Isaac Deutscher 1940

Starve For Victory! Compulsory Saving or Compulsory Inflation

Source: Workers Fight, Mid-February 1940, signed Josef Bren. Workers Fight was the paper of the Revolutionary Workers League. Scanned and prepared for the Marxist Internet Archive by Paul Flewers.

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David Ricardo was the first economist to discover, and to formulate theoretically, the predominance of the profit factor in capitalist economy. This was the reason why he has been accused by some bourgeois economists of cynicism and brutality. They the so-called vulgar economists, the apologists of capitalism, could and would not admit that profit and profit only is the all-determining factor in an order based upon the private ownership of the means of production. Ricardo’s scientific frankness offended their professorial hypocrisy. But what was Ricardo’s fault in the eyes of the official economists was considered as his greatest merit by his great successor and opponent – Marx. He defended Ricardo by saying that the ‘brutality and cynicism’ did not lie with the words and formulas of this economist, but were part and parcel of capitalistic reality for which Ricardo merely found a theoretical expression. From a scientific point of view, Marx preferred the brutal frankness of Ricardo, which mirrored faithfully the true social conditions, to the other theories which tried to explain away the capitalistic exploitation by idle ‘humanitarian’ talk.

We do not endeavour to draw a comparison between Ricardo and Mr Keynes. Whoever has the slightest idea about economics will agree that such a comparison would be an undeserved insult to the old master of the classical school. But in one respect, Mr Keynes in surely praiseworthy: he showed some kind of ‘brutal frankness’ in treating the problem of how to pay for the war, a kind of frankness which does not attempt to embellish the truth. On this account some Labour hypocrites have accused Mr Keynes of brutality and cynicism. And what we shall do now, is to ‘defend'... Mr Keynes against such reproaches. Mr Keynes really deserves our defence this time.

Keynes Has a Plan

Our readers must have guessed already that we are referring to Mr Keynes’ famous scheme of compulsory saving. It is superfluous to explain to class-conscious workers to what an extent this scheme is hostile to the interests of their class. Mr Keynes suggests to the Government how to load the burden of the war on to the shoulders of the workers. He is performing his job so frankly that there can be no misunderstanding about it. But his arguments are of a relatively objective value and consequently deserve our attention.

Mr Keynes’ theory can be shortly summed up as follows. During the whole course of the war the lion’s share of production must be devoted to the output of war implements. It is estimated that next year about 50 per cent of the whole nation’s output will consist of arms, munitions, foodstuffs for the army, etc. Later on the share of war production will increase even more; that can mean but one thing, to cut down very drastically production for civilian consumption. Until now theoretically it is still possible to increase both war as well as civilian production. The capacity of British industry is not yet fully exploited; there are still many idle factories and about a million and a half unemployed (although even now a certain shortage of raw material does not allow of an expansion on the production for civilian consumption). But as the war goes on the so-called limits of production will soon be reached. Idle machinery will have been put in motion and unemployment will have disappeared. A simultaneous expansion of ‘civilian’ and ‘military’ production then becomes impossible. As the expansion of war production is the necessary prerequisite for carrying on the war, a continually smaller portion of the whole national production will be able to work for civilian consumption. Apart from this, the imports will have to be – and are already being – switched over to war purposes. This means that the amount of goods destined for private consumption must grow smaller and smaller. The war puts, so to say, a physical limit to the national standard of living much below its prewar level. Two-thirds of the prewar consumption fell to classes with less than £5 income a week. These classes must therefore curtail their consumption very considerably in order to make the war effort efficient.

So far things appear to be very clear. And they are – indeed. Years ago they were put so even more emphatically, by Field-Marshall Göring, when he formulated the famous dilemma: guns or butter? Now Göring’s echo resounds in the speeches of British economists and democrats.

Mr Keynes’ attitude implies the conclusion we want to draw and bring home to every worker: it is a physical impossibility to support the war and to maintain the standard of living of the workers. You cannot do both at the same time. You cannot have the cake and eat it. As Mr Keynes cannot be expected to be a revolutionary defeatist, he is honest in his own way, when he says: The consumption of the workers must be drastically curtailed. Let us therefore not play too foul tricks with them and let us simply introduce ‘compulsory saving’, which equals a general cut of wages now and a mere promise of repayment in the future.

‘Common Sacrifices’

The frankness, however, and the ‘honesty’ of such an attitude has its liabilities. Mr Keynes is much too consistent, and his consistency has had from the beginning a rather embarrassing effect. His scheme, at first, was given a cool reception in the economic press and in the City. The distinguished professor blabbed out the whole mystery of the obscure ‘Science’ of financing the war in an almost cynical manner... He translated the sublime appeals for ‘common sacrifices’ into a too prosaical language of concrete, hard facts. But there are some signs that in time this cynicism will be less shocking and the practical scheme will be more properly appreciated. Significantly enough, at the annual meeting of the Big Five Banks one could recently hear very influential voices raised in support of compulsory saving.

But there are still the hypocrites and swindlers of the Labour Party and of Transport House. Calling on one hand upon the workers to consent to ‘sacrifices’ – these gentlemen claim on the other that it is possible to reconcile the support of the war with the defence of the workers’ standard of living. They therefore refuse to accept Mr Keynes’ scheme of compulsory saving.

Mr Keynes’ reply to them in The Times is really instructive:

Gentlemen, says Mr Keynes, you want to support this war? If that is so, then you will not escape from compulsion. You will either have compulsory saving or compulsory inflation. I shall explain it to you more plainly, because it seems to me that you are not very clever in these economic matters. Well, so war – let me repeat – means a decreased amount of goods for private consumption. Less butter, less meat, less clothing will be available for the workers, whilst we shall produce and import more guns, more shells and more planes. Whichever tricks you will try to use you cannot alter this fact. Now what I propose is to adjust the level of workers’ wages to the decreased amount of goods destined for their private consumption. Let us pay them less money, because there are less goods prepared for them on the market. The purchasing power of the workers has already fallen (or will do so very soon) by the mere fact that fewer things are on the market to purchase. By cutting in practice the wages, we shall only give pecuniary expression to this fact. Now if you will reject my scheme and insist on the present (or higher) wages – what will happen? The worker may earn 100 per cent more than he is earning now, but that will not increase by one per cent the number of consumption goods on the markets. So there will be the same (or a larger) amount of money in the pockets of the working class against a lesser amount of meat, vegetables, clothing, etc. The result will be a greater competition of buyers, a competition which will soon make the prices of consumption goods rise. The practical effect will be the same to the working class as if their wages had been cut and the prices had remained stable.

Many arguments could of course be brought against some of Mr Keynes’ points, but these are of a secondary nature, and we shall leave them out. Mr Keynes is fundamentally correct when he says that as regards the workers, war can be carried on only by these two opposite methods: compulsory saving, that is, lower wages, or compulsory inflation, that is, rising prices with wages remaining constant or rising only inadequately. The difference between them consists only in that the first method is a direct and open attack on the workers’ standard of living, whilst the second one obtains the same effect in a more artful, insidious, gradual ‘invisible’ manner. When he is forced to ‘save’, the worker feels at once what he has been deprived of, but in the case of inflation – judging by the money he receives – he still has the illusion of keeping the same level and realises only gradually his new position.

That, by the way, explains why reformist leaders usually prefer inflationary methods to those of ‘compulsory saving’ (that is, more or less deflationary ones). A direct, concentrated and frontal attack (and such would for instance be the realisation of Mr Keynes’ scheme) threatens to provoke a direct and concentrated counter-action on the part of the workers. The artful invisible attack by the way of inflation is more likely to dislocate and to break up – at least in the first stage – the workers’ resistance. (It is worthwhile in this connection to remind the readers that in Germany the postwar inflation was carried through under the Social-Democrat Hilferding and in France recently under Blum.)

‘Compulsory saving or compulsory inflation – you will not avoid compulsion’ – these words of Mr Keynes are worthy of being noted. This is the real dilemma which awaits the working class, which is prepared to support the war.

But this dilemma disappears at once when we look at it from the point of view of a revolutionary opposition to war. There is another way out, which means neither compulsory saving nor compulsory inflation (for the benefit of the bourgeoisie and its state).