1920s >> 1926 >> no-268-december-1926

The Currency Question


Please find enclosed cuttings from the Daily Herald. You will notice they deal with the question of Currency.

As it is somewhat bewildering to me, I would like your opinion on the following questions. Being a reader of THE SOCIALIST STANDARD, I understand you hold the opinion that the Currency is not inflated or deflated. The Daily Herald states it is “Inflated.” The Financial News states it is “Deflated.” My questions are therefore :—

1) In what way are the above ”Papers” wrong?
2) Do the working class have to pay the interest on War Loans, or National Debts?
3) Do the movements of Currency affect the workers’ wages?
4) Is it a question of affecting prices of commodities in such a way as to lower the standard of living of the workers, or does it mean the exploitation of the working class is intensified.

If you could unravel the above what seems to me a most complexing problem, I feel sure it will help a good many people like mvself out of the confusion.
A. W. S.


The cuttings referred to in A.W.S.’s letter deal with a controversy between the financial expert of the Daily Herald and Mr. G. Bernard Shaw on the question of “Inflation” and “Depreciation” of the currency. The discussion is too long and too confused on both sides for summarising here. Moreover, A.W.S. did not send any cutting from the Financial News, so we are unaware of their particular argument. In one of the Daily Herald cuttings (undated) Mr. J. Lea, from Lancashire, puts some posers to both Bernard Shaw and the Daily Herald that, apparently, they were unable to answer.

The point actually in dispute was “What is the cause of the rise in prices during and since the war?” Mr. Shaw says the currency has been “depreciated” in value by the Government. The Daily Herald says the currency has been “inflated” by the Government. In itself the dispute between these two controversialists is largely a war of words and is of small concern to the workers. But it is interesting to note that both make the same claim—namely, that the chief cause of high prices is the tampering with the currency. This tale, invented by the agents of the master class to hide the truth about the huge profits made during the period mentioned, has been swallowed by the Labour Party, the Daily Herald, Bernard Shaw, etc., without the slightest examination as to its truth.

This question of the supposed “inflation of the currency” was dealt with in THE SOCIALIST STANDARD for December, 1921, and May, 1922, in a controversy with the Plebs Magazine ; while the question of paper money and credit was worked out in answer to a correspondent in the June, 1922, issue. A.W.S. is referred to these issues for a fuller explanation, but, in the meantime, a brief answer to his questions may be useful.

(1) Both papers are wrong because they ignore, or deliberately attempt to hide, the facts. When the rise in prices began to cause unrest and suspicion among the workers they were told it was due to “high” wages. This was so obvious a lie that another excuse had to be invented, and so “inflation” was brought forward. A few facts will show the falsity of this excuse.

The amount of currency required for any given period under normal conditions is determined by :—

(1) The total of the prices of the commodities sold.
(2) The rapidity with which each piece of currency (coin or note) circulates in the given period.
(3) The difference between the debts falling due and the payments deferred in the period

War was declared on Germany by Great Britain on Sunday night in the fateful August of 1914. On Monday morning people rushed to buy up supplies and prices began to rise at once, before any inflation could take place. As a matter of fact the new currency notes were not issued till some little time after. Prices continued to rise and more currency was, therefore, required to circulate the goods. All through the war the rises in prices preceded the increases in currency. In fact, as shown by the Cunliffe Committee, the total increase in prices was greater than the total increase in currency. These facts prove beyond dispute that no “inflation” of the currency had taken place.

(2) No. The working class, applying their labour-power to the materials provided by Nature, produce the wealth of modern society. But they do not own or control this wealth. Out of what they have produced there is handed back to them sufficient, on the average, to keep them in the state of efficiency desired by the master class. It is thus easily seen that the working class cannot pay interest on war loans or National Debt, nor can they pay taxes in general. These expenses are paid out of the share of the wealth retained by the capitalist class, technically termed “surplus value.”

(3) It depends upon the character of the movements. To take an illustration. When in Germany the fall of credit was followed by a huge inflation of the paper currency, the rises in prices, due to this movement, were far more rapid than the rate at which the workers were able to force up wages. The result was that the workers suffered a continual reduction in real wages —that is wages measured by their purchasing power. This is an extreme case, but the principle applies generally. In “Value, Price and Profit,” Marx refers to this point in the middle of the nineteenth century.

In the early years of the present century the new processes applied to the production, of gold reduced the amount of labour power required to produce each ounce, and so lowered the value of gold. This was shown, in the general rise in prices—how trivial these seem compared with our war and postwar experiences—followed by various efforts to raise wages. In other words, when a movement of currency affects prices it then affects wages, but, in general, this is the only way in which it does so.

Ed. Com.

(Socialist Standard, December 1926)

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