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The Militant, 20 July 1946

Warren Creel

Wages, Price and Profits

Rising Prices Do Not Result from Wage Costs

From The Militant, Vol. X No. 29, 20 July 1946, p. 6.
Transcribed & marked up by Einde O’Callaghan for ETOL.


The newspaper and radio spokesmen for the capitalists, in making their drive against wages, talk as if the employers had free choice on the prices they charge. They say if the workers get more wages the employers can and simply must raise prices. They will do this and pass the cost on to the consumer. That implies that the employer is free to raise prices when he wants to. Or to put it another way, it means that prices come, not from market conditions, but from the employer’s free choice.

Looking at it from the other direction, if prices come from market conditions then an employer is not at all free to pass on to the consumer the cost of a wage raise. The rise in his wage payments will not change market conditions, so he’ll have to keep on selling at the old price. It will still be the best price. Therefore he will have to take the cost of the raise out of his profit margin. He will not be able to pass the cost on to the consumer.

Something else follows if prices come from market conditions. We see today that the employers are anxious to raise prices. That only means that they know that the market conditions will allow higher prices. They see a chance, under these conditions of an inflation market, to take more money and make more profits. That’s all it means. This rush to raise, prices does not at all mean that they are pushed by higher wage costs.

It also follows that under the market conditions we have today they are going to raise prices anyway. They are only doing it slowly from political caution, to keep from arousing the workers by a too sudden increase. All their efforts to blame wage increases for higher prices are just a smokescreen. They are raising prices to get high profits, and they can get even higher profits if they can keep wages down.

The furious way the bosses fight against wage raises is the best proof that the raise comes out of the employer’s profits, and not out of the consumer. They wouldn’t care at all about a cost that really went on the consumer.

As Karl Marx said in the pamphlet Value, Price and Profit, on this same question of wages and prices:

“The will of the capitalist is certainly to take as much as possible. What we have to do is not to talk about his will, but to enquire into his power, the limits of that power, and the character of those limits.”

We can start this inquiry by looking at the facts of today. Does the demand for higher prices come because of high wage costs?

During the war the government promised to freeze both wages and prices. The government’s Bureau of Labor Statistics put out a cost of living index, called by its initials the BLS index. Through this the government claimed all through the war, and still claims, that prices were kept down. But such government statistics are faked to serve the employers. When the government statisticians put out statistics for business men they sometimes need to come closer to the truth.

In the February, 1946 issue of the Survey of Current Business, put out by the U.S. Department of Commerce, they comment (page 26) that the BLS index shows only a 44 per cent increase in food prices from 1940 to 1945. Yet, they say, in 1945 consumers spent almost twice as much money for food as in 1940, and there was only just about the same amount of food to buy. So food prices really went up 100 per cent, they conclude, “the average consumer obtained very little more in 1945 than he did for half the expenditure in 1940.”

In clothing the BLS index shows only a 33 per cent rise. Yet the same Survey reports: “Consumer expenditures in 1945 for clothing were more than double those in 1940.

Again the available evidence suggests that there has been very little increase in physical volume.” In fact they must admit the records show “an actual decline” in the amount of clothing that people got for twice the money.

Yet the clothing manufacturers, the meat packers and other food processors, who have cashed in on a 100 per cent rise in prices, are pressing for still higher prices.

The Department of Commerce report showed, by clear evidence, that in 1945, “Prices were ample to cover costs and leave a satisfactory margin of profit.” Figuring everything on the employers’ side, still it is clear that any wartime increase in wages “is appreciably less than the actual increase in prices paid by consumers.” They conclude that there is enough room in the employers’ profit margin to pay wage raises without any increase in prices. Instead, prices could be reduced, “bringing these prices more nearly in line with the official index.”

Clearly, it is not the wage cost of production that leads the employers to seek higher prices.

(The above is the second in a series of articles on Wages, Prices and Profits. The first appeared last week, with the author’s name omitted through an unfortunate typographical error. The third, High Productivity Doesn’t Raise Wages, will appear next week.)

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