Edgar Hardcastle

Fallacy of a National Incomes Policy

Source: Socialist Standard, August 1965.
Transcription: Socialist Party of Great Britain.
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The Prime Minister, Mr. Harold Wilson, has confessed that though he dipped into the writings of Karl Marx, he never got anywhere with it. If he had persevered he would have discovered that Marx knew about the problem which Mr. Wilson and his ministers are trying to solve with their Incomes Policy. Not that Mr. Wilson is an innovator in this endeavour, except that some of the descriptive names are different: "wage freeze", "wage restraint", "pay pause", etc., have given place to "planned expansion" and the laying down of "criteria" for price reductions and avoidance of increases, and for keeping wage rises (with certain exceptions) within the rate of annual expansion of production—at present about 31 per cent.

But before the present hopeful contestant, Mr. George Brown, entered the ring, there were others—Mr. Selwyn Lloyd in 1962, Mr. Thorneycroft in 1957, Mr. MacMillan in 1955. These were all Conservative Chancellors of the Exchequer. Earlier still there was the late Sir Stafford Cripps under the Labour government after the war, and both parties, and the Liberals, were sponsors in the War-time National government of the 1944 White Paper on Employment policy, which stated the problem and specified what they hoped were the lines on which it would be solved.

These separate income policies are divided by several years. Governments do not have to worry about a policy for prices and wages when unemployment is considerable.

What then is the problem? In the past 20 years it has come to be known as "Stop-go". Each of the half-dozen Tory Prime Ministers has been chided by the Labour Party with so mismanaging affairs that periods of expansion and low unemployment have regularly been followed by a crisis, by falling or stagnant production, and a rise of unemployment. Each of the governments announced its intention of making expansion continuous and each time the Labour Party said that the government did not know its job and was doing the wrong thing. We are hearing this type of propaganda again now, from the Tories, who failed to control the situation when they were in office.

Marx described the situation briefly and pointedly just 100 years ago in a paper presented to an international Congress in September, 1865: —

Capitalistic production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis and stagnation (Value Price and Profit Chapter XLII).

There were various reactions to Marx's statement; that it wasn't true; that it had happened but would not be allowed to happen again; that it was due to the greed and stupidity of the employers—and all these could be cured. The Labour Party, which first inclined to the view that the periodic crises were the fault of the employers has, since it became the government, veered to its present attitude—that a strong lead from the government to both employers and workers will put things right and keep them there. They are claiming to be able to do now what they and the Tories alike have failed to do and which nobody succeeded in doing in the past. Looking only at the period since the Second World War, annual average unemployment has been as high as 612,000 (1963) and as low as 287,000 (1956), with the monthly figures ranging from under 250,000 to over 900,000. Production has followed a similar course, with bursts of rapid growth followed by decline and periods of stagnation.

The question to be answered is "Why does this happen?" Why does expansion always get checked? Why do booms lead to crises? Basically it is because we live under capitalism. in which the great majority of people can get their living only by selling their mental and physical energies to an employer for wages or salaries. Under this system the propertied class—who live by profit, rent and interest—and the working class, are dependent on the market, on the ability of the owner of the products of industry to sell them at a profit. The mechanism through which all this goes on is that of money and prices.

Capitalism produces nothing directly and freely for the use of those who need it. If you are homeless or near starvation you will not get a house or food; you have to have money to pay for them. The manufacturer who cannot sell what his workers have produced, either because his competitors have produced more cheaply and have captured the market or because the product is no longer wanted (for example, coal being replaced by electricity or oil, or man-made fibres replacing cotton, silk or wool), or because his would-be customers have no money, has to sell at a loss and may end in bankruptcy and his workers join the unemployed.

But, say the "planners", why cannot each line of production be accurately planned ahead so that nothing is produced in excess of the demand for it and nothing is produced for which there will turn out to be little or no demand? This is a deceptive hope. In a boom, when there are prospects of a big unfilled demand, capitalists (including the State industries)—not just in one country but internationally— hasten to expand and modernise their factories to capture as much of the market as they can. They simply have to do this; if they stand still they fall out of the competitive race. In some fields natural conditions defeat the planners anyway. Who can plan good harvests? or foresee and prevent the sudden discovery of vast and easily accessible supplies of oil or natural gas in the Sahara or the North Sea?

In a boom manufacturers are all competing to buy raw-materials, machinery, factory buildings—and to hire workers; collectively, they are trying to buy more materials and hire more workers than there are available. In these conditions, sellers—including the workers who are sellers of their labour-power—can put up prices, and do so: which brings us right back to Mr. George Brown and his predecessors, their policies for incomes and prices—and their problems. (Incidentally this is a universal capitalist problem not one in Britain alone. One same issue of the Times, April 28th, reported emergency measures including the attempted freezing of prices in Yugoslavia, and the American steel workers and employers arguing about a wage claim in the light of the Federal Government's "Anti-inflationary guiding figure of 3.2 per cent").

What then are the choices before Mr. Brown and other planners? If they let things take their course the boom runs into difficulties; in some fields through scarcities of materials (for example, the recent shortage of bricks) which hold up production, and in others, sooner or later, of overstocking of the market for certain products.

How logical it must look to Mr. Brown to try to prevent the collapse of the boom, by using persuasion and threats to damp down the rise of prices and wages. But is this a practicable policy? In conditions which enable sellers to push up prices and in which workers are favourably placed to push up wages, can government policy prevail? Past experience, the Stafford Cripps era, shows that it may have some effect for a time. But Wilson and Brown have to remember something else. Capitalism is a class society and the working class do not accept that any particular level of wages or profits is a proper and satisfactory one. Without clearly understanding that they are the producers of all the wealth which the capitalists own, they nevertheless always feel that they have a good case for getting a larger share of it. So before long their1 resentment turns against the government which is trying to induce them to go slow on wage claims: the national incomes policy of the Labour or Tory government finally breaks on the class nature of capitalism.

All of this Marx understood very well a century ago. It may be said that much of what he saw about the ups and downs of production in the market is now common knowledge among economists, but his insight was greater than theirs. Many of them, including those who toy with the idea of permanent and even expansion, think that expansion, because it is desirable is therefore "normal", and that the interruption of expansion is a fault or failure, due to avoidable mismanagement or to the greed of some group or other. Marx, in his objective analysis of capitalism, viewed it differently. He saw that the expansion, the crisis and the stagnation are all "normal", they are the way capitalism operates because of its own nature. Prices and wages rise in a boom because that is how capitalism with its prices system functions.

Marx did not share one error which is common to all his critics. They think that the problem is one of modern production; he saw that it is a problem of capitalist production —a very different proposition. Did he, because he understood it, have a solution to offer? A solution within capitalism? No! A solution without capitalism? Yes!

If Mr. Brown's policy is bound to run up against the laws and the class nature of capitalism, Marx also saw that the opposite to Mr. Brown's policy offers no way of avoiding a crisis. He dealt specifically with the notion that higher wages would solve the problem of unsaleable goods by enabling the workers to buy more. Apart from other inevitable disharmonies of capitalist production and selling as between the production of the means of production and the production of consumer goods he knew that a general rise of wages at the expense of profits would, while increasing the demand for working class necessities, at the same time reduce the demand for capitalist luxuries, and necessitate a curtailment of their production. He wrote: —

It is purely a tautology to say that crises are caused by the scarcity of solvent consumers, or of a paying consumption. The capitalist system does not know any other modes of consumption but a paying one, except that of the pauper or the "thief". If any commodities are unsaleable, it means that no solvent purchasers have been found for them, in other words, consumers (whether commodities are bought in the last instance for production or individual consumption). But if one were to clothe this tautology with a semblence of a profounder justification by saying that the working class receive too small a portion of their own productivity and the evil would be remedied by giving them a larger share of it, or raising their wages, we should reply that crises are precisely always preceded by a period in which wages rise generally and the working class actually get a larger share of the product intended for consumption. From the point of view of the advocates of "simple"(!) common sense, such a period should rather remove a crisis. It seems, then, that capitalist production comprises certain conditions which are independent of good or bad will and permit the working class to enjoy that relative prosperity only momentarily, and that always as a harbinger of a coming crisis. (Capital Vol. II. P.475).

Fundamentally crises can happen only because of capitalism, under which the workers' continued employment depends on each part of the productive apparatus (production of means of production, production of necessaries and production of luxuries) keeping in line with every other part. As Marx wrote elsewhere:

The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared with the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit. (Capital Vol. III. Page 568).

Marx's critics do not believe this. They believe that by some means or other they can keep each industry in line with the others, and with the demand of the market at home and abroad, without over-production in one part of underproduction in another, without the production of unsaleable goods, and without disturbance from rises of prices and wages and fluctuation of employment.

They have been trying, without success, for a century or more. Why do they not turn their attention to the way out, that of having Socialism instead of capitalism?