Inflation

By David Tripe

The reason that is usually given by governments and others for their desire to control inflation is the effect of inflation on those who are on fixed incomes. It is one of the consequences of inflation that pensioners and other social security beneficiaries tend to get left behind in the great cost-price spiral. But it has always seemed rather peculiar to me how it could he that the ordinary hourgeois government could be worried about pensioners, and whether or not they are getting enough money to be adequately housed and fed- But the truth has finally come out — thanks to Professor J.W. Rowe, of Massey University, and formerly of the now defunct Remuneration Authority, who gave a special lecture to economics students last week.

It might seem that there should be no objection to inflation, provided that everything was to increase at the same rate. This would be if pensions and all such oilier monetary measures were to be increased at the same rate as the rate of inflation. Under these conditions, pensions would always be able to provide the same quantity and quality of food, clothing, and accommodation for their recipients. There would be no such things as wages falling behind the cost of living. However the capitalists find something wrong with this. The problem is that such controlled inflation, with everything rising at, say, ten percent a year, is likely to lead to the phenomenon of hyperinflation, where prices rise at a rate of an hundred percent a year.

Hyperinflation is something which the capitalists dread, because it is something which leads to the breakdown of the medium of production and exchange, as in Germany after the First World War, and as in Soviet Russia in 1919 and 1920. Under such conditions, the use of money as a medium of exchange becomes increasingly difficult, until eventually, money is totally useless. Without money, capitalist production and exchange are impossible. When hyperinflation has destroyed money as a means of payment in this way, workers must be paid in kind — for example in food, instead of money Goods must be exchanged for goods, instead of money, and the breakdown of the capitalist system in its old form is virtually inevitable. That is why the capitalista find it necessary to oppose inflation.

The next problem arises when the capitalists come to implement their incomes policies as a means of controlling inflation. This means that it is necessary to control wages first, and then presumably control of prices will follow on from that. This is the Labour Government's policy -stop the workers getting any wage rises and then ask the bosses to control prices. That is why we must look upon an incomes policy as a class phenomenon.

But there is another thing about the control of wages that is most important to the capitalists. As Professor Rowe put it, when the trade unions win a large wage demand, there is a tendency for a redistribution of income from capital to labour. What this means is that wages are larger at the expense of profits. And because profits are smaller, there is a reduction in investment, which leads to lower incomes and unemployment, according to capitalist reasoning. Thus bigger wages, if they cause smaller profits, lead as a consequence to lower wages in the near future, as long as one is restricted to the framework of a capitalist economy.

And so there we have it. An incomes policy is necessary to control wages to protect profits. An incomes policy is also necessary because business interests are unwilling to sacrifice profits in the control of inflation. And control of inflation is necessary because otherwise hyperinflation might develop which might lead to the breakdown of the capitalist system. And what a pity that would be!