John Davies tells all

In February we noted that Enoch Powell’s views on the cause of inflation came very near to the Marxian analysis. We can now record that another leading Tory may have been studying Marx — John Davies, the former employers’ leader turned lame-duck politician who is now the Secretary of State for Trade and Industry.

During the Budget Debate on 31 March Davies emphasised that capitalism runs on profits and, quite in the Marxian tradition, explained the current crisis by the rate of profit falling below the rate of interest. He even very nearly spoke of “surplus value”.

“Industry does not expand and invest without the prospect of profit. I have no sense of apology whatever for maintaining that the pursuit of profit is the primary stimulus of industry and the absence of an expectation of it is the primary cause of stagnation and decline.”

After attacking Harold Wilson for not being sufficiently profit-minded, he went on:

“Traditionally it is the added value related to profit that constitutes the seed corn of industrial prosperity. The generation of added value within the concern is the very basis upon which its continuing expansion and development depend. Recent years have seen an unparalleled squeeze upon this added value and thereby upon the very resources upon which industry primarily depends to build its future. The trend in the proportion of company profits to total domestic incomes tells its own tale. The proportion was 15.6 in 1964 and was in successive years thereafter 15.1 per cent, 13.4 per cent, 13.5 per cent, 12.6 per cent, and 11.6 per cent last year.”

Davies elaborated this point after an interruption:

“I return to the question of the inadequacy of profits which has characterised the pattern of the last few years. The absolute level of gross trading profits shorn of stock appreciation within this self-same period shows that there was a virtual immobility in the money figures whilst money values were depreciating by about a quarter. Still more significant are the rates of return on capital employed. The Monopolies Commission makes estimates of such rates of return related to the value of assets at estimated replacement values. Those estimates show a deterioration from the 1964 level to today and competent opinion assesses the rate of return now at much nearer to 9 per cent than to 10 per cent — that is, a rate of return which by no means is equivalent to the rate at which funds can be borrowed for investment at present. This squeeze on profit, coinciding with the dangerous rate of cost inflation that we have experienced over the last 18 months, lies at the very root of industry’s disinclination to expand . . . “(Hansard, 31 March, Coll 1549-50).

Whether the Tory government’s measures to restore “business confidence” (that is, the confidence of businessmen that they will make enough profit if they expand production again) will work remains to be seen.