The Politicians and the Cost of Living
In all the elections of the ’twenties and ’thirties the chief issue was unemployment: who caused it and how to cure it. Since the war pride of place has been given to the cost of living: who sent it up and who will bring it down again. The attitudes of the Governments and the Opposition parties towards unemployment in the first period have been paralleled by their attitudes towards rising prices in the second. Each party claims that it will keep prices (or unemployment) down because it alone knows how. Each party when in power pretends to be surprised and displeased to find prices (or unemployment) rising, and trots out a glib excuse: it is due to strikes, high wages, or low productivity, or to world factors beyond the control of the Government in this country.
At no time has there been agreement between what the parties promised at elections and what they produced in office. Conservatives, Labour and Liberals, were all subscribers to the policy laid down in the document “Employment Policy” issued by the Coalition Government in 1944. Among other things it committed them to the policy of keeping prices down, and at successive elections they all promised to pursue the policy of avoiding a rising cost of living.
In or out of office they have put forward a number of schemes for achieving this, credit restrictions, higher Bank interest, rates, budget surpluses, increased national savings, bulk buying, price controls, limitation of dividends, restraint in wage demands, action against monopolies and price rings, food subsidies, etc., etc., without the upward movement of prices since 1938 being arrested.
Indeed prices have in fact risen since 1914 with only one downward movement—that which marked the deflation of the ’20’s. The cost of living in October, 1951, when the Labour Government left office, was about 40 per cent. above 1945, now it is 60 per cent.
We are faced then with the remarkable happening that those who keep on telling us that they can and will keep prices down if we put them into power go on asking for votes on no better ground than their total failure to do so when they were in power.
Yet one thing is certain. The Government’s financial advisers and at least some members of Tory and Labour Cabinets have known all along how to keep prices down or reduce them again to a former level. They know how to reducer the cost of living—which most electors want—but they dare not do it because they fear it would be accompanied by something most electors do not want—an increase of unemployment.
So by tacit agreement the party leaders fiercely fight a mock battle over the cost of living but avoid even a mention of the remedy known to them.
That is why no party has suggested that the method which did produce a fall in prices when it was adopted in 1920, namely currency control and limitation, should be tried now. Prices rose from 1914 owing to the expansion of the note issue and so long as that continued went on rising despite everything the Government did. Then by minute of 15 December, 1919, Austen Chamberlain announced that the Government would act on the recommendation of the Cunliffe Committee and would limit the fiduciary note issue for 1920 to £321 million, the maximum then reached in 1919, and that in subsequent years the permitted maximum would be the actual maximum of the preceding year. After a few months the effects of this policy of currency limitations became apparent and the trend of prices was reversed, affecting wholesale prices in the middle of 1920 and retail prices before the end of the year.
Later on the 1919 decision was abandoned and the note issue has been steadily increased, particularly since 1939. It now stands at £1,775 million, £50 million of which was added this year in April and May, £25 million on each occasion, and the Labour and Tory leaders who were responsible still affect to be surprised that the cost of living and prices generally have mounted accordingly.
If the Tory and Labour leaders now really believe their professed determination to lower prices why their reluctance even to suggest the renewed application of the policy which proved so effective when it was applied 35 years ago?
It is because both parties are convinced that such a policy is incompatible with “full employment,” that in fact full employment can only be kept going by a “little gentle dose of inflation.” As an unsigned article in the Financial Times phrased it:—
“Among considering people there can be few illusions over what the election is really about. It is a matter of voting for the party that is likely to do the least harm to the precarious economy in which we live. In short, for the party that will inflate the least.”—(Financial Times, 9/5/55.)
It might be thought that at least the politicians and their economic advisers have been right to practice this deception on the voters for it has been through their foresight and skill that we have been spared heavy unemployment. But before anyone starts complimenting them on their cleverness in thinking beforehand that the way to avoid heavy unemployment was to pursue a policy of inflation and consequent rising costs of living he should turn to the 1944 statement on “Employment Policy,” which shows that they did not foresee this at all but then believed the opposite. They were all committed to maintaining “full employment,” but the 1944 policy statement held that it could only be achieved if prices and wages did not go on rising but remained “reasonably stable.” The idea was that if prices were kept down the workers could be persuaded to accept “wage restraint.”
Between the wars, when prices were falling, workers’ struggles to raise or even to maintain money wages were impeded by the heavy unemployment.
After the war, when the Labour Government came into office, they intended to operate the policy of the 1944 statement and have both prices and wages stable. In the “Labour Party Speakers’ Handbook,” 1949-50 (p. 207) it was claimed that during the first two years of Labour Government from 1945 to 1947, “prices were kept fairly stable”; though critics maintained with undeniable evidence that it was the cost of living index that was kept down, not the cost of living. After 1947, when even the Labour Government could not, in face of its own figures, deny that the cost of living was rising the “wage restraint” policy was restated and emphasised by the late Sir Stafford Cripps. It was only partially successful and money wages went on rising, though all the time lagging behind the soaring cost of living. The situation was unlike that between the wars but it was a distinction without a real difference. Then the employers’ ally against the workers’ efforts to raise their standard of living was unemployment, now the usefulness of every increase of wages and insurance benefits was subject to ceaseless erosion by higher prices, which whittled away the purchasing power of every pound.
And this has been the chosen policy of all post-war Governments. A milestone in the inflationary trend was the devaluation of the pound by the Labour Government in 1949. They knew this must raise the cost of living though they continued to make their stock speeches about their resolve to keep it from rising.
Also all the Governments since the war have made great efforts to persuade the workers to go without purchases they would normally have made and to save the money instead. Since the Governments knew that their currency and devaluation policies would raise the cost of living this savings drive was but a further deception, the losers being those who put their money into National Savings.
True, if they invested £50 they have received interest and eventually have the £50 back, but at that later date it buys very much much less than could have been bought with the original £50. The big investor who went for company ordinary shares suffered no such loss as the prices of their shares went up along with other prices.
We may be sure that future Tory and Labour Governments, so long as they go on fearing that heavy unemployment would put them out of office, will continue their policy of gentle inflation and their two-faced policy of promising to reduce the cost of living without any intention of doing so by the means they know would be effective.
What happened between the wars and what has happened since are just two faces of the capitalist system of society. Of course a disturbance of the precarious balance of world production and markets of the size and pattern of that which occurred in 1931 will find the currency inflation remedy helpless to stop a collapse.
In 1931, as now, the S.P.G.B. pointed out that the one way not to have unemployment and price fluctuations to be have a system of society in which commodities, among them the workers power to labour, are not bought and sold—the system of society known as Socialism.
H.