down. And remember this, that the big rise of real wages in the last half of the nineteenth century, much of it was concentrated round the 1850’s and 1860’s, when using the well known phrase, Britain was the workshop of the world. In other words, British capitalism was booming, expanding more-or-less all the time.
And see how this works in practice. Suppose trade is booming the employers are making a lot of profits. The trade unions come along and make a wage claim and threaten the employer. Look, if you don’t give us it, we’ll come out on strike. The employer does not want a strike at that moment; he doesn’t want his flow of profits interfered with, so they make a concession.
Now when you look at the reverse position, when there is a depression on, the employee’s then go along to the employer and say if you don’t give us more wages we will shut your factory and he says don’t bother I’m shutting it anyway. And that’s the answer to it. So what behoves, trade unions, is to behave with intelligence so not to suppose that to stay out on strike for a year they can starve the employer into submission or some nonsense like that, but to note that if they can’t win quickly, they are not going to win at all, wait for the conditions to change.
Having stated the principle that the two factors which governs the amount of real wages, remember this, those two factors can operate, whether prices are stable, whether they are rising or whether they are falling, in other words you can have real wages rising, when prices are rising, or falling when prices are rising or any of the other situations. But keep your eyes on the two factors, capitalism’s state of trade, whether its expanding or in depression and the state of trade union organization.
Just to complete this section of the lecture, I would say this, prices have been rising for the past fifty years in this country and in most of the last fifty years wages, money wages, have risen more than prices, so, that the average real wages of the workers now, is considerably, and very considerably more than it was in 1938.
Boom and Slump
When I talk about, boom and slump, it isn’t only the question of a general world-wide boom and depression. This was the case in 1979. Then you got more or less a world-wide falling back of trade and production which went on for three or four years in some countries. The situation has more or less recovered. However in Britain, although production has gone up again, it has had no effect on the unemployment rate. The important thing to remember is that you have to separate a world-wide depression from the tradition of a particular country.
Now it just happens that British capitalism which used to rule the roost has been going down, all this century. You must have seen articles and statements by politicians about the decline of British manufacturers and about they must have lost about a million workers and this sort of thing, Well, in 1900 British exports of manufacturers was 33% of the total world export of manufacturers and even as late a 1931 British exports of manufacturers was the largest in the world.
Well, considering the figure of 33% in 1900, it has been falling all the time, and is now down to about 7%. So in addition to what might be the result of a world-wide depression on British unemployment, you’ve got other unemployment arising out of the fact that British capitalism has been losing its relative position on the world market.
There is another factor to remember. The Government Statistical Offices used to publish figures every year. These figures included the total profits in the manufacturing industry, and the total wages bill in the manufacturing industry. This gave an excellent basis for comparing profits with wages. In 1950 manufacturing profits were 50% of the total wages bill. This figure has been falling. By 1970 it was down to 29%. In other words the British manufacturers were losing ground, they were unable to compete with foreigners and this loss of profit was the consequence.
We now come to unemployment. You have a world depression from which all countries to some extent suffer unemployment. And you have the economic decline of British capitalism in some major industries which also effects unemployment. However what is the general cause of unemployment in the capitalist world at any time?
And here again we are indebted to Marx.
Marx pointed out that the capitalists of the world are competing with each other, like, capitalists in the clothing industry are all competing for whatever the market there is, anywhere in the world. As Marx pointed out, the share of the market goes to the one who can produce most cheaply, and the one who can produce most cheaply, is the one generally speaking who has the most modernized and mechanised production. In other words they introduce labour saving machinery to increase their efficiency.
However, you will notice that when they talk of introducing labour saving machinery what they mean is that in the year before they introduced the machinery they were employing 1000 workers but after introducing the machinery they were now employing only 900 workers. 100 workers had been made unemployed
Now this is going on all the time in capitalism quite apart from the rise and fall of unemployment associated with boom and depression. So capitalism is as it were always squeezing some workers out of jobs into unemployment.
If you were to ask the average politician, according to which party he belong to, or, ask the average economist, or a political commentator, they will, say to you: “ah, it depends on the sort of government you’ve got”. If you get an uncaring woman like Mrs Thatcher, you’re going to have half-a-million unemployed but if you get somebody else like a Labour Prime Minister a different type, with a soft heart, then unemployment will simply disappear.
If this were true, it means that unemployment depends on the government of the day. If unemployment goes up, the government must have done caused it to rise. Well, let me tell you, a certain party was in power, four times, between 1929, and 1959, over fifty years, and every one of the four times in which they were in power, unemployment went up, the first time it went up enormously, and the last time, it went up from six hundred thousand to one million, three hundred thousand. And that was the Labour Government. Well if the Labour Government had a solution for unemployment where was this policy, all these times?
No government wants unemployment to rise, neither Labour nor Tory. They and the capitalists would love to see all the two and a half million unemployed workers producing lovely profits for them. They cannot do it. Capitalism just doesn’t let them. Governments do not control unemployment.
Unemployment takes its own course. No matter what governments do, whatever policy, they may chose to introduce, unemployment will go on rising and falling, it always has, and it will continue to do so; so long as capitalism lasts.
But now you see, all governments are in a dilemma. They will all like to see unemployment fall If British industry, loses its leading position and becomes, relatively more and more inefficient, you get more and more unemployment because the capitalists cannot secure the markets. So you get unemployment that way if the government does nothing.
Suppose the government comes in and brings tax concessions and so on, to encourage firms to introduce more machinery and modernise firms. The effect of introducing labour saving machinery will have the consequence of putting workers out of work. So, whatever the government does and whatever industry does, there is going to be unemployed workers. They have got no choice about it. It’s a dilemma they face and they simply have no way out of it.
Of course, when parties are in opposition they promise anything and everything. They promise they’ll solve unemployment when they get back into power. But it is entirely bogus. Politicians and their economists cannot prevent unemployment.
Capitalist efficiency and competition
Some years ago Mr Macgregor, perhaps then the most hated man in Britain, said he was going to get rid of forty thousand miners by closing down uneconomic pits. And then there was the recent case of Labour MPs who couldn’t contain themselves when they learnt that British Rail was going to get rid of eight thousand railway men.
Now take your mind back a few years to1965, when the Labour Party introduced what they called their National Plan.
The National plan was about five hundred pages long and was adopted by the Labour Government as their official policy. It was produced by Harold Wilson, the Prime Minister, to revitalise British Industry, reverse the decline of manufacture, get everything efficient and recapture the markets and all the rest of it. Well, one of the first things you’ve got to notice is that Mrs Thatcher understands very little about capitalism while Mr Kinnock and his Labour Party understand even less.
In 1965 the Labour Government assumed that there would never be any problem of unemployment. And in the National Plan they said that with no unemployment there would, in fact, be a shortage of eight hundred thousand workers.
Labour believed the problem they faced was to find eight hundred thousand more workers. They concluded that four hundred thousand or so will come out of the increase in population with four hundred thousand school leavers coming into the market between 1965 and 1970. The shortfall would be met by increasing output per head, that is, by getting nine workers to do the work done by ten before. They believed that that would cover the shortfall of two hundred thousand workers by the 1970’s. They also planned to increase total production by 25%, put up wages by 20%, build five hundred thousand houses a year, and keep prices stable.
Well, everything went wrong with Labour’ National Plan. Total production didn’t go up by 25%, it went up by about 10% output. Wages did go up quite well; they went up about two thirds of the planned level. Prices didn’t keep stable, they went up by 31% and at the end of the road it wasn’t that they were short of two hundred thousand workers and would have to look for them somewhere, but unemployment had gone up by two hundred thousand. In short, the whole plan became unstuck, but what was very interesting about the National Plan was the case of coal.
In Labour’s plan they proposed to get rid of two hundred and forty thousand agricultural workers, they were going to re-organize agriculture, they were going to put more machinery on farms, increase output and so on. They were also going to get rid of ninety-nine thousand railway men and they were going to get rid of a hundred and seventy nine thousand miners not the mere forty thousand that Mr Macgregor wanted. And the reason was profit as it was with Mr Macgregor. When Macgregor came along in 1984, he said, look, we’ve got to close down unprofitable pits and this is exactly the same thinking contained in the National Plan the Labour Government enacted in 1965.
The Minister who was in charge of the National Plan was George Brown, later to become Lord George Brown. What was interesting was that when George Brown outlined this National Plan to the Labour Party conference in 1965, he told them what was going to happen. He said look, we’re going to release a hundred and seventy thousand miners, a hundred and forty thousand agricultural workers, and ninety-nine thousand railwaymen but by the way there is a shortage of labour in the economy which will be absorbed by the unemployed workers. He was not booed off stage. In fact he got a standing ovation for it.
In other words, the Labour delegates believed like he did, that there was a shortage of labour, and that they hadn’t any unemployment. They were wrong. The Labour Government made all these workers redundant but there was not spare capacity in the labour market to absorb them. They joined what Marx called the Industrial reserve army of the unemployed.
Some complained about the unfairness of the honours list. George Brown became Lord George Brown for the amount of miners made redundant in the National Plan while Mr Macgregor only got a knighthood for what he did in the service of British capitalism.
The Pearson Group.
I now want to leave capitalism in general and come to a particular company, The Pearson Group. I would describe it as a sort of mini capitalism or if you like a photo kit of British capitalism.
The Pearson Group is a rather unusual company. It’s large but not very large, but it’s unusual in that unlike most companies who work in a particular industry, wholly or mainly in this country, the Pearson Group works on the continent, Australia, North America and Asia. And they operate in engineering, oil and gas. They publish Penguin books and newspapers and journals including the FINANCIAL TIMES and the ECONOMIST. They are involved in banking, fine pottery; in television and films. They own Madam Tousauds and Chessington Zoo. They are in farming and land development. And lastly they are in wine production with their own vine-yards in France.
Why are they a kind of photo kit of British Capitalism? The reason is quite simple.
The Pearson Group falls into line with the general problems faced by British capitalism. Take the example of pay. They employ 30,000 workers and their pay averages £10,000 a year, roughly a £192 pounds a week. And the real pay of these Pearson’s workers has gone up quite steadily in the last five years something I will return to this later.
Earlier in the depression Pearson’s suffered a big set- back, their turnover declined their profits declined, although they have since recovered quite a lot.
Now you will have read the statements in the press this week about how the number of shareholders is increasing, how a lot of people with money have been persuaded to buy shares in British Telecom and elsewhere and that the number of small shareholders is going up.
Quite true. But when you look at Pearson’s you’ll see what this really amounts to.
Pearsons has outstanding a hundred and ninety six million shares owned by thirteen thousand eight hundred shareholders. Most of the shareholders are individuals, but among what they call the shareholders, there are Banks, insurance companies and pension funds.
However the bulk of the individual shareholders own less than two thousand five hundred shares. They are small shareholders and they represent about eighty or ninety per cent of all the shareholders but they only own 6% of the total number of shares.
In other words, their influence on the company is none whatever. When you go to the top end there are thirty eight big share holders who between them own 53% of the hundred and ninety six million shares. In other words, they are the thirty eight who have complete control of the company; they’ve got eleven directors four or five whom are quite low down the scale, ten thousand a year like the average pay of their workers. But at the top end, you’ve got one who gets a hundred and twenty five thousand a year and another one who gets a hundred and seventy thousand a year.
Now look at how much unpaid labour Pearson gets out of the whole of their undertaking. If you relate their £72 million profit after they’ve paid tax, to the wages of the thirty thousand workers they employ, the picture you get is, that their thirty thousand staff are working four days a week to produce the equivalent of their wages, and their fifth day, is devoted to providing profit for Pearson and the rest of the companies, It is of course what Pearson is in business for; exploiting the working class in order to make a profit.
Pearson is fairly typical of what has happened to British capitalism over the years. However there is another reason. Marx laid down a fundamental law of Capitalism in Britain or capitalism anywhere; it is this that capitalism cannot stand still.
The company that stands still disappears; a company in order to survive has got to expand. Well, if you look at this you’ll see that Pearsons are aware of this. Pearsons are aware of this for all of their companies. They know they’ve got to expand to survive.
Now out of their total profits in the last five years, they’ve only paid out a quarter of their dividends and they’ve retained three quarters of the profits in the company, this again is more or less typical of British Capitalism.
This, then, is the answer to Marx’s law.
Either you expand or you disappear, because the cost of machinery and all the rest of the equipment of capitalism carries on growing year by year, it gets more and more and you either expand with it or you just don’t succeed in paying your way. So in spite of this, in spite of Pearson ploughing back into the company the greater part of all their profit, they’ve been losing ground. And financial groups have been noticing this.
You have probably read about Pearsons in the newspapers. Companies have been maneuvering in the background to try to take-over Pearson’s business These companies are saying that Pearson’s hasn’t been doing badly but if we get hold of them we could do a lot better, and they’re willing therefore to pay quite a high price for Pearson’s shares in order to get hold of the company.
Pearson’s, of course, are fighting back by reducing costs and this means an attempt to reduce the number of workers they need to employ. They are behaving no differently than any other business in capitalism.
Now I said that Pearsons employ thirty thousand workers and it is true last year trade was beginning to pick up again. Pearson took on 2286 additional workers in the whole Pearson group. But, in the previous five years they had got rid of 5400 largely because of the depression. When a depression begins companies try to tighten up their organization. In the case of Pearsons it was to get rid of 5400 workers. Now business in the Pearsons group is picking up so they are going to employ 2286 workers but not at the numbers of a few years ago. And another development is taking place,
The FINANACIAL TIMES employs fifteen hundred workers. Pearsons have looked around and seen Mr Mathews and Mr Murdoch and all the rest of them using the modern printing techniques and getting rid of workers. The FINANCIAL TIMES is going to do the same. They are planning to get rid of 400 workers, at a cost of £22 million in redundancy pay which they reckon the workers will accept. And that these cuts will allow them to expand and be profitable again.
In short, this picture of Pearson’s is, as I have said, a miniature of British Capitalism. Everything about the problems faced by the Pearson Group is what’s going on, in British capitalism or Capitalism all over the world.
The Government and the Price Level.
I said earlier, that I would deal with the power of government to raise or lower the price level.
Again Marx dealt with this topic as an application of his Labour Theory of Value.
Marx presented this picture.
He said, suppose that all of your currency is gold. In this example, you have nothing but gold coins circulating with some minor copper coins related to it. But at a given level of population and production a certain amount of gold will be needed to provide that currency, to keep things going. Suppose, say, a hundred million ounces of gold are required.
Now Marx said suppose you got rid of your gold currency or gold bank currency and replaced it with paper money. He was not just talking with his head in the air. In the nineteenth century and continuously from 1850 to 1914, British currency was on the gold standard, gold coins did circulate, and by law, the people who held paper money, which were Bank of England notes, could go to the Bank of England anytime and demand that they be given the equivalent of gold for their notes. Roughly it was at a ratio of a quarter of an ounce of gold for every pound, or vice-versa they could take gold there and get notes for it, which meant that the price level was tied to gold.
Now Marx said if you take gold away and replace it with paper money which is based on nothing like the present paper currency then, nothing happens immediately. But if you double the amount of paper then you’ll double the price level and conversely if you half the amount of paper money you’ll half the price level. Again Marx is not just talking with his head in the air. In the nineteenth century, when the gold standard operated, in other words, when prices were tied to gold, the price level in 1914 was almost exactly the same as it had been in1850. That is not to say that it goes down a little in times of depression and up in periods of boom, but from beginning to end of this period it was more-or-less on a straight line.
Actually it had gone up according to one calculation by 2% in sixty-four years, in other words prices were stable. Post-1936, every month the government has pushed out more paper into circulation. There is no restriction at all. There hasn’t been for fifty years on the ability of the Bank of England to put more and more paper money into circulation and they’ve gone on doing it.
The amount of currency now in circulation has risen from five hundred million to getting on for twelve million seven hundred thousand. The price level now is twenty-one times what it was in 1938.
So, first, you have an example of prices being kept stable by government. Secondly, you have prices rising due to governments authorizing more paper currency being printed that is needed by trade.
But you have a third situation; governments deliberately withdrawing currency from circulation to bring the general price level down.
Here are two examples. Prices fell after the Napoleonic Wars through a deliberate policy of restricting currency in circulation. This was known to and written about by the economist David Ricardo.
And it happened this century between 1920 and 1933. The Lloyd George government decided to bring down prices, they set up a committee of enquiry that recommended the Bank of England, reduce the note issue. And as notes came in to the Bank of England through taxation the Bank of England burnt them. They burnt millions of notes, and cut down the note issue enormously. As a result prices came down about 35% in two or three years.
So as I said, Governments can take either of those two courses; either increase general prices or reduce them..
I would however remind you, that it doesn’t make any difference to the position of the working class. The price level isn’t a working class issue.
The situation would be capitalism whether the price level was rising, falling or stable.
And there is another warning, if you follow the statement in financial columns and by the Chancellor of the Exchequer, you will have heard in recent years a constantly referring to the money supply and how they were controlling it.
My warning to you is that it has nothing whatever to do with the currency. When they talk about money supply they do not mean notes and coin. It has nothing to do with the theory of Marx. The Banking theory on which they work is an entirely different one. It is a theory invented by the economist J M Keynes and adopted by the monetarists like Milton Freedman, who put forward the fantastic notion of what determines the price level, is the banks. If the banks have lent a lot of money, prices go up, if they don’t prices will go down. You don’t want to take any notice of it. This theory can quite easily be shown to be complete nonsense.
But there is an important aspect that applies to everything else. You will find economists, writing about it is good for the population of Britain to have inflation or deflation, or the gold standard. They are completely off the mark. The question at issue has nothing to do with what is good for the population of Britain and has got nothing to do with what is good for the working class in Britain. But it also has got nothing to do with what is good for the capitalist class in Britain. This question is one of a division of interests among the capitalist class.
J M Keynes recognised this when he was writing about the past, but couldn’t do it when writing out the present. There are some industrial capitalists who are heavy borrowers from the banks. Now if an industrial company can borrow a million pounds from a bank and repay in five years time and you have inflation, at the end of five years what, a pound, will buy has fallen a lot. In fact the industrial capitalist reckons I’m in clover here I borrow a million pounds at a certain price level, I repay it when prices have gone up I’m repaying in depreciating currency I’ve done very well for myself. Some other industrial capitalist those engaged very much in foreign trade will not take that view. They will say this is true but we need a stable foreign exchange rate, and that means stable prices.
Now between 1920 and 1932 when prices were coming down the people who romped home were the lenders, they had lent money and were getting it back, and every year, as they got it back, it would buy more and more, because prices were falling.
Now the third group, are some industrial capitalists and the bankers. The bankers are both borrowers and lenders so they don’t win nor lose either way, so the bankers prefer the gold standard which keeps prices stable.
Now it’s very important to mention this particularly because this division of interests among the capitalist class is totally disregarded. But it applies to everything, all these aspects of capitalism, you see different interests involved.
You get some people say, look we want lower interest rates, borrowers want lower interest rates, lenders don’t, every time the building societies say look, we’re reducing our mortgage rates by a half-a-per-cent; a cheer goes up from the people who want mortgages but what about the people who’ve got money on deposit in the building societies? They say but what about us, our interest has gone down, and it applies to everything all the way through the interest field.
It applied of course to rent control. Rent control was introduced in this country by a Tory minister in a coalition government and as I say he wasn’t doing it to help the workers they were faced with a wages strike and they said look perhaps we can persuade the workers not to strike by imposing a rent control at the expense of the landlords of course.
Free trade and protection, again. The country in the world which is the most efficient producer wants free trade.
When British capitalism was the workshop of the world the capitalists wanted free trade. Marx wrote about it at the time, when he said this, the free traders of this generation will be the protectionists in the next generation.
When foreign countries were retaliating and undercutting British capitalism the British manufacturers and the Tory Party said what they want is protection and they do not want free trade anymore. The same thing applies with interest rates and foreign exchange rates. Everywhere, you must look for the sectional interests of the capitalist class that are involved, if you want to see what’s going on.
You may notice this; in the foreign exchange rate, all the way through in the last few years, Mrs Thatcher has been saying that we don’t want the pound to fall too much, of course, the British export capitalists do want the pound to fall too much, and there is a letter in the FINANCIAL TIMES today, where the Chamber of Commerce were accused, I’ve forgotten which way round it goes, they were accused of wanting the pound to fall, no sorry they wanted the pound to rise and said you represent the import capitalists, don’t you, you want the pound to rise and they came back and said no we don’t we represent them all, well they can’t represent them all, they can’t have interests rates go up or have them go down as well.
The Limits of Government
Now, just a brief note on what governments can do and can’t do.
Political parties believe governments can do anything. Well they cannot control unemployment although they can control the price level, whether it is rising, falling or stable. Governments cannot control interest rates and they have only very indirect control over the foreign exchange rate. And even their attempts to control wages become unstuck.
In the last few years Mrs Thatcher and the Chancellor, Nigel Lawson have been complaining that wages are going up to much. They don’t want wages to go up but contrary to their complaints, wages have now been rising for the past two or three years.
Real wages, average real wages, are now higher than they were in 1979, and this isn’t what the government wanted. Conversely, no government wants companies to go bankrupt, or profits to fall. In 1979 profits fell drastically. This isn’t what Mrs Thatcher wanted, of course, or the employers or even the Labour party. In short, remember that Capitalism goes on as a system of productive anarchy, and almost everything that it does, the government has no control over it.
The only solution to the anarchy and social pain of commodity production and exchange for profit, of course, from the Socialist point of view is to get rid of capitalism. And that, precisely, is what the Socialist Party of Great Britain came into existence for.
Capitalism has certain necessary consequences; it’s bound to have unemployment, it’s bound to produce wars, bad housing, poverty, class conflict, strikes, and all the rest of it, and there is no alternative to this. If you have capitalism, these are the social conflicts and problems you have.
All of the political parties, except The Socialist Party of Great Britain, devote all of their efforts in trying to solve Capitalism’s problems. Well they can’t solve capitalism’s problems while they’ve got capitalism. And incidentally if political parties did solve capitalism’s problems they would all of them be out of business.
Capitalist political parties are all in business by saying to a non socialist working class; look, this other lot hasn’t solved these social problems; we are going to solve them. And if the other lot had solved the housing problem and the unemployment problem and all the rest of it, then the opposition parties of capitalism wouldn’t have anything to put before the electors.
I mean this is a bit of self evidence. But anyway Socialists say that their efforts are wasted in trying to run capitalism in the interest of all society and the only real solution is for the working class to consciously and politically abolish capitalism and establish Socialism.
Socialism would fundamentally differ from capitalism and I will come right back to the subject of the lecture. In Socialism there will be no price system, wages system, no unemployment, for there won’t be any employed, no property income, no rent, interest or profit, no class division, no exploitation of one class by another.
The idea of Socialism is that people will cooperate together to produce what society needs. And the other side of the coin is that all of the members of society will have free access to everything that is produced. There will be no prices, and they will not have to give a price for goods and services produced.
Of course Socialist society will have its problems but they won’t be the kind of problems which capitalism can’t help producing. Initially, Socialism will have the problem of increasing the quantities of socially useful products and services to meet the needs of society. It just won’t come out of a hat; it will have to be planned for, and worked for.
The last point is how Socialism can be achieved. It requires two things. First that the working class shall be won over to the socialist idea of a society based upon common ownership and democratic control of the means of production and distribution by all of society and to consciously recognise that nothing can be done with capitalism to run it in their interests. And secondly they must organise politically for the purpose of democratically gaining control of the powers of government including the armed forces without which they will not be able to do anything.
It is for this purpose that The Socialist Party of Great Britain was formed and it is for this purpose that The Socialist Party of Great Britain deserves the support of the working class.
(This lecture, one of five, was given by our late Comrade Hardy and is taken from a video of the lecture. Comrade Hardy along with Cyril May, who took the chair, as well as other sound Socialists were expelled from the Clapham based Socialist Party for continuing to take political action as The Socialist Party of Great Britain as required by Clause 8 of the SPGB’S Object and Declaration of Principles to which all member have to understand accept and defend before being considered members of the Party).
Object and Declaration of Principles
The establishment of a system of society based upon the common ownership and democratic control of the means and instruments for producing and distributing wealth by and in the interest of the whole community.
Declaration of Principles
THE SOCIALIST PARTY OF GREAT BRITAIN HOLDS:
1. That society as at present constituted is based upon the ownership of the means of living (ie land, factories, railways, etc.) by the capitalist or master class, and the consequent enslavement of the working class, by whose labour alone wealth is produced.
2. That in society, therefore, there is an antagonism of interests, manifesting itself as a class struggle, between those who possess but do not produce and those who produce but do not possess.
3.That this antagonism can be abolished only by the emancipation of the working class from the domination of the master class, by the conversion into common property of society of the means of production and distribution, and their democratic control by the whole people.
4. That as in the order of social evolution the working class is the last class to achieve its freedom, the emancipation of the working class will involve the emancipation of all mankind without distinction of race or sex.
5. That this emancipation must be the work of the working class itself.
6. That as the machinery of government, including the armed forces of the nation, exists only to conserve the monopoly by the capitalist class of the wealth taken from the workers, the working class must organise consciously and politically for the conquest of the powers of government, national and local, in order that this machinery, including these forces, may be converted from an instrument of oppression into the agent of emancipation and the overthrow of privilege, aristocratic and plutocratic.
7. That as all political parties are but the expression of class interests, and as the interest of the working class is diametrically opposed to the interests of all sections of the master class, the party seeking working class emancipation must be hostile to every other party.
8. The Socialist Party of Great Britain, therefore, enters the field of political action determined to wage war against all other political parties, whether alleged labour or avowedly capitalist, and calls upon the members of the working class of this country to muster under its banner to the end that a speedy termination may be wrought to the system which deprives them of the fruits of their labour, and that poverty may give place to comfort, privilege to equality, and slavery to freedom.