How a workers We have shown in other articles on these pages that inflation is not due to wage increases, nor is it created by public spending. Inflation is due to the anarchy of the capitalist system and in particular to a system in which production and investment is only undertaken for profit.
The immediate cause of inflation is the sabotage of the economy by capitalist refusal to invest except when they derive large profits from it But within this economic system it is also clear that inflation plays a very definite role for the capitalists. This role is to redistribute income in favour of the capitalist class. The job of inflation is to drive down wages and increase profits. Inflation plays the same role as open wage cutting did in the 1920s and 1930s. At that time the power of the ruling class was such that it could openly cut wages-as it did with the miners in 1926 Today the unions are too strong for such a policy to succeed. Now inflation does the job for them in a less obvious way. By pushing the rate of price increases above the rate of wage increases the purchasing power of wages (the real wage) is decreased. Profits are then increased.
Wages in fact only account for around 60 per cent of costs of production. In the private sector, Glyn and Sutcliffe calculate the following as the relative proportion of 'costs' of production:
Imports (and purchases from agriculture) 16.5% 7.0% Purchases trom nadonansed moustne Wages 61.5% Depreciation 9.5% To show what happens with price increases and wage increases we will just simplify the figures by rounding them to whole numbers and putting them in figures instead of percentages Let's assume production is worth £1 million. Then production in figures equals:
Imports (and purchases from agriculture) £170,000 Purchases from nationalised firms £ 70,000 Wages £610,000 Depreciation £ 50,000 £100,000 Total Production £1,000,000 Under these circumstances the rate of profit-which is the proportion between what the apitalist pays out on wages, raw materials, etc. and the total sum of money he receives i rofit-is 11 per cent Consider now what occurs if the workers receive a wage increase of 10 per cent. Wage costs would go up to £671,000 and the total costs of production to £1,061,000. This shows that vage increases by themselves do not produce anything like an equivalent rate of intlation. I his case a 10 per cent increase in wages means a 6.1 per cent increase in prices.
Assume the capitalists say that as wages have gone up by 10 per cent, then prices must go up by 10 per cent. The result is remarkable. The price of goods sold goes up by £100,000 but the cost of production excluding profit would only rise by £61,000. The capitalist makes a cool £39,000 extra profit and his rate of profit goes up from 11 per cent to 14 per cent. With prices rising more rapidly than wages even more remarkable results can be achieved. For exam ple in Britain today prices are rising roughly 1.3 times as fast as wages. Applying this to our example we find that the rate of profit increases from 11 to 18 per cent.
Of course the increases in profits could never be quite as large as our example shows: Import prices do increase, wage and price increases occur in the nationalised industries, etc Nevertheless these figures show very clearly the extraordinarily powerful role inflation can play in cutting wages and increasing profits. Of the £3-5,000 million increase in profits the capitalist class is looking for in the coming few years a very considerable part will come from such inflationary mechanisms. (1) Even if the capitalist retained his rate of profit at 11 per cent which entails a slightly higher increase in prices-as profits now have to increase to £105,710, the rate of price increases is only 6.7 per cent.
_ wise mteniew red weekly 14 august 1975