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Frank Demby

Does Inflation Threaten?

There’s More Than One Way of Cutting Wages;
Sometimes It’s Done By Inflating the Currency

(September 1940)

From Labor Action, Vol. 4 No. 25, 30 September 1940, p. 4.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The recent sudden rise in food prices, particularly meat prices, raises for every worker the question of whether the United States stands on the threshold of an inflationary period. The sharp price rise that occurred after the outbreak of the war in Europe in September 1939 gave way at the beginning of 1940 to a steady decline, which lasted until this summer. Since that time the trend has been in the direction of rising prices. All wholesale prices, for example have risen more than four points during the last month. Retail prices, of course, have gone up even more sharply.

So pronounced has the rise in some food prices been that Miss Harriet Elliott, consumer adviser to the National Defense Commission, has acknowledged a steady increase in complaints since the beginning of September. A similar situation is reported by the Bureau of Consumer Service of New York City’s Department of Markets. Prices of steaks have gone up five to eight cents a pound. Beef, pork and lamb are also special objects of complaint. Even the butchers are complaining as the price rise is depriving them of customers. Various government bureaus are now investigating the situation. So, don’t

A spokesman for the packing industry in Chicago, who refused to allow his name to be used, stated to the press that “the situation was partly seasonal, partly due to higher payrolls and partly attributable to the fact that the old livestock crop year was ending and the new crop year about to begin.”

More Than One Way of Cutting Wages

If the factors that have caused this price rise are merely temporary and accidental, then we don’t have to worry about inflation. But if they are more or less a permanent part of our general economic situation, then every worker and every trade unionist must give the problem his closest attention. For there is more than one way of cutting wages, as has been demonstrated time and again during the tortured history of capitalism. Every worker knows and understands the simple and direct method of cutting wages. The boss simply reduces the wage. Even such indirect methods of wage-cutting as lengthening working hours or the use of the speed-up are familiar enough to the average worker. Fighting against these things are part of his daily struggle for existence.

The cleverest method of cutting wages, because the worker doesn’t experience it on his job, is the inflationary method. A period of generally and rapidly rising prices is considered inflationary. The worker might even receive an increase in the amount of money he receives every week. But before he knows it, he and his wife discover that his wage buys less food and other necessities than before. What has happened, of course, is that prices of things the worker and his family must buy have gone up much more than any possible raise in his wages. The economist sums this process up by saying that purchasing power has decreased. In a period of inflation, the decline in ability to buy and the rise in prices is most marked.

It would be interesting to ask the representative of the meat packers just exactly what he means by saying that higher payrolls are part of the explanation of the recent rise in meat prices. He would probably answer that wage costs in the meat packing industry have gone up. Consequently, in order to maintain profits, prices have to be raised. But we have the faint suspicion that the workers in the packing houses would have something to say about that. It is also not impossible that the real meaning is that there has been a certain amount of re-employment in some communities due to the “defense” program. This increase in payrolls provides the meat packers with an opportunity to raise their prices and make greater profits. The workers, they figure, can “afford” to pay higher prices.

Various Indications of Inflation

It is still too early to state definitely whether the country is entering a period of inflation, but there are already unmistakeable signs pointing in that direction in the not-too-distant future. One indication is the fact that the total money in circulation is now well over 8 billion dollars. This is the highest figure in American history. Much of this may be attributed to hoarding, especially by foreigners. Nevertheless, a large amount of money in circulation is always one of the characteristics of inflation. If not at present, then some time in the future, this can easily help along an inflationary process.

Another indication is the fact that bank deposits are also at record highs. The Federal Reserve Board’s most recent figures show the total of bank deposits and money in the hands of the public at a record high of $67,000,000,000. This fact must be coupled with another very important fact – namely, that excess reserves of the Federal Reserve System are now over 6½ billion dollars, almost the all-time peak. This means that the banks have this huge sum around just lying idle. The way the banking system operates, this money can be used to lend anywheres from 30 to 60 billion dollars. Both facts taken together mean that the base for a most colossal credit inflation has already been laid.

Because of the War Trend Is World-Wide

Still, something is required to set off the inflationary process, if it is to occur in the near future. Historically, that something has usually been war. This war is proving no exception. In England, for example, the country whose economy most closely resembles that of the U.S., all wholesale prices increased an average of 37.2 per cent from June 1939 to June 1940. The cost of living advanced 16 per cent during this period. In Russia, which experienced just a minor war with Finland so far, Mr. Gedye of the New York Times, stated that there has been a particularly sharp rise in prices (between January and April of this year, butter increased in price by 45 per cent, cheese by 20 per cent, sausages, bacon and ham by 25 per cent; gas, water and electricity from 50 to 100 per cent) while incomes have remained stationary and hours of work have been lengthened.

Even in Germany, the country with the most rigidly controlled price system in the world, while wages have remained absolutely fixed and hours of work have lengthened to from 10 to 14 hours per day, there have been some very pronounced price rises (from 10 to 40 per cent in many cases) especially in such staple items of the German diet as potatoes and sausages. The same experience is to be noted in Japan and Italy. What is taking place is clearly a world-wide inflationary trend. It is just a faint indication of how the entire world situation is loaded with dynamite.

A Question for the Union Agenda

Even should the U.S. not enter the war in the near future, the cost of the “defense” program threatens a runaway inflation. This is clearly recognized in a study just completed by the National Industrial Conference Board. The huge cost of this program all of which is just so much waste so far as the satisfaction of human wants is concerned, indicates that only a small portion will be covered through increased taxation. The capitalists are certainly going to oppose any increased taxation on the rich and there is a limit to the burden of taxation that can be placed on the workers without producing unrest and rebellion. The most “painless” method of meeting the huge cost of this program is, therefore, largely through increased Government borrowing. No matter what price controls are introduced – and there will be many – a rapidly rising Federal Debt is bound to give a strong impulse to the inflationary process.

In summary, therefore: The bases for a vast inflation already exist in the United States. The next months should witness further advances in prices. Every trade unionist, as a matter of self-protection, must immediately demand that this question. along with the worker’s natural answer to the problem – a rising scale of wages – be placed on the agenda of his next union meeting.

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